BP3 Capital, LLC v. 5120 Realty Corp.: Apparent Authority in Corporate Mortgage Closings Requires Principal-Based Conduct and a Reasonable Lender Inquiry (and CPLR 3025(b) Amendments Should Be Allowed Absent Prejudice)

1. Introduction

In BP3 Capital, LLC v 5120 Realty Corp., 2026 NY Slip Op 03286 (App. Div. 2d Dep’t May 27, 2026), the Second Department reversed a judgment of foreclosure and sale after concluding that the defendant realty corporation raised a triable issue of fact on whether the individual who signed the consolidated note and mortgage had apparent authority to bind the corporation. The decision also held that the Supreme Court improvidently denied the corporation leave to amend its answer under CPLR 3025(b), where the plaintiff failed to show unfair prejudice or surprise and the proposed defenses/counterclaim were not facially meritless.

Parties and posture. The plaintiff lender, BP3 Capital, LLC, sued to foreclose a consolidated mortgage encumbering Brooklyn property. Defendant 5120 Realty Corp. (the “corporation”) defended on the ground that Wing Fung Chau—the signatory on the loan documents—was not authorized to execute them for the corporation and that shareholder consents were required but not obtained. The Supreme Court (Kings County) granted summary judgment and an order of reference to the plaintiff, denied the corporation’s motion to amend, and entered a foreclosure judgment. The corporation appealed.

Key issues. (1) Whether the plaintiff proved, as a matter of law, that the signatory had apparent authority to bind the corporation, or whether factual issues required denial of foreclosure summary judgment and reference. (2) Whether the corporation should have been granted leave to amend its answer to add additional authority-based defenses and a counterclaim under RPAPL article 15.

2. Summary of the Opinion

The Second Department held:

  • Although the plaintiff made a foreclosure prima facie showing by producing the mortgage, unpaid note, and evidence of default, the corporation raised a triable issue of fact as to whether the signatory possessed apparent authority to enter the loan transaction for the corporation.
  • The record supported an inference that any “authority” depended on the signatory’s own representations (e.g., documents he provided and titles he claimed), which cannot create apparent authority without misleading conduct by the principal (the corporation). The plaintiff also failed to show that it made a reasonable inquiry into the signatory’s authority.
  • The Supreme Court therefore should have denied summary judgment and the order of reference.
  • The Supreme Court also should have granted leave to amend under CPLR 3025(b), because the plaintiff did not establish unfair prejudice or surprise, and the proposed amendments were not palpably insufficient or patently devoid of merit.

3. Analysis

A. Precedents Cited (and How They Shaped the Result)

1) Foreclosure prima facie case

The court began with the standard foreclosure proof requirements: production of the loan instruments and proof of default. It cited Amrusi v Second Choice, LLC, 200 AD3d 942 (2021), for the proposition that a plaintiff establishes prima facie entitlement by producing “the mortgage, the unpaid note, and evidence of the default.” This set the stage: the plaintiff met the initial burden, shifting the focus to whether the defenses raised an issue of fact.

2) Apparent authority: principal-based conduct and reasonable reliance

The core analysis was anchored in longstanding Court of Appeals doctrine:

  • Ford v Unity Hosp., 32 NY2d 464 (1973): The court quoted the cautionary rule that one dealing with an agent does so “at his [or her] peril” and must make efforts to discover actual authority. Ford also supplies the crucial limitation: apparent authority turns on “misleading conduct on the part of the principal—not the agent,” and reliance must be tied to that principal conduct.
  • Hallock v State of New York, 64 NY2d 224 (1984): The court invoked Hallock for the elements of apparent authority—words or conduct of the principal communicated to the third party that create the appearance of authority—and for the rule that the agent cannot “imbue himself [or herself]” with apparent authority.
  • Indosuez Intl. Fin. v National Reserve Bank, 98 NY2d 238 (2002): Cited to reinforce that apparent authority requires reliance on principal-based misleading conduct and that reliance must be reasonable.

The Second Department’s application of these cases is decisive: even where the lender has documents in hand suggesting authority (titles, ownership, corporate paperwork), the question is whether those representations are traceable to the principal (the corporation) and whether the lender’s reliance was reasonable in light of the duty to inquire.

3) Second Department applications of the same apparent-authority limits

The opinion relied on a line of Appellate Division cases that operationalize the Court of Appeals’ principal-conduct requirement in commercial/corporate contexts:

  • ER Holdings, LLC v 122 W.P.R. Corp., 65 AD3d 1275 (2009): Quoted for the “axiomatic” principle that apparent authority must be based on the principal’s actions or statements. This case was used both as a rule statement and as a comparator for the evidentiary showing required.
  • 56 E. 87th Units Corp. v Kingsland Group, Inc., 30 AD3d 1134 (2006): Appears as the authority quoted within ER Holdings emphasizing principal-based conduct.
  • Emigrant Mtge. Co., Inc. v Public Adm'r of Kings County, 207 AD3d 437 (2022): Cited for the rule that a third party cannot rely on the alleged agent’s own actions and statements to establish apparent authority.
  • Lindenbaum v Albany Post Prop. Assoc., 297 AD2d 661 (2002): Used to support the conclusion that corporate governance documents and sworn corporate officer testimony can create factual issues about whether the corporation communicated any appearance of authority; also cited in connection with the duty to inquire and the consequences of not doing so.
  • 1230 Park Assoc., LLC v Northern Source, LLC, 48 AD3d 355 (2008) and 150 Beach 120th St., Inc. v Washington Brooklyn Ltd. Partnership, 39 AD3d 722 (2007): Both cited for the proposition that a lender/third party must take further steps to assure itself of authority; the court emphasized that this is “especially true” where the third party fails to conduct a reasonable inquiry into scope of authority.

Collectively, these authorities allowed the court to treat the lender’s reliance on the signatory’s self-supplied “bylaws” and self-designated “president” title as legally insufficient to eliminate factual disputes—particularly where the corporation produced contrary governance documents and affidavits.

4) CPLR 3025(b): liberal amendment; prejudice burden

The amendment portion of the opinion is built on a standard but consequential procedural framework:

  • Cirillo v Lang, 206 AD3d 611 (2022) and Caldara v County of Westchester, 197 AD3d 607 (2021): Cited for the familiar rule that leave should be freely granted unless the amendment causes unfair prejudice/surprise or is palpably insufficient/patently devoid of merit.
  • Edenwald Contr. Co. v City of New York, 60 NY2d 957 (1983): Cited for “Mere lateness is not a barrier” absent prejudice.
  • Kimso Apts., LLC v Gandhi, 24 NY3d 403 (2014): Cited for what counts as prejudice (hindering preparation or preventing measures in support of position) and for placing the burden of establishing prejudice on the party opposing amendment.
  • Coleman v Worster, 140 AD3d 1002 (2016): Cited consistently with Kimso on prejudice/burden.

The Second Department applied these cases to conclude that the lender did not carry its burden to show prejudice or surprise, and that the proposed authority defenses and RPAPL article 15 counterclaim were not facially defective in the context of the apparent-authority dispute.

B. Legal Reasoning

1) The plaintiff’s initial showing did not resolve the authority defense

Foreclosure plaintiffs often treat production of the note/mortgage and proof of default as functionally dispositive. This opinion underscores that such proof can be overcome where the defendant produces evidence that the mortgage may not be the corporation’s act at all because the signatory lacked authority to bind the entity.

2) Apparent authority turned on (i) principal conduct and (ii) reasonable inquiry

The court focused on two linked deficiencies in the plaintiff’s showing:

  • No principal-based manifestation. The corporation submitted affidavits from its president and secretary/vice president, plus a shareholder agreement (December 15, 2017) and bylaws, indicating the signatory held no office and lacked authority—and, critically, that the corporation did not communicate to the plaintiff any words or conduct creating an appearance of authority.
  • Reliance on the agent’s own representations. The plaintiff relied on “bylaws” it received from the signatory describing him as sole shareholder and loan documents he signed describing him as president. The court treated this as quintessential self-generated authority—precisely what Hallock and Ford prohibit.

The opinion then adds an important practical gloss: even if a lender is presented with facially “corporate” materials by the would-be agent, the lender’s failure to take additional steps to verify authority supports denial of summary judgment. By citing 1230 Park Assoc., LLC v Northern Source, LLC and 150 Beach 120th St., Inc. v Washington Brooklyn Ltd. Partnership, the court framed reasonable inquiry as a meaningful, fact-sensitive obligation—especially in transactions involving corporate real estate and potentially significant shareholder/board consent requirements.

3) Triable issue of fact standard applied with caution in entity-authorization disputes

The court did not hold that the signatory definitively lacked apparent authority; rather, it held that the corporation’s evidence created a triable issue. That posture is significant: when the record supports competing inferences (self-serving “corporate” documents supplied by the signatory vs. governance documents and officer affidavits denying authority), summary judgment is inappropriate.

4) Amendment analysis: pleading flexibility where the core factual dispute persists

Because the authority issue survived, the proposed amendments—defenses alleging lack of actual/apparent authority, lack of corporate approval, and inadequate lender investigation, plus a RPAPL article 15 counterclaim—were not “palpably insufficient” or “patently devoid of merit.” On prejudice, the court strictly applied Kimso Apts., LLC v Gandhi: the lender had to show concrete litigation harm (e.g., inability to obtain discovery, lost evidence, altered strategy) and did not.

C. Impact

1) On foreclosure litigation involving corporate borrowers

The decision is a caution to lenders and foreclosure plaintiffs: in corporate-borrower cases, a borrower’s authority defense can defeat summary judgment where the lender’s proof of authority rests primarily on the signatory’s own assertions (titles, self-provided corporate documents) and where the lender cannot demonstrate additional verification steps.

2) On transactional practice (closing diligence)

While framed as a summary-judgment reversal, the practical message is transactional: lenders should be prepared to document independent diligence confirming authority (e.g., certified bylaws, incumbency certificates, secretary certificates, shareholder/board resolutions, good-standing documents, and confirmations from recognized corporate officers or counsel). The opinion signals that a lender’s file may be scrutinized for “reasonable inquiry,” not merely possession of signed loan papers.

3) On pleading practice in foreclosure actions

The ruling reinforces that CPLR 3025(b) is to be applied liberally even in foreclosure cases—particularly where the proposed defenses align with an already-live factual dispute (authority) and the opponent cannot articulate concrete prejudice. Defendants may rely on this decision to seek amendment to add authority-based defenses and related title/declaratory claims, especially before trial.

4. Complex Concepts Simplified

  • Actual authority: The agent truly has authority because the principal granted it (e.g., corporate resolution authorizing a person to sign).
  • Apparent authority: The agent may bind the principal if the principal’s own words or conduct reasonably led the third party to believe the agent was authorized. The agent’s self-claims are not enough.
  • Reasonable reliance / reasonable inquiry: Even if something appears to show authority, the third party must act reasonably—often meaning it should verify authority in a way appropriate to the transaction’s size and the entity context.
  • Summary judgment: A pre-trial ruling granted only if no material factual disputes exist. If competing evidence creates a real dispute (here, who had authority and what the lender reasonably relied on), the case must proceed.
  • Order of reference: In foreclosure, an order sending the matter to a referee to compute amounts due; it typically depends on the plaintiff first establishing entitlement to foreclosure as a matter of law.
  • CPLR 3025(b) (leave to amend): Courts generally allow amendments unless the opponent shows unfair prejudice or the amendment is clearly meritless on its face.
  • RPAPL article 15: A statutory mechanism to determine claims to real property (often used to quiet title or obtain a declaration about interests/liens).

5. Conclusion

BP3 Capital, LLC v 5120 Realty Corp. reinforces two intertwined rules with practical bite in New York foreclosure and commercial real estate disputes: (1) Apparent authority requires principal-based manifestations and reasonable reliance; lenders cannot rest on the would-be agent’s self-generated titles and documents, and a failure to make a reasonable inquiry can create (or underscore) triable issues defeating summary judgment. (2) Under CPLR 3025(b), leave to amend should be granted where the opponent cannot show concrete prejudice and the proposed defenses and claims are not facially defective—especially when they track the central factual dispute about authority to encumber corporate real property.