• Relevant facts

From the documents supplied, I have deduced the following to be the relevant facts:

  1. Both yourself and A.F are members and co-directors of Alabama Commercial Real Estate Holdings (hereinafter, “ACRE”), a Limited Liability Company registered in Alabama in the year 2001. In addition, the two of you also co-own Cozmo-LLC. 


  1. ACRE leases a building to Serra Hyundai, whose owner A.F Serra while Cozmo LLC leases a building to Serra Chevrolet, also owned by A.F Serra. 


  1. In December 2015, ACRE took out a loan of $618,817 from Servisfirst Bank, Alabama. That loan was authorized by both yourself and AF Serra, in accordance with ACRE LLC’s Articles of Organization. The loan was secured by registered a charge against certain assets, as collaterals. 


  1. When the loan fell due on 2nd December 2017, it was not immediately settled. The amount due and owing to the Bank, as at December 2017, was $500,000. 


  1. I understand that you and A.F Serra were not able to agree on what to do with regard to the settlement of that loan. Your position, as the manager of ACRE, was that ACRE could have the loan renewed on interest only, while A.F Serra, on the other hand, was of the view that both of you should pay off the loan, by contributing an amount of 250,000 per person. You did not agree with A.F Serra’s proposal.


  1. However, A.F Serra purported to negotiate with the Bank on the settlement of that loan, without your express authority and notwithstanding the fact that A.F Serra has no managerial powers, under ACRE’s Articles of association. 


  1. The result of it all was that the Bank, despite having knowledge of A.F Serra’s lack of authority to negotiate on behalf of ACRE, decided to sell the $500,000 note to A.F Serra’s companies, Team Financial Inc sometime in 2018. You were not made aware of this decision, neither were you consulted. Because of the foregoing, your banking relationship with ServisFirst has been ruined and A.F Serra (through his two Companies, Serra Hyundai and Serra Chevrolet) is now withholding rental income due and owing to ACRE LLC and Cozmo LLC. 


  1. Assumptions

For the purposes of this opinion, I have assumed;

  1. You have not yet taken any action, criminal or civil, against the Bank and A.F   Serra. 
  2. You have not yet lodged an official complaint with the Bank regarding the matters in question.
  3. That the negotiations between you and A.F Serra on repayment of the Bank loan did not result in a Directors’ Resolution. 


  • Legal issues

In my considered view, the following are the pertinent legal issues law arising from the fact pattern and I will address all of them in this opinion.

  1. Whether A.F Serra had the authority to negotiate with the Bank on behalf of ACRE, on matters regarding the loan.
  2. Whether the Bank violated any Banking laws and or principles in arriving at the decision to sell the $500,000 note to Team Financial Inc. 
  3. Whether A.F Serra has the right to withhold rent payable to both ACRE LLC and Cozmo LLC.
  4. What viable cause of action, is available, and against whom.  


  • Applicable Law

The following are the key statutory instruments relied on in rendering this opinion:

  1. Alabama Banking Code
  2. Alabama Business and Non-profit Entities Code 
  3. Alabama Consumer Credit Act
  4. Uniform Fiduciaries Act


  • A.F Serra’s authority to negotiate with the Bank on behalf of ACRE

Under the Articles of Organization of ACRE, Kevin Serra is the designated Managing Director, in charge of the day-to-day affairs of ACRE. As such, A.F Serra, although a member and Director of the Company has no power to act on behalf of the Company in managerial matters unless so authorized. There is no gainsaying the fact that A.F Serra did not seek your prior authority before meeting representatives of the Bank for a negotiation.

In the circumstances, the important question would be whether A.F Serra’s negotiation and the resultant decision is binding to ACRE. Under the Alabama Code (10A-5A-3.02), a person may not bind a Company unless the Company has authorized him/her to act on its behalf, as an agent. It, therefore, follows that since there was no resolution to confer A.F Serra with the authority to act on behalf of the ACRE, his negotiations with the Bank were of no legal effect and the Bank’s actions based on representations made to it by A.F Serra may not stand legal scrutiny. 

  • The Bank’s decision to sell the $500,000 note to Team Financial Inc. 

Under Banking law, Banking institutions owe fiduciary duties to their customers, which means they hold a position of trust and ought to act in utmost good faith. So sacrosanct is this provision that, despite the lack of express statutory provisions on it, Courts have affirmed its application and elsewhere. One such case was the Arizona Supreme Court decision in Stewart v. Phoenix Nat’l Bank

In this case, and based on the loan agreement, when the loan fell due, the Bank became legally entitled to recover the amounts owed by exercising its statutory power of sale over the assets used as collaterals. Since this was not an unsecured loan, the Bank did not have to negotiate with ACRE’s members over it. Be that as it may, documents already in the Bank’s possession showed that A.F Serra did not the authority he was purporting to exercise. Failure to conduct their due diligence to ascertain the existence of such an authority would amount to nothing but professional negligence on the part of the Bank. In the circumstances, the Bank cannot plead negligence in its defense. 

Although A.F Serra could argue that he was acting on behalf of Serra, I have already stated elsewhere above that he did not have the power to bind ACRE. That leaves only one conclusion, that the Bank’s motive in selling the note to Team Financial Inc had no legal foundation and was based on the Bank’s selfish interests. That fact alone constitutes a breach of the Bank’s fiduciary duties. If that were not the case, the Bank could have followed the due process, under the Agreement, by serving ACRE’s managing director (being yourself) with the necessary legal notices of the intention to sell the loan or to sell the collaterals.


  • A.F Serra right to withhold rent 

A director of a company, just like a Bank, is a fiduciary to their Company. They ought to act in the best interests of the Company and should never allow themselves to be conflicted. Indeed, the Alabama Business and Nonprofit Entities Code § 10A-2-8.30 sets out the standard of conduct expected of a director as including good faith and good faith.

A.F Serra, in blatant disregard of the duties owed to both ACRE and Cozmo, has decided to cause Serra Hyundai and Serra Chevrolet to withhold rental income due and owing. His actions have no legal or equitable foundation and amount to breach of his duties as a director of ACRE and Cozmo.

In this regard, both ACRE and Cozmo may bring legal proceedings against Serra Hyundai and Serra Chevrolet to recover the rent amounts due and owing. The proceedings may not be brought against A.F Serra because, although he is the cause of the failure to pay the rent, he is not the tenant and in law, Companies enjoy a corporate personality, different from that of their owners/Directors. 


Having carefully reviewed all the applicable legal provisions, my opinion is that you have a viable case against both Servisfirst Bank and the two Companies owned and controlled by your business partner, A.F Serra. As explained, the claim against the Bank would for damages, as a result of breach of fiduciary duties while the claim against Hyundai and Chevrolet would be for recovery of rent. 

I, however, think that your claim against the Bank may be prejudiced by the fact the loan had already fallen due as at the time it sold the note. To mitigate this, you must be able to satisfy the Court that if it nullifies/voids the transaction leading to the transfer to Team Financial Inc, ACRE will be willing to pay the loan amount to the Bank. The Court may not be inclined to rule in your favor if you claim that you are willing to sell part of your stock to A.F Serra. 

My further advice is that, before instituting civil proceedings against your partner’s two Companies and the Bank, it would be prudent to write demand letters to them. The demand letters, if complied with, could even lead to the results you want to achieve, without necessarily having to go to Court. 

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