Court Opinion

ID: 5704613
Source: CourtListenerOpinion
Date Created: 2022-01-12 15:45:20.652584+00
Date Added: 2024-06-11T08:40:23.825880
License: Public Domain

M. M. Frank, J. (dissenting).
The crucial question here, as we view it, is whether the directors of a corporation which is the title owner of a co-operative apartment house, must justify the withholding of their consent to a transfer of the stock and an assignment of the lease. If they must do so, then injunctive relief is appropriate. If there is no such requirement placed upon them, then we cannot agree that the plaintiff has alleged a cause of action for specific performance and injunctive relief.
The problem is of vital concern to the holders of stock and leases in the luxury group of co-operatives. From the available data, it appears that the co-operative plan, of Finnish origin, originated in New York City, during the nineteenth century, had limited expansion in the nineteen-twenties and then *84burgeoned after World War II to a degree far beyond the most optimistic prognostications of enthusiastic real estate experts.
In general, the plan consists of the vesting of title in a corporation, and the issuance to a purchaser of a proprietary lease to a specific apartment and shares of stock proportionate to the investment and reasonably related to the value of the equity. The stockholder-tenant, in monthly installments, pays his commensurate part of the carrying charges, such as taxes, interest, amortization of mortgage and maintenance costs for labor, heating, repairs and other items. The tenant-stockholder, of course, has the right to vote his stock to elect directors of his choice. The board either manages the building directly or ■selects the managing agent. This method of owner-occupancy is now encompassing property devoted to commercial purposes. Some idea of the extent of its growth may be gleaned from the appended footnote.*
The co-operative plan is sui generis. There are elements of ownership as well as stock and leasehold rights. The occupants are primarily interested in the purchase of homes and there is a common relationship different from that which exists among individual tenants living under the same roof. While it is true that they pay monthly maintenance charges in much the same manner as tenants pay rent, they have a substantial capital investment and a direct interest in the financial stability, character, reputation, and personal conduct of the other stockholder-occupants of the premises. If there is a failure to pay maintenance charges by one, the others must carry that burden. As has been aptly said, these arrangements infer a relationship akin to that of partners in a joint enterprise, although corporate in form (Penthouse Properties v. 1158 Fifth Ave., 256 App. Div. 685, 691, citing Holmes, C. J., in Barrett v. King, 181 Mass. 476).
*85In this case, Mr. Sidney Weisner, a member of the Bar entered into a contract to purchase the shares of stock owned by the defendant, Mrs. Gilbert, in the corporate defendant, and to take an assignment of the proprietary lease held by her to an apartment in the building. The contract contained the following provision, “This sale is subject to the approval of 791 Park Avenue Corporation in the manner required under the Certificate of Incorporation, by-laws and proprietary lease. If the said approval is not obtained, this contract shall become null and void and neither party hereto shall be under any liability to the other by reason thereof, and all sums paid on account of this contract shall be returned, without interest, by the Seller to the Purchaser.”
It is not disputed that after the contract was executed, Mrs. Gilbert, in writing, requested the board of directors of the defendant corporation to consent to a transfer of her stock and her proprietary lease. Pursuant thereto, the board of directors held a special meeting at which it voted to deny the request. It is charged that the rejection was inspired by Mr. Boss, the secretary of the corporation, for two reasons: first, because there had been some prior dispute between the plaintiff’s brother and the managing agent; second, because the managing agent could earn a commission by negotiating the sale of the stock and lease to a third person. We do not believe that these are crucial questions in this matter.
We agree with the majority to the extent that, as a minimal requirement, there is no discretion to issue a temporary injunction unless, prima facie, the complaint or the moving papers sufficiently allege a cause of action. We assume that the reference is to situations where there is no adequate remedy at law, although we cannot agree that Mr. Weisner would have no remedy at law. In our view, the complaint herein does not state a cause of action. It does not allege that the board, in the exercise of its untrammeled judgment, would have consented, had it not been for the misconduct of Boss. It is basic that the judgment of a board of directors cannot be reviewed by the courts (Kalmanash v. Smith, 291 N. Y. 142,155; Weinberger v. Quinn, 264 App. Div. 405, 408, affd. 290 N. Y. 635; City Bank Farmers Trust Co. v. Hewitt Realty Co., 257 N. Y. 62, 67). If the bare conclusions stated in the complaint are discarded, no facts are pleaded to demonstrate bad faith on the part of Mrs. Gilbert. No duty is imposed upon her, either by law or under the terms of the contract, to wage a lawsuit against the corporation or its board to procure the assignment of the lease and the transfer of her stock to the plaintiff. She fulfilled her *86obligation to Mr. Weisner under the contract when she requested the board’s consent, and when it refused, she bowed to its will. Not a single fact is pleaded tending to establish her participation in any wrongful act designed to defeat performance of her contractual obligation. There is no showing that Mrs. Gilbert did not act in good faith, as was the situation in Kirke La Shelle Co. v. Armstrong Co. (263 N. Y. 79), cited in the majority opinion. Nor do we agree that Stabile v. McCarthy (145 N. E. 2d 821 [Mass.]) is applicable here, for in that case, which has no factual identity with this, the plaintiff, seeking relief, failed to perform his contractual duty.
It is important to note that Mrs. Gilbert is not raising any issue with respect to the corporation, and we are not called upon to decide whether she, as a stockholder and lessee would have the right to complain. The issue is raised by a stranger to the corporation, who has no contract with it that is being breached. Nor is this a case where a vendor is charged with conspiracy to perpetrate a fraud upon the plaintiff, as vendee, or to tortiously breach the contract. If Mr. Weisner claims that there was a tortious interference with his contractual rights, he may have an action for damages for the frustration of his bargain.
The charge is made that there is a conflict of interest insofar as Boss is concerned, because he is a member of the board and an officer of the managing agent. We do not find any substance to that claim in the record, but if we assume it, arguendo, it does not taint or nullify the determination of the board, whose consent was required, as a condition precedent, to bind Mrs. Gilbert under her contract with the plaintiff. Nor can we rewrite the contract pursuant to which board approval was to be governed.
It is suggested that Mrs. Gilbert failed to perform under the contract because she did not endeavor to obtain consents from more than two thirds of the proprietary lessees, after the board refused to consent to the transfer. This was, of course, another way to arrange a valid assignment. We do not believe that she was under a duty to do so. Three methods to obtain approval of an assignment are provided in the lease and they are in the disjunctive. Any one of them would be sufficient for either approval or rejection of the request. One of the appellants’ briefs states, without denial, that prior to the argument of the appeal, 15, or half of the total number of occupants, excluding Mrs. Gilbert, had refused to consent to an assignment. While we agree that this fact was not presented to Special Term, we think it was properly brought to our attention, since the canvass *87came as the result of a suggestion made during a hearing on a stay application to this court and is contained in the filed papers. We find significance in the results of the poll of the other tenants. Since half of them rejected Mr. Weisner, a fair inference may be drawn that the action of the board was neither arbitrary nor unjustified, and was, in effect, approved by more than the required number of shareholders. Moreover, since an injunction is sought and the action is in equity, this court has the same power to shape the relief as resides in Special Term and may provide relief appropriate at the end of the litigation (see Lightfoot v. Davis, 198 N. Y. 261, 273; Sherman v. Foster, 158 N. Y. 587, 593; Knight v. Kitchin, 237 App. Div. 506, 510).
We see no reason here to modify, refine or vary the general rule that a landlord is under no duty to consent to an assignment of a lease or a subletting, and may withhold consent arbitrarily or unreasonably. (Penthouse Properties v. 1158 Fifth Ave., 256 App. Div. 685, 691; Boskowitz v. Cohn, 197 App. Div. 776; Ogden v. Riverview Holding Corp., 134 Misc. 149, affd. 226 App. Div. 882.) The plaintiff has suggested that the rule should not be applied to co-operative apartments involving proprietary leases. The courts, however, have held otherwise. In 1886, in one of the earliest cases involving a similar relationship, it was decided in this department that an injunction would issue restraining a tenant-occupant-owner from subletting or assigning his lease without consent. Significantly, the court said, “the propriety of enforcing rules by which the objects of the organzation should be carried out is manifest ” (Barrington Apt. Assn. v. Watson, 38 Hun 545, 548). The same rule has been applied to co-operative apartment buildings in Massachusetts (68 Beacon St. v. Schier, 289 Mass. 354).
If we adopt the view taken in several cases cited herein, to the effect that stockholders are not unlike partners, the force of the requirement that the consent of the directors or the stockholders be obtained is equally persuasive. We would not think of foisting the substitution of one partner for another upon those remaining, in the face of an agreement that a substitution requires consent. (People v. Herbert, 162 Misc. 817; Partnership Law, § 40, subd. 7; Sugarman, The Law of Partnership, § 22.)
To the argument that, quite apart from the lease, the restraint against alienation of the stock held by the defendant Gilbert is illegal and unenforcible, there is a brief answer. In Penthouse (supra, p. 692), this court recognized that the stock ownership was merely incidental to the primary interest in the *88long-term proprietary lease, the alienation of which the corporation had the power to restrain, and if there was restraint upon the transfer of stock it was reasonable and appropriate.
In contending that an issue of fact exists, the plaintiff places great reliance upon a suggestion in Penthouse (supra, p. 692) that justification for a refusal to consent to a transfer, ‘ ‘ if justification is required, ordinarily presents an issue of fact ”. It is clear, as the opinion states, that the question was not before the court. Moreover, the determination there, quite apart from the dicta, sustained a view similar to that of the corporate defendant here, namely, that restraints contained in the plan of organization, the proprietary lease and the corporate provision were all validly and lawfully created and exercised.
It is stated upon the authority of Globe Woolen Co. v. Utica Gas & Elec. Co. (224 N. Y. 483), that a triable issue exists as to whether Mrs. Gilbert’s request was considered by the directors, uninfluenced by Boss’ personal animus. We feel that the case cited is inapplicable. There, the person whose motives were in question was a director of both plaintiff and defendant corporations. Here neither Brown, Harris & Stevens, 791 Park Avenue Corporation, nor Boss owed any contractual obligation to Mr. Weisner. Only the corporate defendant was under the duty to act on Mrs. Gilbert’s request for its consent, and that was not to the plaintiff. If any of them, not contractually bound to Weisner, committed a wrong against him, his relief, as already stated, would be an action for damages for the tortious conduct.
In sum, it is our opinion that the plaintiff has failed to plead a cause of action against both defendants, sufficient to warrant injunctive relief. Moreover, the plaintiff has failed to establish that he has no adequate remedy at law, that the defendant Gilbert failed to fulfill her contractual duty, and that 791 Park Avenue Corporation was, in anywise, contractually obligated to him. The order should be affirmed, on the facts and the law, and in the exercise of discretion.
Botein, P. J., and Stevens, J., concur with Bastow, J.; M. M. Frank, J., dissents in opinion, in which McNally, J., concurs.
Order reversed on the law and in the exercise of discretion, with $20 costs and disbursements to the appellant, and the motion granted, with $10 costs.
Settle order.

 To Buy or Not To Buy: That is the Question. What is a Cooperative Apartment? Lewis M. Isaacs, Jr., Record, Association of Bar of City of New York, Vol. 13, No. 4, p. 203, Department of City Planning, New York City, Newsletter, March, 1958. It has heen estimated, that to the end of 1957, there were 40,000 co-operative- dwelling units, of which more than 25% were classified in the luxury group. If we assume an average unit to be four rooms and arbitrarily fix a purchase price of $5,000 per room (a conservative estimate when compared with the quotations in the New York Times) the total investment in this kind of housing, at the beginning of 1958, would be in excess of $200,000,000. This analysis does not include co-operative apartments in low or middle income housing developments sponsored by public agencies, veterans’ organizations, or labor unions. Those are erected under legislation which provides for government supervision either Federal, State or local, and includes special arrangements with which we are not concerned.