93 Misc. 2d 383 | N.Y. City Civ. Ct. | 1978
OPINION OF THE COURT
This is an action by a former tenant-stockholder to recover a $2,000 fee which he was forced to pay the defendant before approval would be given to permit the plaintiff to transfer his shares and assign his lease in the defendant’s building to a third party for $1,800.
At issue here is whether the corporation had a legal right to charge a $2,000 transfer fee in view of the fact that the proprietary lease provided for transfer privileges without mentioning any fee. The authority to charge the fee was given by the board of directors of the corporation pursuant to a
While the occupancy agreement and the legal issues in the Reifman case are the same as in this one, the facts are not. Therefore, it is doubtful that Judge Blangiardo would have come to the same conclusion in this case. In the Reifman case the plaintiff had occupied her apartment for 13 years and sold it at a profit of $10,950 (a return of over 500% on her original investment). Even after payment of the transfer fee (which was $7 per share) of $2,870, the plaintiff still had a profit of $8,080 (a 400% return). This is obviously a reflection of the inflationary process that took place over the 13 years and the desirability of the apartment in its environmental setting. Furthermore, plaintiff obtained her pro rata benefit of transfer fees paid by others over the 13-year period. This resulted in unusually stable monthly maintenance charges which only went from $148 to $179 during this period. Under these circumstances it is not difficult to understand why the court did not find the $7 per share transfer fee to be unreasonable or oppressive.
However, "what is one man’s meat is another man’s poison.” In this case, Mr. Jamil purchased his apartment for $10,250 and (for personal reasons) was forced to sell it for $1,800 less than three years later at a loss of $8,450 (or almost 80% of the purchase price). After paying the transfer fee of $2,000, the loss was 102%. While the defendant did not concede that Jamil sold the apartment for $1,800 (since the sale was made to a friend), one of the defendant’s witnesses admitted that there had been a decrease in market value, since plaintiff bought his apartment, of anywhere from 20 to 40%. Another witness for the defendant (a former president of the co-op) stated that the original reason for the enactment of the transfer fee in this co-op (as well as many other similar coops) was to enable the remaining tenants to keep their maintenance costs down by having the departing tenant share a portion of his proñts (emphasis added) with the co-op.
While the result in the Reifman case was reasonable and
This court finds from the facts that the transfer fee imposed on the plaintiff was unreasonable and unrelated to the purpose for which it was imposed (that of having the seller share his profits with the co-op).
The final question to be considered is whether the sale of shares in a co-operative corporation is really a securities transaction, to be governed by the Business Corporation Law or in reality the sale of a proprietory lease. If it is the latter, then the terms of the written agreement control and cannot be modified orally or by another document (the minutes of the board of directors) without reference. The proprietory lease was for a period of three years, from October 1, 1974 to September 30, 1977. It consisted of three sections; first, the occupancy agreement; second, the rules and regulations of the co-op; third, the by-laws. Nowhere is there any mention of a transfer fee or the delegation to the board of the power to set one. Plaintiff testified that had he known there was a fee charged to transfer his shares, he never would have purchased the apartment.
There have been a number of decisions in the past three years dealing with stock in a co-operative corporation and a proprietory lease. In all the cases, both the State and Federal courts recognized the underlying reality of the transaction. The Federal cases dealt with whether this was a true stock transaction and therefore subject to the Federal securities laws. The Federal courts have said "no.” They decided that the "purchasers were interested in acquiring housing rather than making an investment for profit” (United Housing Foundation v Foreman, 421 US 837, 860; Grenader v Spitz, 537 F2d 612, cert den 429 US 1009). The State decisions have likewise held that the lease and the stock are inseparably bound together as property for a common purpose — acquisition and usage of a residential leasehold (Matter of Tax Comm. v Shor, 43 NY2d 151; Silverman v Alcoa Plaza Assoc., 37 AD2d 166). As the Court of Appeals said in Matter of Tax Comm. v Shor (supra, p 157) "Nor may a dynamic jurisprudence ignore the manner in which economic affairs are conducted or the perception that the members of society have in conducting their affairs (see Cardozo, Nature of the Judicial Process, pp. 60-64).”
. Section 5 deals with the "applicability of business corporation law to cooperative corporations.”
. In this case there was an existing corporate resolution under which the transfer fee on plaintiff’s apartment at the time he executed his lease was $1,000. This was subsequently increased to $2,000 on June 23, 1975. Plaintiff claimed he had no knowledge of the resolution when he signed his lease. One of defendant’s witnesses claimed he gave plaintiff "oral” notice. The burden of proof regarding this factual issue rested upon the defendant, since the "oral” notice was contrary to a written agreement (the lease). The court finds that the defendant did not sustain its burden.
. In Royal China v Regal China Corp. (279 App Div 515) the court said that the question of validity of a restriction upon a transfer usually turns upon the concept of "reasonable vs. unreasonable.”
. The courts have also indicated that restrictions should also appear on the stock certificate. (Matter of Lacaille [Feldman], 44 Misc 2d 370.)