Weisner v. 791 Park Avenue Corp.

Bastow, J.

Plaintiff has been denied a temporary injunction in this action and appeals from that decision. The corporate defendant is the OAvner of an apartment house building at 791 Park Avenue. It was incorporated in 1947 for the purpose of acquiring title to the premises and pursuant to a plan of organization shares of stock were allocated to the several apartments in the building. Simultaneously with the purchase of shares so allocated the prospective lessee entered into a proprietary lease with the owner.

Pursuant to this plan the defendant Gilbert became the owner of 330 shares of stock and executed the standard form of proprietary lease. The latter instrument contained a provision that it was not assignable unless, among other things, there was delivered to the lessor ‘1A Avritten consent * * * authorized by a resolution of the board of directors, or signed by a majority of the directors, or by lessees OAvning of record at least two-thirds of the capital stock of the Lessor accompanying proprietary leases then in force ”.

In May, 1958 plaintiff and the defendant Gilbert entered into a Avritten agreement for the sale by the latter to the former of the 330 shares and the proprietary lease for the sum of $58,500. There was a contract provision that the sale was “subject to the approval of [defendant corporation] in the manner required under the Certificate of Incorporation, bylaws and proprietary lease ” and “ If the said approval is not obtained, this contract shall become null and void ”. The agreement was executed by defendant Gilbert, and a copy returned to plaintiff about May 16, 1958.

It appears from the moving papers that one Payne was the broker in this transaction. The managing agent of the property was Brown, Harris & Stevens, Inc., represented in these negotiations by one Boss, who was associated with that corporation and was also the treasurer and a director of defendant corporation. It is alleged in plaintiff’s affidavit that on May 15 he met with Boss, who informed plaintiff that he (Boss) would not permit Weisner to purchase the apartment. Boss admitted, according to plaintiff, that he had no personal objection to the latter but based his opposition upon his feelings towards Weisner’s brother, who Boss claimed had deprived Brown, Harris & Stevens of certain managerial business. Subsequently, and before plaintiff had submitted a required questionnaire together with his references, the directors of defendant corporation at a special meeting refused to approve the proposed transfer.

Thereafter and on June 3, 1958 the defendant Gilbert notified plaintiff that she elected to treat the contract as void because approval of defendant corporation had not been obtained. The following day.(June 4) Brown, Harris & Stevens wrote to the attorney for defendant Gilbert “to confirm” that it had a responsible purchaser for the stock and lease at the same price plaintiff had agreed to pay.

In this action plaintiff seeks specific performance of the contract. It is alleged that the action of the directors of defendant corporation was taken solely upon the motivating influence of the managing agent acting through Boss based upon the latter’s personal animus towards plaintiff’s brother and the desire of Brown, Harris & Stevens to earn a commission by bringing about a sale to a third party; that none of the directors present at the meeting knew plaintiff or had any information about him on which to formulate an opinion in good faith as to his character, reputation, financial responsibility or social acceptability. Implicit in the allegations of the complaint is the charge that defendant Gilbert acted in bad faith because of her reliance upon the action of the board of directors although consent might have been obtained by the owners of record of at least two thirds of the capital stock of the corporation.

It should be emphasized that we are here considering an appeal from an order denying a temporary injunction. Neither the granting nor the refusal of such relief determines the ultimate issues. It “ serves only to hold the matter in status quo until opportunity is afforded to decide upon the merits.’’ (Walker Mem. Baptist Church v. Saunders, 285 N. Y. 462, 474.) It may be assumed without deciding, that plaintiff has no adequate remedy at law. A consummation of the proposed sale to a third party would make the issues tendered by the complaint academic. There exists, however, the fundamental rule that there is no discretion to issue a temporary injunction unless it appears that the applicant therefor, on the face of his complaint or moving papers, prima facie has some kind of a cause of action against the opposite party. (10 Carmody-Wait, New York Practice, p. 531.) Conversely stated, it becomes necessary—in view of the denial of a temporary injunction and the resulting fact that thereby plaintiff is left without apparent remedy—to examine the record to determine in effect if the complaint supported by the moving papers states no cause of action as a matter of law.

We start with a consideration of the respective rights and duties of plaintiff and the defendant, Gilbert, under the contract of purchase and sale executed by them. As has been stated, the agreement was made subject to the approval of defendant corporation in the manner required under the certificate of incorporation, by-laws and proprietary lease. The latter instrument provided three methods of obtaining such consent, vis., the written consent to such assignment (1) authorized by a resolution of the board of directors or (2) signed by a majority of the directors or (3) by lessees owning of record at least two thirds of the capital stock of the lessor. The only action taken by the defendant Gilbert to implement this provision was the dispatch of a letter by her attorney to the defendant corporation enclosing a copy of the contract. It was stated in the letter that "We realize that approval of a majority of the Board of Directors * * * is required ” under the proprietary lease. When such approval was denied Mrs. Gilbert promptly elected to treat the contract as null and void and was prepared, until stayed by proceedings in this action, to enter into a contract of sale with a third party produced by Brown, Harris & Stevens.

Moreover, Mrs. Gilbert took no action to obtain the necessary consents from two thirds of the other proprietary lessees. It now appears that in the course of a proceeding before a Justice of this court resulting in the granting of a stay pending the determination of this appeal the defendant Gilbert attempted to remedy this omission. Her attorneys sent an identical letter to each proprietary lessee setting forth certain facts as to the negotiations between plaintiff and Mrs. Gilbert and the resulting refusal of the board to approve the transfer. Each lessee was asked to give written approval to such assignment. Tenant stockholders owning of record more than one third of the capital stock refused in writing to consent to the sale to plaintiff. Such letters are not conclusive upon this appeal. The lines of battle had long since been drawn. A temporary injunction had been denied. Absent a stay from this court Mrs. Gilbert was prepared to sell to the prospect produced by the managing agent. Furthermore, the letter did not reveal the salient facts as to the activities of Ross. It was ex post facto action that Mrs. Gilbert now claims should be construed as fulfillment of her contractual obligation. Only a trial will reveal whether such a finding may be made and whether the the action of the other proprietary lessees was taken with full knowledge of the facts or perhaps motivated by a desire to avoid entanglement in the- conflicts of others.

Under the terms of the agreement Mrs. Gilbert agreed to sell her lease and stock subject to the approval thereof by the directors or stockholders of the defendant corporation. If such approval was ‘ ‘ not obtained ’ ’ the contract was a nullity. It is familiar law that 1 ‘ in every contract there is an implied covenant of good faith and fair dealing.” (Kirke La Shelle Co. v. Armstrong Co., 263 N. Y. 79, 87.) In a factual situation somewhat similar to the instant case it was written that ‘1 The special provision, to be sure, contains no express requirement * * * that the plaintiff use reasonable efforts to obtain approval. The absence of such an express requirement, even if found in other analogous provisions of the contract, is not significant here, where the circumstances make it plain that reasonable efforts must be made by the plaintiff before his right of cancellation arises.” (Stabile v. McCarthy, 145 N. E. 2d 821, 824 [Mass.].)

We recognize that the determination of this issue would not be dispositive of the case. The exploration, however, of this factual area upon this subsidiary question sheds considerable light upon the prime issue as to the activities of the defendants resulting in the refusal of the directors to approve the proposed sale and the failure of Mrs. Gilbert subsequently to make any attempt to obtain the consent of two thirds of the stockholders. Instead, she promptly proceeded to negotiate with a prospect produced by Brown, Harris & Stevens.

We next consider a second subsidiary question that is not directly presented but requires passing mention to place in proper focus the main issue. Simply stated, may the consent of the directors or stockholders to a proposed sale be withheld from a proprietary lessee arbitrarily and without justification? This question was posed but not passed upon by this court in Penthouse Properties v. 1158 Fifth Ave. (256 App. Div. 685). Therein it was held (p. 692) “that if restraint on alienation of the stock [of co-operative apartments] may be said to be imposed at all, it is a restraint which in every respect is reasonable and appropriate to the lawful purposes to be attained.” The court rejected as inapplicable the general rule that ownership of property cannot exist in one person and the right of alienation in another. In conclusion it was stated that ‘ ‘ we have not considered nor do we decide whether the consent of the directors or stockholders may be, or has been, arbitrarily withheld. Justification for refusing to consent to a transfer, if justification is required, ordinarily presents an issue of fact (Feist v. Fifth Ave. Bank, 280 N. Y. 189 * * *) which is not presented by the agreed statement of facts nor argued in the briefs.”

The defendants herein rely upon the general rule applicable to a provision against subletting contained in a lease. In such case it has been held that the landlord is under no duty to give consent and may even arbitrarily and unreasonably withhold such consent. (Cf. Ogden v. Riverview Holding Corp., 134 Misc. 149, 150, affd. 226 App. Div. 882.) We do not agree that such a legal principle is applicable when considering the rights of a proprietary lessee and the owner of a co-operative apartment. It is unnecessary to here set forth the factual and legal distinctions of the relationship between a landlord and tenant, on the one hand, and of a proprietary lessee and the owner of a co-operative apartment on the other. These differences were set forth in Penthouse Properties v. 1158 Fifth Ave. (supra). See, also, Gilligan v. Tishman Realty & Constr. Co. (283 App. Div. 157, affd. 306 N. Y. 974). It is unnecessary to explore in detail the rights in such circumstances of a proprietary lessee. It is sufficient to state that we do not embrace in its entirety the rule that the owner under any and all circumstances may arbitrarily refuse consent to a proprietary lessee to the sale of his lease and stock. As suggested in the Penthouse case (supra) justification for such action would ordinarily present a factual issue.

We thus come to a consideration of the complaint in the light of these facts and legal principles. It would seem that defendants oversimplify the problem by contending first, that plaintiff may not question the discretion of the board of directors and second, that it is apparent upon the facts presented the necessary consent will never be granted by the directors. Upon the record before us it -is impossible to conclude as a matter of law that the complaint considered in the light of the facts in the moving papers presents no triable issue. As has been suggested, a trial would determine whether or not defendant Gilbert has in good faith performed her contract obligations. It might be found that this defendant in the exercise of due diligence might have obtained and still could obtain the requisite consents of stockholders so that the transaction could be consummated.

Moreover, the activities of the managing agent of this property east a cloud over the decision of the directors. The scope of the agent’s authority is not fully presented but there is sufficient to justify the inference that there exists no clear line of demarcation between the activities of Brown, Harris & Stevens, as managing agent for defendant corporation and as a real estate broker. Boss, the treasurer and a director of defendant corporation was also associated with Brown, Harris & Stevens, the managing agent. The record does not disclose the extent of the interlocking relationship between the two corporations. It is uncontroverted, however, that Boss, who as a director of defendant corporation was to pass judgment upon the proposed transfer of lease and stock, informed plaintiff in substance that he (Boss) would prevent approval by the directors because of the action of plaintiff’s brother in depriving Brown, Harris & Stevens of other managerial business. There is here presented a triable issue as to whether the proper and lawful request of Mrs. Gilbert for permission to transfer stock and lease was considered by the directors free of the interest of Brown, Harris & Stevens to profit from any sale of the lease and free of the personal animus towards plaintiff of one of its directors, who was also associated with Brown, Harris & Stevens. (Of. Globe Woolen Co. v. Utica Gas & Elec. Co., 224 N. Y. 483.) It may be surmised that Mrs. Gilbert after making a partial attempt to perform her contract obligation lost interest in pursuing the matter because Brown, Harris & Stevens produced a customer willing to pay the same amount as plaintiff and who apparently was acceptable to both the directors and the managing agent.

Thus, the issues presented are not as simple as defendants contend. There is not the single question of plaintiff’s right to demand that -the defendant corporation justify its refusal to consent to the transfer of stock and lease. Plaintiff is not a complete stranger to the giving or withholding of such approval. He had certain contract rights with defendant Gilbert and it might be found that she performed less than her contract obligations. Furthermore, in the absence of denials from Ross, it must be found that plaintiff was met at the threshold of the approach to the directors with Ross’ statement that he in substance would block the approval because of personal animus against plaintiff’s brother. The issue here is not solely whether the approval of the directors may be or was withheld arbitrarily. The thrust of plaintiff is that the directors acted upon no information except the biased statements of Ross, who was in a position not only of serving two masters but also of serving one of his masters (Brown, Harris & Stevens) which may have had conflicting interests in its position as agent of defendant corporation and also as a real estate broker. Thus, plaintiff asserts, Brown, Harris & Stevens was placed in the strategic position of being able to reap benefits from any lessee expecting to obtain the necessary approval for a sale of stock and lease who would be required to accept a prospect produced by Brown, Harris & Stevens or run the risk of having the broker’s representative on the board of defendant corporation successfully prevent the giving of the necessary approval.

Our search, as has been stated, is to determine whether on the face of the complaint and moving papers there is prima facie some kind of a cause of action stated against the defendants. It is apparent that much of what has been written may have no applicability when viewed in the light of the trial record. We conclude, however, that plaintiff has sustained the burden of showing that he has prima facie a cause of action and that the complaint, in substance, should not be dismissed by the denial of a temporary injunction.

The order appealed from should be reversed on the law and in the exercise of discretion and the motion granted.