Fidelity Nat. Bank v. Kuehne, 469 N.Y.S.2d 559 (1983)
A tenant-shareholder’s interest in a cooperative apartment, consisting of a stock certificate and proprietary lease, is considered personal property rather than a chattel real for the purpose of determining judgment creditor priorities under CPLR 5203.
Summary
This case addresses whether a judgment creditor obtains a lien on a debtor’s co-op apartment merely by docketing the judgment, treating the co-op interest as a chattel real and thus real property under CPLR 5203. The Court of Appeals held that a co-op apartment interest (stock and proprietary lease) is personal property for purposes of judgment liens. Therefore, Fidelity National Bank’s docketed judgment did not automatically create a lien with priority over other creditors who had taken steps to secure their interests as personal property. This decision emphasizes the practical realities of co-op ownership and subsequent legislative actions.
Facts
Shor owned a co-op apartment, evidenced by a stock certificate and proprietary lease. The lease granted the lessor a “first lien” on Shor’s shares for monetary obligations. Shor defaulted on maintenance charges. Chase obtained a security interest in Shor’s assets, including the co-op shares and lease, as collateral for a loan guarantee, taking possession of the stock certificate and proprietary lease. Fidelity obtained and docketed a judgment against Shor before Chase obtained its judgment, before Shor’s default on maintenance, and before the State Tax Commission filed warrants.
Procedural History
Chase moved to sell the co-op, with consent from other creditors except Fidelity, who insisted on payment for consent. The sale occurred, and proceeds were held in escrow. Chase interpleaded other creditors, seeking to distribute funds according to a stipulation with the Tax Commission and 480 Park Avenue Corp. Special Term granted the motion for distribution of proceeds, which the Appellate Division affirmed.
Issue(s)
Whether Shor’s interest in his cooperative apartment (stock certificate and proprietary lease) is a “chattel real” and thus real property under CPLR 5203, entitling Fidelity to a lien merely upon docketing its judgment.
Holding
No, because a cooperative apartment leasehold, inseparable from cooperative shares, is not a chattel real for purposes of CPLR 5203.
Court’s Reasoning
The court recognized the unique nature of co-op ownership, acknowledging that it possesses characteristics of both real and personal property. The court emphasized that neither the stock certificate nor the lease can be viewed in isolation. The court considered the 1971 amendments to the Banking Law (§ 235, subd 8-a; § 380, subd 2-a; § 103, subd 5), which allow loans to finance co-op purchases secured by assignment or transfer of the stock and proprietary lease, without requiring recording as with real property mortgages. This indicated a legislative intent to treat co-op interests under principles governing personal property, where a possessory security interest in the stock and lease is akin to a possessory security interest in chattel paper, requiring no filing for perfection under the Uniform Commercial Code. The court distinguished Matter of Lacaille (Feldman), noting the enormous expansion in co-op ownership since that decision and the legislative confirmation in the Banking Law amendments that co-op tenancies are not treated as chattels real. The court highlighted that co-op tenants, corporations, and third parties generally do not treat co-op tenancies as chattels real. As stated by the court, “the common-law process does not drag unwillingly the people it serves into a rigidly fenced corral, kicking, but reflects the fair conduct and expectations of fair, reasonable persons.”