New York Law Review

Tag: Cooperative Apartment

  • Fertel v. Gordon, 61 N.Y.2d 851 (1984): Measuring Damages for Breach of Contract Under the UCC

    Fertel v. Gordon, 61 N.Y.2d 851 (1984)

    In a breach of contract for the sale of securities (cooperative apartment shares), damages are measured by the difference between the market price when the buyer learned of the breach and the contract price, as dictated by the Uniform Commercial Code (UCC).

    Summary

    Fertel sued Gordon for breach of contract after Gordon refused to sell them a cooperative apartment. The parties stipulated to the breach, leaving the court to determine damages. The trial court awarded damages based on the difference between the contract price and the market value at the time of the breach, plus consequential damages. The Appellate Division modified the award, reducing the market value and dismissing the consequential damages. The Court of Appeals affirmed the Appellate Division’s decision, holding that the UCC governs the sale of cooperative apartment shares and dictates that damages are measured at the time the buyer learned of the breach. Furthermore, consequential damages were not recoverable because the seller was unaware of the buyer’s specific need for a replacement apartment during the contract formation.

    Facts

    Fertel contracted to purchase a cooperative apartment from Gordon for $475,000.
    Gordon breached the contract by refusing to sell the apartment.
    Fertel sued for damages resulting from the breach.
    The parties stipulated that Gordon breached the contract, and the only issue was the amount of damages.
    Fertel sought damages based on the difference between the contract price and the market value of the apartment at the time of the breach, as well as consequential damages for maintenance paid on a replacement apartment during renovations.

    Procedural History

    Trial Term awarded Fertel $100,000 (difference between the $475,000 contract price and the $575,000 market value) plus $6,400 in consequential damages.
    The Appellate Division modified the trial court’s decision, reducing the damages to $37,000 based on a different assessment of the apartment’s market value and dismissing the award of consequential damages.
    Fertel appealed to the Court of Appeals.

    Issue(s)

    Whether the market value of the cooperative apartment should be assessed at the date the buyers learned of the breach or at a commercially reasonable time after the breach.
    Whether the consequential damages for maintenance payments on a replacement apartment were properly dismissed.

    Holding

    No, because the sale of securities in a cooperative corporation is governed by the UCC, which specifies that damages are measured by the difference between the market price at the time when the buyer learned of the breach and the contract price.
    Yes, because the seller was unaware of the buyer’s particular need for a replacement apartment at the time the contract was made; therefore, those damages were not foreseeable.

    Court’s Reasoning

    The Court of Appeals agreed with the Appellate Division’s assessment of the market value, stating that it “more nearly comport[ed] with the weight of the evidence.” The court emphasized its role in reviewing factual findings when there is disagreement between lower courts.

    The court explicitly stated that contracts for cooperative apartments are governed by the Uniform Commercial Code (UCC) because they involve the sale of securities in the cooperative corporation. Therefore, UCC § 2-713(1) dictates the measure of damages: “the difference between the market price at the time when the buyer learned of the breach and the contract price.”

    The court relied on Uniform Commercial Code, § 2-715, subd [2], par [a] in affirming the dismissal of consequential damages. Consequential damages must arise from general or particular requirements which the seller knew or had reason to know at the time of contracting. Here, the seller was unaware of the buyer’s specific need for a replacement apartment during the renovation period. Thus, the maintenance payments were not recoverable as consequential damages. The court reasoned that the payment of maintenance on a replacement apartment was based upon a particular need of theirs of which respondent was unaware at the time the contract was made.

  • Fidelity Nat. Bank v. Kuehne, 469 N.Y.S.2d 559 (1983): Co-op Ownership as Personal Property for Judgment Liens

    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.”