Gordian v Donovan

[*1] Gordian v Donovan 2004 NY Slip Op 51832(U) Decided on October 22, 2004 Civil Court Of The City Of New York, New York County Billings, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. This opinion is uncorrected and will not be published in the printed Official Reports.

Decided on October 22, 2004
Civil Court of the City of New York, New York County

Maria Gordian d/b/a Envy Publishing Group, Inc., Petitioner-Landlord

against

Kyle Donovan a/k/a Donovan Mccray, Respondent-Tenant Envy Publishing Group, Inc., Respondent-Undertenant



L&T 103702/2003



For Petitioner

Eric Baum Esq. and Lawrence Wolf Esq.

6 Hemlock Hills, Chappaqua, NY 10514

For Respondent

Simone Moore Baker Esq.

Figeroux & Associates

26 Court Street, Suite 709, Brooklyn, NY 11242

Lucy Billings, J.

In this commercial holdover proceeding, petitioner, claiming she is the owner of cooperative unit LL at 118 East 25th Street, New York County, which she has rented to respondent Donovan pursuant to an oral agreement, seeks to recover possession of the unit from him. At the close of the trial, the court summarized the following findings and conclusions on the record, dismissing the petition on the ground that petitioner failed to prove she owns more than 50% of the unit.

I. FINDINGS OF FACT

A.OWNERSHIP OF THE UNIT 1.The Stipulation and Order and the Contract of Sale

Since at least 1999, respondent has been the principal director, officer, and shareholder of Envy Publishing Group, Inc., which has conducted business at the cooperative unit. A New York County Supreme Court Stipulation and Order of Settlement entered February 22, 2000, Ex. H, in an action by respondent's former business partner, Manolo Guevara Jr., against respondent, was executed by Guevara and respondent December 27, 1999. The stipulation provided that each owned a 50% interest in the unit, one of their former partnership's assets. Guevara agreed to sell, and respondent agreed to purchase Guevara's entire [*2] right, title and interest in and to the share of stock and proprietary lease attendant to the Premises for . . . $95,000.00 pursuant to a Contract of Sale in the form annexed . . . (the "Transaction").

Id. at 2 ¶ 1. The Contract of Sale to which the Stipulation and Order refers, annexed to and dated the same date as the Stipulation and Order, December 27, 1999, in turn refers to and incorporates the Stipulation and Order. Id., Ex. A at 1 ¶¶ 1.15, 11.3 and at 4; Ex. A at 1 ¶¶ 1.15, 11.3 and at 4.

Pursuant to the Stipulation and Order, Guevara and respondent were to share the costs associated with this transaction equally. Respondent was to bear the costs of obtaining new financing for the unit. Respondent's obligation to purchase the second 50% of the unit from Guevara also was conditioned on respondent obtaining a loan to finance that purchase and the cooperative board's approval. Finally, the Stipulation and Order provided that if respondent could not obtain that loan, the board denied him approval, or the Contract of Sale was canceled pursuant to its terms, Guevara and respondent would sell the entire unit, their combined 100% interest, on the open market and share the proceeds equally.

Respondent could not obtain a loan; consequently, the board did not approve his purchase. Instead of Guevara and respondent selling the entire unit on the open market, however, petitioner, who during 1999-2000 shared an intimate relationship with respondent, substituted for him in the transaction, as she was able to obtain a loan to finance the purchase of Guevara's interest and consequently obtained the board's approval of the purchase.

Respondent contends that petitioner simply loaned him the funds she borrowed, and he purchased the second 50% of the unit from Guevara. His explanation for petitioner being listed as a co-purchaser with his corporation, Envy Publishing Group, on the Contract of Sale is that he granted her a security interest in the unit as collateral for that loan from her to him. The grant of any such security interest, to be effective, must be in writing. NY Gen. Oblig. Law § 5-703(1); U.C.C. § 9-203(b)(3). E.g., Fundex Capital Corp. v. Reichard, 172 AD2d 420 (1st Dep't 1991); Lashua v. LaDuke, 272 AD2d 750, 751 (3d Dep't 2000); Sattler, Inc. v. Cummings, 103 Misc 2d 4, 7 (Sup. Ct. NY Co. 1980). No such writing was adduced.

The court need not determine whether respondent purchased all or part of the second 50%, however, to decide this proceeding. Even assuming he was not a purchaser at the sale's closing, the clear and convincing intent of the Stipulation and Order and all the other documents to which petitioner subscribed was that at the closing petitioner, at most, was to purchase only Guevara's interest in the unit, which was 50%. Estate of Vadney, 83 NY2d 885, 886 (1994); George Backer Mgt. Corp. v. Acme Quilting Co., 46 NY2d 211, 219-20 (1978); New York First Ave. CVS v. Wellington Tower Assoc., 299 AD2d 205 (1st Dep't 2002); Gramercy 222 Residents Corp. v. Gramercy Realty Assocs., 209 AD2d 181 (1st Dep't 1994).

Petitioner contends that because the stipulation's provision that Guevara and respondent each owned a 50% interest in the unit is introduced by the word "whereas," the provision has no effect. Ex. H at 1. That preface, meaning simply "considering that," Webster's Unabridged Dictionary 2164 (2d ed. 1997), does not, by itself, negate the provision so introduced. Lawrence v. 5 Harrison Assoc., 295 AD2d 131, 132 (1st Dep't 2002). While broad preliminary language in an agreement may have no effect if that language encompasses subjects to which the agreement does not relate further, here the remainder of the stipulation focusses on disposition of Guevara's and Donovan's equal interests. Therefore the initial provision as to those equal interests is fully effective. Id.; Lexington Ins. Co. v. Combustion Eng'g, 264 AD2d 319, 321-22 (1st Dep't 1999). The whole stipulation, through the final provision that if respondent were prevented from purchasing Guevara's 50% of the unit, Guevara and respondent would sell the entire unit and share the proceeds equally, is fully consistent with and reinforces this division of the partnership's assets between its two partners. Id. at 322-23. The credible first hand testimony was similarly consistent.

2.The Assignment

An assignment, undated but effective August 23, 2000, the closing date, and bearing the signature of respondent's name, transferred to petitioner Envy Publishing Group's right to [*3]purchase Guevara's interest pursuant to the Contract of Sale and the Stipulation and Order referred to and incorporated in the contract. Ex. 35. While respondent contests the authenticity of his signature on the assignment, the assignment, by its terms, has questionable effect, because it transfers Envy Publishing Group's right to purchase Guevara's interest. While the Contract of Sale lists Envy Publishing Group, instead of respondent, together with petitioner as purchaser, just as the Stipulation and Order referred to and incorporated in the contract confers no rights on petitioner, neither does it confer any rights on Envy Publishing Group that it could assign to her. Furthermore, the Rider to the Contract of Sale explicitly provides that "in the event of any inconsistency between the provisions of the Stipulation and Order, this Rider and the Contract, the provisions of the Stipulation and Order shall govern and control." Ex. A at 5 ¶ 32.

The Stipulation and Order, moreover, binds respondent's assignees. Thus, even if the assignment were authentic and effectively transferred respondent's purchase rights as petitioner contends, it at most transfers only his right to purchase Guevara's 50%. Guevara did not purchase a further interest at the closing, to transfer then to petitioner. Nor did petitioner purchase respondent's 50% share at the closing. The sale documents all show that the sole seller was Guevara and the sole interest being transferred was his 50%. The Stipulation and Order, in particular, which govern and control the Contract of Sale and its Rider, as set forth above, dictates that Guevara and respondent each owned a 50% interest in the unit, and Guevara was to sell his interest pursuant to the contract.

While petitioner conceivably might have purchased the entire unit from both Guevara and respondent on the open market pursuant to the Stipulation and Order, by all accounts no such transaction ever occurred. Respondent was not a seller on the Contract of Sale or at the closing. He did not share the proceeds with Guevara. Thus, even if petitioner, instead of respondent, purchased Guevara's 50% share at the closing, nothing disturbed the 50% respondent retained.

3.The Stock Certificate and Proprietary Lease

The complication is that the cooperative board, inexplicably unaware of the Stipulation and Order, then issued (1) a stock certificate allocating all 80 shares of stock attributable to the unit to petitioner, Ex. 1, and (2) a proprietary lease naming only her and not respondent as lessee. Ex. 2. These documents vary from the parties' true intent and agreement as to the transaction to be effected at the closing. Estate of Vadney, 83 NY2d at 886; Food Service Marketing v. National Foods, 225 AD2d 477 (1st Dep't 1996); Gramercy 222 Residents Corp. v. Gramercy Realty Assocs., 209 AD2d 181; Hadley v. Clabeau, 161 AD2d 1141 (4th Dep't 1990). See George Backer Mgt. Corp. v. Acme Quilting Co., 46 NY2d at 219; New York First Ave. CVS v. Wellington Tower Assoc., 299 AD2d 205. Neither respondent nor his attorney Julian Barnes, who as far as is ascertainable from his testimony was, at best, woefully inattentive at the closing, realized what occurred, Estate of Vadney, 83 NY2d at 886-87; Food Service Marketing v. National Foods, 225 AD2d 477; Gramercy 222 Residents Corp. v. Gramercy Realty Assocs., 209 AD2d 181; Hadley v. Clabeau, 161 AD2d 1141, perhaps because respondent did not require representation at the closing of a transaction between Guevara and petitioner regarding Guevara's 50% interest, to which respondent was not a party. Hence, until petitioner produced the stock certificate and proprietary lease at the commencement of this proceeding in 2003, respondent was never aware that they inaccurately reflected the percentage of interest in the unit being conveyed.

The court need not determine whether petitioner realized this mistake at the closing. If she did not, then the mistake was mutual between her and respondent. If she did realize it, it was respondent's unilateral mistake, at least as between these two parties, and her deception of him. Barclay Arms, Inc. v. Barclay Arms Assocs., 74 NY2d 644, 646-47 (1989). Petitioner was well aware of the litigation and stipulation between Guevara and respondent before the stipulated transaction closed August 23, 2000. On December 27, 1999, she signed the Contract of Sale, which on the first page, in conspicuous capital type, refers to the stipulation and immediately above her signature, again in conspicuous capital type, incorporates the stipulation. Before executing the Contract of Sale, she had prepared an offering statement filed with the Securities and Exchange Commission August 23, 1999, for Envy Publishing Group, Inc., describing [*4]pending litigation potentially affecting the corporation: Kyle Donovan, the Publisher and chief Executive Officer of (the Company), is the defendant . . . in New York State Supreme Court . . . . a dispute between Mr. Donovan and his former partner (the "Plaintiff") as to the ownership rights of a 3,000 square foot cooperative unit (the "Premises") from which Mr. Donovan and the Plaintiff used to operate their photography business. The Premises are now the corporate headquarters for the Company.In the event Mr. Donovan prevails, he will seek to purchase the Plaintiff's fifty percent interest in the Premises for ninety five thousand dollars ($95,000.00).

Ex. C at 34. Even if she did not realize at the closing that the stock certificate mistakenly allocated all the unit's shares to her or that only she was named a lessee on the proprietary lease, her later efforts to give effect to these mistaken documents clearly and convincingly endeavored to perpetrate a fraud on respondent. Food Service Marketing v. National Foods, 225 AD2d 477.

B.RENTAL OF THE UNIT

Petitioner bases her holdover proceeding on the termination of a month-to-month rental agreement between her as the landlord and respondent as the tenant. The evidence, however, lacks the indicia of such an agreement.

Respondent made the monthly maintenance payments for the unit, first to petitioner for her to pay to the cooperative, and after their relationship ended directly to the cooperative. These payments are consistent with his ownership of the unit, whether partial or sole, and his sole use and occupancy of the unit, in which petitioner did not share, except to assist him with his business. He also made the monthly installment payments to repay the loan she borrowed to finance the purchase of Guevara's interest in the unit. These payments are inconsistent with any ownership by petitioner, but are consistent at minimum with respondent's 50% ownership interest, as well as with his version of the transaction: that petitioner loaned him the funds she borrowed, and he purchased the second 50% of the unit from Guevara. Respondent also made payments to petitioner to repay other loans she had extended to him for his personal or business purposes. None of these payments was rent. Respondent made no other payments to petitioner either explicitly or implicitly for rent.

Petitioner points to the rent payments listed as deductions on Envy Publishing Group's corporate income tax returns, $11,825 for 1999, $7,847 for 2000, $17,726 for 2001, and $11,504 for 2002 as correlating with respondent's rent payments to her. Exs. 9 and 18. These payments are not by respondent, but by Envy Publishing Group to him for its occupancy of the unit for the corporate business.

In addition, petitioner does not dispute that her proprietary lease requires her to obtain the cooperative board's written consent to sublet to a subtenant as she claims she did to respondent. Ex. 2 at 11 ¶ 15(a). Nor does she dispute that she never sought, and the cooperative board never granted its consent to any sublet of unit LL. The absence of this essential prerequisite to a rental agreement between petitioner and respondent is particularly persuasive of the lack of such an agreement.

II. FAILURE TO PROVE A RENTAL AGREEMENT

Petitioner has failed to sustain her burden to prove a rental agreement with respondent. His continued possession is insufficient alone to create a landlord-tenant relationship. E.g., Marrero v. Escoto, 145 Misc 2d 974, 976 (App. Term 2d Dep't 1990); Hispano Americano Adv. Co. v. Dryer, 112 Misc 2d 936, 937 (Civ. Ct. NY Co. 1982); Lyddy v. Ayling, 111 Misc 2d 449, 455-56 (Civ. Ct. NY Co. 1981).

If petitioner were the sole owner of the unit respondent occupies, she conceivably could maintain a summary proceeding to evict him as a licensee rather than a tenant. R.P.A.P.L. § 713(7); 445/86 Qwners Corp. v. Haydon, 300 AD2d 87, 88-89 (1st Dep't 2002); American Jewish Theatre v. Roundabout Theatre Co., 203 AD2d 155, 156 (1st Dep't 1994); Park South [*5]Assoc. v. Daniels, 121 Misc 2d 933, 937 (Civ. Ct. NY Co. 1983). If she is not the sole owner and does not own more than a 50% interest in the unit, without authority from any other co-owner, she is not authorized to maintain a summary eviction proceeding on either ground. R.P.A.P.L. §§ 711(1), 713(7), 721(1); Key Bank of NY v. Becker, 88 NY2d 899, 890 (1996); City Enters. v. Posemsky, 184 Misc 2d 287, 288-89 (App. Term 2d Dep't 2000); Hispano Americano Adv. Co. v. Dryer, 112 Misc 2d 936; Redhead v. Henry, 160 Misc 2d 546, 547-48 (Civ. Ct. Kings Co. 1994). See Murphy v. Baldari, 2003 NY Slip Op 50754, 2003 WL 1971810 at *1 (App. Term 2d Dep't Feb. 14, 2003); Marrero v. Escoto, 145 Misc 2d at 976; Ballesteros v. Rosello, 183 Misc 2d 448, 450-51 (Civ. Ct. Kings Co. 1999). Whether she maintains a proceeding on the basis of a terminated rental agreement or a terminated license to occupy the unit is academic. Absent an agreement giving petitioner exclusive possession, respondent, as a 50% owner of the undivided space, would have as much right as petitioner to use and occupy the entire unit. See Butler v. Rafferty, 100 NY2d 265, 269-70 (2003).

Petitioner indisputably has urged no such agreement. Quite to the contrary, she insists the parties agreed that respondent would remain in possession of the premises in exchange for rent. If they entered such an agreement for use and occupancy of the commonly owned unit as between co-owners, that agreement would neither extinguish their co-ownership, nor create a landlord-tenant or licensor-licensee relationship. Id.; Henry v. Green, 126 Misc 2d 360, 361-62 (City Ct. Mount Vernon 1984). Even if petitioner contends that respondent then breached such an agreement by not making the agreed payments or remaining longer than agreed, her remedy is not a summary proceeding against him. E.g., R.P.A.P.L §§ 633, 901(1), 903(1), 907; Henry v. Green, 126 Misc 2d at 361-62.

III. THE MISTAKE'S CONSEQUENCES

A person who owns an interest in a cooperative unit typically owns stock in the cooperative corporation, which grants him a proprietary leasehold. See, e.g., All Seasons Resorts v. Abrams, 68 NY2d 81, 90 (1986). For respondent thus to establish definitively that he is at least a 50% owner of the unit, let alone the 100% owner, would require an action by him against both petitioner and the cooperative board, for reformation of the stock certificate and proprietary lease, to add him as a shareholder and lessee. See, e.g., Hodo v. Serrecchia, 100 AD2d 807, 808 (1st Dep't 1984); Hadley v. Clabeau, 161 AD2d 1141. The fact that the cooperative did not issue a stock certificate allocating any of the unit's shares to him or a proprietary lease naming him a lessee, on the other hand, does not definitively invalidate his ownership interest. Hodo v. Serrecchia, 100 AD2d at 808. See, e.g., Allen v. Murray House Owners Corp., 174 AD2d 400, 403 (1st Dep't 1991).

Whether the cooperative's mistaken issuance of a certificate allocating all the shares to petitioner and a lease naming only her was also a mutual mistake on the part of both her and respondent or his unilateral mistake that she was aware of and used to defraud him, either type of mistake is a basis for reforming the stock certificate and lease. George Backer Mgt. Corp. v. Acme Quilting Co., 46 NY2d 218-19. This relief is equitable and beyond the court's jurisdiction in this summary proceeding between respondent and petitioner only. N.Y.C. Civ. Ct. Act (CCA) §§ 203(d), (g), and (i), 213; Northern Waterside Redevelopment Co. v. Febbraro, 256 AD2d 261, 262 (1st Dep't 1998); Green v. Glenbriar Co., 131 AD2d 363, 364 (1st Dep't 1987); Cobert Constr. Co. v. Bassett, 109 Misc 2d 119, 121-22 (App. Term 1st Dep't 1981); Kerr v. Cloud, 2002 NY Slip Op 40434, 2002 WL 31163522 at *1 (Civ. Ct. NY Co. Mar. 8, 2002). See Broome Realty Assocs. v. Sek Wing Eng, 182 Misc 2d 917, 918 (App. Term 1st Dep't 1999).

In this proceeding, nonetheless, respondent may raise "any legal or equitable defense" to petitioner's claim of ownership entitling her to recover the premises. R.P.A.P.L. § 743; Murphy v. Baldari, 2003 WL 1971810 at *1; 220V Electrical Dealer Supply v. Rondat, Inc., 111 Misc 2d 100, 102 (Sup. Ct. NY Co. 1981). See CCA § 905; Post v. 120 East End Ave Corp., 62 NY2d 19, 28 (1984); Cobert Constr. Co. v. Bassett, 109 Misc 2d at 121; Marrero v. Escoto, 145 Misc 2d at 976; Subkoff v. Broadway-13th Assocs., 139 Misc 2d 176, 177-78 (Sup. Ct. NY Co. 1988). This court, in turn, has the authority to determine whether petitioner is the owner of the premises [*6]or otherwise has standing to maintain this proceeding and to recover possession of the premises and whether respondent is her tenant or licensee, rather than a co-owner. CCA § 204; R.P.A.P.L. §§ 711(1), 713(7), 747(1); Cox v. J.D. Realty Assocs., 217 AD2d 179, 182-83 (1st Dep't 1995); Cobert Constr. Co. v. Bassett, 109 Misc 2d at 121; Murphy v. Baldari, 2003 WL 1971810 at *1; Marrero v. Escoto, 145 Misc 2d at 976. See Post v. 120 East End Ave Corp., 62 NY2d at 28; J.N.A. Realty Corp. v. Cross Bay Chelsea, 42 NY2d 392, 394 (1977); Neuhaus v. McGovern, 195 Misc 2d 613, 615 (App. Term 2d Dep't 2002); Subkoff v. Broadway-13th Assocs., 139 Misc 2d at 177-78. This court unquestionably has jurisdiction over this landlord-tenant dispute and must decide it if at all possible. Post v. 120 East End Ave Corp., 62 NY2d at 28; Subkoff v. Broadway-13th Assocs., 139 Misc 2d at 177-78; Baptist Temple Church, Inc. v. Mann, 194 Misc 2d 498, 501 (Civ. Ct. NY Co. 2002); Kerr v. Cloud, 2002 WL 31163522 at *1. See J.N.A. Realty Corp. v. Cross Bay Chelsea, 42 NY2d at 394.

While respondent may not use his challenge to petitioner's sole ownership and to her stock certificate and proprietary lease to obtain reformation of the certificate and lease in this proceeding, that challenge does defeat her claim to ownership that would entitle her to maintain this proceeding. 220V Electrical Dealer Supply v. Rondat, Inc., 111 Misc 2d at 102; Baptist Temple Church, Inc. v. Mann, 194 Misc 2d at 501. At minimum, the facts adduced at the trial of this proceeding demonstrate that petitioner's sole title to the premises she seeks to recover, at least equitably, is sufficiently cloudy that this court may not permit her eviction proceeding to proceed. Murphy v. Baldari, 2003 WL 1971810 at *1. In light of the totality of the parties' transactions, the stock certificate and proprietary lease are insufficiently persuasive proof that petitioner owns more than a 50% interest in the premises or has authority from any other co-owner to evict respondent in this proceeding. Cobert Constr. Co. v. Bassett, 109 Misc 2d at 122; Neuhaus v. McGovern, 195 Misc 2d at 615.

IV. DISPOSITION

Based on the evidence and the applicable law delineated above, petitioner has not sustained her burden to prove that she is the owner of the premises she seeks to recover, exclusive of respondent Donovan, and authorized to maintain this summary eviction proceeding against him, as either a tenant or a licensee. In defense against her claim, respondent has proved a chain of agreements (1) establishing his ownership of at least a 50% interest in the premises, (2) transferring no more than another 50% interest in the premises to petitioner, and (3) revealing that the stock certificate and proprietary lease for the premises erroneously describe her interest. Estate of Vadney, 83 NY2d at 886-87; Hadley v. Clabeau, 161 AD2d 1141.

The court therefore dismisses this proceeding and denies as academic petitioner's motion to convert the holdover proceeding based on termination of a tenancy to a licensee proceeding based

on termination of a license. This decision constitutes the court's order and judgment of dismissal.

DATED: October 22, 2004

_____________________________

LUCY BILLINGS, J.C.C.