Reiter v. Greenberg
| Decision Date | 14 February 1968 |
| Citation | 21 N.Y.2d 388,235 N.E.2d 118,288 N.Y.S.2d 57 |
| Parties | , 235 N.E.2d 118, Blue Sky L. Rep. P 70,770 Bertie REITER, on Behalf of Herself and All Stockholders Similarly Situated of Continental Realty Servicing Corp., Respondent, v. Abraham GREENBERG et al., Appellants. |
| Court | New York Court of Appeals Court of Appeals |
George B. Tepper, New York City, for appellants.
Samuel Shapiro, New York City, for respondent.
Louis J. Lefkowitz, Atty. Gen. (Samuel A. Hirshowitz, David Clurman and Alan L. Kazlow, New York City, of counsel), amicus curiae.
The issue presented by this appeal is whether a person selling participating interests in a syndication (a limited partnership), formed to acquire for investment purposes title to real property and thereafter to operate and manage the property, is required to be a licensed real estate broker under article 12--A of the Real Property Law, Consol.Laws, c. 50, § 440 et seq.
This is a derivative action instituted by a stockholder of Continental Realty Servicing Corp. to recover, Inter alia, the sum of $3,250 in commissions paid by Continental to the defendant Gedzelman.
The defendant Greenberg entered into contract to purchase the Root Building in the City of Buffalo. Greenberg wished to syndicate the building and retained Continental, a licensed real estate broker, to find investors for the proposed syndication.
Continental was a closed corporation having three equal stockholders: the plaintiff, defendant Greenberg and a third party.
The total amount to be raised in the formation of the limited partnership was $215,000, and it was agreed that the partnership would pay Continental $14,000 from this sum for its services and expenses.
Continental obtained the requisite number of investors and a limited partnership was organized under the name of 'Root Building Associates'. The limited partnership paid Continental $14,000 and from this sum Continental paid defendant Gedzelman, a certified public accountant, $3,250 for obtaining participants who invested $65,000 in the limited partnership.
The plaintiff claims that the payment by Continental to Gedzelman was a real estate broker's commission and, since Gedzelman was not a licensed broker, the commission was improperly paid and the corporation is entitled to recover such payment (Real Property Law, §§ 442, 442--e, subd. 3).
The courts below, with one Justice dissenting (RABIN, J.), were of the opinion that Gedzelman secured customers to purchase an interest in real estate and, therefore, Continental improperly paid him a commission.
We disagree with this conclusion.
The limited partnership syndication of real property involves two separate transactions. One transaction pertains to the organization of the limited partnership by obtaining investors therein. The other involves the acquisition of the property by the limited partnership.
The compensation that was paid to Gedzelman by Continental resulted from the first transaction--viz., the procurring of investors to form the limited partnership.
An interest in a limited partnership--even a partnership that deals solely in real estate--is personalty, not realty (Partnership Law, Consol.Laws, c. 39, § 107). The individuals who contributed to the partnership acquired no title to the real property which was eventually acquired by the partnership. They merely acquired a prorata share of the partnership profits and surplus, which is personalty (Altman v. Altman, 271 App.Div. 884, 67 N.Y.S.2d 119, affd. 297 N.Y. 973, 80 N.E.2d 359).
It is conceded that the partnership was formed solely for the purpose of acquiring title to the Root Building and thereafter operating it and managing it. This fact, however, does not bring the transaction at bar within the purview of article 12--A of the Real Property Law. This article is penal in nature and should be strictly construed. Its provisions are not broad enough 'to cover * * * every transaction in which an interest in real estate may be part of the subject of transfer' (Weingast v. Rialto Pastry Shop, 243 N.Y. 113, 116, 152 N.E. 693, 694; see, also, Dodge v. Richmond, 5 A.D.2d 593, 173 N.Y.S.2d 786; Seckendorff v. Halsey, Stuart & Co., 229 App.Div. 318, 241 N.Y.S. 300; James v. Alderton Dock Yards, 225 App.Div. 675, 231 N.Y.S. 215; 1934 Opns. Atty.-Gen. 226; 1931 Opns. Atty.-Gen. 175; 1930 Opns. Atty.-Gen. 181; 1929 Opns. Atty.-Gen. 184, 211; but see J. I. Kislak, Inc. v. Carol Mgt. Corp., 7 A.D.2d 428, 184 N.Y.S.2d 315).
Moreover, the Legislature has recognized the distinction between a sale in an 'interest in real estate' and a sale in an 'interest in a real estate syndication'. The former is regulated by...
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