Silverman v. Alcoa Plaza Associates

• Citation: 37 A.D.2d 166,323 N.Y.S.2d 39
• Parties: , 9 UCC Rep.Serv. 429 Irene SILVERMAN, Plaintiff-Appellant, v. ALCOA PLAZA ASSOCIATES, Defendant-Respondent.
• Decision Date: 01 July 1971
• Court: New York Supreme Court Appellate Division

Page 39

323 N.Y.S.2d 39

37 A.D.2d 166, 9 UCC Rep.Serv. 429

Irene SILVERMAN, Plaintiff-Appellant, v. ALCOA PLAZA ASSOCIATES, Defendant-Respondent.

Supreme Court, Appellate Division, First Department.

July 1, 1971.

John S. Drof, New York City, of counsel (Robert F. Little, New York City, with him on the brief, Cox, Treanor & Shaughnessy, New York City attorneys), for plaintiff-appellant.

Joseph Zuckerman, New York City, of counsel (Rosenman, Colin, Kaye, Petschek, Freund & Fmil, New York City, attorneys), for defendant-respondent.

Before MARKEWICH, J.P., and NUNEZ, MURPHY, STEUER and EAGER, JJ.

MURPHY, Justice.

The appellant had deposited the sum of $15,400 with the respondent on account of the purchase of shares of stock and a proprietary lease in a cooperative apartment. The total purchase price was to be $154,000. By reason of what was described as 'uncertain business condition' the appellant defaulted. The facts are not in dispute. Some time later on learning that respondent had sold the shares and proprietary lease to the apartment to another for the same price the appellant instituted suit to recover the down payment. Respondent moved for summary judgment dismissing the complaint on the theory that plaintiff had wilfully breached the contract involving the sale of real estate resulting in the forfeiture of the deposit. Appellant opposed the motion and sought to restrict the loss of her deposit to the actual damages provable by the respondent, if any. The lower court held that the stock could not be characterized as 'goods' under the Uniform Commercial Code, Article 2, but rather would fall within an area not regulated by statute where decisional law has established that the seller is entitled to retain the deposit citing Kaplan v. Scheiner, 1 A.D.2d 329, 149 N.Y.S.2d 868. Having determined that the transaction was one involving the sale of real property, the lower Court made its decision in accordance with the law of damages relating to realty.

If the stock and proprietary lease in a cooperative are considered realty, the seller (respondent) is entitled to retain by way of forfeiture the down payment, without proof of damages. This rule of damages is peculiar to actions involving real property. Perhaps it is the involved nature or uniqueness of real property that justifies such a rule, for it cannot be argued that courts generally are loath to enforce forfeiture and penalty clauses, and that only in specific instances (such as damages relating to the breach of a contract of the sale of realty) are they enforced. This is so even if there be no express clause to the effect (see 1A Warrens Weed, N.Y. Real Property Contracts, § 11.01 (1970)).

The crucial issue presented is whether or not the underlying sale of the stock and proprietary lease in the cooperative apartment was one of realty or personalty. The parties correctly agree that the law of damages in each of these categories is dissimilar. Thusm determination of the classification, that is, real property or personalty of the subject matter dissimilar. Thus, determination of dictate the rule of damages to be followed.

The Court below has held that Article 2 of the Uniform Commercial Code is inapplicable to the property which constitutes the subject matter of the case at bar. The plaintiff, on the other hand, relies on the protection afforded it by the said Act, § 2--718(2--3) which would entitle the plaintiff to a return of her down payment, less any damage occasioned the defendant-respondent by reason of the breached contract of sale.

An examination of the authorities fails to reveal a single appellate case relating to this problem, except for Kaplan v. Scheiner, Supra. The decision in that case is not dispositive of the case at bar, however, for the reason that the contract in that case provided for liquidated damages on a breach thereof. No such clause appears in the contract of sale presently at issue. In the Kaplan decision there is dictum which would suggest that the rights of the parties would be the same with or without the liquidated damage clause. However, that case was decided prior to the enactment of the Uniform Commercial Code and, accordingly, is not controlling as the Code is specific with respect to its remedies wherever applicable. It is to be noted that the adoption of the Sales of Good Act (Pers.Prop.L., Article 5) in 1911 deprived a seller of 'goods' as defined in the Act as a former common-law right to sue for the agreed upon purchase price if the buyer defaulted. In the case of Agar v. Orda, 264 N.Y. 248, 190 N.E. 479 (1934) where a seller of 200 shares of stock of a private corporation sought to recover the agreed upon purchase price the court said:

'Concededly, if certificates of stock are 'goods' within the definition of the Sales Act, the complaint was properly dismissed * * * The rule has been shattered by the Legislature. It no longer can be applied to contracts for the sale of 'goods,' and goods, as defined by the statute, include 'all chattels personal other than things in action and money.' (Sec. 156). The problem is whether a fragment of the shattered rule still persists and is applicable to sales of certificates of stock.' (pp. 250, 251, 190 N.E. p. 480.)

The court further held that the term 'goods' as used in the statute, included stock certificates.

The cases of Ballentine v. Ferretti, 255 App.Div. 606, 8 N.Y.S.2d 436; Coyne v. Chatham Phoenix National Bank & Trust Company, 155 Misc. 656, 281 N.Y.S. 271; Matter of Galewitz, 206 Misc. 218, 132 N.Y.S.2d 297; Rosenzweig v. Salkind, 6 Misc.2d 284, 158 N.Y.S.2d 522; Kukoff v. Muss, 6 Misc.2d 807, 160 N.Y.S.2d 156, are some of the cases in which Agar v. Orda, Supra, was followed prior to the adoption of the Uniform Commercial Code in which securities were ruled to be 'goods' as that word was used in the Personal Property Law, Article 5.

Personal Property Law, § 145--a became effective on September 1, 1952. This Section provides that in the absence of a liquidated damage clause, the seller is restricted to his damages and may not defeat the buyer's right to restitution of his down payment. There is no liquidated damage clause in the contract at issue on this appeal. It thus appears that for the fact the Uniform Commercial Code has superseded the Sales of Good Act that this appeal would have been controlled by the Personal Property Law, § 145--a. However, Article 5 of the Personal Property Law has been repealed and replaced by Article 2 of the Uniform Commercial Code. Since then the courts have approached the problems of statutory construction in the same spirit as that displayed in the Agar case, Supra. In Division of Triple T Service, Inc. v. Mobil Oil Corp., 60 Misc.2d 720, at page 727, 304 N.Y.S.2d 191, at page 199, in applying the Uniform Commercial Code to a franchise agreement, the Court stated:

'However, the courts have not been reluctant to enlarge the type of commercial transactions clearly encompassed within the spirit and intendment of the statute (see Agar v. Orda, 264 N.Y. 248, 190 N.E. 979, holding that under the former Personal Property Law (Uniform Sales Act)--the predecessor to the Uniform Commercial Code--a sale of corporate stock certificates constituted a sale of 'goods'; Vitex Mfg. Corp. v. Caribtex Corp., 3 Cir., 377 F.2d 795, holding damage remedies provided for in the Uniform Commercial Code available in a non-code case. * * *'

'Goods' are defined in the repealed Article 5 of the Personal Property Law as including 'all chattels personal other than things in action and money.' In the Uniform Commercial Code, Section 2--105, 'goods' are defined as meaning 'all things * * * which are moveable at the time of identification to the contract for sale other than money in which the price is to be paid, investment securities (Article 8) and things in action'.

It would thus appear that there is no substantial difference between the definition of goods in the quoted section unless the exclusion of investment securities in the Uniform Commercial Code, § 2--105 constitutes a change. Rather than creating a change, this Court believes that the exclusion of 'investment securities' and the definition of 'goods' was an effort to make Article 2 and Article 8 harmonious rather than mutually exclusive. We believe that the term 'investment securities' as defined in Article 8 does not include cooperative apartment stock. We believe that even if Article 8 is deemed to apply to cooperative apartment stock, that Article 8 is to be read in conjunction with Article 2, and where Article 8 is silent, Article 2 is applicable. The official comments upon the Uniform Commercial Code is set forth in McKinney's Consolidated Laws of New York, Book 62 1/2, Part 1, with special reference to pages 96--97 which are pertinent to the case at bar read as follows:

"Investment securities' are expressly excluded from the coverage of this Article. It is not intended by this exclusion, however, to prevent the application of a particular section of this Article by analogy to securities (as was done with the Original Sales Act in Agar v. Orda, 264 N.Y. 248, 190 N.E. 479, 99 A.L.R. 269 (1934) when the reason of that section makes such application sensible and the situation involved is not covered by the Article of this Act dealing specifically with such securities (Article 8).'

It would thus appear that even if cooperative stock were to be considered as an investment security, the provisions of Article 2 would still govern in areas such as the Court is presently confronted with when Article 8 is silent. However, it would appear that by definition cooperative apartment stock does not fall within the definition of investment securities as set forth in the Uniform Commercial Code. An investment security is defined in Section 8--102 as follows:

'(1) in this Article unless the context otherwise requires

(a) A 'security' is an instrument which

(i) is issued in bearer or registered...