Ownership of Property among Two Sets of Spouses

“Rodriguez’s Right to 50% of the Property Was Created by Operation of Law”

In this case, the Deed to the subject real property indicated ownership of the property as follows:

“GILBERTO HERNANDEZ and CONSOLACION HERNANDEZ, HIS WIFE … AND ERLINDA QUE and ELPIDIO RODRIGUEZ, HER HUSBAND.”

As to the 50% interest in the property owned by movant  Elpidio Rodriguez and his wife, Erlinda Que, they owned their share as tenants by the entirety. Based upon the substantial case law in New York State, Mr. Rodriguez and Erlinda Que took ownership of their half-share as husband and wife, have continued as such until Erlinda Que’s death.

In Prario v. Novo, 168 Misc.2d 610 (Sup. Ct., Westchester Co. 1996), the court held that a grant of real property to a husband and wife creates a tenancy by the entirety “unless expressly declared to be a joint tenancy or tenancy in common.”  Estates, Powers and Trusts Law § 6-2.2(b). A joint tenancy is subject to partition during the lifetimes of the joint tenants (24 N.Y.Jur.2d, Cotenancy and Partition, § 33; 3A Warren’s Weed, New York Real Property, Partition, § 3.03; id., vol. 2A, Joint Tenants, § 4.01) whereas a tenancy by the entirety cannot be divided absent consent of both spouses or upon a divorce (24 N.Y.Jur.2d, Cotenancy and Partition, §§ 38, 56; 3A Warren’s Weed, op. cit., Partition, § 3.12) The tenancy by the entirety can be changed by voluntary act of the couple, divorce or death.

In Goldman v. Goldman, 95 NY2d 120 (2000), the Court of Appeals noted that a tenancy by the entirety is a form of real property ownership available only to parties married at the time of the conveyance (Kahn v. Kahn, 43 N.Y.2d 203, 207, 401 N.Y.S.2d 47, 371 N.E.2d 809). As tenants by the entirety, both spouses enjoy an equal right to possession of and profits yielded by the property (Neilitz v. Neilitz, 307 N.Y. 882, 122 N.E.2d 924). Additionally, “each tenant may sell, mortgage or otherwise encumber his or her rights in the property, subject to the continuing rights of the other” (V.R.W., Inc. v. Klein, 68 N.Y.2d 560, 565, 510 N.Y.S.2d 848, 503 N.E.2d 496). Only if the legal relationship between the husband and wife is judicially altered through divorce, annulment or legal separation, does the tenancy by the entirety converts to a tenancy in common (Kahn v. Kahn, 43 N.Y.2d, supra, at 207, 401 N.Y.S.2d 47, 371 N.E.2d 809).

Courts have recognized that a tenancy by the entirety cannot be altered without the mutual consent of the spouses or divorce. In Sciacca v. Sciacca, 185 Misc.2d 105 (Sup. Ct. Queens Co. 2000), the court held that: “As articulated by the Court of Appeals in Kahn v. Kahn, 43 N.Y.2d 203, 401 N.Y.S.2d 47, 371 N.E.2d 809, a court cannot direct the disposition of property held by married couples as tenants by the entirety until the court first alters the marital status, such as by entering a judgment of divorce or separation. Indeed, the law is long-settled that neither entirety tenant may, without the consent of the other, dispose of any part of the property to defeat the right of survivorship.” Citing to Hiles v. Fisher, 144 N.Y. 306, 39 N.E. 337.)

The Court of Appeals held, in Hiles v. Fisher, 144 NY 306 (1895), that the husband had a right to mortgage his interest, which was a right to the use of an undivided half of the estate during the joint lives, and to the fee in case he survived his wife; and by the foreclosure and sale the plaintiff acquired this interest, and became a tenant, in common with the wife, of the premises, subject to her right of survivorship.

Revisiting this issue, in V.R.W., Inc. v. Klein, 68 NY2d 560 (1986), the Court of Appeals held:

What makes this right of survivorship unique and differentiates it from the right of survivorship inherent in an ordinary joint tenancy is that it remains fixed and cannot be destroyed without the consent of both spouses (see, Kahn v. Kahn, 43 N.Y.2d 203, 401 N.Y.S.2d 47, 371 N.E.2d 809; compare, Matter of Polizzo, 308 N.Y. 517, 127 N.E.2d 316; Matter of Suter, 258 N.Y. 104, 179 N.E. 310, with Matter of Klatzl, supra, 216 N.Y. at pp. 86-87, 110 N.E. 181; Hiles v. Fisher, supra). As long as the marriage remains legally intact, both parties continue to be seized of the whole, and the death of one merely results in the defeasance of the deceased spouse’s coextensive interest in the property (see, Stelz v. Shreck, supra, 128 N.Y. at p. 266, 28 N.E. 510; Bertles v. Nunan, supra, at p. 156). Similarly, involuntary partition is not available to either cotenant as a means of severing the tenancy by the entirety, since a contrary rule would permit a vindictive or irresponsible spouse to deprive the other of the comforts of the marital home (see, Kahn v. Kahn, supra, 43 N.Y.2d at p. 208, 401 N.Y.S.2d 47, 371 N.E.2d 809; Anello v. Anello, 22 A.D.2d 694, 253 N.Y.S.2d 759; Vollaro v. Vollaro, 144 App.Div. 242, 129 N.Y.S. 43).

Accordingly, the ownership interests of Mr. Rodriguez and Erlinda Que as “husband and wife” created a tenancy by the entirety. Upon the death of his wife, Mr. Rodriguez became the owner of her share by operation of law; any Last Will and Testament of Erlinda Que would not alter his rights.

Long-established New York law is that real property held as tenants by entirety does not pass under the Will of a decedent spouse. In re Rothko’s Estate, 77 Misc.2d 168 [Sur. Ct., NY Co. 1974]; In re Strong’s Will, 171 Misc. 445 [Sur. Ct., Monroe Co. 1939] (“A severance of a tenancy by the entirety cannot be effected by the unilateral last will of one of the spouses alone.” Citing to Levenson v. Levenson, 229 AD 402 [2 Dept. 1930]).

On the death of the first tenant by the entirety of real property, his estate ceases to have any interest in such property. Matter of Harris’ Estate, 88 Misc.2d 60 [1976], affirmed 61 AD2d 881.

R. A. Klass
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The Defense of Equitable Estoppel

There is a concept in the law that one party should not be allowed to lead another party down a road, knowing full well that it is the wrong road, only later to say “a-ha” and attempt to take advantage of the other party. Where one party claims that the other has breached a contract, there may be the availability of the defense of “equitable estoppel.” The term “estoppel” refers to “stopping” someone from taking a certain position that differs from a prior position–and “equitable” refers to that certain degree of fairness that is expected of people.

In the Matter of N.Y. State Guernsey Br. Co-op v. Noyes, 260 AD 240, modified on other grounds, 284 NY 197, the court laid out the essential elements of an equitable estoppel claim, as follows: (1) As related to the party to be charged: (a) conduct which amounts to a false representation or concealment of material facts; (b) intention, or at least expectation, that such conduct shall be acted upon by the other party; and (c) knowledge, actual or constructive, of the real facts; and (2) As related to the party claiming the estoppel: (a) lack of knowledge; (b) reliance upon the conduct of the party estopped; and (c) action based thereon of such a character as to change his position prejudicially.

In the broad context of contracts,

In Ferlazzo v. Riley, 278 NY 289 (1938), the Court of Appeals pointed out that the contract rights of a mortgagee will be enforced in the absence of waiver, estoppel, bad faith, fraud, oppressive or other unconscionable conduct on its part.

In Caspert v. Anderson Apartments, 196 Misc. 555 (Sup. N.Y. Co. 1949), the court opined: “It may be unconscionable, however, to insist upon adherence to the letter of an agreement where a mortgagee indicates by his conduct or silence that his inaction may turn to his own advantage.”

R. A. Klass
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Summary Judgment Denied When Discovery Pending

Summary judgment should be denied where it appears that relevant evidence needed to oppose the motion is within the exclusive knowledge of the movant, and the opposing party has not had a reasonable opportunity for disclosure prior to the motion for summary judgment. See CPLR 3212(f) (motion for summary judgment should be denied where it appears that facts essential to the motion exist but cannot then be stated due to the absence of discovery). See also, Logan v. City of New York, 148 AD2d 167 [1 Dept. 1989]; Simpson v. Term Industries, 126 AD2d 484 [1 Dept. 1987].

Finally, the failure of a movant to comply with discovery demands may justify the denial of the summary judgment motion. See Jones v. Town of Delaware, 251 AD2d 876 [3 Dept. 1998]. This is especially so where the information sought in the pending discovery demand is clearly specified and relevant to the issues raised by the motion, the motion should be denied. Campbell v. City of New York, 220 AD2d 476 [2 Dept. 1995]; Elliot v. County of Nassau, 53 AD3d 561 [2 Dept. 2008] (A party should be afforded a reasonable opportunity to conduct discovery prior to the determination of a motion for summary judgment).

R. A. Klass
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The Directors of a Corporation Owe a Fiduciary Duty to Their Shareholders

Without doubt, the directors of a corporation owe its shareholders a fiduciary duty. The fiduciary duty of a director of a corporation consists of the obligation to perform his duties in good faith, without discriminatory practice, and with the degree of care which an ordinary prudent person in a like position would use under similar circumstances. See, Bernheim v. 136 East 64th Street Corp., 128 AD2d 434 [1 Dept. 1987].

In Levandusky v. One Fifth Avenue Apartment Corp., 75 NY2d 530 [1990], the Court of Appeals held that, generally, members of a board of directors who act in good faith and in the honest exercise of business judgment are protected by the business judgment rule. The business judgment rule has been held to apply to cooperative apartment sales. See, Woo v. Irving Tenants Corp., 276 AD2d 380 [1 Dept. 2000].

Without doubt, the directors of a corporation owe its shareholders a fiduciary duty. The fiduciary is bound at all times to exercise the utmost good faith toward the principal or shareholder. Soam Corp. v. Trane Co., 202 AD2d 162, 608 NYS2d 177 [1 Dept. 1994].  The fiduciary must also act in accordance with the highest and truest principles of morality. Elco Shoe Mfrs., Inc., v. Sisk, 260 NY 100, 183 NE 191 [1932].

The fiduciary duty of a director of a corporation consists of the obligation to perform his/her duties in good faith, without discriminatory practice, and with the degree of care which an ordinary prudent person in a like position would use under similar circumstances. SeeBernheim v. 136 East 64th Street Corp., 128 AD2d 434 [1 Dept. 1987].

However, the business judgment rule does not apply where the directors acted in bad faith or were motivated by factors other than the interest of the cooperative corporation. See, Woo v. Irving Tenants Corp., supra. Further, the business judgment rule does not protect the board from liability for discrimination. Jones v. Surrey Cooperative Apartments, 263 AD2d 33 [1 Dept. 1999].

In a case in which the owner of a cooperative unit sued the board members for rejecting applicants for various reasons, including discriminatory ones, the court noted that the general deference granted to decisions of a cooperative corporation’s board of directors is not unlimited. If those board members act in a manner which is contrary to their duty to act fairly and impartially, courts may review claims of misconduct. Further, upon review, those claims of misconduct may prove actionable against the board members. See, Axelrod v. 400 Owners Corp., 189 Misc.2d 461 [Sup.Ct., NY Co. 2001].

A corporation can be directly liable for breach of fiduciary duty by the actions of its board of directors.  The Board owes a fiduciary duty to its shareholders, and controlling case law is replete with examples of shareholders properly stating these claims directly against cooperative housing corporations where particular board misconduct is alleged. Kleinerman v. 245 East 87 Tenants Corp, et al., 74 AD3d 448, 903 NYS.2d 356 [1 Dept. 2010] (denying defendants’ pre-answer motion to dismiss where complaint stated claims for breach of fiduciary duty against the cooperative, its board, its officer and individual board members); Stowe v. 19 East 88th Street, Inc., 257 AD2d 355, 683 NYS2d 60 [1 Dept. 1999] (denying a pre-answer motion to dismiss of the sole defendant, a cooperative corporation, and holding that directors of apartment cooperative owe a fiduciary duty to act solely in best interest of all shareholders); Ackerman v. 305 East 40th Owners Corp., 189 AD2d 665, 592 NYS2d 365 [1 Dept. 1993] (same); Demas v. 325 West End Ave. Corp., 127 AD2d 476, 511 NYS2d 621 [1 Dept. 1987] (same).

It is therefore beyond cavil that where a board of directors allegedly breaches its fiduciary duty to a shareholder, the claim is actionable against the corporation, particularly where a board’s conduct has “no legitimate relationship to the welfare of the coop at large.” Bryant v. One Beekman Place, Inc., 73 AD3d 616, 904 NYS2d 370 [1 Dept. 2010].

The very fact that the Board refused to satisfy its obligation to repair the shareholder’s apartment is alone sufficient to state a claim for breach of fiduciary duty. Kaymakcian v. Board of Managers of Charles House Condominium, 49 AD3d 407, 854 NYS2d 52 [1 Dept. 2008] (denying dismissal of fiduciary duty claim against a condominium board of managers where it failed to repair limited common elements).

As for damages, the trial court is accorded significant leeway in ascertaining a fair approximation of the loss where a breach of fiduciary duty has been proved.  Keizman v. Hershko, 52 AD3d 204, 859 NYS.2d 79 [1 Dept. 2008].  After all, “[w]hen a difficulty faced in calculating damages is attributable to the defendant’s misconduct, some uncertainty may be tolerated.” Whitney v. Citibank, 782 F2d 1106, 1118 [2 Cir. 1986].

Courts have held a fiduciary liable for the attorney’s fees and other expenses incurred in exposing his misconduct. Birnbaum v. Birnbaum, 157 AD2d 177, 555 NYS2d 982 [4 Dept. 1990]; Matter of Campbell, 138 AD2d 827, 829, 525 NYS2d 745 [4 Dept. 1988]; Parker v. Rogerson, 49 AD2d 689, 689-690, 370 NYS2d 753 [3 Dept. 1975]; Matter of Rothko, 84 Misc.2d 830, 379 NYS2d 923 [Surr. Ct., NY Co. 1975].

These holdings do not conflict with the “American Rule” articulated in Matter of A.G. Ship Maintenance Corp. v. Lezak, 69 NY2d 1, 511 NYS2d 216 [1986]. While Lezak holds that attorney’s fees are ordinarily not recoverable by the prevailing party against the losing party as an incident of litigation, Lezak does not concern the propriety of awarding attorney’s fees as an element of damages.

In a case of breach of fiduciary duty, the aggrieved party is entitled to prejudgment interest. CPLR 5001; Howard v. Carr, 222 AD2d 843, 635 NYS2d 326 [3 Dept. 1995].

Indeed, if the breach of fiduciary duty is found to be sufficiently egregious, punitive damages may be recoverable. Don Buchwald Assocs. v. Rich, 281 AD2d 329 [1 Dept. 2001].

R. A. Klass
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Requirements under Truth in Lending Act

The Truth in Lending Act requires the lender to provide the consumer with clear, conspicuous, and accurate disclosures of loan terms. Regulation Z (see footnote 1), 12 C.F.R. Section 226.18 (“Content of Disclosures”). Among other required disclosure items, the amount of credit provided to the consumer and every loan charge must be properly described. See, e.g., Regulation Z, 12 C.F.R. Section 226.18(b) (amount of credit provided), 12 C.F.R. Section 226.18(d) (finance charges), and 12 C.F.R. Section 226.18(e) (interest rate and prepaid charges). The security interest to be taken in the consumer’s principal residence, and any other property, must be disclosed. Regulation Z, 12 C.F.R. Sections 226.5 – 15 (open end transactions), 226.17-23 (closed end transactions).

Section 226.5b requires that the disclosures be given at the time of application, as follows:

“(b) Time of disclosures. The disclosures and brochure required by paragraphs (d) and (e) of this section shall be provided at the time an application is provided to the consumer.

Footnote:
[1] The provisions of Part 226 of Title 12 of the C.F.R. are commonly known as Regulation Z.  Regulation Z (including its commentary) are consistently followed by courts in determining compliance with TILA, which is a “strict liability” statute.  See, e.g., Ford Motor Credit Co. v. Milhollin, 444 U.S. 555, 565 (1980) (Regulation Z and its commentary are entitled to substantial deference and are dispositive unless demonstrably irrational).

R. A. Klass
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