Daily Development for
Monday, November 21, 1995

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

In light of the recent flurry of messages about coops, I thought I'd post a sample of recent judicial decisions on the device.

COOPERATIVES; RESALE: Action for breach of contract for sale of cooperative apartment is subject to UCC four-year statute of limitations instead of six-year statute generally provided for actions on contracts. McLeod v. Cowles, 626 N.Y.S.2d 831 (App. Div. 1995). New York, like most states, treats a contract for the sale of cooperative apartments unit as the sale of stock in a corporation governed by the Uniform Commercial Code.

COOPERATIVES; RESALE; PRICE CONTROL: Board of directors acted in excess of authority in establishing absolute floor price which unit owners had to obtain in order to permit sales of units to third-party purchasers. Oakley v. Longview Owners, Inc., 628 N.Y.S.2d 468 (S. Ct. 1995). The court commented that this issue was one of first impression in New York. It first held that the establishing of a "floor price" was an unreasonable restraint on alienation. Although, here, the board had established the price after appraising only two of 160 units, the court does not emphasize this aspect of the case, but appears to make a general finding with respect to blanket price controls.

The court then proceeds, as an alternative holding, to declare that the coop board's action in setting the floor price was beyond the power of the board. In typically abbreviated New York case reporting, the court doesn't give us any detail about the enumerated powers of the board. At one point, it suggests that there is some "equitable limit" on the board's powers, but in the actual holding on this issue, the court alludes only to the operative coop documents.

The unit owner had sought punitive damages on the grounds that this action was taken in bad faith. But the court diverts the focus from this charge by concluding that the board's action was invalid for other reasons. It remands on the bad faith issue.

Comment: Restraints on alienation are a well established concern in property law. The doctrine is not as well established with respect to personal property, and it is interesting to note that a recent New York case confirmed that coop interests are indeed personal property. McLeod v. Cowles, 626 N.Y.S.2d 831 (App. Div. 1995).

The more interesting issue is the question of Board authority. We don't have much detail on this issue, but it seemed important enough to the court to conclude that it ought to make a separate holding on the point. Reading between the lines, it seems apparent that the Board had some authority to approve or disapprove transfers of units. Undoubtedly, its discretion was phrased rather broadly. Exactly what guidelines apply to determine when a board is or is not complying with the court's view of what constitutes playing "inside the lines?" The court gives virtually no guidance, which is unfortunate, since it didn't have to reach the issue at all.

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