Compton v. Chelsea — 37 N.Y. St. Rep. 52

Majority

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Alexander T. Compton, App’lt, v. The Chelsea, Resp’t.

(Supreme Court, General Term, First Department,

Filed February 13, 1891.)

Headnote

Apartment houses—Title of subscriber to apartment—Change of plan.

According to the original plan of the defendant corporation subscribers to a specified number of shares were entitled to a substantially perpetual lease of an apartment. A certificate for that number of shares was issued to one V., who afterward sold the same to plaintiff. Thereafter the plan was changed and the expense increased, and the stock was a'so increased, the increased amount being divided among the subscribers without payment. Before the distribution the stockholders passed a resolution providing that the leases should provide for the payment of an annual rent of ten per cent on the stock held by the lessee. Plaintiff obtained possession of the apartment designated by his stock, and rented the same, but although he surrendered his certificate and received a new one for the original shares, and also for his share of the increased stock, he refused to accept any lease. His tenant having vacated, defendant took possession of the apartment. In an action of ejectment, Held, that the plans having been altered and plaintiff having assented to the new arrangement by his acceptance of the stock, could not be heard to say that he was not bound by the action of the stockholders, and that he could not claim the apartments without contributing to the increased cost of the building.

Appeal from judgment entered upon verdict directed by the court and from order denying motion to set aside verdict and for a new trial.

A. T. Compton, app’lt in person ; W. H. Shepard, for resp’t.

This case has been before the general term upon a previous occasion in which it seems to have been held that this form of action may be maintained.

It is not necessary to express any opinion as to the conclusion then reached, because we think that the judgment in favor of the defendant must in any event be sustained.

This is an action of ejectment to recover possession of a suite of rooms in an apartment house. The defendant was organized under what may be called the apartment house act. The capital was fixed at $290,000, the number of shares of stock was 5,800, and the-par value of the shares was $50 each.

Before the organization of the company a prospectus was issued setting forth what it was proposed to do, and the advantages which would result from subscriptions, and showing by what investment apartments might be secured. The prospectus then goes on to say, that “if this be so” (namely, their calculations) “nay if the cost of apartments does not exceed twice the amount shown by our estimates, we claim that the great problem of how to live in New York city for people of educated tastes and refined habits, but of moderate means, is at last approaching a solution.” The circular further stated that the holding of a certain proportion of the stock would entitle the owner to a virtually perpetual lease of an apartment. Subscriptions were made and opposite the subscriptions were placed the numbers designating the apartments which the subscribers selected. Among other subscribers was a subscription for seventy shares in the name of A. B. Cruikshank and opposite to which was mentioned the apartment in question.

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By arrangement between the parties in January, 1883, a certificate for said seventy shares was issued to Thomas C. Van Brunt. In October, ‘ 1882, at a meeting of the trustees, by-laws were adopted by which it was provided that all questions as to the purchasing of land, the character and style of buildings to be erected and as to how and to whom and at what rent the several apartments should be leased, and as to. the apportionment and distribution of the apartments among the stockholders should be decided by a vote of the majority of the stockholders and not otherwise. At the same time and after the adoption of the bylaws the trustees adopted the prospectus aforesaid as the prospectus of the defendant. On the 14th of December, at a meeting of the stockholders, the subscribers were assigned the apartments selected by them; number 2 on the second floor, the apartment in question, being assigned to A. B. Cruikshank. No. 2 is now numbered 21. It further appeared that the certificate issued to T. 0. Van Brunt was surrendered and a new certificate No. 21 issued to him. These shares stood in his name and no transfer of the stock was made to the plaintiff on the books of the Chelsea until May, 1885, although it appears that a lead pencil mark had been made upon the books of the corporation showing that plaintiff was the owner of this stock, which lead pencil maik resulted probably from the knowledge that Van Brunt had sold this stock to the plaintiff some time in January, 1883.

The defendant commenced the construction of the house early in 1883.

At a meeting of the stockholders held in December, 1882, the plan of the building was changed whereby the cost was very much increased, and in January, 1884, the capital stock was increased from $290,000 to $500,000, such additional stock being distributed among the stockholders without anything being paid therefor. On the 23d of January, 1884, the trustees passed a resotion recommending to the stockholders at a meeting to be called thereafter that an annual rental equivalent to ten per cent of the face valuation of the stock held by each on the basis of $500,000 be the rental fixed by this company to its stockholders on their respective apartments. On the 29th January, 1884, and before the distribution of the increased stock, a meeting of the stockholders was held at which more than a majority were present, and unanimously passed resolutions, Van Brunt, the holder upon the books of the company of the seventy shares representing apartment No. 21, being present and voting therefor, that an annual rent equivalent to ten per cent of the value of the stock on the basis of an issue of $500,000. should be charged and collected from each stockholder and that the trustees were authorized to draw up a suitable form of lease to be executed to stockholders upon said basis.

In June, 1884, the trustees ordered the leases to stockholders to be executed by the -president. In September, 1884, the trustees approved and adopted the form of lease. In October, 1884, the building having been completed, the plaintiff obtained the keys of the apartment assigned to him and took possession of his

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apartments and expended certain moneys on the completion of the same. On the 1st of December, 1884, the plaintiff rented the premises. On the 11th of May, 1885, the plaintiff surrendered the certificate which he had received from Yan Brunt of the seventy shares and received in lieu thereof the original seventy shares and sixty-seven additional shares of the increased stock, for which nothing was paid; and thus became for the first time a stockholder of record in the company. In the summer of 1885 a lease of the apartments duly executed by the president was tendered to him. He declined not only to accept this but any lease. In October, 1886, the apartments having been vacated by the plaintiff’s tenant the defendant took possession, whereupon the plaintiff brought this action of ejectment.

Upon the trial a verdict was directed for the defendant, and a motion was made for a new trial and denied, and from the judgment and order thereupon entered this appeal is taken.

The ground upon which the plaintiff claims the right to succeed seems to be that by subscribing under the representations contained in the prospectus he became an absolute owner and entitled to the possession of the apartment represented by the seventy shares of stock which he now holds. This might be true if there had not been a change of plans, of organization, and of system in the carrying out of this entei’prise.

But it is urged that this change cannot affect the plaintiff, because he was not a party to it, and because they cannot impose an additional condition upon the stock held by him from that which it bore at the time of its first issuance. And our attention is called to the case of Driscoll v. West, Bradley, etc., M. Co., 59 N. Y., 96 . This was an action to compel the defendant to transfer on its books stock purchased by the plaintiff. The defense was that the stock had formerly belonged to one Bradley who, at the time of his ownership, was indebted to the defendant and by virtue of a by-law then existing, adopted by the vote of Bradley, a transfer could not be made until the indebtedness was paid; and it was held that by a mere by-law they could not impose restrictions upon the transfer of personal property which were not authorized by the statutes.

That case presents no parallel to the one at bar, because there was no inability on the part of these stockholders to depart from the terms of the contract made by the subscription to the stock and the prospectus if they saw fit And this was all that was done ; done with the assent of the then holder of the stock to the change, and ratified by the plaintiff who accepted the additional stock which was the result of that change; the position of the plaintiff being that he can hold this additional stock without in any way assuming any portion of the burden which this additional stock represented.

The magnitude of the enterprise was increased; and this stock was issued to represent the increase. The value of the building to be erected was much greater than was originally contemplated; and this increase in stock was intended to represent the additional moneys which had been put into the building and had been

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raised upon mortgages upon the property. The plaintiff claims the right, after having accepted the stock representing this increased cost, to hold his apartment upon his original subscription, in a building much more expensive in character than the one to which he had subscribed.

Even if the prospectus entitled the plaintiff as matter of right to this apartment without the payment of any rent, he having assented to the new arrangement by the acceptance of the stock, if in no other way, cannot now be heard to say that he is not bound by the proceedings of the stockholders.

In the case cited the purchaser of the stock claimed that by the by-laws of the corporation they could not impress a lien upon the stock which the statute did not authorize.

In the case at bar the plaintiff for - a consideration having assented to the change in construction purposes now to keep the consideration and recall the consent.

We think that the plaintiff is not now in a position to claim the apartments without contributing to the additional expenses incurred by and with his cpnsent in the construction of the building, even though he would have been entitled thereto had he not acquiesced in and received some of the benefits of the change.

The judgment should be affirmed, with costs.

Bartlett, J., concurs.