Entity Property

Blackett v. Olanoff (Mass. 1977)

Constructive eviction. Defendants leased residential units from plaintiffs, who also leased nearby premises for use as a cocktail lounge. Late night music and other noise from the lounge continually disturbed defendants. When they complained to either the landlords or the lounge directly, attempts were made to quiet the noise, but these attempts were repeatedly unsuccessful. Subsequently, the tenants vacated their apartments and the landlords brought this action to recover rent. HELD: for defendants. Don't have to pay rent for constructive eviction. -Even though the landlord didn't intend to interfere with the tenants' quiet enjoyment, he leased to the lounge--created situation and didn't remedy it (deprivation of quiet enjoyment is a natural consequence of the landlord's actions). kind of extension of Smith v. McEnany--no literal eviction has occurred. But landlord can legally, and is not, controlling the problem. -landlord's conduct rather than his intent that is controlling in determining whether there is a covenant breach -Vacating is not necessary to establish constructive eviction, though perhaps would be evidence of the severity of the breach. Some states require vacating, but that requires tenant to assume a lot of risk.

Nahrstedt v. Lakeside Village Condo. (Cal. 1994) (6)

Plaintiff purchased a unit in the Lakeside Village Condominiums and moved in with her three cats. When the condominium association (defendant) learned of the cats, it demanded their removal--CCRs said "no pets". Nahrstedt sued the Association, arguing that the restriction was unreasonable as applied to her cats, which were kept indoors and not free to roam any common areas. HELD: for defendant. -Covenant restricting cats is valid. Covenants in declaration are enforceable unless unreasonable. There are two distinguishable categories of restrictions: (1) those in declaration/master deed (2) rules promulgated by board of condo owners. -(2) subject to a "reasonableness" test, but (1) is not subject to this standard and instead can only be struck down if arbitrary, imposes burdens on the use of land substantially outweighing restriction's benefits, or violates public policy -Buyers expect that provisions in the master deed will remain intact: 1) Assures prospective condo purchasers they can be confident in the CC&Rs; 2) protects owners from unanticipated increases in fees to fund legal challenges -DISSENT: Enforcing this covenant frays the social fabric w/ little offsetting benefit to the land -CA legislature later prohibited CCRs from prohibiting at least one pet (TM: ("apparently cat owners have some clout")

Mullendore Theatres Inc v. Growth Realty Investors Co. (Wash. 1984) (4)

Plaintiff was trying to get a security deposit back from defendant at the end of its lease; defendant was ultimately responsible for it after the building had been transferred via several transactions. HELD: for defendant. Even though the lease said all covenants would run with the land, the court found that the security deposit was a personal obligation. -A covenant in a lease that requires a landlord to return a tenant's security deposit does not RUN WITH THE LAND. A covenant in a lease only runs with the land if the covenant TOUCHES AND CONCERNS THE LAND. -"Touch and concern" means that the nature of the covenant is so related to the land that the covenant enhances the land's value or confers a benefit on the land. Otherwise, the covenant is only the original lessor's collateral and personal obligation. To run with the land, a promise to pay money must restrict the use of funds to uses for the property's benefit. In this case, there was no such restriction. The original landlord was not required to spend the deposit in a manner that was related to the property, such as on repair or maintenance. The landlord was not even required to transfer the deposit to successive landlords.

Trusts (7)

"This is important stuff." - Merrill -division of rights in an ASSET (they require an asset, a CORPUS, around which they're organized--need not be tangible) Three parties (can overlap, though traditionally one person cannot create a trust in which one is sole trustee and sole beneficiary, but state legislatures are beginning to break this down): SETTLOR - person who creates the trust and who owns the assets originally. created by will (TESTIMENTARY) or while alive (INTER VIVOS) TRUSTEE- person who manages the asset and holds LEGAL TITLE in fee simple (almost always a gratuitous transfer from settlor to trustee) BENEFICIARY - holds EQUITABLE TITLE with beneficial interest in asset, use and enjoyment. ASSET SEQUESTRATION: assets of trust are separate from assets of the beneficiary and of the trustee- SPENDTHRIFT CLAUSES keep creditors of beneficiary from the asset until beneficiary has possession (must be allowed by state legislature; virtually all states allow it) -Function of Trusts: used for managing transmission of wealth (private trusts), management of charitable foundations (charitable trusts), pension funds (commercial trusts)

Leases (10)

-other than fee simple absolute, leases are the most common form of property interest encountered today (Merrill emphasizes them as almost "crowding out" ownership). A lease is a transfer of possession and use of an asset for a significant but limited time in return for periodic payments (rent). Lessor always maintains a future interest in the asset -historical evolution from more independent covenants to more dependent covenants, bilateral contracts. Not a complete evolution however. -leases are a type of de facto FINANCING DEVICE. People who have not accumulated much in the way of assets and/or have poor credit will often prefer to lease assets rather than purchase them. They can thus acquire shelter to live in, land to farm, or space in which to operate a business like a restaurant, without having to commit their scarce resources to purchasing real estate. This allows them to "leverage" their limited resources in roughly the same way that borrowing allows people to leverage limited resources. -leases operate as a RISK-SPREADING DEVICE. For tenant: renting is a way of minimizing the risks of investing most of your savings in an asset that you may want to unload in fairly short order. For landlord: if tenant defaults on rental obligation, it is usually easier to retake possession of the property than it is to foreclose on a mortgage and retake property held as security for a loan. Minimize risk of nonpayment by spreading risk over multiple tenants. -leases operate as a mechanism for integrating and managing complexes of assets, and in that sense function as a kind of entity property. Often leasing is used for highly complicated complexes of assets (ex./ high-rise apartment buildings, shopping centers) and allows these complexes to be managed using a governance strategy, characterized by specialization of functions. -one problem: "one-size-fits-all" nature of lease legal doctrine, regardless of underlying function of lease as primarily governance or financing device--leases grew more complicated over time. The law has responded by moving at least part way from a "property" or exclusion model of leases to a "contract" or governance model. 4 types of leases: (1) Term of Years: fixed expiration date • Statute of Frauds: at common law, writing required for any lease > 3 years; now, typically any lease > 1 year must be written (2) Periodic Tenancy: lease automatically rolls over for a stated period of time (e.g., year to year) unless one party notifies of termination • At common law, would roll over for the same period, but a year lease would require 6 months notice; changed by statute in many places (3) Tenancy at Will: lease may be terminated at any time by either of the parties; no notice was required, but now required in many states equal to period of time at which rent payments are made (4) Tenancy at Sufferance: what a tenant has when he holds over on his lease; may limit the landlord's ability to use self-help but not a real lease -forfeiture clauses: certain breached inscurred by tenant of lease clauses automatically forfeits leased asset to lessor/grants right of reentry to lessor. As opposed to tenant's remedial abilities in such situations being limited to damages--very pro landlord. Harshness of such clauses somewhat mitigated by courts' assumptions of certain pro-tenant doctrines (constructive eviction, surrender, IWH)

Kendall v. Ernest Pestana, Inc. (Cal. 1985)

Bixler was subleasing hangar space at the San Jose Airport from defendant. Bixler then entered into an agreement to sell his business, including the lease to plaintiff. Defendant refused to consent to the assignment of the lease to plaintiff. Plaintiff then brought suit seeking a declaration that defendant's refusal to consent to the assignment was unreasonable and therefore invalid as an unlawful restrain on alienation. HELD: for plaintiff. -(at least for commercial leases) Although it has traditionally been held that clauses requiring the landlord's consent to transfer a lease are valid, this court finds that such consent may only be withheld if reasonable. This is in line with the policy against restraining free alienation of land as well as an increased recognition of the contractual nature of leases and the resulting contractual duties of good faith and reasonableness. (default - could be contracted around, either to allow landlord to withhold consent for any reason or to require a reasonable ground for refusal). -in determining the reasonableness of a landlord's refusal to consent, courts may look to factors such as the financial stability of the proposed assignee and the nature of the assignee's proposed use of the property in question. Nothing here indicates a reasonable basis for defendant's refusal. -DISSENT: majority should have followed the traditional majority rule that allows a lessor to refuse consent to assignment of a lease even if unreasonable. The parties should be able to contract as they wish and if no reasonableness clause is in the lease, one should not be inserted by the court. -issue is who gets to capture the "bonus value" of an increase in market value of rent--the tenant, who can sublease for higher rent or a lump sump, or the landlord, who can potentially terminate the prime lease and enter into a new lease at market rent.

Wilber v. Owens (NJ, 1949) (5, but one has 3 parts)

CY PRES. π (executor of Bamford's will) seeks construction of will. Avowed purpose (specific charitable intent found in paragraph 10) is the publication of his"Random Scientific Notes," which Princeton determines (from affidavits of Princeton profs) are dumb and have no scientific value. HELD: for defendant -cy pres applies. The original purpose of using the manuscript for research is impossible, and there was a "general charitable intent." Modify the trust created in paragraph 10 to something more sensible. Court had 3 options (1) Enforce paragraph 10 as written, require trust continue and carry forward tenets of Random Notes. (2) Apply cy pres and modify purposes of trust to devote $ to something more sensible (3) Declare paragraph 10 has failed because of irrationality of Random Notes → money should pass to other charities in later paragraphs (League of Nations, Princeton) and family named in pecuniary clause of the will -The test for charitability is met if: (1) the settler believes that the trust has a public benefit, and (2) the belief is rational, does not violate the law, and does not violate the principles of morality. CY PRES ("as near") doctrine for CHANGED CIRCUMSTANCES: where US courts find designated charitable purposes to be UNLAWFUL, IMPOSSIBLE, IMPRACTICABLE, OR WASTEFUL (SHOW by changed circumstances, counter to public policy, or impossibility), court in exercise of equity will apply the property to a similar charitable purpose (as near as possible to donor's intentions) in accordance with the general charitable intent; Often used to remove discriminatory restrictions; Courts will sometimes apply something like cy pres to private trusts without explicitly invoking it (e.g., In re Pulitzer's Estate, allowing sale of Pulitzer's pride newspaper contrary to his will when it became financially ruinous)

Medico-Dental Building Company of Los Angeles v. Horton and Converse (Cal. 1942) (4)

Dependent Covenants. Defendant had a pharmacy in Plaintiff's building, which catered to doctors & dentists; mutually beneficial lease. Lease required that the building not lease to any other pharmacy or drug dispensary. Breached by leasing to a doctor that distributed his own pills. Defendant notified Plaintiff of this problem, and plaintiff said it was unsuccessful in solving it--so defendant rescinded lease and stopped paying rent. Plaintiff sued. HELD: for defendant. -Court adopted a contractual analysis - looking at whether the covenant not to lease ran to the entire consideration of the contract. If so, the covenant is mutual and dependent. Having found so, the court found the Defendant could rescind the contract and/or sue for damages -how do we know that this is a "material," and not merely incidental contractual promise? Court takes note of the forfeiture clause. Merrill, however, thinks that the court places too much emphasis on that as establishing interdependence of terms/covenants--he thinks the knowledge about the pharmacy's business and revenue stream is more telling (rent was not just for SPACE, but space with certain commercial advantages). Similar to habitability being fundamental to residential leases; here, commercial viability/profitability was fundamental to commercial lease. -foreshadowed later 1970s revolution in landlord-tenant law, which involved the contractual aspect of such law moving decisively away from the model of independent covenants toward the model of dependent covenants.

Sommer v. Kridel (N.J. 1977) (3)

Duty to mitigate. Defendant signed a two year lease with plaintiff and paid the first month's rent and the security deposit. However, before defendant was expected to move in, he wrote a letter to plaintiff stating that his engagement had broken off and as a result he would no longer have the money to pay the rent. During the lease term a third party inquired about and was ready and willing to lease defendant's vacant unit, but plaintiff told them that the unit was already rented to defendant. Plaintiff did not show the apartment to anyone else until over a year after he received the letter from defendant. Plaintiff brought suit against defendant seeking rent for the entire two years of the lease, then amended for rent due until plaintiff relet the apartment (per surrender). HELD: for defendant. -A landlord has a duty to mitigate damages by making a reasonable effort to re-let the premises when seeking to recover rent from a defaulting tenant. (All but 8 states have this duty, at least for residential leases--but default, subject to modification). -In this case, a third party was ready, willing, and able to rent defendant's apartment and asked specifically about it. This actually made plaintiff's duty to mitigate damages very easy as it would have taken little to no effort to re-let the apartment. But plaintiff told the third party the apartment was not available, thus failing in his duty.

Rothko v. Reis (NY, 1977) (6)

Fiduciary duties. Executors subject to same fiduciary duties as trustees. Rothko was a painter, principal asset = 798 paintings of tremendous value with the 3 executors (Reis, Stamos and Levine). They quickly sold paintings in light of personal self-interests. Children of Rothko sued on grounds that trustees violated their fiduciary duties. Held: The trustees breached their fiduciary duties and are liable for appreciation damages for the artwork that they sold. -standard for voiding the sale: "no further inquiry" (presumption of guilt, usually for self-dealing) vs. "shown to be unfair" (burden of proof is on the accuser). Court didn't rely solely on no further inquiry--had reasonable basis for finding unfairness. -Ordinary damages would be expectation (the difference between the market price at the time the contract was entered into). Here, the court probably awarded appreciation damages (current value - price at which sold) to incentivize the executors to get these sold paintings back, but also has "punitive flavor" in light of what the court sees as bad conduct. 3 FIDUCIARY DUTIES (Rothko v. Reis) (1) Duty of loyalty: precludes trustees from self-dealing or engaging in transactions that create a conflict of interest with their obligations to the settlors and the beneficiaries (2) Duty of impartiality: requires that trustees act fairly toward all beneficiaries (3) Duty of prudence: requires that trustees invest and manage the trust assets in a fashion that entails an appropriate degree of risk, given the circumstances of the beneficiaries and the nature of the trust property Traditionally, prudence = conservative in investing, but modern view = mixed portfolio that maximizes returns while minimizing risks (equities and bonds) -Mutual fiduciary duty of oversight: makes legally accountable a trustee who knows that his co-trustee is committing breaches of trust and not only fails to exert efforts directed at prevention, but accedes to them (even if failing to take action on advice of counsel)

Kiekel v. Four Colonies Home Association (Kan. 2007) (5)

Four Colonies Homes Assoc. submitted bylaw amendment to its member to restrict rentals. Updates to bylaws required over 50%, updates to declaration required more than 75%. This bylaw passed by 51% and the Kiekels, who rent their units, sued. The Association sought an injunction to prevent the Kiekels from renting their units and to require the Kiekels to sell the units to occupying owners. HELD: for plaintiff. -Right to rent is a sufficiently important attribute of property that it cannot be prohibited unless it is proscribed with clarity in the declaration--Unless the constitution (declaration) of this property explicitly said you can't rent, they can't just pass a statute (bylaws). Have to go through more onerous, 75% approval, process. -Here, the declaration, which governs property rights, does not restrict the right to rent property. The declaration neither expressly prohibits nor permits renting, and it defines lessees and tenants as "residents." -no grounds for injunctive relief: the Association did not prove that the Kiekels' tenants were more likely than other tenants to engage in disruptive behavior or that the maintenance problems were worse than those affecting other properties. The Association may use its right to restoration to restore the Kiekels' property and may add the restoration costs to the Kiekels' annual assessment. -changing circumstances problem: hard for condos to adjust. Further, owners of condos make poor landlords! Usual landlords, wary of interests and continued rents of other tenants, are careful to screen tenant behavior--in condos, the "landlords" have no financial interest in the other condo owners' opinions

Javins v. First National Realty Corp. (D.C., 1970) (6)

IMPLIED WARRANT OF HABITABILITY. Plaintiffs withheld rent from FNR due to numerous violations of the housing code. The violations did not arise until after the leases began. Defendant brought suit for ejectment. HELD: for plaintiff. -A warranty of habitability is implied in residential leases and it requires landlords to maintain residential premises in livable condition (pursuant to housing codes) (IWH has now been adopted by all but 4 states) -MANDATORY warranty. Can't be disclaimed. -. Although courts have historically not held landlords liable for repairs, the nature of leases has changed and those precedents are outdated. For instance, an ordinary tenant is no longer able to make repairs himself the way tenants were able to do so when leases were mainly of farmlands. Along those lines, where in the past leases were commonly for land, literally, leases today, especially in urban areas, are for a place to live on that land. Thus, the premises must be kept in livable condition. -remedies available to tenant for violation of IWH: (1) rescission of the lease, thereby allowing the tenant to vacate without further rent obligation (2) ordering directing specific performance of IWH (3) action for damages for breach of IWH (4) set-off against rent liability if sued for withheld rent (5) in some jurisdictions, tenant can withhold all or a portion of the rent until the landlord corrects the violation of IWH -also: doctrine of retaliatory eviction (landlord may not retaliate against a tenant for reporting code violations); illegal lease doctrine (if landlord leases property that is subject to one or more code violations, such that premises are rendered unsafe and unsanitary, then the lease is void and of no legal effect. (latter not as favored, as it turns lease into tenancy at will or sufferance and landlord can evict)

Paradine v. Jane (Engl. 1647) (4)

Independent covenants (Covenants must be performed without regard to whether other covenants have been or can be performed; for example, must pay rent even if lessee can't get possession of the property. That is, unless the LANDLORD interfered with quiet enjoyment of tenant.) Defendant leased land from plaintiff for a three-year term. During the lease term, Prince Rupert of Germany seized and occupied the land, which frustrated defendant's purpose of taking the profits of the land. Defendant stopped paying rent. Plaintiff brought suit under the lease. HELD: for plaintiff. -illustrates independent covenants model: rent and quiet enjoyment. -allocation of risk: tenant is RESIDUAL CLAIMANT. anything that happens that is not subject to landlord's (or tenant's) control is risk assumed by TENANT. ("lessee caveat"). If tenant gets windfall gains from leased, property, by same reason windfall losses should also be absorbed by tenant (incentivizes tenant to make efficient use of property, since landlord gets paid the same amount)

Broadway National Bank v. Adams (Mass. 1882) (5)

Leading case on spendthrift trusts. Adams (beneficiary) has a spendthrift trust. He goes around in fancy clothing, but he doesn't actually have any assets. Creditors extend him credit because of his appearance, then, after he goes into debt, creditors want to access his trust in order to satisfy his debts. Held: for defendant. MAJORITY RULE re spendthrift trusts: The settlor may provide in the trust agreement that the interest of the beneficiary cannot be attached or garnished by the beneficiary's creditors while it is still under the management & control of trustee → creditors can only seek assets once paid out to beneficiary -donor/settlor intent seems to dominate here; settlor only intended that Adams get a life estate in the trust corpus. -no restraints on alienation, since the trustee can do various things with the trust corpus--division between PRINCIPAL (which is completely unrestrained) and INTEREST (which is unrestrained once paid out periodically) -problem of "ostensible ownership" (looks like someone owns something, but they don't) for creditors (this is England's main issues with spendthrift clauses)--court's answer: creditors should do due diligence in lending! (problematic for unrecorded inter vivos trusts and not realistic for small creditors--not really an issue today due to credit scores and companies' development of technology)

Gotlieb v. Taco Bell (NY, 1994) (5)

Surrender. Defendant leased land from plaintiff but repudiated before rent was due. (1) on October 19, 1993, the plaintiffs met with Rite-Aid Corporation (Rite-Aid) representatives to discuss renting the premises, and (2) on November 3, 1993, the plaintiffs submitted a proposed lease to Rite-Aid. Plaintiffs sued defendant for past and future rent and liquidated damages pursuant to lease. FOUND: mostly for defendant. -A landlord's acceptance of the tenant's repudiation occurs by express agreement or by conduct, otherwise known as operation of law. Repudiation by operation of law requires conduct that is so inconsistent with the landlord-tenant relationship that it implies intent to terminate the lease. A party's express refusal to accept surrender does not negate conduct that indicates the party's acceptance of the surrender. In situations of repudiation of a lease, landlord has three options: 1) sit back then sue for damages (no duty to mitigate in NY for commercial leases 2) reenter, retake, relet as AGENT FOR TENANT (tenant liable for rent up until new lessee found then also for any deficiency in rent) 3) reenter, retake, relet for LANDLORD'S PURPOSES (could still recover any rent due, but cut off as of the date of acceptance of the surrender) -here, defendants liable for rent up until plaintiffs sent proposed lease to new lessee. Plaintiffs not entitled to liquidated damages because they in effect accepted repudiation. -surrender usually is more pro-tenant, because it is much less money than forfeiture clauses would otherwise require.

Sutton v. Temple (Engl. 1843) (3)

Tenant leased land for the purpose of feeding his cattle, but that purpose was not specified in the lease. The land was fertilized with manure that had paint chips, making it unsuitable for grazing and harmful to his cattle. Landlord (plaintiff) sued for rent. HELD: for plaintiff. -Risk is allocated onto lessee to ensure that leased land is suitable for his or her intended purpose. They have a better idea of what their purpose is. A tenant must pay rent for land that is unfit for the tenant's purposes if the purposes are not described in the lease, because there is no implied warranty that leased land will be fit for the tenant's purposes. -court says this is distinguishable from other implied covenants, as in Smith v. Marrable, 152 Eng. Rep. 693 (Exch. 1843), which involved a contract for a house and furniture. In Marrable, the court found that a house must be fit for immediate occupation if the contract is for both the house and the furniture. If an individual enters into a contract to provide goods or a house, the goods must be fit for use, and the house must be habitable. Similarly, goods must be fit for use, and a person who furnishes a defective carriage is liable if the carriage breaks down.

Smith v. McEnany (Mass. 1897) (4)

Tenant rented a shed from landlord; landlord built a wall that encroached slightly on the leased premises. The plaintiff sued for the tenant's nonpayment of rent, as well as a breach of a covenant to repair. The plaintiff argued that the wall was not grounds for withholding rent because it did not materially impact the tenant's enjoyment of the land. HELD: for defendant. -A landlord's physical intrusion that interferes with the tenant's quiet use and enjoyment of a portion of the property amounts to an eviction from the entire property such that rent obligations are suspended. When a landlord leases property, he leases the entire premises and not sections of it separately. The whole rent is charged on every part of the land. The extent of the interference is relevant only if the intrusion is not physical. basically: PARTIAL EVICTION COMPLETELY ABSOLVES TENANT FROM PAYING RENT -Why does this make sense, as opposed to proportional reduction of rent? Landlord cannot in any way unilaterally diminish leased asset, especially in bad faith/intentionally. "We don't like 'take and pay.'" Landlord has breached the covenant of quiet possession--covenant to pay rent is in fact dependent on this. -modern day handling of this would probably give tenant the option of terminating the lease or continuing with the lease with proportionally diminished rent.

Jaber v. Miller (Ark. 1951) (5)

The building burned down, terminating the main lease; parties argued over whether it was a sublease or assignment. If a sublease, then when the main lease was cancelled, the sublease was null. If an assignment, then rent payments would have been required, including the note payments How to determine if assignment or sublease: -Key Inquiry: Is the original tenant still in the picture or have they transferred everything to the new tenant? -English/Common Law Rule: if the instrument transfers lessee's estate for the ENTIRE remainder of the term, it is an assignment, regardless of form or intent. If the instrument purposes to transfer the lessee's estate for less than the entire term and thus prime tenant retains a reversion, even for a day less, it is a sublease [most US courts still follow this today!] -New Rule (Jaber): Uphold the intent of the parties over formalistic reasoning -Here, the instrument said "assignment" and it was for the whole duration of the lease; furthermore, the promissory notes are highly atypical of subleases

Lease transfers (5)

When property is sold subject to a lease, the new owner typically takes the lease (unless foreclosure) (Only covenants that run with the land transfer- 1) Did parties intended the covenant to run? 2) Does the covenant "touch and concern the land"?) -Privity of contract - bound by contractual terms entered into with each other -Privity of estate - one party's interest is directly carved out of the other's and one has actual possession or a reversion -Sublease: one party carves out part of his lease and leases it to another; each pair of parties is in both privity of contract and estate (note: no privity of estate between landlord and subtenant; landlord cannot enforce any of the obligations of the original lease against the subtenant, e.g. to pay rent) -Assignments - one party transfers his lease to another party; there will be privity of contract between the assignor and assignee; however, only privity of estate, between the landlord and assignee (Assumption - assignee agrees to be bound by original lease terms (creates privity of contract between landlord and assignee); Novation - parties agree to erase any contractual liability on the part of the assignor (removes privity of contract between landlord and assignor--prime tenant is off the hook))

40 West 67th Street v. Pullman (NY, 2003) (6)

∆ Pullman was a nightmare co-op owner (wild accusations, physical altercations, construction w/out board approval); π board voted to terminate tenancy due to "objectionable conduct" per lease provision and shareholders passed the resolution unanimously. ∆ ignored notice and remained in apartment → π sues. Issue before the court: what standard of review should apply to a co-op, corporate law standard (business judgment-judicial deference to good faith decisions made by boards of directors) or LL-T law standard (reasonableness)? Basically: is burden of proof for eviction on COOP or on TENANT? HELD: for plaintiff. -Business judgment rule applies; court should defer to board if decision is within scope of authority and in good faith (i.e., board would sell the unit and give Pullman the net proceeds); "competent evidence" that landlord/tenant "reasonableness" requires is supplied by the shareholder vote and the evidence leading to that vote. -To trigger further judicial scrutiny, aggrieved shareholder must show that the board acted: 1) outside the scope of its authority; 2) in a way that did not legitimately further corporate purpose (presupposing good faith); or 3) in bad faith Applied → ∆ did not meet burden b/c (1) ∆ had notice/opportunity to be heard; ∆ failed to appear and challenge findings (2) Unanimous vote indicates BoD furthered collective interest of co-op (3) plaintiff has not shown any indication of bad faith, arbitrariness, favoritism, discrimination, or malice