| Masek v Wichelman |
| 2009 NY Slip Op 08050 [67 AD3d 444] |
| November 10, 2009 |
| Appellate Division, First Department |
| Frank Masek, Respondent, v Barbara Wichelman,Respondent, et al., Defendant. |
—[*1] Brief Carmen & Kleiman, LLP, New York (Richard E. Carmen of counsel), forrespondent.
Interlocutory judgment, Supreme Court, New York County (Milton A. Tingling, J.), enteredJune 25, 2008, to the extent appealed from, dismissing with prejudice plaintiff's separatelydenominated claim for reimbursement of maintenance and other charges and costs, unanimouslyreversed, on the law, without costs, the claim for reimbursement of maintenance reinstated, andthe matter remanded to Supreme Court for further proceedings consistent herewith.
This proceeding arises out of an action for judicial partition, pursuant to article 9 of the RealProperty Actions and Proceedings Law, of two cooperative apartments located at 205 East 69thStreet, New York County, owned by the individual parties as tenants in common. The plaintiffalleges that he made payments of the entire maintenance, carrying and other costs on the twoapartments through his wholly owned corporation, and now seeks to recover one half of suchpayments from the defendant Barbara Wichelman. Wichelman disputes that she owes plaintiffany payment for maintenance costs because the payments for such costs were made by acorporate entity that was a nonparty to the proceeding.
The plaintiff and Wichelman own the proprietary lease and 74 shares of stock of cooperativeapartment 3D, and the proprietary lease and 37 shares of cooperative apartment 3E, entitlingthem to a leasehold interest in the two units from May 11, 1998 to December 31, 2031.Defendant 205-69 Apartments, Inc. is the owner of the land and building.
It is also undisputed that the monthly maintenance charges for apartments 3D and 3E werepaid up to the date of the nonjury trial, September 17, 2007. The record reflects that honoredchecks given in payment of the maintenance charges for the apartments were made payable to205-69 Apartments, Inc., or its managing agent, drawn on the account of M&S Movers, Packers,Storage, Inc. (M&S Movers), and signed by the plaintiff. M&S Movers is a subchapter Scorporation wholly owned by the plaintiff, and has been treated as such for approximately 25years.
The trial court granted the partition and directed that shares of both apartments be sold [*2]and that the proceeds of the sale be divided equally between theplaintiff and Wichelman. The trial court dismissed plaintiff's second cause of action forreimbursement, on the grounds that "the only credible evidence of such payment[s] establishedthat a non-party to this proceeding, namely M&S Packers, Inc., made the charges." The trialcourt stated it "would have awarded credit to plaintiff for one-half the carrying charges thatplaintiff allegedly paid." However, the court held that because it was not plaintiff, but rather anonparty corporate entity that made the payments, Wichelman was not liable for reimbursementto plaintiff.
For the reasons set forth below, we unanimously reverse. The trial court correctlyhypothesized that it should award credit to the plaintiff for one half of the carrying charges thathe allegedly paid. However, the court's holding that, since the payments were made throughchecks of M&S Movers, they were made by a nonparty entity to the proceeding and thus wouldnot be reimbursed to the plaintiff, was error. An "S" corporation does not pay taxes on acorporate entity level, but instead, requires each shareholder to report his proportionate share ofthe "S" corporation's income on his individual tax return (Internal Revenue Code [26 USC]§ 1366). Both profits and losses of a corporate entity's income flow through toshareholders individually (Internal Revenue Code [26 USC] § 1367). At trial, the publicaccountant for both M&S Movers and the plaintiff, testified that checks of M&S Movers givenin payment for the maintenance of units 3D and 3E were not reflected in the balance sheet of the"S" corporation. Moreover, the corporate tax return for M&S Movers did not reflect anydeductions or write-offs taken for payments on the apartments. In fact, the payments todefendant 205-69 Apartments, Inc. were not aggregated expenses of the plaintiff's "S"corporation but instead treated as distributions to the plaintiff himself. Hence, any profits of thecorporation used to pay the maintenance costs in question should have been considered profits,and thus property of the plaintiff.
When an individual is sole shareholder of a corporation, he or she is the equitable ownerand, in the absence of an adverse effect upon the rights of creditors, may lawfully use thecorporation's property in payment of or as security for his or her own personal debt, if so desired(Pine v Hyed Realty Corp., 1 AD2d 952 [1956], affg 145 NYS2d 548 [1955]).Furthermore, a corporation may authorize its president to use corporate checks to pay personaldebt (see Reif v Equitable Life Assur. Socy., 268 NY 269, 276 [1935]; John WilliamBldg. Corp. v Union Trust Co. of Rochester, 256 App Div 885 [1939]; Ehrlich, Inc. vLevine, 83 Misc 136, 138 [1913]). Indeed, the plaintiff was free to choose to dispose of hisprofits as he determined, and had authority to use his "S" corporation checks in doing so.Accordingly, the payments were not made by a nonparty entity, but were in fact, made by theplaintiff as permissible distributions of his corporation (see Degliuomini v Degliuomini, 45 AD3d 626 [2007]). Thus, theplaintiff [*3]properly asserted a cause of action forreimbursement of the defendant's one-half share of the sums he expended.Concur—Gonzalez, P.J., Andrias, Catterson and Abdus-Salaam, JJ.