OPINION OF THE COURT
Pursuant to the Martin Act (General Business Law article 23-A), the owner of an apartment building may sponsor an offering
It is undisputed that the sponsor has sold no shares since 1990. Instead, the sponsor has kept more than 62% of shares in the building, corresponding to 41 of the 66 apartments.
The tenant-owners and the Co-op Board brought this action against the sponsor, asserting that the sponsor had breached its contractual duty to dispose of all its shares within a reasonable time. The sponsor moved to dismiss, asserting a defense founded upon documentary evidence (see CPLR 3211 [a] ). In deciding the motion, Supreme Court dismissed the contract claim, finding that the offering plan contained no promise by the sponsor to sell unsold shares within any particular time frame. The Appellate Division reinstated the contract cause of action, holding that the sponsor's offering plan included an implied promise to sell all unsold units within a reasonable time (285 A.D.2d 244 ). The Appellate Division then granted the sponsor leave to appeal and certified the question, "Was the order of this Court, which modified the order of the Supreme Court, properly made?" (287 A.D.2d 947 .)
We hold that plaintiffs have pleaded a cause of action for breach of contract sufficient to survive dismissal under CPLR 3211, and affirm the order of the Appellate Division. Our analysis, however, differs from the Appellate Division's in that we address only the sufficiency of the contract cause of action as opposed to its merits.
In the posture of defendants' CPLR 3211 motion to dismiss, our task is to determine whether plaintiffs' pleadings state a
Based on the foregoing principles, we conclude that plaintiffs' complaint sufficiently alleged, at a minimum, that the sponsor undertook a duty in good faith to timely sell so many shares in the building as necessary to create a fully viable cooperative. The complaint asserts that the sponsor—by its initial offering plan and each of its 10 periodic amendments—offered for sale the shares in the cooperative corresponding to its 66 apartments, but instead retained a majority of those shares. The complaint narrates that the sponsor had represented that its expected profits would depend on market conditions and the length of time required to sell shares offered under the offering plan, but gave no hint that it would make a sizeable profit by retaining a majority of those shares and leasing apartments at market rates, free of the strictures of rent regulation. Similarly, the complaint states that the offering plan cautioned purchasers as to numerous investment risks, but did not mention the risk that the sponsor would keep most of the shares for itself. Based primarily on these allegations, plaintiffs assert that the parties could not have intended—and plaintiffs could not reasonably anticipate—that the sponsor would retain a majority of shares in the cooperative.
Moreover, the complaint alleges that by keeping a majority of shares, the sponsor defeated the purpose of the contract. Plaintiffs assert that by rejecting offers from prospective buyers and allowing its offering plan to lapse, the sponsor frustrated plaintiffs' ability to resell their shares, interfered with the Co-op Board's refinancing of the building's mortgage
Because the sponsor's documentary evidence does not clearly refute these assertions, and particularly in light of the sponsor's duty imposed by the Attorney General not to abandon the offering plan after filing an effectiveness amendment (see 13 NYCRR 18.3 [r] ), we conclude that defendants' CPLR 3211 motion to dismiss must fail.
In New York, all contracts imply a covenant of good faith and fair dealing in the course of performance (see e.g. Smith v General Acc. Ins. Co., 91 N.Y.2d 648, 652-653 ; Dalton v Educational Testing Serv., 87 N.Y.2d 384, 389 ; Van Valkenburgh, Nooger & Neville v Hayden Publ. Co., 30 N.Y.2d 34, 45, rearg denied 30 N.Y.2d 880, cert denied 409 U.S. 875 ). This covenant embraces a pledge that "neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract" (Dalton, 87 NY2d at 389, quoting Kirke La Shelle Co. v Armstrong Co., 263 N.Y. 79, 87 ). While the duties of good faith and fair dealing do not imply obligations "inconsistent with other terms of the contractual relationship" (Murphy v American Home Prods. Corp., 58 N.Y.2d 293, 304 ), they do encompass "any promises which a reasonable person in the position of the promisee would be justified in understanding were included" (Rowe v Great Atl. & Pac. Tea Co., 46 N.Y.2d 62, 69 , quoting 5 Williston, Contracts § 1293, at 3682 [rev ed 1937]). This is particularly true in cooperative conversions,
By spelling out the basis for their claim that the sponsor failed to exercise good faith and deal fairly in fulfilling the terms and promises contemplated by the offering plan, plaintiffs pleaded a valid cause of action for breach of contract. Specifically, plaintiffs pleaded that they reasonably understood the offering plan to state a duty, at the very least, to sell a sufficient number of shares in a timely manner so as to create a viable cooperative. We emphasize, however, that we address only the sufficiency of the contract cause of action and not its merits. We note that the Appellate Division went so far as to hold that the sponsor had undertaken a duty to dispose of the units within a reasonable time. The Court thus decided that issue and left open only the question of whether the sponsor's 10-year delay was reasonable. At this preanswer stage of the litigation, we need not reach the merits of plaintiffs' contract cause of action and therefore do not address the issue of whether, as alleged, the sponsor impliedly promised to sell all its unsold shares. We hold only that plaintiffs' contract cause of action withstands the sponsor's CPLR 3211 motion to dismiss.
We have reviewed defendants' remaining contentions and find them without merit.
Accordingly, the order of the Appellate Division, insofar as appealed from, should be affirmed, with costs, and the certified question answered in the affirmative.
Order, insofar as appealed from, affirmed, etc.