Club Chain of Manhattan, Ltd. v. Christopher & Seventh Gourmet, Ltd.

• Decision Date: 08 May 1980
• Citation: 74 A.D.2d 277,427 N.Y.S.2d 627
• Court: New York Supreme Court — Appellate Division
• Parties: CLUB CHAIN OF MANHATTAN, LTD., Plaintiff-Appellant-Respondent, v. CHRISTOPHER & SEVENTH GOURMET, LTD., and Herbert Wetanson, Defendants-Respondents-Appellants.

Page 627

427 N.Y.S.2d 627

74 A.D.2d 277

CLUB CHAIN OF MANHATTAN, LTD., Plaintiff-Appellant-Respondent, v. CHRISTOPHER & SEVENTH GOURMET, LTD., and Herbert Wetanson Defendants-Respondents-Appellants.

Supreme Court, Appellate Division, First Department.

May 8, 1980.

Carrington Boggan, New York City, of counsel (Boggan & Thom, New York City), for plaintiff-appellant-respondent.

Stephen Ross, Long Island City, of counsel (Razis & Ross, P. C., Long Island City), for defendants-respondents-appellants.

Before MURPHY, P. J., and SULLIVAN, SILVERMAN, BLOOM and YESAWICH, JJ.

SULLIVAN, Justice.

In May of 1978, plaintiff, Club Chain of Manhattan, Ltd., purchased a health club and bathhouse at 28 West 15th Street in Manhattan, known as "Man's Country", and, as part of the transaction, succeeded to the seller's leasehold interest in billboard space atop a building situated nearby at Sheridan Square. By lease dated March 21, 1977, Christopher & Seventh Gourmet, Ltd. (Christopher), the lessee of the entire Sheridan Square building, had rented two billboards to plaintiff's assignor for a period of five years from April 1, 1977, at a monthly rental of $400. The lease provided that either party could terminate on ninety-days' written notice. After its purchase of the health club plaintiff continued to use the billboards to advertise "Man's Country" and Christopher accepted its rent payments.

The following summer Christopher, dissatisfied with the $400 monthly rental, notified plaintiff that it wanted to renegotiate the lease. With a view toward that end, representatives of the parties met in August of 1978. Wetanson, Christopher's president, insisted that unless plaintiff agreed to pay the higher rent then being demanded, Christopher would invoke the lease's cancellation provision.

Plaintiff contends that this meeting produced a new billboard lease, without a ninety-day cancellation provision, but at a rental of $600 per month with yearly escalations thereafter for the balance of the lease, which was to commence October 1, 1978, and to be co-extensive with Christopher's own underlying lease in the premises.

Plaintiff further contends that pursuant to agreement, its attorneys prepared and forwarded the new lease encompassing these terms to Wetanson and his attorney to review and to insert the exact termination date of Christopher's own lease to the premises, which Wetanson had represented to be approximately seven and one-half years from August 1978. The letter of transmittal to Wetanson, dated September 1, 1978, stated "I believe the new lease contains all the provisions we discussed and agreed upon." It further stated "In addition, at my client's request, I have included two further provisions which we could not review with you first due to your present absence from the City." These provisions afforded a right to sublet conditioned upon the lessor's approval, for the refusal of which the lessee could terminate upon proper notice; and for a pro rata allocation of the rent in the event of the destruction of one of the billboards and continued use of the other. Inasmuch as plaintiff concedes that the parties never agreed upon these provisions, it does not seek enforcement of them as part of the oral lease agreement allegedly reached at the August 1978 meeting.

At the insistence of Christopher and Wetanson, plaintiff began to pay the higher rental of $600 as of October 1978 and continued to do so through September 1979, when Christopher, demanding still another rent increase, rejected plaintiff's tender of rent. Despite numerous inquiries of both Wetanson and his attorney, Christopher never returned the lease agreement in executed form.

Four months after plaintiff had increased its monthly rent payments to $600, Christopher, by written notice dated January 29, 1979, directed plaintiff to pay all rentals due "under your lease with (Christopher)" (emphasis added) to Wetanson individually "until further written notice." For the next five months plaintiff paid the higher rental to Wetanson, as directed. In June of 1979 Wetanson informed plaintiff that Christopher wanted an increase in rent for the billboard space to at least $1,000 per month for the uppermost billboard alone. Wetanson also requested plaintiff to relinquish its rights to the lower billboard so that Christopher could lease the space to others. According to plaintiff, Wetanson advised that unless it agreed to such a proposal, Christopher would terminate the lease pursuant to the cancellation provision. Plaintiff refused, asserting that the August 1978 fixed-term lease agreement did not afford Christopher a unilateral right to cancellation, and Wetanson then, for the first time, informed it that Christopher had never signed the lease because he had never intended to bind the lessor to a lease which would not allow it the unilateral right of cancellation.

Attempts to reach a compromise settlement of the dispute were unsuccessful, and by letter addressed to plaintiff's predecessor under the 1977 lease, Christopher gave notice of its election to terminate, effective ninety days from receipt of the notice.

Plaintiff thereafter commenced this action against both Christopher and Wetanson, seeking declaratory and injunctive relief against Christopher, as well as specific performance of the lease terms to which the parties allegedly agreed in August 1978, or, alternatively, damages as a result of both defendants' fraud. When plaintiff moved for a preliminary injunction, defendants cross-moved for dismissal of the four causes of action pleaded and for summary judgment declaring that the purported August 1978 lease agreement was void and unenforceable under the statute of frauds.

Special Term granted the cross-motion to the extent of declaring the alleged lease agreement of August 1978 void and unenforceable, by consequence of which it dismissed the first two causes of action seeking equitable relief, and, in light of its determination as to the first and second causes of action, denied, as academic, the application for a preliminary injunction. The cross-motion addressed to the sufficiency of the third and fourth causes of action alleging fraud was denied. Both sides thereafter appealed, plaintiff from the dismissal of the first two causes of action, the declaration in Christopher's favor and the denial of a preliminary injunction. Defendants cross-appeal from the denial of their motion to dismiss the third and fourth causes of action.

In reaching its determination Special Term found fatal the absence of a written lease signed by Christopher embodying the terms of the agreement alleged to have been reached by the parties in August 1978. ^* It rejected plaintiff's argument that a sufficient showing had been made to raise a factual issue on the question of the enforceability of the alleged August 1978 lease agreement on the basis of part performance.

In our view, the allegations set forth in the moving affidavits, when measured against Christopher's acceptance of the new rent of $600, as well as its failure to return or reject the written lease, create a factual controversy on the issue of part performance which precludes summary judgment. While the statute of frauds is a bar to an action on a contract which requires a writing, it will not prevent a court of equity from enforcing an oral contract where part performance has taken place and non-enforcement will result in injustice. (See General Obligations Law § 5.703(4), which provides "(n)othing in the section abridges the powers of courts of equity to compel the specific performance of agreements in cases of part performance.")

In support of its argument that part performance removes the alleged August 1978 agreement from the proscription of the statute of frauds, plaintiff urges that after negotiating a new agreement and preparing and delivering a written lease incorporating the terms upon which the parties had agreed, it paid, at defendants' insistence, in good faith reliance upon that agreement and in accordance with the underlying terms, the higher rental for which the agreement provided. Defendants contend, on the other hand, that the increased rental was no more than an exchange for Christopher's forebearance from exercising its right of cancellation under the March 21, 1977 lease.

Certainly, in a market free of legal controls, as here, a landlord with the unilateral right to terminate a lease may, at any time, demand a higher rental as the price for continuing the lease. Equally certain, however, is that a tenant, if it so chooses, may refuse to renegotiate and accept termination, or, it may agree to the higher rental but exact as a concession, so as to avoid repetition of the demand for a rent increase, a lease which does not permit the landlord the unilateral right of cancellation. The unresolved question here then is whether the higher rent was fixed as a result of the negotiation of a new lease which did not allow the landlord the unilateral right of cancellation or was merely in consideration of Christopher's forebearance from terminating the March 1977 lease.

We are not unmindful of the admonition that part performance must be "unequivocally referable" to the purported agreement in order to create an enforceable oral agreement....