Farrell Lines, Inc. v. City of New York

• Decision Date: 17 February 1972
• Citation: Farrell Lines, Inc. v. City of New York, 30 N.Y.2d 76, 330 N.Y.S.2d 358, 281 N.E.2d 162 (N.Y. 1972)
• Parties: , 281 N.E.2d 162 FARRELL LINES, INC., Respondent, v. CITY OF NEW YORK, Appellant. CITY OF NEW YORK, Respondent-Appellant, v. FARRELL LINES, INC., Appellant-Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 358

330 N.Y.S.2d 358

30 N.Y.2d 76, 281 N.E.2d 162

FARRELL LINES, INC., Respondent, v. CITY OF NEW YORK, Appellant.

CITY OF NEW YORK, Respondent-Appellant, v. FARRELL LINES, INC., Appellant-Respondent.

Court of Appeals of New York.

Feb. 17, 1972.

Daniel Flynn, New York City, for respondent and appellant-respondent.

J. Lee Rankin, Corp. Counsel (Morris Einhorn and Stanley Buchsbaum, New York City, of counsel), for appellant and respondent-appellant.

JASEN, Judge.

Involved in this landlord-tenant dispute are issues arising from the lessee's covenants to keep the demised premises in good and sufficient repair, and to surrender the demised premises in good order and condition.

Farrell Lines, Inc. (Farrell), as lessee of the 35th Street pier in Brooklyn, brought an action for a declaratory judgment asking for a declaration that it was not obligated upon its covenant to repair and surrender in good order until its lessor, the City of New York (City) had first put the pier in the condition called for by the lease. This action was consolidated with one instituted by the City, as lessor of the 35th and 33rd Street piers, for damages arising from the lessee Farrell's breach of its covenants to repair and surrender the demised premises in good order in both its leases for the 35th and 33rd Street piers. After a trial, the court concluded that the City had failed to perform its covenants to restore, and Farrell was, therefore, not bound under its obligation to repair. The court also granted Farrell's prayer for declaratory relief and dismissed the City's claim with respect to the 35th Street pier. Farrell, However, was held liable for damages ($222,349) for breach of its covenant to repair contained in the 33rd Street pier lease. (63 Misc.2d 542, 312 N.Y.S.2d 260.) The Appellate Division, 35 A.D.2d 788, 315 N.Y.S.2d 794, affirmed on the opinion of the trial court.

35TH STREET PIER

In 1956, the 35th Street pier was badly damaged by an explosion and fire, which destroyed almost all of the shed and substantial parts of the concrete deck, supporting timbers and substructure. The fire and explosion, having rendered the pier unusable as a shipping terminal, Luckenbach S.S. Co., the lessee at that time, exercised its option to terminate the lease. The City, thereupon, undertook to repair and rehabilitate the damaged pier facilities in order to relet them to shipping companies. Between January, 1958, and January, 1960, certain repairs to, and rehabilitation of the facility were made. ¹

The City, in 1958, entered into separate arrangements for the successive leasing of this pier to Northeast Marine Terminal Company, Inc. (Northeast) and Farrell. Inasmuch as a new shipping terminal between 36th and 39th Streets was simultaneously being erected for long-term lease to Northeast, it was proposed by the City that Northeast should be first permitted to occupy the rebuilt 35th Street pier until its larger terminal was ready for occupancy, and thereafter Farrell would occupy it. Accordingly, two leases for the 35th Street pier were executed. The first, with Northeast, executed on January 7, 1958, was to run from the time that the 35th Street pier was rebuilt until Northeast's terminal was completed. The second lease, with Farrell, executed on March 4, 1958, was to commence within 30 days of Northeast's departure and to terminate on January 31, 1968.

Pursuant to the terms of the lease between the City and Farrell, which were substantially identical to those in the lease between the City and Northeast, the City covenanted to (1) repair, rehabilitate and restore the substructure of the pier and construct a new concrete deck; (2) to repair, rehabilitate and restore the portion of the shed not affected by the fire, and (3) to construct a new one-story shed on the pier. All of this work was to be performed 'in a good and workmanlike manner' in accordance with 'sound engineering practice' and 'with the final plans and specifications to be approved by the Chief Engineer of the Department of Marine and Aviation.' In addition, it was mutually agreed that '(i)t is the intent of this lease, that Lessor shall perform all of the work set forth above, prior to the commencement date of this lease, and in point of time, in accordance with the terms of another lease between The City of New York and Northeast Marine Terminal Company, Inc., covering the demised premises.' Farrell for its part covenanted to keep the premises in good and sufficient repair during its term and to surrender the premises at the expiration of the term 'well and sufficiently repaired, painted and in good order and condition.'

The pier was initially occupied by Northeast on January 4, 1960. Upon completion of its new shipping terminal, Northeast vacated the pier on June 16, 1962, and Farrell commenced occupancy two days later. A joint outgoing survey of the condition of the pier, made by the City and Northeast, was commenced immediately, and was completed on October 15, 1962. ² From the time of the completion of the survey up to May, 1965, several discussions were held between the City and Farrell as to what work should be done on the pier by the City in order to complete its lease obligations. These discussions were terminated, however, when they were unable to reach a final agreement. At that time Farrell commenced its declaratory judgment action.

We are in accord with the courts below that Farrell is not liable for breach of its covenants to keep, maintain and to surrender the 35th Street pier in good repair. Contrary to the City's assertion, the record amply supports the conclusion that certain work, which cannot arguably be claimed to be without the lease obligation, was never performed by it. Since this appeal is here on affirmed findings of fact, and there was ample evidence presented at the trial upon which the court could find that certain work was never performed, the City is foreclosed from arguing that it had completely rebuilt the pier. (Levine v. Shell Oil Co., 28 N.Y.2d 205, 209, 321 N.Y.S.2d 81, 83, 269 N.E.2d 799, 800.) Accordingly, because these defects preclude the City from alleging full performance upon its covenant, admittedly a condition precedent to Farrell's obligation under its covenant to repair, Farrell's obligation never came into being. (Isbrandtsen Co. v. City of New York, 33 A.D.2d 1018, 308 N.Y.S.2d 279.)

Moreover, the failure of the City to remedy the subsequent disrepairs caused by Northeast likewise prevents the City from recovering damages for Farrell's breach of its covenants. The City's contention that it was not required to do so by the terms of the lease because Farrell was bound to accept the pier in the condition which existed on January 4, 1960, the date Northeast commenced occupancy, and, thus, took subject to all damages resulting from or attributable to Northeast's occupancy, is untenable.

A lease, like any other contract, is to be interpreted in light of the purposes sought to be attained by the parties. (Cohen v. E. & G. Bass, Inc., 246 N.Y. 270, 158 N.E. 618; Matter of Loew's Buffalo Theatres, 233 N.Y. 495, 135 N.E. 862; Buchanan v. Whitman, 151 N.Y. 253, 45 N.E. 556; 4 Williston, Contracts (3d ed.), § 619, pp. 730--733; 51C C.J.S. Landlord and Tenant § 232, subd. (1).) 'An agreement of lease possesses no peculiar sanctity requiring the application of rules of construction different from those applicable to an ordinary contract.' (A.Z.A. Realty Corp. v. Harrigan's Cafe, 113 Misc. 141, 147, 185 N.Y.S. 212, 217.)

Under the City's interpretation of the lease, the benefit which Farrell sought to obtain from the City's covenant of repair and rehabilitation could be vitiated by a careless and negligent intermediate tenant. Furthermore, if the City could have satisfied its obligation to Farrell in 1960, then Farrell, under its covenant to repair, would be responsible to remedy all the disrepair attributable to Northeast if such were required to put the pier in good order, since the duty to repair and keep in good order also encompasses the duty to put in good order. (Tinsley v. Smith, 115 App.Div. 708, 712, 101 N.Y.S. 382, 385, affd. 194 N.Y. 581, 88 N.E. 1133; Lehmaier v. Jones, 100 App.Div. 495, 498, 91 N.Y.S. 687, 689; 2 Rasch, New York Landlord and Tenant (2d ed.), § 625.) Since rules of construction of contracts require, whenever possible, that an agreement should be given a 'fair and reasonable interpretation' (Aron v. Gillman, 309 N.Y. 157, 163, 128 N.E.2d 284, 288; see, also, Rentways, Inc. v. O'Neill Milk & Cream Co., 308 N.Y. 342, 126 N.E.2d 271; Wendel Foundation v. Moredall Realty Corp., 282 N.Y. 239, 26 N.E.2d 241; Columbus Spa v. Star Co., 216 App.Div. 218, 214 N.Y.S. 653; Restatement, Contracts, § 236; Restatement 2d, Contracts (Tent. Draft No. 5, March 31, 1970), § 229), the City's interpretation is clearly erroneous for the reason that under such...