Female Acad. of the Sacred Heart v. Doane Stuart Sch.

• Decision Date: 26 January 2012
• Citation: 937 N.Y.S.2d 682,91 A.D.3d 1254,275 Ed. Law Rep. 966,2012 N.Y. Slip Op. 00452
• Parties: FEMALE ACADEMY OF the SACRED HEART et al., Respondents, v. DOANE STUART SCHOOL, Appellant.
• Court: New York Supreme Court — Appellate Division

2012 N.Y. Slip Op. 00452

275 Ed. Law Rep. 966

91 A.D.3d 1254

937 N.Y.S.2d 682

FEMALE ACADEMY OF the SACRED HEART et al., Respondents,

v.DOANE STUART SCHOOL, Appellant.

Supreme Court, Appellate Division, Third Department, New York.

Jan. 26, 2012.

Boies, Schiller & Flexner, L.L.P., Albany (George F. Carpinello of counsel), for appellant.

Ganz, Wolkenbreit & Siegfeld, Albany (Robert E. Ganz of counsel), for respondents.

Before: MERCURE, Acting P.J., PETERS, ROSE, LAHTINEN and GARRY, JJ.

MERCURE, Acting P.J.

Appeal from an order of the Supreme Court (Connolly, J.), entered May 12, 2011 in Albany County, which, among other things, denied defendant's cross motion for summary judgment dismissing the complaint.

Defendant was formed by the 1975 merger of two parochial schools, including one located on property owned by plaintiff Female Academy of the Sacred Heart (hereinafter Female Academy), whose parent religious order is plaintiff Society of the Sacred Heart, United States Province, Inc. (hereinafter Sacred Heart). The interested parties executed a memorandum of understanding (hereinafter MOU) contemplating that they would execute a formal contract leasing a portion of the Female Academy's property to defendant for 99 years. The MOU further stated that the lease should have “a cancellation clause built in so that[,] should [defendant] merge or relocate, ... neither party would be in breach of contract.”

While a lease embodying those terms was never executed,¹ defendant nevertheless rented the property. By 2000, defendant owed over $500,000 in back rent, forcing Sacred Heart to advance funds to the Female Academy for maintenance of the property. In an effort to resolve the situation, the parties executed a loan forgiveness agreement and a lease running through 2012, with Sacred Heart agreeing to forgive a portion of the debt for every month that defendant timely paid rent. Both the lease and the loan forgiveness agreement could be terminated by plaintiffs in the event of defendant's breach.

After defendant vacated the premises and ceased paying rent in 2009, Sacred Heart canceled the loan forgiveness agreement and demanded that defendant repay the full debt. Plaintiffs thereafter commenced this action to recover both the outstanding debt and the rent owed by defendant through the remaining term of the lease. Defendant answered and asserted several affirmative defenses, including claims that the cancellation provision in the MOU barred plaintiffs' action and that the 2000–2012 lease was void pursuant to Religious Corporations Law § 12(1). Plaintiffs thereafter moved for partial summary judgment, while defendant cross-moved for summary judgment dismissing the complaint. Supreme Court granted plaintiffs' motion in part, dismissed the two affirmative defenses, and denied defendant's cross motion in its entirety. Defendant appeals and we affirm.

Initially, we agree with Supreme Court that the MOU's lease provisions are unenforceable, because they lack “a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms” ( Matter of Express Indus. & Term. Corp. v. New York State Dept. of Transp., 93 N.Y.2d 584, 589, 693 N.Y.S.2d 857, 715 N.E.2d 1050 [1999]; see Matter of 166 Mamaroneck Ave. Corp. v. 151 E. Post Rd. Corp., 78 N.Y.2d 88, 91, 571 N.Y.S.2d 686, 575 N.E.2d 104 [1991] ). While several subparagraphs in the MOU address aspects of a future lease of the Female Academy's property, it was explicitly deemed a “preliminary agreement” that contemplated further negotiations and execution of “a formal contract” ( see Follender v. Prior, 63 A.D.3d 1458, 1459, 881 N.Y.S.2d 238 [2009] ). Indeed, the MOU failed to specify several material terms of the future lease, including the amount of rent to be paid, when the lease was to take effect and what portion of the property would be leased ( see Matter of Express Indus. & Term. Corp. v. New York State Dept. of Transp., 93 N.Y.2d at 591, 693 N.Y.S.2d 857, 715 N.E.2d 1050; Joseph Martin, Jr., Delicatessen v. Schumacher, 52 N.Y.2d 105, 109–110, 436 N.Y.S.2d 247, 417 N.E.2d 541 [1981]; Uniland Partnership of Del. L.P. v. Blue Cross of W.N.Y. Inc., 27 A.D.3d 1131, 1132–1133, 811 N.Y.S.2d 517 [2006], lv. denied 7 N.Y.3d 713, 824 N.Y.S.2d 605, 857 N.E.2d 1136 [2006] ).² The MOU therefore constituted an unenforceable agreement to agree on terms in a future lease, and does not bar plaintiffs' claims ( see Uniland Partnership of Del. L.P. v. Blue Cross of W.N.Y. Inc., 27 A.D.3d at 1132–1133, 811 N.Y.S.2d 517; St. Regis Paper Co. v. Rayward, 16 A.D.2d 130, 133, 225 N.Y.S.2d 871 [1962], affd. 12 N.Y.2d 1033, 239 N.Y.S.2d 551, 189 N.E.2d 815 [1963]; cf. Sunshine Steak, Salad & Seafood v. W.I.M. Realty, 135 A.D.2d 891, 893, 522 N.Y.S.2d 292 [1987] ).

We further agree with Supreme Court that defendant lacked standing to argue that the 2000–2012 lease is invalid pursuant to Religious Corporation Law § 12(1), which prohibits a religious corporation from leasing its real property “for a term exceeding five years” absent judicial approval. Religious Corporation Law § 12 was intended to protect the members of such corporations “from loss through unwise bargains and from perversion of the use of the property” ( Church of God of Prospect Plaza v. Fourth Church of Christ, Scientist, of Brooklyn, 76 A.D.2d 712, 716, 431 N.Y.S.2d 834 [1980], affd. 54 N.Y.2d 742, 442 N.Y.S.2d 986, 426 N.E.2d 480 [1981]; accord Diocese of Buffalo v. McCarthy, 91 A.D.2d 213, 217, –––N.Y.S.2d –––– [1983], lv. denied 59 N.Y.2d 605, 466 N.Y.S.2d 1025, 453 N.E.2d 550 [1983] ). Inasmuch as the statute was thus intended to give the religious corporation relief from “unwise bargains,” the lease was voidable at the Female Academy's option and defendant lacked standing to challenge it ( see Congregation Atzei Chaim v. 26 Adar N.B. Corp., 27 A.D.3d 412, 412–413, 811 N.Y.S.2d 749 [2006]; Matter of Bridge to Spiritual Freedom, 304 A.D.2d 574, 575, 759 N.Y.S.2d 328 [2003]; see also Lawas v. Cole, 116 A.D.2d 936, 936–937, 498 N.Y.S.2d 512 [1986]; Bankers Trust Co. of Albany, N.A. v. Martin, 51 A.D.2d 411, 412–413, 381 N.Y.S.2d 1001 [1976] ).

Contrary to defendant's contention, the failure to obtain...