Fifty States Management Corp. v. Pioneer Auto Parks, Inc.

• Decision Date: 29 March 1979
• Citation: 46 N.Y.2d 573,415 N.Y.S.2d 800,389 N.E.2d 113
• Parties: , 389 N.E.2d 113 FIFTY STATES MANAGEMENT CORPORATION, Appellant, et al., Plaintiff, v. PIONEER AUTO PARKS, INC., et al., Respondents, et al., Defendant.
• Court: New York Court of Appeals Court of Appeals

Page 800

415 N.Y.S.2d 800

46 N.Y.2d 573, 389 N.E.2d 113

FIFTY STATES MANAGEMENT CORPORATION, Appellant, et al., Plaintiff, v. PIONEER AUTO PARKS, INC., et al., Respondents, et al., Defendant.

Court of Appeals of New York.

March 29, 1979.

Frank J. Bona and Francis X. Murphy, Buffalo, for appellant

James T. Duggan, Buffalo, for respondents.

OPINION OF THE COURT

COOKE, Chief Judge.

The question posed on this appeal is whether equity will intervene to prevent enforcement of a provision in a 20-year lease between commercial parties providing for the acceleration of the rent due for the entire lease term upon the tenant's default in the payment of a monthly rental installment. Reasoning that enforcement of the acceleration clause would exact an unconscionable forfeiture, the Appellate Division affirmed the dismissal of the landlord's complaint by Supreme Court, Erie County.

There should be a reversal. By failing to tender payment of two monthly rental payments or even offering to cure the default, defendant tenant was in willful breach of a material term of the lease. As the tenant is entitled to possession of the demised premises upon payment of the rent reserved for the balance of the lease term (as well as continued performance of other covenants of the lease) and there is no claim of fraud or exploitive overreaching on the part of the plaintiff in compelling performance of its bargained-for right, the agreement of the parties must be enforced in accordance with its terms.

Fifty States Management Corp. (referred to variously as "Fifty States" and "landlord") and Pioneer Auto Parks, Inc. (referred to variously as "Pioneer" and the "tenant"), entered into a 20-year lease of commercial property located in Buffalo in 1972. In return for possession, Pioneer covenanted to make rental payments the first of each month throughout the term of the lease. To secure these payments, Fifty States insisted that Pioneer supply a financially responsible guarantor. It also bargained for and received a clause in the lease giving it the option of accelerating future rent due for the balance of the lease term following default in the payment of a monthly installment from which the frequent provisions requiring the landlord to give formal notice of default and granting the tenant a grace period within which to cure its default were conspicuously absent. Defendant Lyon executed and delivered to Fifty States an instrument in which he unconditionally guaranteed the payment of rent fixed and the performance by Pioneer of all terms and conditions of the lease.

No claim has been made that the acceleration clause is boilerplate, unknowingly assented to by the tenant as a result of its being compelled to enter into a contract of adhesion. Indeed, there is nothing in the record which detracts from the conclusion that the clause was anything but the result of intensive negotiations between commercial parties of equal bargaining strength.

The first three rental payments were timely made. However, the check covering the August, 1973 rent was never received by the landlord. The envelope containing the check was incorrectly addressed and was returned to the tenant while its president was on vacation. During that period, however, Pioneer was on notice that the check had not been delivered. Fifty States informed Pioneer's president that there had been no receipt of the August rental payment and the guarantor inquired of him the reason tenant failed to make payment as required by its lease. On August 20, 1973, the parties met in Buffalo to discuss the problem. When there was no tender of payment by Pioneer, its president was served with a summons and complaint seeking acceleration of the rent payments in accordance with the terms of the lease. The complaint was subsequently amended to reflect the fact that tenant also failed to pay the following month's rent.

Pioneer resists enforcement of the acceleration clause on the ground that it constitutes a penal forfeiture, long disfavored by equity. It is true that equity will often intervene to prevent a substantial forfeiture occasioned by a trivial or technical breach (see J. N. A. Realty Corp. v. Cross Bay Chelsea, 42 N.Y.2d 392, 397-398, 397 N.Y.S.2d 958, 960-961, 366 N.E.2d 1313, 1316; Noyes v. Clark, 7 Paige 179, 32 Am.Dec. 620). To permit literal enforcement of an instrument in such circumstances, it is reasoned, is to elevate the nonperformance of some collateral act into the cornerstonefor the exaction of a penalty (5 Pomeroy, Equity Jurisprudence (5th ed.), § 455a). Similarly, equity may relieve against the effect of a good faith mistake, promptly cured by the party in default with no prejudice to the creditor to prevent unconscionable overreaching (Graf v. Hope Bldg. Corp., 254 N.Y. 1, 13, 171 N.E. 884, 888 (Cardozo, Ch. J., dissenting); 5 Pomeroy, Equity Jurisprudence (5th ed.), § 440a; cf. W. F. M. Rest. v. Austern, 35 N.Y.2d 610, 614, 364 N.Y.S.2d 500, 502, 324 N.E.2d 149, 151). And, of course, equity abhors forfeitures and courts will examine the sum reserved under an instrument as liquidated damages to insure that it is not disproportionate to the damages actually arising from the breach or designed to coerce the performance of a party (Wirth & Hamid Fair Booking v. Wirth, 265 N.Y. 214, 223, 192 N.E. 297, 301; Ward v. Hudson Riv. Bldg. Co., 125 N.Y. 230, 235, 26 N.E. 256, 257; cf. Uniform Commercial Code, § 2-718, subd. (1)).

Thus, in rare cases, agreements providing for the acceleration of the entire debt upon the default of the obligor may be circumscribed or denied enforcement by utilization of equitable principles. In the vast majority of instances, however, these clauses have been enforced at law in accordance with their terms (e. g., ...