Statement, Inc. v. Pilgrim's Landing, Inc.

• Decision Date: 18 July 1975
• Citation: 49 A.D.2d 28,370 N.Y.S.2d 970
• Parties: The STATEMENT, INC., Appellant, v. PILGRIM'S LANDING, INC., Respondent.
• Court: New York Supreme Court — Appellate Division

Page 970

370 N.Y.S.2d 970

49 A.D.2d 28

The STATEMENT, INC., Appellant, v. PILGRIM'S LANDING, INC., Respondent.

Supreme Court, Appellate Division, Fourth Department.

July 18, 1975.

Frederick Thompson, Rochester, for appellant.

Johnson, Reif & Mullan, Rochester (John A. Titus, Rochester, of counsel), for respondent.

Before MOULE, J.P., and CARDAMONE, SIMONS, MAHONEY and DEL VECCHIO, JJ.

MOULE, Justice Presiding.

This case is presented upon stipulated facts. Defendant Arrows Restaurants, Inc. (Arrows), as tenant, entered into a lease with the estate of Isaac Gordon, as landlord, in August, 1965, for the operation of a restaurant located at 3400 Monroe Avenue in the Town of Pittsford. Thereafter, Arrows entered into a sublease with its whollyowned subsidiary, defendant Pilgrim's Landing, Inc. (Pilgrim), under which Pilgrim operated the restaurant until 1969. On November 27, 1968, Arrows negotiated a conditional sublease with plaintiff providing that plaintiff could replace Pilgrim as the operator of the restaurant. This conditional sublease incorporated by reference the underlying lease between the estate of Isaac Gordon and Arrows. Since plaintiff did not possess a liquor permit at that time, the lease was not to commence until the day following the data on which plaintiff received its permit. Further, if plaintiff failed to obtain its liquor permit by January 1, 1969, Arrows reserved the right to terminate the agreement at its option.

On the same date that the conditional sublease was entered into between plaintiff and Arrows, plaintiff also entered into what was termed a 'management agreement' with Pilgrim. Its stated purpose was to enable plaintiff to manage the restaurant under Pilgrim's liquor permit ¹ 'for the period commencing December 16, 1968 and terminating when (plaintiff) receives its liquor permit, and the sublease heretofore entered into by (plaintiff) and Arrows Restaurants, Inc., shall become effective.'

During the term of the 'management agreement' plaintiff was obligated to manage and operate the restaurant under 'the same terms and conditions as are contained in the (conditional) sublease' entered into between plaintiff and Arrows. For this purpose, the 'management agreement' direct that in reading the conditional sublease, the name Pilgrim was to be inserted in each instance where the name Arrows appeared. The 'management agreement' further provided that if plaintiff failed to obtain a liquor permit by January 1, 1969, the agreement nevertheless could be renewed for successive one-year terms by plaintiff giving written notice to Pilgrim prior to January 1 of the succeeding year.

The amount and procedure for payment of rent by plaintiff was contained in subdivision 2 of the conditional sublease. Plaintiff was required to pay a percentage of its gross sales in monthly installments on the tenth day of each month until June 30, 1969 after which date the rent was still to be calculated upon a percentage basis but with a minimum monthly rental of $3,333.33. Plaintiff was also required to furnish monthly financial reports. However, despite plaintiff's gross revenue of over $290,000.00, which would have resulted in a $21,899.34 rent liability, only $10,609.14 was paid. This sum included both offsets and cash. Furthermore, no financial report was submitted.

Pursuant to the provisions of the conditional sublease, plaintiff made extensive renovations in the premises with the knowledge and consent of the defendants. Arrows also made renovations to equipment in the restaurant in accordance with its obligations under the sublease. On January 20, 1969, plaintiff began operating the restaurant under its management agreement with Pilgrim, although it had not yet obtained a liquor permit nor given written notice to Pilgrim of its intent to continue. From January 20, 1969 until August 11, 1969 plaintiff was the sole occupant and user of the premises.

Defendants' attorneys handled the preparation of plaintiff's application for a liquor permit from August, 1968 until August 6, 1969, but no liquor permit was ever obtained. On August 11, 1969, five days after defendants' attorneys ceased their efforts to obtain a liquor permit for plaintiff, defendants reentered the premises and excluded plaintiff from the property. Concurrent with this reentry, the defendants personally delivered to plaintiff a notice of termination of both the sublease and management agreement. Plaintiff's attorney rejected this notice in a letter dated August 15, 1969 on the ground that it was not timely delivered. His basis for such rejection was the failure of defendants to comply with the notice provisions contained in the underlying lease between Arrows and the estate of Isaac Gordon.

Paragraph 8 of the underlying lease provided for five days' notice of termination in the event of 15 days' default in the payment of rent and, similarly, five days' notice of termination after 20 days' default of any other lease provision. Further, paragraph 9 of the underlying lease, the only provision dealing with reentry, establishes such right only if the tenant vacates or abandons the premises during the lease term.

Plaintiff brought this action seeking a determination that its 'management agreement' with defendant Pilgrim was actually a lease and demanding judgment for wrongful eviction, for conversion of certain items of personalty and improvements to the realty, and for treble damages under section 853 of the Real Property Actions and Proceedings Law. Both defendants joined in a counterclaim. Defendant Pilgrim sought unpaid rent and liquidated damages in the amount of $30,000.00 as called for in the 'management agreement' incorporating the conditional sublease. Defendant Arrows sought renovation expenses and damages for interference with its business.

Both plaintiff and defendants cross-moved for summary judgment. Special Term granted plaintiff's motion only insofar as it sought recovery for improvements to the premises. It found that the measure of plaintiff's damages in this regard would be the amount by which the value of the premises was enhanced, rather than the cost of the improvements, and ordered an inquest as to this sum. It also granted defendant Pilgrim's motion only insofar as it sought liquidated damages in the amount of $30,000.00 under the 'management agreement' and denied defendant Arrows' motion in its entirety.

Special Term specifically found that the only effective agreement between the parties was the 'management agreement' between plaintiff and Pilgrim. The court construed this agreement to be a license rather than a lease and, therefore, determined that the notice of termination provided for in the underlying lease which it incorporated was not required and that defendants could terminate their relationship with plaintiff at their option since no liquor permit was obtained by January 1, 1969. It further found that since plaintiff was not forcibly evicted within the meaning of section 853 of the Real Property Actions and Proceedings Law, it was not entitled to recover treble damages or loss of anticipated profits.

It is not disputed that obtaining a liquor permit was a condition precedent to the commencement of the sublease between Arrows and plai...