Wallace v. 600 Partners Co.

• Decision Date: 30 December 1955
• Citation: 86 N.Y.2d 543,634 N.Y.S.2d 669,658 N.E.2d 715
• Parties: , 658 N.E.2d 715 In the Matter of William F. WALLACE et al., as Trustees under a Declaration of Trust Dated
• Court: New York Court of Appeals Court of Appeals

Page 669

634 N.Y.S.2d 669

86 N.Y.2d 543, 658 N.E.2d 715

In the Matter of William F. WALLACE et al., as Trustees

under a Declaration of Trust Dated December 30, 1955, Respondents, v. 600 PARTNERS CO., Appellant.

Court of Appeals of New York.

Nov. 2, 1995.

White & Case, New York City (Philip H. Schaeffer, John S. Willems, T. Douglas Hollowell and J. Stepan Wood, of counsel), for appellant.

Kaye, Scholer, Fierman, Hays & Handler, New York City (Richard C. Seltzer and Naomi B. Waltman, of counsel), for respondents.

OPINION OF THE COURT

CIPARICK, Judge.

The question presented is whether article 17 of the ground lease between these parties is enforceable as written. We agree with the courts below that the provision at issue is unambiguous and does not lead to an absurd result or render the lease unenforceable. Thus, resort to judicial construction and extrinsic evidence is unnecessary. Accordingly, we affirm.

Petitioners landlords and respondent tenant entered into a 99-year ground lease in 1960 for property located on Madison Avenue between 57th and 58th Street in the Borough of Manhattan. Tenant is the assignee of the lease. Landlord succeeded the original trustee who entered into the ground lease with tenant's assignor. Tenant has constructed a 26-story office building on the property.

The lease provided for an initial term of 33 years, with options to tenant to renew for two additional 33-year terms. The lease provided for six incremental rent increases during the initial 33-year term, with a starting rent of $100,000 annually increasing to $160,000 in 1985. The rent for the final eight years of the initial term was to be calculated at 6% of the appraised "then value" of the land, which amount was determined to be $2,100,000 in 1985.

Prior to expiration of the initial term, tenant timely exercised its option to renew under article 16 of the lease, which provides that the rent amount is to be fixed by agreement between the parties or, in the absence of agreement, by an appraisal to be calculated at 6% of the "then value" of the land. ^* When the parties could not agree on a rental amount for the renewal term, tenant sought an appraisal under article 17 of the lease, which provides in pertinent part:

"The party desiring * * * appraisal shall give written notice to that effect to the other party * * * except that in case of any appraisal under the provisions of Sections 16.01 or 16.02 hereof with respect to the first renewal term and the second renewal term, neither party shall give such written notice to the other party earlier than twelve (12) months prior to the expiration of any such renewal term" (emphasis added).

The term "expiration" is at the heart of this dispute. If read literally, it requires that the determination of the rent amount for the first renewal term--which commenced on July 1, 1993--take place 32 years after the term began, in 2025. The effect of postponing a determination of the rent due until 2025 is to freeze the annual rent for the first renewal term at the current amount, requiring tenant to make a lump-sum payment at the end of the first renewal term representing the difference between the amount arrived at pursuant to the retrospective appraisal and the rent actually paid during the renewal term.

Landlords commenced this proceeding pursuant to CPLR 7601 to stay the appraisal on the ground that it was premature and could not be instituted until 2025 under the terms of the lease. Tenant answered, seeking reformation of the lease based upon a scrivener's error. Supreme Court granted the petition to stay the appraisal, concluding that the lease was a clear and unambiguous document entitled to enforcement according to its terms. The court noted that the lease was executed and later revised by "sophisticated business people ably assisted by presumed reasonably competent counsel and competent financial advisors." Finally, the court concluded that any claim for reformation of the lease was time-barred under the six-year Statute of Limitations of CPLR 213.

The Appellate Division affirmed, with two Justices dissenting. The majority concluded that courts should not, "under the guise of interpretation, rewrite part of an agreement which is clear and explicit simply because a party's expectation of the bargain does not materialize due to a change in economic climate." ." (205 A.D.2d, at 206, 618 N.Y.S.2d 298.) The majority additionally noted that article 17 of the lease was not only negotiated and drafted by experienced business people, but also "reviewed and revised by the parties a number of times." (Id., at 206, 618 N.Y.S.2d 298.) The dissent opined that "this provision is so at odds with normal business practice as to render its meaning unclear", thus necessitating a trial on the issue of the parties' intent. (205 A.D.2d, at 211, 618 N.Y.S.2d 298.) Tenant appealed to this Court as of right pursuant to CPLR 5601(a).

Tenant contends that the word "expiration" appearing in paragraph 17.01 of the ground lease is a scrivener's error which went unnoticed from 1960 to 1993. Tenant claims that article 17.01 should not be read literally because it would give rise to dramatic inconsistencies and anomalies. Primarily, tenant complains of the fiscal uncertainties resulting from retrospective appraisal, including the prospect of belated lump-sum payments in amounts which are presently unascertainable, and resultant difficulty in selling or mortgaging its interest in the lease and setting rents when subleasing to tenants of the office building.

At the outset, we note that tenant's claim for reformation is time-barred. The six-year Statute of Limitations of CPLR 213(6) began to run in 1960, at the time the asserted "scrivener's error" was allegedly committed. In the absence of a claim for reformation, courts may as a matter of interpretation carry out the intention of a contract by transposing, rejecting, or supplying words to make the meaning of the contract more clear (see, Castellano v. State of New York, 43 N.Y.2d 909, 911, 403 N.Y.S.2d 724, 374 N.E.2d 618). However, such an approach is appropriate only in those limited instances where some absurdity has been identified or the contract would otherwise be unenforceable either in whole or in part (...