Weiss v. Mayflower Doughnut Corp.

• Decision Date: 31 May 1956
• Citation: 1 N.Y.2d 310,135 N.E.2d 208,152 N.Y.S.2d 471
• Court: New York Court of Appeals Court of Appeals
• Parties: , 135 N.E.2d 208 Rudolph WEISS, Doing Business as Beverly Pharmacy, Appellant, v. MAYFLOWER DOUGHNUT CORP. et al., Respondents.

Page 471

152 N.Y.S.2d 471

1 N.Y.2d 310, 135 N.E.2d 208

Rudolph WEISS, Doing Business as Beverly Pharmacy, Appellant, v. MAYFLOWER DOUGHNUT CORP. et al., Respondents.

Court of Appeals of New York.

May 31, 1956.

Frank A. Fritz, Joseph Feinstein, Arthur P. West and Cyril Crimmins, New York City, for appellant.

Eugene Eisenmann and Norman Gross, New York City, for Mayflower Doughnut Corp., respondent.

Arthur N. Field, New York City, for Irving Maidman, respondent.

BURKE, Judge.

The plaintiff has conducted a drug store and luncheonette business on the ground floor of the Beverly Hotel, located at the northeast corner of Lexington Avenue and 50th Street in New York City since its erection in 1927. In December, 1951 plaintiff, as tenant, and Beverly Hotel, Inc., as landlord, entered into a percentage lease for a term of 10 years with an option in the plaintiff to renew for an additional 10 years. On December 1, 1952 defendant Maidman became the owner of the Hotel Beverly and has been plaintiff's landlord since that time. Prior to the time that Maidman became the owner of the hotel and until August 1953 a part of the ground floor space not leased to the plaintiff was occupied by a restaurant named 'Viceroy' which was operated by the various landlords in conjunction with the hotel.

As a result of rumors that Maidman intended to lease the space occupied by the Viceroy restaurant to the defendant Mayflower Doughnut Corp., plaintiff's attorneys, by a letter dated December 12, 1952 informed Maidman that in their opinion the rumored leasing would be a violation of plaintiff's lease, and in the event such lease was consummated he would be responsible for damages sustained by plaintiff as a consequence thereof. Maidman's reply stated that such a leasing would not be a violation of plaintiff's lease. On February 4, 1953 plaintiff commenced an action against Maidman for judgment, inter alia, declaring that no other part of the building could be leased, except to plaintiff, for use as a luncheonette or similar enterprise, and enjoining defendant from renting any part of the building for such purposes to anyone other than the plaintiff. After a trial a judgment was entered on or about June 1, 1953 enjoining Maidman 'from leasing any portion of the ground floor of the building * * * for use as a luncheonette, soda fountain or for any similar business in competition with that of the plaintiff'. This judgment was ultimately affirmed by this court, Weiss v. Maidman, 308 N.Y. 840, 126 N.E.2d 178.

During the trial of the action between plaintiff and Maidman, a lease between Maidman and Mayflower Doughnut Corp., executed April 3, 1953 for a period of approximately 15 years demising the space occupied by the Viceroy restaurant to Mayflower for use as a 'restaurant and for the baking and sale of bakery and other flood products and confections', was introduced in evidence. On August 17, 1953 Mayflower went into possession and commenced alterations on the demised premises. Between the 22d and the 24th of August, Mayflower caused a barricade to be erected in front of the demised premises with signs thereon stating that a 'Mayflower Coffee Shop' would occupy the premises. In the early part of October, 1953 the plaintiff commenced this action against Mayflower, seeking to enjoin it from conducting a luncheonette or soda fountain business in the premises and from remodeling the premises for the purpose of establishing or conducting a business competitive to plaintiff's until the termination of the plaintiff's lease. Mayflower caused Maidman to be brought into the action and requested a determination of ultimate rights against him for alteration expenses and other damages in the event the plaintiff prevailed. Neither the plaintiff nor anyone acting on his behalf communicated with the defendant Mayflower prior to the institution of this action. At the time this action was commenced, Mayflower had incurred obligations and expenses in the amount of $125,000 in connection with altering the premises.

Special Term dismissed the plaintiff's complaint after a trial, holding that plaintiff's violation of covenants in his lease against cooking in view of his customers could not establish a basis for relief against the defendant Mayflower under its lease; that the business conducted by Mayflower is a large restaurant and not a luncheonette or business similar thereto; and that plaintiff was guilty of laches, and consequently, not entitled to a injunction. This disposition made a determination of ultimate rights between the defendants Mayflower and Maidman unnecessary. The Appellate Division affirmed without opinion.

The judgment in the action between the plaintiff and Maidman was not res judicata as against the defendant Mayflower even though the lease between Maidman and Mayflower was then introduced in evidence, East New York & Jamaica R. Co. v. Elmore, 53 N.Y. 624. Nevertheless, having admitted by its answer that it had notice of the restrictive covenants in plaintiff's lease at the time it entered into its lease with Maidman, Mayflower is bound by the construction placed on these covenants. One who rents premises with knowledge of a prior restrictive covenant agreed to by his lessor in favor of another tenant is bound by the restrictive covenant and the construction placed upon it, even though he did not believe it would be so construed and relied on the advice of counsel that it would not be so construed, Waldorf-Astoria Segar Co. v. Salomon, 109 App.Div. 65, 95 N.Y.S. 1052, affirmed on opinion below 184 N.Y. 584, 77 N.E. 1197.

Evidence that plaintiff violated his lease by cooking in view of customers was admissible and in issue under the allegation of unclean hands set forth in the answer. However, it appears from the records on the prior appeal to this court between Weiss and Maidman that Maidman did not then raise this defense. If Maidman did not raise the violation of this restriction in the lease as a defense, he waived it. Since it was waived, the plaintiff was under no legal obligation to conform to it; therefore, his conduct was not 'illegal' and did not warrant a finding of unclean hands. Moreover, this conduct was not related to the matter in litigation between the plaintiff and Mayflower and did not injure Mayflower. The doctrine of unclean hands is only available when the conduct relied on is directly related to the subject matter in litigation and the party seeking to invoke the doctrine was injured by such conduct. Green v. Le Beau, 281 App.Div. 836, 118 N.Y.S.2d 585; 2 Pomeroy on Equity Jurisprudence (5th Ed.), § 399, p. 99.

The next question for consideration is whether the trial court was correct in finding that the business contemplated by Mayflower is not similar to and in competition with that of the plaintiff. In view of the affirmance by the Appellate Division we can only reverse this finding if it is not supported by any substantial evidence and is erroneous as a matter of law. Matter of Case, 214 N.Y. 199, 203-204, 108 N.E. 408 409-410. The resolution of this question, of course, depends upon substance, not names.

A review of the evidence leads us to conclude that this finding was erroneous and that, as a matter of law, Mayflower's business is similar to that conducted by the plaintiff. Plaintiff's business consists of a drugstore and luncheonette. The luncheonette portion of the establishment consists of a counter with about 20 stools. The food served consists of light lunches, salads, sandwiches, nonalcoholic beverages and the usual soda fountain items, such as ice cream sodas and sundaes. The income from the luncheonette is approximately 40% of plaintiff's gross receipts. A segment of a business producing this proportion of income is not incidental. It is a distinct branch of plaintiff's business, Waldorf-Astoria Segar Co. v. Salomon, 109 App.Div. 65, 95 N.Y.S. 1052, affirmed on opinion below 184 N.Y. 584, 77 N.E. 1197, supra; Fitz v. Iles, (1893) 1 Ch. 77.

Mayflower's establishment consists of a counter, tables and booths accommodating approximately 119 people. This arrangement does not conform to the typical restaurant. But this is not too significant. The issue here turns on similarity of businesses and their competitiveness. This must be determined by the character of the food served and the price charged. An examination of the menu introduced into evidence from another Mayflower shop which is a prototype of the establishment to be conducted in the Beverly Hotel shows that the food to be served there will be practically the same as the food served by the plaintiff. A comparison of the prices charged by the plaintiff and those to be charged by Mayflower shows that there is very little difference. True, one of Mayflower's officers gave uncontroverted testimony that full course meals would be served in its shop at the Beverly Hotel. On the whole, however, his testimony indicates that most of the food served would be the usual 'short order' luncheonette variety food. Furthermore, the most significant factor which indicates that Mayflower did not intend to rely on...