R & K Corp. v. Kenmont Hat Co.

Valente, J.

Landlord sued a statutory tenant in contract and recovered a judgment for damages in the amount of $4,533.39, and obtained a dismissal of the tenant’s counterclaim. The tenant appeals to this court from said judgment. There does not appear to be any serious dispute as to the facts.

In December of 1953 the landlord was the owner of a loft building. The tenant occupied the front third of the 15th floor of said premises at a rental of $4,800 per annum. There were two other tenants on the floor, namely, Original Pleating Co. and the Commodore Hat Co., a decontrolled tenant. The landlord gave notice of its intention to occupy that floor for a dress business it owned or controlled. Negotiations were immediately initiated by one of the tenants for the purpose of inducing the landlord to discontinue its eviction plans. The landlord was persuaded to forego its plan to take over the floor upon the assurance of the defendant tenant and the hat company that it would receive an income of $20,000 per annum from that floor for a three-year period. Thereupon a tripartite oral agreement was concluded whereby the defendant tenant and the hat company would divide the floor equally between them and they and the landlord would contribute to a payment of $9,000 to be made to the third tenant, Original, to induce it to move out. This payment was shared as follows: $1,000 was paid by the tenant—which was the subject of tenant’s counterclaim; $2,000 was paid by the hat company; and the balance of $6,000 was paid by the landlord. In due course this sum of $9,000 was paid to Original.

"When the defendant tenant indicated that it did not desire to take the additional space, the understanding was modified and, in accordance therewith, tenant retained its original space but executed a lease for a three-year period commencing January 1, 1954. Provision was made for a new reasonable rent of $8,000 per annum and there was the customary clause giving the tenant the option to cancel and return to the emergency rental of $4,800 if exercised within 60 days, all as required by the Commercial Rent Law (§ 4, subd. 3, par. [iii]; L. 1945, chs. 3, 315, as amd.). At the same time a separate lease for the remainder of the floor was executed by the hat company for a period commencing April 1, 1954 and ending December 31, 1956, at a rental of $12,000 per annum. The leases are dated December 24, 1953, and as of the date of the execution thereof the agreement of the parties was a fait accompli.

On January 26,1954 — and before it had paid any rent under the new lease—the tenant availed itself of the cancellation privilege and notified landlord that it was canceling the lease and the reasonable rent agreement and was reverting to the status of statutory tenant at the $4,800 per annum rental.

The landlord then sued and alleged the existence of an oral agreement and a breach by the tenant after receiving the full benefit of performance by the landlord. The breach alleged was the failure of tenant to make the monthly payments of the additional rental and the damage claimed was the commuted value of $8,825.14 for the three-year period.

The court below found for the landlord on a quasi-contractual theory and held that tenant was liable for the difference between the emergency rental of $4,800 and the reasonable rental of $8,000 per annum fixed in the cancelled lease for the three-year period, limiting the recovery, however, to the monthly installments that had accrued through May 1, 1955.

The tenant predicates its appeal on the contention that the prior oral agreements were merged and integrated into the reasonable rent agreement and the lease executed by the tenant and the landlord and that the Commercial Eent Law bars recovery.

We do not subscribe to these contentions nor to the quasi-contractual theory of recovery relied upon by the court below. We find in fact and in law there existed a valid oral agreement between the landlord and the tenant capable of performance within the period of one year.

Under this agreement the landlord agreed to and did (1) abandon its attempt to acquire the premises for its own use and to evict the tenants therefrom; (2) pay $6,000 to Original to induce it to move so that the defendant and the remaining tenant could have the floor to themselves; and (3) give them each the security of a three-year lease. The defendant tenant for its part agreed to and did (1) pay $1,000 towards inducing Original to move; (2) together with Commodore, the other tenant, take over the entire 15th floor; (3) assure the landlord the payment of the sum of $60,000 for the period of guaranteed possession — an amount which ‘ ‘ would economically justify abandonment of the plan to move”; and (4) execute a lease agreeing to a new “ reasonable rental” which, together with the lease executed by the remaining tenant, included the additional sums promised the landlord in installments “ as rent ”. All these acts — the payment to Original and the agreement to execute a new lease guaranteeing the landlord an amount sufficient to induce him to refrain from eviction — could be performed and were in fact performed within the one-year period. Hence the Statute of Frauds does not apply.

The promise by the tenant in exchange for the guarantee of uninterrupted possession for three years to execute a new lease and reasonable rent agreement was part of the oral agreement but not the whole of it. The lease was merely one of the means by which the oral agreement was to be implemented. It provided the mechanics by which the additional consideration to the landlord was to be paid. Execution of the lease did not effect a merger, the lease not being as broad in scope or comprehensive in terms as the oral agreement. There was in effect a settlement of the contemplated eviction proceeding, the amount of the settlement to be paid in monthly installments “ as rent ”, with the tenant executing a certificate of reasonable rental to comply with the rent control laws. There was no circumvention of the rent control laws, for the tenant agreed to execute an agreement of reasonable rental in exchange for the detriment incurred by the landlord in abandoning its plans to move in. The right to cancel the agreement of reasonable rental was vouchsafed to the tenant by the Commercial Bent Law, and the tenant legally exercised that right. However, there is no basis or right to expand and read into this provision to cancel a provision for cancellation of the underlying oral agreement as well. The exercise of the right to cancel by the tenant could no more relieve it of the basic obligation to pay the amount of the settlement orally agreed upon than would its refusal to execute the lease in the first instance. Because of the cancellation, the amount of the settlement may no longer be payable ‘‘ as rent ’ but it is still payable, albeit in another form.

The breach asserted in the complaint is not the cancellation of this lease by the tenant but the violation of the underlying-oral agreement which contemplated that the landlord would receive $20,000 rental a year for the three-year period in consideration of abandoning its plan to use that floor and for its paying $6,000 to Original. Because of the tenant’s action in canceling the lease the landlord presently finds itself in the position where it cannot occupy the floor until January 1,1957 — the date of the expiration of the lease with the hat company — and instead of receiving a rental of $20,000 per annum that “ would economically justify ” abandonment of its plan to take over the floor it will only receive $16,800 per annum for the three-year period. This is not conscionable and the tenant is solely responsible for the predicament in which the landlord presently finds itself.

Inherent in the findings of the lower court is the good faith of the landlord in all of the negotiations. There is no error in this finding or in the other findings of fact of the court below.

The tenant is properly liable to the extent in which it failed in its assurance to the landlord, namely, $9,600 for the three-year period. This represents the difference between the $60,000 landlord was to have received under the agreement with the defendant tenant and the hat company and the sum of $50,400 it will presently receive. This damage of $9,600 flows naturally and directly from the breach of the oral agreement by the tenant and is attributable to the tenant. Since the landlord was to receive this $9,600 in installments over the three-year period, he is entitled to recover only the commuted value thereof in the sum of $8,825.14. This case was tried before the court without a jury and in accordance with the provisions of subdivision 2 of section 584 of the Civil Practice Act the judgment is increased to that amount.

The judgment should be modified to the extent of increasing it to the sum of $8,825.14 with interest from January 1, 1954, and in all other respects should be affirmed.