Court Opinion

ID: 9885594
Source: CourtListenerOpinion
Date Created: 2023-10-06 13:07:57.259959+00
Date Added: 2024-06-11T07:48:55.256182
License: Public Domain

Burke, J.
(dissenting). The defendant is liable for additional percentage rental under the 1939 ten-year lease of the premises 742 Fifth Avenue, New York City, for sales of furs made on the fifth floor, as they were sales made on, in and from the main premises. ■ 1
This appeal involves conflicting constructions of txo leases entered into between the plaintiff and defendant.
The defendant was the lessee under a 1939 lease of three floors with the exclusive use of a Fifth Avenue entrance, an entrance on 57th Street and two passenger elevators. Those premises, known as 742 Fifth Avenue, were leased at a fixed rental, plus 4% of the gross receipts in excess of $1,200,000. “ Gross receipts ’ ’ is defined in the lease as including ‘ ‘ all sales * * * *255on, in or from the demised premises ”. In the spring of 1945, the proprietor of a retail custom dress business, the tenant of half of the fifth floor at 1 West 57th Street, offered her business, for sale. The defendant purchased the custom dress business and thereafter, under a fixed rental lease commencing June 1, 1945, the defendant rented the same space on the fifth floor in the premises known as 1 West 57th Street, New York City, “ for the sale, display of all types of wearing apparel accessories, worn or carried by women or misses, and as workrooms, and for no other purpose ”. Such lease provided (1) that the space on the fifth floor in 1 West 57th Street was to be serviced by the elevators in the 57th Street lobby at the landlord’s expense “ on business days from 8 a.m. to 6 p.m. except on Saturdays when the hours shall be from 8 a.m. to 1 p.m.”; (2) that no alterations could be' made without the written consent of the landlord; (3) that failure to require strict performance was not to be deemed a waiver,- and (4) that the receipt of the rent with the knowledge of a breach was not to be deemed a waiver. The defendant in a short time altered the fifth floor of 1 West 57th Street, so as to give access through the private elevators of 742 Fifth Avenue.
The plaintiff alleges two causes of action. The first cause of action is based upon the theory that the fur sales were made “ on, in or from ” the main premises. All of the activities of the defendant from the initiation of the alterations to the actual sales were designed to hold out to the public that the fur department was part of the premises 742 Fifth Avenue. The physical layout, the advertising, the window displays, the storage of the furs, and the use of the main store personnel characterized the fur department as an integral part of the main store operations. The second cause of action seeks damages upon the theory that if fur sales were not made ‘ ‘ on, in or from ’ ’ the main premises, nevertheless, the defendant, in removing the fur department from the main premises, violated express and implied covenants of the main lease against diversion of sales. It is implicit in every percentage rental agreement that the tenant has an obligation to conduct its business with regard for the landlord’s interest in the tenant’s gross receipts. “ A promise may be lacking, and yet the whole writing may be ‘ instinct with an obligation,’ imperfectly expressed”. (Wood v. Duff-Gordon, *256222 N. Y. 88, 91; Alexander v. Equitable Life Assur. Soc., 233 N. Y. 300, 306). Unless a percentage rental agreement is so interpreted, the percentage requirement would have no meaning.
The question to be resolved is whether under the terms of the leases and the proof adduced at the trial, the plaintiff is entitled to recover on one or both causes of action. Both causes of action are well founded.
There is no doubt that the sales Avere made ‘ ‘ on, in or from ’ ’ the main premises. The evidence shows that the furs were delivered to the basement of the main store, prepared for display there, stored in the basement of the main store, packed and shipped out from the main store premises. The entire fur business was administered and conducted in the Fifth Avenue premises, yet the defendant would have us construe the leases so as to permit it to operate a fur department as part of a main store in a space with an address different from the address set forth in the lease of that space, doing a business with average annual gross receipts of over $600,000, for a fixed rental of $3,800 a year free from the percentage provisions of the main store lease. The leases fail to disclose such an authorization. The 742 Fifth Avenue lease limited the exclusive use of the entrances and elevators to three floors and basement. The 1 West 57th Street lease prohibited alterations without consent, and also prohibited any interference with the premises 742 Fifth Avenue.
We can perceive no distinction between the customer who was sent to the fifth-floor fur department by salespeople on the lower floors, and the customers who responded to the advertisements or displays that proclaimed that the defendant’s fur department was located at 742 Fifth Avenue. All of these customers were patrons of the Fifth Avenue Tailored Woman store, and were attracted to that store by the advertisements and windoAV displays using the Fifth Avenue address. Therefore, it necessarily folloAvs that the terms of the lease of 742 Fifth Avenue must apply to all transactions taking place at that address.
Moreover in every contract there is an implied covenant that neither party shall do anything Avhich shall have the effect of injuring or destroying the right of the other party to receive the fruits of the contract. (Kirke La Shelle Co. v. Armstrong Co., 263 N. Y. 79.) The defendant cannot make a virtue of a *257violation of the lease. It made alterations without the written consent of the landlord of 1 West 57th Street. It violated the prohibition in paragraph 36 of the 1945 lease that the said lease was not to have any effect on the lease dated June 29, 1939, between the Mutual Life Insurance Co. of New York and the Tailored Woman, Inc. (1) by moving its fur department to the fifth-floor space from a lower floor, and (2) by advertising that the fifth-floor space described in the lease as space in the building known as 1 West 57th Street was located at 742 Fifth Avenue. The consequence of these violations was to bring about the condition wherein the defendant was using a Fifth Avenue address and sales space for the sale of furs at a rental rate of a side-street office salesroom.
Furthermore, under the terms of the 742 Fifth Avenue lease, the defendant agreed to maintain a business substantially similar to that which it had maintained at 729 Fifth Avenue, where the defendant had a fur department. As a result of the removal of the fur department to the fifth floor, the plaintiff was deprived of a substantial portion of the fruits of the contract. By excluding the fur sales from the calculations required by the percentage terms of the lease, the defendant excluded almost 20% of the average gross receipts collected at the premises 742 Fifth Avenue. Such an act constitutes an unreasonable diversion of business from a percentage leased premises to a fixed rental premises.
The intent of the parties as expressed in the two leases was that the fifth-floor space at 1 West 57th Street would be operated independently of the main premises. For example, the landlord by lease restricted the use of the elevators in 1 West 57th Street by providing that they would operate only until 1:00 p.m. on Saturdays and 6:00 p.m. on business days, whereas the elevators in 742 Fifth Avenue were within the absolute control of the defendant and could operate until 6:00 p.m. or later on Saturdays, business days and legal holidays only to the third floor.
The rent fixed for the fifth-floor space reflects the restrictions imposed on doing business in an off-street office salesroom space which is not serviced on Saturday afternoons or on legal holidays. Such restrictions are not incompatible with the use permitted by the 1 West 57th Street lease, i.e., the sale and display of women’s wearing apparel. Such uses are commonly *258so restricted. In this very case the former tenant on the fifth floor was engaged in the women’s wearing apparel business. The limitation of the use of the elevators to five and one-half days as well as the necessity of sharing the use of the elevators with the other tenants in 1 West 57th Street make it clear that any permitted diversion of business from the main store was intended to be confined to a five and one-half day operation with all the inconvenience of sharing public elevators. Naturally, these conditions in themselves forbid the transfer of a major department from the main store to the off-street office salesroom.
Since the defendant, in order to avoid the restrictions of the 1 West 57th Street lease, elected, in violation of the provisions of the leases, to operate part of the fifth floor as an integral part of the main premises and to make fur sales on, in and from the main premises, it has subjected the gross receipts collected from these operations to the percentage rental terms of the main store lease. Such a conclusion is supported by the evidence, by a common-sense interpretation of the leases, and by the prevailing law in other jurisdictions. (Cissna Loan Co. v. Baron, 149 Wash. 386; Gamble-Skogmo, Inc., v. McNair Realty Co., 98 F. Supp. 440, affd. 193 F. 2d 876; Dunham & Co. v. 26 East State Realty Co., 134 N. J. Eq. 237.)
The judgment of the Appellate Division should be reversed and the judgment of the Trial Term reinstated.
Dye, Fuld, Froessel and Van Voorhis, JJ., concur with Desmond, J.; Burke, J., dissents in an opinion in which Conway, Ch. J., concurs.
Judgment affirmed.