Court Opinion

ID: 5699700
Source: CourtListenerOpinion
Date Created: 2022-01-12 15:38:46.137631+00
Date Added: 2024-06-11T08:40:14.826690
License: Public Domain

GoldmaN, J.
This is an action to recover amounts alleged to be due as rental under the terms of a lease of commercial property in the city of Canandaigua. Defendant appeals from the denial of its motion for summary judgment dismissing the complaint.
The premises in question were first leased to the defendant for a term of 21 years ending July 31, 1951. Shortly before the expiration of the lease a supplemental agreement was executed extending the term to July 31, 1956 and changing the provisions with respect to the rent to be paid. In all other respects material to this appeal, the original lease was to continue in full force and effect.
During the original term, defendant was obligated to pay an annual rental of $3,300, and, “as additional rental”, 5% of its annual gross sales over $66,000. Under the supplemental agreement, the fixed annual rental was increased to $6,000, but the percentage was reduced to 3% of the gross over $120,000. The effect of the supplemental agreement was to give plaintiff a guaranteed fixed rental in the same amount she would have received in any prior year when gross sales equaled $120,000. For this higher guarantee, the plaintiff reduced her percentage over base earnings from 5% to 3%.
Some nine months prior to the expiration of the period covered by the supplemental agreement, defendant vacated the demised premises and moved its retail operations across the street. The defendant paid the fixed rental for the balance of the term, but has refused to pay anything in the nature of an ‘ ‘ additional rental ’ ’. It is for this claimed additional, or percentage rental, that the plaintiff commenced her cause of action.
Special Term denied defendant’s motion for summary judgment on the principal ground that the pleadings raised ‘ ‘ the issue as to whether there was an implied covenant to keep the defendant company’s business in operation to the termination of the lease so as to enable the landlord to receive the percentage rental ”. There being no express covenant to remain in possession and exert its best efforts to maintain and further its gross sales, we are faced with the propriety of implying such an obligation.
*372The complaint alleges, and the answer admits, that the defendant moved from the premises prior to the expiration of the term created by the lease. There is no allegation of bad faith or unfair dealing in so doing and not the slightest intimation of this appears in any portion of the record. The rights of the parties depend on the legal effect to be given the plaintiff’s allegation that “there was an implied covenant on the part of the defendant to operate its business in, on and from the demised premises during the whole of the extended term while in possession thereof and to use reasonable efforts to produce the gross sales contemplated by the parties.”
An implied covenant can only be spelled out from the intention of the parties as manifested by their acts. The plaintiff’s affidavit in opposition to the summary judgment motion is barren of any factual statement which raises a single issue or gives any hint as to the intention of the parties. No place in the record do we find any facts from which one might even infer that any percentage rental was ever paid or earned. Is it not reasonable to believe that if such facts existed the plaintiff would have supplied them in support of her implied covenant theory? The plaintiff has failed to plead any other acts or circumstances which, if established, could aid us in determining intent. Thus the only means we have of determining their intention is from' the language used in the lease and extension agreement. We find ourselves in the position of the court in General Phoenix Corp. v. Cabot (300 N. Y. 87) when it was said (p. 92): “Where the intention of the parties may be gathered from the four corners of the instrument, interpretation of the contract is a question of law, and parol evidence is not admissible as an aid in interpretation; no trial is necessary to determine the legal effect of the contract ’ ’.
By consent of counsel the agreements in question were handed to us upon the argument of the appeal and are therefore part of the record although not printed therein. With good reason the law of this State is loath to find implied covenants hidden between the lines of the express agreement of the parties. It is only where the covenant is so clearly within the contemplation of the parties that they felt it unnecessary to make it express, or, where the covenant, though never consciously considered by the parties, is necessary to give meaning and effect to the contract as a whole that we are justified in indulging in implications. (See Assets Realization Co. v. Howard, 211 N. Y. 430, 446; Price v. Spielman Motor Sales Co., 261 App. Div. 626, 628, 629; 25 Cornell L. Q. 615.) It is neither *373our function nor do we have the authority to rewrite the agreements between the parties.
Can it he said that a covenant to remain in possession was so clearly within the contemplation of the parties that their failure to make it express can he overlooked and assumed? We believe the admitted facts and the language employed in the lease negative any such implication. Quite significantly the lease contains the usual subletting provision permitting the tenant to sublease or assign with the consent of the landlord “ which consent the Landlord agrees shall not be unreasonably withheld ’ ’. Under this provision the tenant could have subleased to any legitimate business which would have paid the fixed rental even though such subtenant’s prospects of exceeding the $120,000 gross sales figure were not as good as or similar to defendant’s. Moreover, no showing having been made by affidavit or otherwise that any percentage rental was ever earned we would not hesitate, on the record before us, to require the landlord to approve such a sublease. Under such a sublease, defendant, though not in possession, would clearly have no liability for amounts payable on the gross sales it might have made had it remained in possession. The presence of this sublease provision, in our view, strengthens and supports the appellant’s position that no implied covenant was intended. Furthermore, if the parties intended defendant to have the obligation of both paying rent and remaining in possession it would have been simple to have expressed their understanding in their agreement. Common experience dictates the conclusion that tenants under this form of lease do not deem themselves obliged to remain in possession. Here, the arrangement does not give rise to a situation 4 4 instinct with an obligation ’ ’, such as might well be the ease if we were confronted with a pure percentage lease.
Nor can we say that the implication of a covenant to remain in possession is necessary to give meaning and effect to the contract as a whole. The lease is clear, unambiguous and complete on its face. Generally, pure percentage arrangements have their foundation in the supposition that rentals so computed most fairly indicate the true value of the premises to the tenant. Yet it is rare that we see pure percentage leases. Usually, the landlord, as here, feels it necessary to have a substantial guaranteed minimum rental representing the amount he feels adequately compensates him for the use of the premises. The fixed annual rent for property in Canandaigua, N. Y. of $6,000 leaves little room for the argument that it was, as a matter of *374law, an inadequate consideration for the demised premises. From the increase in fixed and decrease in percentage rental to be paid during the extended term, we are led to the conclusion that amounts to be paid on the basis of the gross business done were in the nature of a bonus. (See Selber Bros. v. Newstadt’s Shoe Stores, 194 La. 654; Jenkins v. Rose’s Stores, 213 N. C. 606.) The lease as a whole cannot be said to be without meaning absent a provision insuring plaintiff’s right to a bonus. Having removed from plaintiff’s supposedly advantageous location, payments made to reflect the bonus value of the location should terminate.
Our refusal to imply a covenant to remain in possession finds support in the reasoning employed in reaching the result in Mutual Life Ins. Co. of N. Y. v. Tailored Woman (309 N. Y. 248, affg. 283 App. Div. 173). In that ease, the tenant moved its fur department having substantial gross sales from an area where rent was computed partially on a percentage basis to a fixed rent area in the same building. The landlord alleged a diversion of business in violation of the tenant’s implied obligation to operate its fur department in the area calling for percentage rentals. The Court of Appeals clearly held that the moving of the fur department, which was admittedly the largest gross volume part of the business done in the original premises, to the area controlled by fixed rental, was not a diversion. It limited the landlord in its recovery to only the amount of fur sales which resulted from customer contacts made on the floors that were leased on a percentage basis, and not on all fur sales made in the building. It said (p. 253): “ There is nothing in the main lease to forbid the moving of the fur department and when plaintiff made the second, or fifth floor, lease, it again failed to include any restrictions as to particular kinds of merchandise to be sold in one or the other part of the building. It is clear enough that plaintiff did not contemplate, when it leased the fifth and eighth floors for a flat rental, that the fifth floor would be ‘ integrated ’ with the lower floors into one store but such lack of foresight does not create rights or obligations.” (Emphasis added.)
We are not unmindful that in every contract there is an implied covenant to refrain from conduct calculated to or having the effect of injuring or destroying the rights of the other party to receive the fruits of the contract. (Kirke La Shelle Co. v. Armstrong Co., 263 N. Y. 79.) The requirement of good faith and fair dealing, though always incumbent upon contracting parties, cannot, however, be turned into a vehicle for the wholesale supplying of terms to an agreement that a disappointed party might, in retrospect, have inserted. The *375obvious example of invoking the covenant of good faith is where the tenant retains the advantage of the leased location, but causes a diversion of sales to another location to keep gross sales from the premises at a minimum. (Cissna Loan Co. v. Baron, 149 Wash. 386.)
To say that the conduct of the defendant violated the implied covenant of good faith and fair dealing is, in our view, reading into the record facts that are nonexistent. In the absence of allegations of fraud or mistake, as in the record before us, the complete and unambiguous lease must be our only guide to the intention of the parties. There being nothing before us to suggest that extrinsic proof of the understanding of the parties would be competent or even available we cannot engage in factual speculations in this realm.
We are not impressed with the argument that the mere vacating of the premises and opening of a store across the street is evidence, per se, of bad faith giving rise to an action for prospective percentage rentals. Our situation is in no way analogous to the cases which have been brought to our attention, where the defendant remained in possession but at the same time contrived to reduce gross receipts by devious means. (Goldberg 168-05 Corp. v. Levy, 170 Misc. 292, mod. and affd. 256 App. Div. 1086; Cissna Loan Co. v. Baron, 149 Wash. 386, supra; Gamble-Skogmo v. McNair Realty Co., 98 F. Supp. 440, affd. 193 F. 2d 876; Seggebruch v. Stosor, 309 Ill. App. 385.) We would not hesitate to find a breach of the implied covenant of good faith on the facts as stated and alleged in those cases, but here defendant surrendered whatever advantage stemmed from occupying plaintiff’s property, retaining no benefit that would in good conscience give rise to a corresponding obligation to the plaintiff.
On this motion speculation must give way to the pleadings as amplified by the affidavits. If no factual issues are presented summary judgment is a proper, useful and economical method of resolving the dispute. To hold that summary judgment is unavailable on the record before us would be to deny such relief in all actions involving percentage leases, which would be tantamount to implying a covenant to remain in possession in all such leases regardless of the instrument or the facts surrounding it from which the rights and obligations stem.
In reaching this conclusion we have been aided by a number of well-reasoned opinions from other jurisdictions. Cousins Inv. Co. v. Hastings Clothing Co. (45 Cal. App. 2d 141) involved facts almost identical to those with which we are confronted, and reaches the same result. To the same effect see *376Masciotra v. Harlow (105 Cal. App. 2d 376); Palm v. Mortgage Investment Co. (229 S. W. 2d 869 [Texas]); and Dickey v. Philadelphia Minit-Man Corp. (377 Pa. 549). We have also been assisted by law review commentaries on these and other .cases involving implied covenants in percentage leases. (See Notes in 34 Oregon L. Eev. 208; 33 Texas L. Rev. 530; 28 Temple L. Q. 277.)
In onr opinion no triable issue of fact was raised by the pleadings as amplified by the affidavits. Consequently the order of Ontario Special Term should be reversed and the motion for summary judgment dismissing the complaint granted.