Goldberg, 168-05 Corp. v. Levy - 170 Misc. 292, 9 N.Y.S.2d 304 (Sup. Ct. 1938)

Rule:

If a tenant promises to pay rental in part at least measured by a percentage of gross receipts of a business this is a promise to use reasonable efforts to bring profits into existence. The tenant could not avoid liability under a lease by abandoning premises. By the same token he could not avoid liability by a diversion of business to another store that he operates in the same vicinity. This would be true if such diversion is effected for the sole purpose of bringing the gross receipts below the specified figure and thereby laying the basis for a cancellation of the lease. Such conduct would be in direct violation of the covenant of good faith and fair dealing which exists in every contract.

Facts:

The plaintiff’s assignor agreed to rent certain premises to defendant Joseph Levy for a minimum rental of $13,800 per year and in ten percent of the gross receipts of the business conducted by the tenant on the leased premises. Defendant Levy took possession of the premises under the lease, and thereafter, with the knowledge and consent of the plaintiff’s assignor, permitted the defendant Crawford Clothes, Inc. to occupy the premises as though the same were occupied by the defendant Levy, and to conduct therein a retail men’s clothing business. The assignee alleged that defendants although obligated to do so, had failed and refused to act in a fair and proper manner with relation to their obligations under the terms of the lease. It was further alleged that defendants had negligently or willfully permitted the business to become mismanaged and negligently or willfully diverted the proper channels of trade from the business to another store. Thereafter, defendant Levy gave notice of his intention to terminate the lease; the defendants then refused to pay any further rentals. Consequently, plaintiff instituted an action for breach of contract to recover damages in the alleged sum of $25,000, sustained as a result of the cancellation of the lease in violation of the duties created therein. Defendants filed a motion to dismiss.

Issue:

Under the circumstances, should the defendants’ motion to dismiss plaintiff’s action be granted?

Answer:

No.

Conclusion:

The court held that although the parties' promise was lacking, the whole writing was "instinct with an obligation" imperfectly expressed. According to the court, by the tenant's agreement he had promised to use reasonable efforts to bring profits into existence, and it could not avoid liability under the lease by abandoning the premises or by the diversion of business to another store that he operated in the same vicinity. Because the tenant occupied the premises with the knowledge and consent of the landlord and the assignor there was a presumption that the lease was assigned to the one in occupation. Accordingly, the court denied the lessee's motion.