New York Law Review

Tag: Agreement to Agree

  • Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 417 N.E.2d 541 (N.Y. 1981): Enforceability of Agreements to Agree

    Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 417 N.E.2d 541 (N.Y. 1981)

    An agreement to agree, where a material term is left for future negotiation and agreement, is generally unenforceable.

    Summary

    Joseph Martin, Jr., Delicatessen, Inc. sought to enforce a renewal clause in its lease with Schumacher. The clause stipulated that the rent for the renewal period would be agreed upon, based on current rates. When the parties failed to agree, Martin sued, seeking a declaration that the renewal clause was enforceable. The New York Court of Appeals held that the renewal clause was unenforceable because it was merely an “agreement to agree” on a critical term (rent) without providing a definite method for determining that term should negotiations fail. The absence of an objective standard or extrinsic method for determining future rent rendered the clause too indefinite to be enforced.

    Facts

    Joseph Martin, Jr., Delicatessen, Inc. (tenant) leased premises from Schumacher (landlord). The lease contained a renewal clause stating that the tenant could renew for an additional term of five years, at annual rentals to be agreed upon, considering the current rates. When the tenant attempted to exercise the option, the landlord demanded a rent the tenant considered unreasonable. Negotiations failed, and the tenant sued for a declaration that the renewal option was enforceable.

    Procedural History

    The trial court ruled in favor of the tenant, finding the renewal clause enforceable. The Appellate Division reversed, holding that the clause was an unenforceable agreement to agree. The case was appealed to the New York Court of Appeals.

    Issue(s)

    Whether a renewal clause in a lease that provides for future agreement on rent, without specifying a method for determining the rent if the parties fail to agree, is enforceable.

    Holding

    No, because the renewal clause constitutes an unenforceable agreement to agree, lacking a definite and ascertainable standard for determining the essential term of rent.

    Court’s Reasoning

    The court reasoned that, for an agreement to be enforceable, it must be sufficiently definite and certain so that the intention of the parties may be ascertained. An “agreement to agree,” where a material term (like rent) is left for future negotiation, is generally unenforceable. The court distinguished between agreements where the price is to be determined by an objective extrinsic standard or independent third party (which may be enforceable) and agreements where the price is left solely to the future agreement of the parties (which are not). Here, the renewal clause failed to provide any mechanism or objective standard for determining the rent if the parties failed to agree. The court emphasized the necessity of definiteness in contract terms, stating that courts cannot imply a reasonable price or fill in the gaps for the parties. The court cited Lanza v. Wagner, 11 NY2d 317, 334, stating that a request for a declaration of rights should be granted if there was no valid agreement between the parties. The court also noted that the tenant’s attempt to reform the writing did not meet the required evidentiary standard, referencing Backer Mgt. v Acme Quilting Co., 46 NY2d 211, 219-220. Because the lease renewal clause lacked a definite method for determining rent, it was deemed an unenforceable agreement to agree.

  • Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher, 52 N.Y.2d 105 (1981): Enforceability of ‘Agreement to Agree’ Clauses in Lease Renewals

    52 N.Y.2d 105 (1981)

    An agreement to agree on a material term, such as rent in a lease renewal, is generally unenforceable if it lacks a definite methodology or objective standard for determining the term.

    Summary

    Joseph Martin, Jr., Delicatessen, Inc. (tenant) sought to enforce a lease renewal clause against Henry D. Schumacher (landlord) that specified “annual rentals to be agreed upon.” When the parties failed to agree on the new rent, the tenant sued for specific performance. The New York Court of Appeals held that the renewal clause was unenforceable because it was merely an agreement to agree, lacking any definite terms or methodology for determining future rent. The court emphasized that contracts must be sufficiently certain and specific to be enforceable.

    Facts

    The tenant leased a retail store from the landlord for a five-year term, with the lease containing a renewal option for an additional five years at “annual rentals to be agreed upon.” The tenant provided timely notice of intent to renew. The landlord demanded a monthly rent of $900, while the tenant’s appraiser valued the rent at $545.41. The lease renewal clause did not provide any method or standard for determining the rental amount for the renewal period.

    Procedural History

    The tenant sued the landlord in Supreme Court for specific performance, seeking to compel lease renewal at the appraised value or a court-determined reasonable rent. The landlord initiated a holdover proceeding in District Court to evict the tenant. The Supreme Court dismissed the tenant’s complaint, holding the agreement to agree was unenforceable and denied consolidation of the cases. The Appellate Division reversed, finding the clause enforceable if the parties intended not to terminate the lease upon failure to agree, and directed the trial court to set a reasonable rent. The New York Court of Appeals granted leave to appeal.

    Issue(s)

    Whether a lease renewal clause specifying that the rent for the renewal period is “to be agreed upon” is enforceable when the parties fail to reach an agreement.

    Holding

    No, because a mere agreement to agree on a material term, like rent, is unenforceable if it lacks definiteness and provides no objective method for determining the term.

    Court’s Reasoning

    The court reasoned that contracts must be sufficiently certain and specific to be enforceable. A “mere agreement to agree, in which a material term is left for future negotiations, is unenforceable.” The court distinguished this case from situations where a methodology for determining rent is found within the lease or where the agreement invites recourse to an objective extrinsic event or standard. The renewal clause in this case lacked any such mechanism; it simply stated “annual rentals to be agreed upon,” providing no basis for determining a specific rent. The court emphasized the importance of definiteness in real estate contracts and declined to impose a judicially determined “reasonable rent,” as that would be creating a bargain the parties did not make themselves. The court noted, “before the power of law can be invoked to enforce a promise, it must be sufficiently certain and specific so that what was promised can be ascertained.”

    Judge Meyer concurred, arguing that a course of dealing between parties to a lease could make such a clause enforceable, but the facts of this case did not support such a finding. Judge Jasen dissented, advocating for judicial intervention to fix a reasonable rent to avoid forfeiture when a tenant establishes entitlement to renewal.

  • Matter of Galasso, 35 N.Y.2d 320 (1974): Enforceability of Incomplete Settlement Stipulations

    Matter of Galasso, 35 N.Y.2d 320 (1974)

    A stipulation of settlement must be definite and complete in order to be enforceable; an agreement to agree to amplified terms in a future writing is not enforceable.

    Summary

    This case addresses the enforceability of a settlement stipulation in an estate matter. The New York Court of Appeals held that a purported stipulation of settlement read into the record was not enforceable because it was not definite and complete. The parties had failed to agree on all terms, and the Surrogate Court’s observation that the settlement’s finality remained uncertain, coupled with counsel’s expression of hope for settlement, indicated an “agreement to agree,” which is insufficient for enforcement. The Court of Appeals reversed the Appellate Division and reinstated the Surrogate Court’s order denying specific performance.

    Facts

    Millie Galasso died intestate, and letters of administration were issued to two of her sons, Peter and Leonard Galasso. Leonard filed an intermediate accounting, to which Peter filed objections. The parties attempted to settle the objections, and a purported stipulation was read into the record. The stipulation included Leonard’s agreement to purchase Peter’s one-fourth interest in certain real property for $15,000. However, Leonard later notified Peter that he was withdrawing his offer due to unforeseen circumstances. Peter then moved for specific performance of the settlement stipulation.

    Procedural History

    The Surrogate’s Court, Bronx County, denied specific performance of the stipulation. The Appellate Division reversed, presumably finding the stipulation enforceable. The New York Court of Appeals then reviewed the Appellate Division’s decision.

    Issue(s)

    Whether the purported stipulation of settlement, as reflected in the record, was sufficiently definite and complete to be specifically enforced.

    Holding

    No, because the record demonstrates that the parties did not reach a final agreement on all terms, indicating only an agreement to agree in the future.

    Court’s Reasoning

    The Court of Appeals stated that stipulations of settlement are favored but can be set aside for fraud or overreaching. However, the Court disagreed with the Appellate Division’s finding that the stipulation was definite and complete. The Court found that the parties were unable to agree to the withdrawal of all objections. The Surrogate’s comment at the hearing’s end that “I am still not sure it’s settled,” and counsel’s similar uncertainty (“I hope this matter will be settled”) indicated that no final agreement was reached. The Court likened the situation to Matter of Dolgin Eldert Corp., stating, “At best, it was an agreement to agree to the amplified terms of a future writing.” Since a binding agreement requires mutual assent to all material terms, and that was absent here, the stipulation was unenforceable. The court emphasized the need for certainty and completeness in settlement agreements to ensure their enforceability, preventing future disputes over the agreement’s scope and terms. The absence of a clear, unequivocal agreement precluded specific performance.

  • In re Eoseman, 21 N.Y.2d 143 (1967): Enforceability of Contract Modification with Agreement to Agree

    In re Eoseman, 21 N.Y.2d 143 (1967)

    An agreement to agree in the future is unenforceable, but if that portion of the agreement is excised, the remaining valid terms of the contract remain in effect if they can be reasonably construed.

    Summary

    This case concerns the interpretation of a contract modification regarding payments to a widow. The original agreement stipulated weekly payments. A subsequent modification temporarily reduced the weekly rate with a clause stating the parties would discuss raising the rate later. The court held that the ‘agreement to agree’ on future rates was unenforceable due to indefiniteness. However, the temporary modification was valid and enforceable. The court reasoned that the temporary modification clause, when read in conjunction with the clause maintaining the original contract’s force, indicated an intent to revert to the original payment terms after the modification period ended.

    Facts

    Plaintiff’s husband, prior to his death in 1959, had an agreement with defendant Eoseman that the surviving partner in their accounting firm would employ the widow of the deceased partner for $100 per week until $52,000 (or $40,000 in case of remarriage) was paid.

    In 1962, plaintiff and defendant Eoseman modified the agreement, reducing the weekly payments to $70 from September 17, 1962, to March 17, 1964. The modification stated that after March 17, 1964, the future weekly payments would be discussed for revision upwards. The modification also stipulated that except as expressly modified, all other terms of the 1959 agreement remained in effect.

    Procedural History

    The Supreme Court awarded the plaintiff arrearages at the rate of $70 per week. The plaintiff appealed.

    Issue(s)

    Whether the 1962 modification agreement constituted a temporary modification of the original 1959 agreement, or a complete rescission and replacement of the payment terms, considering the clause regarding future rate discussions.

    Holding

    No, the 1962 modification was a temporary modification because the clause regarding future rate discussions, while unenforceable, did not invalidate the clearly defined period of reduced payments, and the original agreement remained in effect except as expressly modified.

    Court’s Reasoning

    The court found that the portion of the 1962 modification agreement that stated the parties would discuss future weekly salary for upward revision was an unenforceable agreement to agree because it was indefinite and uncertain, citing Bogy v. Berlage, 265 App. Div. 249, 251. The court applied the principle that a void portion of an agreement can be excised without affecting the validity of the remainder, referencing 1 Williston, Contracts [3d ed.], § 48.

    The court reasoned that the change in weekly rate, specified to commence on September 17, 1962, and continue to March 17, 1964, indicated a temporary modification rather than a rescission of the original agreement. The modification explicitly stated that “except as herein expressly modified, all other terms, covenants and conditions of the said agreement dated July 9, 1959, shall remain in full force and effect.”

    The court concluded that the salary should revert to $100 on March 17, 1964, and plaintiff was entitled to arrearages at that rate. This was a matter of construing the intent of the parties from the contract language. The Court held that the plaintiff was due $9,400 plus interest instead of the $6,500 originally awarded. The court’s holding suggests a preference for interpreting contracts to give effect to all their provisions where reasonably possible, avoiding findings of complete rescission when a partial modification is a more plausible interpretation.