New York Law Review

Tag: Joseph Martin, Jr., Delicatessen, Inc. v. Schumacher

  • 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.