First National Stores, Inc. v. Yellowstone Shopping Center, Inc., 21 N.Y.2d 630 (1968)

A tenant’s failure to obtain a temporary restraining order before a landlord terminates a lease according to its terms precludes a court from reviving the lease, absent fraud, mutual mistake, or another acceptable basis for reformation.

Summary

First National Stores (tenant) leased a supermarket building from Yellowstone Shopping Center (landlord). A fire department order required the landlord to install a sprinkler system, leading to a dispute over who was responsible under the lease. The landlord sent a 10-day notice of default to the tenant, who then sued for a declaratory judgment but failed to obtain a temporary restraining order before the default period expired and the landlord terminated the lease. The New York Court of Appeals held that because the tenant failed to act before the lease was terminated, the court could not revive the lease absent a basis for reformation, emphasizing the importance of upholding contractual obligations.

Facts

First National Stores leased a supermarket from Yellowstone Shopping Center.
The NYC Fire Department ordered the landlord to install a sprinkler system in the cellar.
The landlord and tenant disagreed over who was responsible for the cost under the lease.
The landlord sent the tenant a 10-day notice of default on February 24, 1967, received on February 27, 1967.
The tenant started an action for a declaratory judgment on February 28, 1967, but the order to show cause did not contain a stay.
On March 10, 1967, after the 10-day default period, the landlord sent a notice terminating the lease.

Procedural History

The tenant commenced an action for a declaratory judgment in the Supreme Court, Queens County.
The Supreme Court declined jurisdiction.
On appeal, the landlord stipulated that the Appellate Division could determine the controversy as a matter of law.
The Appellate Division held that the tenant was obligated to install the sprinkler system but preserved the lease contingent on the tenant’s performance.
The landlord appealed to the New York Court of Appeals.

Issue(s)

Whether the Appellate Division could revive a lease that had been terminated according to its terms when the tenant failed to obtain a temporary restraining order before the landlord sent the notice of termination.

Holding

No, because the lease had been terminated in strict accordance with its terms, and the tenant did not obtain a temporary restraining order until after the landlord acted. Absent fraud, mutual mistake, or another acceptable basis of reformation, courts cannot rewrite contracts.

Court’s Reasoning

The court emphasized that declaratory relief can be both legal and equitable, but equitable relief requires a basis for granting it. The lease had been terminated according to its terms before the tenant obtained a restraining order. The temporary restraining order preserved the status quo only as of the date it was issued.

The court reasoned that to revive the lease, the Appellate Division would have to read in a clause allowing the tenant an additional 20 days to cure the default. “This the court was powerless to do absent a showing of fraud, mutual mistake or other acceptable basis of reformation.”

The court cited Graf v. Hope Bldg. Corp., 254 N.Y. 1, 4-5, stating: “Stability of contract obligations must not be undermined by judicial sympathy.”

The court concluded that upholding the Appellate Division’s order would render lease termination clauses meaningless. As the court noted, “Should we hold that the termination of this lease is harsh and inequitable, then the same conclusion can be reached in every instance where a landlord exercises his contractual rights, and, in that event, the right of termination or any other right specified in a lease would be rendered meaningless and ineffectual”.

The dissenting judges voted to affirm based on the opinion of the Appellate Division, which had sought to preserve the lease due to the tenant’s good faith in bringing the declaratory judgment action.