J. N. A. Realty Corp., Respondent, v Cross Bay Chelsea, Inc., Appellant, et al., Respondents.

Argued March 30, 1977;

decided June 16, 1977

Vincent F. Nicolosi and Frank M. Nicolosi for appellant.

Samuel Shapiro for respondent.

Wachtler, J.

J. N. A. Realty Corp., the owner of a building in Howard Beach, commenced this proceeding to recover possession of the premises claiming that the lease has expired. The lease grants the tenant, Cross Bay Chelsea, Inc., an option to renew and although the notice was sent, through negligence or inadvertence, it was not sent within the time prescribed in the lease. The landlord seeks to enforce the letter of the agreement. The tenant asks for equity to relieve it from a forfeiture.

The Civil Court, after a trial, held that the tenant was entitled to equitable relief. The Appellate Term affirmed, without opinion, but the Appellate Division, after granting leave, reversed and granted the petition. The tenant has appealed to this court.

Two primary questions are raised on the appeal. First, will the tenant suffer a forfeiture if the landlord is permitted to enforce the letter of the agreement. Secondly, if there will be a forfeiture, may a court of equity grant the tenant relief when the forfeiture would result from the tenant’s own neglect or inadvertence.

At the trial it was shown that J. N!. A. Realty Corp. (hereafter JNA) originally leased the premises to Victor Palermo and Sylvester Vascellaro for a 10-year term commencing on January 1, 1964. Paragraph 58 of the lease, which was attached as part of a 12-page rider, granted the tenants an option to renew for a 10-year term provided "that Tenant shall notify the landlord in writing by registered or certified mail six (6) months prior to the last day of the term of the lease that tenant desires such renewal.” The tenants opened a restaurant on the premises. In February, 1964 they formed the Foro Romano Corp. (Foro) and assigned the lease to the corporation.

By December of 1967 the restaurant was operating at a loss and Foro decided to close it down and offer it for sale or lease. In March, 1968 Foro entered into a contract with Cross Bay Chelsea, Inc. (hereafter Chelsea), to sell the restaurant and assign the lease. As a condition of the sale Foro was required to obtain a modification of the option to renew so that Chelsea would have the right to renew the lease for an additional term of 24 years.

The closing took place in June of 1968. First JNA modified the option and consented to the assignment. The modification, which consists of a separate document to be attached to the lease, states: "the Tenant shall have a right to renew this lease for a further period of Twenty-Four (24) years, instead of Ten (10) years, from the expiration of the original term of said lease * * * All other provisions of Paragraph #58 in said lease, * * * shall remain in full force and effect, except as hereinabove modified.” Foro then assigned the lease and sold its interest in the restaurant to Chelsea for $155,000. The bill of sale states that "the value of the fixtures and chattels included in this sale is the sum of $40,000 and that the remainder of the purchase price is the value of the leasehold and possession of the restaurant premises.” At that point five and one-half years remained on the original term of the lease.

In the summer of 1968 Chelsea reopened the restaurant. JNA’s president, Nicholas Arena, admitted on the stand that throughout the tenancy it regularly informed Chelsea in writing of its obligations under the lease, such as the need to pay taxes and insurance by certain dates. For instance on June 13, 1973 JNA sent a letter to Chelsea informing them that certain taxes were due to be paid. When that letter was sent the option to renew was due to expire in approximately two weeks but JNA made no mention of this. A similar letter was sent to Chelsea in September, 1973.

Arena also admitted that throughout the term of the tenancy he was "most assuredly” aware of the time limitation on the option. In fact there is some indication in the record that JNA had previously used this device in an attempt to evict another tenant. Nevertheless it was not until November 12, 1973 that JNA took any action to inform the tenant that the option had lapsed. Then it sent a letter noting that the date had passed and, the letter states, "not having heard from you as prescribed by paragraph #58 in our lease we must assume you will vacate the premises” at the expiration of the original term, January 1, 1974. By letter dated November 16, 1973 Chelsea, through its attorney, sent written notice of intention to renew the option which, of course, JNA refused to honor.

At the trial Chelsea’s principals claimed that they were not aware of the time limitation because they had never received a copy of paragraph 58 of the rider. They had received a copy of the modification but they had assumed that it gave them an absolute right to retain the tenancy for 24 years after the expiration of the original term. However, at the trial and later at the Appellate Division, it was found that Chelsea had knowledge of, or at least was "chargeable with notice” of, the time limitation in the rider and thus was negligent in failing to renew within the time prescribed.

Chelsea’s principals also testified that they had spent an additional $15,000 on improvements, at least part of which had been expended after the option had expired. Toward the end of the trial JNA’s attorney asked the court whether it would "take evidence from” Arena that he had negotiated with another tenant after the option to renew had lapsed. However, the court held that this testimony would be immaterial.

It is a settled principle of law that a notice exercising an option is ineffective if it is not given within the time specified (see, e.g., Restatement, Contracts 2d [Tent Draft No. 1, 1964], § 64, subd [b]; 1A Corbin, Contracts [1963], § 264; 1 Williston, Contracts [3d ed, 1957], § 87; Sy Jack Realty Co. v Pergament Syosset Corp., 27 NY2d 449). "At law, of course, time is always of the essence of the contract” (De Funiak, Modern Equity, § 80, p 223). Thus the tenant had no legal right to exercise the option when it did, but to say that is simply to pose the issue; it does not resolve it. Of course the tenant would not be asking for equitable relief if it could establish its rights at law.

The major obstacle to obtaining equitable relief in these cases is that default on an option usually does not result in a forfeiture. The reason is that the option itself does not create any interest in the property, and no rights accrue until the condition precedent has been met by giving notice within the time specified. Thus equity will not intervene because the loss of the option does not ordinarily result in the forfeiture of any vested rights (see, e.g., Fidelity & Columbia Trust Co. v Levin, 128 Misc 838, affd 221 App Div 786, affd 248 NY 551; Doepfner v Bowers, 55 Misc 561; cf. People’s Bank of City of N. Y. v Mitchell, 73 NY 406; but see Noyes v Anderson, 124 NY 175, 179-180, where it is indicated that the "rule may not be without exception”). The general rule is customarily stated as follows: "There is a wide distinction between a condition precedent, where no title has vested and none is to vest until the condition is performed, and a condition subsequent, operating by way of a defeasance. In the former case equity can give no relief. The failure to perform is an inevitable bar. No right can ever vest. The result is very different where the condition is subsequent. There equity will interpose and relieve against the forfeiture”. (Davis v Gray, 16 Wall [83 US] 203, 229-230.) It has been suggested that even when the option has been paid for, nothing is forfeited when it expires, because the amount paid "is the exact agreed equivalent” of the power to exercise the right for the time allotted (see 1 Corbin, Contracts, § 35, p 147).

But when a tenant in possession under an existing lease has neglected to exercise an option to renew, he might suffer a forfeiture if he has made valuable improvements on the property. This of course generally distinguishes the lease option, to renew or purchase, from the stock option or the option to buy goods. This was a distinction which some of the older cases failed to recognize (see, e.g, Fidelity & Columbia Trust Co. v Levin, supra; Doepfner v Bower, supra; cf. People’s Bank of City of N. Y. v Mitchell, supra). More recently it has been noted that "although the tenant has no legal interest in the renewal period until the required notice is given, yet an equitable interest is recognized and protected against forfeiture in some cases where the tenant has in good faith made improvements of a substantial character, intending to renew the lease, if the landlord is not harmed by the delay in the giving of the notice and the lessee would sustain substantial loss in case the lease were not renewed” (2 Pomeroy, Equity Jurisprudence [5th ed], § 453b, p 296).

The leading case on this point is Fountain Co. v Stein (97 Conn 619; 27 ALR 976) and the rule has been accepted by noted commentators (see, e.g., 1 Corbin, op. cit., § 35, p 146; 1 Williston, Contracts [3d ed], § 76, p 249, n 4; 2 Pomeroy, op. cit., § 453b, p 296). It has also been accepted and applied by this court. In Jones v Gianferante (305 NY 135, 138), citing the Fountain case we held that the tenant was entitled to "the benefit of the rule or practice in equity which relieves against such forfeitures of valuable lease terms when default in notice has not prejudiced the landlord, and has resulted from an honest mistake, or similar excusable fault.” The rule was extended in Sy Jack Realty Co. v Pergament Syosset Corp. (27 NY2d 449, 453, supra) to preserve the tenant’s interest in a "long-standing location for a retail business” because this is "an important part of the good will of that enterprise, [and thus] the tenant stands to lose a substantial and valuable asset.”

In neither of those cases were we asked to consider whether the tenant would be entitled to equitable relief from the consequences of his own neglect or "mere forgetfulness” as the court had held in the Fountain case (supra). In Gianferante the default was due to an ambiguous lease, and in Sy Jack the notice was mailed but never delivered (but see Roy’s of North Syracuse v P & C Food Markets, 51 AD2d 641, mot for lv to app den 38 NY2d 711; and the dissenting opn in Sy Jack [supra, p 456, n 1], where it is noted that the three cases cited in Williston—the principle one being the Fountain case—"obviously warranted equitable relief. For not only in those cases was there 'excusable fault’, but also in each one the tenant had made substantial improvements”). But the principle involved is well established in this State. A tenant or mortgagor should not be denied equitable relief from the consequences of his own neglect or inadvertence if a forfeiture would result (Giles v Austin, 62 NY 486; Noyes v Anderson, 124 NY 175; Roy’s of North Syracuse v P & C Food Markets, supra; see, also, 2 Pomeroy, Equity Jurisprudence [5th ed], § 452, p 287). The rule applies even though the tenant or mortgagor, by his inadvertence, has neglected to perform an affirmative duty and thus breached a covenant in the agreement (Giles v Austin, supra; Noyes v Anderson, supra).

On occasion the court has cautioned that equitable relief would be denied where there has been a willful or gross neglect (Noyes v Anderson, supra, p 179), but it has been reluctant to employ the sanction when a forfeiture would result. In Giles v Austin (supra, p 491), for instance, the landlord sought to recover possession of the premises after the tenant had neglected to pay the taxes as required by a covenant in the lease. We held that although the tenant had not paid the taxes since the inception of the lease in 1859, and had only paid them after suit-was commenced in 1868, the tenant’s default was not "so willful, or his neglect so inexcusable, that a court of equity should have denied him any relief.”

There are several cases in which this court has denied a tenant or mortgagor equitable relief because of his own neglect to perform within the time fixed in the lease or mortgage, but only when it has found that there was "no penalty, no forfeiture” (Graf v Hope Bldg. Corp., 254 NY 1, 4; Fidelity & Columbia Trust Co. v Levin, 128 Misc 838, affd 221 App Div 786, affd 248 NY 551, supra; People’s Bank of City ofN.Y.v Mitchell, 73 NY 406, supra). Cardozo took a different view. He felt that even though there may be no penalty or forfeiture "in a strict or proper sense” equity should "relieve against it if default has been due to mere venial inattention and if relief can be granted without damage to the lender”. Even in those cases he would apply the general equitable principle that "the gravity of the fault must be compared with the gravity of the hardship” (Graf v Hope Bldg. Corp., supra, pp 9-10, 13 [Cardozo, Ch. J., dissenting]; see, also, 2 Pomeroy, Equity Jurisprudence [5th ed], § 439, p 220).

Here, as noted, the tenant has made a considerable investment in improvements on the premises—$40,000 at the time of purchase, and an additional $15,000 during the tenancy. In addition, if the location is lost, the restaurant would undoubtedly lose a considerable amount of its customer good will. The tenant was at fault, but not in a culpable sense. It was, as Cardozo says, "mere venial inattention.” There would be a forfeiture and the gravity of the loss is certainly out of all proportion to the gravity of the fault. Thus, under the circumstances of this case, the tenant would be entitled to equitable relief if there is no prejudice to the landlord.

However it is not clear from the record whether JNA would be prejudiced if the tenant is relieved of its default. Because of the trial court’s ruling, JNA was unable to submit proof that it might be prejudiced if the terms of the agreement were not enforced literally. Its proof of other negotiations was considered immaterial. It may be that after the tenant’s default the landlord, relying on the agreement, in good faith, made other commitments for the premises. But if JNA did not rely on the letter of the agreement then, it should not be permitted to rely on it now to exact a substantial forfeiture for the tenant’s unwitting default. This, however, must be resolved at a new trial.

Finally we would note, as the dissenters do, that it is possible to imagine a situation in which a tenant holding an option to renew might intentionally delay beyond the time prescribed in order to exploit a fluctuating market. However, as the dissenters also note, there is no evidence to suggest that that is what occurred here. On the contrary there has been an affirmed finding of fact that the tenant’s late notice was due to negligence. Of course a tenant who has intentionally delayed should not be relieved of a forfeiture simply because this tenant, who was merely inadvertent, may be granted equitable relief. But, on the other hand, we do not believe that this tenant, or any tenant, guilty only of negligence should be denied equitable relief because some other tenant, in some other case, may be found to have acted in bad faith. By its nature equitable relief must always depend on the facts of the particular case and not on hypotheticals.

Accordingly, the order of the Appellate Division should be reversed and a new trial granted.

Chief Judge Breitel (dissenting).

Relieving the tenant of its negligent failure to exercise its option to renew a lease within the prescribed time upsets established precedent, introduces instability in business transactions, and disregards commercial realities. I therefore dissent.

This case involves an option to renew a lease, not a mortgage foreclosure or an acceleration clause in a lease or mortgage. The categories and applicable precedents are not to be confused.

In a summary holdover proceeding brought by J. N. A. Realty, a landlord, to recover possession of leased commercial premises, tenant, Cross Bay Chelsea, appeals. The Civil Court’s dismissal of the petition, after trial, was affirmed at Appellate Term, but the Appellate Division reversed, one Justice dissenting, and awarded the landlord possession.

At issue is the availability of equitable relief to remedy a commercial tenant’s failure, by the appointed date, to exercise its option to renew a lease when the only explanation is sheer negligence.

The order of the Appellate Division should be affirmed, and the landlord awarded possession. Mere negligence does not justify departing from the rule that notice of intention to exercise an option to renew must be given within the prescribed period. Equitable relief is never justified by the fact alone, always present, that the tenant will suffer some sort of economic detriment.

The record is unusually deficient in many respects. From it, however, may be culled what follows.

In December, 1963, J. N. A. Realty, as owner, leased a newly erected commercial building in Queens County to Victor Palermo and Sylvester Vascellero. The lease agreement consisted of a printed form and a single 12-page rider. According to the rider, the lease extended for 10 years, to begin January 1, 1964, with an option for an additional 10-year term. All that was required, as set forth in paragraph 58 of the 12-page rider, was that the "tenant * * * notify the landlord in writing by registered or certified mail six (6) months prior to the last day of the term of the lease that tenant desires such renewal.”

Shortly thereafter, Palermo and Vascellero assigned the lease to Foro Romano, Inc., a restaurant corporation in which they were the principals. But the restaurant operated at a loss. By late 1967, following undescribed attempts by others, not identified, at the behest of the tenant, and with six years remaining on the initial term, the business was closed down. It was not until February, 1968 that Peter and John Morfogen, principals of the present tenant Cross Bay Chelsea, responded to an advertisement in the New York Times and indicated their interest in purchasing the leasehold and the closed-down business.

The precise details of the initial conversations between the parties cannot be extracted from the record because they are included only in bits and pieces. Apparently, however, the prospective buyer, who at the time of trial was operating four other restaurants in Manhattan, Queens, and Nassau County, was ready to agree only if a 30-year lease could be arranged. To that effect, a meeting of the principals of landlord J. N. A, Foro, and Chelsea was held on March 16, 1968, and a "modification and extension of lease” agreement executed. While the modification agreement provided that the tenant have the "right to renew this lease for a further period of Twenty-Four (24) years, instead of Ten (10) years”, it also continued in full force and effect "[a]ll other provisions of Paragraph #58”, which contained the requirement of six months’ notice of election of the option to renew. The modified lease provided that a portion of the taxes and insurance premiums, and all of the interior repairs, be borne by the tenant. The starting rent reserved in the option was $1,000 per month.

J. N. A.’s principals attended this critical meeting without counsel, although the Chelsea principals, who now claim ignorance of the conditions to exercising the 24-year renewal option, were accompanied by their lawyer and an accountant. The transaction eventually involved a gross price of $155,000, much of it deferred, for the restaurant, fixtures, and the assignment of the leasehold. Of the $155,000, $40,000 was allocated to the chattels and fixtures, and the balance to the leasehold. Chelsea’s lawyer also attended the June 8 closing of the transfer of the modified lease and the sale of the restaurant, following the March 16 lease modification meeting. Between the closing of the lease modification agreement in March, 1968 and the final closing in June, 1968, Chelsea arranged for a liquor license. Also before the June, 1968 closing, Chelsea had invested $15,000 in undescribed improvements in the premises. In short order the restaurant was reopened and was quite successful, or else this litigation would never have ensued.

On July 1, 1973, the date the renewal option was to be exercised, no notice or advice of any kind was sent or given to the landlord. It was not until November 16, 1973, some four and a-half months later, that Chelsea, in response to a letter from J. N. A., sent to the landlord a purported notice to exercise the option. J. N. A. refused to recognize the notice, and on March 4, 1974 instituted this holdover proceeding. The record is silent about the intervening period except to indicate that there were negotiations.

To excuse its failure to send a renewal notice by the July 1 deadline and to support a claim to equitable relief, Chelsea asserts that it never received a copy of the 12-page rider attached to the original lease. In addition to the 1968 modification agreement’s reference to the 1963 rider, the entire lease, including that rider, was filed in April, 1968 with the Division of Alcoholic Beverage Control on Chelsea’s preclosing application for a liquor license. While Chelsea contends that the 1963 rider found in the agency’s file must have been taken from an earlier application submission, the trial court resolved this issue of fact in favor of the landlord. The Appellate Division expressly found that Chelsea had knowledge, or at least should be chargeable with notice, of the provisions of paragraph 58 of the 1963 rider requiring six months’ notice to renew.

Chelsea contends that J. N. A.’s representative was on the premises in the summer of 1973, after law day had passed, and failed to comment when he saw that additional improvements were still being made. There is no evidence of what these improvements were, how extensive they were, their value, or whether they were fixed or movable fixtures or equipment. J. N. A. never conceded that the visits had occurred or that such post law day improvements had been made.

Had an honest mistake or similar "excusable fault”, as opposed to what is undoubtedly mere carelessness, occasioned the tenant’s tardiness, absent prejudice to the landlord, equitable relief would be available (e.g., Sy Jack Realty Co. v Pergament Syosset Corp., 27 NY2d 449, 453; Jones v Gianferante, 305 NY 135, 138). At issue, instead, is the availability of equitable relief where the only excuse for the commercial tenant’s dilatory failure to exercise its option to renew is sheer carelessness.

Enough has been said to uncover a common situation. Experienced and even hardened businessmen at cross-purposes over the renewal of a valuable lease term seek on the one hand to stand by the written agreement, and on the other, to loosen the applicable rules to receive ad hoc adjustment of equities and relief from economic detriment. The landlord wants a higher return. The tenant wants to keep the old bargain. Which of the profit-seeking parties in this particular case should prevail as a matter of morals is not within the province of the courts. The well-settled doctrine is that with respect to options, whether they be lease renewal options, options to purchase real or personal property, or stock options, time is of the essence. The exceptions, namely, estoppel, fraud, mistake, accident, or overreaching, are few. Commercial stability and certainty are paramount, and always the dangers of unsolvable issues of fact and speculative manipulation (as with stock options) are to be avoided.

The landlord should be awarded possession of the premises in accordance with the undisputed language and manifested intention of the written lease, its 12-page rider, and modification. It does not suffice that the tenant may suffer an economic detriment in losing the renewal period. Nor does it suffice that the delay in giving notice may have caused the landlord no "prejudice”, other than loss of the opportunity to relet the property or renegotiate the terms of a lease on a fresh basis. Once an option to renew a lease has been conditioned upon the tenant’s giving timely notice, the commercial lessee should not be heard to complain that through carelessness a valued asset has been lost, anymore than one would allow the landlord to complain of the economic detriment to him in agreeing to an improvident option to renew.

The court unanimously accepts the general rule at law: an option to renew a commercial lease must be exercised within the appointed time period (e.g., Sy Jack Realty Co. v Pergament Syosset Corp., 27 NY2d 449, 452, supra,' and authorities cited; see Restatement, Contracts 2d [Tent Draft Nos. 1-7, 1973], § 64, Comment f; 34 NY Jur, Landlord and Tenant, §§ 418-419; 51C CJS, Landlord and Tenant, § 59). Underlying the bar to equitable relief is the theory that until the condition precedent is fulfilled, that is, until the required timely notice is given, there is no "forfeiture” for which equity will extend protection (Fidelity & Columbia Trust Co. v Levin, 128 Misc 838, 844-845, affd 221 App Div 786, affd 248 NY 551; 2 Pomeroy, Equity Jurisprudence [5th ed], § 453b, p 296). While the rule has been bolstered by traditional concepts of estates in land, its basis has current commercial and economic validity.

In this State, as in others, relief has been afforded tenants threatened with loss of an expected renewal period (see, generally, Effect of Lessee’s Failure or Delay in Giving Notice Within Specified Time, of Intention to Renew Lease, Ann., 44 ALR2d 1359, esp 1362-1369). But in New York, as elsewhere, the circumstances conditioning such relief have been carefully limited. It is only where the tenant can show, not mere negligence, but an excuse such as fraud, mistake, or accident, that is, one or more of the categories common and integral to invocation of equity, that courts have, despite the literal agreement and intention of the parties, stepped in to prevent a loss (see, e.g., Jones v Gianferante, 305 NY 135, 138-139, supra; 1 McAdam, Landlord and Tenant [5th ed], § 156, pp 721-722).

Even in the case of excusable default by the tenant the court looks to the investment the tenant has made to bolster his right to equitable relief. But the fact of tenant investment alone is not enough to justify intervention. Thus, in the leading cases excusing the tenant’s late notice, mention is perforce made of investments and improvements (e.g., Sy Jack Realty Co. v Pergament Syosset Corp., 27 NY2d 449, 453, supra; Jones v Gianferante, 305 NY 135, 138, supra). But the loss or "forfeiture” of these investments was not alone the trigger to granting relief. Indispensable is the existence of some mistake or excusable default. Thus, in Jones v Gianferante (supra, p 138), an ambiguous term in the lease excused the tenant’s failure. And in Sy Jack v Pergament (supra, p 453), it was reliance on the post office to deliver the notice, mailed three days before law day, that was forgiven. In no case of accepted or acceptable authority, however, were improvements alone enough to help the negligent tenant.

The majority facilely disposes of the tenant’s delinquency in exercising its option by relying on cases in which a party, notwithstanding its negligence, was relieved from a forfeiture (e.g., Giles v Austin, 62 NY 486, 493-494, a conditional limitation in a lease; Noyes v Anderson, 124 NY 175, 182-183, mortgagor’s failure to pay an assessment). But indiscriminate application of principles evolved to deal with mortgage foreclosures or a lessor’s right to re-enter upon a tenant’s failure to pay taxes and assessments when due does not withstand analysis. Since ever so long, enforcement of a mortgage has rested in equity (see Jamaica Sav. Bank v M. S. Investing Co., 274 NY 215, 219; 38 NY Jur, Mortgages and Deeds of Trust, § 317). It is also significant that as to foreclosure, time is not of the essence (see 10 NY Jur, Contracts, § 270). Even where acceleration clauses are involved and a strong argument can be made for allowing relief, time has been of the essence and negligence has not been excused (see Graf v Hope Bldg. Corp., 254 NY 1, 4, 7 [dissenting opn. per Cardozo, Ch. J.]). It is equally inappropriate to analogize to a lessee’s failure to comply with a lease requirement that taxes and assessments be paid as they become due (see Giles v Austin, supra, pp 493-494). For the loss of an existing lease term subject to a condition subsequent distinguishes that situation from the loss of a possible option period subject to a condition precedent. An option is a right to purchase or acquire an interest in personal or real property in the future, and, if precise, it carries an invulnerable requirement to comply with all conditions, including that of time which is therefore of the essence in law and equity.

There are cases, not binding on this court, which express the principles discussed. For reasons that are not persuasive they would distinguish, however, between mere neglect or forgetfulness and gross or willful negligence, whatever that might be (see Fountain Co. v Stein, 97 Conn 619, 626-627; Xanthakey v Hayes, 107 Conn 459, 469; see, generally, 1 Williston, Contracts [3d ed], § 76, p 249, n 4). This is not a distinction generally accepted and is hardly a pragmatic one to apply in an area where the opportunities for distortion and manipulation are so great. The instability and uncertainty would be dangerous and would allow for ad hoc dispensations in particular cases without reliable rule so essential to commercial enterprise.

To begin with, under the guise of sheer inadvertence, a tenant could gamble with a fluctuating market, at the expense of his landlord, by delaying his decision beyond the time fixed in the agreement. The market having resolved in favor of exercising the option, the landlord, even though the day appointed in the agreement has passed, could be held to the return set out in the option, although if the market had resolved otherwise, the tenant could not be held to the renewal period.

None of this is to say that the tenant in this case was guilty of any manipulation. Hardly so. But what the court is concerned with is a rule for this case which perforce must cover other cases of like kind, where there will be no assurance that the "forgetfulness” is no more than that. The worst of the matter is that the kind of paltry record made in this case is hardly one on which a new rule with potential for mischief should be based. When the option, especially one requiring notice well in advance of the expiration of the lease, permits of economic manipulation, in commercial fairness the parties, especially if represented by counsel, should be held to their bargain, if plainly expressed.

Considering investments in the premises or the renewal term a "forfeiture” as alone warranting equitable relief would undermine if not dissolve the general rule upon which there is agreement. For, it is difficult to imagine a dilatory commercial tenant, particularly one in litigation over a renewal, who would not or could not point, scrupulously or unscrupulously, to some threatened investment in the premises, be it a physical improvement or the fact of good will. As a practical matter, it is not unreasonable to expect the commercial tenant, as compared with his residential counterpart, to protect his business interests with meticulousness, a meticulousness to which he would hold his landlord. All he, or his lawyer, need do is red-flag the date on which he has to act.

Having established no excuse, other than its own carelessness, Chelsea’s claim is unfounded. Even if Chelsea honestly thought it enjoyed a 30-year lease, it does not change the result. Nor is it helpful to argue that Chelsea, always represented by a lawyer, was unable to procure a copy of the entire lease agreement. Indeed, it borders on the utterly incredible that experienced, sophisticated businessmen and their lawyers would not have assembled and scrutinized every relevant document affecting a long-term lease covering, with a renewal, a 30-year period.

That adherence to well-settled principles, like a Statute of Limitations or a Statute of Frauds, works a hardship on some does not, alone, permit a court to depart from sound doctrine and principles. Even if precedent did not control the same doctrines and principles discussed should be applied.

Accordingly, I dissent and vote that the order of the Appellate Division should be affirmed, and the landlord awarded possession of the premises.

Judges Gabrielli, Fuchsberg and Cooke concur with Judge Wachtler; Chief Judge Breitel dissents and votes to affirm in a separate opinion in which Judges Jasen and Jones concur.

Order reversed, with costs, and a new trial granted.

Action by Jacob & Youngs, Incorporated, against George E. Kent. From an order of the Appellate Division (187 App. Div. 100,175 N. Y. Supp. 281), reversing judgment for defendant entered on verdict directed by the court and granting new trial, defendant appeals.

Order affirmed and judgment absolute directed in favor of plaintiff.

McLaughlin, Pound, and Andrews, JJ., dissenting. [890]
[230 N.Y. 239]Appeal from Supreme Court, Appellate Division, First department.
[230 N.Y. 240]Henry W. Hardon, of New York City, for appellant.

Frederick Hulse and Cornelius J. Sullivan, Jr., both of New York City, for respondent.

CARDOZO, J.

The plaintiff built a country residence for the defendant at a cost of upwards of $77,000, and now sues to recover a balance of $3,483.46, remaining unpaid. The work of construction ceased in June, 1914, and the defendant then began to occupy the dwelling. There was no complaint of defective performance until March, 1915. One of the specifications for the plumbing work provides that--

‘All wrought-iron pipe must be well galvanized, lap welded pipe of the grade known as ‘standard pipe’ of Reading manufacture.'

The defendant learned in March, 1915, that some of the pipe, instead of being made in Reading, was the product of other factories. The plaintiff was accordingly directed by the architect to do the work anew. The plumbing was then encased within the walls except in a few places where it had to be exposed. Obedience to the order meant more than the substitution of other pipe. It meant the demolition at great expense of substantial parts of [230 N.Y. 241]the completed structure. The plaintiff left the work untouched, and asked for a certificate that the final payment was due. Refusal of the certificate was followed by this suit.

The evidence sustains a finding that the omission of the prescribed brand of pipe was neither fraudulent nor willful. It was the result of the oversight and inattention of the plaintiff's subcontractor. Reading pipe is distinguished from Cohoes pipe and other brands only by the name of the manufacturer stamped upon it at intervals of between six and seven feet. Even the defendant's architect, though he inspected the pipe upon arrival, failed to notice the discrepancy. The plaintiff tried to show that the brands installed, though made by other manufacturers, were the same in quality, in appearance, in market value, and in cost as the brand stated in the contract-that they were, indeed, the same thing, though manufactured in another place. The evidence was excluded, and a verdict directed for the defendant. The Appellate Division reversed, and granted a new trial.

[1] We think the evidence, if admitted, would have supplied some basis for the inference that the defect was insignificant in its relation to the project. The courts never say that one who makes a contract fills the measure of his duty by less than full performance. They do say, however, that an omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by a forfeiture. Spence v. Ham, 163 N. Y. 220, 57 N. E. 412,51 L. R. A. 238; Woodward v. Fuller, 80 N. Y. 312; Glacius v. Black, 67 N. Y. 563, 566;Bowen v. Kimbell, 203 Mass. 364, 370, 89 N. E. 542,133 Am. St. Rep. 302. The distinction is akin to that between dependent and independent promises, or between promises and conditions. Anson on Contracts (Corbin's Ed.) § 367; 2 Williston on Contracts, § 842. Some promises are so plainly independent that they can never [230 N.Y. 242]by fair construction be conditions of one another. Rosenthal Paper Co. v. Nat. Folding Box & Paper Co., 226 N. Y. 313, 123 N. E. 766;Bogardus v. N. Y. Life Ins. Co., 101 N. Y. 328, 4 N. E. 522. Others are so plainly dependent that they must always be conditions. Others, though dependent and thus conditions when there is departure in point of substance, will be viewed as independent and collateral when the departure is insignificant. 2 Williston on Contracts, §§ 841, 842; Eastern Forge Co. v. Corbin, 182 Mass. 590, 592, 66 N. E. 419; Robinson v. Mollett, L. R., 7 Eng. & Ir. App. 802, 814; Miller v. Benjamin, 142 N. Y. 613, 37 N. E. 631. Considerations partly of justice and partly of presumable intention are to tell us whether this or that promise shall be placed in one class or in another. The simple and the uniform will call for different remedies from the multifarious and the intricate. The margin of departure within the range of normal expectation upon a sale of common chattels will vary from the margin to be expected upon a contract for the construction of a mansion or a ‘skyscraper.’ There will be harshness sometimes and oppression in the implication of a condition when the thing upon which labor has been expended is incapable of surrender because united to the land, and equity and reason in the implication of a like condition when the subject-matter, if defective, is in shape to be returned. From the conclusion that promises may not be treated as dependent to the extent of their uttermost minutiae without a sacrifice of justice, the progress is a short one to the conclusion that they may not be so treated without a perversion of intention. Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probable. If something else is in view, it must not be left to implication. There will be no assumption of a purpose to visit venial faults with oppressive retribution.

Those who think more of symmetry and logic in the development of legal rules than of practical adaptation to the attainment of a just result will be troubled by a classification[230 N.Y. 243]where the lines of division are so wavering and blurred. Something, doubtless, may be said on the score of consistency and certainty in favor of a stricter standard. The courts have balanced such considerations against those of equity and fairness, and found the latter to be the weightier. The decisions in this state commit us to the liberal view, which is making its way, nowadays, in jurisdictions slow to welcome it. Dakin & Co. v. Lee, 1916, 1 K. B. 566, 579. Where the line is to be drawn between the important and the trivial cannot be settled by a formula. ‘In the nature of the case precise boundaries are impossible.’ 2 Williston on Contracts, § 841. The same omission may take on one aspect or another according to its setting. Substitution of equivalents may not have the same significance in fields of art on the one side and in those of mere utility on the other. Nowhere will change be tolerated, however, if it is so dominant or pervasive as in any real or substantial measure to frustrate the purpose of the contract. Crouch v. Gutmann, 134 N. Y. 45, 51,31 N. E. 271,30 Am. St. Rep. 608. There is no general license to install whatever, in the builder's judgment, may be regarded as ‘just as good.’ Easthampton L. & C. Co., Ltd., v. Worthington, 186 N. Y. 407, 412,79 N. E. 323. The question is one of degree, to be answered, if there is doubt, by the triers of the facts (Crouch v. Gutmann; Woodward v. Fuller, supra), and, if the inferences are certain, by the judges of the law (Easthampton L. & C. Co., Ltd., v. Worthington, supra). We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. Then only can we tell whether literal fulfillment is to be implied by law as a condition. This is not to say that the parties are not free by apt and certain words to effectuate a purpose that performance of every term shall be a condition of recovery. That question is not here. This is merely to say that the law will be slow to impute the purpose, in the silence of the parties, where the significance [230 N.Y. 244]of the default is grievously out of proportion to the oppression of the forfeiture. The willful transgressor must accept the penalty of his transgression. Schultze v. Goodstein, 180 N. Y. 248, 251,73 N. E. 21;Desmond-Dunne Co. v. Friedman-Doscher Co., 162 N. Y. 486, 490,56 N. E. 995. For him there is no occasion to mitigate the rigor of implied conditions. The transgressor whose default is unintentional and trivial may hope for mercy if he will offer atonement for his wrong. Spence v. Ham, supra.

[2] In the circumstances of this case, we think the measure of the allowance is not the cost of replacement, which would be great, but the difference in value, which would be either nominal or nothing. Some of the exposed sections might perhaps have been replaced at moderate expense. The defendant did not limit his demand to them, but treated the plumbing as a unit to be corrected from cellar to roof. In point of fact, the plaintiff never reached the stage at which evidence of the extent of the allowance became necessary. The trial court had excluded evidence that the defect was unsubstantial, and in view of that ruling there was no occasion for the plaintiff to go farther with an offer of proof. We think, however, that the offer, if it had been made, would not of necessity have been defective because directed to difference in value. It is true that in most cases the cost of replacement is the measure. Spence v. Ham, supra. The owner is entitled to the money which will permit him to complete, unless the cost of completion is grossly and unfairly out of proportion to the good to be attained. When that is true, the measure is the difference in value. Specifications call, let us say, for a foundation built of granite quarried in Vermont. On the completion of the building, the owner learns that through the blunder of a subcontractor part of the foundation has been built of granite of the same quality quarried in New Hampshire. The measure of allowance is not the cost of reconstruction. ‘There may be [230 N.Y. 245]omissions of that which could not afterwards be supplied exactly as called for by the contract without taking down the building to its foundations, and at the same time the omission may not affect the value of the building for use or otherwise, except so slightly as to be hardly appreciable.’ Handy v. Bliss, 204 Mass. 513, 519, 90 N. E. 864,134 Am. St. Rep. 673. Cf. Foeller v. Heintz, 137 Wis. 169, 178, 118 N. W. 543,24 L. R. A. (N. S.) 321; [892] Oberlies v. Bullinger, 132 N. Y. 598, 601,30 N. E. 999; 2 Williston on Contracts, § 805, p. 1541. The rule that gives a remedy in cases of substantial performance with compensation for defects of trivial or inappreciable importance has been developed by the courts as an instrument of justice. The measure of the allowance must be shaped to the same end.

The order should be affirmed, and judgment absolute directed in favor of the plaintiff upon the stipulation, with costs in all courts.

McLAUGHLIN, J.

I dissent. The plaintiff did not perform its contract. Its failure to do so was either intentional or due to gross neglect which, under the uncontradicted facts, amounted to the same thing, nor did it make any proof of the cost of compliance, where compliance was possible.

Under its contract it obligated itself to use in the plumbing only pipe (between 2,000 and 2,500 feet) made by the Reading Manufacturing Company. The first pipe delivered was about 1,000 feet and the plaintiff's superintendent then called the attention of the foreman of the subcontractor, who was doing the plumbing, to the fact that the specifications annexed to the contract required all pipe used in the plumbing to be of the Reading Manufacturing Company. They then examined it for the purpose of ascertaining whether this delivery was of that manufacture and found it was. Thereafter, as pipe was required in the progress of the work, the foreman of the subcontractor would leave word at its [230 N.Y. 246]shop that he wanted a specified number of feet of pipe, without in any way indicating of what manufacture. Pipe would thereafter be delivered and installed in the building, without any examination whatever. Indeed, no examination, so far as appears, was made by the plaintiff, the subcontractor, defendant's architect, or any one else, of any of the pipe except the first delivery, until after the building had been completed. Plaintiff's architect then refused to give the certificate of completion, upon which the final payment depended, because all of the pipe used in the plumbing was not of the kind called for by the contract. After such refusal, the subcontractor removed the covering or insulation from about 900 feet of pipe which was exposed in the basement, cellar, and attic, and all but 70 feet was found to have been manufactured, not by the Reading Company, but by other manufacturers, some by the Cohoes Rolling Mill Company, some by the National Steel Works, some by the South Chester Tubing Company, and some which bore no manufacturer's mark at all. The balance of the pipe had been so installed in the building that an inspection of it could not be had without demolishing, in part at least, the building itself.

I am of the opinion the trial court was right in directing a verdict for the defendant. The plaintiff agreed that all the pipe used should be of the Reading Manufacturing Company. Only about two-fifths of it, so far as appears, was of that kind. If more were used, then the burden of proving that fact was upon the plaintiff, which it could easily have done, since it knew where the pipe was obtained. The question of substantial performance of a contract of the character of the one under consideration depends in no small degree upon the good faith of the contractor. If the plaintiff had intended to, and had, complied with the terms of the contract except as to minor omissions, due to inadvertence, then he might be allowed to recover the contract price, less the amount [230 N.Y. 247]necessary to fully compensate the defendant for damages caused by such omissions. Woodward v. Fuller, 80 N. Y. 312; Nolan v. Whitney, 88 N. Y. 648. But that is not this case. It installed between 2,000 and 2,500 feet of pipe, of which only 1,000 feet at most complied with the contract. No explanation was given why pipe called for by the contract was not used, nor that any effort made to show what it would cost to remove the pipe of other manufacturers and install that of the Reading Manufacturing Company. The defendant had a right to contract for what he wanted. He had a right before making payment to get what the contract called for. It is no answer to this suggestion to say that the pipe put in was just as good as that made by the Reading Manufacturing Company, or that the difference in value between such pipe and the pipe made by the Reading Manufacturing Company would be either ‘nominal or nothing.’ Defendant contracted for pipe made by the Reading Manufacturing Company. What his reason was for requiring this kind of pipe is of no importance. He wanted that and was entitled to it. It may have been a mere whim on his part, but even so, he had a right to this kind of pipe, regardless of whether some other kind, according to the opinion of the contractor or experts, would have been ‘just as good, better, or done just as well.’ He agreed to pay only upon condition that the pipe installed were made by that company and he ought not to be compelled to pay unless that condition be performed. Schultze v. Goodstein, 180 N. Y. 248, 73 N. E. 21; Spence v. Ham, supra; Steel S. & E. C. Co. v. Stock, 225 N. Y. 173, 121 N. E. 786;Van Clief v. Van Vechten, 130 N. Y. 571, 29 N. E. 1017;Glacius v. Black, 50 N. Y. 145, 10 Am. Rep. 449;Smith v. Brady, 17 N. Y. 173, and authorities cited on [893] page 185, 72 Am. Dec. 442. The rule, therefore, of substantial performance, with damages for unsubstantial omissions, has no application. Crouch v. Gutmann, 134 N. Y. 45, 31 N. E. 271,30 Am. St. Rep. 608;Spence v. Ham, 163 N. Y. 220, 57 N. E. 412,51 L. R. A. 238.

[230 N.Y. 248]What was said by this court in Smith v. Brady, supra, is quite applicable here:

‘I suppose it will be conceded that every one has a right to build his house, his cottage or his store after such a model and in such style as shall best accord with his notions of utility or be most agreeable to his fancy. The specifications of the contract become the law between the parties until voluntarily changed. If the owner prefers a plain and simple Doric column, and has so provided in the agreement, the contractor has no right to put in its place the more costly and elegant Corinthian. If the owner, having regard to strength and durability, has contracted for walls of specified materials to be laid in a particular manner, or for a given number of joists and beams, the builder has no right to substitute his own judgment or that of others. Having departed from the agreement, if performance has not been waived by the other party, the law will not allow him to allege that he has made as good a building as the one he engaged to erect. He can demand payment only upon and according to the terms of his contract, and if the conditions on which payment is due have not been performed, then the right to demand it does not exist. To hold a different doctrine would be simply to make another contract, and would be giving to parties an encouragement to violate their engagements, which the just policy of the law does not permit.’ (17 N. Y. 186, 72 Am. Dec. 422).

I am of the opinion the trial court did not err in ruling on the admission of evidence or in directing a verdict for the defendant.

For the foregoing reasons I think the judgment of the Appellate Division should be reversed and the judgment of the Trial Term affirmed.

HISCOCK, C. J., and HOGAN and CRANE, JJ., concur with CARDOZO, J.

POUND and ANDREWS, JJ., concur with McLAUGHLIN, J.

Order affirmed, etc.