Early in 1970, appellant, Acme Quilting Company, entered into an agreement with the respondent, George Backer Management Corporation, for the rental of office space in the respondent's building. The lease the parties ultimately signed included an escalation clause under which increases are keyed to certain wage rate increases. The dispute in this case, in the main raising issues of ambiguity, mutual mistake, fraud and unconscionability, revolves about that clause.
The clause is paragraph 39(b) of the lease. It provides that
The RAB labor rate is defined in paragraph 39(b) as: "the aggregate of (a) the average of the minimum regular hourly wage rates for porters, handymen, elevator operators, starters and watchmen as applied to this building pursuant to an agreement between the Realty Advisory Board on Labor Relations, Incorporated (or any successor thereto) and Local 32-B of the Building Service Employees International Union, AFLCIO (or any successor thereto) or, if no such agreement is in effect at such time, the average of the minimum regular hourly wage rates then actually being paid by Landlord or by the independent contractors who furnish such services to the demised premises, (b) the total amount, computed on an hourly basis, of social security, unemployment and disability insurance and payroll and other taxes imposed upon or measured by such wages, and (c) the total amount, computed on an hourly basis, of all benefits required by law and/or such agreement to be paid to or for such personnel."
It is clear from the record that there was nothing routine about the way in which these provisions came into being. It would be impossible to argue that they contained any element of adhesion. Backer, by its treasurer, Arthur Lukach, first submitted a proposed lease. It was then analyzed by Acme's vice-president, Richard Rattner, who was not only a member of the Bar but, perhaps more important in the present context, a corporate executive in the multimillion dollar business of his principal with 20 years of business experience behind him. Rattner did not rest on his analysis; he prepared a comprehensive memorandum on certain of its provisions, including the very clause with which we are now concerned.
Additionally, by happenstance, the course of the negotiations required both sides to repeatedly focus on it. For example, though the initial discussions were suspended because of uncertainty over whether the existing tenant would vacate within the time required for Acme to commence occupancy,
The record also reveals that, since it was not a member of the owners' unit for which the Realty Advisory Board would act in negotiating industry-wide collective bargaining agreements with labor unions representing the classes of employees whose wages were involved here, Backer was not bound to, and in fact did not, accept the RAB's labor scale for its employees. The scale in effect at its building was a lower one.
After a period during which Backer had not billed Acme for increases responsive to the RAB standard, the time came when Acme, no doubt because the RAB had negotiated a new scale providing for a substantial increase in wages, refused to comply with Backer's demand that it remit payment in an amount reflecting the application of 39(b) to the RAB rate. Backer then commenced suit to recover the arrearages so computed. Acme, characterizing paragraph 39(b) as "shamefully ambiguous and unintelligible" and urging, by way of affirmative defense, that it was unconscionable, asserted that the clause should be read to limit the escalation to sums computed by reference to wage increases actually paid by the landlord. It further alleged that Lukach, on Backer's behalf, had expressly represented that the cost of any increase to Acme "in no event, would exceed an amount equal to four or five per cent of the base rate for any particular year". These grounds, according to Acme, entitled it to have the lease provision reformed under a theory of mutual mistake or, in the alternative, mistake on its part and fraud on the part of Backer.
Looking first at the claim of ambiguity, we observe that a lease is subject to the rules of construction applicable to any other agreement (Farrell Lines v City of New York, 30 N.Y.2d 76, 82). We also note that the lease in this case was entered into at arm's length and, ultimately, on terms — most particularly those contained in the lease's rider where paragraph 39(b) is to be found — which were the residue of suggestions and countersuggestions on which each of the two sophisticated parties had attempted to persuade the other to join it in a meeting of the minds. True, the language of the clause may seem dull and labored to the uninitiated, an unremarkable circumstance because it recites what is largely a mathematical formula to be applied on stated contingencies. But, taken step by step, any semblance of complexity disappears. Moreover, it was not a novel provision, but one commonly found in New York City commercial leases (see Romance Bridals v 1385 Broadway Co., NYLJ, Jan. 27, 1976, p 6, col 3 [FEIN, J.]).
Acme, however, going beyond the description of the formula which consumes most of the clause, contends that the words "as applied to this building" must limit the wage calculation to those employees working on the property itself. This interpretation, though, is at odds with the thrust of the remainder of that sentence of paragraph 39(b) which refers to the RAB collective bargaining contract's schedule of varying wage rates for employees of different classes of buildings. It seems obvious to us that the purpose of that reference was to relate additional rent increases to a fluctuating factor beyond
Significantly, the lease contains no requirement that rent escalations be measured by actual costs as opposed to the common industry-wide criterion chosen by the parties here. Had that been their intention, surely no problem of draftsmanship would have stood in the way of its being spelled out. Language as simple as that in the first sentence of this paragraph would have served the purpose. Instead, 39(b) explicitly states that the actual wages paid to building employees are not to be considered unless no collective bargaining agreement is in effect.
Nor was the operation of the clause unconscionable. Acme assumed the precise risk of which it now complains — that the RAB labor rate would rise so as to substantially increase its monthly rental payments. But parties are free to make their own contracts. Here Backer no doubt believed that it was to its economic advantage to tie the rent escalation clause to the RAB rate; though it needed no other reason, perhaps Backer also believed that if it were able to operate the building at lower than prevailing cost, it and not the tenants should be the beneficiary of its enterprise. Acme's view, fueled by its own self-interest, understandably would be the opposite.
Once a contract is made, only in unusual circumstances will a court relieve the parties of the duty of abiding by it. By no means did such circumstances exist here. Indeed, the indexing of rent or wage increases to outside factors, such as, for instance, the cost of living index, which may or may not directly affect particular parties, is commonplace. So, a cost of living clause in a lease would certainly be enforceable though, by reason of a fixed long-term mortgage or fixed ground rent or stability in the real estate tax rate or all of these, a particular landlord is largely insulated from the effects of rising costs. Thus, the wage rate clause here contravened no principle of public policy nor is its effect so onerous as to shock the conscience (cf. Mandel v Liebman, 303 N.Y. 88, 93-94; Real Property Law, § 235-c). Hence, judicial interpretation will not relieve Acme of what it may now regard as a burdensome bargain.
We turn now to Acme's claim for reformation. Its allegation of mutual mistake or fraudulently induced unilateral
Reformation is not granted for the purpose of alleviating a hard or oppressive bargain, but rather to restate the intended terms of an agreement when the writing that memorializes that agreement is at variance with the intent of both parties (Ross v Food Specialties, 6 N.Y.2d 336, 341; 13 Williston, Contracts [3d ed], §§ 1548, 1549). Equity evolved the doctrine because an action at law afforded no relief against an instrument secured by fraud or as a result of mutual mistake (see 5 Holdsworth, History of English Law, pp 292-293, 327-328). But to overcome the heavy presumption that a deliberately prepared and executed written instrument manifested the true intention of the parties, evidence of a very high order is required (Christopher & Tenth St. R. R. Co. v Twenty-Third St. Ry. Co., 149 N.Y. 51, 58). And well that it is, for freedom to contract would not long survive courts' ready remaking of contracts that parties have agreed upon (Nash v Kornblum, 12 N.Y.2d 42, 46). All the more so when a litigant seeks to invoke the power of the court, not merely to sever the contractual relationship between the parties, but, as here, to continue that relationship in a modified form. It follows that a petitioning party has to show in no uncertain terms, not only that mistake or fraud exists, but exactly what was really agreed upon between the parties (Williston, Contracts [3d ed], §§ 1548, 1597).
The requisite standard of proof has been stated variously (Amend v Hurley, 293 N.Y. 587, 595 ["clear, positive and convincing evidence" so as to demonstrate not the probability
As a matter of law, no showing free of contradiction or equivocation comes through from the affidavits submitted by Acme. The history of the lease negotiations between Backer and Acme discloses continuing awareness on the prospective tenant's part that the wage rate escalation provision might be potentially disadvantageous. The negotiations were conducted in a most businesslike, meticulous and unhurried manner by both sides. These produced substantial economic modifications to Acme's advantage. And, only a month before the culmination of the negotiations, when Rattner advised Lukach that he was not satisfied with the clause, the latter remained steadfast and the lease containing the now objectionable provision was accepted by the tenant in unchanged form.
Furthermore, patently, Lukach's purported oral interpretation of the clause as limiting Acme's liability to about "four or five percent" of the actual wage rate sets forth no reasonable ground for reliance. The very indefiniteness of the figures confirms this statement as an expression of opinion rather than of fact. Above all, it did not relate to a concrete fact or a past or existing event. At best, it was no more than an expression of expectations as to labor agreements which had not yet been negotiated and the outcome of which, as both parties knew, could not be foretold. As a matter of law, then, it cannot form the basis for a claim of misrepresentation (see Woodmere Academy v Steinberg, 41 N.Y.2d 746, 751).
Accordingly, mindful that this is an appeal from the disposition of a summary judgment motion, we conclude that the evidentiary facts put forth to defeat Backer's motion were insufficient to achieve that end. Even if, given the procedural
Therefore, the judgment appealed from and the order of the Appellate Division now brought up for review must be affirmed.
I would reverse and deny summary judgment to plaintiff. Clause 39(b) of the lease is ambiguous. The reference to the Realty Advisory Board collective agreement is unclear. It does not make explicit whether the labor rates in that agreement apply to the building in question even if the landlord is paying lower rates than those provided for in the collective agreement. The clause is ambiguous, too, in using the word "applied" rather than "applicable" in subdivision (i)(a) of clause 39(b). The ambiguity is then compounded in that same subdivision by the alternative computation if "no such agreement is in effect" because that computation may apply if "no such agreement is in effect" in the industry or it may apply if there has been such agreement in the industry, but it is not in effect as to the building in question.
Given the ambiguity, the parol evidence tendered in the tenant's affidavit would not vary or contradict the written agreement, but would shed light on the meaning of the ambiguous terms. Moreover, the same evidence would certainly be admissible to justify reformation by establishing fraud on one side and misunderstanding on the other. This, of course, is not to say that I would conclude one way or another whether tenant's position should be accepted, but I do conclude that an issue of fact exists in the submissions.
Lastly, the reference to tenant's negotiator-representative as a lawyer is misleading. He practiced tort law for a brief period in California and for over two decades has been a businessman in various executive positions of middle rank with a series of financial and merchandising or manufacturing corporations. On the other hand, his contemporaneously made memorandum lends support to his version of the negotiations.
Judgment appealed from and order of the Appellate Division brought up for review affirmed, with costs.