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Instructions:

In the law, as in life and business, facts can get complicated. To understand and keep track of facts, it is useful to create diagrams showing the events of the case, theirconnection withone another,andwhen they happened.That is precisely what this assignment requests that you do.

Create a Diagram:

Please review the facts of the Van Wagner caseand draw a diagram showing the events of the case, theirconnection withone another,andwhen they happened.

Answer Questions:

What is the issue in the case? What is specific performance? When and why is specific performance awarded? Was specific performance ordered inVan Wagner? If not, why not What remedy does the court provide toVanWagner?

Van Wagner Adver. Corp. v. S & M Enters.

Court of Appeals of New York

Reporter: 67 N.Y.2d 186

Van Wagner Advertising Corp., Appellant-Respondent, v. S & M Enterprises et al., Respondents-Appellants

OPINION OF THE COURT

By agreement dated December 16, 1981, Barbara Michaels leased to plaintiff, Van Wagner Advertising, for an initial period of three years plus option periods totaling seven additional years space on the eastern exterior wall of a building on East 36th Street in Manhattan. Van Wagner was in the business of erecting and leasing billboards, and the parties anticipated that Van Wagner would erect a sign on the leased space, which faced an exit ramp of the Midtown Tunnel and was therefore visible to vehicles entering Manhattan from that tunnel.

In early 1982 Van Wagner erected an illuminated sign and leased it to Asch Advertising, Inc. for a three-year period commencing March 1, 1982. However, by agreement dated January 22, 1982, Michaels sold the building to defendant S & M Enterprises. Michaels informed Van Wagner of the sale in early August 1982, and on August 19, 1982 S & M sent Van Wagner a letter purporting to cancel the lease as of October 18 pursuant to section 1.05, which provided:

"Notwithstanding anything contained in the foregoing provisions to the contrary, Lessor (or its successor) may terminate and cancel this lease on not less than 60 days prior written notice in the event and only in the event of:

"a) a bona fide sale of the building to a third party unrelated to Lessor".

Van Wagner abandoned the space under protest and in November 1982 commenced this action for declarations that the purported cancellation was ineffective and the lease still in existence, and for specific performance and damages.

In the litigation the parties differed sharply on the meaning of section 1.05 of the lease. Van Wagner contended that the lease granted a right to cancel only to the owner as it was about to sell the building -- not to the new purchaser -- so that the building could be conveyed without the encumbrance of the lease. S & M, in contrast, contended that the provision clearly gave it, as Michaels' successor by virtue of a bona fide sale, the right to cancel the lease on 60 days' notice. [The trial court] denied Van Wagner's motion for a preliminary injunction, concluding that the lease by its terms gave S & M the authority to cancel and that Van Wagner was therefore not likely to succeed on the merits.

At a nonjury trial, both parties introduced evidence, in the form of testimony about negotiations, to explain the meaning of section 1.05. Additionally, one of S & M's two partners testified without contradiction that, having already acquired other real estate on the block, S & M purchased the subject building in 1982 for the ultimate purpose of demolishing existing buildings and constructing a mixed residential-commercial development. The project is to begin upon expiration of a lease of the subject building in 1987, if not sooner.

[The trial court] concluded that Van Wagner's position on the issue of contract interpretation was correct, either because the lease provision unambiguously so provided or, if the provision were ambiguous, because the parol evidence showed that the "parties to the lease intended that only an owner making a bona fide sale could terminate the lease. They did not intend that once a sale had been made that any future purchaser could terminate the lease at will." [The trial court] declared the lease "valid and subsisting" and found that the "demised space is unique as to location for the particular advertising purpose intended by Van Wagner and Michaels, the originalparties to the Lease." However, the court declined to order specific performance in light of its finding that Van Wagner "has an adequate remedy at law for damages". Moreover, the court noted that specific performance "would be inequitable in that its effect would be disproportionate in its harm to the defendant and its assistance to plaintiff." Concluding that "[the] value of the unique qualities of the demised space has been fixed by the contract Van Wagner has with its advertising client, Asch for the period of the contract", the court awarded Van Wagner the lost revenues on the Asch sublease for the period through trial, without prejudice to a new action by Van Wagner for subsequent damages if S & M did not permit Van Wagner to reoccupy the space.

We granted both parties leave to appeal.

Whether or not a contract provision is ambiguous is a question of law to be resolved by a court. In our view, section 1.05 is ambiguous. Reasonable minds could differ as to whether the lease granted a purchaser of the property a right to cancel the lease, or limited that right to successive sellers of the property. However, [the trial court's]alternate finding -- that evidence supported Van Wagner's interpretation of the provision -- was one of fact. That finding, having been affirmed by the Appellate Division and having support in the record, is beyond the scope of our review. Thus, S & M's cancellation of Van Wagner's lease constituted a breach of contract.

Given defendant's unexcused failure to perform its contract, we next turn to a consideration of remedy for the breach: Van Wagner seeks specific performance of the contract, S & M urges that money damages are adequate but that the amount of the award was improper.

Whether or not to award specific performance is a decision that rests in the sound discretion of the trial court, and here that discretion was not abused. Considering first the nature of the transaction, specific performance has been imposed as the remedy for breach of contracts for the sale of real property, but the contract here is to lease rather than sell an interest in real property. While specific performance is available, in appropriate circumstances, for breach of a commercial or residential lease, specific performance of real property leases is not in this State awarded as a matter of course.

Van Wagner argues that specific performance must be granted in light of the trial court's finding that the "demised space is unique as to location for the particular advertising purpose intended". The word "uniqueness" is not, however, a magic door to specific performance. A distinction must be drawn between physical difference and economic interchangeability. The trial court found that the leased property is physically unique, but so is every parcel of real property and so are many consumer goods. Putting aside contracts for the sale of real property, where specific performance has traditionally been the remedy for breach, uniqueness in the sense of physical difference does not itself dictate the propriety of [the] equitable relief [of specific performance].

By the same token, at some level all property may be interchangeable with money. Economic theory is concerned with the degree to which consumers are willing to substitute the use of one good for another, the underlying assumption being that "every good has substitutes, even if only very poor ones", and that "all goods are ultimately commensurable". Such a view, however, could strip all meaning from uniqueness, for if all goods are ultimately exchangeable for a price, then all goods may be valued. Even a rare manuscript has an economic substitute in that there is a price for which any purchaser would likely agree to give up a right to buy it, but a court would in all probability order specific performance of such a contract on the ground that the subject matter of the contract is unique.

The point at which breach of a contract will be redressable by specific performance thus must lie not in any inherent physical uniqueness of the property but instead in the uncertainty of valuing it: What matters, in measuring money damages, is the volume, refinement, and reliability of the available information about substitutes for the subject matter of the breached contract. When the relevant information is thin and unreliable, there is a substantial risk that an award of money damages will either exceed or fall short of the promisee's actual loss. Of course this risk can always be reduced -- but only at great cost when reliable information is difficult to obtain. Conversely, when there is a great deal of consumer behaviorgenerating abundant and highly dependable information about substitutes, the risk of error in measuring the promisee's loss may be reduced at much smaller cost. In asserting that the subject matter of a particular contract is unique and has no established market value, a court is really saying that it cannot obtain, at reasonable cost, enough information about substitutes to permit it to calculate an award of money damages without imposing an unacceptably high risk of undercompensation on the injured promisee. Conceived in this way, the uniqueness test seems economically sound." This principle is reflected in the case law and is essentially the position of the Restatement (Second) of Contracts, which lists "the difficulty of proving damages with reasonable certainty" as the first factor affecting adequacy of damages.

Thus, the fact that the subject of the contract may be "unique as to location forthe particular advertising purposeintended" by the parties does not entitle a plaintiff to the remedy of specific performance.

Here, the trial court correctly concluded that the value of the "unique qualities" of the demised space could be fixed with reasonable certainty and without imposing an unacceptably high risk of undercompensating the injured tenant.. . .

The trial court, additionally, correctly concluded that specific performance should be denied on the ground that such relief "would be inequitable in that its effect would be disproportionate in its harm to defendant and its assistance to plaintiff". It is well settled that the imposition of an equitable remedy must not itself work an inequity, and that specific performance should not be an undue hardship. Here, however, there was no abuse of discretion; the finding that specific performance would disproportionately harm S & M and benefit Van Wagner has been affirmed by the Appellate Division and has support in the proof regarding S & M's projected development of the property.

While specific performance was properly denied, the court erred in its assessment of damages. Our attention is drawn to two alleged errors. . . .

Based on the Asch contract indicating revenues, and the lease indicating expenses, the trial court properly calculated Van Wagner's lost profits. Having found that the value of the space was fixed by the Asch contract for the entire period of that contract, however, the court erred in awarding the lost revenues only through November 23, 1983. Damages should have been awarded for the duration of the Asch contract.

Second, the court fashioned relief for S & M's breach of contract only to the time of trial, and expressly contemplated that "[if] defendant continues to exclude plaintiff from the leased space action for continuing damages may be brought." In requiring Van Wagner to bring a multiplicity of suits to recover its damages the court erred. Damages should have been awarded through the expiration of Van Wagner's lease.

Accordingly, the order of the Appellate Division should be modified, with costs to plaintiff, and the case remitted to Supreme Court, New York County, for further proceedings in accordance with this opinion and, as so modified, affirmed