Van Wagner Corp. v.

S & M Enterprises1
492 N.E. 2d 756

Specific performance of a contract to lease "unique" billboard space is properly denied

when damages are an adequate remedy to compensate the tenant and equitable relief
would impose a disproportionate burden on the defaulting landlord.

[On] December 16, 1981, 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 specific performance and damages.

[T]he 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. At a nonjury trial, both parties introduced parol evidence, in the form
of testimony about negotiations, to explain the meaning of section 1.05.

Trial Term 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." Trial Term declared the lease "valid and subsisting" and found that the
"demised space is unique as to location for the particular advertising purpose intended

1
The cases in this unit have edited and not all omissions are indicated by elipses.
by Van Wagner and Michaels, the original parties 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. On Van Wagner's motion to resettle the judgment to
provide for specific performance, the court adhered to its judgment.

On cross appeals the Appellate Division affirmed. . .

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, Trial Term's alternate finding -
- that the parol 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.

[W]e 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. 2

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

2 We note that the parties' contentions regarding the remedy of specific performance in general, mirror a scholarly debate that has
persisted throughout our judicial history, reflecting fundamentally divergent views about the quality of a bargained-for promise.
While the usual remedy in Anglo-American law has been damages, rather than compensation "in kind" (see, Holmes, The Path of the
Law, 10 Harv L Rev 457, 462 [1897]; Holmes, The Common Law, at 299-301 [1881]; and Gilmore, The Death of Contract, at 14-15), the
current trend among commentators appears to favor the remedy of specific performance (see, Farnsworth, Legal Remedies for Breach of
Contract, 70 Colum L Rev 1145, 1156 [1970]; Linzer, On the Amorality of Contract Remedies -- Efficiency, Equity, and the Second Restatement,
81 Colum L Rev 111 [1981]; and Schwartz, The Case for Specific Performance, 89 Yale LJ 271 [1979]), but the view is not unanimous (see,
Posner, Economic Analysis of Law § 4.9, at 89-90 [2d ed 1977]; Yorio, In Defense of Money Damages for Breach of Contract, 82 Colum L Rev
1365 [1982]).
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 equitable relief.

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 behavior generating 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] the
Restatement (Second) of Contracts.

Thus, the fact that the subject of the contract may be "unique as to location for the
particular advertising purpose intended" 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. Both parties complain:
Van Wagner asserts that while lost revenues on the Asch contract may be adequate
compensation, that contract expired February 28, 1985, its lease with S & M continues
until 1992, and the value of the demised space cannot reasonably be fixed for the balance
of the term. S & M urges that future rents and continuing damages are necessarily
conjectural, both during and after the Asch contract, and that Van Wagner's damages
must be limited to 60 days -- the period during which Van Wagner could cancel Asch's
contract without consequence in the event Van Wagner lost the demised space. S & M
points out that Van Wagner's lease could remain in effect for the full 10-year term, or it
could legitimately be extinguished immediately, either in conjunction with a bona fide
sale of the property by S & M, or by a reletting of the building if the new tenant required
use of the billboard space for its own purposes. Both parties' contentions were properly
rejected.

First, it is hardly novel in the law for damages to be projected into the future. Particularly
where the value of commercial billboard space can be readily determined by comparisons
with similar uses -- Van Wagner itself has more than 400 leases -- the value of this
property between 1985 and 1992 cannot be regarded as speculative. Second, S & M
having successfully resisted specific performance on the ground that there is an adequate
remedy at law, cannot at the same time be heard to contend that damages beyond 60 days
must be denied because they are conjectural. If damages for breach of this lease are
indeed conjectural, and cannot be calculated with reasonable certainty, then S & M should
be compelled to perform its contractual obligation by restoring Van Wagner to the
premises. Moreover, the contingencies to which S & M points do not, as a practical
matter, render the calculation of damages speculative. While S & M could terminate the
Van Wagner lease in the event of a sale of the building, this building has been sold only
once in 40 years; S & M paid several million dollars, and purchased the building in
connection with its plan for major development of the block. The theoretical termination
right of a future tenant of the existing building also must be viewed in light of these
circumstances. If any uncertainty is generated by the two contingencies, then the benefit
of that doubt must go to Van Wagner and not the contract violator. . . Thus, neither the
need to project into the future nor the contingencies allegedly affecting the length of Van
Wagner's term render inadequate the remedy of damages for S & M's breach of its lease
with Van Wagner.

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 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.

While specific performance was properly denied, the court erred in its assessment of
damages. [The] order of the Appellate Division should be modified, and the case
remitted for further proceedings in accordance with this opinion and, as so modified,
affirmed.