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Attorney(S)

Raphael H. Weissman for appellant. Otto A. Samuels for respondent.

Judges

Albert Conway

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Smart Summary

Estro Chemical Co., Inc. v. Harriet V. Falk, Court of Appeals of the State of New York, Decided July 11, 1951

Factual and Procedural Background

Plaintiff tenant (Estro Chemical Co., Inc.) commenced an action, in its first cause of action, to recover rent paid in excess of the emergency rent permissible under the Commercial (Emergency) Rent Law (L. 1945, ch. 3, as amended). The rental agreement in effect continued until February 1949. In February 1949 the parties negotiated a new arrangement and on February 21 they executed an agreement to submit determination of a reasonable rent to a named arbitrator, to be based on fair rental value as of the date of submission. An award was made, a three‑year lease (ending February 1952) was entered, and the award was confirmed by the Supreme Court. In the second cause of action plaintiff alleged the arbitration was a fabrication and sham contrived to give color of legality to the allegedly excessive rent in the new agreement.

In the landlord's answer to the first cause of action a written release for a valuable consideration was pleaded as an affirmative defense. The landlord moved for summary judgment dismissing the first cause of action; the Appellate Division granted relief in part. The Court of Appeals considered (a) whether a tenant may validly release a landlord of liability for excessive rent after a cause of action has accrued under the statute, and (b) whether the second cause seeking to vacate the arbitration award could be pursued by plenary action.

Legal Issues Presented

Whether, under the Commercial (Emergency) Rent Law, a tenant may validly waive or release a landlord's liability for recovery of rent paid in excess of the statutory maximum after the tenant's cause of action has accrued.
Whether an arbitration award arising under the Commercial (Emergency) Rent Law may be vacated by plenary action or must be attacked by timely motion under article 84 of the Civil Practice Act (section 1463).

Arguments of the Parties

Plaintiff (Appellant)

Alleged the arbitration was a fabrication and sham contrived to give color of legality to the rent reserved in the new agreement.
Sought recovery of excessive rent paid under the statute (first cause) and sought to vacate the arbitration award (second cause).

Defendant (Respondent)

Pleaded as an affirmative defense a written release given by the tenant for a valuable consideration (as to the first cause of action).
Obtained a motion for summary judgment dismissing the first cause of action (as reflected in the proceedings reviewed).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Twentieth Century Associates v. Waldman (294 N.Y. 571, 581)	Validity and constitutionality of the Commercial (Emergency) Rent Law; legislative finding that tenants' freedom of contract was illusory in the emergency context.	Used to support that the act was intended to address unequal bargaining power and prevent excessive rents; supports the nonwaiver rule in this context.
O'Neil v. Brooklyn Sav. Bank (267 App. Div. 317; affd. 293 N.Y. 666; affd. sub nom. Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697)	That a statutory right affecting the public interest may not be waived if waiver contravenes statutory policy; principles about nonwaiver where public interest is involved.	Quoted and relied upon to support the conclusion that tenants may not waive or release rights to recover excess rent under the statute.
Midstate Horticultural Co. v. Pennsylvania R.R. Co., 320 U.S. 356	Authority for the proposition that statutory rights affecting public interest may not be waived to defeat statutory policy.	Referenced along with Brooklyn Sav. Bank v. O'Neil to support nonwaiver principle.
Wood Co. v. Horgan, 291 N.Y. 422	Decisions holding contracts to waive statutory provisions in advance are void but that subsequent settlement agreements after default may be enforceable in some contexts.	Distinguished: court noted such precedents but held the statute's express nonwaiver and public policy foreclose enforcing releases for excessive rent.
Seeley v. Prentiss Tool Supply Co., 158 App. Div. 853, affd. 216 N.Y. 687	Similar authority on enforceability of subsequent agreements settling disputes.	Noted as part of the line of cases on waivers and settlements, but distinguished by the court given the statute's explicit prohibition.
Adler v. Weis Fisher Co., 218 N.Y. 295	Another case on waiver/settlement principles.	Referenced in the survey of cases permitting certain post-default settlements; distinguished for reasons stated.
Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697	Federal exposition that statutory rights affecting public interest cannot be waived so as to contravene statutory policy.	Cited to reinforce the statutory nonwaiver principle applied to recovery of excessive rents.
American Reserve Ins. Co. v. China Ins. Co., 297 N.Y. 322	Arbitration awards under the Commercial (Emergency) Rent Law are subject to article 84 of the Civil Practice Act; remedies to vacate are by motion under section 1463.	Applied to hold that an attack on an arbitration award must follow the exclusive remedy of timely motion under section 1463, not plenary action.
Raven Elec. Co. v. Linzer, 302 N.Y. 188	Authority concerning the exclusive remedies and procedures for challenging arbitration awards.	Relied upon to support that vacatur of arbitration awards must be sought by motion under article 84.
Feinberg v. Barry Equity Corp., 302 N.Y. 676	Another decision on procedure for attacking arbitration awards.	Used with the other arbitration cases to establish that plenary action is not the appropriate vehicle to vacate such awards.

Court's Reasoning and Analysis

The court assumed, for purposes of analysis, the pleaded written release was supported by valuable consideration. It then examined whether the Commercial (Emergency) Rent Law permits a tenant to release a landlord from liability for recovery of rent paid in excess of statutory limits after the tenant's cause of action has accrued.

The court relied on the statute's express language in section 12: "Any waiver of any of the provisions of this act shall be unenforceable and void." It also cited section 1's legislative declarations of public emergency and the necessity of the legislation to remedy unjust and oppressive leases. Citing Twentieth Century Associates v. Waldman, the court observed the Legislature found tenants' freedom of contract to be illusory in that emergency context and that the act was intended to prevent excessive rents.

Given the statute's explicit nonwaiver provision and the public‑policy purpose of preventing excessive rents, the court concluded tenants may not, under any circumstances, waive or release their right to recover rent paid in excess of statutory maxima. The court distinguished cases allowing certain post‑default settlements, reasoning that the statute's explicit prohibition and public‑interest character of the right control.

As to the second cause of action seeking to vacate the arbitration award (alleged to be a sham), the court held arbitrations under the Commercial (Emergency) Rent Law are governed by article 84 of the Civil Practice Act and that the exclusive remedy to vacate an award is by timely motion as provided in section 1463 of the Civil Practice Act. A plenary action is not the proper vehicle to vacate such an award. The court cited American Reserve, Raven, and Feinberg to support that procedural rule.

Holding and Implications

HOLDING: The Court modified the Appellate Division judgment by reversing so much thereof as granted the defendant's motion for summary judgment dismissing the first cause of action, and to that extent affirmed the Special Term order. In all other respects the Appellate Division judgment was affirmed, without costs.

Implications:

The court held that under the Commercial (Emergency) Rent Law a tenant may not validly waive or release a landlord's liability to recover rent paid in excess of statutory limits; such releases are unenforceable under the statute and public policy.
Challenges to arbitration awards under that statute must be pursued by timely motion under article 84 (section 1463) of the Civil Practice Act; they may not be attacked in a plenary action.
Direct effect on the parties: the first cause of action was not subject to dismissal on the landlord's summary judgment motion; the procedural requirements for attacking the arbitration award were reinforced. The opinion applied existing statutory text and precedent; it did not purport to establish novel broader precedent beyond those applications.

Show full summary ...

ESTRO CHEMICAL CO., INC., Appellant, v. HARRIET V. FALK, Respondent.

CONWAY, J.

This is an action brought by the plaintiff tenant, in its first cause of action, to recover from the landlord rent paid in excess of the emergency rent permissible under the applicable provisions of the Commercial (Emergency) Rent Law (L. 1945, ch. 3, as amd.). That excess rent, it is alleged in the complaint, was paid under a rental agreement between plaintiff and defendant which continued up to February, 1949.

In contemplation of termination of the agreement just mentioned, negotiations were commenced in February, 1949, looking toward a new one. On the 21st day of February, the two parties executed an agreement to submit to a named arbitrator the determination of a reasonable rent for the commercial space involved, to be based upon the fair rental value thereof as of the date of submission. An award was made and a lease thereupon entered into for a term of three years ending in February, 1952. The award was confirmed in all respects by the Supreme Court of the State of New York. In this second cause of action, plaintiff alleges that the arbitration was a fabrication and a sham contrived to give color of legality to the rent reserved in the new agreement which was in excess of the fair rental value of the commercial space demised.

Limiting ourselves now to a consideration of the first cause of action pleaded, the landlord's answer in addition to certain denials, pleaded as an affirmative defense a release in writing claimed to have been given for a valuable consideration. We shall assume for the purpose of our discussion that the release was based upon valid consideration since it is so pleaded in the answer. The question presented then is whether under the statute there can be a valid release given to a landlord by a tenant after a cause of action has accrued to the tenant for the recovery of excessive rent paid to the landlord. We have reached the conclusion that it may not.

The statute, section 12, expressly forbids the waiver of any of its provisions in the following words: "Any waiver of any of the provisions of this act shall be unenforceable and void." In section 1 of the act it is declared that a public emergency exists, that action by the Legislature is imperative and will not permit of delay; that the emergency legislation affecting rent for commercial space in certain cities is necessary to remedy the exaction of unjust, unreasonable and oppressive leases and agreements for such space. We sustained the validity and constitutionality of the act in Twentieth Century Associates v. Waldman ( 294 N.Y. 571, 581), pointing out that so far as tenants were concerned, "* * * the Legislature was justified in concluding that there was no reality of consent; that their `freedom of contract' had become an illusory concept and that their existing leases had created, and would continue to contribute to, the public emergency." We are satisfied that the act was intended to apply to the facts disclosed in this record. One of the purposes of the act was to prevent excessive rents. The legislation was a recognition of the fact that as a result of the unequal bargaining power between landlord and tenant, businessmen required compulsory legislation to prevent rental agreements of commercial space from becoming or continuing to be unjust and oppressive. The same policy considerations which forbid waiver of basic maximum rents under the act, also prohibit waiver or release of the tenant's right to the return of moneys paid in excess of such maximum rents. This view accords with that expressed in O'Neil v. Brooklyn Sav. Bank ( 267 App. Div. 317, affd. 293 N.Y. 666, affd. sub nom. Brooklyn Sav. Bank v. O'Neil 324 U.S. 697). Knowledge on the part of a landlord that he cannot escape liability for excess payments of rent under any circumstances, tends to insure compliance with the statute. The obtaining of excessive rents strikes at the very purpose of the act. Any agreement by which a tenant waives or releases the benefits conferred by the act, nullifies that purpose and must be held to be expressly forbidden by section 12.

There are decisions of this court holding that contracts to waive in advance the provisions of a statute are void but that subsequent agreements, after liability or default has occurred, wherein the parties in good faith and for a new consideration attempt to settle differences between them, are enforcible. (See Wood Co. v. Horgan, 291 N.Y. 422; Seeley v. Prentiss Tool Supply Co., 158 App. Div. 853, affd. 216 N.Y. 687; Adler v. Weis Fisher Co., 218 N.Y. 295.) However, we think that the express provision of the statute now under consideration and public policy require a holding in cases such as this, involving as it does excessive payment of rent, that under no circumstances may tenants waive or release or otherwise settle by agreement their right to recover rent paid in excess of that permitted by law. This is in accord with holdings that a "statutory right conferred on a private party, but affecting the public interest, may not be waived or released if such waiver or release contravenes the statutory policy." ( Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 704, affg. 293 N.Y. 666, supra; Midstate Horticultural Co. v. Pennsylvania R.R. Co., 320 U.S. 356.)

We now turn to the second cause of action in which recovery was sought for excessive rent paid by plaintiff for a period commencing March 1, 1949. In effect plaintiff seeks in that cause of action to vacate and set aside the arbitration award, confirmed by the Supreme Court, upon the ground that it was a fabrication and sham and was contrived to give a color of legality to an agreement which was unjust, unreasonable and oppressive. Arbitrations authorized under the Commercial (Emergency) Rent Law are subject to the same rules of law as other arbitration proceedings and are governed exclusively by the provisions of article 84 of the Civil Practice Act. One seeking to vacate such an award must do so by timely motion as provided by section 1463 of the Civil Practice Act. That is the exclusive remedy. It may not be done by plenary action. ( American Reserve Ins. Co. v. China Ins. Co., 297 N.Y. 322, 326; Raven Elec. Co. v. Linzer, 302 N.Y. 188; Feinberg v. Barry Equity Corp., 302 N.Y. 676.)

The judgment of the Appellate Division should be modified by reversing so much thereof as granted the motion of defendant for summary judgment dismissing the first cause of action and to that extent the order of Special Term should be affirmed. In all other respects the judgment of the Appellate Division should be affirmed, without costs.

LOUGHRAN, Ch. J., LEWIS, DESMOND, DYE, FULD and FROESSEL, JJ., concur.

Judgment accordingly.

ESTRO CHEMICAL CO. v. FALK