Judges Burke, Scileppi, Breitel and Jasen concur with Judge Keating; Chief Judge Fuld and Judge Bergan dissent and vote to affirm for the reasons stated in the concurring memorandum of Judge Eager at the Appellate Division.
Henry and Leo Rubinstein are distant relatives. For some years they had successfully operated a number of joint enterprises. In July, 1965 they owned an equal number of shares in two corporations, one of which operated a grocery business on Third Avenue in New York City ("Premium") and the other a delicatessen business on First Avenue ("Kips Bay"). In addition, the cousins had equal interests in two other corporations. One held title to real property on which the Kips Bay delicatessen was conducted and the other to the adjoining parcel.
Prior to July, 1965 differences arose. The cousins decided on a parting of the ways. On July 20, 1965, with each party represented by his own counsel, an agreement was signed. Its basic outline was this. Each business was valued at $70,000. Henry was to choose immediately between the two businesses. Leo would get the other. The agreement also provided that whoever took the Kips Bay delicatessen would also take the realty located there. Although the agreement established a procedure by which the realty was to be valued, it appears that the realty played an insignificant part in the negotiations.
At the time the agreement was executed, Henry and Leo deposited $5,000 with their respective lawyers. The agreement stated this sum would "be held in escrow by each respective attorney, to be applied towards the payment that each of the parties may have to make to the other party upon the closing of the above transaction." Any surplus, after the necessary adjustments, was to be returned to Henry and Leo at the time of the closing. These two provisions, which appear in paragraph numbered "8", are then followed by this clause: "In the event that either of the parties hereto shall default or refuse to consummate this transaction, then the aforesaid $5,000.00 deposited by such defaulting party shall be forfeited as liquidated damages and such sum shall be paid by the escrowee thereof to the other party."
The day after the execution of the agreement Henry sent a letter to Leo's lawyer in which he elected to take the Kips Bay property. The agreement provided that the closing would take place within one week. Apparently, disputes arose as to how various details of the transaction should be worked out, and in October of 1965 the deal still had not been consummated. At this point, Henry instituted this suit in Supreme Court, New York County, for specific performance. An answer was interposed by the defendant in which he counterclaimed for specific performance, also alleging the lack of an adequate remedy at law.
Leo thereafter had a complete change of mind. He changed lawyers and in September, 1966 moved to strike the complaint from the equity calendar on the ground that the quoted provision of the agreement relegated Henry to an action at law for $5,000. Henry cross-moved for summary judgment for specific performance. Leo then moved for leave to serve a proposed amended answer to remove the counterclaim for equitable relief.
Special Term found that it "is clear that the defendant does not desire to go through with the contract", and ruled that plaintiff was entitled to summary judgment, but held that the clause quoted above constituted not only a liquidated damages provision but, as a matter of law, it constituted the sole relief to which plaintiff was entitled. The correctness of this holding is the principal legal issue presented by this appeal.
On appeal to the Appellate Division by the plaintiff, the order entered upon Special Term's decision was affirmed by a closely divided court. Two members of the majority agreed with Special Term's reasoning, but also were of the opinion that, as a matter of law, the agreement was incapable of being enforced by a decree in equity. In their view, there were too many "open ends to the contract" and the agreement appeared to be "preliminary in nature". The dissenters rejected both propositions, holding that the provision for monetary damages in the sum of $5,000 was not intended to be an alternative to specific performance and that plaintiff did not have an adequate remedy at law. Moreover, "[Specific] performance would not here be 'inconsistent with the express terms of the contract' (see, 55 N. Y. Jur., Specific Performance, § 11)".
The Justice who cast the deciding vote was of the opinion that the provision in the contract was intended to cover all damages which might be sustained upon a failure or refusal to perform and it precluded the granting of specific performance by providing for a forfeiture of $5,000. Otherwise, on the question as to the appropriateness of equitable relief, he would have remanded for a trial to determine whether, under all the circumstances, the grant of the remedy of specific performance should be granted.
We conclude that the pertinent clause does not preclude the relief of specific performance, that plaintiff does not have an adequate remedy at law and that the agreement is enforcible by a court of equity. Therefore, plaintiff's motion for summary judgment for specific performance should have been granted.
We may immediately dispose of a preliminary argument, namely, that plaintiff has an adequate remedy at law. On its face the principal aim of this agreement was to sever the parties' relationship and to enable each party to own completely, separately and without interference by the other one half the joint business. It is evident that this result cannot be achieved by a damage award, and respondent does not seriously argue that plaintiff has an adequate remedy at law.
We turn then to the main question presented by this appeal, whether the agreement by its terms or in light of surrounding circumstances precludes specific performance. Nothing in the language of the contract explicitly states that the liquidated damages provision was to be plaintiff's sole and exclusive remedy, but both Special Term and the Appellate Division majority found the liquidated damages provision itself precluded specific performance. This is made clear by the following language in the prevailing opinion: "Properly considered, clause Eight in the contract relating to the $5,000 was nothing more than an option, affording the plaintiff a choice not to go forward, if he was willing to forfeit $5,000."
In relying on the liquidated damages clause alone the majority was clearly in error. The law is now well settled that a liquidated damages provision will not in and of itself be construed as barring the remedy of specific performance (Phoenix Ins. Co. v. Continental Ins. Co., 87 N. Y. 400; Diamond Match Co. v. Roeber, 106 N. Y. 473; see, also, Wirth & Hamid Fair Booking v. Wirth, 265 N. Y. 214; Restatement, Contracts, § 378). For there to be a complete bar to equitable relief there must be something more, such as explicit language in the contract that the ...