Whether a lessor's execution of a lease permit containing a "final determination" of lease terms, but omitting certain information regarding a security deposit and the lessor's option to redeem part of the property, was an offer that became a contract upon the lessee's acceptance.
No. Because the omissions included material terms of the purported contract, and because there was insufficient evidence that the parties had reached agreement with respect to those terms, the lessor did not make an offer that could become a contract upon the lessee's acceptance.
The State Department of Transportation ("DOT"), which owned a pier in Manhattan, engaged in lengthy negotiations with Express Industries and Terminal Corp. ("Express") over the renewal of Express's lease of the pier. A few weeks before the old lease was to expire, DOT sent Express a lease permit, together with a cover letter representing the permit as containing DOT's "final determination" of lease terms and conditions, and denominating Express's execution of the permit an "agreement." The permit contained three omissions, however: (1) the date on which DOT had received a security deposit from Express, (2) the date by which DOT would be allowed to exercise an option to redeem a certain portion of the leased premises for other use, and (3) the amount by which rent would be reduced if DOT chose to exercise that option.
Express executed the permit without filling in any of the blanks, and a week later returned it to DOT, along with a letter questioning the security deposit and option provisions. The following week, DOT notified Express that it had received a better lease offer, and indicated that Express would have to improve its offer if it wished to renew its lease. Express replied that its execution of DOT's lease permit had created a binding contract. When DOT refused to recognize this contract, Express brought a CPLR article 78 proceeding, seeking a preliminary injunction against DOT to protect its alleged leasehold.
In denying Express' application for an injunction, the Supreme Court held that the executed lease permit did not represent a meeting of the minds between the parties as to all the essential terms of the lease. The court concluded that the omissions in the permit included material terms, and that since the parties had failed to agree upon these terms, Express' execution of the permit had not created a binding contract. Appellate Division reversed, one justice dissenting. The majority concluded that the blanks in the executed permit did not mean there was no agreement, and that Express's reservations about the security deposit and option did not contradict the terms of the permit. The court found that Express's letter and its execution of the permit had formed an agreement, not a counter-offer, with the omissions in the permit "merely an ambiguity ... that will present an issue of fact for resolution [at the time the option is exercised, if ever]."
The Court of Appeals reversed. Noting that an agreement requires "a manifestation of mutual assent sufficiently definite to assure that the parties are truly in agreement with respect to all material terms," the Court made two inquiries into the facts of the case: first, whether the blanks in the permit rendered those terms of the agreement impenetrably vague and indefinite, and second, whether those terms were material. The Court answered both questions affirmatively. The Court found that the blanks spaces were hopelessly vague, and rejected Express's argument that its execution of the permit with the blanks indicated its willingness to accept whatever terms DOT chose. Only where there is "sufficient evidence that both parties intended [such an] arrangement" can a court conclude that they agreed to be bound by a contract in which material terms have been left open. The Court also found that the option, which involved a portion of the premises "crucial to the financial viability of the pier," was a material provision, and rejected Appellate Division's conclusion that the option was immaterial because DOT might choose not to exercise it.