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Assoc. Cotton Shops v. Evergreen Pk. Shopping

OCTOBER 20, 1960.

ASSOCIATED COTTON SHOPS, INC., PLAINTIFF-APPELLANT,

v.

EVERGREEN PARK SHOPPING PLAZA OF DELAWARE, INC., DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook county; the Hon. THOMAS J. COURTNEY, Judge, presiding. Affirmed.

MR. JUSTICE MCCORMICK DELIVERED THE OPINION OF THE COURT.

A judgment was entered in the Circuit Court of Cook County dismissing a complaint for declaratory and injunctive relief filed by the Associated Cotton Shops, Inc. (hereafter referred to as the plaintiff), and in the same order a judgment was entered for Evergreen Park Shopping Plaza of Delaware, Inc. (hereafter referred to as the defendant), on its counterclaim for possession of certain demised premises.

The plaintiff in its complaint alleged that it was a tenant of the defendant under a written lease and that the defendant had served plaintiff with notice of termination of the lease as of March 31, 1959, and prayed the court to declare its right to retain possession after the termination date and enjoin the defendant from bringing proceedings for eviction. The defendant, after the termination date (March 31, 1959), answered, asserted its right to possession and filed a counterclaim for possession. The plaintiff filed a reply to the answer, and also an answer to the counterclaim. A "Notice to Admit Facts" was filed by defendant, to whether plaintiff filed an unsworn statement in response. The defendant thereupon moved for summary judgment on the pleadings and the admissions of facts. No counteraffidavits were filed. The court, after hearing, sustained the motion for summary judgment and entered the judgment order which is now before us on appeal.

The plaintiff contends (1) that the provision of the lease involved herein constituted a restraint on the alienation of property and as such is obnoxious to the public policy of the State of Illinois and illegal; (2) that there were material issues of fact involved herein; (3) that the defendant by its conduct waived any right it might have acquired under the provisions of the lease; and (4) that the court erred in denying plaintiff leave to file an amendment to its answer to the counterclaim setting out the defense of waiver.

The defendant owns the Evergreen Park Shopping Plaza. Defendant leased one of the stores in the shopping center to a certain corporation which assigned the lease to a second corporation, which in turn assigned it to the plaintiff. The first two corporations were wholly owned subsidiaries of the plaintiff. All assignments were in compliance with the terms of the original lease. The lease was for a term of ten years, commencing July 1, 1952, "unless sooner terminated as hereinafter provided." Other provisions of the lease required the tenant to surrender possession of the premises upon termination of the lease, whether by lapse of time or otherwise. The lease contained the ordinary provision by which the tenant agrees not to sell, assign, mortgage, or in any manner to transfer the lease or any interest thereunder, nor to sublet the leased premises without the previous written consent of the landlord. In addition the lease contains the following clause:

"Article 24. If Tenant is a corporation and if at any time during the term of this Lease, any part or all of the corporate shares shall be transferred by sale, assignment, bequest, inheritance, operation of law or other disposition so as to result in a change in the present control of said corporation by the person or persons now owning a majority of said corporate shares, Landlord may terminate this Lease and the demised term at any time after such change in control by giving Tenant sixty days' prior written notice of such termination."

A copy of the lease was attached to the complaint, as was a copy of a notice served upon the plaintiff by the defendant, which stated that the defendant was "advised through the publication of a newspaper article in the Chicago Daily Tribune of December 3, 1958 that all of the capital stock of the Associated Cotton Shops, Inc. has been sold and transferred to A C Stores, Incorporated, which will effect a change in control of the Associated Cotton Shops, Inc.," and, after setting out in full Article 24 of the lease, the notice further stated that the landlord by virtue of that article had elected to terminate the said lease effective as of March 31, 1959.

In its answer to plaintiff's complaint the defendant alleged that all the corporate shares of the plaintiff were sold or otherwise disposed of so as to result in a change of control of the plaintiff corporation by persons then owning a majority of the corporate shares, and in its counterclaim the defendant further alleged that the lease had been terminated on March 31, 1959, and prayed for possession.

The plaintiff's reply to the answer and answer to the counterclaim alleged that the plaintiff had tendered, prior to April 1st the April rent, which the defendant had refused, and admitted that in November 1958 the shareholders of the plaintiff corporation sold to the A C Stores, Incorporated all of the capital stock of the plaintiff corporation, but denied that as a result thereof there "has been any change in control of the plaintiff corporation or in the policy and operation of the business of the plaintiff" at the demised premises. In the reply to the notice to admit facts the plaintiff also admits the sale of its shares to A C Stores, Incorporated.

The plaintiff first contends that Article 24 of the lease should be held void as a matter of public policy since it constitutes a restraint on the right of alienation of property. This is a case of first impression in this State. Nor have we found any cases elsewhere construing such a clause.

[1-3] A provision in a lease which prohibits the lessee from subletting the premises or assigning the lease is valid, and by the terms of the lease a violation thereof may terminate the leasehold. A lease may also by its terms be made terminable before the expiration of the term stated therein at the option of one of the parties, and the lease may provide that such option may be exercised on the happening of certain conditions or contingencies. 24 I.L.P., Landlord and Tenant, sec. 172; Gunn v. Montgomery Ward & Co., Inc., 351 Ill. App. 374, 115 N.E.2d 111; 51 C.J.S., Landlord and Tenant, sec. 91. Such provisions must be construed in accordance with their import, and the option must be exercised in the manner provided in the lease. On the happening of the conditions or contingencies so stipulated the right to terminate the leasehold becomes absolute.

[4-7] In the instant case the lease provided that when the lessee is a corporation, if at any time during the term of the lease any part or all of the corporate shares shall in any way be transferred "so as to result in a change in the present control of said corporation by the person or persons now owning a majority" of the corporate shares, the landlord may terminate the lease and the term "at any time after such change in control by giving Tenant sixty days' prior written notice of such termination." In the case at bar all of the capital stock of the lessee was sold to another corporation. Under the provisions of the lease the lessor, the defendant here, then had the right, by giving sixty days' notice to the lessee at any time after such transfer, to terminate the lease. This was not a provision for a forfeiture. It was a clause in the lease permitting the lessor, upon the happening of a designated event, to terminate the leasehold upon complying with the notice provisions therein set forth. Such a provision is a condition subsequent. In Restatement of the Law of Property, sec. 24, it is stated:

"The term `condition subsequent' denotes that part of the language of a conveyance, by virtue of which upon the occurrence of a stated event the conveyor, or his successor in interest, has the power to terminate the interest which has been created subject to the condition subsequent, but which will continue until this power is exercised."

In the case of a limitation the term is limited to the time of the happening of the contingency and when the contingency happens the estate is terminated as if the term had expired. Hanley Falls Creamery Co. v. Milton Dairy Co., 126 Minn. 226, 148 N.W. 46; 52 L.R.A. (N.S.) 718, together with notes and annotations; Nitardy v. Thayer, 275 Wis. 459, 82 N.W.2d 325. While in many cases it is very difficult to distinguish between a limitation and a condition subsequent, it would seem that the term "forfeiture" should not be used in connection with contracts incorporating a condition subsequent. A forfeiture of a leasehold is brought about when the lessee violates some covenant or conditional limitation contained in the lease which gives the lessor the right of termination. 51 C.J.S., Landlord and Tenant, sec. 104. It is in the nature of a penalty for doing or failing to do a particular thing, ...


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