Appeal from the Circuit Court of Cook County; the Hon. JOSEPH
J. DRUCKER, Judge, presiding. Judgment reversed and cause
remanded with directions.
MR. JUSTICE DEMPSEY DELIVERED THE OPINION OF THE COURT.
This is an appeal from a summary judgment against the defendant as guarantor of the performance of lessees of the covenants of a lease. The judgment comprises defaults in the payment of rent, taxes and interest. The principal issue is whether the alleged defense of a surrender of the premises by the lessees and the acceptance thereof by the plaintiffs-lessors, thereby discharging the lessees from the performance of the obligations of the lease, is a genuine defense. Other issues involve the liability of the defendant for real estate taxes and interest, and the duty of the lessors to use the lessees' security deposit of $7500.00 to offset the defaulted rent.
On March 15, 1960, the plaintiffs as lessors entered into a lease with the Craft House Plastics Corporation and Dorothy Flicek Industries, Inc., for ten years, commencing June 1, 1960, at a monthly rental of $2500. At the same time the defendant executed an instrument of guaranty in which he unconditionally guaranteed payment of the rental and the performance of all the covenants of the lease. The liability of the guarantor was limited to the first year of the lease term and, in any event, to $30,000. The lessees took possession and remained in such possession until sometime in April 1961, when, as it is charged in the complaint, they abandoned the premises and went into bankruptcy after all their personal property had been repossessed by a chattel mortgagee. Thereafter a new lease was made with the International Assemblix Corporation for a five-year term, commencing May 1, 1961, and ending April 30, 1966.
The complaint alleged defaults in the payment of rentals for March and April 1961 and in the payment of real estate taxes and interest. The defendant filed an answer denying abandonment of the premises by the lessees, setting up the defense of surrender and possession and that the defaults in rent were cured by the fact that the plaintiffs had negotiable securities in excess of $7500 (the security deposit of the lessees), which was more than sufficient to pay the installments of rent due for March and April 1961. Defendant also filed an "Affirmative Defense in Equity," in which he again alleges the defense of surrender of possession by lessees and the acceptance thereof by the plaintiffs, and further avers that the property had been relet to the International Assemblix Corporation for a period of five years, commencing May 1, 1961, and ending April 30, 1966; that at the time of this reletting, the plaintiffs knew that the lessees were in bankruptcy; that the lessees' only obligation to the plaintiffs was for the rent for March and April 1961, and that the securities in the plaintiffs' possession were adequate to cover that default. It further averred that no payments were due the plaintiffs for general taxes because of the surrender of the premises and the acceptance thereof in April 1961; that at the time of surrender the general taxes for 1960 were not due and payable, and did not become so until June 1, 1961, when the first installment became due, and until September 1, 1961, when the second installment was due for payment. The defendant sought an affirmative decree, discharging him from any obligation under the guaranty, and ordering that the securities hereinbefore mentioned be sold and the first $5000 of the proceeds thereof applied to the rent for the months of March and April 1961, and the balance turned over to the bankruptcy trustee or the receiver of the lessees.
The plaintiffs moved to strike the answer of the defendant as presenting no defense at law, and moved that a summary judgment be entered and in support thereof filed the affidavits of the plaintiff Charles P. Pierce and his attorney John T. Moore, for the purpose of showing there was no genuine issue as to any material fact. The affidavit of Peirce alleged, insofar as it is pertinent to the present issues, that on April 20, 1961, involuntary petitions in bankruptcy were filed against the lessees; that about that time Robert D. Deutsch, the president of Dorothy Flicek Industries, Inc., one of the lessees, approached Peirce and suggested a new tenant for the premises; that Peirce informed him that a new lease would be considered only on the basis of mitigating damages, without terminating the liability of the original lessees or guarantors; that Deutsch was also a guarantor for a maximum liability of $30,000, but his obligation was not limited to any particular year; that Deutsch on March 23, 1962, filed a voluntary petition in bankruptcy in the District Court of the United States and was adjudged a bankrupt; that Peirce referred the inquiry about a new lease to attorney Moore; that a five year lease was made with the applicant, International Assemblix Corporation, beginning May 1, 1961; that the security deposit is applicable at the election of the plaintiffs to any defaults during the entire ten year term and is not returnable until termination of the lease on May 31, 1970. The affiant then asked for a summary judgment for rents, taxes, interest and other items.
The material portions of the affidavit of Moore are to the effect that early in March 1961, the attorney for Deutsch and the lessees in the preparation of the lease, approached him about making a new lease to International Assemblix Corporation. In the negotiations for the lease to that corporation, Moore said he was making it clear that execution of the new lease would not and should not terminate the original lease and the obligation of the lessees thereunder; that at no time did the lessees surrender possession to the plaintiffs or to him as their attorney; that the lease to International was made only in mitigation of damages.
In opposition to the motion for summary judgment, Deutsch made an affidavit in which he admitted the financial difficulties of the original lessees and stated that in April 1961 at a meeting between himself and Peirce, he asked Peirce whether he would be willing to relet the premises if they were vacated by the tenant; that Peirce said he believed it would be necessary to get a new tenant on the premises if the tenant became bankrupt; that he realized the premises were going to be vacant; that he was going to have to take some action to relet the premises. Peirce further said he hoped he would be able to save a broker's commission and that if there were any parties interested in obtaining a lease, they should take up the terms of the lease with his attorney; that Peirce never said to him that a new tenant would be considered only on the basis of mitigating damages, and that he specifically did not make the statement that a new lease would be considered only on the basis of mitigating damages without terminating the obligations of the original lessees or guarantors.
The affidavit of Kalman S. Lieberman, an attorney, was also submitted by the defendant in opposition to the motion for summary judgment. This affidavit stated that the affiant took the oral deposition of Peirce; that the deposition was taken prior to the time the answer to the complaint was filed and prior to the time the plaintiff and the plaintiff's attorney knew what defense was going to be made by the defendant; that at this deposition Peirce said he had a conversation with Deutsch with respect to the forming of the new Company, substantially as hereinbefore stated, except as to the following facts: that he did not remember Deutsch's asking whether he would agree to a ten-year term; that Deutsch "was trying to sell me on the idea of going along with him with all this new capital he was going to bring into the company and reorganize the whole thing"; and that was all that was said. The crucial part of the testimony is set forth at page 44 of the abstract, where attorney Lieberman asked the following questions:
Q. Mr. Peirce, you accepted the fact, did you not, that Dorothy Flicek and Craft House were in bankruptcy and that there was a surrender of the premises, and that it was necessary to get a new tenant?
A. Yes, I would say that.
Q. When you were advised of the surrender of the premises, was this by Mr. Deutsch telling you at that meeting in April, 1961, at your office, or had you gone past and seen some notice on the outside?
A. I had gone past and seen notice."
The purpose of this was to impeach Peirce's statement in his affidavit that there was no surrender of the premises ...