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Auker v. Gerold

FEBRUARY 18, 1966.

JOHN E. AUKER AND GLADYS MARIE AUKER, HIS WIFE, PLAINTIFFS-APPELLANTS,

v.

E. FRED GEROLD, ET AL., DEFENDANTS-APPELLEES.



Appeal from the Circuit Court for the Twentieth Judicial Circuit, St. Clair County; the Hon. ALVIN H. MAEYS, JR., Judge, presiding. Reversed and remanded with instructions.

TRAPP, P.J.

This is an appeal from a judgment of the Circuit Court for the Twentieth Judicial Circuit, St. Clair County, Illinois, in favor of the defendants following a trial without a jury. After the premises were destroyed by fire, the plaintiffs brought suit for a return of a "deposit" made in connection with a lease of certain improved real estate.

Plaintiffs, as lessees, and defendants, as lessors, entered a written lease of ground floor space in a small building for a period of seven years, commencing December 15, 1958, or when certain major improvements to be made by the lessors were completed, at a rental of $150 per month, payable in advance. The lease included the following provisions:

"As a part of this contract, the Lessors are to make certain improvements and furnish electrical lighting fixtures as agreed upon by the Lessees at Lessor's expense; However the Lessees are to deposit with the Lessors One Thousand and no/100 Dollars ($1,000.00) cash when this lease is signed, and are to pay an additional One Hundred and no/100 Dollars ($100.00) per month each month until an amount equal to amount of these improvements have been deposited.

"The amount of deposit of One Thousand and no/100 Dollars and the payment of One Hundred and no/100 Dollars per month are to be credited to the Lessees on the last two (2) years of this lease. The total amount of these improvements to be made are not to exceed Three Thousand Six Hundred and no/100 Dollars ($3,600.00). . . .

"3. If the Lessees shall fail to pay the rent aforesaid when due, whether said rent be demanded or not . . . . and terminate and annul this lease so far as regards all future rights of said Lessees, and the Lessors shall have all legal rights and remedies permitted by and available under the laws of the State of ILLINOIS for the collection of any rent due or payable hereunder, and for the possession and sale of any property of the Lessees liable as security for the payment of such rent, whether by lien, attachment, distraint and/or confession or judgment or otherwise; . . . . ."

"6. In case said premises shall be destroyed or damaged by fire or other unavoidable casualty, sixty (60) percent or more; this lease may be cancelled by either party."

The deposit was made and the rent was paid in accordance with the written lease. On December 26, 1961, the premises were 60% destroyed by fire. The lessors determined not to rebuild and the lessees established a restaurant at another location. The testimony of a defendant is that the lease was treated as cancelled by both parties. In May of 1962, plaintiffs demanded a return of the deposit and the demand was refused.

Plaintiffs contend that the situation falls clearly within the line of authorities which hold that a deposit to secure future rent can be recovered when the lease is terminated while the lessee is not in default, unless a contrary intent is affirmatively indicated by the terms of the lease. Defendants contend that the situation falls clearly in that line of authorities which hold that payments of advance rent may not be recovered where the premises are destroyed by fire. Since a holding in favor of the plaintiffs' view of this payment as a deposit would be decisive of the issue in plaintiffs' favor, we will examine this issue first. We do not believe that adopting defendants' view of this issue would be decisive of defendants' right to prevail for reasons given hereafter.

The authorities on the subject are somewhat confusing for the reason that the courts of various states have actually adopted divergent views as to the justice of the situation and these different views as to the merits have led to varying emphasis upon the factors which are said to determine whether the payment was a deposit to secure performance, or an advance payment of rent, it being fairly generally conceded that a deposit is refundable and an advance payment of rent is not.

There is an elaborate annotation on the subject of a "Provision in lease for pecuniary forfeiture where lease is prematurely terminated as one for liquidated damages" in 106 ALR 292-318. Practically all of the cases cited by plaintiff, and many of the cases cited by defendant are discussed in this annotation. There is an annotation on the subject: "Right of a lessor to retain advance rental payments made under lease terms upon lessee's default in rent" in 27 ALR2d 656-674. This annotation discusses practically all authorities cited by plaintiffs and many cited by defendant. This latter annotation is followed in ALR Later Case Service, Vol 3, page 981-983. It is obvious that the matter of advance payments upon a lease has been a fertile field of litigation and that seemingly different rules are sometimes applied to almost identical fact situations.

The analysis of the cases cannot be separated from the subject of provisions in leases for forfeitures or liquidated damages. The reason for this is that most of the cases which discuss the question of the right to the return of a deposit are cases in which the issue is whether the money was paid to secure performance or was the contracting parties' determination of liquidated damages.

The following rules appear to collide with one another and, at times, with our sense of justice:

1. If the payment is a payment in the nature of a deposit to secure performance, then upon termination by the lessor for the lessee's default in performance and repossession by the lessor, the lessor may retain only so much of the deposit as represents rent to the date of repossession;

2. If the payment is described as liquidated damages in the event of default by the lessee, then notwithstanding such description, a penetrating examination will be made to determine whether it really is liquidated damages or a penalty;

3. Even though the payment be described as liquidated damages, if the damages can be readily computed or if the sum stipulated obviously exceeds the damages the payment will be described as a penalty and only actual damages will be allowed;

4. If the payment is an advance payment of rent, then, though it be a payment for two years, and though the lessee be in good standing, there is no right to a refund on destruction of the ...


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