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349 W. Ontario Bldg. Corp v. Palmer Truck Leasing

SEPTEMBER 3, 1974.

349 WEST ONTARIO BUILDING CORPORATION ET AL., PLAINTIFFS-APPELLANTS,

v.

PALMER TRUCK LEASING CO. ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. RICHARD A. HAREWOOD, Judge, presiding.

MR. JUSTICE BURKE DELIVERED THE OPINION OF THE COURT:

Plaintiffs, the owner and the sublessor of improved real estate at 3636 North Talman Avenue, Chicago, brought an action against the defendants, guarantors on the sublease, for breaches by the subtenants (not parties to this action) of the covenants to pay rent and tax deposits and to repair and restore the premises. The court, sitting without a jury, entered judgment for the defendants. The plaintiffs appeal.

Plaintiff 349 West Ontario Building Corporation (hereinafter called "owner") entered into a written lease of its property, located at 3600 North Talman Avenue and 3636 North Talman Avenue, with plaintiff Donald Bruce & Co. (formerly Medicated Products Company and hereinafter called "Bruce"). The lease is dated November 15, 1956, and describes a lease term from January 1, 1957, to December 31, 1969. On or about November 25, 1959, plaintiff Bruce entered a sublease with Health-A-Teria, Inc., and Sherwin-Gail Company for the property at 3636 North Talman. Plaintiff owner acknowledged and agreed to the sublease, but absolved the subtenants of any liability to it for a breach by plaintiff Bruce. The sublease was for 10 years, beginning January 1, 1960, and ending December 31, 1969. The defendants, Palmer Truck Leasing Co., Eugene Sorinsky (the president and principal shareholder of Health-A-Teria, Inc. and Sherwin-Gail Co.), Irving Epstein, Arthur B. Shellist, Manuel Shellist and Irving Shellist, guaranteed the performance of the terms, conditions and covenants of the sublease.

At the time the sublease was signed, the premises were occupied by a tenant named Empire Amerex. The sublease notes the possession of this tenant and indicates the intention of Empire Amerex to vacate by December 31, 1959. The sublease then specifically absolves the plaintiffs of any responsibility for insuring the exit of Empire Amerex. Although the date set for the subtenants' possession was January 1, 1960, the sublease provides that the obligation to pay rent would not commence until possession if possession were delivered after January 1, 1960.

Late in 1967 the two subtenants experienced financial difficulty. Sherwin-Gail was involuntarily dissolved on November 14, 1967, and Health-A-Teria was adjudicated a bankrupt on March 21, 1969. Plaintiffs allege in their complaint that Sherwin-Gail Co. vacated and abandoned the subleased premises on or before the date on which it was involuntarily dissolved. The complaint also alleges that Health-A-Teria, Inc., remained in possession of the premises until May 15, 1968, when it vacated and abandoned the premises. The plaintiffs contracted to sell the property on or about September 1, 1968, to Austin-Continental Corporation, which is not a party to these proceedings.

The subtenants paid rent and tax deposits through March, 1968, and paid $1500 toward the rent due for April, 1968. In Count I of the complaint, plaintiff Bruce seeks rental payments and tax deposits for the period April 1, 1968, through October 8, 1968 (with credit for the $1500 paid towards April's rent), in the amount of $26,987.24. Plaintiff Bruce also seeks the sum of $98,103.98, as the reasonable cost of necessary repairs to restore the subleased premises, plus attorneys' fees and costs. In Count II of the complaint, plaintiff owner makes substantially the same claims as plaintiff Bruce. At trial, however, the defendants had stricken the part of Count II claiming unpaid rentals by plaintiff owner, since plaintiff Bruce satisfied all rent payments under the prime lease.

In the course of the trial the defendants argued that the subtenants were not put in possession of the leased premises until May, 1960, 5 months after the date mentioned in the sublease for delivery of possession. They contend that, since the subtenants paid rent for the 5 months during which they did not have possession, they should be given credit for those payments against any rentals claimed for the months at the end of the term. Similarly, they argued that the deposits for taxes which were, under the terms of the sublease, to be applied toward any taxes due and payable during the term of the sublease, were adequate to cover any taxes the subtenants owed. The plaintiffs had computed the taxes owed as damages by including a ratable portion of the taxes for 1968, the bill for which would not arrive until 1969. The trial judge decided in favor of the defendants on these arguments. When the amounts of rent and tax deposits were computed, the defendants owed nothing.

Regarding the covenant to repair and restore the premises, Mr. Louis Solomon, the president and principal shareholder of both plaintiffs, testified as to the condition of the subleased premises as of November, 1969, when the sublease was signed, and as of the time the defendants vacated the building. The cost of repairs was testified to by representatives of the buyer of the building, who presented evidence of expenditures they incurred. The plaintiffs also offered a witness qualified to value real estate in the area. The court refused to allow him to testify, whereupon the plaintiffs made an offer of proof, consisting of the witness' opinion that due to the deteriorated condition of the building, it sold for $60,000 less than it would if rehabilitated. The court found for the defendants and against the plaintiffs on this issue as well as on the issue of breach of the covenant to pay rent and tax deposits. Its decision was embodied in a judgment order dated March 28, 1972, in which the plaintiffs' complaint was ordered dismissed.

The plaintiffs claim that the court erred in finding no damages for breach of the covenant to pay rent on the sublease from April 1, 1968, to October 8, 1968, the date on which the sale of the premises was closed. The court determined after hearing evidence that the sublessees did not have complete possession of the leased premises until May, 1960, for the reason that the prior tenant, Empire Amerex, occupied at least part of the premises until then. During the period January 1, 1960, through May, 1960, the sublessees paid rent in the amounts required by their agreement with the plaintiffs. The court concluded that these payments were advance rentals and offset the rent that was due but unpaid during 1968 against the 1960 advances. Since the advances exceeded the unpaid rent, the court concluded that no damages were due as rent on the sublease.

The plaintiffs argue that the court's finding that the sublessees did not have possession for the first 5 months of the sublease is against the manifest weight of the evidence. They cite evidence that even if, as claimed by the sublessees, there was another tenant in possession of the premises, the other tenant's possession was not complete. Hence, they urge, the sublessees were not deprived of possession of the rented property.

• 1, 2 We first dispose of the plaintiffs' contention that the subtenants' voluntary payment of rent for the first 5 months of 1960 establishes that they had possession of the leased premises. The sublease provides with respect to possession and the payment of rent:

"The term of this lease shall be for a period of ten (10) years, commencing January 1, 1960, and expiring December 31, 1969, to be occupied and used by Lessee for warehousing, packaging, and distributing, buying and selling of drugs, cosmetics, notions, toys, sundries, paper products, housewares, records, cigarettes, cigars, candies, gums, stationery, school supplies, wearing apparel, and kindred items. Lessee understands that there is presently a tenant in possession of the subject premises who has indicated that it will vacate on or before December 31, 1959, but Lessor does not guarantee the actions of the present tenant in possession, nor does it guarantee delivery of possession on any particular day to the Lessee herein. In the event that Lessor shall not deliver possession of the subject premises to the Lessee on or [before] February 1, 1960, then either Lessor or Lessee, at their option, by the service of written notice upon the other party, shall have the right to cancel this lease and in which event any advance rental payments or deposits shall be returned and the parties returned to the status quo. In the event of such cancellation, the Lessor and the Lessee do hereby waive and relinquish any right or claim for damage from the other for the failure to deliver possession of the subject premises. If Lessor shall deliver possession to Lessee prior to January 1, 1960, it shall first notify Lessee of its intention so to do upon five (5) days' prior written notice and rent shall commence on a pro rata daily basis from the effective date and stated in said notice. If Lessor shall deliver possession to Lessee subsequent to January 1, 1960, rent shall not commence until the date of delivery of possession."

The plaintiffs cite a number of cases which support the rule that payment of rent is conclusive proof of the landlord-tenant relationship. (See Mackin v. Haven, 187 Ill. 480, 58 N.E. 448; Voigt v. Resor, 80 Ill. 331; Bellows v. Ziv, 38 Ill. App.2d 342, 187 N.E.2d 265.) No case extends this rule to that urged by the plaintiffs: that payment of rent is conclusive proof of possession of the rented premises. We see no reason for such an extension. It is common practice to require rental payments on the first day of a month. At that point it is certainly not proof of possession for the full month. A tenant may without justification fail to take possession of the rented premises, in which case the obligation to pay rent continues. On the other hand, the tenant may be denied access to the rented premises by the lessor, in which case the obligation to pay rent ceases. Cottrell v. Gerson, 371 Ill. 174, 20 N.E.2d 74.

The parties to this sublease agreed that, should possession be delivered after January 1, 1960, the date of possession would trigger the obligation to pay rent. The question thus becomes, when was possession delivered? To answer this question we must examine what is meant ...


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