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Exchange Nat'l Bank of Chicago v. Heller

FEBRUARY 14, 1975.




APPEAL from the Circuit Court of Cook County; the Hon. NATHAN M. COHEN, Judge, presiding.


Plaintiff sought a declaratory judgment to determine the rights of the parties under a lease of a furnished apartment building. The court held that a provision of the lease which declared a $30,000 security deposit to be nonreturnable imposed a condition that was too harsh to be enforced and ordered the apartment building returned to defendants and the deposit, less deductions for damages to the building, returned to plaintiff. Following a hearing on damages the court determined that plaintiff was entitled to the return of $22,587.63 and entered judgment on this finding. *fn1 Defendants appeal, contending that (1) the court erred in finding that plaintiff was entitled to the return of the security deposit; (2) the court erred in denying their motion to adduce additional evidence on the construction to be given the lease agreement; and (3) they proved damages greater than those allowed by the court.

On May 15, 1972, the parties entered into a lease of the "Aldgate," a furnished apartment building located at 5541-43 North Kenmore Avenue in Chicago. The lease was to terminate on May 31, 1973. Paragraph C(10) thereof provided that plaintiff was to deposit with defendants a $30,000 security deposit. The deposit was "not to be considered as rental security" but rather was to be held by defendants and "applied towards any damages which may result to the Lessors by virtue of beneficiaries of the Lessee's failure of neglect in its duty to properly maintain the premises." Paragraph C(11) provided that if the building was destroyed or rendered wholly untenantable by fire or other casualty, the security deposit was to be refunded to "beneficiaries of the Lessee."

Paragraph D granted an option to plaintiff to purchase the building subject to the condition that if the option was not exercised, "the $30,000 payment referred to in section 9 above shall remain the exclusive property of Lessor." *fn2 The total purchase price of the building was $192,500 "less the sum of $10,000 accompanying the notice of election to exercise the option, and less the $30,000 consideration paid to Lessor upon the execution of this Lease."

Paragraph E provided that 4% interest was to be paid on the $30,000 security deposit "until such time as it is repaid or credited against the purchase price * * *." The monthly rental was $1300. If plaintiff exercised its option, $125 per month of this sum was to be applied against the purchase price.

The lease provided that plaintiff was to pay annual real estate taxes assessed against the property. In addition, plaintiff was to pay insurance premiums on policies covering the building. A legal description of the property was attached to the lease. Finally, the lease provided that plaintiff "has examined the Premises, including the furniture and fixtures therein contained, and finds them in good condition, and agrees to keep said furnishings, equipment and appurtenances in good repair, reasonable wear and tear expected."

Plaintiff in its complaint alleged that a dispute had arisen as to whether the $30,000 deposit was a security deposit refundable upon the termination of the lease or whether it was applicable solely to the option to purchase the premises and not refundable. It further alleged that "it is entitled to a return of the security deposit upon a termination of the Lease, and that a forfeiture of the sum of $30,000 would be highly unjust and inequitable." Plaintiff requested that the court order defendants to repay the $30,000 plus 4% interest.

A hearing was held to determine whether the $30,000 was refundable. The only testimony adduced at that time was that given by Burton Lansky, managing agent of the property, on behalf of plaintiff. A transcript of Lansky's testimony was not included in the record on appeal. The court in characterizing his testimony stated that it was Lansky's understanding that the security deposit was refundable. The court found that the "lease * * * is an abomination * * * [i]ts terms are inconsistent to say the least" and held that plaintiff was entitled to the return of the deposit.

A hearing was scheduled to give defendants the opportunity to present evidence with regard to damage to the building caused by plaintiff. Prior to this hearing, defendants moved to adduce additional evidence. In their motion they claimed that Saul Azar, who is a co-owner of the building and who participated in the negotiations which resulted in the lease, if allowed to testify, would demonstrate that the intent of the parties in entering into the agreement was to provide a method of selling the building that would lessen their Federal tax burden. The court, in denying this motion, pointed to the able representation afforded defendants at the original hearing. In addition, the court stated that the evidence defendants now sought to introduce "was at their disposal at the time the case was tried and that, moreover, the agreement was `garbled' and `unconscionable' and `no amount of extrinsic evidence' could correct these failings."

The court then conducted a hearing on the issue of defendants' damages. James S. James, an architectural engineer, testified on behalf of defendants that he inspected the building at 5541 North Kenmore on November 4, 1973. In inspecting the building he "looked for all the items that needed repairing." While employed by the Department of Housing and Urban Development his duties included making cost estimates for the repair of abandoned properties. The "Inspection Report of Repairs Needed" that he prepared was introduced into evidence. The report identified, on an item by item basis, required repairs and provided estimated repair costs. In essence it was his finding that the building needed extensive repainting, replastering, caulking, replacement of carpets and tile and repair of windows and window frames. In addition, he testified that the sidewalks needed to be replaced and the lawn needed to be landscaped, and that the building was infested by rats and roaches. The cost of repairs would total $23,945.

On cross-examination, James testified that he had no knowledge of the condition of the building in May 1972. He admitted that for the most part damage to carpets and tile and the need for caulking, repainting, replastering and repairing window sashes could be attributed to ordinary wear and tear. He excepted from this analysis those areas of the building which he heard had been damaged by a fire.

Saul Azar testified on behalf of defendants that he participated in the negotiations which resulted in the lease of the building to plaintiff. Prior to the close of the deal he accompanied Burton Lansky on inspection tours of the building. During these tours Lansky inventoried all of the furniture in the building. After plaintiff relinquished possession of the building, he made an inspection of it. He listed everything included in Lansky's inventory and checked off whether or not those pieces of furniture were still in the building. This document was introduced into evidence. In preparing it he went into every apartment in the building. For each missing piece of furniture he listed the replacement cost. The total cost of replacing the missing items with used furniture was $13,844. This was determined by calling the sources from whom he usually bought furniture for his buildings. Azar's inventory and cost list were admitted into evidence over plaintiff's objection. However, the court noted that his cost estimates were "not very persuasive." When plaintiff's lease began, there were three vacancies in the building; in October 1973 there were 17 vacancies.

On cross-examination Azar testified that the fire to which James referred occurred on the second floor in the center of the building. When plaintiff took possession of the building, the furniture was in good condition. Rents for a one-bedroom apartment ranged up to $160; tenants were not required to sign a lease.

Burton Lansky testified on behalf of plaintiff that he is plaintiff's agent. When he inspected the building in May 1972, he found it to be in a state of disrepair and overrun with roaches. While plaintiff was in possession of the building the only loss of furniture was due to ordinary wear and tear. On cross-examination he testified that during the summer of 1972 there had been a fire in apartment 203 that had probably damaged some ...

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