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Chemical Petro. Exch. v. Metro. Sanitary Dist.

OPINION FILED FEBRUARY 27, 1980.

CHEMICAL PETROLEUM EXCHANGE, INC., PLAINTIFF-APPELLANT AND CROSS-APPELLEE,

v.

THE METROPOLITAN SANITARY DISTRICT OF GREATER CHICAGO, DEFENDANT-APPELLEE AND CROSS-APPELLANT.



APPEAL from the Circuit Court of Cook County; the Hon. ARCHIBALD J. CAREY, Judge, presiding.

MR. JUSTICE MCNAMARA DELIVERED THE OPINION OF THE COURT:

Plaintiff, Chemical Petroleum Exchange, Inc., a lessee, brought suit against its lessor, defendant Metropolitan Sanitary District of Greater Chicago, seeking an injunction restraining termination of their lease. It also sought a declaratory judgment that an agreement between plaintiff and a third party did not constitute an unauthorized sublease. Defendant filed a counterclaim for forcible entry and detainer and for an accounting. The trial court dismissed defendant's counterclaim and entered judgment for plaintiff, ruling that the third-party agreement did not constitute a sublease and that the lease between plaintiff and defendant remained valid. The court also ordered plaintiff to review its lease with defendant and to pay a reasonable sum in accordance with revenue derived through use of the public property. Plaintiff appeals from that portion of the judgment directing it to review its lease. Defendant appeals from the remaining provisions.

On February 11, 1954, defendant, a municipal corporation, leased to plaintiff approximately 10.34 acres of land in Forest View, Illinois, for a 50-year term ending February 28, 2004. The lease contained the following pertinent provisions: article 3.09 provided that defendant could terminate the lease if plaintiff defaulted or failed to perform a condition, and such conduct continued 90 days after written notice from defendant; article 6.02 provided that termination resulting from such default would cause all improvements to become the absolute property of defendant without compensation to plaintiff; article 7.01 authorized plaintiff to sublet the premises with the written consent of defendant.

Plaintiff installed improvements such as docks, pumps, and storage facilities and began operating a river terminal facility on the premises. In 1966 plaintiff entered into an agreement with Gustafson Oil Company, a Delaware corporation, in which plaintiff promised to accept and store on its premises all petroleum products delivered by Gustafson during a 12-year term ending August 4, 1978. Both plaintiff and Gustafson were subsidiaries of Koch Refining Company.

On February 8, 1978, defendant gave plaintiff a notice of termination of lease. The notice alleged that defendant's prior written consent was required for a sublease to be effective; that the Gustafson agreement constituted a sublease; and that by entering this agreement without defendant's consent, plaintiff materially breached the covenants and conditions of the lease. The notice also recited that since adoption of a resolution by defendant's board of commissioners on May 23, 1963, defendant required renegotiation of the rent established in the lease in return for its consent to any proposed sublease. Thus if plaintiff had requested consent to sublet, the property would have been reappraised and plaintiff's rent would have been increased.

On May 4, 1978, plaintiff filed the present action asking the court to enjoin defendant from terminating the lease and to declare that the Gustafson agreement did not constitute a sublease. Plaintiff alleged it would be irreparably harmed by termination of the lease prior to its stated expiration date because its improvements worth more than $1,500,000 would become the absolute property of defendant with no compensation to plaintiff. Defendant's counterclaim requested the court to terminate the lease and restore possession of the premises to defendant, and to order plaintiff to account for monies received from Gustafson. The counterclaim also sought damages.

Plaintiff filed a motion to dismiss the counterclaim on the ground that it failed to state a cause of action since the Gustafson agreement did not, as a matter of law, constitute a sublease. Plaintiff further claimed that, even if entering the Gustafson agreement constituted a default or failure to perform a condition of the lease, such failure was cured by cancellation of the agreement within 90 days after receiving notice from defendant of the alleged default. Defendant's response stated, in pertinent part, that whether the Gustafson agreement constituted a sublease was not solely an issue of law, or alternatively, the agreement was a sublease; and that the purported cancellation did not cure the violation committed by plaintiff.

On June 23, 1978, after considering pleadings, memoranda, and arguments of counsel, the trial court entered an order dismissing the counterclaim on the ground that the Gustafson agreement did not constitute a sublease, and finding that the lease between plaintiff and defendant was still valid. The court also directed plaintiff to review its lease with defendant and to pay a fair amount of money in accordance with the revenue derived from its use of public property. On June 28, 1978, the court entered judgment for plaintiff on its complaint, but still directed plaintiff to review its lease with defendant.

We initially shall consider defendant's contention that the trial court erred in finding that the Gustafson agreement did not as a matter of law constitute a sublease. If the Gustafson agreement is not a sublease, plaintiff did not violate article 7.01 of its lease and defendant was not entitled to terminate the base lease.

The relevant provisions of the Gustafson agreement may be summarized as follows:

Under articles 1 and 2, plaintiff promised to accept and store on its premises all petroleum products delivered by Gustafson and to handle the loading of these products into barges and tank trucks.

Article 3 required Gustafson to pay for expenses incurred by plaintiff in operating the "Terminal Property," including salaries of personnel, rent, wharfage fees, utility charges, real and personal property taxes, and costs of maintenance and repair not to exceed $25,000 annually. Plaintiff was responsible for the payment of Federal, State, and municipal taxes. The parties fixed a minimum annual payment of $230,000, later increased, although the exact amount Gustafson was required to pay varied according to plaintiff's expenses and the quantity of petroleum products delivered.

Under article 4, plaintiff was authorized, with Gustafson's prior consent, to enter into third-party terminaling agreements and to store petroleum products it acquired for resale. Revenues derived through such arrangements would be credited against Gustafson's financial obligations.

Article 6 provided that plaintiff would maintain inventory and product loading records, and article 5 authorized Gustafson to enter the premises during business hours to verify ...


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