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Chicago Title & Trust Co. v. Hedges Mfg. Co.

OPINION FILED DECEMBER 9, 1980.

CHICAGO TITLE AND TRUST COMPANY, TRUSTEE, PLAINTIFF-APPELLEE,

v.

HEDGES MANUFACTURING CO., INC. ET AL., DEFENDANTS-APPELLANTS.



APPEAL from the Circuit Court of McHenry County; the Hon. HASKELL PITLUCK, Judge, presiding.

MR. JUSTICE UNVERZAGT DELIVERED THE OPINION OF THE COURT:

This is an appeal from the judgment of the circuit court of McHenry County awarding the plaintiff the sum of $58,370.70 for breach of covenant under a lease.

The plaintiff was the owner in trust of an industrial building and the defendant, Hedges Manufacturing Co., Inc., and its guarantor, Richard Moellering, entered into a lease of that property for a period of five years from January 1, 1973, to December 31, 1977, at a net rental of $1,685 per month. (Certain other operating expenses were also assumed by the lessor.) The lease contained a clause allowing the landlord to relet the premises upon abandonment by the tenant and a "re-entry" clause upon default in the rent or other breach of covenant by the tenant. Richard Moellering, guarantor of the lease, testified that in November of 1974 he went to see Mrs. Geschke, beneficial owner of the property, and told her that his company was in financial trouble and it was necessary for them to move out of the building as they could no longer afford the rent. Moellering testified that Mrs. Geschke replied that she was sorry and that she would work with him to find a new tenant. She confirmed this conversation but said she told Moellering she would hold him to the obligation of the lease. Hedges Manufacturing Co. abandoned the premises that same month. Moellering continued to pay the rent until June 1975, at which time he ceased paying rent, contending that Mrs. Geschke was not cooperating with him in trying to lease the building to a new tenant and that she had changed the locks on the building, denying him access. Thereafter Moellering ran an advertisement in the Chicago Tribune and referred the responses to Mrs. Geschke, but he did not hear anything further from her. He testified that because he had not heard from Mrs. Geschke with regard to any developments as to reletting the premises, he hired Allan Schimke, a broker, to find a tenant. Schimke testified he asked permission of Mrs. Geschke to put a sign on the outside of the building but she refused permission to do so. Schimke testified that he then placed signs advertising the availability of the building on the inside of the windows, but upon entering the building later he found these signs lying on the floor in a crumpled condition. He testified he had several prospects for renting or buying the building but Mrs. Geschke was not interested. According to his testimony he had an offer to buy the building, but Mrs. Geschke said she was no longer interested in selling it, but had decided to keep it as an investment and lease it.

Schimke testified that in May 1976 he showed the building to a prospect, Chromacorp, Inc. Schimke asked Mrs. Geschke for the floor plans to show to Chromacorp, Inc., and she told him she could not lease the building because she had sold it to someone else. After that Schimke did not make any further effort to rent or sell the building. On cross-examination Schimke admitted he had never presented an offer to rent the building for a specific dollar amount to Mrs. Geschke. He did not have a written lease offer from Chromacorp, Inc., at the time Mrs. Geschke told him the building was sold. In response to a question by the court, Moellering said that other than extending his agreement with the broker, Schimke, he had done nothing to find a tenant for the building after he stopped paying rent in June 1975. Moellering said that he felt that Mrs. Geschke had a responsibility to find someone else — that is, that she had a responsibility to mitigate the damages.

After hearing the testimony and arguments of counsel, the trial court awarded a judgment to the plaintiff in the amount of $58,370.70. This amount appears to be comprised of $40,440 of unpaid rent (24 months from June 1975 to June 1977, when the building was sold) plus approximately $7,000 in specified miscellaneous charges payable by the tenant under the lease, including taxes, utilities, maintenance and interest.

The defendant contends in this appeal that the amount of the judgment is excessive because (a) the landlord failed in its duty to mitigate the damages by making an effort to seek a new tenant and by failing to cooperate with the defendant's efforts to do so and (b) in actually refusing an offered tenant in May of 1976 on the ground that the building had been sold.

The law in Illinois and in many other jurisdictions is conflicting on the extent to which a landlord must mitigate damages upon abandonment of leased property. There is no statutory provision covering this question and the case law is divided into essentially three groups. One group, consisting primarily of older decisions, reflects the orthodox view that a landlord is under no obligation whatsoever to re-rent property in order to lessen the abandoning tenant's liability. (Rau v. Baker (1905), 118 Ill. App. 150; Scanlan v. Hoerth (1909), 151 Ill. App. 582, 585-86; Harmon v. Callahan (1919), 214 Ill. App. 104, 108-09 (unless lease expressly requires landlord to re-let); Hirsch v. Home Appliances, Inc. (1926), 242 Ill. App. 418, 422-26.) The only explanation offered for this rule is that a tenant should not be allowed to impose such a duty on the landlord by his own wrongful act of abandonment.

Cases in the second group recognize the general contract rule of mitigation that a party who has been wronged by a breach may not sit idly by and allow damages to accumulate. These decisions suggest that a landlord must exercise reasonable diligence in finding a substitute tenant and may not arbitrarily refuse a suitable subtenant if one is offered. (Westside Auction House Co. v. Connecticut Mutual Life Insurance Co. (1900), 186 Ill. 156; Resser v. Corwin (1897), 72 Ill. App. 625, 629; Hinde v. Madansky (1911), 161 Ill. App. 216, 220; McCormick v. Loomis (1911), 165 Ill. App. 214, 216-17; Contratto v. Star Brewery Co. (1911), 165 Ill. App. 507, 511; Sears v. Curtis (1914) (Abst.), 189 Ill. App. 420; Marling v. Allison (1919), 213 Ill. App. 224, 226-27.) Most of the cases in this group rely on language in either Resser or Westside Auction House. In Resser, the court formulated the following standard for measuring damages:

"If appellant was entitled to recover, his measure of damages would be, the rent agreed to be paid, less whatever he could have made out of the land by the use of due diligence after it came into his possession. In other words, he could only recover such sum as would make him whole." (72 Ill. App. 625, 629.)

In Westside Auction House, the supreme court said:

"Upon the abandonment of the leased premises by the tenant it was the right and duty of the landlord to take charge of the premises, preserve them from injury, and, if it could, re-rent them, thus reducing damages for which the lessee was liable." 186 Ill. 156, 161.

The final and most recent group of cases holds that the landlord does not have a general obligation to mitigate but only a duty to accept a suitable subtenant when offered. Reget v. Dempsey-Tegeler & Co. (1968), 96 Ill. App.2d 278, 281; Scheinfeld v. Muntz TV, Inc. (1966), 67 Ill. App.2d 8, 14-17; Wohl v. Yelen (1959), 22 Ill. App.2d 455, 461-64.

In the Yelen case, the landlord agreed, after the tenant vacated the premises, to allow the tenant to relet. The tenant placed an advertisement in the paper and as a result secured a subtenant. Upon offering the subtenant to the landlord, the landlord refused to accept this tenant and sued for the rent due under the terms of the lease. The court recognized a duty on the landlord to mitigate to the extent that he was obligated to accept a suitable subtenant if one was offered by the original tenant. In Scheinfeld, there was an agreement by the landlord to accept Breuer Electric Mfg. Co. as a subtenant, after the tenant, Muntz, moved out of the building, but the landlord specifically provided that there would be no further subleasing. Breuer, after a time, found the building unprofitable to occupy and sought to sublet the building to another tenant, Calumet Manufacturing Co., offering to make up the difference in rent since the rent to be paid by Calumet was lower. The landlord refused to accept Calumet as a subtenant and confessed judgment against Muntz, who, in turn, confessed judgment against Breuer. It was shown by affidavits that Breuer was unable to secure another tenant and that Calumet was a reliable tenant. The court, following Yelen, held that since Calumet was apparently a suitable tenant, the landlord had a duty to mitigate damages by accepting the offer or reducing the obligation of Breuer accordingly. After confirming the landlord's right to hold the tenant under the lease to his lease obligation, the court said:

"But when the duty to mitigate is raised by the tender of a suitable sublessee, the option of the landlord lies between consenting to the sublease or crediting the tenant with the amount which would have been paid by the sublessee had he been accepted. The landlord may not arbitrarily reject a suitable sublessee and yet ...


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