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Linn Corp. v. Lasalle Nat'l Bk.

OPINION FILED JULY 16, 1981.

LINN CORPORATION ET AL., PLAINTIFFS-APPELLANTS,

v.

LASALLE NATIONAL BANK, TRUSTEE, ET AL., DEFENDANTS-APPELLEES.



APPEAL from the Circuit Court of Cook County; the Hon. REGINALD J. HOLZER, Judge, presiding.

MR. JUSTICE LINN DELIVERED THE OPINION OF THE COURT:

Plaintiffs, Linn Corporation and its president, Donald C. Linn, brought this action in the circuit court of Cook County seeking specific performance of a clause in a lease. The clause granted plaintiffs, as tenants, the option to renew the lease for an additional five year term. The original lease term was two years and three months. Under the option clause, plaintiffs were required to give defendants-lessors, LaSalle National Bank and Hugh C. Michels & Company, written notice of intent to exercise the option no later than one year before the expiration of the original lease term. Actual written notice was not given until nine months before the expiration of the original lease term.

Defendants filed a motion to dismiss the action under section 48(i) of the Civil Practice Act (Ill. Rev. Stat. 1979, ch. 110, par. 48(i)) alleging that the trial court could not grant specific performance because plaintiffs had failed to strictly comply with the condition precedent requiring one-year written notice. In reply to this motion, plaintiffs essentially requested the court to excuse the condition because plaintiffs had made permanent improvements to the property valued at approximately $200,000, had built up substantial goodwill, and thus strict compliance with the condition would effect a forfeiture. Plaintiffs also alleged that the delay in giving written notice did not result in any significant hardship to defendants, and plaintiffs had given oral notice of intent to exercise the option within the necessary time.

The trial court granted the motion to dismiss, finding that it could not grant equitable relief since plaintiffs had failed to strictly comply with the condition of one-year written notice. Plaintiffs appeal.

We reverse and remand.

Background

For the purpose of this appeal, the following facts are admitted as true.

In 1970, plaintiffs and defendants entered into a 10-year lease of property owned by defendants and located in downtown Chicago. Under the lease, plaintiffs were required to operate a restaurant called the "Down 'N Inn" on the leased premises. This lease, as later amended, required plantiffs to pay as rent $2,291 a month plus six percent of all gross sales per year which exceeded $333,333. This lease also granted plaintiffs the option to renew for one five-year term.

In late December 1977, a new lease was entered into between the parties. This lease specifically rescinded all of the terms of the 1970 lease. The reason for the new lease was to allow plaintiffs to close the "Down 'N Inn" and open a new restaurant called the "Magic Miller." Essentially, plaintiffs proposed to make substantial permanent improvements to the property and then open the new restaurant. Plaintiffs also proposed to pay an increase in base rent. In return, defendants agreed to enter into a new lease with a term of two years and three months with the date of expiration being March 31, 1980. Defendants also agreed to grant two five-year options to renew with the understanding that all permanent improvements made by plaintiffs would become defendants' property when the lease term or any period of renewal expired.

The new lease required plaintiffs to pay rent of $2,917 per month plus seven percent of all yearly gross sales over $500,000. The lease required plaintiffs to make "at least" $60,000 worth of improvements. Plans for the improvements were made part of the lease. The lease granted plaintiffs the two five-year options to renew. The option clause of the lease also said:

"[I]n the event Lessee elects to exercise lease option provisions it must provide Lessor with written notice of intentions to exercise option not less than one year prior to expiration of the original term of the lease or renewal thereof."

The lease also provided that all improvements made by plaintiffs would become the property of the lessor at the expiration of the lease term or any renewal of the lease term.

Plaintiffs made the improvements required by the 1977 lease. In doing so, plaintiffs spent approximately $200,000. Thereafter, plaintiffs opened the Magic Miller restaurant and were soon enjoying substantial profits from a regular clientele. On several occasions before March 31, 1979 (the day by which the one-year written notice was required), plaintiffs told defendants that they were going to renew the lease. However, plaintiffs failed to put their stated intent in writing.

On June 12, 1979, defendants sent a letter to plaintiffs informing them that the lease would expire March 31, 1980, because plaintiffs had failed to give written notice of their intent to exercise the first five-year option. On July 9, 1979, plaintiffs sent a letter to defendants telling them that they were exercising the first five-year option and intended to exercise the second five-year option. On August 28, 1979, defendants ...


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