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Central Nat'l Bk. v. Fleetwood Rlty. Corp.





Appeal from the Circuit Court of Cook County; the Hon. George A. Higgins, Judge, presiding.


Central National Bank (CNB), lessee, commenced an action against Fleetwood Realty Corporation (Fleetwood), building manager, Chicago Title and Trust Company (CT&T) as trustee, lessor, and the then "unknown owners" to obtain, inter alia, specific performance of an option contained in its lease of space in an office building located at 200 West Monroe St., Chicago (Building). Subsequently, the 200 West Monroe Partnership (Partnership), trust beneficiary, and Executive Business Centre, Inc. (EBC), a tenant claiming an option similar to CNB's, among others, were allowed to intervene and to file a counterclaim. CNB added count II to its complaint seeking, inter alia, an order declaring that EBC's right to any option space be deemed subordinate to CNB's option rights as to all space becoming available in the Building. After trial, the circuit court entered judgment from which all parties appeal.

The principal issues raised in CNB's appeal include whether: the circuit court erred in determining that CNB's future rights to additional space are subject to the superior rights of EBC and other nonparty tenants under certain option language; and, the circuit court erred in not ordering that paragraph 3(d) of CNB's lease be incorporated into the leases to CNB of spaces in the building purportedly leased pursuant to CNB's option rights. On cross-appeal the main issues presented by defendants for review include whether: the circuit court erred in holding that CNB validly and effectively exercised its option for the option spaces; and, the circuit court erred in its rulings on defendants' defenses and claims based on CNB's leasing activities as ultra vires under the National Bank Act (12 U.S.C. § 21 et seq. (1976)). For the reasons given below, we affirm in part and reverse in part.

CT&T holds legal title to the Building under trust agreement No. 56000. The Partnership is an Illinois limited partnership which owns 100% of the beneficial interest in the CT&T trust. Fleetwood is a partnership, engaged, among other things, as managing agent for the beneficiary of the trust. EBC is an Illinois corporation which leases and subleases space at the Building to individuals and businesses and provides them with secretarial services and conference facilities. Philip Teinowitz, Albert Rubenstein and Bernard Feinberg *fn1 were general partners of the Partnership, the only partners of Fleetwood, and the sole stockholders of EBC.

On May 23, 1972, CNB and CT&T executed a lease under which CNB rented over 100,000 square feet on the lower level and second to fifth floors of the Building. Paragraph 3(d) of the CNB lease granted CNB the option to lease additional space in the Building, provided, in part:

"Not less than 240 days prior to the expiration of any lease of space in the building not included in this Lease, * * * the Landlord shall serve notice on the Tenant of the termination of such Lease and the Tenant shall have the option to lease the space covered by the Lease so expiring by serving notice on the Landlord, within 30 days after the date of Landlord's said notice to Tenant, of Tenant's election to exercise such option. * * * Notwithstanding the foregoing, any similar such option granted to any other tenant in the building shall be superior to the option granted to Tenant hereunder in respect of any space which is closer to or equidistant to such other tenant's major leasehold interest (measured vertically and horizontally) than it is to Tenant's major leasehold interest at the time."

On September 3, 1975, EBC and CT&T, as trustee, executed a lease for approximately 8,256 square feet of space on the 16th floor of the Building for a term ending September 30, 1980.

Jeffrey Wilson, CNB vice-president, testified that in early 1979 Rubenstein told him that he was having difficulty remortgaging the Building and asked CNB to relinquish its option rights. CNB refused. In April 1979, CNB was advised by an appraiser of real estate that the present value of CNB's option may approximate $3 million, given certain assumptions. In a memorandum dated November 13, 1979, Rubenstein indicated that he met with Wilson and William Smith, vice chairman of CNB, to see if they would relinquish their option rights and consent to a possible takeover of leased space they were not presently occupying. The memorandum further noted that: "The motivation for this visit resulted from Neil Bloom's comment that he would be willing to purchase 200 West Monroe for between $12 million and $12.5 million (equity) provided we could get rid of Central's `right-of-first-refusal on all space.' My second motive was a result of a letter I received from Central National Bank last week indicating they were going to enter into a new lease with Illinois Bell Telephone at 200 West Monroe for a five-year period, and in today's market, I felt that we would probably do better with I.B.T. ourselves."

Barry Bass, a Fleetwood leasing agent, and Sol Krause, a Fleetwood building manager, both testified that after the CNB meeting they discussed with Rubenstein what could be done to limit or avoid CNB's option rights. Rubenstein's memorandum indicated that he, Bass and Krause believed they could give EBC a right of first refusal because of their 16th floor tenancy, which would take precedence over CNB's rights at least with respect to certain floors in the building. Leland Fay, a commercial real estate broker, testified that in early 1980 Teinowitz told him that he had made a "bad deal" in giving CNB rights which would take all of the upside potential out of the Building.

On January 23, 1980, Fleetwood sent a letter to CNB pursuant to paragraph 3(d) of the CNB lease that four spaces (option spaces) of specified square footage on the 11th, 15th and 16th floors of the Building would be available at certain specified times during 1980. The letter described the spaces by square footage on each floor and date of expiration of lease, and required a response by CNB within 30 days.

On February 21, 1980, CNB notified Fleetwood by certified mail of "its intention to exercise its rights under paragraph 3(d) of the Lease, subject to inspection by the Bank" of the option spaces. (Emphasis added.) William Smith testified that, after receipt of the notice of option space availability, he and Wilson went to the Building to attempt to identify them, but were unable to do so from a visual inspection of the floors and a limited inquiry of the existing tenants. Wilson essentially corroborated Smith's testimony.

On February 26, 1980, EBC and CT&T executed a lease renewal and amendment to the original EBC lease in which the parties agreed that the lease would be extended from September 30, 1980, to and including December 31, 1984. In addition, EBC was granted option rights, similar to the rights granted to CNB, not contained in the original EBC lease of 1975. According to Bass, the person in charge of overseeing EBC, the amendment was executed so that EBC would be able to acquire additional space on a competitive basis with CNB and any other tenant in the Building.

In March 1980, CNB requested twice, by way of certified mail, that Fleetwood execute its leases for the option spaces offered by the January 23, 1980, letter and accepted by CNB. Fleetwood did not comply. Fleetwood's notification to EBC on March 14, 1980, of the availability of the four option spaces resulted in EBC's letter of March 18, 1980, which states that EBC "does hereby exercise the option ...

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