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HORNSBY v. HORNSBY'S STORES

March 13, 1990

ARTHUR F. HORNSBY and KATHLEEN HORNSBY, Plaintiffs,
v.
HORNSBY'S STORES, INC., CENTURY WHOLESALE COMPANY, INC., and PUBCO CORPORATION, Defendants



The opinion of the court was delivered by: ASPEN

 MARVIN E. ASPEN, UNITED STATES DISTRICT COURT

 Arthur Hornsby and Kathleen Hornsby have filed this action against Hornsby's Stores, Inc. ("the Store"), Century Wholesale Company, Inc. ("Century"), and Pubco Corporation. Hornsby and the Store have filed cross motions for summary judgment, and Century and Pubco have filed a joint motion to dismiss. For the reasons explained herein, we grant the Hornsbys' motion for summary judgment in part and we grant the motion to dismiss the claims against Century and Pubco.

 I. Cross Motions for Summary Judgment

 The bulk of the facts relevant to the cross motions for summary judgment are undisputed. The Hornsbys owned a large piece of commercial property in Morris, Illinois. On December 20, 1984, they leased this property to the Store. The parties executed a comprehensive lease agreement which allocated responsibilities to each party with respect to the property. In addition to establishing a monthly rent and penalties for late payment, the lease contained additional covenants which required the Store to obtain property insurance, to pay real estate taxes and utilities, and to make certain repairs.

 On February 27, 1985, the Store subleased the property to Duckwall-Alco Stores, Inc. ("Duckwall"). However, Duckwall declared bankruptcy and abandoned the store on July 19, 1989. The Store paid rent to the Hornsbys up until the time that Duckwall vacated the premises, but did not pay any rent for the balance of July and for the remaining months of 1989. Moreover, the Store did not pay the remaining real estate taxes, utilities and maintenance after July, 1989.

 There is no dispute between the parties as to liability; the Store acknowledges that it has breached the lease agreement. However, the Hornsbys and the Store have radically different views of the damages to which the Hornsbys are entitled. While the Store contends that it owes the Hornsbys about $ 70,000 as of January 1, 1990, the Hornsbys claim that they are entitled to approximately $ 910,000.00 in damages.

 There are two principal reasons for this wide disparity. The primary cause is the parties' differing interpretations of the damages clause of the contract. The Hornsbys argue that this clause provides for acceleration of future rental payments; the damage figure suggested by the Hornsbys includes every payment that the Store would have been obligated to make during the lease term. The Store, on the other hand, maintains that the Hornsbys can only recover the amount that it currently owes them. The second reason for the disparity in proposed damages is a dispute over the precise amount of damages that have accrued to date.

 The Hornsbys offer two arguments in support of their claim that damages should be accelerated. First, they contend that the language of the lease agreement entitles them to liquidated damages in the form of accelerated rent and expense payments. Second, they argue that the Store's legal arguments during the Duckwall bankruptcy proceedings estop it from refusing to pay accelerated damages in the current litigation. However, we find that neither the lease agreement nor the Store's prior conduct militate in favor of awarding the liquidated damages sought by the Hornsbys.

 Paragraph 14(a) of the lease agreement specifies the remedies available to the Hornsbys upon default by the Store. *fn1" Stripped of its legalese, this provision provides the Hornsbys with two basic remedies, neither of which sustains the measure of damages proposed by the Hornsbys. The first remedy provided in the agreement is the power to terminate the lease. Should they exercise this option, the lease agreement provides that the Hornsbys may recover liquidated damages consisting of, "a sum of money equal to the value of the minimum guaranteed rent plus the percentage rent based on the preceding year, and other sums provided herein to be paid by TENANT to LANDLORD for the remainder of the lease term, less the fair rental value of the lease premises for said period " (emphasis added). While this remedy incorporates accelerated rental payments, it also includes an offset for the fair rental value of the premises for the unused portion of the lease. However, the damage figure proposed by the Hornsbys does not account for such an offset. Accordingly, the damages sought by the Hornsbys cannot be awarded on the basis of the termination remedy.

 Similarly, the second remedy described in the agreement does not support liquidated damages consisting of accelerated rent payments. The lease agreement provides that upon the Store's default, the Hornsbys may repossess the premises without terminating the lease. Upon the exercise of the repossession remedy, the lease specifies the damages which the Hornsbys may recover:

 
LANDLORD shall attempt to relet all or any part of the leased premises for such rent and upon such terms as shall be reasonably satisfactory to LANDLORD. . . . If LANDLORD does not relet the leased premises, TENANT shall pay to LANDLORD on demand as liquidated damages and not as a penalty a sum equal to the amount of the guaranteed minimum rent plus the percentage rent based on the preceding year, and other sums provided herein to be paid by TENANT for the remainder of the lease term. If the leased premises are relet and a sufficient sum shall not be realized from such reletting . . . to satisfy the rent herein provided to be paid for the remainder of the lease term, TENANT shall pay to LANDLORD on demand any deficiency and TENANT agrees that LANDLORD may file suit from time to time to recover any sums falling due under the terms of this paragraph.

 This remedy does not require the Hornsbys to deduct the fair market value of the premises for the unused portion of the lease. Therefore, if they are unable to relet the property, they could recover damages equal to every payment that the Store would have been obligated to make over the duration of the lease. However, the agreement does not entitle the Hornsbys to accelerate these payments. On the contrary, the language chosen by the parties contemplates continued efforts during the lease to relet the property. If these efforts are unsuccessful, the Hornsbys may then sue the Store "from time to time." Therefore, we find that the language of the lease agreement does not support the Hornsbys' claim for accelerated damages.

 However, the Hornsbys also argue that we may award accelerated damages even though these damages are not provided for in the lease agreement. According to the Hornsbys, the Store should be forced to pay accelerated damages because it sought to collect accelerated damages from its subtenant, Duckwall. However, we find that this argument lacks merit for two reasons. First, the contractual relationship between Duckwall and the Store is distinct from the contractual relationship between the Store and the Hornsbys. Therefore, it is not inconsistent for the Store to argue that its contract with Duckwall provides for acceleration, while advocating the opposite position with regard to its contract with the Hornsbys. Second, the Store's claim against Duckwall was made during the pendency of Duckwall's bankruptcy petition. Accordingly, the Store's claim was drafted in accordance with § 502 of the Bankruptcy Code, 11 U.S.C. § 502, which delineates the claims a lessor may bring against a lessee. As the Store observes, the statute dispenses with a consideration of ...


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