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03/22/96 ROBERT W. LEMPA AND LUANN J. LEMPA v.

March 22, 1996

ROBERT W. LEMPA AND LUANN J. LEMPA, PLAINTIFFS AND COUNTER-DEFENDANTS-APPELLANTS,
v.
GORDON FINKEL AND SHARON FINKEL, DEFENDANTS AND COUNTER-PLAINTIFFS-APPELLEES.



Appeal from the Circuit Court of Lake County. No. 93-CH-168. Honorable Jane Drew Waller, Judge, Presiding.

Released for Publication April 18, 1996.

The Honorable Justice Bowman delivered the opinion of the court: Colwell and Rathje, JJ., concur.

The opinion of the court was delivered by: Bowman

JUSTICE BOWMAN delivered the opinion of the court:

Plaintiffs and counterdefendants, Robert W. Lempa and Luann J. Lempa (Lempas), filed a complaint against defendants and counterplaintiffs, Gordon Finkel and Sharon Finkel (Finkels), for breach of a mortgage note. The Finkels counterclaimed on various grounds. After a bench trial, the trial court entered judgment for both parties on their respective claims. The Lempas appeal that part of the order entering judgment for the Finkels on their counterclaim. We affirm in part and reverse in part.

Background

The following facts are taken from the record. On August 31, 1990, the Finkels and Lempas executed four documents: (1) a building lease; (2) a business lease with an option to purchase the business (business lease); (3) an option to purchase (the business); and (4) a covenant not to compete. Under the building lease, the Lempas leased a portion of the building at 2678 Sheridan Road, Zion, Illinois, to the Finkels. One clause of the lease, the exculpation clause, provides that the Lempas were not liable for any damages occasioned by water, snow, or ice coming through the roof.

Under the business lease, the Lempas leased to the Finkels a dry cleaning business located at 2678 Sheridan Road (Liberty Cleaners), the goodwill of the business, and the right to use the name of the business, its telephone number, and certain equipment. Although labelled "Business Lease With Option to Purchase," the document makes reference to an option to purchase the business only indirectly in paragraph 6. That paragraph provides that, if the Finkels exercised their option to purchase the business, the security deposit paid by the Finkels on the business lease would be credited to the sale price of the business.

The parties also signed a document labelled "Option To Purchase." Under this document, the Lempas gave the Finkels the exclusive option to purchase Liberty Cleaners for $120,000. $30,000 was payable upon execution and delivery of the option; the remaining $90,000 would be loaned by the Lempas to the Finkels, to be repaid by the Finkels in the amount of $1,214.42 per month for 10 years. The purchase price was apportioned as follows: $76,000 for the business' machinery; $15,000 for the business' goodwill; and $29,000 for the Lempas' agreement not to compete with the Finkels. The option did not include the right to purchase the building in which the business was located.

The last document executed by the parties was a covenant not to compete. It prohibits the Lempas from engaging in the dry cleaning business within five miles of the City of Zion. Although the document states that the covenant was to run for three years, it does not state when that period would start. A handwritten statement on the document reads: "The seller further covenants and agrees not to solicit, or in any way offer employment to the existing employees of Liberty Cleaners, namely:". No employee names are listed in the document. At trial, Mrs. Lempa testified that she wrote this statement at Mrs. Finkel's request because Mrs. Finkel wanted to prevent Mr. Lempa from soliciting any employees from Liberty Cleaners. Mrs. Finkel testified that she did not know how the handwriting appeared on the document.

On January 18, 1991, the Finkels signed a notice stating their intent to exercise their option to buy the business for $120,000. On May 22, 1991, the Finkels signed a mortgage note wherein they promised to pay the Lempas the principal sum of $90,000 plus interest on that sum at the rate of 10.5% per annum. Payments were to be $1,214.12 per month for 10 years. On July 15, 1991, the Lempas delivered the bill of sale of the business to the Finkels.

In the fall of 1991, the Finkels advised the Lempas that the roof was leaking. The Lempas attempted to repair the roof but, according to the Finkels, the repairs did not stop the leaking. On January 24, 1992, the Finkels signed a contract to purchase a building at 2730 Sheridan Road. On March 24, 1992, the Finkels filed suit against the Lempas seeking rescission of the building lease due to the Lempas' failure to repair the leaking roof. On November 12, 1992, the trial court, Judge Margaret Mullen presiding, entered an order rescinding the building lease agreement. Neither party appealed this order.

After December 1992, the Finkels stopped their payments on the mortgage note. Although the Finkels closed on their new building on January 22, 1993, they did not move until August 16, 1993. The Finkels apparently remodeled the new location during this interlude. Upon moving, the Finkels retained the name of their business as Liberty Cleaners. On or about October 1, 1993, the Lempas opened a dry cleaning business at 2678 Sheridan Road under the name "Zion's Best Cleaners."

Meanwhile, on March 12, 1993, the Lempas filed a complaint against the Finkels for foreclosure of the mortgage note. In the complaint, the Lempas alleged that the Finkels breached the terms of the mortgage note by failing to make their monthly payments of $1,214.12 since January 1993.

The Finkels responded by filing a two-count counterclaim. Count I, labelled "Breach of Contract," alleged that the Lempas breached the building lease by failing to maintain the building in good repair; that this breach made it impossible for the Finkels to operate their business; and that as a result of the breach the Finkels were forced to relocate their business, purchase a new building, and incur substantial moving expenses. The Finkels sought damages for lost profits, moving expenses, and costs incurred for the purchase of the new location. Count II alleged that the Lempas breached the covenant not to compete by opening a dry cleaning business at 2678 Sheridan Road on or about September 1, 1993. The Finkels sought damages for loss of goodwill and lost profits resulting from this breach.

After a bench trial, the trial court entered an order on December 13, 1994, granting judgment for both parties on their respective claims. Regarding the Lempas' complaint, the trial court found that the Finkels were obligated to pay the Lempas $1,214.12 per month until the mortgage note was paid in full. Because 23 payments were past due as of the date of the entry of the order, the trial court held that the Lempas were entitled to judgment against the Finkels in the amount of $27,924.76.

Regarding count I of the Finkel's counterclaim--breach of contract--the trial court noted that Judge Mullen had entered an order on November 12, 1992, in the earlier suit, rescinding the building lease because the Lempas had materially breached their covenant to repair and maintain the business premises. The court then ruled that the doctrine of election of remedies did not bar the Finkels from recovering "rescission and restitution damages" for the Lempas' breach of the covenant to repair and maintain the business premises. The court stated that the fact that the Finkels sought rescission without seeking restitution in the earlier action did not bar them from seeking restitution in their counterclaim because "until the rescission was granted and the Finkels moved from the premises, their damages were speculative and undetermined." Thus, the Finkels were entitled to "restitution damages" in the amount of $13,031.26 for relocation expenses and $51,000 for remodeling expenses. The trial court also noted that "there was insufficient evidence presented to [it] to determine restitution damages resulting from lost profits."

Regarding count II of the counterclaim--breach of the covenant not to compete--the trial court made the following findings: the covenant took effect on July 15, 1991, the date the purchase of the business was consummated; prior to July 15, 1991, the Lempas had received no consideration for the covenant; the covenant was reasonable as to time, area, and scope; and the Lempas breached the covenant by opening Zion's Best Cleaners on October 1, 1993. The court then stated that the Finkels were entitled to prorated damages for breach of the covenant not to compete in the amount of $7,626.24.

The trial court also stated that the Finkels were entitled to damages for loss of goodwill to their business because of the Lempas' breach of the building lease and the covenant not to compete. According to the trial court, the Finkels were entitled to only one recovery for damages to goodwill. Based on the value attributed to the goodwill in the option to purchase, the court held that the Finkels were entitled to damages for loss of goodwill in ...


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