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Munao v. Lagattuta

February 18, 1998


Appeal from the Circuit Court of Cook County No. 91 L 4908 Honorable Kenneth L. Gillis, judge Presiding.

The opinion of the court was delivered by: Justice Cahill

After defendants defaulted on a note and lease, plaintiffs, Michael and Charlene Munao, sued to recover the balance owed on the note and lease. After a bench trial, the trial court ruled for plaintiffs on a deficiency claim and against defendants, Nicholas Lagattuta, Dennis J. Lullo, and Lullo Food Service Company, on their counterclaim for surplus received by plaintiffs from retention of the security. The trial court found that defendants were entitled to a credit on the note in the amount of $9,067.07. The trial court entered Judgement for plaintiffs in the amount of $83,483.38 on the note and $13,093.81 on the lease. Defendants appeal. We affirm.

Between 1980 and 1990 plaintiffs owned and managed a restaurant known as "Dilly Deli" in Des Plaines, Illinois. On August 24, 1990, the plaintiffs sold Dilly Deli to defendants for $104,000. Defendants paid $46,000 at closing and gave plaintiffs a note for the balance, $58,000.

The individual and corporate defendants signed a security agreement with the note. Collateral for the security agreement included "ll equipment, inventory, fixtures used in connection with 'the Dilly Deli'" but did not include goodwill.

Defendant corporation Lullo Food Service Company signed a lease for $2,000 rent per month plus taxes and insurance. The lease was guaranteed by individual defendants Lullo and Lagattuta.

Defendant Lullo and his wife, Lillian Lullo, managed the restaurant. Lagattuta was a silent partner. Shortly after the sale, defendants changed the name of the restaurant to "Papa D's."

For six days after closing, plaintiffs spent time at the restaurant teaching the Lullos how to manage the restaurant. The transition is relevant to a collateral issue raised by defendants: that the trial court's Judgement ignored goodwill in calculating the value of collateral.

Plaintiffs observed changes in the way the restaurant was run in the course of these six days. Instead of cooking homemade soup and preparing food to order, defendants served canned soup and precooked food. They served hot dogs that had been cooked the day before and bread that was not fresh. Instead of buying meat and cheese from restaurant purveyors, they bought food from a discount warehouse. They bought less expensive brownies and tuna. The system of taking orders changed and mistakes were made in taking orders. Food was served in paper bags rather than on dishes or in baskets. Lillian and Dennis Lullo smoked while they worked.

A former customer, George Heyman, also noticed changes in the restaurant. He ate at the restaurant several times a week when plaintiffs owned it. He said that, after defendants took over, the restaurant was smoky, tables were not kept as clean, the restroom was dirty and the food quality declined. He eventually stopped eating there.

Defendants paid the first two months' rent and tax payments late. They claimed that business was slow because of road construction in front of the restaurant. Plaintiffs accepted the late payments and agreed to defer real estate tax payments until the road construction ended. In November defendants failed to pay rent and to make payment on the note.

Defendant Lagattuta testified that he met with plaintiff Michael Munao in November or December. They agreed that if the restaurant was returned to the plaintiffs, defendants would be released from their obligation on the note and lease. Plaintiff Michael Munao denied that the conversation took place.

Plaintiff's attorney, Joseph Mulhern, testified that he spoke with defendant Lagattuta. Mulhern told Lagattuta that surrender of the keys was a condition precedent to a settlement Discussion. Lagattuta never told Mulhern he had an agreement with plaintiffs to be released from his obligations in exchange for return of the restaurant. Lagattuta delivered the keys to Mulhern's office on January 3, 1991. Mulhern then had several settlement Discussions with Lagattuta and his attorney.

After plaintiff Michael Munao received the keys, he hired Burton Tunick to appraise the restaurant equipment and to determine the fair market value. Tunick appraised the fixtures, furniture and equipment at a fair market value of $8,590. Michael Munao testified that based on prices he paid for similar merchandise, the useable inventory left had a value of $477.07.

On March 15, 1991, plaintiffs reopened the restaurant under the name of "C & M." Plaintiff Michael Munao claims that he then credited the balance due on the note with the appraised fair market value of the fixtures, equipment and furniture, and $477.07 for inventory. Munao testified that he did this because he believed plaintiffs "bought" the equipment and inventory when they used it after the restaurant was returned. In October 1991, after losing $42,023, plaintiffs closed the restaurant. The building ...

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