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Nebel v. Mid-City National Bank of Chicago

March 21, 2002


The opinion of the court was delivered by: Justice Hartman


Appeal from the Circuit Court of Cook County. Honorable Lester D. Foreman, Judge Presiding.

Plaintiff, Nebel, Inc., and defendant, The Mid-City National Bank of Chicago, are the lessor and lessee under a 99-year real-estate lease (Lease), containing a rent payable in gold clause, originally executed in 1906. Plaintiff demanded rental payments to be made with gold coins, pursuant to the Lease, which defendant refused. In a three-count complaint, plaintiff charged defendant with a breach of the lease (count I); sought a declaration of rights (count II); and subsequently voluntarily dismissed count III. Plaintiff claimed that a 1988 amendment to the Lease (Lease Amendment) constituted a new obligation which revived the gold clause, as authorized by a 1977 federal statute and, alternatively, asserted that if the Lease Amendment was not a new obligation, a novation occurred which revived the enforceability of the gold clause. Defendant's answer denied both theories.

Plaintiff's motion for partial summary judgment was denied by the circuit court. Thereafter, the parties cross-moved for summary judgment on counts I and II of plaintiff's complaint. The court granted defendant's summary judgment motion with respect to counts I and II and denied plaintiff's motion on the same counts. Plaintiff appeals.

The legal issues presented in this appeal include whether the circuit court erred by granting defendant's summary judgment motion based on a finding that (1) the Lease Amendment did not create a new obligation, thereby making the gold clause in the Lease unenforceable; and (2) no novation between the parties, to be construed as a new obligation, occurred.

On May 1, 1906, Hiram B. Peabody, as lessor, and Alexander W. Hannah, as lessee, entered into the subject Lease for land and improvements located at 801 West Madison Street in Chicago (subject premises). The Lease term commenced on May 1, 1906, and terminates on April 30, 2005. Monthly rent for the subject premises during the first five years was $1,090 and, thereafter, $1,333.33 and 1/3 cents, until expiration of the Lease term.

As previously noted, the Lease includes a gold clause, requiring the lessee to pay the rent "in standard gold coin of the United States, of not less than the present weight and fineness, which is at the present time measured by the standard of weight and fineness observed by the mint and fixed by the laws of the United States of America, twenty three and twenty-two hundredths (23-22/100) grains Troy weight for each dollar." The Lease covenants that "no acceptance by the said lessor of any currency or legal tender *** shall be construed to be a waiver on the part of the said lessor of the right to demand payment of any other unpaid installment or installments of such rent in standard gold coin *** or its equivalent in value."

On June 5, 1933, the United States Congress adopted a joint resolution that made unenforceable all obligations requiring payment in gold; *fn1 however, in 1977, the 1933 Congressional resolution was amended making obligations requiring payment in gold enforceable if issued after October 27, 1977. *fn2

The Lease also requires that the lessee pay for all real estate taxes, insurance and repairs, and expressly grants the lessee the right to assign his or her interest in the Lease without the lessor's consent. No language contained in the Lease discharges a lessee from his or her obligations under the Lease subsequent to an assignment; rather, upon assignment, the assignee agrees to comply with all terms, covenants and agreements provided for in the Lease.

During the Lease term, the lessee's interest had been assigned four times. First, on December 31, 1909, Hannah assigned his interest in the Lease to Charles E. Davis. Next, on March 1, 1911, Davis assigned his interest to Jacob Mayer. Then, on October 26, 1926, Mayer assigned his interest to Chicago Mid-City Building Corporation (Building Corporation). *fn3 Thereafter, on December 30, 1976, Building Corporation assigned its interest to defendant. Defendant, Building Corporation's sole shareholder, voted to dissolve Building Corporation on the same date defendant assumed liability as lessee of the Lease. *fn4 The 1976 assignment provided that defendant agreed to comply with all Lease terms, covenants and agreements, but did not articulate language regarding Building Corporation's liability under the Lease. *fn5 Defendant is the current lessee of the subject premises.

On July 5, 1984, plaintiff purchased the subject premises and became the lessor. By deposition, Peter Anagnost, an attorney and managing agent for plaintiff, testified that he personally negotiated the purchase price of $300,000 for the property, believing the rent payments were $16,000 per year. The gold clause in the Lease was not discussed during negotiations.

Upon effectuating the purchase of the subject premises, Anagnost believed that Building Corporation was the lessee. He received a "lease synopsis" from The Northern Trust Company (Northern Trust), successor trustee of the Howard B. Peabody Trust, which stated that Building Corporation was the current assignee of the tenant's interest in the Lease. *fn6 Anagnost had no knowledge of the 1976 Lease assignment to defendant nor Building Corporation's dissolution at the time of purchase. *fn7

By deposition, Kenneth A. Skopec, defendant's vice-chairman and chief executive officer, testified that Anagnost did not inquire as to whether Building Corporation was the actual tenant for the subject premises. Skopec stated that defendant did not notify plaintiff about the 1976 Lease Assignment nor Building Corporation's dissolution. Upon plaintiff's purchase of the subject premises, defendant, not Building Corporation, paid rent to plaintiff.

In 1988, defendant undertook a plan to construct a parking lot and data processing/drive-thru banking facility on property west of the subject premises. Defendant also sought to construct a pedestrian walkway to connect the bank building on the subject premises with the new data processing/drive-thru facility. ...

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