Archives for August 2013

Landlord’s Property Manager Direct Examination (Commercial Lease)

witness stand (photocredit: google images; www.pixgood.com)

Here is an outline of the direct examination I’ve used in commercial lease eviction cases representing a landlord.  Assume a commercial tenant who has defaulted under a commercial lease and I’ve called the lessor’s property manager to testify concerning the lease, the 5-day notice, the tenant ledger and to provide damages testimony.  This case also involves a guarantor who guaranteed the tenant’s lease obligations.

Necessary documents/exhibits: (1) Lease, (2) 5-day Notice, (3) Tenant Ledger, (4) Management Agreement (contract between owner and property manager that authorizes property manager to collect rents and to prosecute forcible action if tenant breaches lease); (5) Fee petition (assuming lease contains fee-shifting language); and (6) any legally significant correspondence (i.e. a lease termination notice).  Obviously, at trial, I often have to deviate from my script but this hopefully provides a useful outline of key topics.

Also – some of the  questions are leading and may have to be rephrased.  My experience though is most judges give some latitude in the interest of streamlining the examination.

Q: State name

Q: Employment

Q: Job title

Q: Relationship to Property Owner

Q: Is your company authorized to collect rents on this site?

Q: How do you know that?

[A: There’s a written management agreement between the owner and us]

Note: Show Management Agreement if defendant challenges; establish witness’ familiarity with Management Agreement and that it is kept as part of the Lease file and is therefore a business record.

Q: Are you familiar with Property known as [say address]

Q: Familiar with Tenant

Q: Is there a written lease

SHOW LEASE – Exh. 1

Q: Showing you what’s been marked as Exhibit 1 – do you recognize this

Q: What is it?

Q: What is commencement date and end date of the Lease?

Q: Do you recognize the signatures on the Lease?

Q: How so?

Q: Does [Property Mgr] keep records of rents charged and owing under this lease?

Q: Have you reviewed [Name of Property Mgmt company] books and records pertaining to this Lease and Property

SHOW 5-DAY NOTICE – EX. 2

Q: Do you recognize this

Q: What is it

Q: Do you know how this notice was served on the Tenant

Q: Do you know when it was served

Q: Did you personally serve it?

Q: How much did the Tenant owe on the date of this 5-day notice

Q: Has Tenant made any payments since the date of this notice

SHOW TENANT LEDGER – EX. 3

Q: Do you recognize this?

Q: What is it?

Q: What information is contained on here?

Q: Is this prepared and kept in the regular course of [Property Mgr’s] business?

Q: For what purpose?

DAMAGES

Q: Is the Tenant current on its lease payments

Q: When was the last payment made

Q: Is the tenant still in possession to your knowledge?

Q: How much does the Tenant owe through today?

Q: How did you arrive at that number

Q: How much does the Tenant owe through the end of the Lease term?

Q: Explain how you calculated that

GUARANTEE – EX. 4

Q: Showing you what’s been marked as Exhibit 4- do you recognize this

Q: What is it?

Q: Are you generally familiar with its terms

Q: Did you ever notify the Guarantor that the Tenant was in default under the Lease

Q: When

Q: who did you notify

Q: have you received any payments from the Guarantor since notifying him of the Tenant’s breach

Q: What damages are you claiming for breach of the Guaranty?

Q: How did you calculate that figure

Nothing further

Commercial Lease Acceleration: Termination of Possession vs. Termination of Lease

accelerator Form commercial lease language usually gives the landlord the option of terminating the lease OR terminating the tenant’s right to possession after a tenant default. Generally, if a landlord terminates the lease, this cuts off his damages at the date of termination. So, if landlord terminates the lease on January 1, 2013 and the lease expires on January 1, 2015 – the landlord cannot recover damages beyond January 1, 2013.

By contrast, if a landlord terminates only the tenant’s right to possession, the landlord can still periodically sue for rents as they come due or, using the above example, wait until January 1, 2015 (the expiration date) and sue for all accrued damages on that date.

Stillwell Real Estate Limited Partnership v. Deluxe Auto, Inc., 2011 IL App (2d) 100966-U examines the lease termination-vs.-lease possession  distinction. 

The landlord filed two separate actions: (1) an eviction (forcible) case; followed by (2) a breach of contract case for money damages.  The parties’ lease was three years (2007-2010) for the operation of a car dealership.  The tenant defaulted about two years into the term and the landlord sued to evict about a year before the lease ended.  The tenant moved out a month later and the court awarded the landlord damages owed through the trial date. (¶ 5). 

Six months later, when there was still some time left on the lease, landlord filed a separate breach of contract action against the lease guarantors to recover rental damages that accrued after the eviction trial date. 

One of the guarantors moved to dismiss on the basis of res judicata – that the landlord’s breach of contract claim was barred by failing to seek accelerated damages in the prior eviction suit.  The guarantor based this argument on lease language that said if the landlord terminated the lease, it could recover all rental damages through the 2010 lease end date.   But since the  landlord chose not to sue for all rents in the prior eviction suit, it was now too late.  The trial court agreed and dismissed the landlord’s suit.  Landlord appealed.

Disposition: Reversed.  

Reasoning: The lease required the landlord to provide written notice of its intent to terminate the lease.  Upon termination, the lease allowed the landlord to recover “all damages incurred by reason of the breach.” 

The lease also had an “excess rent” clause (landlord can recover excess rental stream for remainder of lease minus fair market value through the lease term). 

The Court found that the landlord’s statutory five-day notice didn’t equal a lease termination.  It merely signaled the landlord’s intent to terminate possession only.  Also, the landlord’s eviction suit didn’t terminate the lease since the purpose of a forcible/eviction suit is limited to the right  to possession. (¶¶ 18-19).   

Shifting to res judicata, the Court cited the doctrine’s three elements: (1) final judgment on the merits; (2) identity of parties; and (3) identity of cause of action.  (¶ 11).  Applying these rules, the Court found element (3) missing: there was no identity of cause of action between the earlier eviction suit and the later damages action. (¶ 12). 

The  the first eviction/forcible suit – was limited to the issue of possession and rents that were owed on the date of that trial.  The later filed breach of contract suit sought money damages accruing after the eviction trial date. 

Since the landlord never terminated the lease (it only terminated possession) it could sue separately to recover damages as they became due. (¶¶ 12-16).

Take-aways: Service of a 5-day notice and the filing of a forcible suit doesn’t equal a lease termination.  

This case vividly captures the importance of lease drafting precision and that leases contain clear acceleration language.  The case also describes what constitutes a lease termination (as opposed to possession termination only).

 

 

 

 

 

Contractor’s Material Breach of Construction Contract Dooms Mechanics’ Lien and Breach of Contract Claims

In Kasinecz v. Duffy, 2013 IL App (2d) 121329-U, an August 2013 Second District case, a contractor suffered a three-pronged defeat in his lawsuit against a homeowner.  The Court affirmed the lower court’s bench trial judgment for the homeowner on the contractor’s breach of contract, mechanics’ lien and quantum meruit claims.

Facts: This is the second appeal involving the parties.  In 2004, defendant hired plaintiff to build a house pursuant to a verbal agreement which was later formalized in a written contract.  The contract required the plaintiff to submit invoices to defendant before defendant was obligated to pay plaintiff.  Kasinecz, ¶ 20.  Over several months, the plaintiff and his crew built part of the house until a payment dispute arose.  Plaintiff walked off the job and sued for breach of contract, mechanics lien foreclosure and quantum meruit.  The trial court entered a directed finding for the homeowner half-way through the first bench trial (because the contractor materially breached by failing to furnish a statutory lien waiver, among other reasons) and plaintiff appealed. 

In the first appeal, the Second District reversed on the ground that it was unclear whether defendant homeowner requested a sworn statement and because the factual record was too scant to uphold judgment in total for the defendant.  Kasinecz, ¶ 6.  On remand, the trial court received additional witness testimony and written submissions and again entered judgment for defendant.  This time, the Second District affirmed.

Reasoning: The Court sided with the homeowner on all three of the contractor’s claims. 

(1) Breach of Contract: the contractor materially breached (and therefore, couldn’t prove that he performed) the contract by not providing invoices to the defendant as required by the contract.  Kasinecz, ¶¶ 21-23.  The contractor admitted at trial that he didn’t supply invoices until after he walked off the job.  Since the contractor breached, he couldn’t prevail on his breach of contract claim.   

(2) Mechanics’ Lien claim:  The contractor lost his lien claim because he didn’t substantially perform.  A necessary condition to mechanics lien recovery is substantial completion of the contract.  Id., ¶ 25; Fieldcrest Builders, Inc. v. Antonucci, 311 Ill.App.3d 597 (1999)(note: Fieldcrest provides a thorough discussion of substantial completion/quantum meruit issues in the context of a construction case).  Here, the Court found there were holes in the roof, no windows or doors were installed, and the house lacked interior mechanical systems and finishes.  Id., ¶¶ 25-26.  Because the house was so incomplete when plaintiff and crew stopped work, plaintiff couldn’t show substantial performance.  This doomed his mechanics’ lien count.  Id., ¶ 25.

(3) Quantum meruit – the Court also rejected plaintiff’s quantum meruit claim based on the black-letter principle that quantum meruit recovery won’t apply where an express contract governs the parties’ relationship.  Kasinecz, ¶ 29; Installco Inc. v. Whiting Corp., 336 Ill.App.3d 776 (2002).  Since plaintiff and defendant had a written (express) contract for plaintiff to build defendant’s house, this defeated plaintiff’s quantum meruit count.  The fact that plaintiff couldn’t enforce the contract (since he breached it) doesn’t matter: the contract’s existence alone defeats the quantum meruit claim.  Kasinecz, ¶ 29.

Law of the Case.  The plaintiff contractor argued that the Second District’s reversal in his favor on the first appeal was law of the case to the trial court on remand and even moved for summary judgment immediately upon remand.  Id., ¶¶ 7, 14-15.  The law of the case doctrine provides that questions of law actually determined in a prior appeal are binding on the trial court on remand as well as on subsequent appeals. Id., Kreutzer v. Illinois Commerce Comm’n, 2012 IL App (2d) 110619.  Both the trial and appeals court found that the law of the case rule didn’t apply because the issues decided in the first appeal (whether the parties had an oral contract and whether the contractor provided statutory lien waivers) differed from the second appeal’s salient issues (whether plaintiff submitted invoices to defendant and whether plaintiff substantially performed).  Kasinecz, at ¶¶ 15, 20.  

Take-aways: A material breach will preclude contractual recovery; a contractor’s failure to substantially perform will doom a mechanics’ lien suit; and quantum meruit and a breach of express contract claim are mutually repugnant: they can’t co-exist.  The Court did appear to express surprise that the contractor didn’t argue that the homeowner waived strict compliance with the contract’s invoicing requirement.  The defendant made several progress payments to the plaintiff without first receiving invoices.  This would seem to give rise to a waiver of strict compliance argument.  However, since the contractor never argued waiver, the Court didn’t tip its hand as to how it would rule on the issue.