Tag: landlord

Commercial Tenant’s Promise to Refund Broker Commissions Barred by Statute of Frauds – IL First Dist.

The plaintiff property owner in Peppercorn 1248 LLC v. Artemis DCLP, LLP, 2016 IL App (1st) 143791-U, sued a corporate tenant and its real estate brokers for return of commission payments where the tenant never took possession under a ten-year lease for a Chicago daycare facility.  Shortly after the lease was signed, the tenant invoked a licensing contingency and terminated the lease.

The lease conditioned tenant’s occupancy on the tenant securing the required City zoning and parking permits.  If the tenant was unable to obtain the licenses, it could declare the lease cancelled.  When the tenant refused to take possession, the plaintiff sued to recoup the commission payment.

Affirming summary judgment for the broker defendants, the Court addressed some recurring contract formation and enforcement issues prevalent in commercial litigation along with the “interference” prong of the tortious interference with contract claim.

In Illinois, where a contracting party is given discretion to perform a certain act, he must do so in good faith: the discretion must be exercised “reasonably,” with a “proper motive” and not “arbitrarily, capriciously or in a manner inconsistent with the reasonable expectations of the parties.” (73-74)

Here, there was no evidence the tenant terminated the lease in bad faith.  It could not get the necessary permits and so was incapable of operating a daycare business on the site. 

Next, the court found the plaintiff’s claim for breach of oral contract (based on the brokers’ verbal promise to refund the commission payments) unenforceable under the Statute of Frauds’ (“SOF”) suretyship rule. A suretyship exists where one party, the surety, agrees to assume an obligation of another person, the principal, to a creditor of the principal.

The SOF bars a plaintiff’s claim that seeks to hold a third party responsible for another’s debt where the third party did not promise to pay the debt in writing.

An exception to this rule is the “main purpose” defense. This applies where the “main purpose” of an oral promise is to materially benefit or advance the promisor’s business interests.  In such a case, an oral promise to pay another’s debt can be enforced.

The court declined to apply the main purpose exception here.  It noted that the brokers’ commission payments totaled less than $70K on a 10-year lease worth $1.4M. The large disparity between the commission and total lease payments through the ten-year term cut against the plaintiff’s main- purpose argument.

The plaintiff sued the corporate tenant for failing to return the commission payments to the brokers. Since the tenant and the broker defendants were separate parties, any promise by the tenant to answer for the brokers’ debt had to be in writing (by the tenant) to be enforceable.

The court also upheld summary judgment for the defendant on the plaintiff’s tortious interference count. (See here for tortious interference elements.)  A tortious interference with contract plaintiff must show, among other things, the defendant actively induced a breach of contract between plaintiff and another party.  However, the mere failure to act – without more – usually will not rise to the level of purposeful activity aimed at causing a breach.

The Court found one of the broker defendant’s alleged failure to help secure business permits for the tenant didn’t rise to the level of  intentional conduct that induced tenant’s breach of lease.  As a result, the plaintiff failed to offer evidence in support of the interference prong of its tortious interference claim sufficient to survive summary judgment.

Afterwords:

1/ A promise to pay another’s debt – a suretyship relationship – must be in writing to be enforceable under the SOF;

2/ A contractual relationship won’t give rise to a duty to disclose in a fraudulent concealment case unless there is demonstrated disparity in bargaining power between the parties;

3/ Tortious interference with contract requires active conduct that causes a breach of contract; a mere failure to act won’t normally qualify as sufficient contractual interference to be actionable.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Landlord Subject to Potential Bailment and Intentional Infliction Claims for Leaving Tenant’s Property On Sidewalk – IL ND

The Internet is awash in state-by-state summaries of what a landlord can and can’t do with property left behind by a residential tenant. The various abandoned property rules range from making the landlord do nothing, to requiring it to hold the tenant’s property for a fixed number of days, to sending formal notice to the tenant before disposing of the property. For a good summary of various state’s abandoned property laws, see here.  Chicago’s (where I practice) Residential Landlord Tenant Ordinance (RLTO), widely viewed as pro-tenant in every way, requires a landlord to store the property for seven days before disposing of it. See RLTO 5-12-130(f)

Zissu v. IH2 Property Illinois, LP, 2016 WL 212937, examines what causes of action apply where a landlord puts an evicted tenant’s property on a city street and the property is destroyed or stolen as a result.

The plaintiffs, who were evicted in an earlier state court forcible detainer action, sued their ex-landlord in Federal court (the landlord was a Delaware business entity) alleging negligence, conversion, bailment, and intentional infliction of emotional distress after the former landlord placed the plaintiff’s home furnishings, jewelry and personal documents on the sidewalk and the plaintiff’s property was stolen or damaged.

Granting in part and denying in part the landlord’s motion to dismiss, the court examined the pleading elements of the bailment, trespass to chattels and intentional infliction of emotional distress torts.

The court upheld the plaintiff’s bailment count. A bailment occurs where one party delivers goods or personal property to another who has agreed to accept the property and deal with it in a particular way.

To recover under a bailment theory, a plaintiff must allege: (1) an express or implied agreement to create a bailment, (2) delivery of the property to the bailee by the bailor, (3) the bailee’s acceptance of the property, and (4) the bailee’s failure to return the property or delivery of the property to the bailor in a damaged condition.

An implied, or “constructive,” bailment occurs where a defendant voluntarily receives a plaintiff’s property for some purpose other than that of obtaining ownership of the property. The implied bailment can be found with reference to the surrounding circumstances including (i) the benefits received by the parties, (ii) the parties’ intentions, (iii) the kind of property involved, and (iv) the opportunities for each party to exert control over the property.

The court held that the complaint’s allegations that the defendant actively took possession of the plaintiff’s property and removed it from the leased premises was sufficient to state a bailment claim under Federal notice pleading standards.

The court also sustained the plaintiff’s conversion and trespass to chattels claim. The crux of both of these claims is that a defendant either seized control of a plaintiff’s property (conversion) or interfered with a plaintiff’s property (trespass to chattels). A colorable conversion claim contains the added requirement that a plaintiff make a demand for possession – unless the defendant has already disposed of a plaintiff’s property; in which case a demand would be futile.

The court here found that the plaintiffs’ allegations that their former landlord dispossessed plaintiffs of their property stated a trespass to chattels and conversion claim for purposes of a motion to dismiss. The court also agreed with the plaintiff that a formal demand for the property would have been pointless since the defendant had already placed the plaintiffs’ property on the street and sidewalk next to the plaintiffs’ home.

Lastly, the court denied the defendant’s attempt to dismiss the plaintiff’s intentional infliction claim. An intentional infliction of emotional distress plaintiff must plead (1) extreme and outrageous conduct, (2) a defendant’s intent to inflict severe emotional distress on a plaintiff, and (3) the defendant’s conduct did in fact cause the plaintiff emotional distress.

Here, the court found that the plaintiffs’ claims that the defendant put expensive jewelry, medication and sensitive financial documents on the street in view of the whole neighborhood sufficiently stated an intentional infliction claim.

Afterwords:

This case presents an interesting illustration of some lesser-used and venerable torts (bailment, trespass to chattels) adapted to a modern-day fact pattern.

The continued vitality of the bailment and trespass to chattel theories shows that personal property rights still enjoy a privileged status in this society.

The case also serves as a reminder for landlords to check applicable abandoned property laws before disposing of a decamped tenant’s belongings.  As this case amply shows, a landlord who removes tenant property without notice to the tenant, does so at its peril and opens itself up to a future damages action.

 

 

 

Commercial Landlord’s Suit for Rent Damages Accruing After Possession Order Survives Tenant’s Res Judicata Defense

18th Street Property, LLC v. A-1 Citywide Towing & Recovery, Inc., 2015 IL App (1st) 142444-U examines the res judicata and collateral estoppel doctrines in a commercial lease dispute.

The plaintiff landlord obtained a possession order and judgment in late 2012 on a towing shop lease that expired March 31, 2013. 

About six months after the possession order, the lessor sued to recover rental damages through the lease’s March 2013 end date.  The defendant moved to dismiss on the basis of res judicata and collateral estoppel arguing that the landlord’s damage claim could have and should have been brought in the earlier eviction suit.  The trial court agreed, dismissed the suit and the lessor plaintiff appealed.

Held: Reversed.

Q: Why?

A:  Res judicata (claim preclusion) and collateral estoppel (issue preclusion) seek to foster finality and closure by requiring all claims to be brought in the same proceeding instead of filing scattered claims at different times.

Res judicata applies where there is a final judgment on the merits, the same parties are involved in the first and second case, and the same causes of action are involved in the cases.  

Res judicata bars the (later) litigation of claims that could have brought in an earlier case while collateral estoppel prevents a party from relitigating an issue of law or fact that was actually decided in an earlier case.  (¶¶ 20-21, 30)

In Illinois, a commercial landlord’s claim for past-due rent and for future rent on an abandoned lease are different claims under the res judicata test.

This is because the payment of future rent is not a present tenant obligation and a tenant’s breach of lease usually will not accelerate rent (i.e. require the tenant to immediately pay the remaining payments under the lease) unless the lease has a clear acceleration clause.  Each month of unpaid rent gives rise to fresh claims for purposes of res judicata.

The landlord’s remedy where a tenant breaches a lease is to (a) sue for rents as they become due, (b) sue for several accrued monthly installments in one suit, or (c) sue for the entire amount at the end of the lease.

The commercial lease here gave the landlord a wide range of remedies for the tenant’s breach including acceleration of rental payments. 

The tenant defendant argued that since the lessor failed to try to recover future rent payments in the earlier eviction case, it was barred from doing so in the second lawsuit.  The landlord claimed the opposite: that its claims for damages accruing after the possession order were separate and not barred by res judicata or collateral estoppel.

The court held that res judicata did not bar the lessor’s post-possession order damage suit.  It noted that while the lease contained an optional acceleration clause, it was one of many remedies the landlord had if the tenant breached.  The lease did not require the landlord to accelerate rents upon the tenant’s breach. 

The court also noted that the lease required the landlord to notify the tenant in writing if it (the landlord) was going to terminate the lease.  Since terminating the lease was a prerequisite to acceleration, the Court needed more evidence as to whether the lessor terminated the lease.  Without any termination proof, the trial court should not have dismissed the landlord’s suit.

Afterwords:

1/ If a lease does not contain an acceleration clause, a landlord can likely file a damages action after an earlier eviction case without risking a res judicata or collateral estoppel defense.

2/ If a lease contains mandatory acceleration language, the landlord likely must sue for all future damages coming due under the lease or else risk having its damages cut off on the possession order date.