Michigan Avenue National Bank v. Evans, Inc.

531 N.E.2d 872, 176 Ill. App. 3d 1047, 126 Ill. Dec. 245, 1988 Ill. App. LEXIS 1591
CourtAppellate Court of Illinois
DecidedNovember 15, 1988
Docket87-2371
StatusPublished
Cited by32 cases

This text of 531 N.E.2d 872 (Michigan Avenue National Bank v. Evans, Inc.) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Michigan Avenue National Bank v. Evans, Inc., 531 N.E.2d 872, 176 Ill. App. 3d 1047, 126 Ill. Dec. 245, 1988 Ill. App. LEXIS 1591 (Ill. Ct. App. 1988).

Opinions

JUSTICE EGAN

delivered the opinion of the court:

The plaintiffs filed a declaratory judgment action against the defendant, Evans, Incorporated, for construction of a lease executed in 1978 on a store located in the City of Chicago (the Store). In substance, the plaintiffs-lessors claimed that the lease provided that the defendant-lessee was to pay rent based, in part, on a percentage of gross sales which were to include wholesale sales. Those sales, the plaintiffs claimed, included ones where delivery was made not only at the Store but ones where delivery took place elsewhere. The plaintiffs also claimed that gross sales were to include layaway charges, credit and finance charges and insurance renewals which were attributable to stores other than the Store. The complaint sought an accounting of all sums received by the defendant for wholesale sales and the other charges for a period beginning with the inception of the 1978 lease.

The defendant’s answer contended that the rent based on percentage was restricted to retail sales. In the alternative, the defendant counterclaimed for reformation of the lease.

The trial court entered judgment for the plaintiffs on one of the five counts of its complaint and judgment for the defendant on three of them. One count had been withdrawn by the plaintiffs during the trial. The court ruled that the percentage rent was to include wholesale sales but restricted the accounting of those sales to a period of two years before the suit was filed. It denied the defendant’s counterclaim for reformation. The court allowed the plaintiffs attorney fees and other costs and denied attorney fees to the defendant for its successful defense on three of the counts. The court denied the plaintiffs’ claim concerning layaway charges, credit and finance charges and insurance renewals.

The defendant appeals from the judgment in favor of the plaintiffs on the rent, from the judgment against it on its counterclaim for reformation and on its denial of attorney fees. The plaintiffs cross-appeal from the order limiting their damage award to a period of two years, from the order denying them prejudgment interest from the date when percentage rent was “due” and from the order reducing their claim for attorney and accountant fees and denying their claim for paralegal fees. They do not appeal from the order denying their claim as to other charges.

The parties entered into a 15-year lease in 1962 under which the defendant rented the first five floors of the Store. The term was August 1, 1964, to July 31, 1979. The first four floors were used for retail sales while the fifth contained offices. The 1962 lease (Primary Lease) required the defendant to pay, in addition to a fixed amount, a percentage of the gross sales “made in, at or from” the demised premises.

The lease also provided that the store was to be used for the “manufacturing, remodeling, storing, cleaning, sale and display of women’s and misses’ wearing apparel and women’s and misses’ wearing apparel accessories of every character and description and for the performance of incidental and related services.” It added that, since the rental payable was in part based upon the volume of gross sales, the defendant would at all times conduct the premises as “primarily a store for the sale at retail of women’s and misses’ wearing apparel.”

When the defendant needed more space in the building, it entered into additional leases for a particular area in the building. Those leases were called side or supplemental leases. Some of those leases were expressly for uses like display, storage of office supplies, photography, a computer room, storage of furs, executive offices, personnel and general offices. The rest of those leases provided that their purpose was the same as the purpose of the Primary Lease. Almost all of those leases were made subject to all of the terms of the Primary Lease.

In January 1977, the parties began negotiations for a new lease in anticipation of the July 31, 1979, expiration of the 1962 Primary Lease. The negotiations continued over a period of several months, producing several letters and drafts before the final agreement was executed on March 7, 1978. The lease included all of the demised premises which had previously been covered by 16 leases.

In 1979 or 1980 the defendant began selling furs to institutional or wholesale customers at markups of 20% to 25%. By fiscal year 1984 such sales had grown to about $4 million per year.

After the new lease had been in effect for several years, the plaintiffs’ accounting firm examined the defendant’s books and discovered that the defendant was making wholesale shipments from the Store but was not including them in the gross sales statements it was required to furnish. The plaintiffs notified the defendant of their claim, and the defendant responded, as it does here, that “gross sales” did not include furs sold at wholesale and shipped from the Store for delivery elsewhere. After a trial, the court held that they did.

We will first address the defendant’s argument that the trial court’s holding that the sales were made “in, at or from” the premises was clearly erroneous.

At the outset it is appropriate to respond to the defendant’s arguments that the lease did not permit a wholesale operation, that by its terms the defendant was restricted to retail sales and that the nature of percentage rent contemplates a retail operation where customers come to the store to make purchases. All those arguments we reject. The lease itself states that the premises shall be used “primarily,” not exclusively, as a retail store. Moreover, the lease expressly excludes from gross sales “[m]erchandise sold at not more than gross cost to other retailers *** or to wholesalers.” Those sales meet the definition of “wholesale sales.” (Stolze Lumber Co. v. Stratton (1944), 386 Ill. 334, 342, 54 N.E.2d 554.) It necessarily follows that the parties recognized that the defendant might engage in wholesale sales, and if the sale was for more than gross cost, it would be subject to the percentage rental provision, assuming it was made “in, at or from” the premises. We have found no testimony in the record concerning such sales, but in oral argument the attorney for the defendant informed us that in practice the provision covered overstocked and damaged goods. Regardless of how the defendant had restricted its operation, the fact remains that it did participate in wholesale sales on the premises.

The defendant has also cited a law review article written by Denz, Lease Provisions Designed to Meet Changing Economic Conditions, 1952 U. Ill. L.E 344, in support of its argument that, in construing the lease, a court should remember that this lease was not designed for wholesale purposes but, like its predecessor, “required” a retail operation.

First, we repeat that we cannot say that the leases “required” a retail operation. Second, the article does not purport to be an expression of the law. It is designed to be a practical guide to drafters of leases. It contains not a single case citation. Moreover, the article does not contain any pronouncement that wholesale sales may never be included in percentage leases. Instead, it simply says that percentage leases are “not adapted *** to most wholesale businesses.” (Emphasis added.) See Denz, 1952 U. Ill. L.F. at 352.

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Cite This Page — Counsel Stack

Bluebook (online)
531 N.E.2d 872, 176 Ill. App. 3d 1047, 126 Ill. Dec. 245, 1988 Ill. App. LEXIS 1591, Counsel Stack Legal Research, https://law.counselstack.com/opinion/michigan-avenue-national-bank-v-evans-inc-illappct-1988.