Western Assets Corp. v. Goodyear Tire & Rubber Co.

• Decision Date: 08 April 1985
• Docket Number: No. 83-2999,83-2999
• Citation: 759 F.2d 595
• Parties: WESTERN ASSETS CORPORATION, Plaintiff-Appellee, v. The GOODYEAR TIRE & RUBBER CO., Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 595

759 F.2d 595

WESTERN ASSETS CORPORATION, Plaintiff-Appellee, v. The GOODYEAR TIRE & RUBBER CO., Defendant-Appellant.

No. 83-2999.

United States Court of Appeals,

Seventh Circuit.

Argued Dec. 5, 1984.

Decided April 8, 1985.

Marguerite M. Tompkins, Jenner & Block, Chicago, Ill., for plaintiff-appellee.

John M. Touhy, Mayer, Brown & Platt, Chicago, Ill., for defendant-appellant.

Before ESCHBACH, COFFEY, Circuit Judges, and SWYGERT, Senior Circuit Judge.

COFFEY, Circuit Judge.

The defendant, The Goodyear Tire & Rubber Co. ("Goodyear"), appeals the district court's determinations that it wrongfully terminated its lease with the plaintiff, Western Assets, and that it was liable for damages to the leased premises that occurred both before and after Goodyear terminated its lease. We reverse the district court's judgments that Goodyear wrongfully terminated its lease and that Goodyear was responsible for damage to the leased premises occurring after the termination. We affirm the district court's judgment as to the pre-termination damage.

I.

The following evidence was presented at a bench trial in the district court. On September 24, 1976, Goodyear, an Ohio corporation, leased a commercial warehouse building located at 1814 North 15th Avenue, in the Village of Melrose Park, Illinois ("Village") from Western Assets, an Illinois corporation. Goodyear leased the premises for a five-year term for a wholesale tire center. The lease permitted Goodyear

"to use and occupy the premises for the sale of such products and furnishings of such services as in Goodyear service stores generally, including but not limited to the servicing, storing and repairing of motor vehicles, and the selling to consumers and to others in the servicing of tires, tubes, oil and other lubricants, motor and tire accessories and kindred products, or for any other lawful purposes."

In addition, the lease provided that Goodyear could "assign this lease or sublet the premises or any part thereof." As part of their obligations under the lease, the lessor Western Assets agreed to "make all ... building changes or installations required to conform with applicable laws and ordinances." The lease further recited that, "[a]t Lessee's option, this lease shall not become binding on Lessee until Lessor shall obtain such certificates of occupancy, permits, waivers and consents as may be required as authority for the use of the premises for the purposes set forth herein." In addition to its obligation to conform the building to all applicable laws and ordinances, Western Assets agreed to "keep the exterior of the premises, including the foundations and roof, in good condition and repair." The tenant, Goodyear, agreed not to "commit any undue waste on the premises" and to "surrender the premises to Lessor in substantially as good condition of repair as when received, ordinary wear and tear, damage by fire, the elements and unavoidable casualty excepted" at the termination of the lease. The parties additionally agreed that, "if ... by reason of any law or ordinance, or by court decree, whether by consent or otherwise, use of the premises by Lessee for any of the specific purposes herein before referred to shall be prohibited, Lessee shall have the right to terminate this lease upon written notice to Lessor, and rental shall be paid only to the time when Lessee surrenders possession of the premises."

Goodyear moved into the leased premises, a warehouse, on or about February 1, 1977 and submitted an application for a business license to the Village of Melrose Park on February 4, 1977. Goodyear's application was processed by Lt. Albert Lewis of the Melrose Park Fire Prevention Bureau, who, following customary procedure, inspected the premises on February 14, 1977, and prepared an inspection report. On that date, the Melrose Park Fire Chief advised Goodyear by letter of seven items to be corrected before the Village would issue a certificate of occupancy to Goodyear. Specifically, the letter informed Goodyear that the "building shall be protected by an automatic sprinkler system in its entirety within the next thirty-six months." Western Assets assured Goodyear that each of the seven items would be corrected. Western Assets began negotiations with the Village concerning the sprinkler system and was advised that the sprinkler system was required by chapter 94.14 of the Melrose Park ordinances. ¹ On June 6, 1977, Western Assets and the Village signed a written agreement in which the Village agreed to issue a certificate of occupancy for Goodyear conditioned upon Western Assets agreeing to install a sprinkler system in the warehouse by June 6, 1980. The Village issued a certificate of occupancy and Village officials formally approved Goodyear's use of the warehouse to conduct its business. Goodyear opened its wholesale tire center on May 2, 1977, and conducted its wholesale tire business in the warehouse without interference from Village officials.

Because the tire center was unprofitable, Goodyear closed the tire center in the warehouse in the fall of 1979 and informed Western Assets that it was looking for an opportunity to lease the warehouse to a subtenant. During this period, Goodyear continued to use the premises for storage purposes while paying rent.

On April 8, 1980, Lt. Lewis wrote Western Assets requesting three copies of the blueprints for the sprinkler system in order that they might be reviewed by the Building and Fire Departments before they commenced work on the installation of the sprinkler system. Lt. Lewis also reminded Western Assets that the completion date for installation of the sprinkler system was June 6, 1980. Western Assets responded by requesting an extension of time from the Village for installing the sprinkler system. Even though the Village denied the request for an extension of time, Western Assets failed to install the sprinkler system. Goodyear continued to use the warehouse for storage purposes.

Beginning in the fall of 1979, Goodyear experienced difficulties with a leaking roof which caused damage to the interior of the warehouse, including damage to the ceilings, walls and the floor. Western Assets hired a contractor, Carl Aiello, to inspect the roof in late 1979 or early 1980 and, after finding that the roof leak was caused by clogged roof downspouts, Mr. Aiello cleaned the downspouts and patched the roof. Despite Mr. Aiello's efforts, the roof continued to leak. Goodyear informed Western Assets that the roof was leaking and causing damage to the interior of the leased premises on two separate occasions, June 18, 1980 and August 18, 1980.

After Goodyear terminated its wholesale business operations and began using the warehouse for storage purposes, a local trucker, Earl Filskov, contacted the rental agent to inquire about using the parking lot of the premises. The rental agent referred Filskov to the Goodyear real estate manager who authorized Filskov to use the parking lot of the premises for his trucking operations in exchange for his performing exterior maintenance tasks such as maintaining the lawn and shrubbery and removing trash. Filskov failed to keep his part of the agreement with Goodyear, permitted his truckers to dump refuse and debris in the parking lot, and failed to maintain the lawn and shrubbery. Furthermore, vehicles were abandoned on the premises by unknown persons. On April 9, 1980, Lt. Lewis wrote Goodyear complaining about the premises surrounding the exterior of the building. On June 5, 1980, Village officials inspected the warehouse and reported 35 code violations to the rental agent including exposed electrical wiring; damaged walls, ceiling and floor tiles; broken and boarded up windows; a damaged overhead door; and the lack of a sprinkler system. The rental agent forwarded the inspection report to Mr. Aiello who, after inspecting the premises, prepared estimates of the cost to correct the building code violations.

Lt. Lewis informed Goodyear during the time they searched for a sublessee that "[a]n automatic sprinkler system must be installed [in the warehouse] conforming to ... chapter 94 of the Revised Municipal Code of Melrose Park." Goodyear advised Western Assets that the Village would not allow the warehouse to be reopened and occupied until a sprinkler system was installed. In its response, Western Assets reminded Goodyear that Goodyear was aware that the building did not have a sprinkler system when it moved in. The letter further informed Goodyear, "[y]ou have an occupancy permit for the building and you are entitled to occupy the building for the period of your lease which I would recommend that you follow through on unless you want to pay for the sprinkler system that needs to be installed." Goodyear denied taking the building "as is" and continued to insist that Western Assets install the sprinkler system. In September, 1980, Goodyear entered into a sublease for the warehouse with Atlas Pallet & Box, Inc. ("Atlas"). Because the Village ordinances required a new occupancy permit be issued whenever there was a change in the tenant or the use of a commercial building, Goodyear's real estate representative met with Village officials to determine if the Village might issue an occupancy permit to Atlas even though the warehouse did not as yet have a sprinkler system. Goodyear's real estate representative, George McCormick, was informed by Constantine Stamatakos, the Building Commissioner of Melrose Park, Lt. Lewis, and August Taddeo, the Mayor of Melrose Park, that Atlas could not occupy the warehouse and that Goodyear could not reopen its business until a sprinkler system was installed in compliance with Village ordinances. On September 29, 1980, Goodyear sent Western Assets written notice of termination and surrendered possession of the warehouse October 1, 1980. After Goodyear terminated the lease and surrendered possession of the premises, the warehouse was severely...