Nebel, Inc. v. MID-CITY NAT. BANK

• Citation: 769 N.E.2d 45,263 Ill.Dec. 843,329 Ill. App.3d 957
• Decision Date: 21 March 2002
• Docket Number: No. 1-01-1309.,1-01-1309.
• Parties: NEBEL, INC., an Illinois corporation, Plaintiff-Appellant, v. The MID-CITY NATIONAL BANK OF CHICAGO, a National Banking Association, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

769 N.E.2d 45

329 Ill. App.3d 957

263 Ill.Dec. 843

NEBEL, INC., an Illinois corporation, Plaintiff-Appellant, v. The MID-CITY NATIONAL BANK OF CHICAGO, a National Banking Association, Defendant-Appellee.

No. 1-01-1309.

Appellate Court of Illinois, First District, Fourth Division.

March 21, 2002.

Rehearing Denied June 13, 2002.

Foley & Lardner, Chicago (John D. Lien and Joan M. Kubalanza, of counsel), for Appellant.

Winston & Strawn, Chicago (Thomas A. Reynolds III, David E. Koropp and John J. Tully, Jr., of counsel), for Appellee.

Justice HARTMAN delivered the opinion of the court:

Plaintiff, Nebel, Inc., and defendant, The Mid-City National Bank of Chicago, are the lessor and lessee under a 99 year realestate 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;¹ however, in 1977, the 1933 Congressional resolution was amended making obligations requiring payment in gold enforceable if issued after October 27, 1977.²

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).³ 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.⁴ 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.⁵ 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.⁶ Anagnost had no knowledge of the 1976 Lease assignment to defendant nor Building Corporation's dissolution at the time of purchase.⁷

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. Plaintiff, however, objected to the construction of the walkway without its consent.

Plaintiff's former counsel, George C. Pontikes, testified that he drafted a Lease Amendment that would permit defendant to construct the walkway. The Lease Amendment authorized: (1) construction of the walkway; (2) inclusion of defendant as a party to the Lease Amendment; and (3) reaffirmance of all provisions of the 1906 Lease. The parties negotiated the following provisions, which eventually were included in the final draft of the Lease Amendment: (1) waiver of objection to construction; (2) construction and removal of the walkway; (3) maintenance of the walkway and insurance; (4) liens, taxes and assessments on the walkway; (5) reimbursement for the lessor's expenses and costs incurred in the negotiation of the Lease Amendment; (6) the lessee's indemnification of the lessor in case of default or other liability which the lessor may suffer; and (7) default by the lessee under the terms of the Lease Amendment, which would be considered a default by the lessee under the Lease.

Pontikes sent drafts of the Lease Amendment to D. Albert Daspin, an attorney representing defendant. Daspin reviewed the drafts and sent back revisions to Pontikes. Compared to other provisions in the Lease Amendment, Pontikes spent a short amount of time negotiating the language of the integration clause, although he changed the language Daspin drafted to include use of the word, "reaffirmed," instead of "shall continue," with regard to the effect of Lease provisions, as shown in the following paragraphs. The record shows no objection by defendant to inclusion of language reaffirming the terms of the Lease in the Lease Amendment. The parties did not discuss the gold clause during negotiations.

Plaintiff and defendant signed the Lease Amendment, entitled, "First Amendment To Lease," on February 24, 1989, with an effective date of November 30, 1988. Pertinent to this appeal, the Lease Amendment stated, "[e]xcept as otherwise expressly modified by this first Amendment, all the terms and provisions of the Lease are reaffirmed and are not modified by this First Amendment."

Thereafter, on September 16, 1998, plaintiff made a written demand to defendant that, commencing October 1, 1998, defendant had to pay the monthly rent "in gold coin, as provided in the lease." Defendant's refusal to pay rent in gold triggered plaintiff's complaint for declaratory judgment and other relief.

In its January 30, 2001 order, the circuit court found that no new obligation was undertaken by defendant after October 27, 1977. According to the court, "[d]espite the use of the term reaffirm [in the Lease Amendment], nothing really changed except the fact that the bank was given permission to build a pedestrian walkway." The court also held that no novation occurred. The court's February 2, 2001 order denied plaintiff's summary judgment motion and granted defendant's motion as to counts I and II of the complaint. Plaintiff appeals from the orders entered on March 21, 2000, and February 2, 2001.

A reviewing court exercises de novo review when determining whether the circuit court properly granted a motion for summary judgment. Zoeller v. Augustine, 271 Ill.App.3d 370, 374, 208 Ill.Dec. 17, 648 N.E.2d 939 (1995) (Zoeller).

Summary judgment "shall be rendered without delay if the pleadings, depositions, and...