Harris Bank Naperville v. Morse Shoe, Inc.

• Decision Date: 18 July 1989
• Docket Number: No. 86 C 8688.,86 C 8688.
• Citation: 716 F. Supp. 1109
• Parties: HARRIS BANK NAPERVILLE, as Trustee Under Its Trust No. 4729, Plaintiff, v. MORSE SHOE, INC., a Delaware corporation, Defendant.
• Court: U.S. District Court — Northern District of Illinois

716 F. Supp. 1109

HARRIS BANK NAPERVILLE, as Trustee Under Its Trust No. 4729, Plaintiff, v. MORSE SHOE, INC., a Delaware corporation, Defendant.

No. 86 C 8688.

United States District Court, N.D. Illinois, E.D.

July 18, 1989.

Robert Marks, Spencer J. Marks, Gilbert W. Gordon, Marks Marks Kaplan, Chicago, Ill., for plaintiff.

Michael H. Moirano, James E. Dahl, Robert E. Neiman, Dahl & Moriano, Chicago, Ill., for defendant.

MEMORANDUM OPINION AND ORDER

NORDBERG, District Judge.

The facts and law applicable to this case are, for the most part, outlined in Magistrate Gottschall's typically thorough Report and Recommendation (attached as an appendix to this opinion) and will not be repeated in detail here. The court issues this order to discuss decisions issued after the Magistrate rendered her opinion and to supplement her recommended ruling on these motions.

The issue here is the interpretation of section 12.6 of the lease. Both sides contended (at least initially) that the language in the lease was unambiguous and, therefore, could be decided by this court as a matter of law. In the alternative, the plaintiff claimed that if the language was ambiguous, the extrinsic evidence was uncontradicted and supported its position that there had been a mutual mistake that could be corrected by reforming the lease; and finally, in its reply brief the plaintiff claimed that if the extrinsic evidence was conflicting, the question of the contract's interpretation was one for the jury and, therefore, both motions had to be denied.

As Magistrate Gottschall noted, a contract is ambiguous under Illinois law only if it is "`reasonably and fairly susceptible to more than one meaning.'" Metalex Corp. v. Uniden Corp., 863 F.2d 1331, 1334 (7th Cir.1988) (quoting Lenzi v. Morkin, 116 Ill.App.3d 1014, 1016, 72 Ill.Dec. 414, 416, 452 N.E.2d 667, 669 (1983), aff'd, 103 Ill.2d 290, 82 Ill.Dec. 644, 469 N.E.2d 178 (1984)) (emphasis added in Metalex). The complication, though, is how a court determines whether a contract is "ambiguous" — a question currently the focus of some debate in this circuit.

In its reply brief the defendant, relying on the Seventh Circuit's opinion in Sunstream Jet Express, Inc. v. International Air Serv. Co., 734 F.2d 1258, 1268 (7th Cir.1984), conceded that a court could take into account extrinsic evidence to determine whether the lease was ambiguous. See Defendant's Reply to Plaintiff's Memorandum in Opposition to Defendant's Motion for Summary Judgment at 2. After the motions were fully briefed, though, the Seventh Circuit questioned the continued validity of its prior ruling in Sunstream. In Metalex the court noted that the traditional "four corners" or "plain meaning" test, under which a court could not consider extrinsic evidence in determining whether the contract was ambiguous, had been undermined by several Illinois appellate courts which held that a court could consider extrinsic evidence — cases that were cited with approval in Sunstream.

According to Metalex, however, after Sunstream the Illinois Supreme Court in Rakowski v. Lucente, 104 Ill.2d 317, 84 Ill.Dec. 654, 472 N.E.2d 791 (1984), "cast some doubt on this circuit's interpretation of Illinois law." 863 F.2d at 1335. In Rakowski the court held that when a contract is unambiguous on its face,

both the meaning of the instrument, and the intention of the parties must be gathered from the face of the document without the assistance of parol evidence or any other extrinsic aids.... "What the parties to a written contract may have understood as to the meaning of the language used is not admissible in evidence. The intention or understanding of the parties, when there is a written contract in evidence, must be determined not from what the parties thought but from the language of the contract itself."

104 Ill.2d at 323, 84 Ill.Dec. at 657, 472 N.E.2d at 794 (quoting Saddler v. National Bank, 403 Ill. 218, 228, 85 N.E.2d 733, 740 (1949)).

Rakowski, unfortunately, did not specifically hold that a court may not consider extrinsic evidence in determining whether a contract is ambiguous (although the Seventh Circuit deemed Rakowski's language to be "fairly susceptible" to that interpretation, see Metalex, 863 F.2d at 1335) and the Illinois appellate cases since then have yielded conflicting results. Compare United Equitable Ins. Co. v. Reinsurance Co. of Am., 157 Ill.App.3d 724, 730-31, 109 Ill.Dec. 846, 850-51, 510 N.E.2d 914, 918-19 (rejecting Sunstream approach), appeal dismissed, 117 Ill.2d 554, 115 Ill.Dec. 410, 517 N.E.2d 1096 (1987) with Zale Constr. Co. v. Hoffman, 145 Ill.App.3d 235, 241, 98 Ill.Dec. 708, 712, 494 N.E.2d 830, 834 (1986) (court may consider extrinsic evidence).¹ The Seventh Circuit in Metalex, therefore, declined to address this split in authority until the district court had had a chance to address the issue. 863 F.2d at 1336.

Since then the Seventh Circuit has attempted to clarify further its opinion in Metalex. In FDIC v. W.R. Grace & Co., 877 F.2d 614, 620 (7th Cir.1989), the court distinguished between two types of ambiguities: internal ("intrinsic") and external ("extrinsic"). An internal ambiguity is present when the agreement itself is unclear; an external ambiguity, on the other hand, is present when, "although the agreement itself is a perfectly lucid and apparently complete specimen of English prose, anyone familiar with the real-world context of the agreement would wonder what it meant with reference to the particular question that has arisen." Id. Accordingly, parol (or extrinsic) evidence is admissible to demonstrate that a contract is ambiguous, even when the contract has no intrinsic ambiguity, when "to persons knowledgeable about the circumstances in which the contract had been intended to apply the `normal' reading might be nonsense." Id. at 621. The court further noted, however, that Illinois courts are more likely to allow extrinsic evidence when the contract is patently ambiguous than when an otherwise clear contract is ambiguous "to those in the know." Id.

The court then tackled the apparent "conflict" within the Illinois Appellate Court, labelling it a "pseudo-conflict" because most of the modern "four corners" cases stand for the "unexceptionable proposition that `language in a contract is not rendered ambiguous simply because the parties do not agree on its meaning.'" Id. at 621 (quoting Reynolds v. Coleman, 173 Ill.App.3d 585, 593, 123 Ill.Dec. 259, 265, 527 N.E.2d 897, 903, appeal denied, 123 Ill.2d 566, 128 Ill.Dec. 899, 535 N.E.2d 410 (1988)). The court cautioned, though, that

the fact that parties to a contract disagree about its meaning does not show that it is ambiguous, for if it did, then putting contracts into writing would provide parties with little or no protection. ... The words of the contract are not lightly to be ignored. The nature of the offer of proof to show an ambiguity is therefore critical. Although a self-serving statement ... that a party did not understand the contract to mean what it says (or appears to say) will not suffice, an offer to show that anyone who understood the context of the contract would realize it couldn't mean what an untutored reader would suppose it meant will.

Id. 877 F.2d at 621-622 (emphasis added; citations omitted). The court, however, did not need to resolve the so-called "conflict" because the contract at issue was ambiguous both intrinsically and extrinsically and, therefore, was to be interpreted by the trier of fact. See id.; cf. Sonoco Bldgs., Inc. v. American Home Assurance Co., 877 F.2d 1350, 1353 (7th Cir.1989) ("In determining whether an ambiguity exists in an insurance policy, we consider the subject matter of the policy, the facts surrounding its execution, the situation of the parties, and the predominate purpose of the policy, which is to indemnify the insured for loss."). But cf. Ryan v. Chromalloy Am. Corp., 877 F.2d 598, 602 (7th Cir.1989) ("It is the lack of ambiguity within the express terms of the contract that forecloses any genuine issue of material fact.... If a district court determines that the pertinent provisions of the contract are unambiguous, it need not consider extrinsic evidence.") (citation omitted).²

This court agrees with Magistrate Gottschall that the lease in this case is, on its face, unambiguous. The lease provides that "in the event any of the following stores ceases to be operated as such ...: the Woolco Department Store ..., all amounts which would be payable pursuant to this Lease ... shall be abated and instead, Tenant shall pay to the Landlord as its total and complete rent for the remainder of the term of this Lease" an amount equal to the minimum fixed rent or 4% of the gross monthly sales, whichever is less. Section 12.6 (emphasis added). First, and perhaps most obviously, the provision specifically and unambiguously states that once the triggering event takes place (whether it be the departure of the Woolco Department Store or a "Woolco-type" store), the tenant's rent abatement lasts "for the remainder of the term of the Lease." The provision says nothing about a "rent revival"³ in the event Woolco returns to the mall or another suitable anchor occupies the premises; nor does it provide that the minimum rent payment lasts only as long as "the duration of the condition which makes Section 12.6 applicable." Memorandum in Support of Plaintiff's Motion for Summary Judgment at 15. The plaintiff obviously does not dispute that Woolco's vacancy triggered the rent abatement, but it never satisfactorily explains away the unambiguous language that the monthly rent is the "total and complete rent for the remainder of the term."

Second, construing the lease in its entirety, the court also agrees with Magistrate Gottschall that the "as such" lenguage in section 12.6 refers to the Woolco Department Store operating as the Woolco Department Store. The language uses the full name of the store,...