Court Opinion

ID: 4148381
Source: CourtListenerOpinion
Date Created: 2017-02-25 00:05:50.04018+00
Date Added: 2024-06-11T14:45:23.673421
License: Public Domain

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                                 Appellate Court                       Date: 2017.02.24
                                                                       09:18:46 -06'00'

                  Kozonis v. Tamburello, 2016 IL App (1st) 160202

Appellate Court     DEMETRIOS KOZONIS, as Sole Beneficiary with Power of
Caption             Direction of Parkway Bank and Trust Company, as Trustee u/t/a
                    11206, Plaintiff-Appellant, v. GIACOMO TAMBURELLO,
                    Defendant-Appellee.

District & No.      First District, First Division
                    Docket No. 1-16-0202

Filed               December 19, 2016

Decision Under      Appeal from the Circuit Court of Cook County, No. 14-L-2828; the
Review              Hon. Brigid Mary McGrath, Judge, presiding.

Judgment            Affirmed.

Counsel on          Ryan Sullivan, of Kozonis & Associates, Ltd., of Chicago, for
Appeal              appellant.

                    John T. Gonnella, of Chicago, for appellee.

Panel               JUSTICE MIKVA delivered the judgment of the court, with opinion.
                    Justices Harris and Simon concurred in the judgment and opinion.
                                              OPINION

¶1       This is a suit to enforce a guaranty on a lease. The lessor, Parkway Bank and Trust
     Company, rented space to Euro Cappuccino from January 2000 through December 2002. By a
     separate written guaranty, defendant Giacomo Tamburello, who is the president of Euro
     Cappuccino, personally guarantied Euro Cappuccino’s obligations under that lease. Euro
     Cappuccino continued to occupy the premises after the expiration of the original lease term
     until November 2005, when the parties signed a document titled “Lease Extension” that was to
     be effective from January 2006 until December 2010. In February 2010, Euro Cappuccino
     stopped making its full rental payments under the agreement, and the lessor filed suit against
     Mr. Tamburello, seeking recovery pursuant to the guaranty. The lessor appeals from the
     dismissal of the complaint to enforce the personal guaranty. The sole issue on appeal is
     whether the November 1999 personal guaranty remained in effect with respect to the 2005
     “Lease Extension” and the month-to-month holdover that followed that lease extension. For
     the following reasons, we hold that it did not, and therefore, we affirm the circuit court’s
     dismissal of the suit.

¶2                                         BACKGROUND
¶3       The original lease was for a term of three years, from January 1, 2000, through December
     31, 2002 (original lease). It was signed by Mr. Tamburello, as the president of Euro
     Cappuccino, and Demetrios Kozonis, as an agent for Parkway Bank (lessor). The original lease
     provided a rent schedule with the rent payments increasing from $1145 per month in the first
     year of the lease term to $1175 per month in the second year and $1200 per month in the third
     year. Of further relevance to the present appeal, section 22.01 of the original lease provided:
                 “Any holding over after the expiration of the term hereof, if with or without the
             consent of the Lessor, shall be construed to be a tenancy from month to month, at one
             and a half (1½) times the rents herein specified (pro-rated on a monthly basis) and shall
             otherwise be on the terms and conditions herein specified so far as applicable.”
¶4       Section 27.01(a) of the original lease stated: “Provided that Tenant is not then in default
     under any of the terms, and provisions of the Lease, *** Tenant shall have the option to extend
     the terms and provisions of this Lease for an additional three (3) year term.” The section further
     provided that, in order to exercise this option for an extension, Euro Cappuccino was required
     to notify the lessor in writing “no later than one hundred twenty (120) days prior to the
     expiration of the third (3rd) Lease Year of the Lease Term.” No other extensions were
     provided for in the original lease.
¶5       The guaranty, signed by Mr. Tamburello, referenced the original lease and guarantied to
     the lessor:
             “[T]he full and faithful performance by the said Tenant of all obligations, covenants,
             promises and agreements *** of the said Tenant under said Lease from the
             commencement date of this Lease, and I will pay all of the Lessor’s expenses,
             including court costs and attorney’s fees, incurred in enforcing said Tenant’s
             obligations, or incurred in enforcing this, and I hereby waive notice of any default by
             the Tenant under the terms of said Lease and consent to any extension of time for the
             payment of money due under said Lease or to any other indulgences granted thereunder

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             to said Tenant by the Lessor. Should any of Tenant’s obligations be outstanding at the
             expiration of said Lease, the terms and provisions of this shall continue and survive
             until such outstanding obligations have been satisfied.”
¶6       Although Euro Cappuccino did not provide written notice to the lessor that it intended to
     exercise the option to extend the lease, it remained on the premises at the end of the original
     lease period, from January 1, 2003, through December 31, 2005 (option period). Euro
     Cappuccino continued to pay rent; however, the record is unclear regarding the exact rental
     amounts paid during this time period.
¶7       On November 4, 2005, Euro Cappuccino and the lessor signed a one-page document titled
     “Lease Extension,” which stated that it was effective from January 1, 2006, through December
     31, 2010. The “Lease Extension” provided a new rent schedule with the following payment
     amounts: $1483 per month in the first year, $1542 per month in the second year, $1604 per
     month in the third year, $1668 per month in the fourth year, and $1735 per month in the fifth
     year. The only other provision in the “Lease Extension” stated that “[a]ll other terms and
     conditions set forth in the Lease except as amended herein shall remain unchanged.” The
     “Lease Extension” was again signed by Mr. Tamburello as the president of Euro Cappuccino
     and Mr. Kozonis as an agent of Parkway Bank. No new guaranty was signed with the “Lease
     Extension.”
¶8       In a June 2015 amended verified complaint, the lessor alleged that Euro Cappuccino had
     remained on the premises after the “Lease Extension” term had ceased but had failed to pay the
     full monthly rent beginning in February 2010, thereby breaching the “Lease Extension.”
     According to the lessor, it filed an action in June 2013 for possession and rent against Euro
     Cappuccino and Mr. Tamburello based on this breach. Although Mr. Tamburello was
     non-suited in the action, a judgment in the amount of $36,800 was entered against Euro
     Cappuccino, and the lease was terminated pursuant to that judgment. The lessor further alleged
     that, “[a]s material inducement for” it to enter into the lease, Mr. Tamburello had signed the
     written guaranty on the same day the original lease was signed, November 13, 1999, “under
     which [he] unconditionally guarantied payment and performance of [Euro Cappuccino’s]
     obligations and liabilities” according to the lease. However, despite “multiple demands” upon
     both Euro Cappuccino and Mr. Tamburello to pay the debt owed under the lease, Mr.
     Tamburello refused to pay. The lessor concluded by alleging that, as a result of Mr.
     Tamburello’s breach of the guaranty, it had sustained damages in the amount of $40,907,
     “which continue[d] to accrue under the terms of the lease,” and asked that a judgment in that
     amount be entered against Mr. Tamburello. The lessor attached to its amended verified
     complaint the original lease, the guaranty, the “Lease Extension,” a balance sheet showing the
     rent amount paid by Euro Cappuccino beginning in January 2010 with a balance due in the
     amount of $40,907 and the circuit court’s June 2013 order for possession entered against Euro
     Cappuccino.
¶9       On July 21, 2016, Mr. Tamburello filed a motion to dismiss the amended verified
     complaint pursuant to section 2-619 of the Code of Civil Procedure (Code) (735 ILCS 5/2-619
     (West 2014)). He argued that the original lease “terminated by its own terms on December 31,
     200[2],” because the option to extend was never exercised by Euro Cappuccino in writing. Mr.
     Tamburello further argued that the guaranty he signed was, by its own terms, only for the
     original lease because he guarantied Euro Cappuccino’s obligations “under said Lease” only.

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¶ 10       After full briefing on the issue, on November 2, 2015, the circuit court granted Mr.
       Tamburello’s motion to dismiss the amended verified complaint with prejudice. In its order, it
       also noted that the lessor had not appeared. The lessor then appeared and, on November 25,
       2015, filed a motion to vacate the dismissal pursuant to section 2-1301 of the Code (735 ILCS
       5/2-1301 (West 2014)). In an order dated December 22, 2015, the circuit court granted the
       lessor’s motion to vacate the dismissal and, “having heard argument on defendant’s motion to
       dismiss,” again granted the motion to dismiss with prejudice “as of today’s date.”

¶ 11                                          JURISDICTION
¶ 12       The lessor timely filed its notice of appeal in this matter on January 21, 2016, contesting
       the circuit court orders of November 2 and December 22, 2015. This court has jurisdiction
       pursuant to Illinois Supreme Court Rules 301 and 303 governing appeals from final judgments
       entered by the circuit court in civil cases. Ill. S. Ct. R. 301 (eff. Feb. 1, 1994); R. 303 (eff. Jan.
       1, 2015).

¶ 13                                              ANALYSIS
¶ 14        The issue before us is whether the guaranty that was attached to the original lease remained
       in place as a part of the “Lease Extension” that was signed by the parties on November 4, 2005,
       and if so, whether it also applied to the holdover of that “Lease Extension” after it ended on
       December 31, 2010. The parties disagree about whether a lease guaranty applies to a holdover
       term of that lease. However, we need not resolve that conflict since we agree with Mr.
       Tamburello that the guaranty was not a part of the “Lease Extension” and thus could not
       obligate him for any missed rent payments under the “Lease Extension” or any holdover period
       following that agreement.
¶ 15        The “general rule” in Illinois is that “the guarantor of a lease, absent its consent, cannot be
       held liable for the obligations of the lessee incurred during any extended term other than one
       secured in accordance with the terms of the lease.” T.C.T. Building Partnership v. Tandy
       Corp., 323 Ill. App. 3d 114, 118 (2001). Thus, any extension of the lease to which the guaranty
       is attached must be specifically contemplated by that lease.
¶ 16        The guaranty that Mr. Tamburello signed as part of the original lease only contemplated
       one extension—the option period set out in section 27.01 for a three-year term following the
       end of the original lease on December 31, 2002. The lessor, however, is trying to enforce a
       guaranty for the “Lease Extension,” which began in 2006—after the option period set out in
       the original lease was over—continued through 2010, and then continued through a holdover
       term until the tenant was evicted in 2013. The “Lease Extension,” regardless of its label as an
       “extension,” was not an extension that was contemplated by the original lease that Mr.
       Tamburello guarantied. Accordingly, the “Lease Extension” was not secured “in accordance
       with the lease terms.”
¶ 17        The lessor argues that we should follow the result that the court reached in T.C.T. Building
       Partnership, 323 Ill. App. 3d 114. Although we agree that T.C.T. Building Partnership is
       controlling, it does not help the lessor in this case. The court in that case held that the guaranty
       at issue remained effective during a lease extension, despite the tenant not having exercised its
       option to extend the lease in a timely manner as required by that lease. Id. at 119-20. Notably,
       the terms of the guaranty in that case provided:

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                “ ‘[N]o *** forbearance or delay on the part of the Lessor to enforce any of the
                provisions, covenants, agreements, conditions and stipulations of said Lease, or waiver
                by Lease [sic] of any of said provisions, covenants, agreements, conditions and
                stipulations, shall operate to release or discharge the Guarantor from its full liability
                under this instrument of guaranty or prejudice the rights of Lessor hereunder.’ ” Id. at
                117.
       Thus, when the lessor extended the lease despite the late notice, the court held that the guaranty
       remained in effect because the guarantor had agreed that the lessor’s waiver of a condition of
       the lease, such as the notice provision, would not release the guaranty. Id. at 120. However, the
       lease that was guarantied in that case specifically contemplated the lease extension, since it
       included an option to extend for four additional terms of five years each, and the lessor sought
       to enforce the guaranty in the first of those four extensions. Id. at 115-16.
¶ 18        The guaranty in this case contains language that provides that it remains in effect
       regardless of “indulgences granted thereunder to said Tenant by the Lessor.” This is similar to
       the language relied upon by the court in T.C.T. Building Partnership in holding that the
       guarantor was still bound by the guaranty during the lease extension, “notwithstanding the fact
       that the lessor waived a condition of the lease,” the notice provision. Id. at 120.
¶ 19        In contrast to T.C.T. Building Partnership, however, here the lease only contemplated one
       three-year extension, and the lessor is not trying to enforce the guaranty for that extension.
       Thus, the guaranty might have covered the three-year option period following the original
       lease, as this term was specifically contemplated by section 27.01 of that lease, even without
       Euro Cappuccino’s strict compliance with the requirement that it exercise that option in
       writing. As in T.C.T. Building Partnership, the court could view the lessor as having waived
       the requirement that the lessee exercise that option in writing.
¶ 20        In contrast to T.C.T. Building Partnership, however, the “Lease Extension” governing the
       period from 2006 through 2010 was not contemplated by the original lease, which was the only
       lease guarantied by Mr. Tamburello. Under these circumstances, the “Lease Extension” was
       simply not within the terms of the guaranty, even if the lessor had waived any requirements for
       exercising such an extension.
¶ 21        The lessor argues that the terms of the “Lease Extension” do not include a “material”
       modification of the original lease and, therefore, the guaranty remained in effect during the
       “Lease Extension.” We agree that, as a “general principle[,] *** a guarantor is not released
       [from an existing obligation] unless the essentials of the original contract have been changed
       and the performance required of the principal is materially different from that first
       contemplated.” (Internal quotation marks omitted.) Chicago Exhibitors Corp. v. Jeepers! of
       Illinois, Inc., 376 Ill. App. 3d 599, 607 (2007). Here, however, the “Lease Extension” did not
       simply modify the original lease. It was, in fact, a new obligation by the tenant that was never
       made the subject of a guaranty.
¶ 22        The original lease contemplated, at most, a six-year lease term: the initial three-year lease
       period from January 1, 2000, through December 31, 2002, followed by a possible three-year
       extension of the original lease for up to three years, or from January 1, 2003, through
       December 31, 2005. Mr. Tamburello guarantied Euro Cappuccino’s performance under that
       lease. The “Lease Extension” that was in effect from January 1, 2006, through December 31,
       2010, created a new rental obligation for Euro Cappuccino to fulfill. This new obligation was
       never guarantied by Mr. Tamburello.

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¶ 23        The lessor also argues that the guaranty remained in effect during the “Lease Extension”
       and the holdover period following the “Lease Extension” because Mr. Tamburello was well
       aware of and consented to the “Lease Extension,” which he signed in his capacity as the
       president of Euro Cappuccino. The lessor recognizes that Mr. Tamburello signed the lease in
       his corporate capacity. There is no question that “a corporation is a legal entity separate and
       distinct from its shareholders, directors and officers.” Rohe v. CNA Insurance Co., 312 Ill.
       App. 3d 123, 127 (2000). This distinction exists even if the corporation is closely held or has a
       single shareholder. Apollo Real Estate Investment Fund, IV, L.P. v. Gelber, 398 Ill. App. 3d
773, 787 (2009). Thus, while Mr. Tamburello’s signature provides evidence that he knew
       about the lease extension, it does not make him personally liable.
¶ 24        However, the lessor cites a line of cases that have enforced guaranties against parties who
       were aware of or consented to changes in the original agreements that were guarantied, even
       where the guaranty was not expressly made applicable to the new modified agreement or
       obligation. Those cases hold that there is an exception to the rule discharging a guarantor’s
       obligation where there is an alteration of the underlying contract if “the guarantor has
       knowledge of and assents, either expressly or by implication, to such change.” Lawndale Steel
       Co. v. Appel, 98 Ill. App. 3d 167, 172 (1981) (citing Bank of Commerce v. Riverside Trails, 52
Ill. App. 3d 616 (1977)); see also Mitchell v. Peterson, 97 Ill. App. 3d 363, 367 (1981) (“It is a
       familiar exception to the general doctrine relieving the guarantor from liability by reason of a
       change in the obligation assumed, that the doctrine has no application where the obligor has
       knowledge of and assents, either expressly or by implication, to such change.” (citing
       Riverside Trails, 52 Ill. App. 3d 616)).
¶ 25        However, none of these cases extended a guaranty to a new obligation that was not even
       contemplated by the agreement for which performance had initially been guarantied. In
       Peterson, for example, a guarantor was found liable for his guaranty on a promissory note for
       which the time for repayment was extended beyond the term set forth in the original note
       because he solicited the extension. Peterson, 97 Ill. App. 3d at 365-66, 370. The court held that
       he was therefore “estopped” from claiming that the extension was made without his
       authorization. Id. at 367. In Riverside Trails, the guarantors remained liable despite a change in
       the interest rate on a loan from the creditor bank because this change was made with their
       knowledge and consent. Riverside Trails, 52 Ill. App. 3d at 618-19, 623. In Lawndale Steel, the
       court held that the defendant, who guarantied payments for the sale of steel, was estopped from
       arguing that two “material changes” to the sales contract—including “an extension of the time
       for payment” and the plaintiff’s use of a different bank than that which was specified in the
       agreement—discharged him from his obligation as a guarantor because he knew about those
       changes, although he was not estopped from objecting to an increase in price since he may not
       have known about the increase. Lawndale Steel, 98 Ill. App. 3d at 172-73.
¶ 26        In contrast to those cases, here the original lease guarantied by Mr. Tamburello expired on
       December 31, 2002; or, if we view the option period as a three-year extension of the original
       lease, the original lease expired on December 31, 2005. In either scenario the guarantied
       agreement was long over at the time Euro Cappuccino stopped paying rent in January 2010. It
       is well settled that a “guarantors’ assurances of performance ended with the contract to which
       they were tied.” Palen v. Cullom Capital Woodworking, Inc., 154 Ill. App. 3d 685, 687 (1987).
       Accordingly, the guaranty was simply no longer in effect after December 31, 2005, and Mr.
       Tamburello is not obligated to pay for Euro Cappuccino’s default in the rent after that date.

                                                   -6-
¶ 27        Some jurisdictions have followed the Riverside line of cases. See Devereux Properties,
       Inc. v. BBM&W, Inc., 442 S.E.2d 555, 556-57 (N.C. Ct. App. 1994) (“An exception to these
       rules holds the guarantor responsible for any changes to which he has either expressly or
       impliedly consented.” (citing Riverside Trails, 52 Ill. App. 3d 616)); Regal Shoe Shops v.
       Kleinman, 361 So. 2d 765, 766 (Fla. Dist. Ct. App. 1978) (“a corporation officer is not
       discharged in his capacity as an individual guarantor by an alteration or modification of the
       contract of guarantee where the variation in the contract was brought about through the
       guarantor’s actions”) (applying New York law)). At least one other jurisdiction has strongly
       criticized it. See O’Brien Brothers’ Partnership, LLP v. Plociennik, 940 A.2d 692, 698-99 (Vt.
       2007) (rejecting the Riverside Trails rule as “a creative mixture of theories of implied consent
       and estoppel” that it declined to adopt).
¶ 28        Whatever the merit may be of applying estoppel when a guarantor is aware of a change to
       an existing obligation like the one at issue in Riverside Trails, Peterson, and Lawndale Steel,
       we will not apply it here to an agreement that, in effect, created a new obligation for Euro
       Cappuccino that was not contemplated in the original lease guarantied by Mr. Tamburello. The
       original obligation to which that guaranty was tied ceased to exist long ago. As the Vermont
       Supreme Court noted in O’Brien Brothers’, the parties in these cases are generally business
       people who can protect their interests through appropriate contractual language. O’Brien
       Brothers’, 940 A.2d at 698. In this case, if the lessor wanted a guaranty as a part of the “Lease
       Extension,” it could have negotiated for a new guaranty at the time the “Lease Extension” was
       signed.
¶ 29        The lessor also argues that the guaranty applied to the “Lease Extension” because Euro
       Cappuccino’s continued occupancy can be viewed as a month-to-month tenancy based on the
       holdover provision in Section 22.01 the original lease. The lessor relies on Roth v. Dillavou,
       359 Ill. App. 3d 1023, 1031 (2005), where the appellate court held that, based on a similar
       holdover provision of the lease in that case, the guaranty continued to be in effect during the
       month-to-month tenancy that remained in effect. Id. Here, however, the facts are clear that
       when Euro Cappuccino remained on the premises after January 1, 2010, it was not holding
       over from the original lease that had been guarantied. Since that original lease, the parties had
       entered into a new agreement, the “Lease Extension,” to which the guaranty did not apply, and
       any holdover was on that agreement, not on the original lease. Therefore, Roth is inapposite.
¶ 30        As a final matter, we acknowledge that, at oral argument, the lessor argued that he should
       have been allowed to take discovery on various oral agreements or understandings that the
       parties may have reached to extend the guaranty. However, because this point was not included
       in the lessor’s briefs and was raised for the first time at oral argument, it has been waived. See
       Ill. S. Ct. R. 341(h)(7) (eff. Jan. 1, 2016) (the argument section of the appellant’s brief “shall
       contain the contentions of the appellant and the reasons therefor.” “Points not argued are
       waived and shall not be raised in *** oral argument ***.”). Moreover, as a party to the lease
       and the guaranty, the lessor would necessarily have been a party to any oral agreement or
       modification extending the guaranty. No such oral agreement or modification extending the
       guaranty was alleged to exist in the complaint, and we accordingly see no need to further
       address this argument.

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¶ 31                                    CONCLUSION
¶ 32   For the foregoing reasons, we affirm the judgment of the circuit court.

¶ 33   Affirmed.

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