Regency Commercial Associates v. Lopax ( 2007 )

NO. 4-06-0332 Filed 5/4/07
IN THE APPELLATE COURT
OF ILLINOIS
FOURTH DISTRICT
REGENCY COMMERCIAL ASSOCIATES, LLC, an ) Appeal from
Indiana Limited Liability Company, ) Circuit Court of
Plaintiff-Appellee, ) Champaign County
v. ) No. 05CH93
LOPAX, INC., a Delaware Corporation, )
Defendant-Appellant. ) Honorable
) Heidi Ladd,
) Judge Presiding.
_________________________________________________________________
JUSTICE KNECHT delivered the opinion of the court:
Due to its desire to lease land to Pictor Enterprises,
III, Inc. (Pictor), a company planning to open a Buffalo Wild
Wings restaurant, plaintiff, Regency Commercial Associates, Ltd.
(Regency), filed a complaint for declaratory judgment concerning
a restrictive covenant in a land sales contract in favor of
defendant, Lopax, Inc. (Lopax), on land previously sold to Lopax
by Regency's predecessor for use as a Kentucky Fried Chicken
(KFC) restaurant. Pursuant to Regency's motion for summary
judgment, the trial court determined the restriction covered
"fast[-]food" restaurants primarily serving chicken and also
found an evidentiary hearing would be necessary to determine if
Buffalo Wild Wings was a fast-food restaurant. Prior to the
evidentiary hearing, Lopax filed a motion for summary judgment
contending Regency entered into a lease with Pictor prior to
filing its complaint for declaratory judgment and was barred from
obtaining declaratory relief by the doctrine of "non[]liability
for past conduct." The court ruled Regency was not barred by the
doctrine and denied Lopax's motion for summary judgment. After
an evidentiary hearing, the court found Buffalo Wild Wings was
not a fast-food restaurant and, hence, was not covered by the
restrictive covenant. Lopax appeals the court's decisions (1)
the restrictive covenant covered only fast-food restaurants
serving primarily chicken, (2) the declaratory-judgment action
was not barred by the doctrine of nonliability for past conduct,
and (3) Regency need not be compelled to produce the entire lease
agreement between itself and Pictor. We affirm.
I. BACKGROUND
On June 20, 2001, Lopax entered into a contract with
Arbours Development Limited Partnership (Arbours) to purchase a
parcel of land in Savoy in order to lease it to Bartlett Manage-
ment Services, Inc., for the operation of a KFC restaurant. The
contract included a restrictive covenant negotiated between the
parties prohibiting Arbours from permitting certain types of
competitive restaurant operations within its commercial develop-
ment area. The restriction was memorialized in paragraph 4.1(h)
of the contract and reads in pertinent part as follows:
"Seller will not after the date of this
agreement sell, lease[,] or permit to be
occupied any real estate which [s]eller owns,
manages[,] or otherwise controls within one
mile of the [l]and for the purpose of con-
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structing, or having conducted thereon, any
fast[-]food [(quick service restaurant)]
restaurant or restaurant facility whose prin-
cipal food product is chicken on the bone,
boneless chicken[,] or chicken sandwiches.
The prohibited businesses would include but
be not limited to Boston Market, Popeye's
Chicken, Church's Fried Chicken[,] and
Pirtles Chicken. Other than the aforemen-
tioned restaurants which shall absolutely be
prohibited, a restaurant shall be deemed to
'feature boneless chicken or chicken sand-
wiches' only if the primary business of such
restaurant is the sale of such items. This
provision shall survive the [c]losing and
shall not be merged into the [d]eed. Seller
may sell, lease[,] or permit the occupancy of
any such real estate by (1) dinner houses or
seafood restaurants, (2) Oriental, French,
Mexican, Italian[,] or other ethnic restau-
rants, (3) any so-called 'casual dining'
restaurant such as Chili's or Black-Eyed Pea,
or (4) any food speciality shops such as ice
cream, yogurt, pizza[,] or similar single[-]
item shops."
Regency later purchased Arbours' rights under the contract.
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Sometime in February 2005, Regency's attorney contacted
Lopax's attorney in an attempt to obtain permission to lease a
portion of its restricted land for the operation of a Buffalo
Wild Wings restaurant. On February 23, 2005, Lopax's attorney
sent a written objection based on the restrictions in paragraph
4.1(h) of the contract and Lopax's position that Buffalo Wild
Wings is a restaurant facility whose principal food product is
chicken. On March 7, 2005 Regency's attorney again contacted
Lopax's attorney in an effort to convince Lopax to withdraw its
written objection to the leasing of the property for a Buffalo
Wild Wings restaurant because it is a full service "casual
dining" restaurant expressly permitted under paragraph 4.1(h) and
not a fast-food restaurant. On March 8, 2005, Lopax's attorney
responded Lopax was not withdrawing its objection due to its
interpretation of the restrictive covenant as generally prohibit-
ing restaurant facilities whose primary food product is chicken
and not just fast-food restaurants. On March 16, 2005, Daniel
Pictor, the Buffalo Wild Wings franchisee, contacted Lopax and
offered $5,000 for permission to locate in the restricted area.
On March 29, 2005, Regency filed a verified complaint
for declaratory judgment asking the trial court to find (1) the
restriction found in paragraph 4.1(h) prohibits fast-food restau-
rant operations serving primarily chicken but does not prohibit
other types of restaurant operations whose primary food product
is chicken and (2) Buffalo Wild Wings is not a fast-food restau-
rant but a full-service restaurant featuring "casual dining."
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On May 2, 2005, Lopax filed a motion to dismiss under
section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-619
(West 2002)) and attached exhibits in support of its contention
that Buffalo Wild Wings is a restaurant whose principal food
product is chicken and paragraph 4.1(h) was unambiguous in its
prohibition of both (1) fast-food restaurants whose principal
food product is chicken or (2) restaurant facilities whose
principal food product is chicken.
On June 29, 2005, Regency filed both a response to
Lopax's motion to dismiss and a motion for summary judgment with
attached exhibits in support of its contention that paragraph
4.1(h) unambiguously prohibits only restaurants and restaurant
facilities that are both fast food and whose primary food product
is chicken.
On July 27, 2005, the trial court heard arguments on
both parties' motions. After taking the matter under advisement,
on September 7, 2005, the court determined, first, the language
of paragraph 4.1(h) was ambiguous, and second, after reviewing
the exhibits pertaining to correspondence between the parties
during negotiations of the final contract and the circumstances
under which agreement on the final terms were reached, the
contract language prohibits fast-food restaurants whose principal
food product is chicken and fast-food restaurant facilities whose
principal food product is chicken. Further, the court determined
a genuine factual dispute remained as to whether Buffalo Wild
Wings fit the description of either a fast-food restaurant or
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fast-food restaurant facility whose principal product is chicken.
Thus, the court denied Lopax's motion to dismiss and granted part
of Regency's motion for summary judgment.
On September 29, 2005, Lopax filed a motion to recon-
sider, which was denied on October 27, 2005. On November 10,
2005, Daniel Pictor, the Buffalo Wild Wings franchisee, contacted
Mike Bartlett, a minority shareholder of Lopax and manager of the
KFC at issue, and offered to negotiate with Lopax to settle this
dispute just to speed things up as he was confident Regency would
prevail in court. However, he also stated he already signed a
lease with Regency. After Lopax learned an actual lease between
Regency and Pictor existed, it determined the lease existed prior
to Regency filing its complaint for declaratory judgment.
On January 20, 2006, Lopax filed a motion to compel
discovery of the entire lease between Regency and Pictor and a
motion for summary judgment based on the theory of nonliability
for past conduct. In response to the motion to compel, Regency
produced 8 paragraphs of the lease agreement and, later, the
table of contents of the lease indicating it contained 67 pages,
including exhibits and riders. The paragraphs produced by
Regency pertained to basic lease information such as date signed,
location of property, term, permitted uses, commencement date
(which was defined as the date on which this lawsuit is re-
solved), and a "[c]ontingency [c]lause" relating commencement of
the lease term to successful resolution of this lawsuit.
On March 3, 2006, a hearing was held on Lopax's motion
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for summary judgment and motion to compel discovery. Lopax's
theory was a lease existed between Regency and Pictor for the
operation of a Buffalo Wild Wings restaurant prior to Regency
filing its complaint for declaratory judgment and, because it had
already taken action that either was or might be in violation of
the provision of the contract between Lopax and Regency that was
the subject of the declaratory-judgment action, it was barred
from seeking such relief because it was seeking a finding of non-
liability for action already taken and a declaration of its
rights if it took some future action. The trial court denied
Lopax's motion for summary judgment because Regency's lease
agreement with Pictor was contingent on the outcome of this
declaratory-judgment action. The court then stated the only
issue not resolved was whether Buffalo Wild Wings was a fast-food
restaurant. Regency produced the entire lease agreement for the
court's in camera inspection.
On March 13, 2006, the trial court determined, after an
in camera inspection, the remaining portions of the lease agree-
ment contained nothing that would be relevant to a determination
of the remaining issue of whether Buffalo Wild Wings was a fast-
food restaurant and denied Lopax's motion to compel its discov-
ery.
On March 23 and 24, 2006, a bench trial was held on the
remaining issue of fact, and the trial court found Buffalo Wild
Wings was not a fast-food restaurant. Judgment was entered in
favor of Regency. This appeal followed.
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II. ANALYSIS
A. Interpretation of Restrictive Covenant
At issue is the prohibition against "any fast[-]food
(QSR) restaurant or restaurant facility whose principal food
product is chicken on the bone, boneless chicken[,] or chicken
sandwiches." (The term "QSR" in the contract is explained in the
record as the restaurant industry's new description of fast-food
restaurants and means "quick serve restaurant." It has no
bearing on the interpretation of the contract.) Regency asserts
the quoted language was intended to prohibit (1) fast-food
restaurants whose principal product is chicken and (2) fast-food
restaurant facilities whose principal product is chicken. Lopax
asserts this language was intended to prohibit (1) fast-food
restaurants serving primarily chicken and (2) restaurant facili-
ties serving primarily chicken.
When construing the language of a contract, a court's
principal objective is to give effect to the intent the parties
possessed at the time they entered into the agreement. First
Bank & Trust Co. v. Village of Orland Hills, 338 Ill. App. 3d 35,
40, 787 N.E.2d 300, 304 (2003). The agreement is to be inter-
preted as a whole, giving meaning and effect to every provision
when possible, and a court will not interpret the agreement in a
way that would nullify provisions or render them meaningless.
Coles-Moultrie Electric Cooperative v. City of Sullivan, 304 Ill.
App. 3d 153, 159, 709 N.E.2d 249, 253 (1999). When parties agree
to and insert language into a contract, the presumption is it was
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done purposefully and the language employed is to be given
effect. Coles-Moultrie Electric, 304 Ill. App. 3d at 159, 709
N.E.2d at 253.
If the terms of a contract are unambiguous, the par-
ties' intent is ascertained solely from the words of the contract
itself. Bradley Real Estate Trust v. Dolan Associates Ltd., 266
Ill. App. 3d 709, 712, 640 N.E.2d 9, 11 (1994). The question
whether the language of a contract is ambiguous and requires
additional evidence for interpretation is a question of law.
River's Edge Homeowners' Ass'n v. City of Naperville, 353 Ill.
App. 3d 874, 878, 819 N.E.2d 806, 809-10 (2004).
Where an ambiguity exists, parol or extrinsic evidence
may be considered to interpret the contract. Abingdon Bank &
Trust Co. V. Bulkeley, 390 Ill. 582, 592, 62 N.E.2d 447, 451
(1945). As part of the parol evidence, a court may consider
preliminary negotiations between the parties in order to deter-
mine the meaning of contract provisions and the intent of the
parties. Rybicki v. Anesthesia & Analgesia Associates, Ltd., 246
Ill. App. 3d 290, 299, 615 N.E.2d 1236, 1242-43 (1993).
A court's determination of the construction of a
contract is a question of law. People ex rel. Department of
Public Health v. Wiley, 218 Ill. 2d 207, 223, 843 N.E.2d 259, 268
(2006). Construction of contractual language is subject to
de novo review. American States Insurance Co. v. Koloms, 177
Ill. 2d 473, 479-80, 687 N.E.2d 72, 75 (1997).
The trial court considered the language of the contract
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to be ambiguous. Consequently, the court then looked at the
written exchanges between the parties while negotiating the
contract and the memorandum of contract to purchase recorded
April 17, 2002, and the amended memorandum recorded August 8,
2002, and signed by both parties, as well as the language of the
contract, in determining that the contract language prohibited
fast-food restaurants whose principal product is chicken and
fast-food restaurant facilities whose principal product is
chicken.
Both parties first contend the provision at issue is
not ambiguous. Lopax contends the use of "or" to connect phrases
"fast[-]food (QSR) restaurant" and "restaurant facility" repre-
sents two alternatives intended to be different or unlike each
other: either fast-food (QSR) restaurants serving chicken or
restaurant facilities serving chicken. Regency presented an
affidavit in opposition to Lopax's section 2-619 motion to
dismiss the complaint for declaratory judgment in which the
affiant, James R. McKinney, the president of Regency, suggests
the term "restaurant" means a stand-alone facility while "restau-
rant facility" means an operation found in a multioutlet food
court, embedded in a store or otherwise not a stand-alone facil-
ity. The trial court found this distinction persuasive when
finding Lopax's interpretation of the contract language would
make the word "facility" surplusage while Regency's definition
would not. Lopax contends the "or" must have been inserted to
differentiate between fast-food and not-fast-food restaurant
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operations and differentiate between restaurants and restaurant
facilities because those terms are used interchangeably in the
contract in reference to its own KFC operation.
Lopax notes every provision in a contract must be given
effect (see Martindell v. Lake Shore National Bank, 15 Ill. 2d
272, 283, 154 N.E.2d 683, 689 (1958)) and contends its interpre-
tation focusing on whether a restaurant serves primarily chicken
and not the type of service given by the restaurant (fast food or
full service) was the intent of the parties' prohibition. Lopax
specifically notes the language in paragraph 4.1(h): "Other than
the aforementioned restaurants which shall absolutely be prohib-
ited, a restaurant shall be deemed to 'feature boneless chicken
or chicken sandwiches' only if the primary business of such
restaurant is the sale of such items." Lopax contends this
language creates a strict prohibition on restaurants serving
primarily chicken, regardless of level of service. Lopax con-
tends this phrase is placed before the second half of the re-
strictive clause and indicates the parties will determine if a
restaurant which would otherwise have been permitted will be
restricted, because in a category listed in the second half of
the clause, based on its service of primarily chicken.
Regency contends the distinction between "restaurant"
and "restaurant facility" is important under contract-interpreta-
tion principles that require every word to be given meaning and
not be considered surplusage. Regency contends the inclusion of
specific prohibited and permissible restaurants is inconsistent
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with Lopax's "or" interpretation of the sentence. All examples
given of prohibited restaurants are fast-food restaurants that
serve primarily chicken. Thus, the intent of the contract is to
prohibit operations that are both "fast food" and "serve primar-
ily chicken." Permitted restaurants listed are casual dining,
dinner houses, ethnic restaurants, fine dining, et cetera. These
examples listed are not fast-food but are full-service restau-
rants indicating an intent for the distinguishing characteristic
to be the level of service and the serving of chicken. Thus, the
intent was to prohibit only fast-food restaurants and fast-food
restaurant facilities serving primarily chicken.
Lopax contends service level is not the primary focus
of the restrictive clause because it intended to limit chicken
restaurants regardless of service level. Further, Lopax argues,
if the chicken restriction is interpreted as Regency suggests,
there is no need for the "test" language and the court must
ignore two of the four sentences in 4.1(h) that limit use. By
interpreting the contract as "fast food" modifying both "restau-
rant" and "restaurant facility," the restriction only applies to
fast-food chicken operations. Therefore, the parties would not
need to explain the ban on fast-food chicken operations as it is
obvious. However, if the language creates a test for determining
if a restaurant facility primarily serves chicken, then all
language in the clause becomes relevant.
We note Lopax argues it intended to prohibit all
restaurants serving primarily chicken as that would certainly be
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more beneficial to it but it is not clear from the language of
the clause at issue the restriction was that comprehensive. We
find, as the trial court did, the language at issue is ambiguous,
and we also look to parol and extrinsic evidence.
Evidence from negotiations showed Lopax's concern
regarding competition from restaurant operations serving chicken
as it attempted to insert specific language referring to competi-
tion with KFC. It also suggested the restrictive language
contain a quantitative measure of 5% of gross sales revenue from
chicken putting a restaurant into the restricted category.
Regency attempted to limit the restrictive language to "fast[-]
food" restaurants only, but none of these provisions appear in
the final contract. Lopax repeatedly tried to control the type
of food served and not the level of service as it rejected
Regency's attempt to insert the words "fast[-]food" in the clause
"Other than the aforementioned restaurants which shall absolutely
be prohibited, a fast[-]food restaurant shall be deemed to
'feature boneless chicken or chicken sandwiches' only if the
primary business of such restaurant is the sale of such items."
(Emphasis in original.) Indeed, Lopax's concern consistently was
not over the level of service but the serving of chicken.
Further negotiation evidence indicates Regency's
rejection of Lopax's attempts to prohibit all fast-food restau-
rants, not just those serving primarily chicken. Regency re-
jected Lopax's inclusions of Burger King, McDonald's, Steak 'N
Shake, Backyard Burger, Hardee's, Wendy's, and Arby's in examples
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of specifically prohibited restaurants. Regency also crossed out
language prohibiting "any fast[-]food restaurant or restaurant
facility featuring chicken on the bone, boneless chicken[,] or
chicken sandwiches." Instead, Regency added the language "whose
principal food product is chicken on the bone, boneless
chicken[,] or chicken sandwiches" following the description of
prohibited operations as any "fast[-]food restaurant or restau-
rant facility."
Regency's crossing-out of the language "featuring
chicken" is instructive as it leaves meaningless the language
defining "featuring chicken" relied upon by Lopax in its argument
the parties meant this language as a "test." The definition
language was left in the contract while the term it is attempting
to define was removed. Thus, it is not a "test" at all and has
no bearing on the correct interpretation of the prohibited
restaurant operations.
Lopax argues actions of Regency after the contract
demonstrate Regency knew the chicken restriction applied to
Buffalo Wild Wings. The record indicates on February 23, 2005,
Regency's attorney contacted Lopax's attorney in an attempt to
obtain permission to lease a portion of the restricted area to
Pictor for the operation of a Buffalo Wild Wings restaurant.
Regency's attorney again contacted Lopax's attorney in an effort
to convince Lopax to remove its written objection to such a
lease. On March 16, 2005, Daniel Pictor, the Buffalo Wild Wings
franchisee, contacted Lopax and offered $5,000 for permission to
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locate in the restricted area. These actions are not indicative
of a contract interpretation by Regency but of attempts to avoid
litigation because the contract language was arguably ambiguous.
Further evidence of the parties' intent is found in the
memorandum and amended memorandum recorded by the Champaign
County recorder of deeds. The memoranda were recorded in Cham-
paign County after the sale of the KFC premises in order to give
notice of the chicken competition restriction. The memorandum
was originally recorded on April 7, 2002, and amended on August
6, 2002. After notice by recordation, interested parties have a
duty to investigate any noted restrictions or be deemed to have
actual notice of the facts. Smith v. Grubb, 402 Ill. 451, 464,
84 N.E.2d 421, 428 (1949). Recording of documents serves to
notify any interested parties in the future of the status of
owners of property and/or restrictions on specific parcels.
Housing Authority of Gallatin County v. Church of God, 401 Ill.
100, 108, 81 N.E.2d 500, 505 (1948).
The memorandum of contract to purchase recorded April
17, 2002, and the amended memorandum recorded August 6, 2002,
support the trial court's construction of the disputed language.
Both were signed by representatives for Regency and Lopax,
including Lopax's attorney, who negotiated the contract. The
memorandum recorded April 17 states:
"[N]o fast[-]food restaurant shall be allowed
on the [a]dditional [r]eal [e]state currently
owned by [s]eller whose principal food prod-
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uct is chicken on the bone, boneless chicken
or chicken sandwiches." (Emphases added.)
The language in the amended memorandum recorded August
6, 2002, states:
"[N]o fast[-]food restaurant shall be allowed
on the [a]dditional [r]eal [e]state or any
other real estate which [s]eller or Arbours
Development Limited Partnership owns, man-
ages[,] or otherwise controls within one (1)
mile of the [r]eal [e]state, whose principal
food product is chicken on the bone, boneless
chicken[,] or chicken sandwiches." (Emphases
added.)
The wording of the amended memorandum includes the same examples
of permissible restaurants as are included in the contract
itself: "(1) dinner houses or seafood restaurants, (2) Oriental,
French, Mexican, Italian[,] or other ethnic restaurants, (3) any
so-called 'casual dining' restaurant such as Chili's or Black-
Eyed Pea, or (4) any food specialty shops such as ice cream,
yogurt, pizza[,] or similar single[-]item shops." The wording of
both memoranda can only be read to apply to "fast[-]food" restau-
rants whose "principal food product is chicken." This is strong
evidence the intent of the contract was to prohibit only fast-
food restaurants whose primary food product is chicken and to
allow casual dining restaurants no matter their primary food
product. Both parties agreed to the language of the postcontract
- 16 -
memoranda.
Obviously, Lopax, as the operator of the KFC restau-
rant, wanted to obtain a restriction against competition that was
as broad as possible. On the other hand, Regency's predecessor,
Arbours, as the owner of commercial property surrounding KFC's
operation, wanted to limit the restriction as much as possible.
Given the evidence of the contract negotiations, it is clear
neither party got everything it wanted in the final contract.
However, as the memorandum and amended memorandum of contract
indicate, the final contract included a prohibition against fast-
food restaurant operations serving primarily chicken, the logical
direct competitors to a KFC restaurant, which both parties agree
is a fast-food restaurant operation. The trial court was correct
in its interpretation of the contract language, its denial of
Lopax's section 2-619 motion to dismiss, and the partial grant of
Regency's motion for summary judgment.
B. Applicability of Doctrine of NonLiability
for Past Conduct
The principle of "nonliability for past conduct" means
a party cannot seek declaratory relief to excuse itself from
liability incurred after acting in a way that would affect
contractual rights. Howlett v. Scott, 69 Ill. 2d 135, 143, 370
N.E.2d 1036, 1039 (1977); Delano Law Offices, P.C. v. Choi, 154
Ill. App. 3d 172, 173, 506 N.E.2d 723, 724 (1987).
Lopax asserts the contract between it and Regency
prohibits Regency from leasing to restaurants whose primary food
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product is chicken. However, by entering into a lease with
Pictor for the operation of a Buffalo Wild Wings restaurant prior
to the filing of this complaint, Regency has taken action prohib-
ited by contract. The "nonliability for past conduct" principle
prohibits Regency from seeking declaratory relief under the
declaratory-judgment statute because the court cannot declare
Regency not liable for action already taken.
During pretrial discovery, Lopax filed a motion for
summary judgment raising the defense of the "doctrine of
nonliability for past conduct." The doctrine was not raised as
an affirmative defense in any Lopax pleading. Regency contends
the denial of Lopax's motion for summary judgment is not
reviewable on appeal and Lopax has waived the issue of
nonliability for past conduct as it did not plead this defense
and did not attempt to introduce evidence on the issue at trial.
Denial of a motion for summary judgment is not immedi-
ately appealable because it is an interlocutory order. In re
Estate of Funk, 221 Ill. 2d 30, 85, 849 N.E.2d 366, 397 (2006).
Generally, denial of summary judgment is not reviewable after
trial on the merits because the result of any error is merged
into the judgment entered at trial. Belleville Toyota, Inc. v.
Toyota Motor Sales, U.S.A., Inc., 199 Ill. 2d 325, 355, 770
N.E.2d 177, 196 (2002). However, where a summary-judgment motion
presented a legal issue rather than a factual one, review of the
denial of summary judgment is appropriate. Battles v. La Salle
National Bank, 240 Ill. App. 3d 550, 558, 608 N.E.2d 438, 444
- 18 -
(1992) (First District) (summary-judgment denial not merged
because trial did not deal with legal issue raised in motion for
summary judgment).
In Funk, after denial of the motion for summary judg-
ment, the trial court proceeded to resolve the case and the issue
first raised by the motion for summary judgment, based on all
evidence that was presented at trial. Thus, any error in denial
of the motion for summary judgment merged into the final judg-
ment. Funk, 221 Ill. 2d at 85, 849 N.E.2d at 397. However, in
this case, the trial court did not resolve the same issue after
denial of summary judgment but held a completely separate hearing
with evidence on a completely separate issue before resolving the
case and entering final judgment.
Further, at hearing, Lopax attempted to question Daniel
Pictor regarding the existence of the lease between Regency and
Pictor. This line of questioning was met with four relevance
objections from Regency, all sustained. When Lopax started to
assert it wanted to make an offer of proof, the trial court told
Lopax it was unnecessary due to the established pretrial record.
In addition, when its motion for summary judgment was denied,
Lopax requested permission to seek an interlocutory appeal but
counsel for Regency objected, saying, "This issue
[(nonliability)] can be appealed with the entire case, if appro-
priate, in less than thirty days." Thus, Regency's actions both
before and during trial contradict its position here. Lopax was
prevented from offering any evidence at trial by Regency, and
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Regency objected to an interlocutory appeal. Regency cannot now
take a different position and assert Lopax has forfeited this
issue. It is disingenuous for Regency to argue no evidence was
presented at trial in light of its conduct at trial. The princi-
ples of forfeiture do not permit a party to complain of error
that produces forfeiture, where to do so is inconsistent with the
party's position in an earlier court proceeding. See Belleville
Toyota, 199 Ill. 2d at 333, 770 N.E.2d at 184.
Thus, we consider Lopax's argument Regency's complaint
for declaratory judgment is barred by the doctrine of
nonliability for past conduct. The standard of review for a
decision on a summary-judgment motion is de novo. Truserv Corp.
v. Bess Hardware & Sports, Inc., 346 Ill. App. 3d 194, 198, 804
N.E.2d 611, 614 (2004).
Lopax contends it is hampered in its arguments on this
issue because Regency has never produced the entire agreement
between it and Pictor, only excerpts. However, these facts are
clear: Regency entered into agreement with Pictor on March 24,
2005, and filed suit on March 29, 2005. Regency denies the
existence of a lease due to contingencies within the agreement.
For a lease to be valid in Illinois "there must be
agreement as to the extent and bounds of the property, the rental
price and time and manner of payment, and the term of the lease."
Ceres Illinois, Inc. v. Illinois Scrap Processing, Inc., 114 Ill.
2d 133, 145, 500 N.E.2d 1, 6 (1986). In this case, portions of
the agreement produced by Regency satisfy some of these require-
- 20 -
ments. Paragraph 1.B specifies "extent and bounds of the prop-
erty." Paragraph 1.G specifies a term of 10 years with two
options to renew. Lopax further argues it must be presumed some
of the agreement's clauses must provide for "rental price and
manner of payment."
Regency points to a contingency in the agreement found
in section 33.34 of the lease rider. This contingency states:
"Parties acknowledge that at the time this
[l]ease was executed [l]andlord was a party
to a lawsuit with Lopax, Inc., regarding the
permissibility of [t]enant's [p]ermitted use.
This [l]ease shall be contingent upon said
lawsuit having been fully resolved. Upon
successful resolution of the lawsuit
[l]andlord shall send a [c]ommencement [d]ate
[a]greement which shall be executed by both
[l]andlord and [t]enant and thereafter par-
ties shall diligently pursue to complete its
obligations of the [l]ease."
Lopax contends this contingency is irrelevant to the
existence of a lease. Express conditions precedent in contracts
that affect a party's performance are subject to rules of strict
compliance. M X L Industries, Inc. v. Mulder, 252 Ill. App. 3d
18, 26, 623 N.E.2d 369, 375 (1993) (Second District). A condi-
tion precedent is defined as "one which must be performed either
before a contract becomes effective or which is to be performed
- 21 -
by one party to an existing contract before the other party is
obligated to perform." M X L Industries, 252 Ill. App. 3d at 25,
623 N.E.2d at 374. Lopax argues as a condition precedent the
language of the "contingency" must be strictly construed. Since
the lease was signed on March 24, 2005, prior to this lawsuit on
March 29, the express condition precedent is invalid because no
lawsuit existed at the time the lease was signed.
Alternatively, Lopax asserts a performance contingency
does not prevent creation of a valid contract. See Catholic
Charities of the Archdiocese of Chicago v. Thorpe, 318 Ill. App.
3d 304, 307, 741 N.E.2d 651, 653 (2000). "Whether an act is
necessary to formation of the contract or the performance of an
obligation under the contract depends on the facts of the case."
McAnelly v. Graves, 126 Ill. App. 3d 528, 532, 467 N.E.2d 377,
379 (1984). If "a condition goes solely to the obligation of the
parties to perform, existence of such a condition does not
prevent the formation of a valid contract." McAnelly, 126 Ill.
App. 3d at 532, 467 N.E.2d at 379. The factual analysis hinges
on the mutual assent of the parties; if they agree to formation
of a binding contract, agreed-on conditions only affect the duty
to perform and the contract is valid. Catholic Charities, 318
Ill. App. 3d at 307-08, 741 N.E.2d at 653, quoting Edmund J.
Flynn Co. v. Schlosser, 265 A.2d 599, 601 (D.C. 1970).
Lopax contends Regency and Pictor mutually assented to
lease the land and memorialized the same, including all the terms
necessary to form a valid lease. The lease's contingency lan-
- 22 -
guage makes Regency's duty to perform subject to the outcome of
this case. The condition concerns Regency's obligation to permit
Pictor to occupy the premises and does not concern any of the
factors required to determine the existence of a lease. Lopax
argues even if the contingency occurs and Regency's performance
is excused, a lease still exists under Illinois law before any
performance can be excused.
Lopax contends this case is analogous to McAnelly. The
McAnelly case dealt with a contract contingency of obtaining
necessary permits within 24 months which, if not obtained, would
make the lease of no effect. The court stated there was a valid
lease because neither party had the privilege of revocation prior
to the 24-month period ending and no further expression of assent
by the parties was necessary to proceed with the lease. See
McAnelly, 126 Ill. App. 3d at 533, 467 N.E.2d at 379. Further,
by Regency's reliance on the contingency, it is confirming the
validity of the lease. See McAnelly, 126 Ill. App. 3d at 534,
467 N.E.2d at 380 (court found the defendants affirmed the
validity of the lease by invoking the provision for termination
of the lease). Lopax argues Regency cannot simply abandon the
lease without Pictor's permission and, therefore, entered into a
binding contract that irrevocably changed its position and cannot
now seek to have this court declare it not liable for its past
conduct.
Lopax's argument is essentially a lease existed prior
to the filing of this cause of action, and thus, this action is
- 23 -
barred by the existence of the lease. However, it is clear the
parties agree this suit is the one referred to in the lease
agreement and the fact it was filed a few days after the apparent
execution of the lease agreement is not dispositive of the issue
of whether Regency can pursue a declaratory-judgment action.
The purpose of the declaratory-judgment statute is for
a court to offer guidance to parties in relation to future
conduct in order to avoid or lessen potential liability. Adkins
Energy, LLC v. Delta-T Corp., 347 Ill. App. 3d 373, 378, 806
N.E.2d 1273, 1277-78 (2004). A declaratory judgment is designed
to settle and fix rights before an irrevocable change in position
of the parties, which will jeopardize their respective claims of
right. Beahringer v. Page, 204 Ill. 2d 363, 373, 789 N.E.2d
1216, 1223 (2003); Roland Machinery Co. v. Reed, 339 Ill. App. 3d
1093, 1097, 791 N.E.2d 716, 719 (2003). The statute is meant to
allow parties to learn the consequences of their actions before
they act. Eyman v. McDonough District Hospital, 245 Ill. App. 3d
394, 396, 613 N.E.2d 819, 821 (1993).
The agreement in question is an executory agreement
including a contingency clause that effectively cancels the
parties' obligations under the agreement if Regency does not
prevail in this action. The agreement does not bar a declaratory
action because, by its own terms, future conduct remains to be
guided by a declaration of rights. The agreement itself is not
canceled by a finding adverse to Regency, but Regency is not
obligated to perform although it could choose to do so knowing it
- 24 -
would be liable to Lopax and could then try to purchase Lopax's
interests under their contract if that were to its benefit.
The cases cited by Lopax in support of the doctrine of
nonliability for past conduct do not actually focus on that point
but on the question of whether a declaratory-judgment action
could serve some practical purpose in guiding the parties' future
conduct. In Adkins, the court stated the doctrine of
nonliability for past conduct bars an action for declaratory
judgment only when the past conduct makes that party liable or
amenable to suit. Adkins, 347 Ill. App. 3d at 378, 806 N.E.2d at
1277. Here, there is no commencement date on the lease agreement
until this suit is resolved, so Pictor cannot access the proposed
premises and operate a Buffalo Wild Wings restaurant until then.
Lopax has not yet suffered any damages.
In Roland, Reed, one of the parties to a contract,
attempted to revoke its acceptance of a bulldozer it had bought
from Roland. Roland denied Reed was entitled to rescind its
acceptance. Roland, 339 Ill. App. 3d at 1095-96, 791 N.E.2d at
717-18. The object of the declaratory judgment was whether Reed
had a right to rescind its acceptance. Reed alleged Roland had
already taken action by refusing to accept its rescission of
acceptance and could not bring a declaratory-judgment action.
The court found the action was to determine the consequences of
future action: in the event Reed returned the dozer, would
Roland be obligated to accept it and return the purchase price?
Roland, 339 Ill. App. 3d at 1102, 791 N.E.2d at 723.
- 25 -
According to these cases, the only circumstance that
would cause a court to dismiss a declaratory-judgment action
would be where no future conduct is left to be guided by the
court and the declaration would simply be a declaration of
liability on past conduct. Here, the court was guiding Regency
on whether to proceed with the agreement to commence the lease.
Future actions must take place by both Regency and Pictor before
Regency could become amenable to suit by Lopax. The fact these
future actions have not yet occurred is fatal to Lopax's asser-
tion that a declaratory judgment in this case is barred by the
doctrine of nonliability for past conduct.
Although there was an agreement to lease, the language
of the agreement precluded the parties from carrying out the
lease before this case is resolved. According to the agreement,
the lease term begins on the "[c]ommencement [d]ate," which is
defined as the "date upon which the lawsuit referenced in section
[33.34] has been resolved and the [l]ease will commence. Parties
agree to sign a letter to set this date." By its own terms, the
lease does not commence until "successful resolution of the
lawsuit". Pictor cannot take possession until the commencement
date, which is after this lawsuit is successfully resolved, i.e.,
in favor of Regency.
The lease term may not begin until the parties' rights
are declared in this action. Depending on its outcome, the lease
term may never commence. By the terms of the lease agreement,
Pictor cannot begin operating any business that may compete with
- 26 -
Lopax's business until this suit is resolved.
The pivotal question is whether there is any future
conduct to be guided by the court's declaration of rights.
Roland Machinery, 339 Ill. App. 3d at 1102, 791 N.E.2d at 723.
In this case, there is future conduct to be guided. Thus, the
trial court was correct in denying Lopax's motion for summary
judgment.
C. Production of the Entire Lease Agreement
Generally, rulings with regard to discovery are subject
to the abuse-of-discretion standard of review. Reda v. Advocate
Health Care, 199 Ill. 2d 47, 54, 765 N.E.2d 1002, 1007 (2002).
Lopax contends if facts are uncontroverted and the issue is an
application of law to facts, a reviewing court may determine the
correctness of a discovery ruling independently of the trial
court's judgment. Norskog v. Pfiel, 197 Ill. 2d 60, 70-71, 755
N.E.2d 1, 9 (2001).
In Norskog, the appeals court was deciding whether
disclosure of mental-health information is prohibited by statu-
tory discovery privilege and whether any exception to privilege
applies. Thus, it was strictly a matter of law and reviewed de
novo. Norskog, 197 Ill. 2d at 71, 755 N.E.2d at 9. Lopax notes
in this case, the trial court ruled on its motion to compel after
deciding the issue of the existence of the lease. Lopax contends
the existence of the lease was a legal issue similar to the
statutory-privilege issue in Norskog. If the lease existed,
clearly it was relevant to Lopax's position on the applicability
- 27 -
of the declaratory-judgment statute. While production of the
lease itself was not a legal issue, its existence was, just like
the privilege in Norskog.
However, the existence of the privilege was not the
issue in Norskog but whether the privilege applied in the partic-
ular circumstances. This case does not deal with a statutory
discovery privilege. The lease agreement does not fall under a
statutory or other privilege. The issue was simply its relevancy
to one issue: whether Buffalo Wild Wings was a fast-food restau-
rant.
Relevant evidence includes not only what is admissible
at trial but what leads to admissible evidence. Manns v. Briell,
349 Ill. App. 3d 358, 361, 811 N.E.2d 349, 352 (2004). Lopax
contends a primary focus of its defense is the existence of the
lease prior to the filing of the declaratory-judgment action.
Therefore, it contends it is inconceivable to conclude the lease
is irrelevant to issues raised in its motion for summary judg-
ment, which was based solely on the existence of the lease prior
to filing suit. Because it only had parts of the lease, Lopax
argues it was not able to set forth a full and complete defense
and was prejudiced by being forced to interpret limited sections
of the lease produced based on Regency's opinion as to relevance.
Lopax contends it should not be compelled to rely on Regency's
assertions that only the clauses released are relevant or not
subject to an assertion of proprietary business information.
Certain portions of the Pictor agreement are or could
- 28 -
be relevant to issues raised by Lopax in this matter, i.e.,
whether Buffalo Wild Wings is a fast-food restaurant and whether
future conduct remains to be guided by the court's declaration of
rights. Regency contended it produced those portions that (1)
identified the parties, (2) touched on the nature of the Buffalo
Wild Wings operation, or (3) made the entire relationship between
Regency and Pictor contingent on the outcome of this action.
The threshold relevance requirement in discovery is
whether items requested are actually relevant to issues in the
case. See Manns, 349 Ill. App. 3d at 361, 811 N.E.2d at 352
(court does not have discretion to order discovery of information
not meeting threshold requirement of relevance to matter actually
at issue in the case). The trial court conducted an in camera
review of the lease agreement and, thus, Lopax was not forced to
rely on Regency's assertions of relevancy or proprietary informa-
tion. In its ruling, the court noted it found nothing relevant
to the issues in dispute, stating "nothing in these agreements
refer to or can be interpreted to relate to a fast[-]food busi-
ness."
While Lopax argued to the trial court its objection to
the in camera review of the lease because it put the court in the
position of an advocate for Lopax, which position only its own
counsel could fill, it does not argue this point on appeal.
The issue of nonliability for past conduct, based on
the existence of the lease agreement, was determined, as we have
seen, based on the contingency clause, which clause was disclosed
- 29 -
to Lopax. The relevancy of the remainder of the lease agreement
as to the remaining issue of whether Buffalo Wild Wings was a
fast-food restaurant was assessed by the trial court in its
in camera review. Thus, Lopax was not prejudiced by any inter-
pretation of relevancy placed on the agreement by Regency. We
have reviewed the lease agreement at issue and find no abuse of
discretion on the part of the trial court in denying Lopax's
motion to compel disclosure.
III. CONCLUSION
For the foregoing reasons, we affirm the trial court's
judgment.
Affirmed.
TURNER, J., concurs.
COOK, J., dissents.
- 30 -
JUSTICE COOK, dissenting:
I respectfully dissent. I would reverse, and hold that
Buffalo Wild Wings is a restaurant facility whose primary food
product is chicken and accordingly barred by the contract.
Parol evidence should not be considered in this case.
This contract contains an integration clause. Paragraph 8.2
provides:
"Entire Contract. This [c]ontract con-
stitutes the entire agreement between [s]eller
and [b]uyer, and there are no other covenants,
agreements, promises, terms and provisions,
conditions, undertakings or understandings
either oral or written, between them con-
cerning the [p]roperty other than those herein
set forth."
When a contract contains an integration clause, it is improper to
consider extrinsic evidence of prior negotiations to create an
extrinsic ambiguity. Air Safety, Inc. v. Teachers Realty Corp.,
185 Ill. 2d 457, 462-64, 706 N.E.2d 882, 884-85 (1999) ("four
corners" rule).
Paragraph 4.1(h) of the contract prohibits use of the
real estate for the purpose of conducting "any fast[-]food (QSR)
- 31 -
restaurant or restaurant facility whose principal food product is
chicken." The language seems clear. A fast-food restaurant,
like KFC, whose principal food product is chicken, is specifi-
cally prohibited. More broadly, any restaurant facility whose
principal food product is chicken is also prohibited. The trial
court found Buffalo Wild Wings not to be a fast-food restaurant,
but there is no dispute that Buffalo Wild Wings's principal food
product is chicken.
The parties agree that the words "whose principal food
product is chicken" modify both "restaurant" and "restaurant
facility." Regency argues the words "fast food (QSR)" modify
both "restaurant" and "restaurant facility." The problem with
Regency's argument is that there appears to be no difference
between a fast-food "restaurant" serving primarily chicken and a
fast-food "restaurant facility" serving primarily chicken. The
parties agree there are two categories here and there has to be a
difference between them, otherwise one of the categories is
surplusage. The obvious difference is that "fast food" modifies
only the word it precedes, not the words "restaurant facility"
which follow later, after the word "or."
Regency, however, attempts to create a distinction
between the two categories by a narrow and unusual definition of
"restaurant facility" as "a limited food[-]service operation
located in a multi-outlet food court, or embedded in a department
store, shopping center, or similar retail setting." That defini-
tion is found only in the self-serving affidavit of Regency's
- 32 -
president, and is contradicted elsewhere in the agreement where
KFC itself (a stand-alone restaurant) is referred to as a "res-
taurant facility." A "facility" is something that is built to
serve a particular purpose, such as a medical facility, an
educational facility, or a recreational facility. See Merriam
Webster's Collegiate Dictionary 415 (10th ed. 2000) ("facility":
"4b: something (as a hospital) that is built, installed, or
established to serve a particular purpose"). There is no re-
quirement that a "facility" be embedded in some other operation.
The affidavit of Regency's president, which is relied on to show
ambiguity, is extrinsic evidence used to create an extrinsic
ambiguity in violation of the parol evidence rule. Air Safety,
185 Ill. 2d at 463-64, 706 N.E.2d at 885. There is no indication
in the contract that the parties were concerned with embedded
food operations. They were concerned with food operations like
KFC, that served primarily chicken.
Our construction of contracts seems to vary between
extremes. If we declare the contract not to be ambiguous, that
is the end of the matter and we make no attempt to construe,
interpret, or understand it. Dusthimer v. Board of Trustees, 368
Ill. App. 3d 159, 857 N.E.2d 343 (2006); Berryman Transfer &
Storage Co. v. New Prime, Inc., 345 Ill. App. 3d 859, 863, 802
N.E.2d 1285, 1288 (2004). If we declare the contract to be
ambiguous, we ignore the language of the contract and turn to any
and all extrinsic evidence, even preliminary negotiations between
the parties barred by the parol evidence rule. Slip op. at 8-9.
- 33 -
There should be a middle ground, where we focus on the language
of the contract. See, e.g., the Uniform Commercial Code (810
ILCS 5/2-202 (West 2004)), which allows terms to be explained or
supplemented by usage of trade, or course of performance, but not
contradicted by evidence of any prior agreement. We should be
reluctant to discard the parol evidence rule. The parol evidence
rule bars the introduction of the most questionable form of
extrinsic evidence--self-serving testimony by one of the parties
as to what the parties "really" agreed to in the negotiations
leading up to the signing of the contract. R. Posner, The Law
and Economics of Contract Interpretation, 83 Tex. L. Rev. 1581,
1600 (2005). The testimony of independent experts, however, may
be considered. White City Shopping Center, LP v. PR Restaurants,
LLC, 21 Mass. L. Rptr. 565 n.4 (October 31, 2006) (a burrito is
not a sandwich).
Paragraph 4.1(h) identifies some (but not all) specifi-
cally prohibited businesses, all of which seem to be fast-food
chicken restaurants. The paragraph goes on to describe another
prohibited category:
"Other than the aforementioned restaurants
which shall absolutely be prohibited, a
restaurant shall be deemed to 'feature bone-
less chicken or chicken sandwiches' only if
the primary business of such restaurant is
the sale of such items."
That language is consistent with the construction that fast-food
- 34 -
restaurants whose principal food product is chicken are specifi-
cally prohibited, and more broadly, any restaurant facility whose
principal food product is chicken is also prohibited. Paragraph
4.1(h) goes on to list some types of restaurants that are not
prohibited, like dinner houses, seafood restaurants, Italian
restaurants and "casual dining" restaurants. Those restaurants
apparently do not primarily feature chicken. It is interesting
that none of the examples given make any distinction between
stand-alone restaurants and embedded restaurants, which Regency
argues is the meaning of "restaurant facility."
Even if we were to consider the negotiations of the
parties, those negotiations support Lopax's argument that there
are two categories here, fast-food restaurants, and more broadly,
any restaurant facility. Lopax wanted to "prohibit all
fast-food restaurants, not just those serving primarily chicken."
Slip op. at 12. Lopax also wanted to prohibit all restaurant
operations serving chicken. "Indeed, Lopax's concern consis-
tently was not over the level of service but the serving of
chicken." Slip op. at 12. Regency/Arbours wanted to limit the
prohibitions. Regency/Arbours refused to go along with a prohi-
bition on all fast-food restaurants such as McDonald's. Re-
gency/Arbours insisted that only restaurants "whose principal
food product is chicken" (emphasis added) would be prohibited.
From the beginning, the parties were discussing two categories,
fast-food restaurants and restaurants in general. Regency/Ar-
bours added similar restrictions to both categories, but the
- 35 -
parties never expressed the intent to limit the contract to fast-
food restaurants, as they could have done by eliminating the
second category.
The memoranda recorded April 17, 2002, and August 6,
2002, did not amend the contract. The purpose of recording a
memorandum of contract is to put the public on notice that a
contract exists. It is not necessary that the entire contract be
recorded. A prospective buyer has the duty to investigate and
determine the provisions of the contract. Smith, 402 Ill. at
465, 84 N.E.2d at 428 ("Under the circumstances present in this
case, a prudent person would have sought light from [the] plain-
tiff. This, [the] defendants failed to do. They were not
innocent purchasers for value"). The original memorandum here
summarized the provisions of paragraph 4.1(h) in a single sen-
tence. The amended memorandum discussed some of the paragraph's
limitations (within one mile of the real estate; shall expire if
use ceases for 90 days; dinner houses are allowed), perhaps
because Regency was concerned that prospective buyers would see
the recorded memorandum and not inquire further. The majority's
construction of the memoranda does not read "restaurant facility"
to mean embedded restaurant, as Regency argues, but instead
serves to strike the term from the contract.
- 36 -