R-Five, Inc. v. Shadeco, Inc.

Citations: 712 N.E.2d 913; 305 Ill. App. 3d 635; 238 Ill. Dec. 809; 1999 Ill. App. LEXIS 378Docket: 1-98-2336

Court: Appellate Court of Illinois; June 4, 1999; Illinois; State Appellate Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

Defendants Shadeco, Inc. and Morningstar Lamp Company, Inc. leased industrial property held in an Illinois land trust, where R-Five, Inc. was a named beneficiary. R-Five filed forcible entry and detainer actions against both defendants, which were later consolidated. The trial court dismissed R-Five's second amended complaints, ruling that as a beneficiary of the trust, R-Five lacked the standing to enforce the leases. On appeal, the court examined whether R-Five, as a beneficiary under the trust agreement, could enter into and enforce the leases. The court determined that R-Five did not violate the trust agreement by entering the leases and was indeed the lessor. Consequently, the dismissal of R-Five's complaints was reversed. The subject property in question is located at 4500 South Kolin Avenue, with the legal title held by LaSalle National Trust, N.A. as trustee. The trust agreement authorizes beneficiaries to manage the property, including handling leases, but prohibits them from contracting on behalf of the trustee without consent. Both leases with Shadeco and Morningstar Lamp explicitly identify R-Five as the lessor, with corresponding signatures from R-Five's vice president, Joseph G. Kusper.

On March 22, 1996, the Trustee filed separate complaints against Shadeco and Morningstar Lamp for forcible entry and detainer, alleging lease violations due to non-payment of rent and failure to maintain the premises. Both defendants received a 10-day notice of violations on February 21, 1996. The complaints sought immediate possession and holdover rent, eventually amended to increase monetary damages. Alias summonses were issued, and discovery was initiated by the trial court on April 22, 1996. Shadeco and Morningstar Lamp filed counterclaims for constructive eviction on April 29 and May 30, 1996, respectively, and vacated the premises on May 28 and June 10, 1996. The trial court consolidated the cases on July 1, 1996.

In 1997, the defendants subpoenaed records related to trust No. 118946 and moved to dismiss the Trustee's amended complaints, claiming the leases were executed without authority by R-Five, a beneficiary, in violation of the trust agreement. The Trustee was dismissed with prejudice, and R-Five was substituted as the plaintiff on October 7, 1997. The second amended complaint filed on October 10, 1997, sought only monetary damages, asserting R-Five as a beneficiary and legal titleholder of the property who leased it to the defendants.

Defendants moved to dismiss this complaint, citing failure to state a cause of action and lack of capacity to sue. On December 19, 1997, the trial court denied the capacity motion, confirming R-Five's legal standing as plaintiff. This order was clarified to not address R-Five’s role as lessor. Following additional pleadings, a renewed motion to dismiss the second amended complaint was filed by the defendants, and the matter was taken under advisement after oral arguments on April 3, 1998.

The trial court issued two dismissal orders on April 8 and May 28, 1998, granting the defendants' motion to dismiss with prejudice. The April order dismissed the plaintiff's second amended complaint, which the May order clarified, stating the leases were unenforceable. R-FIVE, the plaintiff, signed the leases on behalf of LaSalle National Trust (now LaSalle National Bank) as Trustee. The trust agreement prohibits beneficiaries from contracting for or in the name of the Trustee. Consequently, R-FIVE lacks standing to pursue forcible entry and detainer actions. 

The appellate review of the dismissal is de novo, focusing on legal questions under sections 2-615 and 2-619. The plaintiff argues that the leases identify R-FIVE as the lessor and that the trust agreement does not prohibit entering into leases. The defendants assert that the trust agreement’s paragraph G renders the leases unenforceable due to the prohibition against beneficiaries contracting for the Trustee. 

Legal precedent indicates that beneficiaries can act as lessors if authorized by the trust agreement. In the case of Klein, the trust language allowed the beneficiary to manage and lease the property. The current trust agreement contains similar language, empowering the beneficiary to enter lease agreements while also prohibiting contracting for the Trustee. This prohibition aligns with the decision in Feinberg v. Great Atlantic & Pacific Tea Co., which the defendants cite to support their position.

The land trust agreement in Feinberg specified that no beneficiary could contract for or bind the trustee, leading to the conclusion that a lease signed by a beneficiary as the trustee's agent was unenforceable. The court highlighted that beneficiaries often mistakenly sign leases in this manner, rendering them meaningless since beneficiaries lack agency authority over the trustee. In contrast, the beneficiary in the current case did not assert any agency status in the leases or riders. Defendants incorrectly claimed that the term "beneficiary" was absent from the lease documents, while the leases explicitly identified "R-Five, Inc. Beneficiary" as the lessor. The leases and riders confirmed that R-Five was acting in its own capacity, not as an agent of the trustee. The court determined that the land trust agreement allowed R-Five to enter leases in its individual name and, therefore, ruled the leases enforceable. The court reversed the trial court's dismissal of the plaintiff's second amended complaint.