Opinion
2-23-0245
06-11-2024
BEAR VALLEY PARTNERS, Plaintiff-Appellant, v. McDONALD'S CORPORATION, and DIAL REALTY GENEVA, LLC, Defendants-Appellees.
This order was filed under Supreme Court Rule 23(b) and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).
Appeal from the Circuit Court of Kane County. No. 20-MR-138 Honorable Mark A. Pheanis, Judge, Presiding.
JUSTICE BIRKETT delivered the judgment of the court. Justices Hutchinson and Schostok concurred in the judgment.
ORDER
BIRKETT, JUSTICE.
¶ 1 Held: The circuit court properly granted summary judgment in favor of defendants where: (1) liquidated damages provision in commercial ground lease permitting restaurant tenant to abate 50% of its rent for as long as another restaurant operated within the same shopping center was not an unenforceable penalty; (2) subsequent amendments to the Construction, Operation, and Reciprocal Easement Agreement (COREA) applicable to the shopping center was not a de facto amendment to the ground lease; (3) the applicable statute of limitations barred plaintiff's claims premised on prior landlord's purported obligation to acquire neighboring lot and record restrictions against it for benefit of tenant; and (4) plaintiff landlord suffered no damages stemming from prior landlord's failure to record a proposed amendment to the COREA. Therefore, we affirmed.
¶ 2 This dispute arose when defendant, McDonald's Corporation (McDonald's), began withholding 50% of the rent and other payments owed to plaintiff landlord, Bear Valley Partners (Bear Valley), pursuant to a ground lease for the property known as Lot 4 in the Fabyan Crossing Shopping Center (Fabyan Crossing) in Geneva, Illinois. McDonald's, which has operated a restaurant on Lot 4 since the mid-1990s, contended that the opening of an Oberweis Ice Cream &Dairy Store/That Burger Joint/Woodgrain Pizzeria (Oberweis) with a drive-thru facility in Fabyan Crossing violated the noncompete covenant in the ground lease, thereby triggering a liquidated damages provision.
The site plan and an ordinance approved by the City of Geneva appear in the record. They reflect that these three restaurants share a common 4,200-square-foot building space. Specifically, customers enter though a shared main entrance and may patronize any of the three restaurants, similar to a food court. A shared drive-thru also allows customers to place orders at any of these restaurants from their vehicles.
¶ 3 Bear Valley filed suit against McDonald's, as well as Dial Realty, Geneva, LLC (Dial), the entity from which it, in 2006, acquired Lot 4. Discovery was completed, and the parties each filed motions for summary judgment. After extensive briefing, the circuit court examined the contracts pertinent to Bear Valley's suit and concluded that McDonald's was permitted to reduce its rent payments and that Dial had no duty to indemnify Bear Valley for that loss. The trial court entered orders granting summary judgment in favor of McDonald's and Dial. Bear Valley timely appeals from those orders. We affirm.
¶ 4 I. BACKGROUND
¶ 5 Fabyan Crossing is a commercial shopping center located at the northwest corner of Fabyan Parkway and Randall Road. It was originally conceived in the early 1990s, when it was developed into five lots. At that time, Venture Stores (Venture) owned Lot 1, which was the largest lot, and the developer, Joe Keim Land Corporation (Keim), owned Lots 2, 3, 4, and 5.
¶ 6 Fabyan Crossing is subject to various restrictions and easements as recorded in a Construction, Operation, and Reciprocal Easement Agreement dated October 28, 1993, and recorded in the office of the Kane County Recorder on November 8, 1993, as document No. 93K88421 (the COREA). The COREA was executed by Keim and Venture (who, at that time, collectively owned all of the lots at Fabyan Crossing) and reflected their effort "to make an integrated use of the Shopping Center Site and to develop and improve [it] as a retail shopping center."
¶ 7 Under the COREA, Lot 4 is subject to a unique combination of advantages and limitations not shared by the other lots at Fabyan Crossing. This is evidenced by at least three specific provisions, which are all implicated in the instant controversy. First, the COREA defines "Party" as the "Developer" and Venture or any successor acquiring any interest in any portion of "such Party's Parcel," but it excludes from that definition "any Person owning any Peripheral Parcel." "Peripheral Parcel," in turn, is defined as Lot 4. Second, the COREA imposes certain restrictions and prohibitions on the types of businesses that may operate at Fabyan Crossing. Pertinent here, Article 13.5, titled "Limitation on Detrimental Characteristics, prohibits the use or operation of "[a]ny restaurants, bars or taverns," as well as any" 'drive thru,' 'drive up,' 'walk thru,' or 'walk up'" service or area. However, any "Peripheral Parcel," is exempt from these restrictions. Finally, Article 21, titled "Amendment," provides that the COREA may be amended "by a writing signed and acknowledged by all of the Parties and recorded in the office of the Recorder for Kane County, Illinois." The cumulative impact of these provisions is that a restaurant or drive-thru may be operated only on Lot 4, but the owner of that lot has no authority to propose, approve, or object to any proposed amendments to the COREA. The inverse is also true. No restaurant or drive-thru may be operated on Lots 1, 2, 3, or 5, but the owners of those lots are entitled to propose, approve, or object to any amendments to the COREA.
¶ 8 The Ground Lease
¶ 9 On October 20, 1994, Dial, as landlord, and McDonald's, as tenant, entered into a "Ground Lease" concerning Lot 4. At that time, Dial did not yet own Lot 4, but it warranted that it would obtain title by the time it tendered possession to McDonald's. The Ground Lease was contingent upon the execution and recording of a proposed amendment to the COREA, which was attached to the Ground Lease and identified as Exhibit J. That same day, Keim and Venture, as the only Parties to the COREA, executed an amendment to the COREA (First COREA Amendment) as contemplated in the Ground Lease. Although a restaurant with a drive-thru was already permitted on Lot 4, the First COREA Amendment approved a site plan for the development of a McDonald's restaurant on Lot 4 and clarified certain obligations, such as the allocation of parking spaces and common area maintenance costs. The First COREA Amendment was recorded on October 27, 1994, as document No. 94K080286.
¶ 10 Under the Ground Lease, McDonald's is obligated to pay the landlord (1) rent in accordance with a fixed rent schedule, (2) the general real estate taxes associated with Lot 4, and (3) certain maintenance fees for the upkeep of the common areas in Fabyan Crossing. The Ground Lease has an original term of 20 years commencing when a McDonald's restaurant opened for business to the public. However, it grants McDonald's the option to extend the lease term "for four (4) successive periods of five (5) years each," and the option to purchase Lot 4 "during the final year of the second option period," meaning late 2024 or early 2025. Thus, if McDonald's elects not to purchase Lot 4 at the end of the second option period, it has two remaining options to extend the lease term for five years each. If McDonald's exercises both options to extend, the Ground Lease will expire in July 2035.
¶ 11 Section 4 of the Ground Lease, entitled "Warranties and Covenants," imposes a number of obligations on the landlord. Pertinent to this appeal are sections 4(G) and 4(J). Section 4(G) includes a covenant not to compete, in that the landlord warrants that no restaurant or food service establishment, other than the McDonald's restaurant at Lot 4, would operate at Fabyan Crossing while the Gound Lease is in effect. Specifically, it provides:
"Covenant Not To Compete: Landlord covenants and agrees that no property within Fabyan Crossing *** (other than [Lot 4]) or as expressly provided in the [COREA] by and among [Keim] and [Venture Stores] *** dated October 28, 1993 ("REA") recorded in the Kane County's [sic] Recorder's office on November 9, 1993 as document #93K88421 shall during the term of this Lease and any extensions, be leased, used or occupied as a restaurant, food service establishment, drive-in or walk-up eating facility. Landlord further covenants and agrees that no other peripheral parcels shall be permitted within [Fabyan Crossing] except as shown on the attached Exhibit F."
Dial and McDonald's also agreed on liquidated damages in the event the covenant not to compete is breached. Specifically, section 4(G) further provides:
"If this covenant is broken, one-half (1/2) of all payments required to be made by [McDonald's] under this [Ground] Lease shall be abated for so long as such breach continues. The total sums so abated shall be liquidated damages for such breach and not a penalty, the parties agreeing that [McDonald's] inevitably must sustain proximate and
substantial damages from such breach, but that it will be very difficult, if not impossible, to ascertain the amount of such damage. In addition to this remedy, [McDonald's] shall be entitled to injunctive and other appropriate relief, whether under the provision of this [Ground] Lease or otherwise."
¶ 12 Section 4(J) expressly concerns a lot other than Lot 4, in that it purports to impose "[r]estrictions on Lot 2." Specifically, it provides:
"Within ten (10) days of the acquisition of Lot 2 *** in [Fabyan Crossing,] Landlord shall record a restriction against such Lot which provides:
(i) That the owner of such Lot 2 shall not consent to close off any of the Common Areas (as such term is defined in the [COREA]) without the prior written consent of [McDonald's] except for temporary repairs and maintenance of such areas.
(ii) That the owner of Lot 2 shall not execute any amendment or modification of the [COREA] without [McDonald's] prior written consent;
(iii) That the owner of Lot 2 shall not agree to any amendment or modification of the rules and regulations for [Fabyan Crossing] without [McDonald's] prior written consent;
(iv) That the owner of Lot 2 shall[,] if necessary[,] take legal action if necessary against any party who is in default or is in breach of the [COREA] in an effort to stop such breach or default if requested to do so by [McDonald's]. In the event of such legal action, [McDonald's] shall direct such legal action and shall be responsible for all of the attorney's fees and costs incurred for such action."
The Ground Lease makes no other mention of Lot 2.
¶ 13 Section 21 of the Ground Lease, titled "Prior Agreement" states:
"Notwithstanding anything to the contrary herein, the terms of the [Ground Lease] are specifically made subject and subordinate to the terms, conditions, covenants and restrictions contained in the [COREA] as amended by Exhibit J, the Annexation Agreement recorded as document #93K88416 in the Recorder's Office of Kane County, Illinois and the Planned Development Ordinance #93-43 passed October 18, 1993 pertaining to [Lot 4] and adjacent property."
Exhibit J is the First COREA Amendment.
¶ 14 Subsequent Events
¶ 15 After the Ground Lease and First COREA Amendment were executed, Dial acquired Lots 4 and 5 from the developer, Keim. A McDonald's restaurant was constructed on Lot 4, and it opened for business in July 1995. Dial at no point acquired Lot 2 or recorded any restrictions on it as contemplated in section 4(J) of the Ground Lease.
McDonald's exercised its option to extend the Ground Lease in 2015 and 2020 and, as a result, a McDonald's restaurant has operated on Lot 4 for approximately the past 30 years. The restaurant is operated by a franchisee who pays rent to McDonald's.
¶ 16 By November 1996, none of the original Parties to the COREA owned any lot in Fabyan Crossing. At that time, each of the then-lot owners of Fabyan Crossing, namely Kimven II Corporation (Lot 1), Dodi Geneva, LLC (Lot 2), Eagle Food Centers, Inc. (Lot 3), and Dial (Lots 4 and 5)), executed a Second COREA Amendment. Among other changes, the Second COREA Amendment revised Article 13.5 to permit a grocery store on Lot 2 or Lot 3 to operate a small, onsite restaurant incidental to the grocery store, provided it did not sell hamburgers or similar products. It left intact the prior restrictions on restaurants, and it did not create any additional peripheral parcels. The Second COREA Amendment was recorded in the office of the Kane County recorder on March 3, 1998, as document No. 98K016448.
We presume that Dial executed the Second COREA Amendment solely in its capacity as the owner of Lot 5, because the owner of Lot 4 is expressly not a Party under the COREA and thus lacks the right to propose, approve, or object to any amendments.
¶ 17 The Failed Outback COREA
¶ 18 Eight years later, in 2006, the then-owner of Lot 1, Kimco Geneva 822, Inc. (Kimco) wished to create a new outlot within Lot 1 for the purpose of allowing an Outback Steakhouse restaurant to operate there. To that end, various owners of the lots in Fabyan Crossing proposed amending Article 13.5 to permit, on the new outlot, "a sit-down restaurant," which was defined as "any establishment that offers as the primary method of service for all meal times, food and drink orders taken and served by a waiter or waitress at the customers [sic] table" (Outback COREA). The prohibition in Article 13.5 against any" 'drive thru,' 'drive up,' 'walk thru,' or 'walk up'" service or area remained. The lot owners were identified as: Kimco (Lot 1), Fabyan Crossing II, LLC (Lot 2), Eagle (Lot 3), and Dial (Lots 4 and 5). During negotiations, Dial informed Kimco that it would not agree to the Outback COREA without McDonald's consent. On September 13, 2006, McDonald's notified Dial that it had reached an agreement with Kimco "on the form and substance" of the Outback COREA, and that it would consent to Dial executing it.
Again, we presume that Dial contemplated withholding its signature from the Outback COREA solely by virtue of its ownership of Lot 5-not Lot 4-because Lot 4 is not a Party under the COREA and therefore lacked the authority to object to any amendments thereto.
¶ 19 Bear Valley's Acquisition of Lot 4 from Dial
¶ 20 On September 28, 2006, while negotiations regarding the Outback COREA were ongoing among the various lot owners, Bear Valley entered into an agreement to purchase Lot 4 from Dial (Purchase Agreement). The Purchase Agreement included an assignment of the Ground Lease and COREA, forms for an estoppel certificate to be executed by McDonald's, and a copy of the Outback COREA. Pertinent to Bear Valley's claims on appeal, the Purchase Agreement obligated Dial to "cause the Parties to the existing [COREA] to execute, notarize and record the [Outback COREA]" prior to closing. Dial and Bear Valley also executed an "Assignment and Assumption of Lease" (Assignment of Lease) so that Bear Valley could assume the role of McDonald's landlord under the Ground Lease upon its acquisition of Lot 4. The Assignment of Lease included an indemnification provision, where Dial agreed to
"defend, indemnify and hold [Bear Valley] harmless from any and all claims, liabilities, obligations, costs and expenses, including reasonable attorneys' fees arising out of or in any way related to any failure by [Dial] to perform or cause to be performed any of the terms, covenants, duties and conditions and/or obligations required to be kept, performed, fulfilled by the Landlord/Lessor under the terms of the [Ground] Lease, accruing before [November 22, 2006]."
McDonald's also executed an estoppel certificate affirming that it was the tenant under the Ground Lease, that the Ground Lease was in full force and effect, and that it had no knowledge of any defaults in Dial's performance, as landlord, of its covenants under the Ground Lease.
¶ 21 During negotiations concerning the purchase of Lot 4, Dial and Bear Valley executed a number of amendments to the Purchase Agreement. In October 2006, they entered into a "First Amendment to Purchase Agreement," which again obligated Dial to "cause the Parties to the existing [COREA] to execute, notarize, and record" the Outback COREA. On November 20, 2006, they entered into a "Second Amendment to Purchase Agreement." There, Bear Valley acknowledged that Dial had executed the Outback COREA and had forwarded it to Kimco, but that it had not yet been recorded. They agreed that, nevertheless, Bear Valley "understands and accepts that [Lot 4] is subject to [the Outback COREA]."
¶ 22 On November 21, 2006, Bear Valley's chief financial officer, David Case, sent a letter to Dial (Indemnification Letter) explaining that the "recording of [the Outback COREA] satisfies [Bear Valley's] concerns that the COREA could be amended by its Parties to permit a restaurant or peripheral parcel building that causes Landlord to violate the terms of Paragraph 4G (Covenant Not to Compete) of the [Ground] Lease." The letter also expressly served to memorialize the oral agreement reached between Bear Valley and Dial regarding the possibility that the Outback COREA would not be recorded. Specifically, the letter provided:
"In order to induce [Bear Valley] to close Escrow before the [Outback COREA] has been recorded, [Dial] has agreed to indemnify [Bear Valley] from and against any and all claims, damages, liabilities, costs, including reasonable attorneys fees, etc., raised by McDonald's, or their successors or assigns as Tenant under the McDonald's [Ground] Lease, arising out of any alleged violation by [Dial] under the [Ground] Lease of *** Paragraph 4G (Covenant Not to Compete) that would have been cured by the recording of [the Outback COREA]. This indemnity shall survive the close of Escrow, but shall expire upon the recording of the [Outback COREA]."
The following day, Dial confirmed its agreement to indemnify Bear Valley according to the terms of the Indemnification Letter.
¶ 23 The sale was completed on November 22, 2006. Bear Valley acquired Lot 4 and became landlord under the Ground Lease for the McDonald's restaurant located there. However, sometime after Bear Valley's acquisition of Lot 4, the proposed Outback Steakhouse development fell through, and the Outback COREA was not signed by all the Parties or duly recorded.
¶ 24 For approximately the next 12 years following its acquisition of Lot 4, Bear Valley acted, in Case's words, as a "passive landlord" for the McDonald's restaurant located there, and McDonald's remitted all payments to Bear Valley as required under the Ground Lease.
¶ 25 Third COREA Amendment/Development of an Oberweis on Lot 1
¶ 26 In 2018, the new owners of Lots 1 and 2, namely Geneva Center 2015, LLC (Geneva Center) and Wauconda, LLC (Wauconda), respectively, resurrected the idea of creating a new outlot on Lot 1 for the purpose of allowing a standalone restaurant to operate there. On March 30, 2018, Geneva Center and Wauconda signed a Notice of Designation of Party's Agent under the COREA, under which Geneva Center appointed Wauconda as "Party Agent" for the owners of Lots 2, 3, 4, and 5. That same day, Geneva Center and Wauconda executed a Third COREA Amendment that, among other changes, created a new outlot on Lot 1 and amended section 13.5 of the COREA to allow a" 'drive thru', 'drive up', 'walk thru' or 'walk up' service or 'parcel pick up' area" to operate there.
¶ 27 On October 12, 2020, an Oberweis, complete with a drive-thru, opened to the public on the newly created outlot. McDonald's thereafter reduced its rent payments to Bear Valley by 50% pursuant to the liquidated damages provision in section 4(G) of the Ground Lease.
¶ 28 Bear Valley Initiates Suit
¶ 29 In January 2020, Bear Valley filed suit against McDonald's and Dial. It initially sought only declaratory relief but, in January 2021, Bear Valley filed an amended complaint to reflect that the Oberweis had since opened, and that McDonald's had abated its monthly rent payments by 50%. The amended complaint included ten counts, the first four of which were directed against McDonald's. Count I sought a declaratory judgment that McDonald's was not entitled to reduce its payments under the Ground Lease because (1) the operation of an Oberweis on Lot 1 did not violate the non-compete covenant because the Third COREA Amendment operated as a de facto amendment to the Ground Lease, and (2) the liquidated damages was an unenforceable penalty. Count II sounded in breach of contract and alleged that McDonald's violated the Ground Lease by improperly withholding half of its payment obligations because the Third COREA Amendment expressly permitted the Oberweis to operate at Fabyan Crossing.
¶ 30 Bear Valley pleaded the remaining counts in the alternative to counts I and II. Count III alleged that McDonald's committed fraud in 2006, when it executed the estoppel certificate stating that it had no knowledge of any defaults in Dial's performance under the Ground Lease. Specifically, it contended that McDonald's knew that Dial failed to acquire Lot 2 and record restrictions against it as contemplated in section 4(J) of the Ground Lease. It reasoned that, had Dial complied with these obligations, the COREA could not have later been amended to allow a competing restaurant at Fabyan Crossing without McDonald's prior written consent. Based on these contentions, Bear Valley argued, in Count IV, that McDonald's should be equitably estopped from reducing its payments.
¶ 31 Counts V through X were directed at Dial. Specifically, count V sought a declaratory judgment that Dial was required to indemnify Bear Valley for McDonald's reduced payments. Based on that argument, counts VI, VII, and VIII asserted three separate claims for breach of contract, respectively: Dial's failure to (1) secure the execution and recording of the Outback COREA as required in the Purchase Agreement, (2) indemnify Bear Valley for Dial's breach of the Purchase Agreement, and (3) indemnify Bear Valley for Dial's breach of the Ground Lease for failure acquire Lot 2 and record restrictions against it, as required by the Assignment. Counts IX and X asserted claims for promissory estoppel and fraud, respectively.
¶ 32 Bear Valley moved for summary judgment against McDonald's as to counts I and II and against Dial on counts V through X. Bear Valley did not move for summary judgment on counts III and IV, which were pleaded in the alternative to counts I and II and which raised claims against McDonald's of fraud and equitable estoppel, respectively. Dial and McDonald's each moved for summary judgment as to all counts directed at them. After the motions were fully briefed, the trial court heard oral argument on May 22, 2023, and took the matter under advisement.
¶ 33 Summary Judgment Entered in Favor of McDonald's and Dial
¶ 34 On June 20, 2023, the trial court entered two orders that are the subject of this appeal. In one order, the court denied Bear Valley's motion for partial summary judgment as to McDonald's and granted McDonald's motion for summary judgment as to counts I through IV of the amended complaint. Specifically, with respect to count I, the trial court examined the three factors outlined in Jameson Realty Group v. Kostner, 351 Ill.App.3d 416 (2004), and concluded that section 4(G) of the Ground Lease was a valid and enforceable liquidated damages clause. Concerning count II, the court agreed with McDonald's that the Ground Lease was "subject and subordinate" only to the First COREA Amendment, and that there was no language to support Bear Valley's argument that the Ground Lease was subordinate to all future amendments to the COREA. With respect to counts III and IV, the court examined the Ground Lease and concluded that, although it imposed certain obligations on the owner of Lot 2, nothing actually required Dial to acquire or purchase Lot 2. Rather, Dial's obligations in that regard would be triggered only in the event that someone or some entity acquired Lot 2. As a result of that determination, it concluded that McDonald's was entitled to summary judgment on Bear Valley's fraud claim (count III) and equitable estoppel claim (count IV). The court further found that Bear Valley failed to present any evidence of a false statement of material fact, as required to state a claim of fraud or equitable estoppel.
¶ 35 In a separate written order, also entered on June 20, 2023, the circuit court likewise entered summary judgment against Bear Valley as to all counts that pertained to Dial. The court concluded that Bear Valley's complaint, as directed against Dial, was barred by the 10-year statute of limitations applicable to written contracts, and that the discovery rule did not toll the limitations period. It continued that, even if it considered the merits of Bear Valley's complaint, summary judgment in favor of Dial would be appropriate because plaintiff's claims were grounded in an erroneous interpretation of both the Ground Lease and the Purchase Agreement. Specifically, it found that (1) the Ground Lease did not require Dial to acquire Lot 2, (2) Bear Valley failed to establish damages related to Dial's failure to record the Outback COREA, (3) Bear Valley had no claim for promissory estoppel because the Purchase Agreement was an enforceable, written contract, and (4) Bear Valley presented no facts in support of its fraud claim.
¶ 36 Bear Valley timely filed a notice of appeal.
¶ 37 II. ANALYSIS
¶ 38 Bear Valley argues on appeal that the circuit court erroneously entered summary judgment in favor of McDonald's and Dial. It offers five main arguments in support, namely, that (1) section 4(G) of the Ground Lease is an unenforceable penalty clause, (2) there was no violation of the noncompete covenant because the Oberweis was expressly permitted by the Third COREA Amendment, (3) Bear Valley presented sufficient evidence to support its fraud and equitable estoppel claims against McDonald's where the Ground Lease required Dial to purchase Lot 2 and record certain restrictions against it for the benefit of Lot 4, (4) Dial was obligated to indemnify Bear Valley under the Purchase Agreement, and (5) Bear Valley's claims against Dial are not untimely.
Bear Valley makes no argument regarding the grant of summary judgment in favor of Dial as to counts IX and X, and it has therefore forfeited these claims on appeal. See Ill. Sup. Ct. R. 341(h)((7) (eff. Oct. 1, 2020) (points not argued are forfeited).
¶ 39 Summary judgment is appropriate where "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." 735 ILCS 5/2-1005(c) (West 2022). In evaluating whether a genuine issue of material fact exists, the court must construe the pleadings and evidentiary material strictly against the movant and liberally in favor of the opponent. In re Marriage of Brubaker, 2022 IL App (2d) 200160, ¶ 22. However, the existence of factual questions that are unrelated to the essential elements of a cause of action will not preclude a court from granting summary judgment to the moving party. Staley Continental, Inc. v. Ventura Sales &Management Co., 228 Ill.App.3d 174, 179 (1992). Where, as here, the parties file cross-motions for summary judgment, they agree that only a question of law is involved, and they invite the court to decide the case based upon the record. Pielet v. Pielet, 2012 IL 112064, ¶ 28. However, the filing of cross-motions for summary judgment neither demonstrates the absence of an issue of material fact nor obligates the court to render summary judgment. Id. Summary judgment is a drastic measure and should be reserved only for those cases where the right of the moving party is clear and free from doubt. Buchaklian v. Lake County Family Young Men's Christian Ass'n, 314 Ill.App.3d 195, 199 (2000). We review de novo a trial court's decision to grant a motion for summary judgment. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill.2d 90, 102 (1992). In applying de novo review, we apply the same analysis that the circuit court performs, and we give no deference to the trial judge's conclusions or rationale. Waters v. City of Chicago, 2012 IL App (1st) 100759, ¶ 8.
¶ 40 A. Validity of the Liquidated Damages Provision
¶ 41 Bear Valley first argues on appeal that the liquidated damages clause in the Ground Lease operates as an invalid penalty provision and, therefore, the trial court erred in granting summary judgment in favor of McDonald's.
¶ 42 Damages for breach of contract are intended to place the nonbreaching party in the same position it would have been had the contract been fully performed. Delatorre v. Safeway Insurance Co., 2013 IL App (1st) 120852, ¶ 36. A liquidated damages provision sets a reasonable, predetermined amount of damages in the event of a breach by one of the parties in situations where the amount of actual damages would be difficult to ascertain. Karimi v. 401 North Wabash Venture, LLC, 2011 IL App (1st) 102670, ¶ 27. See also Siegel v. Levy Organization Development Co., Inc. ("Liquidated damages clauses are often entered into to avoid the difficulty of ascertaining and proving damages by such methods as market value, resale value, or otherwise"). Because liquidated damages clauses are utilized when actual damages would be difficult to forecast at the time of contracting and difficult to ascertain in the event of a breach, "the set amount [of liquidated damages] may at times exceed actual damages, and other times actual damages may exceed the set amount." Karimi, 2011 IL App (1st) 102670, ¶ 27. Sophisticated parties who enter into a contract containing a valid liquidated damages clause accept this inherent risk. Id. Courts will generally give effect to liquidated damages provisions "if the parties have expressed their agreement in clear and explicit terms and there is no evidence of fraud or unconscionable oppression." Hartford Fire Insurance Co. v. Architectural Management, Inc., 194 Ill.App.3d 110, 115 (1990).
¶ 43 However, it is a general rule of contract law that, for reasons of public policy, courts will not enforce liquidated damages clauses that either operate as a penalty for nonperformance or as a threat to secure performance. Jameson, 351 Ill.App.3d at 423. Moreover, an award of liquidated damages is improper where it would confer a windfall upon the non-breaching party. GK Development, Inc. v. Iowa Malls Financing Corp., 2013 IL App (1st) 112802, ¶ 47. Thus, in interpreting contract provisions that specify a fixed damages amount in the event of a breach, courts must distinguish between liquidated damages, which are enforceable, and penalties, which are not. Id.
¶ 44 Under Illinois law, there is no fixed rule applicable to all liquidated damages provisions, and each provision must be evaluated and decided on its own facts and circumstances. Dallas v. Chicago Teachers Union, 408 Ill.App.3d 420, 424 (2011); Jameson, 351 Ill.App.3d at 423. Illinois courts will generally find a liquidated damages provision to be valid and enforceable where (1) the parties intended to agree in advance to the settlement of damages that might arise from the breach, (2) the amount of liquidated damages was reasonable at the time of contracting, bearing some relation to the damages which might be sustained, and (3) actual damages would be uncertain in amount and difficult to prove. Grossinger Motorcorp, Inc. v. American National Bank &Trust Co., 240 Ill.App.3d 737, 749 (1992). The burden of proving that a liquidated damages clause operates as a penalty and is thus invalid as a matter of law rests with the party resisting its enforcement. Pav-Saver Corp. v. Vasso Corp., 143 Ill.App.3d 1013, 1019 (1986). The determination of whether a contractual damages provision is a valid liquidated damages clause, or an unenforceable penalty clause, is a question of law which is subject to de novo review. Dallas v. Chicago Teachers Union, 408 Ill.App.3d 420, 424 (2011).
¶ 45 In the case at bar, we determine that section 4(G) of the Ground Lease is a valid and enforceable liquidated damages clause, and that there is no genuine issue of material fact that this provision is not an unenforceable penalty provision or constitutes a windfall for McDonald's. A straightforward application of the factors outlined in Grossinger compels this result.
¶ 46 As it relates to the first Grossinger factor, there is no question that Dial and McDonald's intended to agree in advance to the settlement of damages that might arise from the breach of the covenant not to compete outlined in section 4(G) of the Ground Lease. Indeed, Bear Valley concedes that this first factor is satisfied, and it offers no substantive argument against this conclusion. Nevertheless, we briefly analyze it for the sake of completeness. Again, section 4(G) provides:
"Covenant Not To Compete: Landlord covenants and agrees that no property within Fabyan Crossing *** (other than [Lot 4]) or as expressly provided in the [COREA] by and among [Keim] and [Venture Stores] *** dated October 28, 1993 ("REA") recorded in the Kane County's [sic] Recorder's office on November 9, 1993 as document #93K88421 shall during the term of this Lease and any extensions, be leased, used or occupied as a restaurant, food service establishment, drive-in or walk-up eating facility. Landlord further covenants and agrees that no other peripheral parcels shall be permitted within [Fabyan Crossing] except as shown on the attached Exhibit F.
***
If this covenant is broken, one-half (1/2) of all payments required to be made by [McDonald's] under this [Ground] Lease shall be abated for so long as such breach
continues. The total sums so abated shall be liquidated damages for such breach and not a penalty, the parties agreeing that [McDonald's] inevitably must sustain proximate and substantial damages from such breach, but that it will be very difficult, if not impossible, to ascertain the amount of such damage. In addition to this remedy, [McDonald's] shall be entitled to injunctive and other appropriate relief, whether under the provision of this [Ground] Lease or otherwise."
¶ 47 This unambiguous language demonstrates that Dial and McDonald's considered the possibility of a specific breach, namely the operation of a restaurant, food service establishment, drive-in or walk-up eating facility in Fabyan Crossing other than on Lot 4, as well as agreed to specific damages if that event occurred, namely the abatement by 50% of all payments required to be paid by McDonald's to the landlord. Almost to avoid any doubt, section 4(G) expressly provides that McDonald's would suffer "substantial damages" in the event another restaurant operated at Fabyan Crossing during the lease term, and that the damages it would suffer would be "very difficult, if not impossible to ascertain." The provision further provides that the abated sums "shall be liquidated damages for such breach and not a penalty." While not conclusive, this language should be given some weight, as the trial court recognized. Penske Truck Leasing Co., L.P. v. Chemetco, Inc., 311 Ill.App.3d 447, 455 (2000). The first factor necessary to validate a liquidated damages provision is easily satisfied, because Dial and McDonald's, both of which are sophisticated entities, unambiguously intended to agree in advance to the settlement of damages that might arise in the event the covenant not to compete was breached.
¶ 48 Regarding the second Grossinger factor, it is clear that the liquidated damages amount (i.e. a 50% abatement of all payments due under the Ground Lease for so long as the breach continues) was reasonable and bears some relation to the damages that McDonald's might sustain if a competing restaurant operated in Fabyan Crossing. In evaluating this factor, courts look not to "whether the actual damages ultimately caused by the breach are exactly the same as the amount specified in a liquidated damages provision, but rather whether the liquidated damages amount is a reasonable forecast of and bears some relation to the loss, as forecast at the time of contracting." Dallas v. Chicago Teachers Union, 408 Ill.App.3d 420, 425 (2011) (citing Jameson, 351 Ill.App.3d at 423). The goal is to avoid a windfall for the nonbreaching party and the imposition of a penalty on the breaching party. See GK Development, 2013 IL App (1st) 112802, ¶ 47. Mathematical precision is neither necessary nor possible, and imprecision is an inherent risk when contracting parties agree to a liquidated damages provision.
¶ 49 The Ground Lease, which was executed in 1994, includes a detailed rent schedule for each year of the lease-including its initial 20-year term and the four subsequent five-year periods in which McDonald's has the option to extend the lease term. Specifically, for the first ten years following the opening of a McDonald's restaurant on Lot 4, McDonald's was obligated to pay $4166.66 per month (approximately $50,000 per year) in rent plus real estate taxes and common area maintenance fees, which McDonald's estimates were $1937 per month (approximately $23,250 per year). Thus, in the event the covenant not to compete was breached within the first year of the Ground Lease, an abatement of 50% of McDonald's payment obligations would have been approximately $3052 per month, or roughly $100 per day. The figures are not significantly different for a breach occurring even today. During the second five-year option to extend the Ground Lease, which runs from 2021 to 2025, McDonald's is obligated to pay monthly rent of $6766.67 (approximately $81,200 per year), plus real estate taxes, which were $25,866 for the 2021 tax year. Thus, a 50% abatement of those payments is approximately $4461 per month, or $148 per day. It was reasonable for Dial and McDonald's to expect, at the time of contracting, that the McDonald's restaurant would experience lost revenues of $100 per day in 1994, or $148 per day in 2022, if a competing restaurant operated in Fabyan Crossing, and this amount does not approach the type of windfall that would invalidate section 4(G). See GK Development, 2013 IL App (1st) 112802 (holding that $4.3 million liquidated damages provision was unenforceable where there was no evidence the parties considered what would be an appropriate damages amount for a minor delay in performance as opposed to the complete failure to perform). Here, the estimate of lost revenues was sensible and reflects an effort to fix damages in an amount that was proportional to the potential damages that might arise from a breach. Moreover, the fact that the liquidated damages provision abates 50% of the payments required to be made by McDonald's only "for so long as such breach continues" further demonstrates that the amount was reasonably related to the actual damages McDonald's would suffer in the event it had to compete for business with another restaurant at Fabyan Crossing.
Bear Valley does not contest the accuracy of this estimate in its briefs.
¶ 50 Bear Valley argues that the trial court erred in finding as a matter of law that section 4(G) was enforceable because the liquidated damages amount "bears no reasonable relationship to the damages McDonald's might sustain." It argues that McDonald's presented no evidence that, in 1994, it was a reasonable forecast of the actual damages that it might sustain in the event a competing restaurant opened in Fabyan Crossing. Bear Valley's argument reflects its apparent dissatisfaction with the sufficiency of the evidence McDonald's presented rather than an actual absence of any evidence. In its motion for summary judgment, McDonald's offered substantive evidence in the form of an affidavit prepared by Mary Meyer, who was a real estate lead for the McDonald's field office in Chicago. In that role, she was responsible for handling various local real estate matters, such as relocations, rebuilds, and property management. She averred, pertinently, that "McDonald's regularly seeks, and regularly obtains, exclusivity provisions in its leases," and that the "50% rent abatement terms in Section 4(G) *** are standard for McDonald's, and [she has] seen very similar (if not identical) language in numerous other McDonald's leases." She further averred that, in her experience, "McDonald's does so because it invests significant financial resources into developing and operating its locations and seeks to protect that significant economic investment" from competing restaurants. She continued that "McDonald's spent hundreds of thousands of dollars to construct the restaurant at Fabyan Crossing," which was a location which she was "very familiar" with.
¶ 51 Bear Valley challenges the "50% figure" on the basis that it is merely a "standard [and] generic" figure that "McDonald's simply plugs into thousands of its ground leases." It maintains that McDonald's should have been required to affirmatively demonstrate the reasonableness of the provision by preparing a statistical comparison of "actual sales information resulting from noncompete violations" with sales information from other McDonald's locations in "similar shopping centers without such competition." This argument is untenable, because it erroneously attempts to flip the burden of persuasion on this issue to McDonald's. Bear Valley, as the party seeking to invalidate the liquidated damages provision, bore the burden of establishing that it was an unenforceable penalty. Pav-Saver Corp., 143 Ill.App.3d at 1019. Bear Valley points to nothing in the record that even attempts to carry that burden. Even on appeal, it fails to explain how, in October 1994, the abatement of 50% of the rent payments was an unreasonable forecast of the "substantial damages" that McDonald's would "inevitably *** sustain" if another restaurant operated in Fabyan Crossing. Bear Valley also fails to detail what amount of damages it believes would have been foreseeable at the time of contracting.
¶ 52 Bear Valley's reliance on 2336 N. Clark, LLC v. Hair Fairies, Inc., 2022 IL App (1st) 211597-U, is misplaced. There, a landlord and tenant entered into a five-year commercial lease agreement providing that, in the event the tenant defaulted on its rent obligations, the landlord would be entitled to liquidated damages in the amount of the rent owed through the end of the lease term, which was October 2023. Id. ¶¶ 12, 30. The tenant ceased making full rent payments in March 2021, and the trial court awarded the landlord $173,500 in liquidated damages, which represented the rental payments for the 27 months that remained on the lease at the time of trial. Id. ¶¶ 12, 16. On appeal, the court reversed the damages award, finding that the liquidated damages provision unreasonably penalized nonperformance in an amount that was unmoored to any estimated damages resulting from the breach. Id. ¶ 31. The court emphasized that, in the event of a breach, the rent acceleration clause would have awarded the landlord up to five years of rent payments, which could result in a sizable windfall if the landlord re-let the space to another tenant before the expiration of the lease term. Id. Section 4(G) bears no resemblance to the accelerated rent provision that the court in 2336 N. Clark invalidated, and the case is therefore of limited application. Here, section 4(G) does not call for a lump sum accelerated rent payment equal to the total rent owed for the remainder of the lease, but rather, provides for an abatement of rent only "for so long as the breach continues."
¶ 53 Bear Valley contends that the logic of 2336 N. Clark should nevertheless apply, because there is no evidence that Dial and McDonald's contemplated that McDonald's would extend the Ground Lease, perhaps even to the year 2035, despite a breach of the covenant not to compete. It asserts, therefore, that McDonald's could receive a significant windfall in the form of reduced rent payments for the remainder of the lease, and it notes that McDonald's exercised the current option period in 2021, which was after the Oberweis opened. This argument is misguided.
¶ 54 Like Bear Valley, the original parties to the Ground Lease are sophisticated business entities. They undoubtedly understood that provisions governing (1) the term length and any extensions thereof, and (2) damages in the event of a breach, are among the most prominent features of any contract. It is improbable that, in entering the Ground Lease, Dial and McDonald's simply overlooked the potential for McDonald's to exercise its option to extend the lease term despite an ongoing breach of the non-compete agreement. To that end, we agree with the trial court's analysis that, although it is possible that McDonald's could receive more than what its actual damages are as the result of the operation of a competing restaurant in Fabyan Crossing, section 4(G) may also significantly underestimate its damages, and the provision by no means guarantees that McDonald's will receive a windfall. Again, McDonald's monthly payment obligations under the Ground Lease are reduced by 50% only for so long as the breach continues, and we cannot say that the abatement of roughly $100 per day in 1994, or $148 per day in 2022, constitutes a windfall-especially where the original parties to the Ground Lease agreed that McDonald's would incur "substantial damages" in the face of an ongoing breach of the covenant not to compete.
¶ 55 The third factor courts utilize in assessing the validity of liquidated damages provisions is whether actual damages would be difficult to ascertain and difficult to prove. Grossinger, 240 Ill.App.3d at 750. This factor, too, requires an examination as of the "time of contracting, not the time of breach." Jameson, 351 Ill.App.3d at 423. We agree with McDonald's that, when the Ground Lease was drafted in 1994, it would have been virtually impossible for Dial and McDonald's to accurately assess the actual damages McDonald's would incur in the event the covenant not to compete was breached.
¶ 56 On this point, we are persuaded by Red Sage Limited Partnership v. DESPA Deutsche Sparkassen Immobilien-Anlage-Gasellschaft MBH, 254 F.3d 1120 (D.C. 2001). There, a restaurant sought a declaration that its landlord breached an exclusive-use covenant by renting space in the same building to a specialty cake shop. Id. at 1122. Similar to the instant case, the landlord covenanted that it would not "permit any other tenant within the Building to operate a bar, restaurant or food service establishment of any kind" while the restaurant was "operating a bar and/or a restaurant." Id. at 1120. In the event of a breach of the exclusive covenant, the lease provided that "one half (1/2) of the Base Rent payable hereunder shall be abated during the period that the Competing Use is operated in the Building." Id.
¶ 57 The D.C. Circuit Court analyzed the liquidated damages provision using an analysis similar to what Illinois courts utilize (see id. at 1126-27) and upheld the rent abatement provision as a matter of law (id. at 1127). The court noted that, even if the restaurant could demonstrate a loss in sales, it would be nearly impossible to isolate the new competitor as the sole reason for the decline. Id. at 1127. It also noted that the restaurant would likely suffer damages beyond lost sales, such as lost opportunities to increase sales and damages to "intangible losses such as lost goodwill, which would likewise be difficult to calculate and prove." Id. The court further recognized that liquidated damages clauses, if implemented in situations where damages are difficult to estimate, will usually end up either over- or under-estimating actual damages. Id. at 1130. It continued that, despite the wide range of possible actual damages, "the parties may have had good reason for wanting a broad exclusive use covenant." Id. Thus, because the liquidated damages provision was not obviously one-sided or obviously intended to impose a penalty to coerce performance, and because rent abatement was not unreasonable when considering the range of possible damages, the liquidated damages clause was enforceable as a matter of law. Id.
¶ 58 In the instant case, like in Red Sage, the practical challenges of isolating and quantifying the impact that a competing restaurant in Fabyan Crossing would have on the McDonald's restaurant is evident. First, the presence of a rival restaurant would impact several intangible factors, such as McDonald's brand reputation, community perception, and customer loyalty. See id. at 1127. Second, and more fundamentally, it would affect customer preferences and market conditions in the immediate vicinity-especially if the other restaurant offered similar cuisine (i.e., hamburgers and ice cream) that customers obtain via similar ordering methods (i.e., ordering at a counter or drive-thru). Determining the number of customers and the amount of gross revenue that McDonald's would lose due to the presence of a competing restaurant, as opposed to losses resulting from other factors, would be extremely challenging, if not impossible. See id.
¶ 59 Bear Valley argues that, despite these complexities, direct damages would be easily determinable because McDonald's closely tracks its sales data, including transaction counts and gross revenue. In making this point, Bear Valley appears to argue that a comparison of McDonald's sales data before and after the breach could serve as a valid basis for quantifying damages, similar to the report Meyer prepared that McDonald's attached to its motion for summary judgment. It also posits that McDonald's could have utilized data from its other restaurants to conduct an analysis of the economic harm that it could anticipate if a competing restaurant operated at Fabyan Crossing. This argument is unavailing because such data is seldom a reliable indicator of actual damages.
¶ 60 As the parties' arguments demonstrate, the data is reasonably subject to conflicting interpretations. For example, Bear Valley emphasizes that gross revenue at the McDonald's on Lot 4 "actually increased in spite of the existence of the Oberweis." McDonald's, on the other hand, emphasizes that the number of transactions at that location decreased by 2000 per month after the Oberweis opened, and that the growth in gross sales was the result of price increases in its menu items. It also points out that gross sales were already increasing at that location long before the Oberweis opened, and that revenues would have been higher if the Oberweis had never opened. While we are cognizant that courts must assess the reasonableness of liquidated damages provisions from the time of contracting rather than from the time of breach (Grossinger, 240 Ill.App.3d at 749), these arguments and data underscore how difficult it would be to accurately quantify McDonald's actual damages, which only strengthens our determination that the liquidated damages provision in this case is valid and enforceable as a matter of law.
It is unclear whether Bear Valley is arguing that McDonald's damages were de minimis or that the presence of a competing restaurant somehow benefited McDonald's sales.
¶ 61 Bear Valley's final argument against the validity of the liquidated damages provision is that McDonald's option to purchase Lot 4 during the final year of the second option period (between July 2024 and July 2025), will constitute a windfall. It asserts that, because the "most common method of determining the value of property is based upon the amount of rent generated, by reducing the rent by 50%, McDonald's has effectively reduced the value of the property by 50%." Bear Valley does not point to any evidence in the record to support this argument, and we view it as sheer speculation. Section 14 of the Ground Lease governs McDonald's "Option to Purchase," and it provides that the "purchase price shall be the value *** as determined by the written agreement of the Landlord and Tenant." It continues that, in the event the landlord and tenant are unable to agree as to a fair market value, the value shall be estimated by two qualified real estate appraisers, with landlord and tenant each making one appointment thereof. If the appointed appraisers are unable to agree to a value not differing by more than 15%, then a third appraiser is independently appointed who would determine the fair market value. Section 14 does not establish a formula (whether based on the historical receipt of rental payments or otherwise) to arrive at a fair market value for Lot 4, and Bear Valley's argument is unsubstantiated conjecture at best. We therefore reject it.
¶ 62 B. Applicability of COREA Amendments that Postdate the Ground Lease
¶ 63 Bear Valley's second argument on appeal is that the presence of an Oberweis at Fabyan Crossing is not a violation of the covenant not to compete because the Third COREA Amendment operates as a de facto amendment to the Ground Lease, and McDonald's therefore breached the Ground Lease when it began to abate its monthly payments. In other words, it contends that the Ground Lease is subject and subordinate to the COREA and all further amendments thereto-not just the First COREA Amendment. It asserts that, as a result, the trial court's grant of summary judgment in favor of McDonald's on count II was in error.
¶ 64 Bear Valley points to section 21 of the Ground Lease, which provides that the Ground Lease is "subject and subordinate to the terms, conditions, covenants and restrictions contained in the [First COREA Amendment]," and Article 21 of the COREA, which states that the COREA "may be amended or modified from time to time." Interpreting these provisions in tandem, Bear Valley reasons that, because the Third COREA Amendment was properly approved and recorded, the Ground Lease became subject and subordinate to it. Bear Valley concludes that the covenant not to compete was therefore not breached because the Third COREA Amendment expressly permitted the opening of an Oberweis on Lot 1 and, as a result, the "Ground Lease was amended" to likewise allow the Oberweis. In essence, Bear Valley contends that section 21 of the Ground Lease operates as an exception to section 4(G)'s exclusivity covenant for restaurants that are allowed by future amendments to the COREA. McDonald's responds that the Ground Lease is subject and subordinate only to the First COREA Amendment, because that is the specific iteration of the COREA that is identified in section 21, and any contrary interpretation would be absurd.
¶ 65 In construing the provisions of a contract, our primary objective is to give effect to the parties' intent at the time the contract was formed. Camelot, Inc. v. Burke Burns &Pinelli, Ltd., 2021 IL App (2d) 200208, ¶ 48. The express language of the contract is the best indicator of the parties' intent. Board of Directors of Olde Salem Homeowners' Ass'n v. Secretary of Veterans Affairs, 226 Ill.App.3d 281, 286 (1992). If the language in the contract is clear and unambiguous, the court determines the intent of the parties only by examining that language and without the use of extrinsic evidence. Camelot, Inc., 2021 IL App (2d) 200208, ¶ 48. The contract should be considered as a whole to give effect to the parties' intent, and the court should afford great weight "to the principal apparent purpose and intention of the parties at the time of contracting." Vole, Inc. v. Georgacopoulos, 181 Ill.App.3d 1012, 1020 (1989). Ambiguity in a contract is not created simply because the parties disagree on the interpretation of a contract, but rather, a contract will be deemed ambiguous only if its terms are susceptible to more than one reasonable interpretation. Central Illinois Light Co. v. Home Insurance Co., 213 Ill.2d 141, 153 (2004). We construe a contract as a whole, viewing each provision in light of its other provisions. Thompson v. Gordon, 241 Ill.2d 428, 441 (2011).
¶ 66 Here, the plain and unambiguous language supports McDonald's position that the Ground Lease is subject and subordinate only to the First COREA Amendment-and not subsequent amendments to the COREA that may permit a restaurant on a lot in Fabyan Crossing other than on Lot 4. As noted, section 21 of the Ground Lease provides:
"Prior Agreement. Notwithstanding anything to the contrary herein, the terms of the [Ground Lease] are specifically made subject and subordinate to the terms, conditions, covenants and restrictions contained in the [COREA] as amended by Exhibit J, the Annexation Agreement recorded as document #93K88416 in the Recorder's Office of Kane County, Illinois and the Planned Development Ordinance #93-43 passed October 18, 1993 pertaining to [Lot 4] and adjacent property."
This language clearly references a particular iteration of the COREA, namely the COREA "as amended by Exhibit J," which is the First COREA Amendment. There is no indication in section 21 that the parties intended for the Ground Lease to be subject and subordinate to all future amendments to the COREA, as noted by the trial court. Dial and McDonald's affixed the First COREA Amendment to the Ground Lease, identified it as an operative exhibit, and clearly intended for the Ground Lease to be governed by its terms. We also observe that section 21 of the Ground Lease is entitled "Prior Agreement," which suggests that Dial and McDonald's had a mutual understanding that the Ground Lease was contingent on the terms of the First COREA Amendment, as initially agreed upon, and that their respective contractual rights were fixed at that point in time.
¶ 67 Bear Valley's reading of section 21 is problematic for two reasons. First, neither the owner of Lot 4 nor McDonald's is a "Party" under the COREA and, as a result, neither entity is empowered under the COREA to propose, approve, or object to any amendments thereto. It would be illogical to make the Ground Lease subservient to unknown future amendments when neither entity has a direct voice in the amendment process. Second, and perhaps more importantly, Bear Valley's interpretation of section 21 would effectively nullify the protections afforded to McDonald's under the covenant not to compete. Once again, section 4(G) provides:
"Covenant Not To Compete: Landlord covenants and agrees that no property within Fabyan Crossing *** (other than [Lot 4]) or as expressly provided in the [COREA] by and among [Keim] and [Venture Stores] *** dated October 28, 1993 ("REA") recorded in the Kane County's [sic] Recorder's office on November 9, 1993 as document #93K88421 shall during the term of this Lease and any extensions, be leased, used or occupied as a restaurant, food service establishment, drive-in or walk-up eating facility. Landlord further covenants and agrees that no other peripheral parcels shall be permitted within [Fabyan Crossing] except as shown on the attached Exhibit F."
¶ 68 Bear Valley's argument, in essence, is that the covenant not to compete may be breached only if an unauthorized restaurant is opened at Fabyan Crossing. Although a number of exceptions have been carved out over the years, each iteration of the COREA generally prohibits the use or operation of any restaurant or drive-thru except on Lot 4; no restaurant may be constructed on Lots 1, 2, 3, or 5, without an amendment to the COREA that expressly permits that use. Common experience tells us that no entrepreneur would embark on constructing a restaurant at Fabyan Crossing without first obtaining the necessary approvals-including an amendment to the COREA. Under Bear Valley's interpretation of the Ground Lease, the covenant not to compete protects McDonald's against a fanciful risk, i.e., the unauthorized operation of a competing restaurant, but leaves it vulnerable to an actual risk-the operation of a restaurant allowed by an amendment to the COREA. Bear Valley offers no reasoned explanation as to why Dial or McDonald's would have intended such a bizarre result and, in light of the clear and unambiguous language to the contrary, we reject its strained interpretation of the covenant not to compete. See Hot Light Brands, L.L.C. v. Harris Realty, Inc., 392 Ill.App.3d 493, 499 (2009) (courts should not interpret a contract in a way that renders one clause meaningless). See also Rubin v. Laser, 301 Ill.App.3d 60, 68 (1998) (courts should construe a contract so as to avoid absurd results). The trial court properly granted summary judgment in favor of McDonald's as to count II.
¶ 69 C. Bear Valley's Fraud and Equitable Estoppel Claims Against McDonald's
¶ 70 Bear Valley next contends that the trial court erred in granting summary judgment in McDonald's favor as to counts III and IV-which asserted claims of fraud and equitable estoppel, respectively. These claims are rooted in Dial's alleged non-performance of its obligations under the Ground Lease (entered in 1994), but they reach McDonald's by virtue of McDonald's execution (in 2006) of an estoppel certificate affirming that it was unaware of any defaults in Dial's performance thereunder.
¶ 71 Bear Valley points to section 4(J) of the Ground Lease which, in its view, obligated Dial to purchase Lot 2 and record restrictions prohibiting the owner of that lot from executing any amendment or modification to the COREA without McDonald's consent. It emphasizes that, had such restrictions been recorded against Lot 2, McDonald's would have been empowered to object to the Third COREA Amendment and prevent the Oberweis from opening at Fabyan Crossing. Bear Valley asserts that, despite these obligations, Dial never acquired Lot 2 or encumbered it with the required restrictions, which is a breach of the Ground Lease. It continues that McDonald's knew Dial was in default, but that McDonald's provided Bear Valley with a "false and misleading" estoppel certificate anyway. It further contends that McDonald's knew Bear Valley would rely on that misrepresentation and that Bear Valley, in good faith, "believed that Dial purchased Lot 2 and that the restrictions associated with Lot 2 had been recorded" prior to November 22, 2006, which is the effective date of the Purchase Agreement.
¶ 72 Likely influenced by the trial court's analysis of this issue, Bear Valley and McDonald's dispute whether the estoppel certificate contained a false statement of material fact, which is the first element of a common law fraud claim. Miller v. William Chevrolet/GEO, Inc., 326 Ill.App.3d 642, 648 (2001). Bear Valley insists that section 4(J) unambiguously required Dial to purchase and record restrictions against Lot 2 that would have protected McDonald's interests and shielded it from having to compete with another drive-thru restaurant at Fabyan Crossing. Conversely, McDonald's is steadfast that the language in section 4(J) is "permissive rather than mandatory," because that section "simply states that if Dial *** acquires Lot 2, then it must record a restrictive covenant." (Emphasis in original.) As in its motion for summary judgment, McDonald's also argues on appeal that summary judgment was warranted on these claims because Bear Valley did not file suit within the statute of limitations. The trial court found McDonald's timeliness arguments "persuasive," but it ultimately resolved these claims on the merits by concluding that the Ground Lease did not obligate Dial to acquire Lot 2, and that Dial's obligation to record restrictions against it would be triggered only "when someone or some entity" acquires it.
¶ 73 We agree with McDonald's that counts III and IV of the amended complaint were untimely and that summary judgment in its favor was appropriate. See Suchy v. City of Geneva, 2014 IL App (2d) 130367, ¶ 19 ("[w]e review the trial court's judgment, not its reasoning, and we may affirm on any grounds in the record, regardless of whether the trial court relied on those grounds"). In Illinois, it is well established that fraud claims are subject to the five-year statute of limitations set forth in section 13-205 of the Code of Civil Procedure (735 ILCS 5/13-205 (West 2020)). CitiMortgage, Inc. v. Parille, 2016 IL App (2d) 150286, ¶ 43; Doe v. Diocese of Dallas, 234 Ill.2d 393, 413 (2009). This limitations period likewise applies to claims of equitable estoppel which, although typically raised as an affirmative defense, may also be raised as a freestanding cause of action, similar to promissory estoppel. Gold v. Dubish, 193 Ill.App.3d 339, 347-48 (1989). See also Friedman &Friedman, Ltd. v. Basic, 2012 IL App (1st) 112642-U (stating that equitable estoppel is an independent cause of action brought "under the same theory as promissory estoppel"); and Molina v. First Line Solutions LLC, 566 F.Supp.2d 770, n. 14 (N.D. Ill. 2007) (applying Illinois law and stating that a five-year statute of limitations is applicable to promissory estoppel claims).
¶ 74 Counts III and IV of Bear Valley's amended complaint are predicated on McDonald's statement that it had no knowledge of any defaults in the Ground Lease by Dial as of November 15, 2006-when McDonald's executed the Estoppel Certificate. Bear Valley acquired Lot 4 one week later, on November 22, 2006. Bear Valley does not point to any specific act or omission by McDonald's involving the Estoppel Certificate that occurred after November 15, 2006, in support of counts III or IV. The trial court made a similar observation in entering summary judgment, when it noted that Bear Valley's "sole argument for the fraudulent misrepresentation count is McDonald's statement that it had no knowledge of any defaults in the [G]round [L]ease by Dial as of November 15, 2006," and that Bear Valley "fails to present any other evidence of a false statement of material fact required for either fraudulent misrepresentation or equitable estoppel." Because Bear Valley alleges no facts beyond McDonald's November 15, 2006, execution of the Estoppel Certificate, any fraud-based claim premised on the Estoppel Certificate needed to be no later than November 15, 2011, to be timely. However, Bear Valley did not file its initial complaint until January 24, 2020, which is more than eight years after the limitations period expired.
¶ 75 Bear Valley argues that the common law discovery rule should toll the statute of limitations until 2018, which is when it first learned that an Oberweis Dairy would be developed on Lot 1. In its response to McDonald's motion for summary judgment, Bear Valley explained that "[a]s soon as [it] was made aware of the plans regarding Oberweis and the 2018 recorded Third [COREA] Amendment, Bear Valley learned that the [Outback COREA] Amendment had never actually been recorded by Dial and that Lot 2 had never been acquired." In essence, Bear Valley's argument is that the limitations period should be tolled because it did not investigate the title to Lot 2-which is a matter of public record-until after the limitations period for its claims had expired.
¶ 76 Our Supreme Court has adopted the "discovery rule," which "postpones the start of the limitations period until a party knows or reasonably should know both that an injury has occurred and that it was wrongfully caused." Khan v. Deutsche Bank AG, 2012 IL 112219, ¶ 22. See also Vogt v. Bartelsmeyer, 264 Ill.App.3d 165, 173 (1994) ("[t]he effect of the discovery rule is to postpone the starting of the period of limitations until the injured party knows or should have known of his injury"). The rule is intended to ameliorate the potentially harsh results of the mechanical application of the statute of limitations until the injured party knows or reasonably should know of the injury and that the injury was wrongfully caused. Henderson Square Condo Ass'n, 2015 IL 118139, ¶ 52; Khan v. Deutsche Bank AG, 2012 IL 112219, ¶ 20. The intent behind the discovery rule is "to prevent the unfairness of charging the plaintiff with knowledge of facts which were 'unknown and inherently unknowable.'" Golla v. General Motors Corp., 167 Ill.2d 353, 360 (1995) (quoting Urie v. Thompson, 337 U.S. 163, 169 (1949)). Generally, the determination of the point at which a statute of limitations begins to run under the discovery rule is a question of fact (Rasgaitis v. Waterstone Financial Group, Inc., 2013 IL App (2d) 111112, ¶ 30), but the question becomes one of law and may be resolved on summary judgment where the facts are undisputed and support only one conclusion (Henderson Square Condo Ass'n, 2015 IL 118139, ¶ 52).
¶ 77 Bear Valley's argument fails because it focuses on when it acquired actual knowledge that Dial did not acquire Lot 2 while ignoring that it easily could and should have discovered that fact in 2006 during its due diligence review. As noted, the discovery rule incorporates a constructive knowledge element, in that the limitations period commences when a plaintiff knows or reasonably should know of the injury. See Diotallevi v. Diotallevi, 2013 IL App (2d) 111297, ¶ 27. "Constructive notice is knowledge that the law imputes to a purchaser, whether or not he had actual knowledge at the time of conveyance." Hachem v. Chicago Title Insurance Co., 2015 IL App (1st) 143188, ¶ 27 (citing US Bank National Ass'n v. Villasenor, 2012 IL App (1st) 120061, ¶ 59).
¶ 78 It is well established in Illinois that parties are deemed to be aware, and thus have constructive knowledge, of information that is in the public record. See Eckland v. Jankowski, 407 Ill. 263, 267 (1950) (stating "[a] purchaser of land is charged with constructive notice not only of whatever is shown in the records of the office of the recorder of deeds, but in addition, with matters affecting the title of the land which appear in the records in the circuit, probate, and county courts in the county where the land is situated"); Skrodzki v. Sherman State Bank, 348 Ill. 403, 408 (1932) ("The records of the recorder's office are public records and open alike to all parties. Appellant therefore had constructive notice of what those records contained"); Wheeler v. McEldowney, 60 Ill. 358, 360 (1871) (holding that a bond for a deed on a commercial property, duly recorded in the appropriate office, constituted notice to the entire world). See also Ashby v. Pinnow, 2020 IL App (2d) 190765, ¶ 20 (holding that the recording of deeds with the county recorder put the plaintiff on notice of the deeds' existence, and there is no fraudulent concealment if the party could have discovered the truth of the alleged impropriety through reasonable inquiry); and Hachem v. Chicago Title Insurance Co., 2015 IL App (1st) 143188, ¶ 27 (stating that the purchaser of land is obligated to "examine the record and *** is chargeable with notice of whatever is shown by the record").
¶ 79 Bear Valley was obligated to investigate the pertinent public records at the office of the Kane County Recorder prior to its acquisition of Lot 4. Case testified at his deposition that, by 2006, he had approximately 15 years of experience in the real estate industry, and the due diligence he generally would perform prior to acquiring a property included review of the title and any documents recorded in the local recorder's office, review of any leases, as well as conducting physical studies of the property, environmental surveys, and the like. Although Case could not specifically recall conducting a due diligence review of Lot 4 prior to its acquisition, he had no reason to believe that he did not conduct one. Apparently, no similar due diligence review was undertaken concerning Lot 2, notwithstanding its prominence in the Ground Lease and its direct impact on Lot 4, because a routine title search most certainly would have revealed that Dial did not acquire Lot 2 in 1994 or at any time thereafter. The ownership of Lot 2 and the existence or non-existence of recorded covenants were readily ascertainable from publicly recorded documents, and Bear Valley therefore had constructive notice of what those documents contained in 2006, when McDonald's executed the Estoppel Certificate.
¶ 80 We also observe that, in 2006, Bear Valley had sufficient information to put it on notice to investigate whether Dial had acquired Lot 2 and recorded any encumbrances against it. See Carlson v. Michael Best &Friedrich LLP, 2021 IL App (1st) 191961, ¶ 81 (stating "[d]iscovery for purposes of the statute of limitations may rest upon so-called inquiry notice, where '[o]nce a party knows, or reasonably should know, both of his injury and that the injury was wrongfully caused, the injured person has the burden to inquire further as to the existence of a cause of action.'" (quoting Brummel v. Grosman, 2018 IL App (1st) 162540, ¶ 26)).
¶ 81 In 2006, while Bear Valley was negotiating to purchase Lot 4 from Dial, the Parties to the COREA proposed the Outback COREA, which would have permitted a sit-down restaurant on Lot 1. That document identified the owner of Lot 2 as Fabyan Crossing II, LLC, and should have put Bear Valley on notice that Dial did not own Lot 2. The record confirms that Bear Valley was aware of the proposed Outback COREA and, in fact, the Purchase Agreement required Dial to secure its execution and recordation. Moreover, the Second COREA Amendment-recorded in 1998-was the operative iteration of the COREA at the time the Outback COREA was being considered. The Second COREA Amendment reflected that Dial was not the owner of Lot 2 at that time, either. Rather, Lot 2 was then owned by Dodi Geneva, LLC. Because these documents reflected that Lot 2 was owned by an entity other than Dial, Bear Valley would have been on notice that Dial had not acquired Lot 2, and it was incumbent on Bear Valley to inquire further. For these reasons, the statute of limitations is not tolled, counts III and IV are untimely, and summary judgment in favor of McDonald's on these counts was warranted.
¶ 82 D. Dial's Liability to Indemnify Bear Valley
¶ 83 Bear Valley's remaining arguments on appeal concern several of its counts against Dial. The bulk of these arguments relate to counts VI and VII of the amended complaint, which alleged breach of contract based on Dial's failure to cause the Outback COREA to be executed and filed in the recorder's office as contemplated in the Purchase Agreement and the Indemnification Letter. Bear Valley contends that, because the Outback COREA was not recorded, Dial must indemnify it for the damages it incurred when McDonald's invoked the liquidated damages provision in the Ground Lease following the opening of the Oberweis. This argument fails because, as the trial court properly determined, Bear Valley is unable to establish that Dial's breach of its obligation to cause the Outback COREA to be recorded caused Bear Valley to suffer damages.
¶ 84 In order to sustain a cause of action for breach of contract, a plaintiff must establish an actual loss or measurable damages resulting from the breach. Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100, 149 (2006). Damages are an essential element of a breach of contract action, and a plaintiff's failure to establish damages entitles the defendant to judgment as a matter of law. In re Illinois Bell Telephone Link-Up II, 2013 IL App (1st) 113349, ¶ 19. Damages which are not proximately caused by the breach are not recoverable. Id. ¶ 85 In 2006, the Outback COREA circulated among the Parties to the COREA contemporaneously with Bear Valley's negotiations to purchase Lot 4 from Dial. The Outback COREA would have created a new outlot within Lot 1 and permitted "a sit-down restaurant" to operate there, which was defined as "any establishment that offers as the primary method of service for all meal times, food and drink orders taken by a waiter or waitress at the customers [sic] table." The Outback COREA left intact the prohibition against drive-thru restaurant operations at Fabyan Crossing other than on Lot 4 and, more importantly, it did not preclude future amendments to the COREA or revise Article 21 of the COREA, which governs amendments.
¶ 86 Thus, even if the Outback COREA had been duly executed and recorded, nothing in that document would have prevented any Party under the COREA from creating and recording a subsequent amendment allowing a drive-thru restaurant. Relative to the facts of this case, the recording of the Outback COREA would not have prevented (1) the Third COREA Amendment from being approved and recorded, (2) the Oberweis from operating at Fabyan Crossing, or (3) McDonald's from invoking the liquidated damages clause in the Ground Lease.
¶ 87 The Indemnification Letter, which forms the basis of count VII, actually undermines Bear Valley's position, and it illustrates the fact that no damages accrued from the failure to record. As noted, Bear Valley's chief financial officer, David Case, sent the Indemnity Letter to Dial on November 21, 2006, which was one day before it closed on Lot 4. He wrote that the recording of the Outback COREA "satisfies [Bear Valley's] concerns that the COREA could be amended by its parties to permit a restaurant or peripheral parcel building that causes Landlord to violate the terms of Paragraph 4.G (Covenant Not to Compete) of the [Ground] Lease." Case could not recall the source for this belief at deposition and, on appeal, Bear Valley offers no explanation as to how the Outback COREA would have prevented any amendment to the COREA that would cause Bear Valley to violate the covenant not to compete. The Indemnification Letter further reflects Case's understanding that Dial agreed to indemnify Bear Valley from any damages and costs raised by McDonald's arising out of any violation by the landlord under the covenant not to compete "that would have been cured by the recording of" the Outback COREA. However, the "cure" that Bear Valley hoped for was inefficacious, because the Indemnification Letter expressly would apply only if McDonald's rent reduction would have been prevented by the recording. The Indemnification Letter also did not impose a duty on Dial to prevent the recording of any future amendments, such as the Third COREA Amendment which expressly allowed a competing restaurant and drive-thru to be built and operated at Fabyan Crossing.
¶ 88 Bear Valley appears to concede on appeal that Dial's failure to cause the Outback COREA to be recorded did not cause it any direct damages, but it argues that these claims remain viable because it incurred "consequential damages." It speculates in its opening brief that, "[h]ad the Outback restaurant been built on Lot 1-which was the impetus for the [Outback COREA]-the Oberweis Dairy restaurant would not have been built on that same property years later." It also states, "[h]ad the [Outback COREA] been recorded, it would have *** allowed the establishment of the Outback restaurant, and changed the course of events, thereby preventing Bear Valley from sustaining damages by way of McDonald's rent abatement and diminution in property value of Lot 4." It continues that the Outback COREA "would have 'cured' the situation by preventing the opening of the Oberweis." This theme repeats in the reply brief. There, Bear Valley contends that "Dial's failure to record the 'Outback COREA' set off the chain reaction that ultimately led McDonald's" to invoke the liquidated damages provision in the Ground Lease. Bear Valley offers no other argument linking the non-recordation of the Outback COREA in 2006 with McDonald's decision to invoke the liquidated damages clause 14 years later.
¶ 89 Regarding contract damages, courts in Illinois recognize a distinction between direct damages and consequential damages. Direct damages are damages "that the law presumes to follow the type of wrong complained of." Westlake Financial Group, Inc. v. CDH-Delnor Healthy System, 2015 IL App (2d) 140589, ¶ 31 (citing Black's Law Dictionary 394 (4th ed. 1999)). "Consequential damages" are "losses or injuries that do not flow directly and immediately from a party's wrongful act but rather result indirectly from the act." Id.
¶ 90 Here, the damages arising from McDonald's rent abatement are far too speculative and remote to support either of Bear Valley's claims premised on non-filing of the Outback COREA. See 24 Richard A. Lord, Williston on Contracts § 64:12 (4th ed. 2014) (stating consequential damages are those damages that were reasonably foreseeable or contemplated by the parties at the time the contract was entered into as a probable result of a breach). The possibility that an Outback Steakhouse might have, at one time, occupied the same location that the Oberweis Dairy would later operate from does not mean, even tangentially, that the non-recording of the Outback COREA somehow caused Bear Valley to sustain damages. Bear Valley's argument that the failure to record the Outback COREA "changed the course of events" resembles a cliche plotline from a time-travel movie, where the plot hinges on the notion that the establishment of an Outback Steakhouse in 2006 would have prevented the construction of the Oberweis in 2020. Even if the Outback COREA had been recorded, it does not mean that an actual Outback Steakhouse would have been constructed on Lot 1 or that the restaurant would have remained there for the next 14 years. Given that the Outback COREA did not prohibit further amendments to the COREA, it also would not have prohibited the creation of an additional outlot (whether on Lot 1 or some other lot) that could have hosted the Oberweis. Because no serious argument can be made that McDonald's rent abatement in 2020 was a reasonably foreseeable and probable result of Dial's breach of its obligation to cause the Outback COREA to be executed and recorded, we affirm the trial court's grant of summary judgment in favor of Dial on counts VI and VII of the amended complaint. Because of our resolution, we need not evaluate Bear Valley's argument that its claims against Dial were not untimely because, even if we agreed, these claims would fail.
¶ 91 Bear Valley's final argument on appeal is that the trial court erred in granting summary judgment in favor of Dial as to count VIII (breach of contract) because the Assignment of Lease required Dial, as the seller, to indemnify Bear Valley, as the buyer, for any breach of the Ground Lease by Dial prior to November 22, 2006-the effective date of the Assignment of Lease. Specifically, Dial agreed to
"defend, indemnify and hold [Bear Valley] harmless from any and all claims, liabilities, obligations, costs and expenses, including reasonable attorneys' fees arising out of or in any way related to any failure by [Dial] to perform or cause to be performed any of the terms, covenants, duties and conditions and/or obligations required to be kept, performed, fulfilled by the Landlord/Lessor under the terms of the [Ground] Lease, accruing before [November 22, 2006]."
¶ 92 Just as in its arguments challenging the trial court's summary judgment ruling on counts III and IV, Bear Valley relies on section 4(J) of the Ground Lease which, in Bear Valley's view, unambiguously required Dial to purchase Lot 2 and record restrictions against it that would have prohibited the owner of Lot 2 and its successors from agreeing to amend the COREA without the prior written consent of McDonald's. Because Dial did not purchase Lot 2 or burden it with the encumbrances, Bear Valley maintains that "Dial is required [pursuant to the Assignment of Lease] to indemnify Bear Valley for the damages it incurred as a result of Dial's breach of Section 4(J)."
¶ 93 Count VIII is untimely for the same reason that counts III and IV are untimely. Actions for breach of contract are subject to a 10-year statute of limitations (735 ILCS 5/13-206 (West 2020)), and such actions "ordinarily accrue[ ] at the time of the breach of contract, not when a party sustains damages." Hermitage Corp. v. Contractors Adjustment Co., 166 Ill.2d 72, 77 (1995). Dial, in the Assignment of Lease, expressly indemnified Bear Valley for any breach of the Ground Lease that accrued before November 22, 2006. Thus, any claim for breach of contract necessarily had to be filed no later than ten years later-November 22, 2016. Bear Valley did not file suit until January 24, 2020, and there is no basis to toll the statute of limitations. As previously discussed in the context of Bear Valley's claim against McDonald's based on the Estoppel Certificate (supra ¶¶ 71-81), Bear Valley had constructive notice that Dial did not, in 1994 or at any point after, acquire Lot 2 and record restrictions against it. Because the complaint is untimely, the trial court did not err in entering summary judgment in favor of Dial on count VIII.
¶ 94 III. CONCLUSION
¶ 95 For the above reasons, we affirm the judgment of the circuit court of Kane County.
¶ 96 Affirmed.