Market Street Associates Ltd. v. Frey

21 F.3d 782 (7th Cir. 1994)


Market Street (P) was the lessee of commercial property. The original lease was between J.C. Penny and the General Electric Pension Trust (Frey (D)). J.C. sold its building to D and then leased it back. P was the successor in interest under the original lease. Under paragraph 34 of the lease, the lessee could request the lessor (D) to finance the costs and expenses of improvements to the premises. If the lessor declined that request, the lessee could then purchase the property under a formula in the contract. The market value at the time of the suit was probably $3 million. The formula allowed the purchase to be done at $1 million. P sued D to enforce the sale provision. The District Court denied specific performance, and P appealed. The case was remanded back to the District Court to determine if P had acted in good faith. The Court made findings of fact such that it determined that P did not perform the contract in good faith. The discussions between the parties first centered around P purchasing the property for about $3 million. A month later, P tried to determine whether D was interested in providing financing for improvements to the property. That request was rejected by D, and before receiving that rejection letter, P sent another letter that indicated if D did not want to do the deal that P would proceed accordingly. There was no mention of the contract terms and provisions in paragraph 34 of even a hint of a forced buyout. P then received the form rejection letter from D and sent another response that he would be looking for financing from another source. The buyout provision was not mentioned until P sent a letter to exercise the option. P and D met with D indicating it was more than willing to discuss financing, but P refused and D then refused to convey the property. P then sued for specific performance.