## Facts

- A landlord leased a Chicago Heights brick building “used as a gasoline station” to a tenant for July 1, 1937 through June 30, 1942.
- Rent was based on sales volume: 1¼ cents per gallon of gasoline sold at the leased premises, producing about $140 per month when sales were roughly 12,000 gallons per month.
- Shortly before May 1, 1939, the tenant acquired an adjoining lot, built another gasoline station, and thereafter conducted most gasoline sales at the adjoining station.
- After May 1, 1939, sales at the leased station dropped to minimal levels (about 200 gallons per month), which the landlord alleged was an intentional diversion designed to deprive her of the expected rent.
- The tenant denied breach and asserted he continued operating the leased station with a full-time attendant and paid rent on the gasoline sold there.
- The landlord filed a forcible detainer action seeking possession and rent, and later filed a chancery action seeking cancellation of the lease and recovery of reasonable rental value (alleged at $150 per month), citing fraud, insolvency, and inadequate legal remedies.
- The trial court canceled the lease and awarded the landlord $1,696.25 as reasonable rental value; the tenant appealed the damages award.

## Issues

1. Whether a lease setting rent by a per-gallon (percentage-of-sales) formula includes an implied obligation that the tenant operate the premises with reasonable diligence to generate the contemplated rental.
2. Whether a tenant breaches that implied obligation by diverting most sales to a nearby station the tenant built and operated.
3. Whether, upon such a breach, the landlord may recover damages measured by reasonable rental value rather than the reduced amount produced by the per-gallon formula.

## Decision

- The appellate court affirmed the damages award.
- The court held that a per-gallon rent lease for a filling station carries an implied agreement that the tenant will operate the station with reasonable diligence to produce the rental contemplated when the lease was made.
- The tenant could not avoid the bargain by building and using a neighboring station for nearly all sales while leaving only token sales at the leased premises.
- Because the tenant’s conduct defeated the intended rent mechanism, the trial court properly awarded damages based on reasonable rental value and granted equitable relief, including cancellation.

## Legal Principles

- In a lease where rent is tied to sales volume (including per-gallon rent for a gasoline station), the tenant impliedly undertakes to operate the premises in good faith and with reasonable diligence to generate the contemplated rent.
- A tenant may not deliberately frustrate a sales-based rent arrangement by diverting business to another location under the tenant’s control while maintaining only nominal operation at the leased premises.
- When the tenant’s breach makes the contract’s contingent rent measure ineffective, damages may be measured by the reasonable rental value of the premises to prevent the tenant from benefiting from the breach.
- Equity may grant cancellation and monetary relief where the tenant’s conduct is fraudulent or renders legal remedies inadequate.

## Conclusion

The court treated the per-gallon rent term as resting on an implied duty of reasonably diligent operation, found that diversion of sales to an adjacent tenant-owned station breached that duty, and upheld damages based on reasonable rental value along with cancellation of the lease.


Seggebruch v. Stosor, 309 Ill. App. 385, 33 N.E.2d 159 (Ill. App. Ct. 1941)