First American National Bank v. Chicken System of America, Inc.

In 1968, First American National Bank (First American) (plaintiff) leased property to Chicken System of America, Inc. (Chicken System) (defendant). The lease prohibited assigning the property without First American’s written consent. In 1969, Performance Systems, Inc. (PSI) (defendant) purchased Chicken System’s store and agreed to be responsible for the property lease. When First American found out, it notified both Chicken System and PSI that it did not consent to PSI subletting the property. Nevertheless, PSI took over the property and paid rent to First American until November 1970. PSI then defaulted on the rent and vacated the property. In September 1972, First American leased the property to a pizza company for less monthly rent than the Chicken System lease. First American sued both Chicken System and PSI for rent and expenses owed up to the 1972 re-lease of the property. PSI argued that its obligations under the lease terminated when it vacated the premises. The trial court held, and the supreme court affirmed, that PSI was liable for rent up to 1972 because PSI’s surrender of the property did not terminate privity of estate between First American and PSI. First American sued a second time for the rent deficiency that occurred after September 1972, when the pizza company leased started. The trial court found for First American, and PSI appealed.