Munao v. Lagattuta

Michael and Charlene Munao (plaintiffs) owned a successful restaurant in Illinois. The Munaos sold the restaurant to Nicholas Lagattuta, Dennis J. Lullo, and Lullo Food Service Company (the Buyers) (defendants) for $104,000 comprised of a $46,000 payment at closing and a promissory note for the remaining amount. The Munaos secured the note by taking an interest in all the restaurant’s equipment, inventory, and fixtures (the collateral). Lullo Food Service Company also leased the restaurant premises from the Munaos and Lagattuta, and Lullo personally guaranteed the lease obligations. The Buyers changed the name of the restaurant, served lower quality food, purchased cheaper ingredients, replaced dishes and baskets with paper bags, and smoked while they worked. The Buyers eventually defaulted on their note payments and lease obligations. Then, Lagattuta decided to return the keys to the restaurant to the Munaos. Lagattuta claimed the parties agreed that the return of the keys would free the Buyers from their note payments and lease obligations. Conversely, the Munaos contended that they merely required return of the keys before engaging in settlement discussions. After receiving the keys, the Munaos had the collateral appraised at $9,067.07 total. The Munaos then reopened the restaurant and purportedly applied $9,067.07 to the Buyers’ note balance to repurchase the collateral. Thereafter, the Munaos suffered losses, so they closed the restaurant and sold the restaurant premises and the collateral. Subsequently, the Munaos sued the Buyers to recover the balance owed on the note and lease. The trial court entered a deficiency judgment in the Munaos’ favor but found that the Buyers were entitled to a $9,067.07 credit on the note. The Buyers appealed and argued that the Munaos’ improper repurchase of the collateral constituted a commercially unreasonable sale such that the Munaos should be barred from a deficiency judgment