APPEAL from the Circuit Court of Cook County; the Hon. JULIUS
H. MINER, Judge, presiding.
MR. JUSTICE SCHAEFER DELIVERED THE OPINION OF THE COURT:
Rehearing denied September 24, 1956.
This is a class action on behalf of the minority beneficiaries of a trust of improved real estate. The complaint sought an injunction to restrain the acceptance by the trustee of an offer by the majority beneficiaries to purchase the trust property, and other relief. Plaintiff appeals from a decree of the circuit court of Cook County, entered pursuant to the recommendations of a master in chancery, which directed the trustee to convey the real estate to the majority's nominee. Our jurisdiction is properly invoked because a freehold is involved.
The property which is the corpus of this trust is located at the southwest corner of Michigan Avenue and Oak Street in Chicago. It is improved with a three-story shop and office building and two apartment buildings. The equitable interest in the trust is divided into 1400 units of beneficial interest, represented by land trust certificates.
The trust was established in 1925 to hold title to the property subject to a 99-year lease to the Edith Rockefeller McCormick trust. The tenant defaulted during the depression. By a decree of the circuit court of Cook County entered March 22, 1939, in a suit arising as a result of the default in the McCormick lease, the terms of the trust were modified in certain respects. Specifically, the trustee was vested with full and complete authority to sell, lease, operate and otherwise dispose of the real estate. In the event of a proposed sale, however, the decree requires the trustee to notify the beneficiaries and request their advice as to whether the property shall be sold on the terms proposed, and to make reasonable efforts to comply with the expressed advice of the majority of the beneficiaries. In the event that the trustee finds such action impracticable, he is authorized to take whatever action he deems desirable.
In 1947 the trustee entered into a 15-year contract with the firm of Farr, Chinnock & Sampson to manage and rent the property. The firm was to be paid 5 per cent of all rentals collected from the property. In the event of termination of the management contract at any time during the 15-year period the firm was to be paid 5 per cent of all rentals due or to become due on the unexpired term of all leases effected during the period of the agency. The firm was also designated as exclusive broker on any sale of the property. In the event that there was a cooperating broker, it was provided that the brokerage fee should be divided equally.
On April 15, 1954, the trustee notified the beneficiaries that it had received an offer to purchase the trust real estate from Anthony J. Frystak for the sum of $800,000, that such offer was made on behalf of the owners of 790 of the 1400 units of beneficial interest, and that Ronald J. Chinnock, a partner, and Newton C. Farr, a retired partner, in the firm of Farr, Chinnock & Sampson, managing and selling agents of the trust real estate, were among the certificate holders on whose behalf the offer was made. The notice stated that the brokerage fee, in the estimated amount of $29,000, would be waived in the event of a sale to Frystak, but not in the event of a sale to any other purchaser. The notice further stated that if the management agreement should be terminated by the purchaser, the managing agents would demand payment of the termination penalty, estimated to be about $24,000. The Frystak offer, attached to the notice, reserved the right to meet any higher offer within five days after notification of its terms.
On April 28, 1954, the complaint in this case was filed. It charges that the offer and proposed sale are unfair because (a) the provision giving Frystak the right to meet higher offers will stifle competitive bidding, (b) the insistence by the managing agents on a brokerage fee, in the estimated amount of $29,000, in the event of a sale to anyone but Frystak, is unfair and will discourage other bids, (c) other bids will be discouraged as a result of the managing agents' insistence that the termination penalty be paid by the purchaser in the event that the management contract is terminated, (d) the managing agents, as selling agents, should not be permitted to participate in the purchase of the property, and (e) the majority beneficiaries, in these circumstances, occupy a relation of trust to the minority and should not be permitted to effect a sale to themselves at a discount. The complaint prays that the management agreement be declared invalid and that the property be sold under the supervision of the court to the highest and best bidder. The complaint also charges that Farr and Chinnock acquired their certificates through the improper use of certain confidential information and prays that the certificates which they acquired be declared to be the property of the trust upon reimbursement of the cost of acquisition.
The answer of Frystak admits that he is the nominee of the majority beneficiaries. The answers of Farr and of Chinnock allege that Farr retired from Farr, Chinnock & Sampson prior to 1947, deny the allegations of impropriety in the acquisition of certificates, admit that they insist upon the penalty if the management agreement is terminated, deny that the "right to meet" provision will stifle competition and assert that the only effect of the waiver of brokerage commissions is to make the Frystak offer equivalent to $829,000.
The answer of the trustee, the La Salle National Bank, alleges that it sought unsuccessfully to have the managing agents assert the termination penalty only against the trust, instead of against any purchasers other than Frystak. It stated that the trustee had also tried unsuccessfully to have Frystak remove the "right to meet" provision, but that it thought higher offers would probably eliminate Frystak from the bidding, and with him this problem. The answer further alleges that the owners of 906 units of beneficial interest have approved selling the trust property for the net sum of not less than $800,000 and that, anticipating this approval, the trustee had arranged to advertise the property for sale prior to the filing of the complaint. The answer sought instructions from the court as to the best method of obtaining the highest price for the property.
On May 5, 1954, the day following the filing of the answers, the trustee petitioned the court to approve the plan of advertising upon which it had already embarked. On presentation and argument of the petition that day, an order was entered approving the advertising and authorizing the trustee to solicit other offers until June 28, 1954, and to report such other offers to Frystak in accordance with the condition stated in his offer. The order directed that the trustee file a report of the highest offer, and provided that such offer be submitted to the court for approval, before acceptance.
The trustee reported, on July 12, 1954, that it had received 69 inquiries, but had received only one bid, that of Joseph Horwitch, on June 28, 1954, for $824,000, with a waiver of the cooperating brokers' commission, by Arthur Rubloff & Co. The net value of this bid to the estate was reported to be $809,140. Horwitch stated that he would be willing to increase his offer, but was reluctant to do so unless a competitive sale could be arranged on a fixed date. The Horwitch offer was communicated to Frystak who thereupon increased his bid to $825,000, net to the trust, on July 2, 1954. The report of the trustee concluded that the Frystak offer was the best offer received under the terms of the advertising, approved by order of the court of May 5, 1954, which invited offers until June 28, 1954, and allowed Frystak five days to meet the highest offer received.
Plaintiff filed objections to the trustee's report, on July 15, 1954, in which he charged that the trustee's advertising had discouraged competitive bidding because of the "right to meet" provision, which it expressly reserved to Frystak, and because it invited offers on the basis that the majority was entitled to a competitive advantage in the bidding, in the amount of the brokerage fee. The report and objections were referred to a master in chancery. At the master's hearing, Frank G. Price, an assistant vice-president of the trustee bank, testified that he had received 69 inquiries in response to the advertising, that many of those who inquired had objected to the "right to meet" provision, and that in all such cases he had advised those persons that the best way to eliminate the problem was by driving Frystak out of the ...