APPEAL from the Circuit Court of Cook County; the Hon. GEORGE
A. HIGGINS, Judge, presiding.
MR. JUSTICE O'CONNOR DELIVERED THE OPINION OF THE COURT:
Plaintiffs, Sheldon J. Mandell, Howard Mandell, Jerome W. Mandell and Norman Mandell, filed an action for dissolution and an accounting of the limited partnership, Frontier Investment Associates (Frontier), which they as limited partners and defendants, Centrum Frontier Corporation (Centrum) and William P. Thompson, as general partners had formed on September 30, 1976. On November 14, 1979, the circuit court of Cook County after a hearing entered judgment dissolving the partnership and ordering the assets of the partnership liquidated and the proceeds used to discharge the liabilities of the partnership and to settle the accounts of the partners. Defendants appeal from that judgment and also appeal from (1) the trial court's order of December 20, 1979, denying defendants' motion for reconsideration and setting the date for a judicial sale of the partnership property, and (2) the trial court's order of January 16, 1980, determining the manner in which the judicial sale of the partnership property would be conducted. The trial court found that there was no just reason for delaying enforcement or appeal of these three orders.
Defendants contend that (1) the trial court erred in decreeing dissolution of Frontier, (2) even if dissolution was proper, the trial court erred in ordering a judicial sale of the sole partnership asset, (3) the trial court erred in hearing and disposing of this matter on an emergency basis, and (4) the trial court was misused as an instrumentality of a freeze-out.
Frontier's sole asset was a 56-story apartment building (Park Place) containing 901 units located on Chicago's lakefront at 655 West Irving Park Road. The building has a 650-car garage, a swimming pool, cabanas, tennis courts>, exercise room, party suites and space for retail stores.
In the summer of 1976, defendant Thompson knew that the Department of Housing and Urban Development (HUD) had a mortgage on Park Place which was in default. Paul Reynolds, the then-owner of Park Place, agreed to sell Park Place to Thompson and a group to be formed by Thompson.
Thompson approached plaintiff Sheldon Mandell and discussed the formation of a limited partnership which would purchase the property. An agreement was reached whereby Reynolds deeded the property to the limited partnership created by the purchasers in consideration for $100,000. Reynolds was paid $2,000 on September 29, 1976, and the $98,000 balance was to be paid when the partnership worked out an agreement with HUD enabling the partnership to pay the mortgage from the proceeds of current operations. The partnership agreed with Reynolds that it would not record the quitclaim deed until the partnership completed the negotiations with HUD within a specified period of time and, if the negotiations were unsuccessful, the $98,000 would not be paid and title would revert to Reynolds. The partnership subsequently paid Reynolds the $98,000.
When the $2,000 was paid to Reynolds in exchange for the quitclaim deed, a limited partnership was formed. The partnership agreement provided that the purpose of the partnership was to acquire, own, develop, lease, manage and sell the apartment building, which at the time was called Frontier Towers. The general partners, who are defendants in this action, are Thompson and Centrum. Thompson is the sole shareholder and president of Centrum. The partnership agreement provides that the two general partners own 10 percent of the profits and losses from the partnership and are to make no capital contributions or loans to the partnership. The limited partners are the four plaintiffs in this action. The limited partners together made a $150,000 capital contribution and were to receive 90 percent of the profits and losses. The partnership agreement provided that the limited partners were to make an additional capital contribution of $900,000 to pay a portion of the mortgage delinquency and the operating expenses of the partnership. The limited partners also agreed to loan the partnership up to $200,000 if loans were necessary to pay the operating expenses of the partnership. The partnership agreement further provides that neither the general partners nor the limited partners can sell the partnership assets without the approval of the other partners.
Thompson testified that the partnership planned to maintain the property as rental units and Thompson would make the project profitable by increasing the gross rentals and reducing the operating expenses. Thompson presented to the limited partners two written cash flow projections. The first document reflected that beginning in the calendar year 1978 and in each year through 1985 the building would operate at a positive cash flow of $205,520. The second document which Thompson gave the limited partners contained a revised projection of the cash flow reflecting a positive cash flow of $719,883 in each of the calendar years 1978 and 1979. This document projects that in each of the calendar years 1980 and 1981 the positive cash flow would be $205,520 and that the positive cash flow would be $103,133 in each of the calendar years 1982 through 1985.
The partners were unable to arrange a program with HUD whereby the limited partners would obtain possession in consideration for an agreement to pay the arrearages on the existing mortgage within a specified period of time. Instead, the partners sought to obtain a loan from the Continental Illinois National Bank (Continental) to pay the $20,000,000 owed HUD.
In late 1977 the partnership first contacted Continental and on April 18, 1978, Continental issued a 30-day commitment to make a $22,000,000 loan. The commitment provided for an initial disbursement of $20,114,790, and the balance of $1,885,210 to be distributed if requested by the partnership. The period of the loan was to be three years. The annual interest rate to be paid on the outstanding balance of the loan was two percent over the floating prime rate of Continental. The commitment provided the loan would not be made unless the partnership paid HUD $1,000,000 out of its own funds and pledged $1,600,000 in securities with Continental to guarantee the $22,000,000 loan. The stated purpose of the loan was for the "acquisition of the premises and possible condominium conversion and sales program." The commitment provides the borrower "may, pursuant to the terms hereof and with the prior written consent of the Bank, convert the Premises to condominium ownership." It states that the borrower "may (a) sell [the units as condominiums] or (b) sell the entire Premises to an entity pursuant to a transaction." The commitment also provides that Continental has the right to accelerate the maturity date if the borrower does not deliver notices of intent to convert to the tenants of the property within 13 months after the initial disbursement of the loan proceeds.
The limited partners told Thompson they would agree to the Continental loan if Thompson would agree to amend the partnership agreement to specify that Thompson could not convert without the approval of the limited partners. After several communications and meetings between Thompson and the limited partners, Thompson agreed to the provisions of the amendment.
The amendment to the partnership agreement states in pertinent part that:
"§ 11.9(a) * * * a General Partner may not take any of the following actions without the consent of the majority interest of the Limited Partners
(ii) sell any material portion of the Premises or this Partnership's other tangible assets, or file a condominium declaration with respect thereto."
The day following the execution of the amendment to the partnership agreement the limited partners complied with the requirements of the loan commitment by making an additional capital contribution to the partnership in the amount of $1,000,000 and loaning $1,600,000 in securities to the partnership, which pledged the securities with Continental. The Continental loan was then disbursed.
The monies owing HUD were paid from the proceeds of the Continental loan and the partnership took possession of the property on April 28, 1978. City Centrum Management Corporation (City Centrum) assumed the management of the property and contracted with the partnership to receive a management fee of 5 percent of the gross income of the building. Thompson is the sole shareholder and president of City Centrum.
Shortly after acquiring possession of the property, the general and limited partners commenced monthly meetings to review the operations of the property and the budget. At each meeting Thompson produced documents reflecting the prior month's actual income and expenses of the operation of the building and he would compare these figures with the income and expenses which he had budgeted for that month. The budget was an estimate of the income ...