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Saballus v. Timke





Appeal from the Circuit Court of Cook County; the Hon. George A. Higgins, Judge, presiding.


Rehearing denied March 12, 1984.

Following a bench trial in which the trial court found that plaintiff's acts constituted events of default under the terms of plaintiff's and defendant's partnership agreement, the trial court awarded plaintiff $53,682.60 as the value of plaintiff's interest in the partnership. Defendant appeals, and plaintiff cross-appeals from the court's findings.

In his appeal defendant argues that the trial court erred: (1) in not imposing a constructive trust over two lots fraudulently withheld from the partnership by plaintiff, and not including their value in the settlement of accounts; (2) in refusing to deduct $137,475 from the purchase price of plaintiff's interest in the partnership; (3) in deducting $72,868.77 from the purchase price in the calculation for the settlement of accounts; (4) in denying him attorney fees; (5) in denying him interest on monies appropriated from partnership funds; (6) in denying him punitive damages; and (7) in denying him prejudgment interest.

In plaintiff's cross-appeal, he argues that the trial court erred by (1) terminating his interest in the partnership; (2) including certain items in the settlement of accounts calculation, and (3) awarding certain costs to defendant.

Relevant to the disposition of this case are the following facts.

Plaintiff, a general contractor and president of The Saballus Companies, Inc., in 1977 contracted to purchase for $288,000 four parcels of land in Oak Brook, Illinois. The purchase agreement was subject to several contingencies, principally, obtaining a building permit for the construction of a three-story office building. He made a $15,000 down payment and obtained a loan for the balance. Upon securing the necessary permits and preliminary financing commitments, he began construction of the building in July 1977 and supervised it to its completion. Pursuant to the partnership agreement, he also undertook securing tenants and leaseholds at no profit to The Saballus Companies.

On September 14, 1977, plaintiff conveyed Parcels A and B, two of the four original lots into a land trust at La Grange State Bank and retained Lots 1 and 2 in a land trust at Northwest National Bank. Defendant, a real estate developer whom plaintiff had met that August and who had agreed to forming a 50-50 joint venture, borrowed $300,000 from La Grange State Bank and made the following payments to plaintiff totaling $315,594.66: (a) $273,000 in principal on the loan; (b) $4,974.66 in interest due; (c) $36,500 as a standby fee, and (d) $1,120 for tree removal and a sign.

Subsequently, he and defendant entered into a partnership agreement, effective November 1, 1977, which provided inter alia that the partnership would acquire certain real estate described in exhibit No. 1 attached thereto and would improve it with a three-story office building known as "Midwest Plaza North." Plaintiff agreed to transfer the two lots described in exhibit No. 1 in the partnership agreement into the partnership land trust at its "original cost" of $288,000.

They further agreed as follows: (1) each would own a 50% interest in the partnership and make an initial capital contribution of $150,000 in cash or property; (2) each would advance, when due, his pro rata share of all costs and expenses with respect to the operation of the partnership and the ownership of any partnership property; (3) defendant, however, would be obligated to loan plaintiff up to $100,000 during the interim loan period, and, if this amount exceeded $100,000 the default provisions of the agreement would apply; (4) upon default, the non-defaulting partner had the right to terminate the defaulting partner's interest without effecting a termination of the partnership upon written notice and opportunity to cure; and (5) in the event of such termination, the non-defaulting partner would be required to purchase the defaulting partner's interest in the partnership pursuant to a stated formula. Plaintiff assigned his beneficial interest in the land trust at La Grange State Bank to the partnership on November 18, 1977.

Various financial transactions between the partners followed and each was shown on the books as having made an initial capital contribution of $147,691. Pursuant to the agreement, the partners continued the construction of Midwest Plaza North and sought, in turn, construction, interim, and permanent financing (i.e., the mortgage or "end loan") for the building.

After receiving funds from the construction loan, both partners withdrew $77,131 from the partnership capital account which reduced their respective cash investment to $70,560. For reasons not relevant to our discussion, defendant loaned plaintiff $75,000 during this interim loan period.

Following completion of the office building in June 1978, plaintiff continued to arrange for the leasing of office space and building maintenance until February 1979.

The instant appeal arises from the partners' dispute over each other's conduct in the months preceding the end loan closing for the office building which was scheduled for January 11, 1979. Testimony adduced at trial indicates that the $1,700,000 construction loan for the building, provided by Elmhurst National Bank in conjunction with another bank, would be refinanced at the end of the construction period by Percy Wilson Mortgage and Finance Company (Percy Wilson), as agent for the permanent lender, the Mutual Benefit Life Insurance Company, which issued a commitment to provide the $1,825,000 end loan for the building. Neither party dispute that this commitment was due to expire on January 11, 1979, or that most of the end loan funds were later utilized to pay off the balance of the construction loan.

As was typical for the financing of a newly constructed building, the permanent lender required the partnership, as mortgagor, to deposit additional money at the time of the end loan closing as security in the event that the end loan did not provide sufficient funds to pay off the construction loan or provide a title indemnity fund for various construction related liens.

At trial, plaintiff testified that in the fall of 1978 the partnership received a document from the permanent lender indicating all the requirements for end loan closing. He stated that he met with defendant's employee, Joan Vella, in October or November, 1978, to discuss the amount of money, if any, needed for the end loan closing because the partnership books were kept by defendant. On direct examination, the following colloquy occurred:

"Q. What do you recall of discussions regarding monies that might be due at the end of the end loan closing?

A. Well, the numbers were very confusing. The numbers that would be used at the end loan closing varied all the way from we wouldn't require anything to * * * $400,000. * * * Well, I couldn't comprehend how that amount of money would be required, and I asked for a more accurate accounting to demonstrate exactly what funds would be required. * * *

Q. Did Miss Vella provide those records on that accounting at that meeting?

A. No.

Q. Did you make any additional requests for such an accounting [to the Timke office] ...

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