APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIRST DIVISION
Fabricators, Inc., et al., Counterdefendants-, Appellants)
505 N.E.2d 1076, 153 Ill. App. 3d 50, 106 Ill. Dec. 285 1987.IL.215
Appeal from the Circuit Court of Cook County; the Hon. Roger J. Kiley, Jr., Judge, presiding.
Justice O'Connor delivered the opinion of the court. Campbell and Buckley, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE O'CONNOR
This is an appeal from a purchaser's action for partial specific performance of an asset purchase and sale agreement. After a bench trial, the court found for the purchaser and awarded partial specific performance. On appeal, the sellers argue that the trial court erred: (1) in holding that time was not of the essence; (2) in holding that sellers breached the covenant of good faith and fair dealing; (3) in proceeding to trial and judgment in the absence of a necessary party; (4) by awarding partial specific performance; and (5) by failing to adjust certain notes to be paid by Heisley to Zalk Josephs. We affirm.
On November 1, 1985, Michael E. Heisley and a company he controls, UIP, Inc. (jointly Heisley), entered into a written agreement whereby Heisley was to acquire certain assets from four separate corporations for about $12 million in cash, plus notes and the assumption of $6.3 million in liabilities. The sellers were Eastmet Corporation and three of Eastmet's subsidiary corporations, Harry Davies Molding Company (Harry Davies), UIP Engineered Products Corporation , and Zalk Josephs Fabricators, Inc. (Zalk Josephs). *fn1
Heisley's action to enforce the agreement was filed as a counterclaim. In the initial action, Heisley and the sellers were named as defendants in an action brought by a third party, Chariot Holdings, Inc., a company controlled by Richard Gray. Gray alleged that prior to entering into the agreement with Heisley, each of the sellers had promised to sell their businesses to him. Gray sued to enforce that alleged promise, sued Heisley for tortious interference with contract, and filed lis pendens against the assets in issue here. Gray's claims of breach of promise and interference with contract were dismissed by the trial court, which decision was affirmed by this court. Chariot Holdings, Inc. v. Eastmet Corp. (1986), 146 Ill. App. 3d 1160 (unpublished Rule 23 order), appeal denied (1987), 113 Ill. 2d 572.
The agreement in issue provided that the transfer of the business would occur on December 3, 1985, unless extended pursuant to section 13.4 of the agreement. Section 13.4 provided:
"In the event that the Closing is not consummated on or before December 3, 1985, it shall be automatically extended to December 16, 1985 or such earlier date as Buyer may indicate . . .. If the closing has not been consummated on or before December 16, 1985, this Agreement shall be deemed to have been terminated . . .."
The agreement also required Heisley to deliver "immediately available funds" to Eastmet at the closing. With respect to the purchased real estate, Heisley was required to have a title policy delivered at closing to insure in advance against any exceptions to title which might arise during the gap between the date of the title commitment and the date the buyer's deeds were recorded.
Between November 1, 1985, and December 16, 1985, when the transaction was to be consummated, the sellers received a revised business plan from an independent consultant indicating that it would be more advantageous for Eastmet to keep the five businesses. At the same time, Richard Gray, the largest shareholder in Eastmet, who was then negotiating his representation on and subsequent chairmanship of Eastmet's board of directors, publicly announced his intention to influence the sellers not to consummate the transaction with Heisley.
On November 22, 1985, Gray (and related companies) filed with the Securities and Exchange Commission a schedule 13 D statement in which he declared his intention to "influence management in whatever way legally possible to not proceed with the sale of the industrial Products Group of the Company to a third party [Heisley] as recently proposed by the Company." Eastmet's intentions relative to the agreement were further reflected in the fact that four days prior to the scheduled closing, sellers' consultant prepared a written business plan for Eastmet which included long term cash flow projections for the five businesses that were to be sold to Heisley in four days.
At the scheduled closing on December 16, 1985, Heisley's representatives had over $10.9 million in funds provided by three separate lenders. Two lenders had transferred $4.9 million to a closing escrow account which had been opened by Chicago Title and Trust to accomplish the transaction, and a representative of Heller Financial Corporation was present with a certified check for $6 million. In addition, Heisley had lined up, but did not use, other available sources of money, including $3 million from Mount Prospect State Bank.
The real estate escrow account had been established pursuant to section 15.5 of the agreement which provided in pertinent part that, "The sale of the Real Estate contemplated by this Agreement shall, if required by Buyer's lenders, be closed through an escrow with the title company selected by such lender . . .." Both Heller Financial and BT Private Clients Corporation, another of Heisley's lenders, had requested that the closing be handled through an escrow account. Heisley sought to use a five-day escrow because various lien releases, mortgage releases, and Uniform Commercial Code termination agreements for the property at issue were not physically available at the closing.
Mr. Dausch, Eastmet's representative at the transaction, rejected the use of the five-day escrow. After consultation with Eastmet's lenders, he informed Heisley that he would consent only to a one-day escrow whereby documents would have to be recorded and funds disbursed by 9 a.m. on December 17. As a consequence, the transaction did not close as scheduled. Within three days Heisley filed a counterclaim against the four sellers for specific performance of the agreement, damages, and other relief. He also sought and was granted a temporary restraining order to maintain the status quo of the businesses pending a trial on the merits.
On January 6, 1986, Eastmet Corporation filed a bankruptcy petition in Maryland which stayed all proceedings against the corporation (11 U.S.C., sec. 362 (Supp. III 1985)) and precluded the sale of its two divisions, Aelco and Belgium, to Heisley. Eastmet removed Heisley's claims to Federal court in Chicago (including Heisley's action as against the three other sellers) and sought to transfer the entire action to the Maryland bankruptcy court.
The Chicago Federal court remanded Heisley's action against the three other sellers back to the State court for trial, and upon Eastmet's motion, transferred Heisley's action as against Eastmet to Maryland. The three solvent sellers subsequently moved in State court to have Heisley's action against them dismissed or stayed by reason of the automatic stay enjoyed by Eastmet.
When this motion was denied, Eastmet moved in the Maryland bankruptcy court to have its automatic stay extended to the Illinois State court action against the three other sellers. Following the denial of that motion, Heisley moved to lift the automatic stay as to Eastmet Corporation in order that his specific performance claims could be tried against ...