Appeal from the Circuit Court of Cook County. Honorable Edward C. Hofert, Judge Presiding.
Petition for Leave to Appeal Denied December 6, 1995.
The Honorable Justice Hartman delivered the opinion of the court: Scariano, P.j., and DiVITO, J., concur.
The opinion of the court was delivered by: Hartman
JUSTICE HARTMAN delivered the opinion of the court:
Plaintiffs Leo R. Newcombe and Ann L. Newcombe brought this action seeking a determination that they held a perfected security interest in several limited partnerships, and to order their foreclosure and sale. They appeal from the circuit court's order granting defendants' motion for a "directed finding," *fn1 questioning whether the court's decision is against the manifest weight of the evidence.
Defendant Mysore Sundara *fn2 purchased limited partnership interests in 14 East Elm Limited Partnership *fn3, Elmhurst Terrace Limited Partnership, Century Apartments Limited Partnership and 3419 Harlem Limited Partnership from defendant Inland Real Estate Corporation, now known as Intervest Midwest Real Estate Corporation (IMREC), the corporate general partner. IMREC did not issue certificates to the limited partners, but maintained manual and computer records indicating the number of "units" purchased by each investor. Each limited partner signed an agreement which contained the following provision restricting transfer of their interests.
"Section 15.1. A Limited Partner may not at any time assign or transfer his Units without prior approval by the Corporate General Partner, which approval shall be in its sole discretion.
Section 15.2. No assignment or transfer pursuant to Article 15 shall be deemed effective, unless and until the assignee shall execute a written instrument in form reasonably satisfactory to counsel for the Partnership agreeing to be bound by all of the terms and provisions of this Agreement and all amendments and supplements thereto, to the same extent and on the same terms as the other Limited Partners. In addition, no such assignee shall become a substituted Limited Partner without the approval of the Corporate General Partner, the granting or denial of which approval shall be in the sole discretion of the Corporate General Partner.
Section 15.3. Any person admitted to the Partnership as a substituted Limited Partner shall be subject to and bound by all the provisions of this Agreement as if originally a party to this Agreement."
Sundara borrowed money from Inland Mortgage Corporation (IMC), an affiliate of IMREC, in order to make installment payments due on the balance of the purchase price of each partnership and signed a promissory note and security agreement, pledging his partnership interests to IMC as security for each loan. IMC filed Uniform Commercial Code (UCC) financing statements with the Illinois Secretary of State, listing Sundara's partnerships as collateral; Sundara's partnership records also noted the financing.
A limited partner could obtain a loan from a lender not affiliated with defendants and pledge his or her partnership interest as security for the loan, if the lender provided IMREC a copy of the collateral assignment. IMREC would not acknowledge the assignment unless it contained language that the lender agreed to be bound by the rules and regulations of the limited partnership agreement. In the event that a limited partner pledged his partnership interest and sought to pledge it again to a second party, IMREC would notify the second party of the first pledge but refused to acknowledge a second pledge unless that lender agreed to a second position in the collateral.
In October 1987, the Newcombes invested $200,000 with Sundara, who, in turn, gave them two $100,000 promissory notes. On February 29, 1988, Sundara executed an agreement granting Leo Newcombe a security interest in the four previously mentioned partnerships as well as the Old Orchard Limited Partnership. On March 2, 1988, Newcombe filed a UCC financing statement with the Illinois Secretary of State describing the secured collateral as the five limited partnership agreements.
On March 11, 1988, the Newcombes' attorney wrote a letter to IMREC notifying it of his clients' security interest in the limited partnerships. IMREC denied receiving the letter; it had moved its office in June 1987, after giving written notification to all the limited partners. Subsequently, Sundara telephoned Newcombe stating that he had "made a mistake" and claiming that IMREC was pressuring him to get the limited partnership agreements back because they should never have been assigned.
In September 1988, Sundara sold his limited partnership interests to Inland Real Estate Investment Corporation (IREIC) for $304,275.23. Sundara received $111,335.42 from the total purchase price; IMC and the partnerships received the remaining amount. IREIC did not conduct a UCC search prior to purchasing Sundara's interests because it was aware that IMC had a ...