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Bachewicz v. AMERICAN NAT'L BK & TR. CO.

Appellate Court of Illinois
466 N.E.2d 1096, 126 Ill.App.3d 298 (1984)
ELI5:

Rule of Law:

The act of a partner in a joint venture binds the entire partnership if it is for apparently carrying on the business in the usual way. The measure of damages for a seller's breach of a real estate contract is the difference between the contract price and the fair market value of the property at the time of the breach.


Facts:

  • In 1972, The Statesman Limited Partnership (Statesman) and 5601 North Sheridan Associates (Associates) formed a joint venture to own and operate a 90-unit apartment building, with each holding a 50% interest.
  • Their joint venture agreement included a 'Paragraph 9' which stipulated that if one partner wished to accept a purchase offer for the entire building and the other disagreed, the disagreeing partner had 30 days to either consent or purchase the other's interest. Failure to elect was deemed consent.
  • Between February and May 1977, B&B Investment Company (B&B) submitted several offers to purchase the building, all of which were discussed by both partners but none were accepted.
  • In early July 1977, B&B submitted a new written offer for $1,839,233.39 to Associates.
  • On July 6, 1977, Mendel Wilkow, a general partner of Associates, sent a letter to B&B accepting the offer, expressly making the acceptance conditional on Statesman's approval pursuant to Paragraph 9 of the joint venture agreement.
  • On July 8, 1977, Associates formally notified Statesman of the B&B offer and their acceptance, tendering the offer to Statesman under the terms of Paragraph 9.
  • Statesman failed to either consent to the sale or elect to purchase Associates' interest within the 30-day period.
  • After the 30-day period lapsed, Statesman communicated to B&B that it did not have a valid contract and refused to proceed with the sale.

Procedural Posture:

  • B&B Investment Company sued Statesman and Associates in the circuit court of Cook County, initially seeking specific performance of the real estate contract.
  • The trial court granted Statesman's motion to dismiss the complaint.
  • B&B appealed to the Illinois Appellate Court, which reversed the trial court's dismissal and remanded the case for further proceedings.
  • On remand, B&B filed an amended complaint seeking damages for breach of contract.
  • Real estate broker Norman Fishman filed a separate suit for his commission, which was consolidated with B&B's case.
  • Following a bench trial, the trial court found a valid contract existed and entered judgment for B&B against Statesman for $599,767 in general damages, plus incidental damages. It also entered judgment for Fishman against both partners for a $95,000 commission.
  • Statesman and Associates appealed the judgment to the Illinois Appellate Court; B&B cross-appealed regarding the damage calculation.

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Issue:

Does a partner in a two-party joint venture bind the entire venture to a contract to sell the venture's sole asset when it conditionally accepts a third party's offer and the other partner fails to act within a 30-day election period prescribed by their joint venture agreement for resolving disagreements?


Opinions:

Majority - Presiding Justice Linn

Yes, a binding contract was formed. Under partnership law, which governs joint ventures, a partner is an agent of the partnership for carrying on its business in the usual way. Associates' conditional acceptance of B&B's offer to purchase the venture's sole asset was an act in furtherance of the partnership business. This acceptance, coupled with the formal tender of the offer to Statesman, properly triggered the deadlock resolution procedure in Paragraph 9 of the joint venture agreement. Statesman's failure to make an election within the prescribed 30-day period was deemed consent under the agreement's terms, which finalized Associates' conditional acceptance and formed a valid contract binding the entire joint venture. However, the trial court erred in calculating damages based on a resale price from a year after the breach; the proper measure is the market value on the date of the breach. Because B&B failed to prove the property's value was greater than the contract price on that date, it is not entitled to general damages for lost value, but is entitled to incidental damages. The broker, Fishman, is entitled to a commission, but it is limited to the one-third share specified in the express written contract.


Dissenting - Justice Jiganti

No, the trial court's damage award should be affirmed. The majority improperly reweighed the evidence regarding the property's fair market value. Determining the value of a unique property like a 90-unit apartment building is inherently imprecise. The subsequent sale to a third party, Amvest, occurred within a reasonable time (seven months after the breach) and was therefore competent and persuasive evidence of the property's fair market value. The trial court was within its discretion as the finder of fact to accept this resale price as the most accurate measure of value, and the appellate court should not substitute its own judgment. The original contract price is not conclusive evidence of value, as Associates may have been motivated by factors other than market value, such as a simple desire to exit the investment.



Analysis:

This decision reinforces the principle that a partner's actions can bind the entire joint venture when acting within the apparent scope of the venture's business, and that internal partnership agreement procedures can create binding obligations with third parties. It significantly clarifies the rule for calculating damages in a breach of a land sale contract, strictly adhering to the 'time of breach' valuation. The ruling establishes that a subsequent, higher resale price, if too remote in time, is not a proper basis for calculating damages, as it may provide the non-breaching party with a windfall. This places a heavy burden on plaintiffs to provide clear evidence of the property's fair market value on the specific date of the breach.

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