Erlich v. Nyberg, 23904 and 111

• Decision Date: 09 November 1979
• Docket Number: No. 78-1449,No. 23904 and 111,23904 and 111,78-1449
• Parties: , 33 Ill.Dec. 549, 30 UCC Rep.Serv. 316 Richard ERLICH, Plaintiff-Appellant, v. Ralph NYBERG, Harold Nyberg, Cosmopolitan National Bank, not personally but solely as Trustee under TrustW. Division Operating Corporation, an Illinois Corporation, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 1273

396 N.E.2d 1273 78 Ill.App.3d 500, 33 Ill.Dec. 549,
30 UCC Rep.Serv. 316 Richard ERLICH, Plaintiff-Appellant,
v.
Ralph NYBERG, Harold Nyberg, Cosmopolitan National Bank, not
personally but solely as Trustee under Trust No. 23904 and
111 W. Division Operating Corporation, an Illinois
Corporation, Defendants-Appellees. No. 78-1449. Appellate Court of Illinois, First District, Fifth Division. Nov. 9, 1979.

[78 Ill.App.3d 501]

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[33 Ill.Dec. 550] Feiwell, Galper & Lasky, Ltd., Chicago, for plaintiff-appellant; George S. Feiwell and Bernard L. Rivkin, Chicago, of counsel.

Wilson Frost and Paul P. Preston, Chicago, for defendants-appellees.

SULLIVAN, Presiding Justice:

Plaintiff purchased 50 percent of the outstanding stock in the defendant 111 W. Division Operating Corporation (the Corporation) which leased, operated and managed the Mark Twain Hotel in Chicago. The Corporation refused to issue new certificates in plaintiff's name, asserting that he had acquired the stock in violation of a transfer restriction. Subsequently, defendants Harold Nyberg and Ralph Nyberg (president and vice-president respectively of the Corporation and shareholders thereof) purchased the hotel, and the remaining shareholders were afforded the opportunity to acquire an ownership interest in the property in proportion to the amount of stock they held. However, when plaintiff sought to exercise this option to purchase a one-half interest, his request was denied on the ground that he was not a shareholder in the Corporation.

Plaintiff then filed the instant action against the Corporation, the Nybergs, and Cosmopolitan National Bank, as Trustee ¹ seeking an order requiring the recordation of new certificates in his name, an order of specific performance requiring the Nybergs to sell plaintiff a 50 percent ownership interest in the building, an accounting by the Nybergs of income resulting from the purchase of the property with an award of 50

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[33 Ill.Dec. 551] percent thereof to plaintiff, and for damages because of breach of contract. The trial court found for defendants on the ground that the transfer restriction was effective against plaintiff.

Plaintiff appeals from the judgment order, contending that the court erred in its findings that (a) plaintiff was not a bona fide purchaser of the shares in his own right; (b) plaintiff had actual knowledge of the transfer [78 Ill.App.3d 502] restriction; (c) plaintiff did not take certain of the shares with the rights of a bona fide purchaser, even though he may not have been a bona fide purchaser in his own right; (d) the transfer restriction was not waived; (e) defendants were not estopped from asserting the transfer restriction; and (f) an individual other than plaintiff was in fact the actual purchaser of the stock.

The facts in this case are not easily ascertainable, inasmuch as the testimony is conflicting or unclear on several key points. Nonetheless, it appears that in November of 1963, the Corporation entered into a lease agreement for the operation and management of the Mark Twain Hotel. ² The lease term extended from January 1, 1964, to December 31, 1978. Paragraph 17 of the lease, which became central to the instant litigation, provided:

"Lessee shall not allow or permit any transfer of this Lease or any interests under it or any lien upon Lessee's interest by operation of law, or assign or convey this Lease or any interest under it except upon the express consent in writing by the Lessor.

During the term of this Lease no transfer other than by encumbrance or sale of the shares of Lessee shall be made except among members of the immediate families of Ralph Naiburg (sic) and Henry Mann, and no encumbrance or sale of any shares of Lessee shall be made, without Lessor's prior written consent (it being understood that Lessor's consent shall not be unreasonably withheld. Every stock certificate of Lessee shall bear the following legend upon the face thereof; or in the alternative, there shall be bold notice on the face of said certificate referring to the following legend on the reverse side thereof:

This certificate and the shares of stock represented thereby are held pursuant to the terms of Lease * * * and no transfer of this certificate or any of said shares may be made except in accordance with the provisions of Paragraph 17 of said Lease."

Although the Corporation's attorney, Maurice Lewis, discussed each provision of the lease with the Nybergs and Henry Mann, who collectively owned 371/2 percent of the outstanding stock at that time, no legend was ever printed on the certificates, and it appears that shares had been transferred without the lessor's written consent for several years following the execution of the lease. Specifically, the record reveals that when the lease was signed, 100 shares were outstanding 61/4 being owned by Ralph Nyberg, who was then and is now vice-president; 61/4 by Harold Nyberg, who became president in 1966; 121/2 by Abraham Nyberg, who [78 Ill.App.3d 503] was the father of Ralph and Harold; 25 by David Klafter; 25 by Arthur Ludwig; and 25 by Henry Mann. In 1966, Abraham Nyberg died the result being that Ralph and Harold each came to own 121/2 shares total, and when Klafter died his 25 shares passed to Lois Schubert, his heir. In 1974, Ludwig transferred his 25 shares to Samuel Rothbart, who in turn transferred 121/2 of those shares to his son Michael. No familial relationship existed between the Rothbarts, Nybergs, Klafter and Mann.

In 1976, plaintiff, without the permission of the lessor, acquired the shares of Mann and the Rothbarts for a total of 50 of the 100 outstanding shares. The details as to how and when plaintiff acquired such shares, which determine whether the transfer restriction was effective against plaintiff, are sharply disputed. In this regard, the record discloses that in early 1976 plaintiff inspected the property and made an

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[33 Ill.Dec. 552] offer to purchase it, contingent upon his being afforded the opportunity to read the lease; however, the offer was not accepted, and it appears that plaintiff did not review the lease at that time; that Ralph Nyberg testified to a meeting in early July, 1976, at the Covenant Club with plaintiff and Julius Lopin (who is plaintiff's father-in-law) and, at this meeting, Lopin said he had purchased 50 shares from Mann and the Rothbarts, which he would sell to Ralph Nyberg for $25,000; that Nyberg told Lopin he "had no interest in buying his shares, buying the shares for $25,000; that there were restrictions in the lease agreement, and that Henry Mann, and Sam Rothbart, and Michael Rothbart had no business to sell those shares until they were offered to us first"; that Ralph testified that in a telephone conversation later that evening, he asked Mann why the shares were not first offered to him; that Mann replied that he did not think he (Nyberg) would be interested in the shares since the hotel was losing money and the lease would expire in...