Fox v. I-10, Ltd., I-10

• Decision Date: 23 March 1998
• Docket Number: No. 96SC483,LTD,I-10,96SC483
• Citation: 957 P.2d 1018
• Parties: 98 CJ C.A.R. 1308 William W. FOX, Individually and as Trustee of Longmont Foot and Ankle Clinic, P.C. Pension Plan and of Longmont Foot and Ankle Clinic, P.C. Profit Sharing Plan, Petitioner, v., a Colorado limited partnership, Respondent.
• Court: Colorado Supreme Court

Page 1018

957 P.2d 1018

98 CJ C.A.R. 1308

William W. FOX, Individually and as Trustee of Longmont Foot and Ankle Clinic, P.C. Pension Plan and of Longmont Foot and Ankle Clinic, P.C Profit Sharing Plan, Petitioner, v. I-10, LTD., a Colorado limited partnership, Respondent.

No. 96SC483.

Supreme Court of Colorado,

En Banc.

March 23, 1998.

Hutchinson Black and Cook, LLC, David M. Packard, C. Brad Peterson, Jean E. Dubofsky, P.C., Jean E. Dubofsky, Boulder, for Petitioner.

Davis & Ceriani, P.C., Gary J. Ceriani, Bruce E. Rohde, Denver, for Respondent.

Justice KOURLIS delivered the Opinion of the Court.

William Fox, individually, and as trustee for a pension plan and a profit sharing plan, (Fox) is a limited partner in I-10 Ltd. (the Partnership or I-10). Fox appeals a judgment of the court of appeals holding that the amendment provisions in the partnership agreement and applicable statutes allowed the limited partners to increase their capital contribution obligation by majority vote. Fox v. I-10 Ltd., 936 P.2d 580 (Colo.App.1996). We granted certiorari to consider the propriety of this ruling, ¹ and now conclude that the majority vote provision plainly allows amendment of the limited partners' capital contributions; and this provision is not contrary to statutory provisions requiring capital contributions to be set forth in a certificate of limited partnership.

I.

In 1982, Fox purchased approximately 20% of the available limited partnership units in a Colorado limited partnership known as I-10 Ltd. Fox and several other limited partners (LPs) executed a limited partnership agreement with the general partner, MSP Investment Co., (MSP) dated November 1, 1982 (the Agreement). The purpose of the Partnership was to acquire, develop and hold for resale 305 acres of land in Pima County, Arizona.

Article 4.09 of the Agreement provided:

Additional Assessments. If at any time after the formation of the Partnership the General Partner determines that additional contributions to the capital of the Partnership are necessary or desirable for any purpose, the General Partner shall mail a notice to each Limited Partner specifying the aggregate amount of additional capital to be contributed to the Partnership, such Limited Partner's pro rata share of the additional capital required, the purpose for the assessment, the intended use of the proceeds thereof, and the penalty to be imposed for failure to meet the assessment.... The total additional capital contribution required to be made by each Limited Partner hereunder shall not exceed an amount equal to four hundred percent (400%) of the initial capital contribution to the Partnership of each Limited Partner.

Article 7.00 dealing with amendments set forth two methods of amending the agreement depending upon the nature of the proposed change. Article 7.01 allowed the general partner, in its sole discretion, and as attorney in fact for the limited partners, to make certain "routine amendments" without the need for any partnership vote. These types of amendments related mainly to administrative matters such as preservation of proper status for federal income tax purposes.

Article 7.02 encompassed all other, non-routine amendments, and provided that, except for amendments affecting MSP's rights, all other amendments to the agreement would be made by majority vote:

Other Amendments. All amendments, other than those set forth in paragraph 7.01 hereof, shall be proposed in writing by the General Partner or by Limited Partners owning not less than twenty-five percent (25%) of the Limited Partners' aggregate Interest in the Partnership for voting purposes. Any proposed amendment shall not become effective until it has been considered at a meeting of the Limited Partners duly held for that purpose and has received the affirmative vote of a majority of the Limited Partners' aggregate Interest in the Partnership and the approval of the General Partner. Notwithstanding the foregoing provisions of this paragraph to the contrary, no amendment shall be made to this Agreement which would deprive the General Partner of its Interest in the Partnership, or of any compensation or reimbursement of expenses due to the General Partner as provided herein.

In May of 1983, the Partnership filed a certificate of limited partnership in accordance with then-existing requirements under The Colorado Uniform Limited Partnership Act (CULPA). See § 7-62-201, 3 C.R.S. (1973) (repealed 1986). This previous version of the statute required a limited partnership to specify in the certificate the amount each partner had contributed and had agreed to contribute in the future. See § 7-62-201(e), 3 C.R.S. (1973)(repealed 1986)(hereafter Section 201(e)). In addition, the certificate was to include a description of the "times at which or events on the happening of which any additional contributions agreed to made by each partner are to be made." § 7-62-201(f), 3 C.R.S. (1973)(repealed 1986)(hereafter Section 201(f)). CULPA was amended in 1986, and these items are no longer required in the certificate.

In accordance with these statutory provisions, the original certificate reflected that Fox had contributed a total of $85,000 to the Partnership and had agreed to potential future assessments not exceeding $340,000 (400% of $85,000). The certificate also stated that article 4.09 of the Agreement governed the times at which, or events upon the happening of which, the partners had agreed to make additional contributions. The Partnership attached a copy of article 4.09 as an exhibit to the certificate.

Over the next few years, the Partnership found it necessary for various reasons to amend the Agreement several times. In February 1986, MSP sent a letter and a proxy to the limited partners proposing certain amendments to the Agreement. Efforts to sell the property had failed, and MSP sought amendments that would, among other things, change the purpose of the Partnership to include a possible land exchange with the State of Arizona, and amend article 4.09 to increase potential assessments from 400% to 600% of the original investment.

In its letter, MSP focused on the proposed change in purpose and noted that such a change could only be accomplished if each partner agreed. This was true because article 2.04 of the Agreement required 100% of all outstanding interests in the Partnership to consent to any action of the general partner that was inconsistent with the existing "principal business and purpose of the Partnership." Because the Agreement did not contemplate a land exchange, MSP recognized that it had to obtain consent of all the partners to make this change.

In the proxy accompanying the letter, MSP set out all the proposed amendments to the Agreement, including, among others, the capital contribution increase, and specified that amendment would be accomplished by majority vote as required in article 7.02 of the Agreement. ²

At a meeting in March of 1986, MSP and all of the limited partners, including Fox, voted to amend paragraph 4.09 and increase the contribution cap to 600%. The Partnership filed an amended certificate reflecting the new cap and adjusting the total potential contributions accordingly. As with the original certificate, the amended certificate also stated that article 4.09 governed the times and events that could trigger obligations under the new cap.

The Partnership thereafter was unable to secure a suitable exchange or sale of its land, and by 1993 needed additional cash to finish paying its mortgage. MSP again proposed to amend article 4.09 of the Agreement by increasing the contribution cap to 800%. At a meeting in December of 1993, a majority of the partners (all partners except Fox) voted to amend article 4.09 and increase the cap to 800%. Fox voted against the amendment. Shortly after the majority vote, MSP sent Fox a notice of additional assessment for amounts in excess of the previous 600% cap. Fox paid the assessment up to 600% of his initial contribution, but refused to make further contributions. Fox then filed an action in the district court seeking a declaratory judgment that he had no obligation beyond the 600% cap, and seeking an injunction preventing the Partnership from declaring him in default under the terms of the Agreement.

The district court granted summary judgment for Fox and entered an order declaring that the Agreement did not permit an increase in the limited partners' capital contribution by majority vote. The district court also found that even if the Agreement were to permit such an amendment, it would be contrary to the provisions of CULPA. The court of appeals reversed, holding that the language of the Agreement did, in fact, allow this amendment by majority vote, and that the statutes did not prohibit it. We agree.

II.

We begin our analysis with a review of well-settled principles of contract law. Our courts have repeatedly recognized the sanctity of contracts and the court's role in enforcing them. Quoting the United States Supreme Court, we have held that:

the right of private contract is no small part of the liberty of the citizen, and ... the usual and most important function of courts of justice is rather to maintain and enforce contracts, than to enable parties thereto to escape from their obligation....

Francam Bldg. Corp. v. Fail, 646 P.2d 345, 349 (Colo.1982)(quoting Baltimore & Ohio Southwestern Ry. v. Voigt, 176 U.S. 498, 505, 20 S.Ct. 385, 387, 44 L.Ed. 560 (1900)). Where a party enters into a contract absent fraud, duress or incapacity, the courts will not relieve that party of the consequences of the bargain simply because it may have been improvident. See Ace Flying Serv., Inc. v. Colorado Dep't of Agriculture, 141 Colo. 467, 472, 348 P.2d 962, 965 (1960); Sedalia Land Co. v. Robinson Brick & Tile Co., 28 Colo.App. 550, 553, 475 P.2d 351, 354 (1970).

The court's duty is to interpret and enforce contracts as written between the...