Sierra Associates, Ltd. v. Continental Illinois Nat. Bank & Trust Co. of Chicago
| Decision Date | 10 January 1984 |
| Docket Number | No. 67169,67169 |
| Citation | 315 S.E.2d 250,169 Ga.App. 784 |
| Court | Georgia Court of Appeals |
| Parties | SIERRA ASSOCIATES, LTD. et al. v. CONTINENTAL ILLINOIS NATIONAL BANK & TRUST COMPANY OF CHICAGO. |
Edward T.M. Garland, Norman Underwood, Robin N. Loeb, Atlanta, for appellants.
Peyton S. Hawes, Jr., Julie Childs, Atlanta, for appellee.
Sierra Associates, Limited, a Georgia limited partnership, on November 26, 1974, executed a deed to secure debt, and promissory note in the amount of $1,005,327.00, to the Hamilton Mortgage Corporation for the purchase of the Gray Fox apartment complex in Atlanta. The note was payable on May 26, 1976. Sierra is composed of William Wallace--general partner, 40%; Heritage Equities Company--general partner, 40%; and William Bradford, limited partner--20%. Heritage Equities is a Georgia general partnership--with Howe Whitman as the sole general partner. There were two other partners in Heritage but they are not involved in this litigation. The note executed by Sierra for the purchase of the Gray Fox contained an exculpatory clause. Neither Sierra, Heritage Equities, nor the individuals involved in the purchase were personally liable on the promissory note. Hamilton's only recourse was against the property securing the note--the Gray Fox apartments. Sierra owned the property but it was operated by Southern Heritage.
Whitman and Wallace were involved in the ownership and management of several Atlanta apartment complexes. During the summer of 1975 Whitman and Wallace discussed a severance of their interests in all of their jointly owned properties. This discussion was over a period of weeks prior to November, 1975. Although there was general agreement about the breakup, there was no agreement as to which person would take specific properties.
When Sierra took over the Gray Fox apartments, the 104 units had 4 renters with leases who were making rental payments. During 1975 and 1976 occupancy was expanded to 90%, but the property never had sufficient income to pay expenses, repairs, taxes, management fees, and interest on the mortgage. On June 27, 1975, in an asset swap, Hamilton Mortgage assigned to Continental Illinois National Bank and Trust Company of Chicago (CINB) all of their interest in the Gray Fox security deed and promissory note. A third document, titled "Agreement," had been executed contemporaneously with the original promissory note, deed to secure debt, and real estate sales agreement. The "agreement" provided that the promissory note "shall be satisfied upon the maturity date of the Note as provided therein in any one of the following manners at the option of HAMILTON MORTGAGE CORPORATION:
Following Hamilton's assignment to CINB, Scott Swank was appointed by CINB to monitor their loan on the Gray Fox apartments. CINB also hired Futren Corporation of Atlanta, a real estate management firm, to oversee the operation of Gray Fox apartments and to report to them on its physical appearance and management operations. Futren was composed of Judi Collins and James Rhoden. Swank, Collins, and Rhoden met with Wallace and Whitman in September, 1975, and discussed management of the apartments. Swank stated that Whitman indicated that he would like to know if CINB would set an amortization schedule for purchase of the apartments. Swank stated that he was unsure whether all of Sierra's expenses were necessary and replied that CINB did not understand the property and its operations well enough to make a determination as to what kind of amortization schedule could be supported by the property. Swank described an amortization schedule as the "combination of the term and the interest rate get you to what you refer to as a constant, at which the monthly payment, or, you know, if it is on a monthly schedule, a monthly payment could be based on." No agreement was reached.
Wallace and Whitman had been discussing the severance of their interests in all of their combined properties during the summer of 1975, but nothing definite had been committed to paper. After the September 1975 meeting in Atlanta with the CINB representatives, Whitman went to Chicago in October, 1975 to speak with Swank. Whitman said he had two reasons for the visit. One--to inform him that he and Wallace were "contemplating dividing our properties or terminating our relationship, which would ultimately end up in a sale or division of any properties that we might jointly own ..." Secondly, he wanted to see "if we couldn't go ahead and define exactly what their intentions were with regard to this loan, since we only had, basically, six months left before an option had to be selected." Whitman had been contacted by a third party who was interested in acquiring a 49% interest in Sierra and he wanted to know what CINB intended to do. Whitman stated that Swank told him "he did not feel that we should bring in a third party investor just to get some immediate cash ... Secondly, they said that although they [CINB] certainly could not dictate who bought out who or who continued, that they would prefer that I buy out Mr. Wallace and that I gain, you know, control of the property ... and that I continue to manage it as my property ... Mr. Swank agreed that the note on the property would be renewed pursuant to option one of the agreement, relative to that note." Swank does not recall indicating any choice as to who would buy out whom or manage the property but remembered that his comments to Whitman were directed toward local management and he wanted more specific and detailed information on the property.
Whitman agreed that they (Emphasis supplied.) Whitman said that on the basis of his discussion with Swank in October, 1975, that he returned to Atlanta and purchased, in the name of his wife, the 20% interest of his limited partner in Sierra, and 29% of Wallace's 40% interest in Sierra. He also purchased the interest of one of his partners in Heritage Equities, and he had already acquired the interest of his other partner in Heritage. These purchases were made in November, 1975. Thus, Whitman was the sole owner of Heritage Equities, which owned 40% of Sierra, and his wife owned 49%. He had an option to purchase the remaining 11% of Sierra from Wallace.
Swank came to Atlanta in March, 1976 to meet with Whitman. Whitman said that he and Swank verbally agreed on an amortization schedule. He described the terms of the verbal agreement as The term was to be "15 years or upon the refinancing of the property on a basis which would retire that note, whichever came first." The new loan was to become effective December 1, 1976, and the existing loan was to remain in effect until then.
Swank stated that he and Whitman talked about an amortization schedule at the March meeting but he did not commit himself to any specific terms. Nothing was finalized because, first--Whitman did not ask, and second--he had no authority to make a loan in that amount or any authority to modify or extend the existing loan. It took two loan officers to make a loan up to $250,000 and this loan was over $1,000,000.
Swank's testimony was to the effect that he spent one year trying to understand the operation of the Gray Fox apartments, attempting to find out what their "asset" was worth. They thought the expenditures by Sierra were abnormal and excessive. There was a question as to whether the apartments were being operated or managed as efficiently as possible. No definite decision on an amortization schedule was made in the March meeting with Whitman. He did not agree to a new term for the note or a renewal. He and Futren agreed that it would be advantageous for the Gray Fox apartments to have new management. An appraisal of the property was done and its value was set at $625,000. He discussed these factors with his superiors and they jointly made a decision to offer Whitman two alternatives. In August, 1976, Whitman was offered the choice of an amortization schedule with an interest rate of 10% for 30 years, with a 5-year balloon note, or a cash sale for $600,000. Whitman rejected the amortization schedule outright, but said he would be interested in buying the property. CINB wanted an answer within 24 hours. The following morning they presented Whitman with a letter to CINB in the form of an offer to purchase the Gray Fox apartments--with a $15,000 downpayment to accompany the letter. This offer was not accepted.
CINB filed this action to appoint a receiver to preserve the assets of the apartments during the advertising period of foreclosure. After a receiver was appointed, CINB amended its petition to allege damages against Whitman for...
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