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NICOLAS M. SALGO ASSOCS. v. CONTINENTAL ILLINOIS P

October 14, 1981

NICOLAS M. SALGO ASSOCIATES, Plaintiff,
v.
CONTINENTAL ILLINOIS PROPERTIES and Pan American Properties, Inc., Defendants



The opinion of the court was delivered by: FLANNERY

MEMORANDUM

This matter is before the court on plaintiff's motion for summary judgment. Plaintiff asserts that there are no material facts at issue and that this case merely presents the court with the simple legal issue of whether a change in corporate organization by the defendants constituted a violation of an "Anti-Assignment" provision of the parties' Partnership Agreement.

 Facts

 The dispute in this case concerns the appropriate interpretation of the terms of the AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF WATERGATE IMPROVEMENT ASSOCIATES (hereinafter referred to as "Partnership Agreement"). Watergate Improvement Associates (hereinafter "WIA") owns and manages substantial amounts of valuable property in the District of Columbia. The general partners in WIA at the time of the incidents at issue were Nicolas M. Salgo Associates (hereinafter "NMSA") and Continental Illinois Properties (hereinafter "CIP"). Although CIP provided almost all of the original capital contribution, $ 9 million compared to $ 500,000.00, NMSA possessed a wealth of experience and expertise in dealing with the purchased property and, as a result, each general partner was given a 50 percent interest in WIA.

 The parties' partnership in WIA was formed by a Partnership Agreement dated November 2, 1977. This agreement records in great detail each partner's rights and obligations concerning the partnership. This case involves a dispute as to the meaning of one section of that agreement, Section 21.0, which provides:

 
Except as herein expressly permitted, no Partner shall sell, assign, pledge, hypothecate or otherwise encumber or dispose of all or any part of its interest in this Partnership (including any beneficial interest therein), except by will or by operation of law on death, without the prior written consent of both General Partners, which consent may be withheld for any reason whatsoever; provided, however, should a limited partner of NMSA desire to assign a portion of his limited partnership interest to a key employee of any person involved with the operation of the Property, CIP agrees that it shall not unreasonably withhold its consent to such assignment.

 (Emphasis supplied). Another section of the agreement, Section 22.9, provides the non-defaulting partner with default remedies in the event of a violation of Section 21.0. In this case, plaintiff NMSA asserts that CIP violated Section 21.0 by transferring its Partnership Interest in WIA to defendant Pan American Properties, Inc. (hereinafter "PAP") without securing the required prior written consent of NMSA and that it is therefore entitled to the default remedies provided by Section 22.9.

 The alleged transfer of Partnership Interest occurred in the following manner. First, on June 7, 1979, Bouverie Properties, Inc. (hereinafter "Bouverie") announced a tender offer to acquire any and all of the outstanding common stock of CIP. *fn1" As a consequence of that offer, Bouverie gained effective control of CIP and on July 18, 1979, Bouverie replaced a majority of the trustees of CIP. *fn2" Second, on or about October 14, 1980, the trustees of CIP entered into an agreement with Bouverie to merge CIP into Bouverie and to name the surviving entity Pan American Properties, Inc. This merger was effected on January 15, 1981. *fn3" At no time prior to the merger did CIP seek NMSA's written consent to this plan of action. Defendants did seek NMSA's approval after the fact in a letter of February 24, 1981, see plaintiff's exhibit 4, attachment 4, page 3, but NMSA decided to withhold its approval.

 Discussion

 I. Before deciding whether the instant actions of CIP and PAP actually amounted to a transfer of interests, this court is faced with the preliminary issue of whether the disputed section of the parties' contract even applies to a mere transfer of interest. The defendants argue that since the actual term "transfer" is not employed in Section 21.0, it is obvious that the section's prohibitions were not meant to apply to a transfer of interest, as compared to an "assignment" or a "disposition" of interests. Further, the defendants claim that the fact that the term "transfer" is employed in the heading of Section 21.0 is without legal significance because Section 29.0 of the agreement provides that all headings are for convenience only and are not to be considered as part of the agreement. Although defendants' argument possesses some superficial attractiveness, it fails to take account of the principle that the parts of a contract are not to be interpreted or construed in isolation, but instead this court must construe the contract as a whole. Washington Metropolitan Area Transit Authority v. Mergentime Corp., 200 U.S. App. D.C. 95, 626 F.2d 959, 961 (D.C.Cir.1980).

 Plaintiff, on the other hand, convincingly argues that interpreting the contract as a whole, Section 21.0's prohibitions clearly include a transfer of interests. This argument is based upon two other sections of the agreement which utilize the term "transfer" in apparent reference to the prohibitions of Section 21.0. *fn4" First, Section 21.3 states "no assignment or transfer of any part of the interest of any Partner (shall be valid until a duplicate copy) ... has been delivered to the Partnership." (Emphasis supplied.) Similarly, and more directly, Section 22.9 characterizes an Event of Default as "a transfer of any Partnership Interest, direct or indirect, as prohibited by Section 21 hereof." (Emphasis supplied.) The use of the term "transfer" in these other sections, especially the direct reference to Section 21.0 in Section 22.9, requires the interpretation that a transfer of interest was indeed intended to be within Section 21.0's prohibitions.

 II. In an alternative attempt at vindication, defendants maintain that even if this court interprets Section 21.0 to prohibit a mere transfer of interest, this prohibition was never intended to apply to the specific type of transfer at issue here. In support of this contention the defendants offer parol evidence of certain additional understandings alleged to have been reached by the parties during the negotiation of the Partnership Agreement. This evidence is in the form of sworn statements contained in the affidavits of two officers of the defendant corporation. For the following reasons, however, this evidence is clearly inadmissible for the purposes for which defendant proffers it.

 First, the parties' Partnership Agreement purports to be the complete integration of the contract between the parties. "All prior partnership agreements and any amendments or supplements thereto are hereby superseded and revoked. The agreements hereinafter set forth shall constitute the sole and only Partnership Agreement between the Partners." Partnership Agreement, Recital C (emphasis supplied). As a result, under District of Columbia law, the agreement is presumed to be the complete contract between the parties. See Rothenberg v. Aero Mayflower Transit Co., 495 F. Supp. 399, 404 (D.D.C.1980).

 Second, because the agreement is presumed to be the complete integration of the parties' contract, parol evidence is only admissible if the agreement is ambiguous or if it was executed through fraud, duress or mistake. See Shankland v. Mayor of Washington, 30 U.S. (5 Pet) 390, 8 L. Ed. 166 (1831); Rice v. Rice, 415 A.2d 1378, 1382 (D.C.Ct.App.1980). Because the written language of the instant Partnership Agreement is susceptible of a clear and definite understanding, and neither fraud, duress, nor mistake is alleged, ...


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