Band v. Livonia Associates

Michigan Court of Appeals · 1989 · Corporations

439 N.W.2d 285 (1989)

Updated August 22, 2026

CorporationsPartnershipsLimited partnershipsFiduciary dutiesReceivershipDissolutiongeneral partner fiduciary dutysecret profits

Facts

Plaintiffs were limited partners in Livonia Associates, and defendants Horvath and Peleo were the general partners. After the partnership was formed to acquire and develop land, land contracts were structured so that property was sold to the partnership for more than the Peleos had agreed to pay or had paid, and Horvath and Peleo did not inform the limited partners of the amount of that profit. The general partners also failed to meet capital contribution obligations, failed to pay taxes, and allowed the land contract to go into default, placing partnership property at risk. After lesser court-ordered measures failed to secure compliance, the trial court appointed a receiver and later dissolved the partnership.

Issue

Whether the trial court properly appointed a receiver, properly granted partial summary disposition requiring the general partners to account for undisclosed profits on partnership-related land sales, and properly dissolved the partnership. The appeal also raised whether an initial failure to require the receiver's bond voided the receivership and whether the general partners were entitled to compensation.

Rule

A circuit court may appoint a receiver in a pending case when the facts and circumstances make receivership an appropriate exercise of equitable jurisdiction, especially after less intrusive means have failed and immediate harm to property is threatened. Under MCL 449.20 and MCL 449.21, partners must provide true and full information of all things affecting the partnership and must account to the partnership for benefits or profits derived without the consent of the other partners from transactions connected with the formation, conduct, or liquidation of the partnership; disclosure must be full and frank to all partners, and disclosure to only one or several partners is insufficient. A receiver's appointment is not void merely because the original order omitted a bond requirement; that omission may be corrected by nunc pro tunc order.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Phoenix, Dana Mercer and Omar Velez formed a limited partnership to acquire warehouse property. After formation, Dana caused the partnership to buy a parcel from an entity she controlled for $900,000, even though her entity had contracted to buy it for $760,000, and she never told all partners the amount of the markup.

If the limited partners sue for an accounting, which result is most consistent with the governing rule?

Explanation. A partner must render true and full information of all things affecting the partnership and must account to the partnership for benefits or profits derived without the consent of the other partners from transactions connected with the formation, conduct, or liquidation of the partnership. The majority held that undisclosed markups on property sold to the partnership must be held in trust for the partnership, even where the original acquisition arrangement predated the final sale to the partnership.