author: PRESIDING JUSTICE CHAPMAN GOLDENHERSH, J.,

text:
    DIANNE FLEEMAN, Plaintiff-Appellant, v. CHARLES K. FISCHER, Defendant-Appellee.
    Fifth District
    No. 5—91—0512
    Opinion filed May 19,1993.

      GOLDENHERSH, J., dissenting.
    John W. Halloran, of Callis Law Firm, P.C., of Granite City, for appellant.
    Jerome E. McDonald, of Campbell, Black, Camine & Hedin, P.C., of Mt. Vernon, for appellee.
   PRESIDING JUSTICE CHAPMAN

delivered the opinion of the court:

Plaintiff was born on May 17, 1969, at St. Mary’s Hospital in Centraba, Illinois. During the delivery, plaintiff’s shoulder became lodged against her mother’s pubic bone, a condition known as shoulder dystocia. Dr. Fischer, the obstetrician, applied forceps and exerted traction in a successful attempt to free the shoulder. As a result of the traction, the plaintiff sustained a permanent injury to a network of nerves called the brachial plexus.

Plaintiff filed suit in 1988 against both Dr. Fischer and St. Mary’s Hospital, but in 1989 St. Mary’s was voluntarily dismissed. The case against Dr. Fischer was tried in 1991, and the jury returned a verdict in defendant’s favor. Plaintiff claims the trial court erred in (1) refusing to excuse for cause jurors who had been treated by defendant or who had children delivered by defendant; (2) refusing to allow plaintiff to use subsequent pregnancy records of Mrs. Fleeman during the cross-examination of defendant’s expert, Dr. Kurzel; and (3) allowing defense counsel to cross-examine plaintiff’s expert about the alleged negligence of St. Mary’s Hospital.

Plaintiff relies on Martin v. Kipfer (1983), 117 Ill. App. 3d 1065, 454 N.E.2d 370, on the first issue. Martin reversed a defendant’s verdict in a medical malpractice case because the trial court had refused to excuse for cause two jurors who were patients of the defendant at the time of the trial. Plaintiff contends that the ruling of Martin should be extended to include former patients of defendant doctors, particularly if the earlier treatment involved the delivery of a child. Plaintiff submits that the birth of a child is such a significant event that a successful delivery, although in the past, would make it impossible for a patient-juror to be objective. Plaintiff argues it would be inconceivable for the trial court to have allowed any juror to sit who had indicated displeasure with the defendant’s care, even though she maintained she could be impartial, and that the same ruling should apply to jurors who expressed satisfaction.

These are strong arguments, as Martin recognized:

“Here, for the two jurors to have found for plaintiff, they would have had to find their personal physician to have been incompetent in his treatment of decedent. Although the traditional close relationship of trust and confidence between patient and physician may no longer be as strong as it once was, it still has considerable strength.” (Martin v. Kipfer, 117 Ill. App. 3d at 1067-68, 454 N.E.2d at 372.)

The trial court in this case refused to adopt the plaintiff’s suggested blanket rule of exclusion of all such jurors and indicated instead that the plaintiff would be allowed to inquire of individual jurors to determine whether a challenge for cause should be allowed. This procedure was within the discretion of the trial court keeping in mind the concerns of Martin in this type of case.

The difficulty with the plaintiff’s position on this point is that the plaintiff challenged only two of the complained-of jurors for cause. She did not challenge the other jurors for cause; instead, she used preemptory challenges to exclude them. Plaintiff also accepted a former patient on the jury even though she had a preemptory challenge available which could have been used to exclude the juror.

Plaintiff’s failure to move to strike the jurors for cause constitutes a waiver on this issue. (People v. Collins (1985), 106 Ill. 2d 237, 478 N.E.2d 267; People v. Higgins (1975), 27 Ill. App. 3d 266, 327 N.E.2d 135.) In addition, the plaintiff’s failure to utilize all her preemptory challenges is also a waiver of this issue. People v. Townes (1985), 130 Ill. App. 3d 844, 474 N.E.2d 1334.

•2 Plaintiff’s second claimed error is the court’s refusal to allow her to utilize subsequent pregnancy records. A further discussion of the facts is necessary for a proper understanding of this issue. One of the disputed questions in the case was the size of the plaintiff’s mother’s pelvis. A radiologist’s report of an X ray taken a few days before plaintiff’s delivery read: “Large child, small pelvis.” Plaintiff contended that this information should have suggested the possible necessity of a delivery by cesarean section to the defendant. Defendant and his experts testified that in 1969 X rays were not a reliable method of determining pelvic size. In addition, defendant testified that his physical examination of plaintiff’s mother revealed that she had a pelvis of normal size. This testimony provided the background for plaintiff’s attempts to use the subsequent records. Plaintiff first established that the size of an adult woman’s pelvis does not change and then attempted to use records from two subsequent pregnancies that reflected the mother’s pelvic size. The trial court refused to allow reference to the records.

Plaintiff contends that Wilson v. Clark (1981), 84 Ill. 2d 186, 417 N.E.2d 1322, would allow her to use the records. The trial court was concerned about their use for two reasons: (a) that plaintiff was actually trying to prove the entries as substantive evidence, and (b) that they had not been properly authenticated. The treating doctor in the subsequent pregnancies was dead. Plaintiff argued that she should be allowed to use the records to test Dr. Kurzel’s opinion and/or to impeach his testimony that the plaintiff’s mother’s pelvis was of an adequate size.

The trial court ultimately rejected the use of the first record which dealt with a 1971 entry, “Type of pelvis: borderline,” because it was too subjective. Plaintiff then referred to a 1976 record which apparently had some measurements on it made by a radiologist or an X-ray technician. The court rejected this document because the plaintiff had not deposed the person who made the entries and introduced them through that person.

Plaintiff is correct that Wilson v. Clark does not require the admission of the record into evidence in order for it to be used as the basis of an expert’s opinion, and presumably the same rule would apply to a record being used to test an expert’s opinion, but there are further problems with this entry. It may be that plaintiff established that the 1976 record was of the type that experts rely upon through the defendant’s reference to some part of it during the cross-examination of plaintiff’s expert. However, no one established that the entry was authentic. Much more important for our purposes is the fact that the record on appeal does not contain the excluded medical record. We are therefore unable to determine whether the entry was significant enough to warrant reversal. In addition, no offer of proof was made to establish what defendant’s expert’s response would have been when his opinion was tested by confrontation with the subsequent entries.

“While a formal offer of proof, in the form of questions to the witness outside the hearing of the jury, is no longer the sole means of perfecting appeal from the denial of an evidentiary request (see Daehler v. Oggoian (1979), 72 Ill. App. 3d 360, 390 N.E.2d 417), the unsupported speculation or conjecture of counsel is insufficient. A party cannot obtain reversal based on the failure to admit evidence without showing what that evidence would be in order to allow a court of review to assess the prejudice inuring from the exclusion. (Lukas v. Lightfoot (1985), 131 Ill. App. 3d 566, 569, 476 N.E.2d 1; People ex rel. Fahner v. Hedrich (1982), 108 Ill. App. 3d 83, 91, 438 N.E.2d 924.)” Hall v. Northwestern University Medical Clinics (1987), 152 Ill. App. 3d 716, 722, 504 N.E.2d 781, 785.

Plaintiff’s third issue deals with the cross-examination of her expert by use of a letter that implicated St. Mary’s Hospital as well as Dr. Fischer. Plaintiff’s expert’s letter had been attached to plaintiff’s section 2 — 622 affidavit (Ill. Rev. Stat. 1987, ch. 110, par. 2— 622) in support of her complaint. According to the plaintiff, after additional information became available through discovery, it was determined that St. Mary’s Hospital was not culpable, and plaintiff voluntarily dismissed it. Defendant contends that the expert’s letter was a prior inconsistent statement and was properly used to impeach the witness. Plaintiff responds that, since St. Mary’s was no longer a party, the earlier statements about its possible culpability were irrelevant.

The purported impeachment was improper. Plaintiff’s expert did not testify on direct that Dr. Fischer’s conduct was the sole cause of plaintiff’s injury. If he had so testified then his prior report, which indicated that the conduct of both Dr. Fischer and St. Mary’s Hospital caused the injury, would have been inconsistent. It would also appear to be collateral, even in the latter example, but we need not explore that possibility further.

What must be determined, however, is whether the error warrants reversal. We conclude that it does not. The purported impeachment is relatively brief, and it was not mentioned in defendant’s opening statement or argued in his summation. Defendant’s theory was not that some other entity such as St. Mary’s Hospital was responsible; he maintained throughout the case that no one was responsible.

In view of these factors, we do not think that the error requires reversal.

Affirmed.

WELCH, J., concurs.

GOLDENHERSH, J.,

dissenting:

I respectfully dissent. It is my view that the trial court committed prejudicial and reversible error in its ruling on the use of the subsequent pregnancy records and in allowing cross-examination concerning alleged negligence of St. Mary’s Hospital.

The majority justifies the trial court’s actions on refusal of the subsequent pregnancy records claiming that the point was not adequately preserved for our review, since the actual records attempted to be used as impeachment are not a part of the record before us. We are in a position to review alleged error of this nature when, as in this case, the position is adequately described in the record either by summary offers of proof or other statements as to the matter involved. An example of this is Clay v. McCarthy (1979), 73 Ill. App. 3d 462, 392 N.E.2d 693, in which a summary statement of counsel was not challenged as to the accuracy of its content and was acceptable to the appellate court, although the Clay court said that this method was not preferred. In the case at hand, the contents of the 1971 and 1976 records were adequately described, and especially in the case of the 1976 records, it was noted without contest that it contained pelvic measurements. Prior to counsel’s attempted use of this under Wilson v. Clark (1981), 84 Ill. 2d 186, 417 N.E.2d 1322, the expert had admitted that pelvic measurements do not change. Plaintiff’s counsel then attempted to lay a proper foundation under Wilson v. Clark that this type of material is commonly used and relied upon when objection was made and sustained. The trial court’s sustaining of that objection and appellee's claim that plaintiff attempted to use it substantively run counter to both the holding and the policy decision underlying Wilson v. Clark. Plaintiff’s counsel clearly attempted to use this in a proper impeachment manner under Wilson v. Clark and was denied the opportunity to lay a proper foundation without any sound reason apparent in the record. The trial court ruling that plaintiff’s counsel would have to produce the radiologist to authenticate the record clearly run counter to Wilson v. Clark. The denial to plaintiff of the opportunity to establish the reliability of these records under Wilson constituted prejudicial error. In my view, it was error central to the case and, after a thorough review of the record, there is no way that I could say with confidence that the error was not prejudicial. This alone would be a basis for reversal and remand.

While I concur with the majority on the third issue in that cross-examination of plaintiff’s expert concerning this letter was error, I disagree that it was not prejudicial. As pointed out by the majority, the thrust of the cross-examination clashed with defendant’s own theory, that no one was responsible. While not emphasized in the rest of the trial, it was a source of confusion. More important in the context of this case, when taken with the error committed by the trial court’s refusal to allow use of the subsequent medical records concerning pelvic size, prejudicial error was committed, and in my view, this judgment should be reversed and remanded.


source: Caselaw Access Project

author: PRESIDING JUSTICE TULLY

license: Public Domain

text:
    SUPERIOR INVESTMENT AND DEVELOPMENT CORPORATION, INC., et al., Plaintiffs-Appellants, v. JAMES D. DEVINE et al., Defendants-Appellees.
    First District (3rd Division)
    No. 1—91—0611
    Opinion filed March 31,1993.

      Grippo & Elden, of Chicago (Philip C. Stahl and Eric D. Brandfonbrener, of counsel), for appellants.
    Feiwell & Galper, Ltd., of Chicago (Daniel C. Meenan, Jr., of counsel), for appellees.
   PRESIDING JUSTICE TULLY

delivered the opinion of the court:

This case involves the interpretation of a shareholder agreement between plaintiffs, Bernard Katz and Benjamin Weiss, and defendants, James Devine and John Gross. Plaintiffs and defendants were joint owners in a real estate syndication and investment company. Devine and Gross subsequently resigned from the company to form a competing business, triggering a stock purchase agreement, wherein plaintiffs exercised their option to purchase defendants’ shares of the company at fair market value. Following valuation by an independent accounting firm, defendants moved for judgment in their favor, based upon the independent appraisal. The trial court adopted the findings of the appraiser and granted summary judgment in favor of defendants. Plaintiffs appeal from this order based upon three alleged errors: (1) the appraiser’s report applied a valuation method inconsistent with the terms of the stock purchase agreement; (2) the report is factually incorrect in that it takes into account future income streams from partnership agreements; and (3) the report was declared “null and void” by the appraiser and, therefore, cannot be a basis of the trial court’s judgment.

For many years, Katz and Weiss had been jointly involved in construction and real estate development and syndication. In 1980, Katz and Weiss, together with Devine and Gross, formed Super Investment and Development Corporation, Inc. (SIDCOR). As originally structured, plaintiffs owned 2,500 shares of the 2,550 outstanding shares and defendants owned the remaining 50 shares. Plaintiffs then entered into a shareholder agreement (the Agreement), wherein control of the stock was evenly divided between Devine/Gross and Katz/Weiss, each pair receiving a 50% ownership of the stock. The Agreement also gave plaintiffs the option to purchase defendants’ shares in the event they resigned from the company.

On April 15, 1989, Devine and Gross resigned from SIDCOR in order to engage in a business competitive with SIDCOR. Katz and Weiss then exercised their right to purchase the Devine/Gross shares. In accordance with the Agreement, Devine and Gross were entitled to the fair market value of their shares as of April 15, 1989, the date of their resignation. Because the parties were unable to agree on a fair market value of SIDCOR’s assets, in order to determine a fair price for defendants’ shares, plaintiffs filed suit seeking a declaratory judgment and other relief with respect to the valuation of SIDCOR. Plaintiffs then moved the court to appoint an appraiser to value those specific assets on which the parties could not agree. Defendants, on the other hand, urged the court to appoint an appraiser to identify and value all assets of SIDCOR and to value SIDCOR as a going concern, rather than limit the authority of the appraiser to specific assets.

On February 1, 1990, the trial court found that the provisions of the Agreement governing asset valuation reflected an intent by the parties to value the stock at “fair market value” and further ordered a full-scale appraisal of SIDCOR as a going concern, rather than an asset-by-asset valuation. The trial court later appointed the independent accounting firm of Arthur Andersen & Company (Andersen) to perform the appraisal.

On July 10, 1990, the appraiser issued a report (the July 10 Report) that contained an opinion of SIDCOR’s fair market value of $4.9 million. The July 10 Report expressly stated that the fair market value of the common stock of SIDCOR was made pursuant to paragraph 10(DXv) of the Agreement, which reads:

“The purchase price of each share of stock shall be its proportionate share of the then fair market value of the Company’s assets at said time, including the Company’s share, if any, of any real property and in any then pending ventures and syndications, less the Company’s then liabilities, as determined by the Company’s independent accountant. In the event that the parties are unable to agree upon the then fair cash market value of any such assets, said value shall be determined by a qualified independent appraiser selected and approved by the selling shareholder and the Company. The fees of said appraiser shall be borne equally between the seller and the acquiring parties.” (Emphasis added.)

The proper interpretation of the emphasized portion of paragraph 10(DXv) is disputed by both parties. The view propounded by the defendants and adopted by the trial court is that the Agreement calls for a valuation of all of SIDCOR’s assets at “fair market value.” Moreover, the trial court found that the appraiser should value SIDCOR as a “going concern” taking into account future revenues.

The July 10 Report further stated that the “court’s interpretive comments” regarding asset valuation, made during the February 1, 1990, proceedings, were also used to guide the appraiser. The report explained three different valuation methods for determining the value of SIDCOR’s stock: (1) market comparable approach; (2) discounted cash flow analysis; and (3) net underlying assets. Andersen concluded that the discounted cash flow method would be most appropriate since “any unrelated buyer of the company should be willing to pay for the expected cash flows, at their present value, adjusted appropriately for uncertainty or risk.” Applying the discounted cash flow analysis, Andersen concluded the fair market value of SIDCOR to be $4.9 million which, divided by a total number of 2,550 shares, amounted to a value per share of $1,921.57.

After both sides objected to the July 10 Report and submitted additional factors affecting valuation, the appraiser reported that SIDCOR’s value could be as low as $1.5 million or as high as $8 million. The appraiser then issued a tentative report on August 28, 1990 (the August 28 Report), which contained a new value of $2.14 million. The appraiser stated, however, that the fair market value could not be determined until disputed legal issues were resolved. Thereafter, the appraiser dedared its July 10 Report “null and void” based upon the “contested factual items” presented by both parties.

On July 24, 1990, Gross and Devine moved for entry of summary judgment in their favor on the basis of the July 10 Report. On November 13, 1990, the parties presented oral argument on defendants’ summary judgment motion. Gross and Devine alleged that the July 10 Report was accurate and that Andersen had been intentionally misled by Katz and Weiss during their July 19, 1990, meeting. The information provided to Andersen by Katz and Weiss was allegedly contrived to artificially reduce SIDCOR’s value. Gross and Devine contended that Andersen changed its valuation after the July 10 Report, based upon significantly different and unsolicited information from Katz and Weiss.

Although defendants conceded the accuracy of the July 10 Report, they also presented three self-perpetuating management agreements which were never provided to Andersen to be considered in the July 10 Report. Plaintiffs contended that SIDCOR was not J&J entitled to collect the income from said agreements. In support of this argument, plaintiffs presented copies of agreements drafted in January of 1990, which indicated that SIDCOR was not entitled to the revenues from the agreements. Defendants, however, described the new agreements as “dummied up” in order to suggest that SIDCOR would not be collecting revenue from its many partnership agreements.

Defendants then requested that the trial court decide as a matter of law whether the disputed management agreements represented future income to SIDCOR such that they should have been reflected in its stock value. Plaintiffs countered that SIDCOR had no legal right to the income streams from the disputed leasing and management agreements and therefore they should not have been considered by the appraiser in its valuation of SIDCOR’s stock.

After reviewing the arguments and documents of both parties, the trial court commented:

“When parties structure their business organization so that even one of the great accounting firms of the nation cannot fully sort out and understand what is being done and how the terms relate to the realities, then I would submit that however this obfuscation may serve them, they run the risk that the appraisal may be faulty and that the court may not be able to unwind the snarl of facts presented and facts to be relied on.”

As to the discrepancy in the two different reports prepared by Andersen, the court attributed this to “whether or not SIDCOR’s fair market value should have included or excluded certain income streams from future sales or finance commissions.” The court also noted that it was “unfortunate” that Andersen took into consideration the relative hostility of the parties under the stock option agreement, since there was nothing in the shareholder Agreement which allowed for such an assumption. Moreover, the court explained that a fair market value analysis does not contemplate how the parties might disadvantage one another at a later time. Rather, the Agreement warranted an appraisal of the “then fair market value” of SIDCOR at the time when the defendants resigned from the company. The trial court further found that the August 28 Report violated the clear terms of the Agreement’s valuation formula by its use of the so-called mythical unrelated buyer, since this “ignores the reality that stock in a closed corporation is never evaluated on the basis of what a stranger would pay, because a stranger would seldom pay anything to get into a deadlocked position in a closed corporation.”

Summary judgment was then granted in favor of defendants finding that the proper valuation of SIDCOR’s stock was reflected in the July 10 Report prepared by Andersen. The trial court concluded there was no disputed issue of fact, since both parties agreed as to the valúation calculated in the July 10 Report. The only disputed issues related to the exclusion or inclusion of certain items presented by the parties to Andersen after it issued the July 10 Report. The trial court held, as a matter of law, that these additional items were properly treated by Andersen in its July 10 Report. The trial court then entered judgment for defendants based upon the valuation in the July 10 Report.

Plaintiffs appeal from this order based upon three alleged errors: (1) the July 10 Report applied a valuation method inconsistent with the terms of the Agreement; (2) the July 10 Report is factually incorrect in that it takes into account future income streams from partnership agreements; and (3) the July 10 Report was declared “null and void” by Andersen and, therefore, cannot be a basis for the trial court’s judgment.

In a case involving the propriety of summary judgment, the standard of review to be applied by this court is de novo — the appellate court must place itself in the position of the trial court and determine whether a genuine issue of material fact exists. (Demos v. National Bank of Greece (1991), 209 Ill. App. 3d 655, 567 N.E.2d 1083.) Summary judgment is proper where the issues are determinable solely as questions of law. Sidwell v. Sidwell (1975), 28 Ill. App. 3d 580, 328 N.E.2d 595.

Turning to the merits of the summary judgment, the trial court resolved the disputed legal issues as questions of law and found that there existed no genuine issue of material fact as to the valuation of the SIDCOR stock. Construction of a contract is purely a question of law and may be determined by the trial court or the appellate court. (Kerr Steamship Co. v. Chicago Title & Trust Co. (1983), 120 Ill. App. 3d 998, 458 N.E.2d 1009.) The court below found that the terms of the Agreement were clear and unambiguous and construed the Agreement as a matter of law. (South Suburban Safeway Lines, Inc. v. Regional Transportation Authority (1988), 166 Ill. App. 3d 361, 519 N.E.2d 1005.) However, the appellate court is not bound by the trial court’s findings but can examine the evidence and reach an independent conclusion. Merchants National Bank v. Old Second National Bank (1987), 164 Ill. App. 3d 11, 517 N.E.2d 652; National Boulevard Bank v. Citizens Utilities Co. (1982), 107 Ill. App. 3d 992, 438 N.E.2d 471.

The specific contractual provision at issue in this case is paragraph 10(DXv) of the SIDCOR shareholder agreement, which reads:

“The purchase price of each share of stock shall be its proportionate share of the then fair market value of the Company’s assets at said time, including the Company’s share, if any, of any real property and in any then pending ventures and syndications, less the Company’s then liabilities, as determined by the Company’s independent accountant. In the event that the parties are unable to agree upon the then fair cash market value of any such assets, said value shall be determined by a qualified independent appraiser selected and approved by the selling shareholder and the Company. The fees of said appraiser shall be borne equally between the seller and the acquiring parties.”

The parties in this case initially conducted an appraisal of SIDCOR’s assets using their own accountants. Plaintiffs’ appraiser arrived at a value of $800,000 for SIDCOR’s stock. In contrast, defendants’ appraiser issued an appraisal valuing the company at between $22 and $26 million. The gross divergence in values prompted plaintiffs to file the instant action seeking equitable relief, the enforcement of the Agreement and the appointment of an independent appraiser in accordance with paragraph 10(DXv) of the Agreement. The trial court responded by appointing the national accounting firm of Arthur Andersen.

We initially consider whether Andersen applied a valuation method inconsistent with paragraph 10(DXv) of the Agreement. In its July 10 Report, Andersen sets forth in great detail the various valuation methods available and the theory supporting each method. The report further states that the method employed, discounted cash flow analysis, was most consistent with the “fair market value” as described in paragraph 10(DXv) of the Agreement.

The function of an appraiser is to appraise value pursuant to the terms of the agreement from which it obtains its authority. (Union Trust Co. v. Board of Education (1932), 348 Ill. 256, 180 N.E. 819.) An appraiser may not exceed the authority conferred upon it by the agreement appointing it. (Chicago Title & Trust Co. v. Northwestern University (1976), 36 Ill. App. 3d 165, 344 N.E .2d 52.) In the event of disagreement, the cotut maintains the final authority to interpret the language of the agreement. (Schipper & Block, Inc. v. Carson Pirie Scott & Co. (1970), 122 Ill. App. 2d 34, 256 N.E.2d 854.) Where the terms of a contract are clear and unambiguous, a reviewing court must enforce the contract as written. J.M. Beals Enterprises, Inc. v. Industrial Hard Chrome, Ltd. (1990), 194 Ill. App. 3d 744, 551 N.E .2d 340; Madigan Brothers, Inc. v. Melrose Shopping Center Co. (1984), 123 Ill. App. 3d 851, 463 N.E .2d 824.

In the instant case, the assets of SIDCOR are primarily intangible income streams, consisting of management, leasing, financing and brokerage fees paid to SIDCOR by a number of real estate investment partnerships. The discounted cash flow analysis applied by Andersen is the most appropriate means of evaluating such future income streams, discounted to their present value and then incorporated into SIDCOR’s stock value. This court is not prepared to second-guess the judgment of the appraiser in employing this valuation method, particularly where there appears to be no obvious inconsistency or contradiction with the valuation described in the Agreement. We, therefore, find as a matter of law that the valuation method employed by the independent appraiser was the most appropriate method for determining the fair market value of SIDCOR, as described in paragraph 10(DXv) of the shareholder agreement.

We now turn to the central issue to be resolved by this court, that is, whether or not certain future income streams to SIDCOR should have been considered by Andersen in its appraisal. In its July 10 Report, Andersen included a present valuation for the future sales and finance commissions to be received by SIDCOR from 14 different partnership agreements in existence as of April 15, 1989. After issuance of the July 10 Report, plaintiffs met with Andersen and claimed that this future income should not have been included since SIDCOR possessed no legal right to future fees from these partnerships. Secondly, plaintiffs contended that even if the fee income is relevant to valuation, only 8 of the 14 partnership agreements entitle SIDCOR to leasing and management fees, since the other six agreements do not grant SIDCOR exclusive rights to future leasing and management fees.

Defendants likewise met with Andersen after the initial report and informed Andersen that it failed to include future fee income from an additional three partnership agreements, entered into by SIDCOR after April 15, 1989. Defendants also requested that future income from syndication, construction and development, based upon historical figures, be included in the stock valuation.

After reevaluating SIDCOR in light of the aforementioned factors, Andersen concluded that its original July 10 Report was “null and void,” because of the additional information presented by the parties. Andersen also stated that the fair market value of SIDCOR, based upon this new information, could be as low as $1.5 million or as high as $8 million. Andersen further stated that it could not render a value for SIDCOR’s stock until these disputed legal issues were resolved by the trial court.

While there are no precise rules for determining the fair market value of a company’s stock, courts have held that a proper valuation mandates the exercise of a court’s judgment after considering all relevant factors. (Ahlenius v. Bunn & Humphreys, Inc. (1934), 358 Ill. 155, 192 N.E. 824.) Factors to be considered include the book value of the stock, the nature of the business, the economic outlook of the industry, the earnings capacity of the company, the possible goodwill of the company and the market price of the stock. (Stewart v. D.J. Stewart & Co. (1976), 37 Ill. App. 3d 848, 346 N.E.2d 475.) The particular weight to be accorded each factor is particularly a matter for the trial judge. Taxy v. Worden (1989), 181 Ill. App. 3d 97, 536 N.E.2d 901.

While appraisals are to be considered by the court in arriving at fair market value, they are not binding as a matter of law and are but one source of information to be weighed and evaluated. Moreover, courts have properly rejected the appraisals of the parties where the record reveals that such appraisals are not completely accurate. (Independence Tube Corp. v. Levine (1988), 179 Ill. App. 3d 911, 535 N.E.2d 72.) Just as the court may adopt the valuation rendered by an appraiser, it may also reject all outside appraisals and render its own per-share value for the stock at issue. In at least one case, the trial court rejected the stock values rendered by its own appraiser as well as the defendant’s appraiser and arrived at a stock value falling mid-way between the two appraisals. Institutional Equipment & Interiors, Inc. v. Hughes (1990), 204 Ill. App. 3d 922, 562 N.E.2d 662.

Stock valuation becomes increasingly difficult and complex where, as in this case, the company at issue is closely held and its stock is not publicly traded. The primary contention raised by plaintiffs on appeal is that the independent appraiser and the trial court failed to exclude from SIDCOR’s stock value certain future income streams from 14 partnership agreements maintained by SIDCOR. It was largely based upon this potentiality that Andersen subsequently rendered the July 10 Report void and concluded that the actual value of SIDCOR could be as low as $1.5 million.

After reviewing the terms and conditions of the 14 different partnership agreements with SIDCOR, we find as a matter of law that SIDCOR was entitled to the fees and commissions generated by the underlying investment property. In each of the partnership agreements, fees and commissions are specifically directed to SIDCOR, to the general partners or to an affiliate. Where SIDCOR is specifically named, there can be no doubt as to the legal right of SIDCOR to collect the fees. Where the term “affiliate” is used, the right of SIDCOR to collect such fees remains unimpaired since SIDCOR has been the only affiliate of both sets of general partners in the nine years previous to defendants’ resignation.

Where the term “general partner” is used, the meaning is not clear on its face since several of the partnership agreements contain third-party general partners other than SIDCOR. Where the terms of an agreement are ambiguous and subject to more than one interpretation, the court may look to the custom and usage of the parties to determine their meaning. In this case, it was the custom and practice of the general partners to interpret the term “general partner” to mean SID-COR. Indeed, the parties’ diverse holdings and numerous limited partnership ventures necessitated the creation of SIDCOR as a device to consolidate the operational needs of these partnerships. For nine years, it was the custom and practice of SIDCOR to provide the real estate and financial services to the partnerships exclusively. In the words of the trial court, “Neither side is disadvantaged by the court giving meaning to a term in a fashion which is consistent to the meaning they themselves have operated under for years.”

Plaintiffs also attempt to persuade this court that such fees, even if paid to SIDCOR in the past, will not continue in the future, after ownership has transferred to plaintiffs. We similarly are not convinced. We would be naive to assume that plaintiffs, after acquiring 100% ownership of SIDCOR, would unilaterally decide to abandon their right to collect fees from the limited partnerships in which plaintiffs will be general partners. If this were true, then one can only wonder why plaintiffs would exercise their option to purchase defendants’ shares, given that the fees and commissions of the prior nine years would be terminated. Moreover, these fees are not speculative. Plaintiffs’ acquisition of 100% of SIDCOR provides them with the control necessary to maintain these fees into the future.

Insofar as the other items presented by plaintiffs to undermine the validity of the Andersen July 10 appraisal, following a thorough review of the record, we adopt the findings of the trial court, that these items were properly considered by Andersen in its July 10 Report and do not invalidate this initial appraisal.

Plaintiffs’ final argument, that the July 10 Report cannot be relied upon by the trial court, is similarly without merit. Although Andersen declared the July 10 Report null and void, it stipulated that the sole reason for this reversal of position was the additional information provided by both parties after the issuance of its initial valuation. Andersen further stated that it could not issue a new report until the disputed legal issues were resolved by the trial court.

The mere fact that one or more parties to an appraisal disavows or bewails its results does not invalidate or nullify the good-faith conclusions of the appraiser. Appraisers are equipped with broad discretion as to their methods of procedure and sources of information. Absent fraud or mistake, the conclusions of an appraiser will be binding upon the parties. Board of Education v. Gorenstein (1989), 179 Ill. App. 3d 388, 534 N.E .2d 579; see also Sebree v. Board of Education (1912), 254 Ill. 438, 98 N.E. 931; Pearson v. Sanderson (1889), 128 Ill. 88, 21 N.E. 200; Stose v. Heissler (1887), 120 Ill. 433, 11 N.E. 161; Norton v. Gale (1880), 95 Ill. 533.

This court has examined the additional factors presented by both sides, following the appraiser’s July 10 Report, and hereby finds as a matter of law that these additional factors should not have altered the fair market value of SIDCOR as reflected in the July 10 Report. Therefore, we conclude that the July 10 Report issued by the appraiser reflects the fair market value of SIDCOR as of April 15, 1989.

For all of the foregoing reasons, the judgment of the Cook County circuit court, granting summary judgment in favor of defendants, based upon the valuation contained in the aforesaid July 10 Report, is hereby affirmed in all respects.

Affirmed.

RIZZI and GREIMAN, JJ., concur.

      The complaint alleged in pertinent part:
      “18. SIDCOR and the selling shareholders, Devine and Gross, have been unable to agree upon the value to be placed on Gross and Devine’s shares.
      19. SIDCOR has selected an independent appraiser and has submitted his appraisal to Devine and Gross.
      20. Gross and Devine have rejected that appraisal and have failed to or refused to propose an appraisal.
      21. As such, SIDCOR and Gross and Devine have been unable to agree upon an independent appraiser to value the stock.
      22. *** As such, the Court should declare that the Agreement requires the sale of the shares and, if the parties cannot agree, appoint an appraiser to value the shares of Gross and Devine for sale to Katz and Weiss.”

      The “market comparable approach” is used to value a business by comparing the subject company to publicly traded companies or to companies that have been acquired and for which information is available for purposes of comparison. Andersen concluded that publicly traded companies were not comparable to SIDCOR due to the size and unique characteristics and business relationships at SIDCOR.
      The “discounted cash flow analysis” method is a technique in which the value of a company or business enterprise is determined based upon estimates of future cash flows which are discounted for the time value of money and relative risk or uncertainty of the investment. Based upon this method, Andersen estimated the market value of SIDCOR to be $4,907,000.
      The “net underlying assets” method is a technique in which the fair market value of all the assets of the business are determined individually and the sum of their values, less total liabilities at the date of valuation, is equal to the owners’ equity in the assets of the business. According to Andersen, the net underlying assets approach is, thus, “essentially the process described by paragraph 10(DXv) of the shareholders’ agreement.” Andersen further concluded that the net asset approach and discounted cash flow analysis would produce identical results given that SIDCOR’s primary assets are intangible, income-producing assets such as investments in partnerships and property service agreements to provide management, leasing and brokerage services.

      During a July 19, 1990 meeting with Andersen, the following criticisms were presented by Katz and Weiss vis-a-vis the July 10,1990 Report:
      1. Management fee income may be overstated in many cases due to optimistic assumptions of growth and vacancy rate.
      2. Leasing fee income is overstated in nearly all cases due to optimistic assumption of vacancy rates, lack of consideration of co-op brokers, and specific circumstances at individual properties.
      3. Typically, leasing fee income is deferred for two to four years to provide favorable cash flows to limited partners.
      4. A financing commission was not paid at 3130, 3101 and 3121 North Lake Shore Drive due to a financing agreement negotiated with an unrelated third party.
      5. Capitalization rates used to forecast property values for sales commission estimates are too low, and property value assumptions too high, resulting in optimistic sales commissions.
      6. Right to sales and financing commissions are not held by SIDCOR, are controlled by the general partners and, thus, should not be included.
      7. Operating expenses projections are understated because of failure to consider replacement staff and new employees to support recent growth.
      8. Investment Income of Rapids Mall is overstated.
      While Andersen would not comment on the reasonableness of the above comments, it conceded that its July 10 Report valuation might be reduced significantly to a range of $1.5 million.
      Gross and Devine similarly met with Andersen on July 31, 1990, and made the following remarks about the July 10 Report:
      1. The valuation should have included corporate good will, as measured by new business of SIDCOR.
      2. Historical income figures from construction, development and syndication will be available to the company in the future and should be included in the present value.
      3. As of April 15, 1989, excess working capital exceeds that required to operate SIDCOR and should be adjusted to reflect the added value of excess working capital.
      4. The after-tax discount rate of 13% applied to the cash flow is too high.
      Again, Andersen would not comment on the reasonableness of the above items but stated that if considered, its valuation would increase significantly to the $8 million range.

      In its August 28 Report, Andersen commented:
      “There are substantial contested facts by the parties as to what should or should not be included in the valuation. In particular, there are disagreements between the parties as to the enforceability of various management agreements and as to the legal claim of SIDCOR on future sales and financing commissions. These key issues are matters of law and we are not qualified to render a legal opinion in these areas. ***
      1. The July 10, 1990 report copies are null and void and must be returned to Arthur Andersen & Co. at once.
      2. The August 28, 1990 report cannot be finalized until the contested factual items are resolved, in particular the disputes regarding rights to sales and financing commissions. ***

        One alternative that we suggest would be that a hearing be held to allow the court to resolve the disputed legal facts. We will then be in a position to finalize our work.” (Emphasis added.)

      Counsel for defendants argued:
      “[Andersen] did not, however, include in that [July 10] Report, any value for SIDCOR’s rights to receive tax reduction fees, development fees, acquisition fees, syndication fees ***. [T]hey didn’t include them because they didn’t know that SIDCOR also had the right to continue to receive those income streams. ***
      *** [Tjhey say that if those kinds of things were included [in the July 10 Report], the value instead of being around $5 million would probably be around $8 million.”


text:
    CHEMICAL BANK, Plaintiff-Appellant, v. DAVID PAUL, Defendant-Appellee.
    First District (3rd Division)
    No. 1—90—0362
    Opinion filed April 14,1993.

      Hopkins & Sutter, of Chicago (Glen H. Kanwit, William J. McKenna, Jr., and Mary Kay McCalla, of counsel), for appellant.
    Wildman, Harrold, Allen & Dixon, of Chicago (Thomas D. Allen, Thomas E. Patterson, Richard D. Murphy, and Vincent J. Hart, of counsel), for appellee.
   PRESIDING JUSTICE TULLY

delivered the opinion of the court:

Defendant David Paul signed a personal guaranty of $5 million in connection with $90 million in loans received from Chemical Bank. After declaring the loans in default, Chemical foreclosed on the underlying property, which resulted in a deficiency of $40 million. Chemical then brought suit on the guaranty, wherein Paul alleged, as an affirmative defense, Chemical’s breach of the implied covenant of good faith and fair dealing. Chemical appeals from the jury’s finding in favor of Paul.

The undisputed facts are as follows. In November 1980, Paul borrowed $70 million from Chemical Bank for the renovation of the building at 666 North Lake Shore Drive, formerly known as “The Furniture Mart” of Chicago. The parties signed a four-year mortgage note, requiring interest to be due and payable on the first of each month, beginning January 1, 1981, with the principal payable in full at maturity, December 31, 1984. The note contained an acceleration clause whereupon all amounts owing under the note would become immediately due and payable at the option of the lender, without notice, “upon the happening of any default.” The building loan agreement enumerated events of default. Furthermore, Chemical was under no obligation to make any further advances under the agreements. In addition to acceleration, the agreement listed “Other Remedies of the Lender,” which stated “the Lender may *** in the Lender’s sole and absolute discretion *** (b) at any time discontinue any work commenced in respect of the Improvements or change any course of action undertaken by it and not be bound by any limitations or requirements of time whether set forth herein or otherwise.”

In connection with the note, and as an express condition of the loan, Paul was required to sign a partial guaranty of payment (the guaranty) for $5 million, which read in part:

“[I]n order to induce the Lender to make the Loan to the Borrower, the undersigned hereby guarantees, absolutely and unconditionally, to the Lender, the payment of the Guaranteed Portion of the Debt and covenants and agrees with the Lender as follows: * * *
The undersigned hereby waives (a) notice of acceptance of this guaranty and of the making of the Loan by the Lender to the Borrower; (b) presentment and demand for payment of the Debt or any portion thereof; (c) protest and notice of dishonor or default to the undersigned or to any other person or party with respect to the Debt or any portion thereof; (d) all other notices to which the undersigned might otherwise be entitled; (e) any demand for payment under this guaranty; and (f) all present and future defenses to the payment of the debt.” (Emphasis added.)

Sales of condominium units at lower than expected rates necessitated an additional loan of $20 million in May 1982. In support of this loan, defendant signed a “Restatement of Guaranty” which acknowledged the original debt of $70 million and the existence of the guaranty. Paragraph E of this restatement reads:

“Lender is unwilling to make the Additional Loan to Borrower unless the undersigned (i) consents to the making of the Additional Loan to Borrower, (ii) consents to the execution of the New Note, the New Mortgage and the Amendment, and (iii) amends and confirms the terms and provisions of the Guaranty as hereinafter provided ***.”

In a letter dated April 15, 1983, Chemical formally notified Paul that its loan to 666 Associates was “out of balance.” Although Chemical described the project as “a product of the highest quality,” it simultaneously demanded an immediate infusion of equity:

“The additional equity required must be deposited in Chemical Bank to cover all additional expenditures for the remaining life of the project, including interest, or it will trigger an Event of Default, which will require further action on our part.”

Paul responded to the letter by arranging an additional subordinated loan of $6.5 million from the Westport Company, which held a limited partnership interest in 666 Associates. In consideration of this additional financing, Chemical signed the agreement to reduce partial guaranty of payment, whereby the guaranty would be reduced by 50 cents for each dollar of the first $6 million advanced by the Westport loan. However, this reduction would occur only “if the aggregate payments of principal and interest made on the Chemical notes and the Chemical Mortgages by January 30, 1984, are $35 million or more.” In any event, the guaranty would not be reduced to an amount less than $2 million. Although Paul contends that the target amount was met, the guaranty was never reduced from the original amount of $5 million.

On August 29, 1984, due to the failure of defendant to pay the note of $20 million in full on May 1, 1984, and the interest installment on the note of $70 million also due, Chemical declared both loans in default and demanded full and immediate payment on both loans. Thereafter, Chemical proceeded to foreclose on the underlying mortgaged property. In response, 666 Associates filed for reorganization pursuant to chapter 11 of the United States Bankruptcy Code (11 U.S.C. §101 et seq. (1988)). Although the automatic stay provisions of the Bankruptcy Code temporarily forestalled the litigation, following a trial, the bankruptcy court allowed plaintiff to proceed with its foreclosure proceeding. This ruling was affirmed by In re 666 Associates/Streeterville Utility Co. (N.D. Ill. 1986), 65 Bankr. 819.

Following a four-day foreclosure trial, the Honorable Judge Scotillo ruled that Chemical was entitled to a foreclosure decree, which took priority over the mortgage held by Centrust Trust (formerly known as the Westport Loan Company). A judicial sale resulted in a deficiency of approximately $40 million. This ruling was affirmed in Chemical Bank v. American National Bank & Trust Co. (1989), 180 Ill. App. 3d 219, 535 N.E.2d 940. Judge Scotillo ordered the guaranty counts of the complaint to be severed for a separate jury trial and indicated that the ruling would not bar later motions to limit the introduction of defenses against the guaranty, which would be construed according to the written agreements between the parties.

Prior to trial, Chemical moved for summary judgment based upon the express waiver of defenses in the guaranty documents. Chemical argued that Paul could only present evidence of bad faith relating to the guaranty but not the debt, since the loans were expressly conditioned upon a guaranty of payment, waiving all defenses to the debt. Judge Edwin M. Berman denied summary judgment, ruling that there existed a genuine issue of material fact as to Chemical’s good faith performance and that the defense of good faith could not be waived.

Prior to trial, Chemical filed a motion in limine to preclude the introduction of evidence as to the fair market value of the collateral; to preclude evidence of oral agreements which would contradict the express terms of the guaranty documents; and to rule that Chemical need not reprove the amount of the deficiency, which was conclusively determined in the foreclosure trial. This motion was denied.

On the first day of trial before Judge Allen A. Freeman, Paul motioned to amend his answer to the complaint, raising five additional affirmative defenses: (1) failure to state a claim due to Chemical’s failure to allege its own good-faith performance; (2) modification of the loan agreements; (3) hindrance of Paul’s ability to perform under the loan agreements; (4) Chemical’s waiver of its right to enforce the guaranty; and (5) Chemical’s failure to mitigate damages. Chemical objected to the amendment, arguing that additional defenses were barred by the waiver clause in the guaranty agreements. After the close of Chemical’s case in chief, Judge Freeman allowed the amended answer over Chemical’s objection.

At trial, both sides presented differing versions as to the progress of the project. Timothy Callahan, a former vice-president at Chemical, testified as to the loan negotiations. After the initial loan of $70 million, it became apparent in 1982 that additional capital would be needed due to rising interest rates and a slump in the sale of condominiums. Chemical authorized an additional loan of $20 million and requested that Paul submit a plan to meet the increasing costs of the project. In early 1983, Callahan wrote a letter to Paul notifying him that the loan was “out of balance” and in need of an immediate infusion of capital. In the spring of 1983, to remedy the situation, Paul negotiated a subordinated loan of $6.5 million from the Westport Company in exchange for Chemical’s agreement to reduce the partial guaranty, provided certain pay-back thresholds were met. Callahan described his relations with Paul to be cooperative and cordial at this time.

Callahan further testified that the continued slow sales of condominiums in the summer of 1983 necessitated further discussions in September 1983, wherein Paul was asked to produce projections which would reflect future sales and expenses as well as payback flows on the loans. Six months later, in March 1984, Paul sent the requested projections to Callahan, who notified Paul of his dissatisfaction with the figures. He considered the sales figures to be unrealistic and continued to be dissatisfied, even after a revision of the figures by Paul. Paul notified Callahan that he was being unreasonable and arranged a meeting with A1 Lawrence, head of the real estate division at Chemical. The three met on several occasions to discuss the status of the loans. Callahan stressed the unreasonableness of Paul’s sales projections. At the second meeting in April 1984, Paul indicated he would need funding of $2 million for tenant improvements, which would facilitate additional commercial leases. At this time, the original $90 million had already been depleted and no additional funds were available for tenant improvements. Lawrence told Paul he would need time to analyze his projections before making a decision and that the past-due interest amounts would have to be cleared up immediately.

The three met again in May 1984 with John Motley, a member of Chemical’s asset management group, which deals with problem real estate loans. Paul proposed raising additional capital through syndicated sales and commercial leases and again requested tenant improvements. Lawrence said he did not want to make a decision on funding these improvements until he had a better understanding of the future capital flows on the project.

Paul testified that rental rates in 1981 and 1982 were higher than projected, providing excess revenues which were then used to fund tenant improvements, in order to make further leases possible. Chemical had full discretion in approving payments for tenant improvements. As part of a marketing plan in 1983 to increase revenues, Chemical approved the sale of the West Tower of the Furniture Mart to a syndicator, which netted $23.5 million. The proceeds consisted of $10 million in cash and a promissory note for $13.5 million. With Paul’s consent, the $10 million was used to bring interest payments current and to reduce principal thereafter. In September 1983, $4.8 million was applied to past-due interest and $5.1 million was applied to the principal balance. According to Paul, this sale should have triggered the reduction of the guaranty under the agreement to reduce the partial guaranty. Paul said that Callahan would not consider past-due interest to be an event of default “so long as the loan-to-value ratio of the project stayed in line.” In fact, Callahan sent a letter to the Federal Home Loan Bank Board in July 1983 stating that the loan was not in default, in order to facilitate the loan of $6.5 million from the Westport Company. At the time, interest payments of $4.5 million were in arrears. Callahan testified that Chemical could have declared the loan in default, due to the past-due interest.

Paxil further claimed that by January 1984, he had paid Chemical at least $35 million, sufficient to reduce the partial guaranty to $2.5 million from $5 million. The Chemical internal memo of January 1984 stated that only $18.4 million of the outstanding principal had been paid, from a total proceeds received of $27.5 million.

In the spring of 1984, Paul continued to deal with Callahan and was notified in July that the loans had been transferred to John Motley in the asset management group, which deals with troubled loans. According to Paul, Motley took a markedly different view of the project than Callahan. Motley refused to allow any future sales to syndicators, citing an “internal policy” at Chemical. Although the previous sale of the West Tower for $23.5 million to a syndicator had been approved, Motley would not approve the proposed sale of the South Tower for $18 million and a sale of the commercial space for $45 million. Motley also refused to approve the plans and specifications on a commercial restaurant lease, which Callahan had approved prior to Motley’s takeover. Paul described a total breakdown in communications with Motley’s asset management group, and beginning in June 1984, no further leases were approved. Bernie Levin also informed Paul of Chemical’s discontinuation of the policy of funding tenant improvements from condominium sales.

Motley testified that the proposal to purchase commercial space for $45 million required Chemical to finance 99% of the purchase and it was a “cash flow mortgage.” This proposal was unacceptable to Motley, who indicated that it was not even comparable to the previous sale of the West Tower, which provided Chemical with a down payment of $10 million. Motley told Paul the loan was “out of balance” and in need of more capital. Motley stated that he met with Paul continually, sometimes biweekly, over a five-month period. Tenant improvements on proposed leases were not funded because those leases “fell through.” Motley stated that the loans became out of balance in April 1984 and that the past-due interest as well as the loan-to-value ratio were major factors in deciding to declare the loans in default in August 1984. Motley also testified that prior to 1984, tenant improvements were funded by cash flows from the project, even while the interest payments were past due. Motley claimed Chemical permitted interest to build up, since it anticipated a large cash inflow from the syndication of the West Tower.

In 1984, Chemical’s policy changed since large interest payments became past due and there was no foreseeable inflow of capital. Paul said he could not raise any more capital from his partners in the project and the proposals to sell portions of the project, structured on a 1% down payment, were unacceptable to Chemical. In the summer of 1984, prior to declaring default, Chemical also changed its prior policy of applying project cash inflows to interest first and began paying down the principal. Motley testified that condominium sales in 1984 were insufficient to fund tenant improvements. He also stated that the loan-to-value ratio of 86% was unacceptable to Chemical. Motley cited lagging condominium sales, accumulated interest, mechanics lien claims and accrued real estate taxes as reasons for declaring the loan in default.

On August 28, 1984, Chemical presented Paul with an agreement outlining its conditions for any future funding of tenant improvements. After Paul refused to sign the document, on August 29, Chemical declared both the note of $70 million and the note of $20 million in default, due to 666 Associates’ failure to pay the interest installment of May 1, 1984, and to pay the principal in full on the note of $20 million which matured May 1, 1984.

On appeal, Chemical presents five issues: (1) whether Chemical was entitled to a directed verdict, based upon the waiver clause in the guaranty, waiving all defenses to the debt; (2) whether Chemical was entitled to judgment notwithstanding the verdict; (3) whether the trial court improperly restricted the scope of Chemical’s rebuttal testimony; (4) whether the trial court erred in allowing Paul to amend his answer, raising five new affirmative defenses after the close of Chemical’s case in chief; and (5) whether the trial court erred in denying Chemical’s motion in limine.

We initially consider whether Chemical was entitled to a directed verdict in its favor based upon the express waiver clause in the guaranty documents. If, in fact, Paul waived his right to present affirmative defenses at trial, then the verdict must be vacated, and the other issues need not be examined.

As set forth above, Paul signed a partial guaranty of payment of $5 million, wherein he waived “all present and future defenses to payment of the debt.” He subsequently signed a restatement of the partial guaranty of payment, which read:

“The undersigned hereby warrants and represents that the undersigned has no defense, offset or counterclaim with respect to the Guaranty or the obligations of the undersigned thereunder, and that the Guaranty continues to be the legal, valid and binding obligation of the undersigned.” (Emphasis added.)

Although there has been much discussion in the briefs and during oral argument as to whether Paul waived defenses to just the debt and not the guaranty, the explicit language of the waivers, taken together, indicates that the waivers encompass defenses to the debt as well as defenses to the guaranty itself. We, therefore, need not attempt to decipher whether the defenses presented at trial concerned just the debt or just the guaranty or both.

Where a contract of guaranty is unequivocal in its language, courts will construe it in accordance with the language and intentions of the drafting parties. (Bank of Naperville v. Holz (1980) , 86 Ill. App. 3d 533, 407 N.E.2d 1102.) This is true even where the guaranty contains broad statements of guarantor liability. (Jacobson v. Devon Bank (1976), 39 Ill. App. 3d 1053, 351 N.E.2d 254.) Guaranty agreements containing waivers of all defenses, including the duty to act in a commercially reasonable manner, have been upheld as validly binding. (Lincoln Park Federal Savings & Loan Association v. Carrane (1989), 192 Ill. App. 3d 188, 548 N.E.2d 636.) However, a covenant of good faith and fair dealing is implied into every contract, absent express disavowal. Foster Enterprises, Inc. v. Germania Federal Savings & Loan Association (1981) , 97 Ill. App. 3d 22, 421 N.E.2d 1375.

Plaintiffs rely upon Lincoln Park Federal as well as two Federal cases for the proposition that Paul waived all defenses to payment of the guaranty including the defense of good faith. (See FIMSA, Inc. v. UNICORP Financial Corp. (N.D. Ill. 1991), 759 F. Supp. 1297; Home Federal Bank For Savings v. Daly (N.D. Ill. 1990), No. 90 — C—1670.) In FIMSA, the guaranty contained an unconditional guaranty of payment, wherein the guarantors waived “every defense, counterclaim or set-off.” Although FIMSA does not specifically address waiver of good faith, the court cites to Lincoln Park Federal for the proposition that commercial reasonableness may be waived by the express language of the guaranty. In Lincoln Park Federal, the waiver provided: “the undersigned hereby waives demand, protest, notice of protest or notice of default, presentment of payment and diligence in the collection of said note.” (Lincoln Park Federal, 192 Ill. App. 3d at 192.) Although the words “commercial reasonableness” were not used, the court interpreted this language as a waiver of any obligation to act in a commercially reasonable manner. Similarly, in Home Federal, the guaranty contained an unconditional promise to pay “regardless of any defense, right of set-offs or claims.” (Home Federal, slip op. at__) The guarantor presented an affirmative defense that the bank had acted in a commercially unreasonable manner by canceling a proposed sale of the loan collateral. Given the waiver language of the guaranty, the court found this defense to fail as a matter of law. The court ruled that summary judgment should have been granted to the creditor bank since the guaranty was unconditional and there were no meritorious nonwaived affirmative defenses to payment.

On the other hand, Paul argues that because he did not explicitly waive the defense of good faith, the bank was obligated to act in good faith under the loan agreements. In support thereof, Paul cites B A Mortgage & International Realty Corp. v. American National Bank & Trust Co. (N.D. Ill. 1989), 706 F. Supp. 1364, 1376-77, wherein the court held that the waiver of a creditor’s bad faith violates public policy:

“It must be recognized that the implied covenant of good faith reflects a strong public policy judgment: Parties with unfettered contractual discretion cannot be allowed to exercise that discretion in bad faith. And the essence of a sufficiently strong public policy is that it overrides contractual provisions — or more accurately, that the public policy will cause courts to deny enforcement of contractual terms to the opposite effect.”

Under Illinois law, a waiver of defense clause does not “expressly disavow” the covenant of good faith implied into all contracts. (Vincent v. Doebert (1989), 183Ill. App. 3d 1081, 539 N.E.2d 856; Foster Enterprises, Inc. v. Germania Federal Savings & Loan Association (1981), 97 Ill. App. 3d 22, 421 N.E.2d 1375.) Moreover, plaintiff has failed to cite a single case which holds that the implied covenant of good faith has been waived. Plaintiff then cites cases from other jurisdictions which do not recognize a similar covenant of good faith and fair dealing. See, e.g., Creeger Brick & Building Supply, Inc. v. Mid-State Bank & Trust Co. (1989), 385 Pa. Super. 30, 560 A.2d 151; Federal Deposit Insurance Corp. v. Nobles (5th Cir. 1990), 901 F.2d 477.

We find as a matter of law that defendant, David Paul, did not expressly waive the defense of bad faith under the waiver of defenses clause in the loan agreement and personal guaranty. In accordance with the law and the public policy of this State, Chemical Bank was required to act in good faith in enforcing the loan agreements at issue. The exercise of good faith and fair dealing is particularly critical where, as here, the bank was granted considerable discretion in the use and application of the funds disbursed. Therefore, the trial court did not err in allowing the introduction of evidence relating to Chemical’s bad faith. Likewise, the trial court did not. abuse its discretion in denying plaintiff’s motion for a directed verdict based upon the waiver clause in the guaranty.

In addition, although the evidence in this case is vast and highly disputed, the jury had the opportunity to weigh and consider all of the testimony and concluded that the bank did not act in good faith in its course of conduct vis-a-vis Paul. A jury’s verdict will only be set aside where all the evidence, when viewed in a light most favorable to the defendant, so overwhelmingly favors the plaintiff that no contrary verdict based upon the evidence could ever stand. Pedrick v. Peoria & Eastern R.R. Co. (1967), 37 Ill. 2d 494, 229 N.E.2d 504.

Based upon the evidence presented at trial and a thorough review of the record on appeal, we cannot conclude that the trial court erred in denying plaintiff’s motion for judgment notwithstanding the verdict.

We next consider whether the trial court improperly restricted the rebuttal testimony of certain witnesses for plaintiff, namely Motley and Lawrence. Allegedly, they would have testified as to the economic deterioration of the project as the basis for declaring the loan in default. According to defendant, this was an improper attempt by plaintiff to change its basis for declaring default. During presentation of its case in chief, plaintiff only presented evidence of nonpayment of interest as the reason for declaring default.

The exclusion of specific testimony is harmless where the same evidence is presented by other testifying witnesses or where the excluded evidence would be merely cumulative. (Chuhak v. Chicago Transit Authority (1987), 152 Ill. App. 3d 480, 504 N.E.2d 875.) In this case, both Callahan and Motley testified as to the past-due interest on the loan as well as lagging sales of condominium units. Motley further testified as to his continual meetings with Paul concerning the lack of cash inflows from the project. According to Motley, tenant improvements could not be funded due to the lack of funds.

Motley and Callahan were both allowed to testify as to the economic deterioration of the project and their efforts to work with Paul in resolving the spiraling debt. Based upon our review of the record, we find that any limitation on plaintiff’s rebuttal testimony was harmless error.

Lastly, we consider whether plaintiff was unfairly prejudiced by defendant’s assertion of additional affirmative defenses after plaintiff had presented its case in chief. The decision to allow the amendment of pleadings is within the sound discretion of the trial court. However, an amendment by one party should not be allowed where it would result in surprise or prejudice to the other party. DiBenedetto v. County of Du Page (1986), 141 Ill. App. 3d 675, 491 N.E.2d 13; Farnor v. Irmco Corp. (1979), 73 Ill. App. 3d 851, 392 N.E.2d 591.

The record in this case reveals that the factual allegations underlying the additional affirmative defenses were well known to Chemical. At trial, Chemical acknowledged that the covenant of good faith had been part of the action ab initio and that the other defenses had little if any impact on the trial’s outcome. Hence, Chemical’s claim that it was forced to revise its trial strategy is unsupported, and the allowance of the amendment in this case was proper. Similarly, based upon our review of the record, we do not find that the trial court abused its discretion in denying Chemical’s motion in limine.

For all of the foregoing reasons, the decision of the circuit court of Cook County is hereby affirmed in all respects.

Affirmed.

CERDA and GREIMAN, JJ., concur.

      The loan-to-value ratio refers to the total amount of the loan divided by the total market value of the collateral property. Callahan testified that this ratio was 66% in 1983 ($90 million/$136 million) and that the customary rate was 75%. In a January 1984 internal memo, Chemical revised the loan-to-value ratio to 86%.

      PauI testified that the sale of the West Tower at $23.5 million plus the Homestead loan of $11 million plus condominium sales totalled together to meet the threshold of $35 million necessary to reduce the guaranty.

      The $27.5 million of proceeds consisted of the $11 million from Homestead, $6.5 million in condo sales and $10 million from the West Tower sale. Chemical did not include the promissory note of $13.5 million. Paul claims that this should have counted toward reducing the guaranty, since Chemical could have taken cash instead of a mortgage. Paul testified he received a “general acknowledgment” from Chemical that he had met the threshold to reduce the guaranty.

      Under a cash flow mortgage Chemical would only collect interest from cash generated by the property, i.e., there would be no set monthly interest payment. According to Motley, the proposal would only have yielded 2% or 3% in annual interest.

      The cash portion of the West Tower sale was significantly higher than the proposed 1% down payment on the commercial space sale.


author: JUSTICE HOFFMAN

text:
    JAMES EDWARD BULFIN, Plaintiff-Appellant, v. ELI LILLY & COMPANY et al., Defendants-Appellees.
    First District (4th Division)
    No. 1—92—0654
    Opinion filed April 8,1993.

      William E. Hourigan, of Bloomington, for appellant.
    Coffield, Ungaretti & Harris, of Chicago (Barbara J. Anderson and J. Timothy Eaton, of counsel), for appellee The Upjohn Company.
    Horvath, Lieber & Quilici, of Chicago (Howard L. Lieber and Mary M. McCarthy, of counsel), for appellee A. Pena.
    Wildman, Harrold, Allen & Dixon, of Chicago (Richard C. Bartelt, Richard C. Palmer, and Jeanne Walker, of counsel), and John L. McGoldrick, John Garde, and Rosalie Burrows, all of McCarter & English, of Newark, New Jersey, for appellee Eli Lilly & Company.
   JUSTICE HOFFMAN

delivered the opinion of the court;

Plaintiff, James Edward Bulfin, appeals from an order dismissing his complaint under section 2 — 619(a)(4) of the Code of Civil Procedure (Ill. Rev. Stat. 1991, ch. 110, par. 2— 619(a)(4)). In dismissing the instant action, the trial court found that plaintiff is collaterally estopped from seeking damages against defendants, Eli Lilly & Company (Eli Lilly), Upjohn Company (Upjohn), Dr. A. Pena (Pena), and Blue Cross & Blue Shield (Blue Cross). For the following reasons, we affirm.

On October 15, 1988, in Scottsdale, Arizona, plaintiff, James Edward Bulfin, shot and killed Harold Arthur MacNevins, and shot and injured Faith Simmons and Bernard Simmons. Plaintiff had travelled from Illinois to Arizona, bringing with him the pistol that he used on October 15, 1988.

Plaintiff was indicted in Arizona for one count of murder in the second degree and two counts of attempted murder in the first degree. During the pretrial stages of the criminal proceedings in Arizona, plaintiff indicated that he intended to raise the defenses of insanity, diminished mental capacity, and involuntary intoxication. Plaintiff subsequently negotiated a plea agreement, and on August 9, 1989, pled guilty to one count of manslaughter and two counts of aggravated assault. The guilty plea was an “Alford plea” (see North Carolina v. Alford (1970), 400 U.S. 25, 27 L. Ed. 2d 162, 91 S. Ct. 160), whereby plaintiff consented to the entry of judgment without a trial, declined to provide the trial court with any factual basis for the guilty plea, but maintained his innocence.

When plaintiff pled guilty, the Arizona trial court determined that he had read and fully understood the terms of his plea agreement; it then received the factual foundation for the guilty plea and determined that the plaintiff had no disagreement with the essential facts as related by the prosecutor. The court deferred any finding on the plea until September 22, 1989. WTien the parties reconvened on September 22, 1989, the court accepted plaintiff’s plea of guilty to the reduced charges and sentenced him to IVz years’ imprisonment. Plaintiff did not file a direct appeal from his conviction and did not seek post-conviction relief.

On September 6, 1990, plaintiff filed the instant action. In his second-amended complaint, plaintiff sought recovery against Upjohn, the manufacturer of the drug Xanex; Eli Lilly, the manufacturer of the drug Prozac; Pena, the Illinois physician .who prescribed Xanex and Prozac for him; and Blue Cross, the Illinois health maintenance organization which required plaintiff to use the services of Pena. Plaintiff charged that Upjohn and Eli Lilly had negligently, willfully and wantonly, and fraudulently marketed Xanex and Prozac, respectively, without regard for the known adverse side effects of the drugs. Plaintiff alleged that Pena was aware of the adverse side effects of Xanex and Prozac and was negligent in prescribing them and failing to advise plaintiff of the risks related to the drugs. Finally, plaintiff charged Blue Cross with negligently requiring that he use the services of Pena, who, according to plaintiff, was not skilled and knowledgeable in the combined effects of Xanex and Prozac. Plaintiff further alleged that on October 15, 1988, as a consequence of the wrongful acts or omissions of defendants, he suffered involuntary drug-induced intoxication and then, through no fault of his own, shot and killed Mr. MacNevins and shot and wounded Mr. and Mrs. Simmons. The proximate result of these occurrences was his incarceration in the Arizona penitentiary.

In response to plaintiff’s second-amended complaint, Upjohn filed a motion for involuntary dismissal pursuant to Code of Civil Procedure section 2 — 619. Upjohn maintained that plaintiff was collaterally estopped from bringing his action because he had pled guilty in the Arizona criminal proceeding. All of the defendants, except Walgreen Company, joined Upjohn in the motion. Plaintiff voluntarily dismissed Walgreen Company from the action and that dismissal is not pertinent to this appeal.

On September 3, 1991, the trial court granted defendants’ motions and dismissed plaintiff’s action. On January 27, 1992, plaintiff’s motion to reconsider was denied, and the instant appeal followed.

Opinion

Plaintiff raises four issues on appeal: first, the trial court erred in applying Arizona law to determine the collateral estoppel effect of plaintiff’s conviction; second, assuming, arguendo, that Arizona law on collateral estoppel should be applied, the trial court incorrectly interpreted that law; third, Illinois law precludes the application of the doctrine of collateral estoppel in this case; and fourth, applying collateral estoppel to this case violates the public policy of Illinois. We find no merit in any of these contentions for the reasons that follow.

The law of the State where a foreign judgment was rendered determines its collateral estoppel effect. (Mohn v. International Vermieulite Co. (1986), 147 Ill. App. 3d 717, 720, 498 N.E.2d 375.) The Restatement (Second) Conflict of Laws explains that when considering whether to apply collateral estoppel based on a prior foreign judgment, “[wjhat issues are determined by a valid judgment is determined, subject to constitutional limitations, by the local law of the State where the judgment was rendered.” (Restatement (Second) Conflict of Laws §95 (1971).) Moreover, comment g to section 95 makes it clear that the law of the State in which a judgment is rendered determines, also subject to constitutional limitation, the effect of the judgment for collateral estoppel purposes in a later suit in another jurisdiction. (Restatement (Second) Conflict of Laws §95, Comment g, at 286 (1971).) As such, the trial court properly looked to Arizona law to determine the collateral estoppel effect of plaintiff’s conviction in Arizona.

Plaintiff next contends that the court incorrectly determined that Arizona laws of collateral estoppel barred his claim.

Illinois and Arizona apply essentially the same rules to the doctrine of collateral estoppel. When asserted as a defense, the doctrine of collateral estoppel requires the defendant to establish (1) that the issue decided in the prior action was identical to the one presented in the suit in question; (2) that a court of competent jurisdiction rendered a final judgment on the merits in the prior action; (3) that the party against whom the doctrine is asserted was a party to the prior action or in privity with such a party; and (4) that the factual issue against which the doctrine is interposed has actually and necessarily been litigated and determined in the prior action. Housing Authority v. YMCA (1984), 101 Ill. 2d 246, 461 N.E.2d 959; Illinois State Cham her of Commerce v. Pollution Control Board (1979), 78 Ill. 2d 1, 398 N.E.2d 9; Chaney Building Co. v. City of Tucson (1986), 148 Ariz. 571, 716 P.2d 28; Gilbert v. Board of Medical Examiners (1987), 155 Ariz. 169, 745 P.2d 617.

There is no dispute that plaintiff here was the defendant in the Arizona criminal proceeding, that he was in fact convicted, and that the conviction was a final judgment by a court of competent jurisdiction. The questions remaining for analysis are whether the issues presented in the instant case were identical to those in the Arizona proceeding, and if so, whether the instant issues were actually and necessarily decided in the Arizona proceeding. We find that, under Arizona law, both of these questions must be answered in the affirmative.

Section 13 — 807 of the Arizona revised statutes provides:

“A defendant convicted in a criminal proceeding is precluded from subsequently denying in any civil proceeding the essential allegations of the criminal offense of which he was adjudged guilty, including judgments of guilt resulting from no contest pleas. An order of restitution in favor of a person does not preclude that person from bringing a separate civil action and proving in that action damages in excess of the amount of the restitution order.” Ariz. Rev. Stat. Ann. §13 — 807 (West 1989).

In Allstate Insurance Co. v. Willis (1990), 57 Ariz. Adv. Rep. 55, relied upon by Upjohn, the Arizona court of appeals determined that the above section extends with equal force to convictions resulting from an “Alford plea.” Therefore, because plaintiff in the instant case entered such a plea, he would be estopped under this principle from denying in any subsequent civil proceeding any of the acts which formed the basis of his criminal convictions. This includes a denial of his state of mind when committing the offense, as the following discussion illustrates.

Both the Arizona rules of criminal procedure and the determination of the Supreme Court in North Carolina v. Alford provide that before an “Alford plea” is accepted and a judgment of guilt entered thereon, the trial court must determine that there is a factual basis for the plea. (Ariz. Rules Crim. P. 17.3, 26.2 (17 Ariz. Rev. Stat. Ann. (West 1987)); North Carolina v. Alford, 400 U.S. 25, 27 L. Ed. 2d 162, 91 S. Ct. 160; see also Allstate v. Willis, 57 Ariz. Adv. Rep. 55.) Necessarily, when the Arizona trial court determined that a factual basis existed for plaintiff’s plea in the instant case, it also determined that he possessed the requisite mental state to commit the offenses charged, and that there were no defenses to the charges.

As stated previously, plaintiff was convicted of manslaughter and aggravated assault. Both offenses are felonies under Arizona law and, at least as to aggravated assault, require that the crime be committed intentionally or knowingly. (Ariz. Rev. Stat. Ann. §§13 — 1103, 13— 1203, 13 — 1204 (West 1989).) Therefore, in accepting plaintiff’s plea of guilty to the charge of aggravated assault, the Arizona trial court necessarily found that he acted knowingly and/or intentionally, because such a mental state is an element of the crime. (Ariz. Rev. Stat. Ann. §§13 — 1203, 13 — 1204 (West 1989).) Involuntary intoxication, on the other hand, negates the requisite mental state for the crimes of manslaughter and aggravated assault under Arizona law and is a complete defense to both crimes. (State v. Figueroa (1986), 151 Ariz. 213, 726 P.2d 629.) Accordingly, in light of the foregoing law and the requisite mental states of the offenses to which plaintiff pled guilty, plaintiff cannot now argue that he was involuntarily intoxicated when he committed the crimes at bar and that he lacked intent to commit those crimes.

Furthermore, as Upjohn argues, valid guilty pleas in Arizona constitute a waiver of all nonjurisdictional defenses to the crime charged. (State v. Sims (1978), 118 Ariz. 210, 575 P.2d 1236; State v. Hostler (1973), 109 Ariz. 212, 507 P.2d 974.) Thus, when plaintiff entered his guilty plea, he waived any defense of involuntary intoxication.

Accordingly, each element necessary to the application of collateral estoppel has been satisfied in this case. Were the doctrine to be applied, it would bar the plaintiff from maintaining in the instant action that his Arizona crimes were committed through no fault of his own due to an involuntary state of drug-induced intoxication.

Even where each element has been established, however, collateral estoppel will not be applied if an injustice would result. (S & S Automotive v. Checker Taxi Co. (1988), 166 Ill. App. 3d 6, 520 N.E.2d 929.) Before applying the doctrine, the court must first determine that the party against whom the estoppel is asserted had a full and fair opportunity and an incentive to litigate the issue in the prior proceeding. Housing Authority v. YMCA, 101 Ill. 2d 246, 461 N.E.2d 959; Cleveringa v. J.I. Case Co. (1992), 230 Ill. App. 3d 831, 595 N.E.2d 1193; Gilbert v. Board of Medical Examiners, 155 Ariz. at 174, 745 P.2d at 622.

At the hearing on defendants’ motion for involuntary dismissal, the evidence established that plaintiff had raised the defenses of lack of intent, lack of specific intent, insanity, intoxication, and diminished capacity during the Arizona criminal proceeding. The affidavit of plaintiff’s Arizona criminal attorney in opposition to defendants’ motion states that prior to plaintiff’s plea of guilty to the reduced charges, both he and plaintiff had reason to believe that Prozac and/or Xanex caused plaintiff’s actions. There is no question that plaintiff had a full and fair opportunity in the Arizona criminal proceeding to litigate the issue of whether his actions were the result of an involuntarily induced state of intoxication. Plaintiff voluntarily, intelligently, and knowingly waived the issue and entered his plea of guilty. On the incentive to litigate question, a person faced with the potential of being sentenced to a substantial term in prison has every incentive to interpose a defense that would constitute a complete defense to the crimes he is charged with committing. It would be an anomaly to suggest that, when plaintiff abandoned his defense, he did so out of a lack of incentive as opposed to a desire to substantially reduce his potential prison term.

Plaintiff’s final argument is that applying the doctrine of collateral estoppel to this case would violate the public policy of Illinois. Plaintiff cites no authority for this proposition, nor can we find any. We believe that the matter is quite succinctly put in the quotation from Professor Geoffrey C. Hazard, Jr., referenced in Upjohn’s brief:

“The clearest case for such an estoppel is where a defendant pleads guilty to a substantial criminal charge and then seeks in civil litigation concerning the same transaction to assert that he did not commit the criminal act. Particularly galling is the situation where a criminal convicted on his own guilty plea seeks as plaintiff in a subsequent civil action to claim redress based on a repudiation of the confession. The effrontery or, as some might say it, chutzpah, is too much to take. There certainly should be an estoppel in such a case.” Hazard, Revisiting the Second Restatement of Judgments: Issue Preclusion and Related Problems, 66 Cornell L. Rev. 564, 578 (1981).

Because plaintiff is collaterally estopped from contending that his incarceration is the result of anything other than his own intentional acts, nothing that he alleges against any of the defendants has a proximate causal relationship to his incarceration.

For the foregoing reasons, we find that the trial court properly dismissed plaintiff’s action.

Judgment affirmed.

JOHNSON and CAHILL, JJ., concur.

      We note that this is an unpublished, memorandum decision. Although under the Arizona rules of appellate procedure such decisions normally are not regarded as precedent and may not be cited in any court, a specific exception exists when they are cited “for the purpose of establishing the defense of res judicata, collateral estoppel or the law of the case.” (Ariz. R Civ. App. P. 28(c) (17B Ariz. Rev. Stat. Ann. (West 1988)).) In any event, our research has uncovered no other Arizona case on this issue, and we find that the court’s interpretation in Allstate v. Willis decisively comports with the plain meaning of section 13 — 807, and with the Court’s reasoning in North, Carolina v. Alford. Accordingly, we adopt the ruling in Allstate v. Willis for purposes of our decision here.