SIXTH DIVISION 

September 22, 2006 

No. 1-05-3235 

CCP LIMITED PARTNERSHIP, the Estate of ) Appeal from the 

MERRILL KIRSCH, ANTHONY KIRSCH, PATRICK ) Circuit Court of 

KIRSCH and CATHERINE KIRSCH, ) Cook County 

) 

Plaintiffs-Appellees, ) 

) 

v. ) 

 ) 

FIRST SOURCE FINANCIAL, INC., ) 

) 

Defendant-Appellant, ) 

________________________________________) 

) 

FIRST SOURCE FINANCIAL, INC., a Delaware) 

corporation, and SPECIAL SITUATIONS ) 

OPPORTUNITY FUND I, LLC, a Delaware ) 

limited liability company, ) 

) 

Plaintiffs-Appellants, ) 

) 

v. ) 

) 

CCP LIMITED PARTNERSHIP, a Wisconsin ) 

limited partnership, and CEDAR CREEK ) 

PARTNERS, LLC, its General Partner, ) 

) 

Defendants-Appellees, ) 

________________________________________) 

 ) 

FIRST SOURCE FINANCIAL, INC., a Delaware) 

corporation, and SPECIAL SITUATIONS ) 

OPPORTUNITY FUND I, LLC, a Delaware ) 

limited liability company, ) 

) 

Plaintiffs-Appellants, ) 

) 

v. ) 

) 

ESTATE OF MERRILL KIRSCH, ANTHONY ) 

KIRSCH, PATRICK KIRSCH and CATHERINE ) 

KIRSCH, ) Honorable 

) David Donnersberger, 

Defendants-Appellees. ) Judge Presiding 

JUSTICE McNULTY delivered the opinion of the court: 

This case involves the proper characterization of a contract 
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between a bank and several individuals who owned a corporation 

that took a series of loans from the bank. The bank claims that 

the owners in the contract purchased parts of the loans the bank 

made to the corporation, effectively using the bank as a vehicle 

to loan their corporation their money. When the corporation 

defaulted on some of the loans, the owners, as participating 

lenders, lost their investments in the loans. The bank sought to 

recover from the owners the amounts they agreed to lend their 

corporation. 

The trial court held that the contract created a continuing 

guaranty of the series of loans, and the owners validly revoked 

the guaranty in 2003. Because the corporation did not default on 

loans made prior to the revocation date, the owners did not owe 

the bank anything on the guaranty. The trial court awarded the 

owners summary judgment against the bank. We agree with the 

trial court's characterization of the transaction and the finding 

of a valid revocation. Therefore, we affirm the trial court's 

judgment. 

 BACKGROUND 

Catherine, Patrick, Anthony and Merrill Kirsch owned shares 

of Capatony, Inc. Capatony owned 45% of Dart Distributing, LLC, 

while CCP Limited Partnership owned the remaining 55%. Anthony 

and Merrill also served on Dart's board of directors. In 

November 1997, First Source Financial (FSFP) agreed to loan Dart 

some funds. The following year, Dart sought additional loans to 
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fund its ongoing operations. Dart agreed to secure the revolving 

loans by giving FSFP an interest in most of its property. The 

loan agreement included a formula for computing the total amount 

of outstanding revolving loans Dart could accumulate. The 

parties referred to the prescribed maximum loan total as the 

"Borrowing Base." 

Dart's needs soon exceeded the Borrowing Base. FSFP agreed 

to loan Dart further funds, but it sought to protect itself by 

spreading the risk from the loans. In September 2000 Dart and 

FSFP signed a "Second Amendment" to the revolving loan agreement, 

increasing the amount of revolving loans FSFP would allow Dart to 

accumulate. The parties agreed that the increased loans depended 

upon a "Last-Out Participation Agreement" (the LOPA) between CCP, 

the Kirsches, and FSFP. 

The LOPA lists CCP and the Kirsches as "Participants" in the 

loans to Dart. It provides: 

"WHEREAS, each of the Participants acknowledges 

that (i) the effectiveness of the Second Amendment is 

expressly conditioned upon, and FSFP has entered into 

the Second Amendment in reliance upon, each 

Participant's execution and delivery of this Agreement 

and (ii) each Participant will derive substantial 

benefit and advantage from the financial accommodations 

made available to [Dart] in the Second Amendment; *** 

*** 
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NOW, THEREFORE, in consideration of the premises 

and of the mutual covenants contained herein, FSFP and 

each of the Participants hereby agree as follows: 

*** 

*** FSFP hereby sells to each Participant, and 

each Participant hereby purchases from FSFP, *** a 

subordinated secured participation interest *** in the 

Loans. *** The Purchase Amount of each Participant 

shall be due and payable by such Participant within 10 

days after the date *** that such Participant receives 

written notice from FSFP that (i) an Event of Default 

under the Credit Agreement has occurred and is 

continuing and (ii) the Revolving Loans have been 

accelerated and are due and payable in full (the date 

of such acceleration being referred to as the 

'Determination Date'). 

 * * * 

*** [N]one of the Participants shall be entitled 

to the payment in cash of accrued interest hereunder 

until the indefeasible payment in full in cash to FSFP 

of all Liabilities owing to FSFP under the Credit 

Agreement, in accordance with Section 6 below. 

6. Allocation of Payments. All payments received 

by [FSFP] from time to time on account of the Loans 

shall be applied in the following order: (a) first, to 
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FSFP, for (i) all costs ***; (ii) all accrued interest 

***; (iii) all principal *** and (iv) any other 

Liabilities owing to FSFP ***; and (b) after all 

amounts described in clause (a) above shall have been 

indefeasibly paid in full in cash to FSFP, then, to 

Participants ***. The Participants shall bear all 

losses up to the amount of their *** Participations 

that may be sustained before FSFP shall bear any loss." 

(Emphasis in original.) 

Catherine, Patrick, Anthony and Merrill each owned a 

brokerage account with Lowry Hill. Each of the Kirsches signed a 

"Pledge and Security Agreement" in favor of FSFP. In all four 

agreements FSFP acquired a security interest in the pledgor's 

brokerage account with Lowry Hill, payable if the pledgor failed 

to fulfill his duties under the LOPA. 

In January 2003 CCP and the Kirsches sent a letter to FSFP 

in which they said: 

"The current Purchase Amount for the *** Participation 

of each Participant, calculated by reference to the 

attached Borrowing Base Certificate, is $0. 

Accordingly, each of the undersigned Participants 

hereby revokes the Participation Agreement and all of 

their respective debts, obligations and liabilities 

thereunder. None of the undersigned Participants will 

be liable for any loans, advances or any additional 
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credit extended by [FSFP] under the Credit Agreement at 

any time after the date hereof." 

The Kirsches also notified Lowry Hill of their revocation of the 

LOPA and the pledges and security agreements. 

Merrill Kirsch died and the administrator of his estate took 

over the management of his finances. In December 2003, two 

members of the Kirsch family and Robert Cook, managing director 

of CCP's general partner, asked FSFP to lend additional funds to 

Dart. In April 2004 Catherine, Patrick and Anthony sent FSFP a 

letter reminding FSFP that the Kirsches had revoked the LOPA. 

Cook and some of the Kirsches returned to FSFP seeking more loans 

for Dart in June 2004. 

On January 26, 2005, FSFP notified the Participants in the 

LOPA that Dart had defaulted and therefore FSFP declared the 

"Determination Date" for the LOPA had arrived. According to 

FSFP, the Participants owed it $1 million apportioned amongst the 

Participants in the manner set forth in the LOPA. When the 

Participants refused to pay, FSFP recovered $450,000 directly 

from Lowry Hill under the pledges the Kirsches signed. 

On April 8, 2005, the Kirsches and CCP sued FSFP, seeking a 

judgment declaring that the Kirsches and CCP validly revoked the 

LOPA in 2003 and that FSFP had no right to the money it took from 

the Lowry Hill accounts. Also on April 8, 2005, FSFP sued CCP 

for its portion of the $1 million FSFP sought to recover under 

the LOPA. A few days later FSFP sued the Kirsches, seeking a 
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judgment declaring that FSFP had the right to take the $450,000 

it had already taken from the Lowry Hill accounts. The circuit 

court granted the parties' motion to consolidate the three cases. 

All parties moved for summary judgment. FSFP admitted that 

in January 2003, when the Kirsches and CCP sent the revocation 

letter, the total revolving loans outstanding to Dart did not 

exceed the Borrowing Base. Under the formula in the LOPA, if 

FSFP had then declared the Determination Date, the Kirsches and 

CCP would owe nothing. FSFP could not declare a Determination 

Date at that time, however, because no default had occurred. 

After FSFP received the revocation letter, it continued lending 

Dart funds in excess of the Borrowing Base. 

Both CCP and FSFP supported their summary judgment motions 

with documents purporting to reflect e-mails sent between FSFP 

and Dart. For FSFP, Robert Palmer swore in an affidavit: 

"The e-mails attached *** have been maintained in 

the ordinary course of business in [FSFP's] computer 

system, and I assisted in retrieving them for use in 

this matter." 

Cook similarly swore that the e-mails attached to CCP's motions 

for summary judgment were "maintained in the ordinary course of 

business in CCP[']s *** computer system." Neither affiant said 

anything about his participation in the correspondence or the 

occasion for receipt of the e-mail. 

The trial court held that the LOPA was, in effect, a 
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continuing guaranty, revocable on due notice. The notice the 

Kirsches and CCP provided in January 2003 effectively revoked the 

continuing guaranty. The court entered summary judgment against 

FSFP and its affiliated parties on all three complaints. FSFP 

now appeals. 

 ANALYSIS 

We review de novo the grant of summary judgment. Delaney v. 

McDonald's Corp., 158 Ill. 2d 465, 467 (1994). 

FSFP contends the LOPA is a participation agreement that 

gave the Participants no right to revoke prior to the 

Determination Date FSFP chose. CCP and the Kirsches answer that 

the LOPA is a continuing guaranty, and Illinois common law gives 

guarantors the right to revoke such a continuing guaranty at any 

time. 

"[T]he trial court, in the exercise of its equitable powers, 

*** will look through the forms to the substance of a transaction 

in order to ascertain the relationship of the parties." Tilley 

v. Shippee, 12 Ill. 2d 616, 623 (1958). Illinois courts have 

exercised this power in cases involving loans (Andrews v. Cramer, 

256 Ill. App. 3d 766, 770 (1993)), securities (Boatmen's Bank of 

Benton v. Durham, 203 Ill. App. 3d 921, 927 (1990)), and secured 

transactions presented in the form of sales (Turk v. Wright & 

Babcock, Ltd., 174 Ill. App. 3d 139, 142 (1988)). We apply the 

same principles to determine whether the LOPA has the effect of a 

loan participation or a continuing guaranty. 
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"A participation agreement is a shared loan where a lead 

financial institution divides and sells to other banks portions 

of a loan it has made." Bank of Chicago v. Park National Bank, 

266 Ill. App. 3d 890, 897 (1994). A participant in a loan, like 

any lender, accepts the risk of loss in exchange for the promise 

of the payment of interest. See D. Threedy, Loan Participations 

-- Sales or Loans? Or Is That the Question?, 68 Or. L. Rev. 649, 

649-50 (1989). An Illinois court has defined a guaranty as "'a 

promise to answer for the payment of some debt or the performance 

of some obligation, on default of such payment or performance, by 

a third person who is liable or expected to become liable 

therefor in the first instance.'" Commonwealth Trust & Savings 

Bank v. Hart, 268 Ill. App. 322, 327 (1932), quoting 12 Ruling 

Case Law 1053. A guaranty reduces the lender's risk by shifting 

the risk to a party who "has a comparative advantage in 

monitoring or enforcement" of the debtor's duties, while the 

"lender has a comparative advantage in liquidity." A. Katz, An 

Economic Analysis of the Guaranty Contract, 66 U. Chi. L. Rev. 

47, 113 (1999). 

Here, the terms of the LOPA clarify that the Participants do 

not seek to profit from the payment of interest. The agreement 

expressly provides that the Participants expect to benefit from 

the financial accommodation made to Dart, as all of the 

Participants have ownership interests in Dart. The Participants, 

by virtue of their ownership of Dart and their positions as 
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officers of Dart, had considerable advantage over FSFP in the 

monitoring and enforcement of the contractual duty to repay the 

revolving loans. FSFP had a comparative advantage in liquidity. 

Most significantly, the Participants have no right to 

receive any interest, and no duty to put up funds for the loan, 

unless Dart defaulted on the revolving loans. At that point, the 

Participants' prospects for recovering their investments would be 

slim enough, and their chances for receiving any interest on 

their loan participations would be, at best, very remote. If 

Dart paid all its debts, the Determination Date would never 

arrive. Thus, the Participants would not have any duty to pay 

their shares of the loan, and they would have no right to receipt 

of any interest. 

We find the transaction in this case comparable to the 

transaction at issue in Grojean v. Commissioner of Internal 

Revenue, 248 F.3d 572 (7th Cir. 2001). In that case Grojean 

formed a corporation and sought a loan from a bank to fund the 

corporation's activities. The bank loaned $10 million to the 

corporation on condition that Grojean purchase a $1.2 million 

participation in the loan. Grojean, 248 F.3d at 572-73. Grojean 

took a personal loan from the same bank to purchase the loan 

participation. If the corporation paid all its debts, Grojean 

would reap no gain from the loan participation, because the 

interest he paid on the personal loan would exactly offset the 

interest he would receive as a loan participant. If the 
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corporation defaulted, the bank retained the right to the return 

of its entire loan to the corporation and all interest and costs 

before Grojean could recoup any part of his $1.2 million 

participation in the loan. The court recharacterized the 

contract, ostensibly a loan participation agreement, as a 

guaranty of $1.2 million of the total amount loaned to the 

corporation. Grojean, 248 F.3d at 574. 

The LOPA here similarly has the effect of a guaranty. As 

long as Dart makes all necessary payments on the loan, the 

Participants receive no interest and they pay nothing for their 

nominal participation in the loan. If Dart defaults, the 

Participants will lose the entire price set by the LOPA for the 

nominal participation before FSFP loses any part of its principal 

or interest earned on the revolving loans to Dart. Because the 

LOPA covered an indefinite series of revolving loans, the trial 

court correctly characterized the LOPA as a continuing guaranty. 

 See Merrill Lynch Interfunding, Inc. v. Argenti, 155 F.3d 113, 

117 (2d Cir. 1998); Commonwealth Trust, 268 Ill. App. at 328-29. 

Under English common law, long ago adopted in Illinois, a 

guarantor of a continuing guaranty has the right to revoke the 

guaranty at any time, as long as he provides proper notice to the 

lender. Mamerow v. National Lead Co., 206 Ill. 626, 634-35 

(1903); National Eagle Bank v. Hunt, 16 R.I. 148, 150, 13 A. 115, 

116 (1888). Unless the contract for a continuing guaranty 

expressly limits the right to revocation, the guaranty remains 
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subject to the right to revoke. See City National Bank of 

Murphysboro v. Reiman, 236 Ill. App. 3d 1080, 1088-89 (1992) 

(contract for continuing guaranty had no provision concerning 

revocation; court found guarantor retained right to revoke). 

"When a guaranty is revoked, a guarantor's liability extends only 

to transactions occurring pursuant to the guaranty before notice 

of revocation." Reiman, 236 Ill. App. 3d at 1090. 

Here, the contract did not include any express limitation on 

the right of revocation. FSFP received proper notice of the 

exercise of the right to revoke the guaranty in January 2003. At 

that time it had no loans outstanding to Dart in excess of the 

Borrowing Base. Thereafter it extended new loans to Dart in 

excess of the Borrowing Base. Under the general rule of 

revocability, FSFP has no right to recover from the Participants 

for the default on the loans made after the Participants 

exercised their right to revoke. 

FSFP claims that its affirmative defenses of estoppel and 

unclean hands should have precluded summary judgment. First FSFP 

notes that in December 2003 and June 2004, long after the 

revocation, officers of Dart, including some of the Participants, 

specifically requested new loans to Dart. FSFP presented no 

evidence that at the time of the request the Participants 

guaranteed repayment of the loans Dart sought. We do not see how 

Dart's request for new loans affects the prior revocation of the 

continuing guaranty. 
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FSFP primarily relies on several pieces of paper it attached 

to its motion for summary judgment. FSFP claims that the 

documents reflect e-mails one of the Participants sent to FSFP. 

On a motion for summary judgment the court must not consider 

any evidence that would be inadmissible at trial. Watkins v. 

Schmitt, 172 Ill. 2d 193, 203-04 (1996). Without proper 

authentication no document is admissible. See Olaf v. Christie 

Clinic Ass'n, 200 Ill. App. 3d 191, 195 (1990). An affidavit may 

provide the authentication needed to make a document admissible. 

 North American Old Roman Catholic Church v. Bernadette, 253 Ill. 

App. 3d 278, 286 (1992). To make documents admissible, the 

proponent must present evidence "to demonstrate that the document 

is what its proponent claims it to be." Anderson v. Human Rights 

Comm'n, 314 Ill. App. 3d 35, 42 (2000). Either direct or 

circumstantial evidence can authenticate a document. People v. 

Downin, 357 Ill. App. 3d 193, 203 (2005). Usually the proponent 

establishes the identity of the document "through the testimony 

of a witness who has sufficient personal knowledge to satisfy the 

trial court that a particular item is, in fact, what its 

proponent claims it to be." Kimble v. Earle M. Jorgenson Co., 

358 Ill. App. 3d 400, 415 (2005). 

Palmer swore in an affidavit that the papers attached to the 

summary judgment motion "have been maintained in the ordinary 

course of business in [FSFP's] computer system." At most, the 

evidence could show that FSFP kept copies of the documents in the 
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regular course of its business. FSFP did not present any direct 

evidence of authentication, as it had no affidavit or deposition 

of the putative author of the alleged e-mail. See Kimble, 358 

Ill. App. 3d at 416. Palmer's affidavit includes no evidence 

that Palmer had any personal knowledge regarding FSFP's receipt 

of the e-mail. He knew only that at some time before he helped 

retrieve the message, someone somewhere entered into FSFP's 

computers a message that listed an officer of Dart on the line 

for the sender. No evidence limits the time of the creation of 

the message. Nor does the evidence limit the possible authors. 

Palmer's affidavit includes no evidence of an ongoing 

correspondence that might provide circumstantial evidence of the 

authorship of the message. See Downin, 357 Ill. App. 3d at 203-

04. In the absence of proper authentication, this court must 

ignore the papers purporting to represent e-mails FSFP received 

from Dart. See Cincinnati Insurance Co. v. Argubright, 151 Ill. 

App. 3d 324, 328-29 (1986). We note that e-mails similarly 

appended to the Participants' motion for summary judgment seem to 

suffer from the same lack of authentication. 

Because FSFP did not present any authentication evidence 

needed to make the purported e-mails admissible, it has no 

evidence to support its affirmative defenses of estoppel and 

unclean hands. The affirmative defenses do not defeat the 

Participants' right to summary judgment. 

Finally, FSFP in its reply brief introduces a new argument, 
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that the Participants waived their right to revoke the LOPA. 

Under Supreme Court Rule 341(g), we should ignore any new issues 

raised in the reply brief but not mentioned in the opening brief. 

 188 Ill. 2d R. 341(g); Tivoli Enterprises, Inc. v. Brunswick 

Bowling & Billiards Corp., 269 Ill. App. 3d 638, 642 (1995). 

Accordingly, we do not address the argument that the Participants 

waived the right to revoke the LOPA. 

The trial court correctly identified the LOPA as a 

continuing guaranty. Because the LOPA included no explicit limit 

on the right to revoke, the Participants retained the right to 

revoke at any time, with due notice to FSFP. They validly 

exercised that right in January 2003, thereby saving themselves 

from liability as guarantors for any subsequent loans to Dart. 

For its affirmative defenses of estoppel and unclean hands, FSFP 

relied on papers it attached to its motion for summary judgment. 

 But the affidavits FSFP presented failed to authenticate the 

documents. The court must ignore the inadmissible documents for 

this summary judgment motion. The trial court correctly rejected 

the affirmative defenses. Therefore, we affirm the summary 

judgment granted against FSFP in all three cases. 

Affirmed. 

FITZGERALD SMITH, P.J., and O'MALLEY, J., concur.