Court Opinion

ID: 9712207
Source: CourtListenerOpinion
Date Created: 2023-08-26 04:48:57.350591+00
Date Added: 2024-06-11T18:23:10.820050
License: Public Domain

DISSENTING OPINION STOUDER, J. I do not agree with the majority of the court. The judgment of the trial court is not, in my opinion, erroneous as found by the majority and I believe that the trial court’s action ought to be affirmed. As can be seen from the majority opinion, there are two general areas of controversy involved in this case. The first relates to the qualifications of appraisers and the second relates to the infirmities in the appraisal itself. With respect to the qualifications of appraisers, I am unable to find any support or authority for the proposition as stated in the majority opinion that requiring appraisers to be “competent, judicious and disinterested” imposes special qualifications upon the appraisers. Terms such as “impartial,” “unbiased,” “unprejudiced” and “disinterested” may have shaded differences in meaning as applied in a particular context. It does not appear that “disinterestedness” is a quality uniquely and distinctively different from the usual qualifications expected of an appraiser. Indeed, the language in Giddens v. Board of Education, 398 Ill 157, 75 NE2d 286, negates any conclusion that disinterestedness is a special qualification not ordinarily expected of an appraiser. In Giddens the court states, “Nevertheless, notwithstanding the failure to incorporate in the leases a broad provision commanding that the appraisers shall be disinterested and impartial, it is undoubtedly true that, in addition to an interest as lessee or mortgagee of school fund property or being a representative of one of the parties, other circumstances exist which will subject an appraiser to disqualification.” Later in the opinion the court states, “While it is evident from an examination of the authorities that all do not agree as to the particular grounds which are sufficient to disqualify arbitrators and appraisers, two propositions may be deduced. First, each case must in a large measure, be governed by its own circumstances and second, an interest or bias to disqualify may be small, but it must be direct, definite and capable of demonstration, rather than remote, uncertain or speculative. The facts and circumstances existing in the case at bar compel the conclusion that whatever interest Clark and Seleenbrecher had in the valuation reported by the Board of Appraisers, it is indirect, remote and uncertain and consequently, insufficient to require disqualification.” The majority opinion declines to follow or apply Giddens because of the purported special qualification of disinterestedness. Since the Giddens case itself dispels any such conclusion and since no other authority is cited in support thereof, it is my conclusion that the Giddens case is applicable and supports the trial court’s conclusion. The conclusion that a preformed opinion of value ought not disqualify an appraiser is, I believe, in accord with the intentions of the parties to such a lease. Periodic revaluation provisions in long-term leases were developed in the late 1800’s and early 1900’s in an effort to introduce a limited amount of flexibility into the lease. The provisions may be said to be an active compromise between the interest of an owner and user of land. Usually, as in the instant case, the property involved is commercial and the long-term lease is a business transaction entered into with deliberation and forethought. It is to the interest of each party that the periodic adjustments provided for in such leases be determined as reasonably as possible. Before any adjustment or modification can be mutually agreed upon, it would appear reasonable that each party seek and secure professional advice. Such favorable advice may be then used as a basis for negotiation and in the event that the parties fail to agree, the parties would then propose the appointment of an appraiser favorable to their position. How can such favorable advice be known except that the person have a preformed opinion of value? To hold as does the majority, that a preformed opinion of value thereby disqualifies an appraiser is contrary to the intention of the parties and subjects them to a hazard not originally intended or contemplated. The opinions of professional appraisers exercising their highest skill and best judgment may vary widely, yet according to the majority, the lessor and lessee are each expected to select an appraiser whose opinions of value are unknown. Such a result is not required since in my opinion, the mechanism of the appraisers appointed respectively by a lessor and lessee selecting a third appraiser, is sufficient to assure protection of the legitimate interest of each party. At this point it should be observed that it was not only Kuehnle, the appraiser appointed by the lessee, who had a preformed opinion of the value of the property. Ehlers, the appraiser appointed by the lessor, also had such a preformed opinion. It cannot be said that he was any less an advocate of a particular position than was Kuehnle, whose qualifications are deemed suspect by the majority of the court. The fact that each of the parties appointed an appraiser who had previously formed an opinion of value of the property has two important consequences. First, it must be regarded as a mutually binding construction of the contract and second, neither party ought to be permitted to complain about the same alleged misconduct of the other. As I have heretofore indicated, I believe that the Giddens case is of persuasive authority in support of the trial court’s action and that the distinction which forms the basis for the majority’s disregard for this authority does not exist. In any event, I do not believe that the force and authority of the Giddens case is diminished or rebutted by Scott v. Arden Farms Co., 26 Del Ch 283, 28 A2d 81, the principal case relied upon in the majority opinion to support reversal of the trial court. The Scott case can be distinguished on its facts and I find no justification for extending or applying the conclusions to the instant case. In analyzing the Scott case, it should be noted that it is a decision of a trial court interpreting and applying a Delaware stock appraisal statute. In resisting the application of the shareholder for the appointment of a third appraiser, the corporation argued that Davis (appraiser appointed by shareholder) was disqualified for two reasons, first, he had been an agent of the shareholder and second, unknown to the corporation, he had previously formed an opinion of value of the shares in question. The quotation appearing in the majority opinion represents the court’s views on the second objection and the court does, in fact, conclude that the prior opinion of value disqualified Davis. This result seems to me somewhat inconsistent with the court’s disposition of the other alleged fact of disqualification, namely, Davis’s employment. With respect to this issue the court indicated that the corporation ought to have known of Davis’s employment because of his negotiations and accordingly, any objection thereto was waived. This reasoning would appear to be equally applicable to Davis’s preformed opinion of value. If Davis, as an investment counselor, was negotiating with the corporation to secure the value of the shares, would it not follow that his negotiation was based on an opinion of value? Furthermore, the opinion is silent on the qualifications of Bancroft, the appraiser appointed by the corporation, and accordingly, what the court might have decided if such an appraiser had also formed an opinion of value cannot be ascertained. Accordingly, it is my opinion that the finding of the trial court that Kuehnle was disinterested is supported by the evidence and hence, his participation in the appraisal did not render such appraisal void. This brings me to the next issue, namely, that the appraisers erred in construing the lease and the trial court erred in approving or agreeing with such construction. Appellant has devoted many pages of its brief to numerous charges of lease misconstruction by the appraisers Kuehnle and Newcombe. Appellant’s major premise is that the valuation by Kuehnle and Newcombe was too low and, therefore, must be wrong. Recognizing that valuation appraisals are matters of judgment, appellant has attributed what it deems to be a bad result to improper construction of the lease. In Sebree v. Board of Education of Chicago, 254 Ill 438, 98 NE 931, the court said, “As long as appraisers act honestly and in good faith, they have a wide discretion as to their methods of procedure and sources of information. Their conclusions, in the absence of fraud or mistake, will be binding upon the parties. Norton v. Gale, 95 Ill 533, . . . Stose v. Heissler, 120 Ill 433, 11 NE 161, . . . Pearson v. Sanderson, 128 Ill 88, 21 NE 200, Chicago Auditorium Ass’n v. Corporation of Fine Arts Bldg., 244 Ill 532, 91 NE 665 .. . .” Thus, the principal issue is whether the appraisers misconstrued the lease or whether the differences in valuation represented the exercise of an appraiser’s judgment. Appellant makes many generalized assertions as to errors of the appraisers, but when such generalizations are cleared away, specific respects in which the lease was misconstrued are lacking. The vagueness of appellant’s position is mirrored in the opinion of the majority of the court which although suggesting areas of error, nevertheless leaves the nature of such error vague and undefined. The basis for alleged misconstruction of the lease is the amendment of 1924, which provides, “. . . the appraisers . . . shall not take into account the then value of any permanent additions or improvements, as distinguished from repairs or replacements, . . . .” Each of the three appraisers valued all of the leased buildings as a whole. Ehlers valuation was $2,262,000, Newcombe’s valuation was $850,000 and Kuehnle’s valuation was $1,000,000. Each then deducted the value of the permanent improvements and found a value for the buildings less the value of such permanent improvements. Ehlers opinion of such value was $1,950,000, Newcombe and Kuehnle each concluded that after deducting the value of the permanent improvements, the value of the buildings was less than the minimum value as established by the lease ($512,000) and hence, each set forth such minimum valuation as the basis upon which the rent was to be computed. Neither Newcombe nor Kuehnle, as contended by appellant, found that the value of the permanent improvements exceeded the value of the buildings. From the foregoing it appears that the low valuation objected to by the lessor cannot be the result of misconstruction of the 1924 lease amendment quoted above, but rather represents differences in valuation of the buildings as a whole. The appraisers employed a variety of techniques and methods in arriving at their opinions of value. This is what appraisers are expected to do. Union Trust Co. v. Board of Education, 348 Ill 256, 180 NE 819, and Marceron v. Chevy Chase Services, Inc., 258 F2d 155, announce the general rule that appraisers must act in accord with the directions establishing their authority. Such cases do not support the conclusion that the appraisers in the instant case violated any directions contained in the lease. In the Union Trust Co. case, Supra, the appraisers did not determine fair cash market value. Instead, they determined a fair rental value when owned by a particular owner, namely, a tax-exempt agency. In the Marceron case, supra, the court concluded that the two lots described in separate leases ought to have been appraised as a unit. Neither of the foregoing cases presents any factual similarity or analogy from which it can be concluded that the appraisers in the case at bar failed to follow the directions in the lease in any particular respect. The majority opinion alludes to errors which the appraisers allegedly committed in determining that certain items were permanent improvements rather than replacements. It does not appear to me that permanent improvements can be distinguished from replacements as a matter of law and that, in fact, this is an area peculiarly requiring the competence of appraisers, as well as an area in which there may be significant differences of opinion. Although the majority has indicated that the appraisers Kuehnle and Newcombe erred in the allocation of particular items as between permanent improvement and replacement, yet no criteria or formula is offered or proposed which suggest that the allocation is anything other than a matter of judgment. If the appraisers erred as indicated by the majority of the court, it should follow that other appraisers ought to be able to ascertain from the opinion what they should do differently from what Newcombe and Kuehnle and for that matter Ehlers, did. To me, the opinion offers no such directions or guidelines and consequently, the absence thereof seems to me to be contrary to the conclusion that the appraisers erred in construing the lease. A further error is attributed to the appraiser Newcombe in that he considered the revaluation lease as depredating the value of the premises. According to the majority, this was improper, citing an authority Springer v. Borden, 210 Ill 518, 71 NE 345, and Giddens v. Board of Education, 398 Ill 157, 75 NE2d 286. The Springer case did hold that such consideration was improper. However, I do not believe that the Springer v. Borden case is applicable. Except in a companion case decided at the same time (Columbia Theatre Amusement Co. v. Adsit, 211 Ill 122, 71 NE 868), the Springer case had not been followed in any subsequent decision. In Sebree v. Board of Education of Chicago, supra, and Giddens v. Board of Education, supra, the court declined to follow Springer and in each case held that the appraisers could consider the effect of a revaluation lease. The court indicated that there was a difference of opinion among reputable appraisers as to the effect of such a lease upon value, but concluded that the appraisers were at liberty to consider its possible effects. Although Springer v. Borden, supra, has not been specifically overruled, it would appear that both in Sebree and Giddens its principle holding was rejected, and, under the authority of Giddens and Sebree, the appraiser Newcombe committed no error in considering the effect of the revaluation lease. In conclusion, the history of revaluation leases and the litigation with respect thereto, as well as the history of the lease involved in this case, reveal the difficulties and problems associated with such leases. The appraisal procedure is usually, as in the instant case, resorted to when the parties are in disagreement on values. Either the lessor or lessee is likely to be disappointed or even outraged by a result which is contrary to their hopes or expectations. I believe that the appraisal procedure was fairly conducted in a manner and before a forum selected by the parties. Accordingly, I believe that the trial court’s action ought to be affirmed.