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Schipper & Block v. Carson Pirie Scott & Co.

MARCH 20, 1970.




Appeal from the Circuit Court of Peoria County, Tenth Judicial Circuit; the Hon. ROBERT E. HUNT, Judge, presiding. Reversed.


Rehearing denied April 16, 1970.

Plaintiff is the owner and lessor of a department store building which is leased to the defendant under a 99-year lease which commenced in 1914. It is a net lease with the lessee paying taxes and insurance on the property. Based on an appraisal of the building and land acceptable to the lessor and lessee in 1914, the lease provides for a rental figure of 6% of the appraised value of the land and buildings at the beginning of the period, plus 1% of the appraised value of the buildings. This rent was fixed for ten years. The lease further provides for appraisals to be made for each succeeding 10-year period, with the same percentage rent formula to apply to the new appraisals. Under the lease, each party is required to appoint one appraiser, who must be competent, judicious and disinterested, and who is to appraise the value of the property involved in the lease. If the two appraisers cannot agree upon the value of the property, they are to select a third appraiser and the finding of the three appraisers, or a majority of them, shall be considered binding. In the case no two of the three appraisers agree upon the value, their appraisals shall be averaged.

The original lease requires that the appraisers answer two questions:

"1st. `What, in your candid judgment, is the present fair cash value, as a whole, of the several lots, pieces and parcels of ground demised, including the buildings and improvements thereon?'

"2nd. `What, in your candid judgment, is the present fair cash value, as a whole, of the buildings and improvements on several lots, pieces and parcels of ground demised?'"

In 1924, the lease was amended to provide that in making appraisals subsequent to 1934, the appraisers shall not take into account the then value of any permanent additions or improvements, as distinguished from repairs or replacements, placed upon the premises by the lessee and paid for by the lessee. It is further provided by that amendment that the appraisals of the building for rental purposes shall never be less than its stated value in 1914 which was $502,000.

In attempting to comply with the appraisal terms of the lease for the decade commencing in 1964, each party selected an appraiser. When these appraisers failed to agree on the value, they selected a third appraiser. The trial court found, among other things, that the defendant's appraiser and the third appraiser agreed and that such agreed figure controlled under the lease.

This action was brought by plaintiff to obtain a construction of the lease, to set aside appraisals made for the purpose of establishing the rent for the 10-year period commencing in 1964, and to have the rent established by the court. After a trial, the trial court entered a decree dismissing the Complaint for want of equity, from which this appeal is taken.

Of the issues presented for review, the more important are: whether one of the appraisers was disqualified because he was not disinterested as required by the lease; whether the appraisers had great latitude in construing the lease; whether the appraisals are invalid as a result of mistake, including mistake in the construction of the lease, and the nature of the relief to be granted if it should be determined that the appraisals are invalid.

For various reasons which are hereinbelow set forth, we feel that the decision of the trial court in this case must be reversed. First of all, the defendant's appraiser, Walter Kuehnle, was not disinterested as required by the lease. Plaintiff's objection on this point is well taken and should have been heeded by the trial court. Accordingly, his appraisal cannot be considered as binding under the lease whether standing alone or in conjunction with the third appraiser, or for purposes of averaging. The facts are that Kuehnle had appraised the department store building for the defendant to assist the defendant in securing a reduction in assessed value in 1960 and 1961, and again in 1964 at the same time the appraisal was being made under the lease. During the period 1959 through 1964, Kuehnle or his firm received $34,100 compensation from the defendant for various services, exclusive of services in connection with the lease appraisal. The tax appraisals were signed by Mr. Kuehnle and filed with the Peoria County Board of Review. The purpose for taking an appraisal before the Board of Review is to establish as low a value as possible in order to obtain as low a real estate tax as possible. Furthermore, neither Kuehnle nor the defendant disclosed this fact to the plaintiff, and the fact was not discovered by the plaintiff until Kuehnle's deposition was taken in this suit. Thus, when Kuehnle was selected to appraise the property in conjunction with the lease, he had already formed preconceived opinions as to value under circumstances which militated in favor of low value and had made these opinions a matter of record, all without disclosure to the plaintiff.

The trial court in its order found that the appraisers were "qualified in their profession and were unbiased." In a supplemental opinion the trial court stated: "The only charge of bias made in the Complaint related to the appraiser Kuehnle and the thrust of the evidence was that having appraised the property on previous occasions he had a preconceived notion of their value. Having considered the cases cited, the court is not of the opinion that this was sufficient to disqualify Kuehnle from giving a disinterested opinion of appraisal nor would it cause him to be so biased as to require his opinion to be set aside or disregarded. It was evidence which went to the weight of his testimony and nothing else."

The prior relationship of the appraiser Kuehnle with the defendant and the property involved was not a matter that went to the weight of the testimony as the trial court's opinion stated. This relationship concerns his qualification as an appraiser. The terms of the lease provide: "No person shall be competent to act as an appraiser for either of said parties except it be a person competent, judicious and disinterested." If such a relationship as Kuehnle had with the defendant and the property involved made him an "interested" person, then he was not competent to act as an appraiser by virtue of the provisions of the lease.

These provisions were special qualifications contained in the lease and govern the qualifications which the appraisers in this case must possess. We are not concerned herein with the general law relating to disqualification of appraisers, but with the special qualifications of the appraisers set forth in the lease. The cases of Giddens v. Board of Education, 398 Ill. 157, 75 N.E.2d 286 and Sebree v. Board of Education, 254 Ill. 438, 98 N.E. 931, which held that prior employment by a party involved did not disqualify an appraiser are not in point. In those cases the leases involved did not require that the appraisers be "disinterested."

Disinterested is defined as: "Not having any interest in the matter referred to or in controversy; free from prejudice, partiality; impartial or fair-minded; without pecuniary interests; not previously interested; not biased or prejudiced." 27 CJS 314. The term "distinterested" does not simply mean a lack of pecuniary interest but it requires the appraiser to be one not biased or prejudiced. Words and Phrases, Disinterested.

Bias and prejudice are conditions of the mind. City of Naperville v. Wehrle, 340 Ill. 579, 173 N.E. 165; In re Adoption of Richardson, 251 Cal.App.2d 222, 59 Cal Rptr 323. Although the terms are often used interchangeably or together to indicate a single state of mind, they are not exactly synonymous. Littrell v. State, 22 Okla. Cr. 1, 209 P. 184, 186. "Bias" in its legal acceptation, means only a leaning toward one of the parties rather than the other; and "prejudice" imports the formation of a fixed anticipatory judgment as contradistinguished from those opinions which may yield to evidence. "Prejudice" means a prejudging of a case from any cause. It means a settled or fixed opinion. Words and Phrases, Prejudice.

Kuehnle by his prior appraisal of the property for tax purposes had prejudged the value of the property. He had formed a conclusion as to the value thereof prior to his appointment as an appraiser.

In Scott v. Arden Farms Co., 26 Del. Ch. 283, 28 A.2d 81, the value of stock of dissenting stockholders was to be determined by appraisers who were "disinterested persons." One Davis had previously advised Scott, one of the dissenting stockholders, and had given Scott a detailed report in which he had computed an "appraisal valuation" of complainant's stock. For purposes of an appraisal proceeding to determine the value of the stock, Scott subsequently designated Davis as an appraiser. The court held that Davis was not a "disinterested" person. The language of the court at page 86 is quite appropriate in our case:

"It by no means follows from the facts that Davis would necessarily act unfairly in appraising the stock. But the risk that his judgment might be influenced, consciously or subconsciously, by his previous conclusions and recommendations, or by a tendency to attempt to justify them, is such that he should not be expected to act with the freedom of mind required. In consequence, he is not a `disinterested' person."

In Kraft v. Tenningkeit, 204 Iowa 15, 214 N.W. 562, the statute provided that the court shall appoint a commission of one or more of "disinterested" surveyors to locate lost, destroyed or disputed corners and boundaries. The commissioner appointed had previously acted, unknown to the plaintiff, for the defendant in making a survey of the premises in question. The court stated at page 563:

"The plaintiffs were entitled to have a commissioner appointed who had not formed or expressed an opinion in ...

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