APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, SECOND DIVISION
549 N.E.2d 719, 192 Ill. App. 3d 934, 140 Ill. Dec. 68 1989.IL.2024
Appeal from the Circuit Court of Cook County; the Hon. Robert J. Sklodowski, Judge, presiding.
JUSTICE HARTMAN delivered the opinion of the court. SCARIANO and DiVITO, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE HARTMAN
Plaintiff, Manor Healthcare Corp. (Manor), sought a judicial declaration that the maker of a "Contingent Promissory Note" (Note), Soiltest, Inc. (Soiltest),1 and a related entity, Engineering Laboratory Equipment, Ltd. , or either of them, had been "sold, liquidated, merged, abandoned, discontinued, disaffiliated or otherwise disposed of." Manor also prayed for monetary "non-contingent" proceeds under the Note, plus interest, costs, and attorney fees, from Soiltest and John Mowlem & Co. PLC (Mowlem PLC), as guarantor.
Manor filed a motion for summary judgment claiming certain events had rendered 40% of the principal balance due under the Note fixed and noncontingent. Soiltest and Mowlem PLC (defendants) filed a cross-motion for summary judgment, asserting that the noncontingent provisions had not been triggered and no default had occurred. The circuit court denied Manor's motion and granted partial summary judgment in favor of defendants. From that ruling, Manor appeals. The issue raised here is whether, under the terms of the Note, certain transactions occurring within a corporate reorganization rendered a portion of the Note fixed and noncontingent.
Mowlem PLC, a corporation organized under the laws of the United Kingdom, is principally involved in international construction, property development, and mechanical engineering. In 1961, Mowlem PLC formed ELE as a subsidiary to provide materials testing and other technical services to the construction industry. ELE's business was concentrated in Europe, the Middle East, Africa, and the Far East.
In 1980, Mowlem PLC began negotiations with Cenco Medical Industries (Cenco) for the purchase of Soiltest, then a Cenco subsidiary. The acquisition of Soiltest was intended to give Mowlem PLC a "significant presence" in the United States and other international markets where ELE was not active. Soiltest's material testing products complemented those of ELE "in areas where American as opposed to British testing standards apply." Mowlem PLC formed a wholly owned subsidiary, Ciro Acquiring, Inc. (Ciro), specifically to acquire Soiltest.
On July 2, 1980, Ciro2 executed the Note with a face amount of $1,100,000 in favor of Cenco, as partial consideration for the transfer and sale of Soiltest common stock by Cenco to Ciro. The Note was issued pursuant to a prior agreement for the purchase of Soiltest dated February 3, 1980. The "final deal" involved four different agreements. Mowlem PLC guaranteed payment of any unpaid installments of principal and interest on the Note that would become due and payable upon default by the payor. Manor, the successor in interest to Cenco, is the current payee under the Note.
Defendants submitted the affidavit of Frederick E. Worth, a Mowlem PLC negotiator for the purchase of Soiltest, with their cross-motion for summary judgment. He averred that Mowlem PLC discovered Soiltest's profits had "fallen dramatically" in the previous year. Concerned about Cenco's asking price, the parties agreed to an "earn out" as a compromise; according to Worth, the parties understood the "earn out" to provide that Mowlem PLC would pay further consideration to Cenco if Soiltest's profits exceeded predetermined levels. Cenco was concerned about the implementation of the "earn out" provision, because ELE and Soiltest were in similar businesses and Mowlem PLC could lessen the amounts due under the provision by diverting potential Soiltest profits to ELE. Cenco also hoped that the profit-making potential of ELE and Soiltest would be greater when part of the same company than if they remained separate. According to Worth, Mowlem PLC agreed that payments under the "earn out" would be tied to the combined profits of ELE and Soiltest, although Cenco had no affiliation with ELE.
Section 2 of the Note, entitled "Conditions to Payment of Principal and Interest," provides in part:
"On each Payment Date, interest accrued hereon to and including the preceding December 31, shall be payable but only to the extent that Annual Net Income (as hereinafter defined) for the fiscal year ending on such December 31 (on a non-cumulative basis) exceeds $2,500,000 (the 'Threshold').
Installments of principal . . . shall be payable on any Payment Date only to the extent of 75% of the excess of Annual Net Income (on a non-cumulative basis) for the fiscal year most recently preceding the year of such Payment Date over the sum of (i) the Threshold, (ii) the amount of interest payable by [Ciro] hereunder on such date by reason of the provisions of this Section 2, and (iii) the amount of interest payable by [Ciro] on such date on ...