Zokoych v. Spalding
Decision Date | 16 May 1980 |
Docket Number | No. 78-2034,78-2034 |
Citation | 40 Ill.Dec. 128,405 N.E.2d 1220,84 Ill.App.3d 661 |
Parties | , 40 Ill.Dec. 128 Stephen ZOKOYCH, Plaintiff-Appellant, v. Bruce SPALDING, Spalding Manufacturing Company, a corporation, and West Suburban Bank of Lombard, a Banking Corporation, Defendants-Appellees. |
Court | United States Appellate Court of Illinois |
Defrees & Fiske, Chicago, for plaintiff-appellant; Edward J. Griffin and Jonathan M. Menn, Chicago, of counsel.
Jerome H. Torshen, Ltd., Chicago, and Donovan & Roberts, Wheaton, for defendant-appellee West Suburban Bank of Lombard; Jerome H. Torshen and Abigail K. Spreyer, Chicago, of counsel.
Plaintiff appeals from a judgment for $19,745.50 in his favor for defendants' conversion of the assets of Ample Tool and Manufacturing Company, Inc. (Ample), a company engaged in the tool and die business. This judgment was entered on remand from this court, which reversed a prior finding denying plaintiff damages for the value of his half interest in Ample. On appeal, plaintiff contends that (1) the holding of a second trial to determine the value of Ample was error; (2) the judgment on remand was contrary to the law of the case; and (3) the judgment is against the manifest weight of the evidence.
In the prior appeal between the parties (Zokoych v. Spalding (1976), 36 Ill.App.3d 654, 344 N.E.2d 805), this court found that the trial court's failure to award any damages for the value of plaintiff's half interest in Ample was against the manifest weight of the evidence. 1 The cause was remanded with directions to determine the actual value of Ample prior to the transfer of its assets and to award plaintiff damages equal to one-half of that value.
Two witnesses testified at the first trial as to the value of Ample. This court summarized the testimony of the first witness Joseph McCauley, then president of a firm which manufactured and sold die sets and related accessories to the tool and die industry, as follows:
The other witness who testified at the original trial as to the value of Ample was Jack Schwartz, former accountant for Ample. This court summarized his testimony, in part, as follows:
36 Ill.App.3d at 674, 344 N.E.2d at 821.
On remand, both the judge in the original trial and the judge who ultimately heard the remand proceedings ruled over plaintiff's objection that the parties were entitled to present additional evidence as to the actual value of Ample prior to the transfer of its assets.
Dr. John Langum, an economist, testified on behalf of plaintiff that the value of stock represents the market value which would be paid in an arm's length transaction between a willing seller and a willing buyer, with both the buyer and the seller being adequately informed as to the nature of the business and financial position of the company; that when stock is not marketed as such, to determine its value one must look at the net income, present and prospective, in the light of the historical record of the company and then capitalize that by using an appropriate price multiplier; and that the multiplier, or price-earnings ratio, is derived from the actual appraisal of earnings of comparable companies that are in the same line of business, where market data is available. The witness stated that he reviewed the transcript in the original trial, the trial court's decree, this court's opinion, and Ample's tax returns for fiscal years ending February 28, 1962 through February 28, 1970; that he studied the tool and die business in the Chicago area and the United States; that he analyzed the price-earnings ratios for the leading industrial averages for companies engaged in manufacturing; that the 1970 price-earnings ratio of Standard and Poor's averages of the 400 industrial companies was 16.5, whereas the 1970 price-earnings ratio average for the Dow Jones Industrials was 14.6; that the mean, modal and median price-earnings ratio as of June 1970 for all of the Jerome Engerman, a certified public accountant, testified for defendant that he reviewed Ample's tax returns and financial statements; that in determining its fair market value, he could not find any earning power to include; that the February 28, 1970 tax returns reflected a $32,069 loss; that this loss included an extraordinary gain on the sale of equipment of $16,325; that he added that gain back, thereby concluding that the corporation actually lost $48,394 for its operations in the fiscal year ending February 28, 1970; that the 1969 and 1968 tax returns reflected losses of $72,266 and $10,306 respectively; that the 1967 tax return showed a profit of $24,752; that the cumulative loss for those four years of operations was $106,714; that Ample's corporate statements for March and April of 1970 reflected income of $15,728 which, when analyzed without any adjustments, resulted in a profit of $94,368; that after deducting that projection from the cumulative loss of fiscal years 1967 through 1970, the five-year total net loss is $11,846 or an average loss per year of $2,569; that from these calculations, he concluded that Ample had no history from which an earnings evaluation could be made; that the company's earnings in the last 10 months were $34,460 which, when analyzed, resulted in a projected income of $41,352; and that as of April 30, 1970, the fair market value of Ample's assets was $39,491. On cross-examination, the witness testified that he had not read the transcript of the previous trial; that he gave no special weight to the 10-month period prior to the transfer of Ample's assets, but rather weighed all of the last five years of the company equally; that he would tend to discount situations which occurred in the prior years that are not likely to recur; that he did not attempt to determine any reason why Ample turned around in its performance after July 1, 1969; that additional depreciation and interest expense for newly purchased equipment increased from 1967 [84 Ill.App.3d 665] to 1969 by $6,000 and $7,000 respectively; and that payroll for labor had been declining since July 1969, and the higher payroll prior to July 1969 was not likely to recur.
[40 Ill.Dec. 132] Standard and Poor's 92 industrial groups was about 12; that of the 32 companies using iron and steel engaged in metal work with businesses similar to that of Ample, the modal price-earnings ratio as of May 31, 1970 was 9 and the median was 11; and that the lowest price-earnings ratio among the 32 comparable companies was 7 and that ratio applied to only one of those firms. He further testified that the price-earnings ratio involved in the sale of the stock interest of Spalding to Zokoych in 1965 for the sale of Ample was 9; that the sales record from 1962 through 1970 for Ample demonstrated a strong and continued increase of demand for its products and was a very strong element in the financial position of the business; that based upon the data analyzed, he determined that the value of Ample immediately before the transfer of assets in May 1970 was $420,000; that this conclusion was reached by applying a multiplier of 7 times to the annualized rate of income of $60,000 based upon the company's income for the last 10 months of its operation; that he chose the smaller multiplier of 7 because Ample is a [84 Ill.App.3d 664] small company and ordinarily has a somewhat greater risk; and that he used income figures for the last 10 months of the company's operation (July 1969 to April 1970) because (a) Spalding came back to the business in July 1969 and the net income earned after that represented the results of the full input in management by both plaintiff and Spalding and (b) in 1967 through 1969 there was a recession in many parts of the metal manufacturing and tool and die business and there was a recovery from the recession during the period...
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