Illinois Appellate Court Examines Business Records Hearsay Exception

Union Tank Car Co. relied on business records of third parties without any testimony from employees of those other companies to quantify damages caused by a breach of lease for 47 railcars.

An appeal was taken to the Illinois Appellate Court from a $1.27 million judgment entered in a Cook County bench trial. NuDevco Partners guaranteed the lease and argued that the trial court was wrong in ruling that Union Tank satisfied the requirement for the business records exception to the hearsay rule. NuDevco also claimed that the best-evidence-rule barred testimony about Union Tank’s wire transfers in payments to third parties.

The tankers were for shipping petroleum. The lessee, a subsidiary company of NuDevco, stopped paying rent and shipped the tankers back to Union Tank. To prove up freight, switching and storing charges, Union Tank presented invoices from its vendors, plus testimony from its director of fleet repair and the general manager of the lease division about receipts and payment of the bills.

The judgment that was entered by the court included $192,975 for freight costs, $97,214 in future storage costs, plus $109,930 to clean the stored cars with high-pressure “blasting” in the future if they were ever leased again.

With the exception of the award for “anticipated future blasting,” the appellate court affirmed the trial judge’s entry of judgment.

NuDevco argued that the trial judge erred in awarding damages to Union Tank for the anticipated water blasting to clean the cars and future storage costs. NuDevco based its argument on the well-settled principle that a plaintiff is not entitled to recover damages that are remote, speculative or uncertain.

Instead, plaintiff must establish an actual loss with actual damages in order to recover. However, absolute certainty with respect to the damage amount is not required. Rather, so long as the existence of damages is certain, a plaintiff need not necessarily establish the precise amount of damages. A contrary rule would immunize defendants from the consequences of their wrongful conduct by allowing them to escape liability merely because the amount of damages they have caused cannot be proved with mathematical certainty.

NuDevco argued that the testimony needed to prove up the future storage cost was unreliable due to the fact that the testifying witness was not an expert. The appeals panel disagreed. A lay witness is permitted to give opinion testimony where it is based on that witness’ personal observation, is one the witness is competent to make and assist in a clearer understanding of the relevant issues. The witness who testified to the need for future storage and blasting cost was the general manager of leasing for Union Tank.

As such, the market demand for the cars was certainly within his purview. The appellate court found that the trial judge’s decision to allow the general manager’s testimony notwithstanding the fact that he is not qualified as an expert in the rental market of railroad cars was an abuse of discretion.

However, with respect to the anticipated blasting to clean the tank car, the court agreed with NuDevco that these damages as presented were too speculative to be recoverable. Therefore, the court vacated that component of the damage award.

Lastly, NuDevco argued that the trial judge erred in admitting evidence of third-party invoices and testimony that those invoices were paid.

The trial court has broad discretion regarding the admission of evidence, and the appellate court said that it will not disturb the court’s ruling absent an abuse of discretion. An abuse of discretion is the most deferential standard of review, and the trial court abuses its discretion only when its decision is unreasonable, arbitrary or no reasonable person could take the view it adopted.

At trial, Union Tank relied on the business records exception to the general rule prohibiting hearsay to introduce the third-party invoices as evidence. Under this exception, the proponent of evidence must show that the record was kept in the ordinary course of business and it was the regular practice of the business to make that record at that time. Chicago v. Old Colony Partners, 364 Ill.App.3d 806 (2006); see also Ill.S.Ct.R. 236(a).

Records made by a third party may be admissible as business records so long as the person authenticating the record was either their custodian or other person familiar with the business and its mode of operations. Bank of America v. Land, 2013 IL App (5^th) 120283; PennyMac v. Colley, 2015 IL App (3d) 140964.

Behind the theory underlying the business records exception to the hearsay rule is its purpose to aid the business (and they are useless for that purpose unless accurate), there being no motive to falsify the record and every reason to ensure its accuracy. Kimble v. Earle M. Jorgenson Co., 658 Ill.App.3d 400 (2005).

The appeals panel went on to state that the business record may not be created by the party seeking to introduce it in order to be admissible but held that the proponent of the record nevertheless needed to satisfy Rule 236’s foundational requirements, namely that the record was made in the regular course of business at or near the time of the occurrence.

In this case, there is no evidence of the invoices’ creation. Here, the evidence established that Union Tank did rely on the accuracy of the invoices in that it made payments based on them. This diminished their concern that they were inaccurate or falsified, which forms the basis of the general rule prohibiting hearsay evidence. The appeals panel likewise rejected NuDevco’s argument that the testimony regarding the fact that the invoices were paid were inadmissible because Union Tank did not produce the bank’s payment confirmation statements. NuDevco cited the best evidence rule which prefers the production of the original documentary evidence when the contents of that document are sought to be proved. It is sufficient to know that the best evidence rule applies only when the contents or terms of a writing are at issue and must be proved. People v. Davis, 2014 IL App (4^th) 121040 (citing People v. Pelc, 177 Ill.App.3d 737 (1988).)

In this case, the issue was not the content of the payment confirmation, but whether the payment was in fact made and the fact that a payment was made existed independent of any writing confirming that payment. Accordingly, the court held that the best evidence rule is inapplicable. “The best evidence rule does not apply where a party seeks to prove a fact which has an existence independent of any writing, even though the facts might have been reduced to, or is evidenced by, a writing.” Continental Illinois National Bank v. Eastern Illinois Water Co., 31 Ill.App.3d 148 (1975).

The appellate court in sum found that the evidence regarding the invoices and their payment was properly admitted and thus the court rejected NuDevco’s argument that it was error for the trial court to award damages based on this evidence.

Union Tank Car Co. v. NuDevco Partners, 2018 IL App (1^st) 172858 (Jan. 15, 2019).

Kreisman Law Offices has been handling commercial litigation cases, catastrophic injury lawsuits, probate litigation cases, guardianships and jury trials for individuals, families and businesses for more than 40 years in and around Chicago, Cook County and its surrounding areas, including River Grove, Antioch, Arlington Heights, Wheeling, Vernon Hills, Buffalo Grove, Glenview, Northfield, Plainfield, Matteson, Crete, Frankfort, Naperville, Wheaton, Chicago (Rogers Park, Lawndale, East Garfield Park, Wicker Park, Logan Square, Lakeview, Old Town Triangle), Westchester, Winnetka, Glencoe, Highwood and Olympia Fields, Ill.