text:
    (Nos. 49875-76.
    (No. 50207.
    H. FRANKLIN JOHNSON, Appellee, v. LA GRANGE STATE BANK, Trustee, et al., Appellants.—JOHN F. HAVEY, Ex’r, et al., Appellants, v. FRANCES B. PATTON, Indiv. and as Ex’r, et al., Appellees.

      Opinion filed November 22, 1978.

      Moriarty, Rose & Hultquist, Ltd., of Chicago (Robert C. Hultquist and Kathleen Ross, of counsel), for appellants.
    Harvey J. Barnett, Robert R. Tepper, Robert I. Berger, Ross P. Benjamin, and Sybil C. Malinowski, of Chicago (Rosenthal and Schanfield, of Chicago, of counsel), for appellee.

      Raymond F. Simon, of Chicago (Gemma Allen, of counsel), guardian ad litem.

    Concannon, Dillon, Snook & Morton, of Chicago, for amicus curiae Corporate Fiduciaries Association of Illinois.
    Sherman P. Corwin, Scott Ellwood, William K. Stevens, John C. Williams and James N. Zartman, of Chicago, for the Illinois State Bar Association and the Probate Practice and Trust Law Committees of the Chicago Bar Association.
    Edward F. Casey of Casey & Casey, of Springfield, for appellant John F. Havey.
    Anthony J. Manuele, of Springfield, for appellee Frances B. Patton.
   MR. JUSTICE RYAN

delivered the opinion of the court:

These consolidated cases involve the validity of inter vivos transfers of property by one spouse against the marital rights of the surviving spouse in the property transferred.

Johnson v. La Grange State Bank, cause Nos. 49875 and 49876, concerns an inter vivos trust created by Eleanor Johnson for the ultimate benefit of several relatives and various charities. The second case, Havey v. Patton, involves savings accounts created by Myra Havey in which she named her sister-in-law as joint tenant. The plaintiff in each case is the surviving husband. Each has claimed his respective statutory share in the assets transferred.

In the Johnson case, plaintiff, H. Franklin Johnson, and Eleanor Johnson had been married in 1937 and for more than 36 years enjoyed a happy marriage. The plaintiff, who had accumulated an estate in excess of $2,000,000, was very generous towards his wife and quite frequently gave her substantial gifts of money and securities. Mrs. Johnson relied on her husband’s business acumen and followed his advice in making investments, as well as in managing the accumulated gifts which he gave her. The trial court found, and it is not disputed, that there was no estrangement or feeling of antipathy of one spouse toward the other.

In 1966, Mrs. Johnson learned that she had cancer; she later learned that her life expectancy was less than five years. Prior to 1969 the Johnsons, who had no children, had simple reciprocal wills which provided that in the event of the death of either of them, the survivor would receive the decedent’s entire estate. On February 5, 1969, the Johnsons executed new wills in which Johnson provided that his wife’s relatives would receive 20% of his estate if his wife did not survive him, and Mrs. Johnson provided that her entire estate was left to her family if Johnson did not survive her.

In the summer of 1970, Mrs. Johnson executed anew will and again in February of 1972, seven months before her death, she executed another will and simultaneously executed a revocable inter vivos trust in which she placed in trust substantially all of her assets. The will, by the residuary clause, poured the balance of her estate into the inter vivos trust. By the terms of the trust, Mrs. Johnson named herself trustee of certain properties (stocks, bonds, etc.). The entire income of- the trust was to be paid to her during her lifetime, and she reserved the power to invade the principal of the trust, as she in her discretion saw fit. She retained broad powers to invest, reinvest, divide, and distribute the trust property and likewise retained the power to alter, amend or modify the trust provisions in any manner. The La Grange State Bank was designated as successor trustee to act upon her death or disability. The trust instrument provided the method of determining when she would be considered disabled. Upon her death, the successor trustee was to distribute assets of the trust to Mrs. Johnson’s mother, sister, niece, and certain named charities. The trust document included a provision whereby her husband, plaintiff, was to receive so much of the income and principal to meet any emergency situation for his reasonable support, medical, and burial expenses. The trustee, however, was advised to consider other sources available to him and the needs of Mrs. Johnson’s mother and sister before making any such emergency payments.

In 1972, Mrs. Johnson moved to Florida, where she lived until her death in September 1972. Her will was admitted to probate in Florida on October 19, 1973. During the pendency of the Florida proceeding, the plaintiff instituted an action in the circuit court of Cook County against the trustee and the trust beneficiaries to set aside the inter vivos trust established by his wife, insofar as it deprived him of his marital rights in the property held in trust. Plaintiff sought to impose a constructive trust on the trust assets to the extent of his claim. In count I of his three-count amended complaint he alleged that, as the surviving spouse, the trust was illusory and fraudulent as to him and that he was therefore entitled to receive a statutory one-half share of the original corpus of the trust. Count II alleged that the decedent established the trust with the intention of defeating plaintiff’s marital interest in the settlor’s personal estate. Count III alleged that the decedent acted in an intentional, deliberate, and fraudulent manner for the purpose of denying plaintiff his statutory share of the decedent’s estate. The court allowed defendants’ motion to dimiss counts I and II of the amended complaint, but allowed count III to stand. Trial was held without a jury. At the conclusion of the plaintiff’s case, judgment was entered for the defendants. The trial court also found no support for the plaintiff’s contentions that decedent’s actions were fraudulent and held that the plaintiff’s allegations were made in bad faith and without reasonable cause, and assessed attorney’s fees and costs against the plaintiff. Plaintiff appealed from both orders.

The First District Appellate Court reversed the trial court (50 Ill. App. 3d 830), holding that an inter vivos trust may not defeat the marital rights of a settlor’s surviving spouse where the settlor effectively retains ultimate control of the trust assets. Also, since the appellate court sustained the plaintiff’s cause of action, the trial court’s judgment assessing attorney’s fees and expenses against the plaintiff as a sanction under section 41 of the Civil Practice Act (Ill. Rev. Stat. 1973, ch. 110, par. 41) was accordingly reversed.

The second case in this appeal, Havey v. Patton, cause No. 50207, involves certain joint accounts created by the decedent, Myra Havey. Myra Havey and Paul Havey were married for more than 35 years at the time of Mrs. Havey’s death in 1972. They had been living apart and had experienced marital difficulties. In July 1972, she converted a savings account standing in her name at a bank to a joint account with defendant Frances B. Patton, her sister-in-law, and likewise opened a joint savings account with this defendant at a savings and loan association and purchased a jointly held certificate of deposit in another savings association. She also created a joint' tenancy in some real estate which is not involved in this appeal. Defendant Patton never contributed any funds to the accounts, nor did she have the power to withdraw from the accounts except to pay Mrs. Havey’s bills. The record discloses, moreover, that Mrs. Havey created the accounts at a time when she knew she was terminally ill, and that the accounts were intended by Mrs. Havey to give her property to defendant Patton and keep it from her husband after her death.

Mrs. Havey executed her will in 1972. She named defendant Patton as executor and ordered her estate to be divided between defendant Patton and Paul Havey. The fourth paragraph of her will provided as follows:

“I have set up certain accounts in joint tenancy with the right of survivorship which are to pass by operation of law and are not to be made part of my estate in probate.”

Mrs. Havey’s probate estate totaled approximately $4,000, which was not enough to cover the expenses incurred by the last illness, funeral expenses, and cost of administration. The joint accounts held with defendant Patton, however, contained $47,509.77.

Paul Havey renounced his wife’s will. He died during the administration of the estate; subsequently his executor, John F. Havey, filed this action for declaratory judgment alleging that the aforementioned creation of joint accounts by Mrs. Havey fraudulently deprived Paul Havey of his marital rights in the property. The trial court rejected this contention and entered judgment for defendant Patton.

The Fourth District Appellate Court, with one justice dissenting, affirmed the decision of the trial court, holding that there was sufficient donative intent on behalf of the decedent to sustain a gift of the joint accounts to defendant Patton. (52 Ill. App. 3d 897, 901.) The court noted that the fact that the accounts were created for the express purpose of depriving Paul Havey of his interest in the property did not support his contention that as to him the decedent’s intent was fraudulent.

Before considering the main issue in these cases, there is a preliminary matter concerning the Florida proceeding in Johnson v. La Grange State Bank. The guardian ad litem, in its brief and again in oral argument, has intimated that the decision of the Florida court forbidding plaintiff’s attempt to renounce his wife’s will in Florida is binding on this court and precludes us from reaching the merits of plaintiff’s contention concerning the inter vivos trust. We do not agree. The judgment of the Florida circuit court, affirmed on appeal, cannot be construed as impinging on the jurisdiction of the courts of this State to consider the validity of an inter vivos trust where the interests affected are wholly within this State. As our appellate court properly noted, the trust was created in this State, the corpus has remained here, the plaintiff was domiciled here at the time of the decedent’s death, and the principal defendants are located in this State (50 Ill. App. 3d, 830, 835).

In our view, the decision of the Florida court, which has significance as a matter of probate law, is entirely ancillary to the threshold question presented for our consideration, i.e., whether the assets of such an inter vivos trust may be properly insulated from the testator’s probate estate insofar as her surviving spouse is concerned. Since an inter vivos trust is at issue in this case, we agree with the appellate court that the plaintiff’s apparent failure to renounce the will in Florida is not controlling on the power of the courts of this State to consider the trust’s validity vis-a-vis the surviving spouse.

Plaintiffs in both of these cases rely on this court’s opinion in Montgomery v. Michaels (1973), 54 Ill. 2d 532. In Montgomery, the issue was whether certain savings account trusts (“Totten trusts”) created by the decedent for the benefit of her children by a former marriage defrauded the surviving spouse of his marital rights. The decedent had provided that the accounts were to be paid to the named beneficiaries upon her death, but during her lifetime she retained complete control over the accounts and made deposits in and withdrawals from them. This court held that while Totten trusts were not invalid per se (see In re Estate of Petralia (1965), 32 Ill. 2d 134), such trusts were ineffective to defeat a surviving spouse’s statutory or forced share in the estate of his deceased spouse. The opinion stated:

“In the case at bar the settlor was also the trustee. During her lifetime she retained absolute, unqualified control over the bank accounts, and possessed and exercised all incidents of complete ownership, including the right to receive interest payable thereon and withdraw the principal thereof. The enjoyment of the proceeds of the accounts by the beneficiary or beneficiaries named therein would arise only upon the death of the settlor-trustee with the accounts remaining intact.
Under these circumstances, the expressed statutory policy of protecting a surviving spouse’s statutory share in the estate should prevail, regardless of the intent of the deceased spouse in creating the savings-account trust.” 54 Ill. 2d 532, 536.

The above-quoted language from Montgomery was cited by the appellate court in La Grange State Bank, and is significant in that court’s decision that the inter vivos trust created by Mrs. Johnson could not serve to deprive plaintiff of his marital rights in the trust assets. The court noted that Montgomery, as illustrated by the above-quoted language, adopted a “retention of ownership” test to be employed by the courts to determine whether transfers may be deemed fraudulent as to the rights of surviving spouses. Basically, the “retention of ownership” test determines whether the decedent retained so much control over the property in question that it can be said that the decedent in effect only parted with that control upon death. Under such circumstances, where the donor does in effect “retain ownership” of the property subject to the transfer, the trust will be deemed substantially testamentary in character, at least insofar as the surviving spouse is concerned, so as to subject it to the claims of the surviving spouse just as if the property had passed under the decedent’s will, or had otherwise been included in the probate estate. Montgomery v. Michaels (1973), 54 Ill. 2d 532, 538.

The “retention of ownership” test of Montgomery was limited on its facts to Totten trusts. A Totten trust, in effect, purports to change ownership of the deposited funds to the designated beneficiaries upon the death of the settlor. The requirements for their establishment are very informal. The enjoyment of the beneficiaries is provisional and tentative, since there are no limitations or qualifications on the ability of the settlor to withdraw funds from the account. Inevitably, a great deal of control and ownership is reserved to the settlor over the funds. (See 1 A. Scott, Trusts sec. 58.5, at 546-47 (3d ed. 1967).) These are valid reasons for invalidating such trusts per se insofar as they relate to the claims of the surviving spouse. Because the degree of ownership by the trustee is customarily so great, public policy in favor of protecting surviving spouses permits the categorical conclusion that such arrangements are testamentary in character and are ineffective to deprive surviving spouses of their lawful claims.

The courts of this State have readily upheld inter vivos trust arrangements where the settlor has named himself trustee and retained indicia of ownership and control. (Farkas v. Williams (1955), 5 Ill. 2d 417.) There is no contention in this case that the trust was not a valid inter vivos trust. It is only contended that it is invalid to the extent that it deprived the plaintiff of his marital rights in the property. With the exception of Montgomery v. Michaels and the rules therein concerning the validity of Totten trusts, no general principles have emerged invalidating such other inter vivos transfers per se in respect to the marital rights of surviving spouses. Rather, whether the transfer of property in trust is vulnerable to attack depends on whether the trust employed is colorable and illusory and a fraud on marital rights. (E.g., Holmes v. Mims (1953), 1 Ill. 2d 274.) This determination necessarily turns on the facts of each individual case. (See Burnet v. First National Bank (1957), 12 Ill. App. 2d 514.) We therefore reject the reasoning of the appellate court that our decision in Montgomery is controlling in this case.

In Montgomery, the court acknowledged that, in some instances, whether the trust is invalid as to a surviving spouse is determined by a consideration of all the facts and circumstances which might be indicative of an intent to defraud the surviving spouse of his statutory share and cited Rose v. St. Louis Union Trust Co. (1969), 43 Ill. 2d 312. The defendants in this court likewise urge that Rose adopted the “intent to defraud” test in determining if an inter vivos trust is invalid as to the surviving spouse. Rose did in fact apply the “intent to defraud” test; however, it is important to note that Rose was applying Missouri law, and under the Missouri statute and decisions a voluntary conveyance which a surviving spouse may set aside as fraudulent is one that is executed with the intent and purpose of defeating the marital rights of the spouse in the property conveyed. (See Annot., 39 A.L.R.3d 14, 59-68 (1971).) In Illinois, however, and by the weight of authority in other jurisdictions, the owner of property has an absolute right to dispose of his property during his lifetime in any manner he sees fit, and he may do so even though the transfer is for the precise purpose of minimizing or defeating the statutory marital interests of the spouse in the property conveyed. (Padfield v. Padfield (1875), 78 Ill. 16; Blankenship v. Hall (1908), 233 Ill. 116; Hoeffner v. Hoffner (1945), 389 Ill. 253; Annot., 39 A.L.R.3d 14 (1971); Annot., 49 A.L.R.2d 521 (1956).) Such a gift or transfer is not vulnerable or subject to attack by the surviving spouse unless the transaction is a sham and is “colorable” or “illusory” and is tantamount to a fraud. Holmes v. Mims (1953), 1 Ill. 2d 274.

The general rule stated by this court in Holmes is widely accepted (see Annot., 49 A.L.R.2d 521 (1956)) and has been generally applied by the courts of this State. The difficulty arises, as is so often the case, in the application of the general rule. The use of the phrase “intent to defraud” is confusing and carries a connotation not relevant to the question to be resolved. When the cases discuss fraud on the marital rights of the surviving spouse, they are not considering fraud in the traditional sense. Also, a minority view, in considering whether there has been a fraud on the marital property rights, has held that any conveyance made with the intent to minimize or defeat the marital rights of the surviving spouse in the property conveyed is presumed fraudulent. As noted above, this is the rule followed in Missouri, and the rule that was followed by this court in Rose, applying Missouri law. In Illinois and in a majority of jurisdictions, however, as previously noted, such a conveyance is not presumptively a fraud on the surviving spouse.

Although not applicable to this case, Public Act 80—737, approved and effective September 16, 1977 (Ill. Rev. Stat. 1977, ch. 11014, pars. 601, 602), provides:

“Sec. 1. An otherwise valid transfer of property, in trust or otherwise, by a decedent during his or her lifetime, shall not, in the absence of an intent to defraud, be invalid, in whole or in part, on the ground that it is illusory because the deceased retained any power or right with respect to the property.
Sec. 2. This Act takes effect upon becoming a law and applies to savings account trusts established on or after its effective date, and as to all other transfers this Act is declaratory of existing law.” (Emphasis added.)

This enactment has thus retained “intent to defraud” as necessary to be established in proving the invalidity of a transfer on the ground that it was illusory. The Act also states that except as to savings account trusts (Totten trusts) its requirement is declaratory of existing law. What effect the amendment had on our holding in Montgomery is not before us.

Since “intent to defraud” in the context of these cases does not carry the traditional meaning of fraud, and since a property owner may convey his property for the precise purpose of defeating his spouses’s marital property rights, the meaning of “intent to defraud” must be construed in connection with the words “illusory” and “colorable” with which it is usually associated in the cases cited. It has been suggested that the intent by which a transfer is to be tested should not be stated in the confusing terms of “intent to defraud,” but it should be tested by the intent of the donor either to retain or to part with the ownership of property. Smith, The Present Status of “Illusory” Trust—The Doctrine on Newman vs. Dore Brought Down to Date, 44 Mich. L. Rev. 151 (1945).

The cases do not always differentiate between the terms “illusory” and “colorable.” However, it is acknowledged, within the sphere of the subject that we are now discussing, that an illusory transfer is one which takes back all that it gives, while a colorable transfer is one which appears absolute on its face but due to some secret or tacit understanding between the transferor and the transferee the transfer is, in fact, not a transfer because the parties intended that ownership be retained by the transferor. 44 Mich. L. Rev. 151, 153, 162 (1945).

The intent to defraud is found in the nature of the transfer, whether it be illusory or colorable. In either event the transfer is a fraud on the marital rights because the transferor in reality had no intent to convey any present interest in the property but, in fact, intended to retain complete ownership. Although the spouse’s marital rights can be defeated by an actual transfer, a purported transfer whereby the owner does not intend to convey a present interest, but intends to retain ownership, is evidence of an intent to defraud. See Newman v. Dore (1937), 275 N.Y. 371, 9 N.E.2d 966.

In Toman v. Svoboda (1976), 39 Ill. App. 3d 394, the appellate court carefully analyzed the problems involved in considering inter vivos transfers and reached what we find to be an acceptable understanding of the determinative factor. The court stated:

“The confusing factor is that Illinois and the majority of American States also examine the gift looking for what they unfortunately also call fraudulent circumstances, but by which they mean circumstances indicating that the gift was not a real gift because there was no present donative intent (that is, no donative intent of any kind or, at most, a mere testamentary, as distinguished from a present, donative intent), for lack of which the alleged gift was simply a sham or a merely colorable transfer of legal title.” (Emphasis in original.) (39 Ill. App. 3d 394, 399.)

The court then mentioned some of the circumstances discussed in Montgomery which have a bearing upon the intent of the donor in making the inter vivos transfer and stated:

“All these circumstances are relevant to the existence of an intent to defraud the surviving spouse of his or her statutory marital right by making a sham or merely colorable inter vivos donative transfer, which is a sham or merely colorable because it lacks the essential element of a present donative intent; either there is no donative intent of any kind, or there is at most a mere testamentary donative intent. The fraud *** relates to the absence of a present donative intent, not to the presence of an intent or purpose to minimize or defeat the statutory marital right of the now surviving spouse.” (Emphasis in original.) (39 Ill. App. 3d 394, 399-400.)

The court then considered the effect of the retention by the donor of the present benefits in the property and stated:

“But, where the donor does reserve to himself the life estate in the whole subject matter of the gift, the existence of his present intent to give now the future fee interest in the subject matter of the gift must be subjected to special scrutiny to make sure that his donative intent is present and not merely testamentary.” (Emphasis in original.) (39 Ill. App. 3d 394, 400.)

The court further stated:

“[W] e agree that such retention is highly relevant on the issue of the existence of a present donative intent. But such evidence is far from controlling on that issue, because it is at least equally compatible with the retention by the donor-spouse of a present life estate in the shares, so that the precise subject matter of the gift which the donor-spouse presently intended to give was, not the full present fee interest in the shares, but rather the vested future fee interest only.” (Emphasis in original.) 39 Ill. App. 3d 394, 401.

We conclude that an inter vivos transfer of property is valid as against the marital rights of the surviving spouse unless the transaction is tantamount to a fraud as manifested by the absence of donative intent to make a conveyance of a present interest in the property conveyed. Without such an intent the transfer would simply be a sham or merely a colorable or illusory transfer of legal title.

In Farkas v. Williams (1955), 5 Ill. 2d 417, this court considered the validity of certain inter- vivos trusts as against the contention that the transfers were testamentary in nature. In that case the settlor had designated himself as trustee for Richard J. Williams. He retained the benefits and control of the trust during his lifetime and retained the power to revoke the trust and also the power to dispose of the assets of the trust. This court stated that if no interests passed under the trusts to the beneficiaries before the death of the settlor then the trusts are testamentary and invalid. The court, however, held that the trusts were not testamentary in nature, stating:

“But considering the terms of these instruments we believe Farkas did intend to presently give Williams an interest in the property referred to. For it may be said, at the very least, that upon his executing one of these instruments, he showed an intention to presently part with some of the incidents of ownership in the stock. Immediately after the execution of each of these instruments, he could not deal with the stock therein referred to the same as if he owned the property absolutely, but only in accordance with the terms of the instrument. *** Thus assuming to act as trustee, he is held to have intended to take on those obligations which are expressly set out in the instrument, as well as those fiduciary obligations implied by law. In addition, he manifested an intention to bind himself to having this property pass upon his death to Williams, unless he changed the beneficiary or revoked the trust ***.
It seems to follow that what incidents of ownership Farkas intended to relinquish, in a sense he intended Williams to acquire. That is, Williams was to be beneficiary to whom Farkas was to be obligated, and unless Farkas revoked the instrument in the manner therein set out or the instrument was otherwise terminated in a manner therein provided for, upon Farkas’ death Williams was to become absolute owner of the trust property. It is difficult to name this interest of Williams, nor is there any reason for so doing so long as it passed to him immediately upon the creation of the trust.” 5 Ill. 2d 417, 421-22.

Thus the appellate court in Toman applied a presentdonative-intent test in determining whether the transfer constituted a fraud on the surviving spouse’s property rights similar to the intent test this court applied in Farkas in determining whether the inter vivos trusts in that case were effective transfers, or whether they were testamentary in nature and invalid. It would appear to be logical that similar criteria should govern both situations. A surviving spouse only has an interest in the property which becomes a part of the decedent’s estate. (Ill. Rev. Stat. 1977, ch. 110½, pars. 2—1, 2—8.) If the interest in the property passed under a valid inter vivos conveyance it would then not become a part of the decedent’s estate and the surviving spouse would have no interest in it. This is in accord with the reasoning of the much cited case of Newman v. Dore (1937), 275 N.Y. 371, 9 N.E.2d 966.

With these considerations in mind, we now turn our attention to whether the transfers in question are vulnerable to attack by the surviving spouses, first in Johnson v. La Grange State Bank, and then in Havey v. Patton.

We are satisfied that the inter vivos trust created by Eleanor Johnson was not colorable, illusory, or tantamount to fraud. The fact cannot be denied that as trustee of a revocable trust she retained a significant degree of control over the trust assets. However, the form of control which the donor retains over the trust does not make it invalid. (Gurnett v. Mutual Life Insurance Co. (1934), 356 Ill. 612.) In addition, it is well established that the retention by the settlor of the power to revoke, even when coupled with the reservation of a life interest in the trust property, does not render the trust inoperative. Kelly v. Parker (1899), 181 Ill. 49; Bear v. Millikin Trust Co. (1929), 336 Ill. 366.

Nevertheless, the facts of a particular case may show that the trust in question, while ostensibly valid, is in actuality a sham transaction, essentially testamentary in character, and therefore invalid. In this case, the facts do not support such a conclusion. Mrs. Johnson was certainly well aware of the fact that her husband had a net worth of over $2,000,000, and was, and would most likely continue to be, well provided for. She was concerned, however, with the welfare of certain of her relatives, particularly her mother, who was dependent on her. She formalized a declaration of trust, with advice of counsel, for the benefit of her relatives. The declaration of trust immediately created an equitable interest in the beneficiaries, although the enjoyment of the interest was postponed until Mrs. Johnson’s death and subject to her power of revocation. This, however, did not make the transfer illusory. And the power of control that she had as trustee was not an irresponsible power; she was charged with a fiduciary duty in respect to the beneficiaries’ interest, and her management and administration of the assets in trust could only be exercised in accordance with the terms of the trust. See Farkas v. Williams.

The conclusion of the appellate court that Mrs. Johnson parted with nothing during her life (50 Ill. App. 3d 830, 842) is incorrect. The trust directed that thé trustee, in event of the grantor’s disability, was to use the income and principal of the trust estate for the grantor’s benefit and for the benefit of any person dependent on her. The trust instrument provided that the successor trustee was to assume the office of trustee during her lifetime should she become disabled, and the instrument set forth the means of determing her disability. There is no evidence that Mrs. Johnson made any withdrawals from the principal or otherwise exercised any of her reserved powers to deplete the trust assets. These facts tend to show that she intended to make a valid and effective transfer at the time her declaration of trust was executed. We find that a valid transfer was effected under the trust.

We have yet to address two additional points raised by the appeal in Johnson v. La Grange State Bank. The plaintiff argues that a constructive trust should be imposed on the trust property because the assets were fraudulently obtained from the plaintiff. In this regard, he argues that he parted with the assets in the expectation that they would be returned to him upon his wife’s death.

The allegations of the amended complaint, which would support the imposition of a constructive trust, were found to be not supported by the evidence both in the trial court and in the appellate court. We agree with this determination. The Johnsons had a warm and loving marriage, and the evidence shows that Johnson’s frequent gifts to his wife were out of his concern for her welfare. They were made with no strings attached. He had some knowledge of his wife’s contact with her attorneys for the purpose of preparing a trust instrument and a will, and the plaintiff elected not to involve himself in the matter. These facts, along with other evidentiary matter in the record, show that there was an absence of fraud in this case. The plaintiff’s attempt to impose a constructive trust on the assets in question must fail.

Following the entry of judgment in favor of the defendants in the trial court, the guardian ad litem and La Grange State Bank petitioned the court for allowance of fees under section 41 of the Civil Practice Act (Ill. Rev. Stat. 1973, ch. 110, par. 41). The court allowed the motions and assessed fees against the plaintiff. Section 41, at the time pertinent to this case, provided:

“Allegations and denials, made without reasonable cause and not in good faith, and found to be untrue, shall subject the .party pleading them to the payment of reasonable expenses, actually incurred by the other party by reason of the untrue pleading, together with a reasonable attorney’s fee, to be summarily taxed by the court at the trial.”

This section was amended effective September 19, 1976, eliminating the requirement that the allegations be made “not in good faith.” 1976 Ill. Laws 1349, 1358.

Section 41, as previously composed, contained three specific requirements: (1) that the allegations be made without reasonable cause, (2) that they be made not in good faith, and (3) that the allegations be found to be untrue. It has been held by our appellate courts that section 41, being penal in nature, can be invoked only in cases falling strictly within its terms and that each of the three requirements stated above must be proved. (Sarelas v. Alexander (1971), 132 Ill. App. 2d 380, 387; Murczek v. Powers Label Co. (1975), 31 Ill. App. 3d 939, 943; Dudanas v. Plate (1976), 44 Ill. App. 3d 901, 910.) It has also been held that the burden is on the petitioner seeking to invoke section 41 to prove each of the three elements. Williams v. City of Chicago (1977), 54 Ill. App. 3d 974, 979.

Although the allowance of fees under section 41 is discretionary with the trial court, bad faith being one of the required findings, the court can only allow fees when the record discloses not only that the allegations are untrue, but also that they were not made in good faith (Dudanas v. Plate). In considering section 41 the appellate courts have stated that, it will be assumed that the attorneys, in filing pleadings, have due regard for their duties and responsibilities as officers of the court, and they are permitted to exercise broad discretion based upon an honest judgment from the facts presented to them. Williams v. City of Chicago; Horween v. Dubner (1965), 68 Ill. App. 2d 309, 320.

Under the construction that has heretofore been placed on section 41, we find that the trial court abused its discretion in awarding fees against the plaintiff under section 41. The trial ended at the close of plaintiff’s case. Thus, petitioners offered no evidence during the trial. At the hearing on the petition for fees only evidence relating to the amount of fees was offered. The remainder of the hearing was made up of argument of the attorneys and references to the trial itself. Thus, the petitioner has offered no proof in support of the three essentials of section 41.

As for the trial itself, the evidence presented consisted primarily of the testimony of the plaintiff. Although this evidence may have been insufficient to prove the allegations of the amended complaint, it was not sufficient to support a finding that the allegations were made without reasonable cause or that they were made in bad faith. The attorneys for the plaintiff had originally filed a one-count complaint alleging that the trust was illusory and colorable and did not charge common law fraud. At the hearing on the motion to dismiss it appears that the court made some observation as to the type of allegations necessary to support a cause of action based on fraud. Thereafter, the attorneys for the plaintiff filed a three-count amended complaint contending, in addition to charges that the trust constituted an illusory or colorable transfer, an additional count III alleging the elements of common law fraud. There is nothing in the record to indicate that the amended complaint was not filed as an effort made in good faith by plaintiff’s counsel to attempt to state a cause of action to uphold their client’s claim. It was not appropriate to assess fees and costs against plaintiff.

The principles set forth above relevant to the validity of the transfer under scrutiny in La Grange State Bank v. Johnson apply in Havey v. Patton. The dispositive inquiry is whether the deposit of funds in the joint accounts created by Myra Havey in which she named her sister-in-law joint tenant qualify as complete and effective inter vivos transfers, or whether the establishment of the accounts was illusory or colorable and in the nature of a sham transaction. The appellate court affirmed the trial court’s finding that there was sufficient donative intent to sustain the gift inherent in the joint account. We affirm the appellate court.

The fact that Mrs. Havey contributed all the funds to the accounts and retained the right to withdraw them does not negate the existence of donative intent required to validate a gift. (Frey v. Wubbena (1962), 26 Ill. 2d 62, 71-72.) Thus, as far as the present case is concerned, we do not believe that Mrs. Havey’s right to use the funds, or her direction that her sister-in-law have no immediate use of the funds, demonstrates a lack of donative intent. Rather, where joint accounts are concerned, the creation of the joint tenancy accounts is evidence of donative intent and is sufficient to establish ownership in the survivor upon the death of the original owner, in absence of evidence to the contrary. In re Estate of Schneider (1955), 6 Ill. 2d 180, 187; Frey v. Wubbena (1962), 26 Ill. 2d 62, 72.

The joint account agreements were made pursuant to the provisions of “An Act to revise the law in relation to joint rights and obligations.” (Ill. Rev. Stat. 1971, ch. 76, par. 2), and by their very terms indicated the existence of a valid gift. Mrs. Havey was terminally ill at the time she created the accounts, and intended for her sister-in-law, rather than her husband, from whom she had separated, to receive the funds therein. As we have indicated, the fact that the donor executes a valid gift for the express purpose of defeating the rights of the surviving spouse does not make the transfer vulnerable to attack by such spouse. She needed money enough to sustain herself through the period of her terminal illness, a period of about four months, and then intended for her sister-in-law to have enjoyment of the funds. Under these circumstances, it cannot be said that the accounts were made solely for the depositor’s convenience. Mrs. Havey accomplished her goal of intending to create a valid present interest for her sister-in-law in the funds.

In summation, the holding of the appellate court in Johnson v. La Grange State Bank is reversed except insofar as it reverses the order of the circuit court of Cook County which assessed attorney’s fees and costs under section 41 of the Civil Practice Act, and in that regard, the appellate court is affirmed. The holding of the appellate court in Havey v. Patton is affirmed.

49875-49876 — Affirmed in part and reversed in part.

50207 — Judgment affirmed.


source: Caselaw Access Project

author: MR. JUSTICE CLARK MR. JUSTICE GOLDENHERSH,

license: Public Domain

text:
    (No. 49789.
    THE PEOPLE OF THE STATE OF ILLINOIS, Appellant, v. RONALD E. EDWARDS, Appellee.

      Opinion filed Oct. 6, 1978.
    Rehearing denied Dec. 1, 1978.

      KLUCZYNSKI, J., took no part.
    GOLDENHERSH, J., dissenting.

      William J. Scott, Attorney General, of Springfield, and Michael M. Mihm, State’s Attorney, of Peoria (Donald B. Mackay, Melbourne A. Noel, Jr., and Michael B. Weinstein, Assistant Attorneys General, of Chicago, and James E. Hinterlong, of the Illinois State’s Attorneys Association, of Ottawa, of counsel), for the People.
    Robert Agostinelli, Deputy Defender, and G. Joseph Weller, Assistant Defender, of the Office of the State Appellate Defender, of Ottawa, for appellee.
   MR. JUSTICE CLARK

delivered the opinion of the court:

The defendant, Ronald E. Edwards, was found guilty of unlawful possession of a weapon, in two counts (Ill. Rev. Stat. 1973, ch. 38, par. 24—1(a)(7)), and of burglary (Ill. Rev. Stat. 1973, ch. 38, par. 19—1(a)) by a jury in the circuit court of Peoria County. The appellate court, with one justice concurring in part and dissenting in part, finding the State’s Attorney had made prejudicial comments during closing arguments, reversed and remanded for a new trial. (49 Ill. App. 3d 79.) We granted leave to appeal. 58 Ill. 2d R. 315.

The defendant argues that his motion for mistrial due to improper closing arguments should have been granted by the trial court. He also contends, as he did before the appellate court, that the trial court erred in not declaring a mistrial because the prosecutor had called to the attention of the jury, on cross-examination of the defendant, the guilty plea of a co-indictee who was not called to testify; and that an arguably unlawful search of the defendant’s car occurred which uncovered two sawed-off shotguns. (In this court, the defendant also asserts ineffective assistance of counsel due to counsel’s failure to challenge the lawfulness of the search.) We agree with the appellate court that the defendant failed to preserve these contentions for appeal because they were not cited as the basis for his motion for a new trial. (49 Ill. App. 3d 79, 81-82.) “Where the grounds for a new trial are stated in writing,” as is the case here, “the accused is limited on review to the errors alleged therein and all other errors are deemed to have been waived.” (People v. Hairston (1970), 46 Ill. 2d 348, 367.) The only error alleged as justifying anew trial, other than the customary reasonable doubt issue and catchall language regarding “any error which may appear from a reading of the entire transcript of this matter,” was that of improper closing arguments.

The defendant and Robert Sneyd, who was a prosecution witness, were arrested near the Lipsett Steel Company in Peoria County after midnight on July 11, 1973, for burglary of the company. Police had arrived at the company in response to a burglar alarm, and found entry into the office had been through a hole in the roof and ceiling, plaster and other debris had been strewn about the area, and the safe had been tampered with. The clothing of the defendant and Sneyd was kept as evidence. The clothing thought to be the defendant’s was sent to the FBI Crime Laboratory to be tested for the presence of plaster particles. The results were negative and given to defense counsel. Sneyd’s alleged clothing was not sent. At trial, Sneyd, who had prior felony convictions and had pleaded guilty to the burglary here, testified that the defendant lowered himself through the hole they cut in the roof of the company, while he remained outside. The defendant testified that he and Sneyd, having left Frank Larsen in the defendant’s car which was parked in the lot at the company, took Sneyd’s car and parked it elsewhere, and went fishing. At the beginning of the third day of trial, before the jury appeared, the State moved for leave to reopen its case. The evening before, after the State closed its case, the prosecutor had the clothes labeled Sneyd’s sent to the Joliet Crime Laboratory on the hunch that these clothes might actually belong to the defendant and contain plaster. The test results showed the presence of plaster. Defense counsel objected and the trial court denied the State leave to reopen its case to admit the new results into evidence. However, the trial court, over objection, did permit the State to reopen its case to permit Sneyd to testify that the set of clothing, first identified as the defendant’s and lacking plaster particles, was his.

In his closing arguments, defense counsel made the following comments:

“MR. BLOOM [defense counsel]: I want you to also remember when Mr. Sneyd. was brought back to testify that the State now had a negative finding on particles of his clothing that was Ron Edwards. Suddenly, this morning Mr. Sneyd said, ‘Hey, fellows, those are mine.’ Didn’t do such a hot job yesterday, so well just — this is just icing on the cake. Oh, yeah, these are my clothes that were negative for Edwards and Edwards’ clothing that are not yet forthcoming. So there we have it. It’s up to you in your deliberations. If there was a reasonable explanation as to where Mr. Edwards was or what he was doing, you have to say it was, and you can examine the reasonableness of the other man’s testimony.”

During the State’s rebuttal arguments, the following was recorded:

“MR. INMAN [prosecutor]: Now, in the area of serious misrepresentation, Defense Counsel has told you and I quote him, ‘I want it and the State has yet to produce it — the clothing of the Defendant.’We attempted to this morning and it was kept out upon the objection of the Defendant’s lawyer. We had evidence concerning that clothing.
MR. BLOOM: I’ll object. I want an instruction to the Jury and I want this man cautioned never to do that again in his closing argument.
THE COURT: Sustained. Strike that from your memories.
MR. INMAN: There is no clothing to show you. It’s sitting out there in that room behind you.
MR. BLOOM: Objection. He’s saying exactly the same thing.
MR. INMAN: I said, your Honor, that the clothing of the Defendant is available and could be brought if it was wanted.
MR. BLOOM: That is wholly objectionable; wholly without — Your Honor, I want to make a motion outside the presence of the Jury.
THE COURT: Your objection is noted of record and I don’t want any more talk about the clothing. It’s not been admitted into evidence and it is not to be discussed.
MR. BLOOM: I want to make a motion outside the presence of the Jury.
THE COURT: You may do so when we finish.”

This exchange is the basis of the defendant’s appeal from the circuit court, and it is the extent of the closing arguments which appear in the record since both parties waived transcription of closing arguments. Although a tape recording was made and is the source for the above partial transcription, which was done at the instigation of the defendant, it was lost subsequent to the transcription. Apparently neither of the parties is responsible for the loss.

At the threshold, the State contends that the defendant waived consideration of the issue of prejudicial closing argument by joining in a waiver of transcription of the arguments, and that the record on appeal provided an insufficient basis for the appellate court to find reversible error. The State relies on People v. Smith (1969), 42 Ill. 2d 479, 483, which held that the “responsibility for the proper preservation of the record of the proceedings before the trial court rests upon the defendant.” We agree that such responsibility falls on an appellant. Our disposition of this issue, which the appellate court did not address, obviates the necessity of resolving the question of improper and prejudicial closing arguments.

The rationale for the Smith holding is clear. For an assignment of error, the record must show the error; hence, the record must be preserved for an adequate assessment on appeal. This is so because, on review, “the reviewing court is restricted in its examination to the record.” (People v. Shoffner (1948), 400 Ill. 174, 177.) A reviewing court may not guess at the harm to an appellant or hypothesize about the context in which allegedly prejudicial remarks were made where a record is incomplete. This is not its role. Rather the reviewing court evaluates the record, as it is, for error. Where the record is insufficient or does not demonstrate the alleged error, the reviewing court must refrain from supposition and decide accordingly. This court has consistently held that way. E.g., People v. Weisman (1920), 296 Ill. 156, 162-63; People v. Lynn (1944), 387 Ill. 549, 554-55; People v. Walden (1961), 21 Ill. 2d 164, 168. Accord, e.g., People v. Johnson (1976), 43 Ill. App. 3d 649, 655-56.

The defendant in Smith maintained that the prosecution had made improper remarks in its final arguments, but he failed to specify those remarks and justified the absence of specification on the ground that the court reporter did not report the closing arguments. The defendant contended that the lack of recorded arguments precluded him from demonstrating their prejudicial nature so that his conviction for burglary should have been reversed. This court rejected that contention. Defense counsel had made no request to record the arguments, and the defendant had not been prejudiced since Rules 323(c) and 612(c) provide for the reconstruction of trial proceedings (58 Ill. 2d Rules 323, 612). Accord, People v. Kasdictus (1972), 51 Ill. 2d 72.

In the instant case, the defendant simply did not sufficiently preserve the record. Initially, he joined in a waiver of transcription of closing arguments. Once the allegedly improper remarks were made and objections to them sustained, the defendant moved for mistrial and had the court reporter transcribe, from a tape recording, not the whole of closing arguments but only the portion relating to the remarks in question and defense counsel’s objections to them, and a paragraph from defense counsel’s arguments. Nothing else. Subsequently the tape recording was lost. Over a year and a half later the defendant’s motion to file “late Bystander’s Report” was allowed. The defendant claims, and the State does not deny, that he made “an effort to obtain a bystander’s report *** but was unsuccessful.” The partial transcription may be accurate as far as it goes, but it just does not show enough. There may have been other relevant statements; there may not have been. However, the context in which the exchange, recorded in the partial transcript, occurred is absent. Since the partial transcript was made pursuant to his motion for mistrial, it is not unreasonable to believe the defendant might have recorded only those portions beneficial to him.

In People v. Nastasio (1963), 30 Ill. 2d 51, in which the defendant was convicted by a jury of attempting to escape from jail, the defendant argued that prejudicial error had occurred in the State’s Attorney’s closing arguments. This court ruled that his conviction should not be reversed because the “record here does not contain the complete closing argument of the State’s Attorney, and therefore fails to disclose in what connection the remarks of the State’s Attorney were used.” (30 Ill. 2d 51, 59; see People v. Brown (1954), 3 Ill. 2d 623; People v. Randolph (1949), 403 Ill. 434.) We believe the facts of this case resemble that one. Given the insufficient record, we believe there is a presumption in favor of the circuit court’s ruling.

Therefore, we hold that where the defendant has waived transcription of closing arguments, has only partially preserved the record apropos of prejudicial closing arguments, and has not filed a bystander’s report, the defendant has not properly preserved the record for appeal. Hence we reverse the appellate court and affirm the judgment of the circuit court.

Appellate court reversed; circuit court affirmed.

MR. JUSTICE KLUCZYNSKI took no part in the consideration or decision of this case.

MR. JUSTICE GOLDENHERSH,

dissenting:

I dissent. The appellate court correctly decided this case and I would affirm its judgment.

The majority bases the reversal on the failure of the defendant to provide the transcript of the closing arguments. It is apparent from the portions of the argument quoted in the opinion, the accuracy of which is not questioned, that prejudicial error occurred. If the People contend that for some reason some portion of the argument not reproduced excused the prejudicial and unwarranted comments made by the prosecution, it was incumbent upon the People to produce, by the method provided in Rule 323(c) (58 Ill. 2d R. 323(c)), that portion of the argument upon which it relies. The effect of the majority opinion is to shift to the defendant a burden which was clearly that of the People.


author: MR. JUSTICE MORAN

text:
    (No. 50258.
    MARCY S. CROWE, Indiv. and as Adm’r, Appellee, v. THE PUBLIC BUILDING COMMISSION OF CHICAGO et al.—(Arrow Contractors Equipment Company, Appellant.)

      Opinion filed December 4, 1978.

      Hinshaw, Culbertson, Moelmann, Hoban & Fuller, of Chicago (Leonel I. Hatch, Jr., and Stanley J. Davidson, of counsel), for appellant.
    Nat P. Ozmon and Curt N. Rodin, of Chicago (Horwitz, Anesi, Ozmon & Associates, Ltd., of counsel), for appellee.
   MR. JUSTICE MORAN

This action was filed in the circuit court of Cook County by Marcy S. Crowe, individually and as administrator of the estate of her husband. The action sought damages against numerous defendants for the injury and resultant death of her husband on September 20, 1973. The complaint contained three counts. The only count at issue here is count III, which alleged, among other things, that Arrow Contractors Equipment Company (Arrow) was engaged in the business of leasing equipment and that it leased a defective scaffold (characterized as a hoisting tower), which defective product proximately caused the fatal fall of her husband.

Arrow moved to dismiss on the basis that it had sold the hoisting tower and assigned its lease to Southeastern Tower and Equipment Company as part of a bulk sale of equipment on July 12, 1973. Arrow asserted in its motion to dismiss that, on the date of the accident, it was merely a former owner and lessor; that any liability which it may have had as owner and lessor of the tower had been transferred, by virtue of the sale, to Southeastern, The trial court granted Arrow’s motion to dismiss and expressly found no just reason for delaying enforcement of its dismissal order. Pursuant to Rule 304(a) (58 Ill. 2d R. 304(a)), plaintiff appealed the order. The appellate court, in a majority decision, reversed. (54 Ill. App. 3d 699.) We granted Arrow leave to appeal.

The sole issue presented for review is whether strict tort liability applies to a former lessor of a defective product.

Arrow concedes that the extension of the doctrine of strict liability to the lessor of a defective product is an established principle of law in Illinois. (See Galluccio v. Hertz Corp. (1971), 1 Ill. App. 3d 272, appeal denied (1972), 49 Ill. 2d 575 Lowrie v. City of Evanston (1977), 50 Ill. App. 3d 376, 382, appeal denied (1977), 66 Ill. 2d 631; Annot., 52 A.L.R.3d 121, 131-32 (1973).) Arrow does not dispute the soundness of this principle, but posits that the rationale for imposing strict liability on lessors does not apply to former lessors. A brief review of the applicability of strict liability to lessors, we believe, will expose the fatal weaknesses in Arrow’s position.

Ever since Illinois law first embraced the principles of strict liability in Suvada v. White Motor Co. (1965), 32 Ill. 2d 612, 619, this court has recognized the public policy justifications for imposing strict liability upon those who reaped a profit by placing a defective product in the stream of commerce. Imposition of strict liability upon sellers (wholesalers and retailers), as well as upon manufacturers, arises from their “integral role in the overall producing and marketing” of a defective product. (Dunham v. Vaughan & Bushnell Mfg. Co. (1969), 42 Ill. 2d 339, 344.) A seller who does not create a defect, but who puts the defective product into circulation, is still responsible in strict liability to an injured user. Because the ultimate loss will ordinarily be borne, through idemnification, by the party that created the defect, the public policy concern is really who, between the injured user and the seller, should bear the initial loss. The seller is in a position to prevent a defective product from entering the stream of commerce. The seller may either adopt inspection procedures or influence the manufacturer to enhance the safety of a product. Moreover, the seller is generally better able to bear and distribute any loss resulting from injury caused by a defective product. See Restatement (Second) of Torts sec. 402A, comment c (1965).

The only obstacle to the natural extension of strict liability to lessors has been the applicable strict liability provision of the Restatement (Second) of Torts, section 402A, which refers expressly only to the strict liability of sellers. The section neither attempts to define those commercial transactions which may constitute a sale for purposes of attaching strict liability nor purports to confine the imposition of strict liability to sellers alone. The most persuasive interpretation of the section characterized the reference to sellers “as a description of the situation that has most commonly arisen rather than as a deliberate limitation of the principle to cases where the product has been sold, intentionally excluding instances where a manufacturer has placed a defective article in the stream of commerce by other means.” Delaney v. Towmotor Corp. (2d Cir. 1964), 339 F.2d 4, 6; quoted with approval in Cintrone v. Hertz Truck Leasing & Rental Service (1965), 45 N.J. 434, 453, 212 A.2d 769, 779; Perfection Paint & Color Co. v. Konduris (1970), 147 Ind. App. 106, 114-15, 258 N.E.2d 681, 686.

The limited language of the Restatement has not deterred Illinois, or the majority of jurisdictions which have considered the question, from extending strict liability to lessors. (See Annot., 52 A.L.R.3d 121 (1973).) Courts have recognized that commercial leasing has become an increasingly practicable way for businesses to market their products. (Price v. Shell Oil Co. (1970), 2 Cal. 3d 245, 251-52, 466 P.2d 722, 726, 85 Cal. Rptr. 178, 182; also see B. Henszey, Application of Strict Liability to the Leasing Industry, 33 Bus. Law. 631 (1978).) The nature of a commercial transaction by which a product is placed in the stream of commerce is irrelevant to the policy considerations which justify strict liability. A lessor is subject to strict liability because his position in the “overall producing and marketing enterprise” (42 Ill. 2d 339, 344) is no different from that of a seller. Typically, the commercial lessor is within the original chain of distribution and reaps a profit by placing a product in the stream of commerce. At the point in the chain of distribution where the product passes through the hands of the lessor, he becomes as capable as a seller to prevent a defective product from proceeding through the stream of commerce. As one court observed in imposing strict liability on a truck lessor:

“The operator of the rental business must be regarded as possessing expertise with respect to the service life and fitness of his vehicles for use.
That expertise ought to put him in a better position than the bailee to detect or to anticipate flaws or defects or fatigue in his vehicles. Moreover, as between bailor for hire and bailee the liability for flaws or defects not discoverable by ordinary care in inspecting or testing ought to rest with the bailor just as it rests with a manufacturer who buys components containing latent defects from another maker, and installs them in the completed product, or just as it rests with a retailer at the point of sale to the customer.” (Cintrone v. Hertz Truck Leasing & Rental Service (1965), 45 N.J. 434, 450-51, 212 A.2d 769, 778.)

Consequently, the public policy rationale which justifies the use of strict liability as a means of shifting the burden of initial loss from the injured user applies with equal force whether the defective product is placed in the stream of commerce by a seller or by a lessor.

We discern two grounds upon which Arrow attempts to distinguish a lessor and a former lessor for the purposes of strict liability. First, Arrow asserts that as a former lessor it had no ability to supervise or inspect the towers during the duration of the lease, and, therefore, that it could not prevent defects or safeguard the public from injury. The implication is that strict liability should not be imposed upon former lessors because they cannot control risks of injury which inhere in defective products. We are not persuaded by Arrow’s reasoning. Strict liability is imposed upon those in the original chain of distribution not because of their ability to prevent or rectify defects after the product passes through their hands. It is the decision of each party in the distribution chain to allow a defective product to proceed into the stream of commerce which subjects that party to strict liability. This becomes clear in the context of a seller. When a seller sells a defective product, the seller retains no residual ability to control the product at a later date. It is obviously of no consequence to consider a seller in that chain of distribution a former seller. If the product proves defective and if the defect existed at the time a product left a particular seller’s control, that seller is subject to strict liability for injury resulting from the defect.

The same applies to a lessor. A lessor in the original distribution chain is in a position during the time the product is within its control to prevent a defective product from entering the stream of commerce. If a lessor retains no ability to control the product once the product enters the stream of commerce, the lessor would still be accountable in strict liability for defects which existed at the time the product left the lessor’s control. A lessor who becomes a former lessor (as here, by selling the product and assigning the lease) is no less responsible in strict liability for those defects which existed when it originally permitted the product to be leased. Arrow, on the basis of its integral role as lessor within the original chain of distribution, remains, as former lessor, subject to strict liability for defects which existed at the time the product left its control.

Second, Arrow contends that as a former lessor it was no longer in the best position to prevent defects or to prevent injury to the public. Arrow points out that Southeastern, the owner and lessor of the tower at the time of the accident, was in a better position to detect defects and to terminate the lease if necessary to prevent injury. As we have already stated, all those who play an “integral role in the overall producing and marketing enterprise” (42 Ill. 2d 339, 344) by placing a defective product in the stream of commerce are initially held accountable in strict liability. As between the injured user and any of the participants in the distribution chain, the relative responsibility of those within the distribution chain is not a consideration.

We conclude that the rationale for imposing strict liability on sellers and lessors applies with equal compulsion to former lessors. Former lessors have reaped a profit by placing a product in the stream of commerce. They do not nullify or diminish their role in the original distribution chain by divesting interest in the product subsequent to the original lease. Moreover, they are in the same position as a seller or lessor to be indemnified for any loss if the defect was created by another party within the original distribution chain.

For the reasons stated, we affirm the judgment of the appellate court. The cause is remanded to the circuit court of Cook County for further proceedings consistent with this opinion.

Affirmed and remanded.


author: MR. JUSTICE RYAN MR. JUSTICE CLARK,

text:
    (No. 50318.
    JUAN LABOY, Appellant, v. THE INDUSTRIAL COMMISSION et al.—(Gold Eagle Products, Inc., Appellee.)

      Opinion filed December 4, 1978.

      CLARK, J., dissenting.

      Bruce B. Cole, of Chicago (Goldstein, Goldberg & Fishman, of counsel), for appellant.
    Gifford, Detuno 8c Gifford, of Chicago (Thomas W. Gifford, of counsel), for appellee.
   MR. JUSTICE RYAN

delivered the opinion of the court:

This is an appeal from the circuit court of Cook County, which confirmed the decision of the Industrial Commission, which had affirmed an order of the arbitrator denying a claim for compensation. The arbitrator had found that the petitioner, Juan Laboy, had failed to prove that the injuries sustained arose out of a hazard peculiar to the employment.

This claim for compensation stems from an assault upon the petitioner by a fellow employee. The petitioner testified that on Saturday, August 10, 1974, he was employed by the respondent, Gold Eagle Products, Inc., and was a supervisor running a production line that boxed cans of paint or oil. On that day, Felix Pegan, a co-employee, was assigned to work on petitioner’s production line. During the normal work week Pegan was also a supervisor. Petitioner testified that Pegan was angry when he came to work that morning about 8:10 a.m., and that he threw down several cans and boxes on the floor. Petitioner admonished Pegan to take it easy and Pegan called the petitioner a bastard. Petitioner further testified that following work that afternoon, while he was in the locker room cleaning up, Pegan struck him several times with a rod or pipe.

Following the assault in the locker room, petitioner signed a criminal complaint against Pegan, and at a preliminary hearing he testified as to the altercation. Pegan also testified at the preliminary hearing and stated that when he went to the locker room, petitioner came in with a pipe and struck him and that he took the pipe away from the petitioner and struck the petitioner with it, causing the injuries for which compensation is now sought. At the hearing before the arbitrator, the respondent represented that it was unable to locate Pegan, who had returned to Puerto Rico. The arbitrator, over the objection of the petitioner, permitted the transcript of Pegan’s testimony at the preliminary hearing to be introduced into evidence. The petitioner contends that Pegan’s testimony at the preliminary hearing should not have been admitted into evidence before the arbitrator. We agree with this contention.

The petitioner, citing McInturff v. Insurance Co. of North America (1910), 248 Ill. 92, argues that it was error to admit the testimony of a witness given at a prior criminal prosecution. In Mclnturff the plaintiff, insured, brought an action to recover under his insurance policy for a loss of property by fire. The insurer sought to introduce evidence given by a witness, Blay, at the insured’s criminal prosecution for the felonious burning of the building covered by the insurance policy. Blay had been killed prior to the trial of the civil action. The trial court denied the admission of this evidence and this court held that the prior testimony was not admissible, primarily because of a lack of identity of parties in the two proceedings. Relying on People v. Jackson (1968), 41 Ill. 2d 102, the respondent contends that the former testimony was properly admitted.

The holding in Mclnturff has been severely criticized as “a flagrant sacrifice of justice on the altar of technicalism.” (McCormick, Evidence sec. 256, at 619 n.36 (2d ed. 1972). See also Comment, 6 Ill. L. Rev. 136 (1911); 5 Wigmore, Evidence sec. 1387, at 93 n.1 (Chadbourn rev. ed. 1974).) It is important to note that in Mclnturff the evidence was offered in the civil action against a party who had been the defendant in the criminal trial. As a defendant in the criminal proceedings he would have had full opportunity to test the veracity of the testimony through cross-examination and the difference of the alignment and of the identity of the parties in the two proceedings would not have been significant. Under modem authority it would appear that evidence offered in Mclnturff should have been admitted. See 5 Wigmore, Evidence sec. 1388, at 111 (Chadbourn rev. ed. 1974); McCormick, Evidence sec. 256, at 619 (2d ed. 1972).

In the present case, however, the party against whom the evidence was offered in the civil proceedings was not the defendant in the criminal case. He was only the complaining witness and as such had no right or opportunity to cross-examine Pegan, whose testimony was offered in evidence against him in the civil action. The nature and scope of the cross-examination of Pegan in the criminal proceeding was completely within the control of the prosecution. The petitioner had no opportunity to subject Pegan’s testimony to the truth-testing process of cross-examination and it therefore should not have been admitted as evidence in the proceeding before the arbitrator.

We do not find that the erroneous admission of Pegan’s testimony requires a reversal and a reman dm ent to the Industrial Commission. Pegan’s testimony concerning the altercation in the locker room would have established the petitioner as the aggressor. This fact is significant only if the claimant’s injuries can be said to have arisen out of the employment. “Even though the fight concerned the employer’s work, claimant is not entitled to compensation for an injury sustained in the role of aggressor, as the risk of injury in a case of this character cannot be said to be incidental to the employment, but, rather, is traceable directly to the claimant’s deliberate act of aggression.” (Fischer v. Industrial Com. (1951), 408 Ill. 115, 120.) In our case it is not necessary to find that the petitioner was the aggressor in order to defeat his claim because the evidence clearly shows that the quarrel was not related to the employment.

As noted above, petitioner testified that Pegan was angry when he came to work in the morning; that he said he was not going to do the work they told him to do; that he threw some cans and boxes on the floor and called the petitioner a bastard. This all occurred before 9:30 in the morning. The petitioner also testified that Pegan acted angry during the remainder of the day but that there was no further argument between them prior to the locker room incident.

Angelo Martinez, another employee and the only other employee working on the line that day besides the petitioner and Pegan who spoke Spanish, testified for the respondent. He stated that he was working beside Pegan and he did not remember what was said between petitioner and Pegan during the morning and he did not see Pegan throw any cans or boxes of cans on the floor. He testified that following the noon break for lunch, when they returned to work, an argument between petitioner and Pegan developed over lottery tickets and over the use of profanity by the petitioner when discussing his failure to win. Pegan told petitioner to shut up or there would be some fighting. Following an additional exchange of words, petitioner picked up a piece of pipe and swung at Pegan, whereupon Pegan jumped on the petitioner and knocked him to the floor. After the men resumed work, petitioner told Pegan that he was “going to catch it outside.” The two men then threw some cans at one another and a supervisor stopped the line and the employees left. Martinez did not witness the incident in the locker room.

The testimony of the petitioner would tend to show that the argument was work related, whereas the testimony of Martinez shows that the argument which preceded the assault did not concern the employer’s work, but grew out of a purely personal matter. In cases where the evidence is conflicting, the question of whether or not the injury arose out of and in the course of the employment is one of fact to be decided by the Industrial Commission. Its determination will not be disturbed unless contrary to the manifest weight of the evidence. Huddleston v. Industrial Com. (1963), 27 Ill. 2d 446, 449.

The fact that an injury occurs at the place of employment is not sufficient in itself to establish that the injury arose out of the employment. There must be a further showing that the injury resulted from some hazard or risk inherent in the employment situation. (Thurber v. Industrial Com. (1971), 49 Ill. 2d 561.) The burden of establishing that the assault was related to a risk inherent in or incidental to his employment duties rests on the petitioner. Malco, Inc. v. Industrial Com. (1976), 65 Ill. 2d 426; Schroeter v. Industrial Com. (1976), 62 Ill. 2d 284.

Since we have held that Pegan’s testimony given at his criminal hearing is not admissible in this proceeding, the petitioner’s testimony concerning the locker room altercation stands uncontroverted. That testimony, however, is relevant only to the question of who was the aggressor in the locker room. But Martinez’s testimony shows that the continuing dispute during the afternoon from the time the employees returned from lunch until the supervisor stopped the operation of the line shortly before the assault in the IScker room was not related in any manner to the employer’s work. Although injuries resulting from a quarrel concerning the employer’s work may be compensable, this court has consistently held that where the fight is purely personal in nature, the resulting injuries cannot be said to have arisen out of the employment. Huddleston v. Industrial Com.; Math Igler’s Casino, Inc. v. Industrial Com. (1946), 394 Ill. 330; Chicago Hardware Foundry Co. v. Industrial Com. (1946), 393 Ill. 294.

The arbitrator found that the petitioner had' failed to prove that the injuries sustained arose out of a hazard peculiar to the employment. This finding is supported by the testimony of Martinez, which clearly shows that the assault grew out of a personal quarrel between the petitioner and Pegan, and was not related to the employer’s work or the manner of its performance. We conclude that the finding of the Industrial Commission is not contrary to the manifest weight of the evidence and we therefore affirm the judgment of the circuit court of Cook County.

Judgment affirmed.

MR. JUSTICE CLARK,

dissenting:

I dissent. I agree that the transcript of Felix Pegan’s testimony was erroneously admitted into evidence before the arbitrator, but I do not agree that, in the absence of that evidence, the arbitrator and the Industrial Commission necessarily would have found “that the quarrel was not related to the employment.” (74 Ill. 2d at 23.) Accordingly, I would vacate the judgment and order below and remand the cause to the Industrial Commission with directions to grant the petitioner a new hearing on this question.

While I agree that a fight which is purely personal in nature is not work related (e.g., Huddleston v. Industrial Com. (1963), 27 Ill. 2d 446, 449), I do not agree that the Industrial Commission necessarily would have found this fight to have been purely personal. The fight at issue here occurred in a factory locker room, between a supervisor of one of the factory’s production lines, and one of the employees under his supervision. While the parties to and location of a fight are not dispositive of its “work relatedness,” the Industrial Commission would take notice of the tensions inherent in the relationship between an industrial foreman and one of the employees under his supervision. Given petitioner’s testimony that the fight arose out of a production-line dispute, the Industrial Commission would have found that, while not the sole cause, the assembly-line dispute was a sufficiently contributing factor to render compensable the injuries in question. See generally Converters, Inc. v. Industrial Com. (1975), 61 Ill. 2d 218, 223-24 (finding of work relatedness not against the manifest weight of the evidence). Cf. Huddleston v. Industrial Com. (1963), 27 Ill. 2d 446, 448 (contrary finding not against the manifest weight of the evidence).

Here petitioner testified that the dispute arose .over Felix Pegan’s conduct on the production line. I think that petitioner’s testimony established at least as strong a connection between his employment and the fight as the connection this court has found to exist between a Christmas party and employment (Mid Central Tool Co. v. Industrial Com. (1978), 72 Ill. 2d 569), and between a golf outing and employment (Lybrand, Ross Bros. & Montgomery v. Industrial Com. (1967), 36 Ill. 2d 410).

Nor can I agree that the harm caused by the erroneous admission of Pegan’s former testimony was limited to the question of who started the fight. Rather, the record clearly demonstrates that Pegan testified not only that petitioner started the fight, but also that it first broke out on the assembly line, not the locker room, and that petitioner had expressed personal animosity toward him on the assembly line. This testimony therefore could have seriously undercut petitioner’s credibility, and particularly so with regard to his theory of the motive for the fight. I therefore would direct that petitioner be given a new hearing on this question, untainted by the erroneously admitted transcript.


author: MR. JUSTICE KLUCZYNSKI

text:
    (No. 50537.
    ORVILLE KENNETH PHILLIPS, Appellee, v. REVA S. PHILLIPS, Appellant.

      Opinion filed December 4, 1978.

      UNDERWOOD, J., took no part.
    Samuels, Miller, Schroeder, Jackson & Sly, of Decatur (John E. Fick, of counsel), for appellant.
    Monroe, Wilson, Dyar, Houchen, McDonald & Taylor, of Decatur, for appellee.
   MR. JUSTICE KLUCZYNSKI

delivered the opinion of the court:

This is an appeal from a decree of the circuit court of Macon County entered in a partition action filed by plaintiff Orville Kenneth Phillips against his wife, defendant Reva S. Phillips. The decree orders partition of the parties’ marital home, with the division to be made equally. Defendant had counterclaimed for a setoff of homestead, but the circuit court refused to grant such relief on the basis of a 1965 amendment to the Homestead Act which provides that a homestead exemption may not be asserted by one cotenant against another (1965 Ill. Laws 2979; Ill. Rev. Stat. 1975, ch. 52, par. 1). Defendant also counterclaimed for reimbursement of amounts expended for taxes and maintenance of the marital home, and accordingly sought the admission of evidence that plaintiff had orally agreed to give defendant sole rights to the home, thereby inducing defendant to pay tax and maintenance bills. The court refused to admit the evidence and denied reimbursement. The appellate court affirmed (56 Ill. App. 3d 276), and we granted defendant’s petition for leave to appeal under Supreme Court Rule 315 (65 Ill. 2d R. 315) to resolve an apparent conflict among the appellate districts (see Rosenbaum v. Rosenbaum (1st Dist., 2d Div., 1978), 65 Ill. App. 3d 228 (exemption denied); Chapman v. Richey (5th Dist. 1978), 63 Ill. App. 3d 650 (exemption allowed); Anderson v. Anderson (1st Dist., 3d Div., 1978), 62 Ill. App. 3d 468, and (1st Dist., 3d Div., 1976), 42 Ill. App. 3d 781 (exemption allowed); Berg v. Berg (2d Dist. 1977), 45 Ill. App. 3d 422 (exemption denied); Gottemoller v. Gottemoller (3d Dist. 1976), 37 Ill. App. 3d 689 (exemption denied); Ball v. Ball (4th Dist. 1975), 27 Ill. App. 3d 678 (exemption denied)).

The parties to this action, Orville Kenneth and Reva S. Phillips, were married July 17, 1943. The subject property is the parties’ marital home, which is held in joint tenancy. The circuit court decree orders equal division of the property or of the proceeds of its sale, subject only to deductions for the balance due on a mortgage and taxes. No setoff of homestead was allowed defendant, contrary to her contentions, and she assigns this as error. A review of relevant statutes and case law is essential to a determination of the issue raised.

Under the partition statute (Ill. Rev. Stat. 1975, ch. 106, pars. 44 to 71), a cotenant may petition for partition of real property held jointly or in common with other tenants. This right extends to husband and wife where spouses hold property as cotenants. (Heldt v. Heldt (1963), 29 Ill. 2d 61, 63.) If the property is not susceptible to division, it may be sold and the proceeds distributed. (Ill. Rev. Stat. 1975, ch. 106, par. 59.) Where a party to the suit is entitled to homestead, the court must first obtain the assent of that party before ordering sale. (Ill. Rev. Stat. 1975, ch. 106, par. 63.) Under “An Act to revise the law in relation to husband and wife,” if a spouse is ousted by the other, he or she is entitled to “another homestead suitable to the condition in life of the family.” (Ill. Rev. Stat. 1975, ch. 68, par. 16, current version at Ill. Rev. Stat. 1977, ch. 40, par. 1016.) This provision of the Act “does not place an unconditional ban against partition, but at most requires that the spouse be awarded a monetary equivalent of whatever homestead interest she may possess.” (La Placa v. La Placa (1955), 5 Ill. 2d 468, 471, citing Macaulay v. Jones (1920), 295 Ill. 614.) The value of the homestead exemption, presently $10,000, is determined by reference to section 1 of the Homestead Act (Ill. Rev. Stat. 1975, ch. 52, par. 1).

The present controversy revolves around a 1965 amendment to section 1 of the Homestead Act which provides: “This section is not applicable as between joint tenants or tenants in common but it is applicable as to any creditors of such persons.” (Ill. Rev. Stat. 1975, ch. 52, par. 1.) Plaintiff contends, and the circuit court and appellate court here held, that the amendment clearly requires that one cotenant shall not be allowed to assert the exemption against another cotenant, and that this prohibition likewise bars a cotenant from claiming the monetary equivalent of a homestead exemption under section 16 (Ill. Rev. Stat. 1977, ch. 68, par. 16). We agree. We are without the benefit of the legislative history of the amendment, but its language is clear and must be followed. (Droste v. Kerner (1966), 34 Ill. 2d 495, 503.) It plainly appears that the legislature intended that the exemption should not be available as between cotenants, and we now hold that this prohibition encompasses the situation presented here in which the exemption is sought to be asserted by one spouse against another in the course of partition proceedings. In taking the property as cotenants, the respective interests of the parties were established. By the 1965 amendment to the Homestead Act, the legislature has determined that a cotenant may not enlarge his interest by being allowed a setoff of homestead.

We acknowledge, as defendant points out, that we should endeavor to reconcile apparently inconsistent statutes (People ex rel. Brenza v. Fleetwood (1952), 413 Ill. 530, 547-48) and that implied repeals are not favored (Spaulding School District No. 58 v. Waukegan City School District No. 61 (1960), 18 Ill. 2d 351, 356). In attempting to reconcile statutes, however, we wiU not deviate from the plain meaning of the language used by the legislature. We also do not believe, as argued by defendant, that our holding effects an implied repeal of the homestead laws. We merely hold that the homestead exemption is unavailable as between cotenants even if one is otherwise entitled to the exemption. It is still permissible for an individual, including a cotenant, to assert the exemption in other situations in which the individual against whom the exemption is asserted is someone other than a cotenant of the individual asserting the exemption. The scope of the amendment is limited; it is the particular situation of cotenants with which the legislature was concerned.

We also acknowledge that the statutes and amendments in questidn were enacted while article IV, section 32, of the Blinois Constitution of 1870 was in effect, and that its provisions directed the legislature to enact liberal homestead laws. Again, however, we cannot deviate from the plain meaning of the language of the amendment. It was the judgment of the legislature that one otherwise entitled to the homestead exemption should not be allowed to assert it if the subject property is held in cotenancy, and we cannot qualify that language to the liking of the defendant.

Because the language of the amendment is clear, we need not resort to rules of construction nor legislative purpose. We note, however, that our holding gives proper recognition to the apparent purpose of the amendment to simplify cases similar to the one now before us. Prior to the 1965 amendment, the issue of whether a spousecotenant is entitled to setoff of homestead in a partition action was frequently litigated (see, e.g., Heldt v. Heldt (1963), 29 Ill. 2d 61; La Placa v. La Placa (1955), 5 Ill. 2d 468) and “caused the courts considerable difficulty” (Mamer, Legal Consequences of Joint Ownership, 1959 U. Ill. L.F. 944, 954). By virtue of the 1965 amendment, courts no longer need to determine which cotenant is the householder entitled to the exemption, whether a cotenant has abandoned the premises, and various other issues which arise in homestead cases and which were once frequently litigated in partition actions such as Heldt and La Placa.

Defendant’s second assignment of error concerns the circuit court’s refusal to admit testimony of the defendant that plaintiff had orally offered to give defendant sole ownership rights in the marital home. In other words, defendant sought to prove an offer not to partition. It is alleged that plaintiff’s offer to relinquish rights in the home was made because the parties were contemplating divorce and a property settlement would be required.

The purpose of defendant’s offer of proof was to show that plaintiff had stated that he would not seek partition and to show that defendant paid tax and maintenance bills in reliance on plaintiff’s offer to give defendant exclusive rights in the property. Having allegedly done so, defendant argues that she is entitled to reimbursement.

We express no opinion on the legal basis of defendant’s estoppel argument; we simply note that she had not met her burden of proof on the issue of whether she did, in fact, pay the tax and maintenance bills from her own funds. Much of the evidence presented indicates that the parties’ financial arrangements were somewhat complicated, that funds of each were sometimes commingled, and that each spouse may well have used the funds of the other. On the basis of this evidence, the circuit court found that defendant had not proved that she paid the bills from her own funds, and therefore refused to admit the evidence offered and to grant defendant’s request for reimbursement. Our review of the record does not convince us,, nor was the appellate court convinced, that this determination is contrary to the manifest weight of the evidence, and we therefore will not disturb the circuit court’s judgment. Stromsen v. Stromsen (1947), 397 Ill. 260, 263.

Additionally, we note, as did the appellate court, that the offered testimony was of little probative value on the issue of whether the parties had, in fact, agreed that the property would not be partitioned. Plaintiff’s alleged oral statements constituted, at most, an offer not to partition. Defendant did not offer to prove that a binding agreement had been reached by the parties. Any error in refusing to admit the offered testimony was therefore harmless. In any event, defendant’s failure to establish that she paid the hills from her own funds is dispositive, and the judgment of the circuit court denying defendant’s claim for reimbursement was properly affirmed.

For the foregoing reasons, the judgment of the appellate court affirming the circuit court is affirmed.

Judgment affirmed.

MR. JUSTICE UNDERWOOD took no part in the consideration or decision of this case.