author: JUSTICE EARNS

text:
    BRIAN MATTIS et al., Plaintiffs-Appellees, v. STATE FARM FIRE AND CASUALTY COMPANY, Defendant-Appellant.
    Fifth District
    No. 82—712
    Opinion filed October 4, 1983.

      Charles E. Schmidt, of Mitchell, Brandon & Schmidt, of Carbondale, and James B. Wham, of Wham & Wham, of Centraba, for appellant.
    Brian Mattis and B. Taylor Mattis, both of Carbondale, for appellees, pro se.

   JUSTICE EARNS

delivered the opinion of the court:

Defendant, State Farm Fire and Casualty Company, appeals from the judgment of the circuit court of Jackson County in favor of plaintiffs and insured homeowners, Brian and B. Taylor Mattis. Plaintiffs cross-appeal from that part of the judgment denying their request for attorney fees. In a bifurcated trial, the court found defendant liable under an “all risk” homeowner’s policy for structural damage to the Mattises’ home. The court assessed damages in the amount of $33,086.69.

The Mattises purchased their home in 1974 and subsequently obtained a homeowner’s insurance policy from State Farm with an inception date of May 20, 1974. The policy provided “all risk” homeowner’s coverage for which an additional 5% premium was paid over State Farm’s normal premium schedule for a named-perils homeowner’s policy. This policy was renewed annually until the time when State Farm issued a second policy updating the original policy’s coverage. The updated policy became effective May 20, 1979. The trial court found that “the insurance policy was in full force and effect at the time of the alleged physical loss, on or about May 15, 1979.” The parties have raised an issue concerning which policy provisions control, based upon this finding by the trial court. The issue will be resolved following a greater detailed factual summary.

The Mattises’ home is a conventional single-story frame structure. The home is built into the side of a hill with the front basement wall, facing north, below ground level and the back basement wall, facing south, above ground level. This arrangement is often termed a walkout basement. The north and west basement walls are made of 12-inch concrete masonry blocks; the south and east basement walls .are wood frame.

Brian Mattis testified that the Mattises were first informed of the physical damage claimed under the policy on May 15, 1979. According to Brian’s testimony, a termite inspector had discovered some structural damage to the north basement wall during the course of a routine inspection. In July 1979, concerned about the structural integrity of the home, the Mattises contacted Carl Hartman, an architect from the firm of Fischer-Stein Associates, and employed him to inspect their home for structural damage.

Hartman testified that he had been employed to ascertain the damage to the structure and to determine a remedy for the damage. He found evidence of a horizontal crack in the north basement wall varying from a hairline to approximately one-quarter inch in gap running the entire visible length of the wall. Hartman also .found inward displacement of the same vertical wall equal to approximately one-half to five-eighths inch with the point of greatest displacement being at about mid-height. Additionally, he found evidence of binding in the walls perpendicular to the north basement wall. Remedial measures suggested by Hartman included replacement or reinforcement of the cracked wall to prevent further damage or collapse.

Plaintiffs thereafter reported their home damage to State Farm’s local agent. After inspecting the premises, the agent notified plaintiffs that State Farm would not cover the loss, citing numerous policy provisions. A series of correspondence between plaintiffs and State Farm followed. Meanwhile, finding the cost of replacement prohibitive, the Mattises opted to simply reinforce the existing north basement wall. The soil adjacent to the north wall was excavated and a similar wall adjacent to the existing wall was constructed and bolted to it. The soil was backfilled and landscaped to facilitate proper drainage and runoff.

Based upon reports as to causation submitted by State’s Farm’s structural engineer to State Farm, the insurer continued to deny plaintiffs’ claim. Plaintiff testified that by this time the loss had become aggravated. The inward deflection of the north basement wall amounted to Sxk inches out of plumb to the south; mortar joints had opened; brick veneer had separated from the wall on the ground floor; the garage door was out of plumb; doors and windows at ground level were askew. Plaintiffs brought suit alleging 13 enumerated elements of damage to the structural integrity of the home and requesting compensation from State Farm under their all risk homeowner’s policy.

The trial court found that at least one of the two policies mentioned at the outset was in full force and effect at times relevant. Under the broad coverage afforded by the policies issued by State Farm, the court determined that unless the cause of the damage was specifically excluded or excepted by the terms of the policy, all risks of physical loss were within the coverage. Because the proof established that one cause of the loss was inadequate or improper design or construction of the dwelling at the particular site, and because that particular cause of loss was not excluded or excepted, the court applied the principle that if more than one cause creates a loss with one cause covered, but other causes not covered, the loss will be within the coverage of an all risk policy.

The trial court found, without specific elaboration, that “the insurance policy” was in full force and effect at the time of the alleged physical loss to the Mattis home on May 15, 1979. The two policies in question differ in several significant respects and these differences, in part, form the basis for State Farm’s denial of coverage. State Farm has argued that only the amended policy, effective May 20, 1979, is applicable to the loss. We reject this contention. It was on May 15, 1979, that the Mattises were informed by the termite inspector of structural damage to the insured property. Although a claim was filed after the inception date of the amended policy, the Mattises were apprised of facts sufficient to warrant the filing of a claim against State Farm on May 15, 1979, or five days prior to the expiration of the original policy. It is this date which is controlling. The applicable policy is the one in effect at the time of discovery of the loss, the original policy.

This conclusion does not, however, dispose of the question as to which of the two policy provisions will be given effect. The evidence established that the original policy contained the following liberalization clause:

“*** if within 45 days prior to the inception of this policy, or during the term hereof, this Company adopts any revision of the form or endorsements made part of this policy which would broaden coverage presently granted hereunder without additional premium charge, such broadened coverage will automatically apply to this policy.”

Thus, at the time the Mattises discovered their loss, the policy then in effect allowed them to take advantage of broadened coverage adopted by State Farm during its effective term. The original policy was revised and updated and a reissue certificate of this amended policy was prepared on March 30, 1979. The record shows premiums were paid on the amended policy on May 8, 1979. While it has been determined that the provisions of the original policy control, the liberalization clause, in effect, allows the insureds the benefit of those provisions of the amended policy which broadened their coverage.

State Farm alleged numerous defenses based on policy exclusions and exceptions and presented proof to that effect. The policies included provisions that will be referred to as an earth movement clause; water pressure-water damage clauses; a settling, cracking and bulging clause; and a latent defect clause.

We agree with plaintiffs’ contention that the “earth movement” exclusion in the policy that was in force on May 15, 1979, controls for the reasons stated above. That exclusion reads as follows:

“This policy does not insure against loss: ■
* * *
2. caused by, resulting from, contributed to or aggravated by any earth movement, including but not limited to earthquake, volcanic eruption, landslide, mudflow, earth sinking, rising or shifting ***.”

Both expert witnesses who testified agreed that settlement and consolidation of the backfill material placed against the north basement wall contributed to the loss. That it was not the sole cause is significant and will be addressed shortly. We are not persuaded, however, that this settlement and consolidation constitutes “earth movement” under the terms of the policy. As the supreme court of Wisconsin recognized in Wisconsin Builders, Inc. v. General Insurance Co. of America (1974), (65 Wis. 2d 91, 101-02, 221 N.W.2d 832, 837, “[t]he majority of the courts which have considered this particular exclusion have found it to be ambiguous and have applied the doctrine of ejusdem generis to limit the definition of ‘earth movement’ ” to causes of the same class as earthquake and landslide. (See Annot., 44 A.L.R.3d 1316 (1972).) It is our view that the exclusions contained in this clause were not intended to cover damage resulting from something other than those causes of the type expressly stated in the exclusions. Moreover, other causes, defective design and construction, contributed to the damage resulting from the consolidation of soil placed against the north basement wall. (See Wisconsin Builders, Inc. v. General Insurance Co. of America (1974), 65 Wis. 2d 91, 221 N.W.2d 832; Gullett v. St. Paul Fire & Marine Insurance Co. (7th Cir. 1971), 446 F.2d 1100; Wyatt v. Northwestern Mutual Insurance Co. (D. Minn. 1969), 304 F. Supp. 781; Government Employees Insurance Co. v. DeJames (1970), 256 Md. 717, 261 A.2d 747.) We conclude that the earth movement clause does not provide a basis for denial of coverage.

The water damage and water pressure clauses contained in the policies are similar and can be addressed together. Both policies exclude from coverage any loss resulting from water below the surface of the ground which exerts pressure on certain enumerated structures. The enumerated structures listed in each of the two policies differ, but no significance is attached to these differences. The record is entirely devoid of convincing proof that the Mattises’ loss resulted from the presence of water. Hartman, an architect, called as an expert witness, stated on cross-examination that he was not hired by the Mattises to determine the cause of the damage but only to ascertain damage and determine remedial measures. Consequently, Hartman did not perform any tests to determine causation, nor did he take soil boring samples of the area to determine the presence of water. Although he described the nature and effect of hydrostatic pressure, his conclusion that hydrostatic pressure “could have contributed” to the inward displacement of the north basement wall was nothing more than speculation.

R A. Nack, a structural engineer, was hired by State Farm to determine the cause of the home loss. In a report submitted to State Farm, Nack stated that “the cause of this wall failure is apparently due to backfill consolidation and lateral pressure created thereby.” Although Nack alluded to water, water pressure and hydraulic pressure throughout his report, the report and his supporting testimony failed to establish that water caused the damage or that the loss resulted from the presence of water. Like Hartman, Nack also testified about hydrostatic pressure. When asked for his opinion as to whether there “might have or could have been hydrostatic pressure on the north wall of the basement that might have or could have contributed to the bulging,” Nack responded affirmatively. But this, too, can be nothing more than speculation, for no tests were performed by Nack to detect the presence of moisture in the soil. Simply stated, the proof adduced failed to establish the applicability of the exclusion.

Another policy provision excepted from coverage loss “caused by *** settling, cracking, shrinking, bulging, or expansion of * * * walls ***.” Much has been said in argument attempting to draw a distinction between loss caused by bulging and cracking of walls and loss resulting from nonexcluded causes, either of which resulted in the substantial items of damage to the home. The Mattises argue that the cracked or bulged wall was not the cause of the loss, but resulted from the consolidation of the backfill against the defectively designed or constructed north wall. State Farm argues that the entire damage resulted from a chain reaction caused by the bulging of the basement wall. In this regard we would note that that policy is not a model of clarity in legal draftsmanship, as it seems to say that while damage caused by a cracked or bulged wall is not an included loss, any ensuing loss is covered. The argument may be made that the wracking of the structure ensues from the cracked or bulged wall and damage resulting therefrom to the house is covered. The argument can also be made that the cracks or bulges were both a result of other causes and a cause itself.

We need not decide, however, whether the loss claimed is excepted from coverage by this provision. The trial court found that the proof established contributing causes and that one cause was inadequate or improper design or construction of the dwelling. The trial court found that by the terms of the policy in effect, State Farm agreed to insure the Mattises’ home against all risks of physical loss except for loss caused by certain enumerated risks designated as exclusions or exceptions within the policy. Inadequate or improper design or construction was not specifically excepted or excluded. “Where a policy expressly insured against loss caused by one risk but excludes loss caused by another risk, coverage is extended to a loss caused by the insured risk even though the excluded risk is a contributory cause.” (Kraemer Bros., Inc. v. United States Fire Insurance Co. (1979), 89 Wis. 2d 555, 570, 278 N.W.2d 857, 863-64. See also Lawver v. Boling (1976), 71 Wis. 2d 408, 238 N.E.2d 514; Essex House v. St. Paul Fire & Marine Insurance Co. (S.D. Ohio 1975), 404 F. Supp. 978; General American Transportation Corp. v. Sun Insurance Office, Ltd. (E.D. Tenn. 1965), 239 F. Supp. 844.) We agree with the trial court and conclude that a proximate and contributing cause of the loss to plaintiffs’ dwelling was inadequate or improper design or construction of the dwelling at the particular site.

State Farm has not contested the finding below of contributing causes. Rather, it has argued that the inadequate or improper design or construction is a “latent defect” and therefore excepted by the latent defect clause of the policy. This portion of State Farm’s third amended affirmative defense was stricken by the trial court and not tried.

The order simply strikes the affirmative defense “as a matter of law.” The affirmative defense in question was pleaded as follows:

“7. Although specifically not admitting the nature and extent of the loss described in Plaintiffs’ Complaint, Defendant affirmatively states that said loss was caused by one or more or all of the following:
* * *
E. A latent defect in the home in that the north retaining wall was not properly designed and constructed to withstand the pressure and weight of backfill on said wall; said condition not being apparent after the house was constructed and the backfill moved into place.”

Defendant has cited a New York trial court decision in support of its contention that improper design or construction comes within a latent defect exclusion or exception (80 Broad Street Co. v. United States Fire Insurance Co. (N.Y. Sup. Ct. 1975), 88 Misc. 2d 706, 389 N.Y.S.2d 214). Both Hartman and Nack testified that they could not predict the failure of the north basement wall by visual inspection and routine examination. Nack did testify that he could have predicted failure of the wall if he had subjected it to scientific analysis. However, the great majority of the cases construing “latent defect” exclusions in policies of insurance limit the meaning of a latent defect to some inherent defect in the materials used in construction which could not be discovered by any known or customary test and do not include faulty design or construction within the meaning of this provision. (Plaza Equities Corp. v. Aetna Casualty & Surety Co. (S.D.N.Y. 1974), 372 F. Supp. 1325; Essex House v. St. Paul Fire & Marine Insurance Co. (S.D. Ohio 1975), 404 F. Supp. 978; General American Transportation Corp. v. Sun Insurance Office, Ltd. (E. D. Tenn. 1965), 239 F. Supp. 844, aff’d per curiam (6th Cir. 1966), 369 F.2d 906.) Here there was no defect in the materials used, but in the design or construction of the north wall to withstand the force exerted by the consolidation of the backfill placed against it.

Furthermore, the pleading failed to allege that the defect could not have been discovered by known scientific testing. The parties agree that a latent defect is one that is not apparent and cannot be discovered by reasonably careful inspection. The possibility of the wall failing could have been discovered by the insurer, according to its expert witness, had he been requested to subject it to proper scientific testing.

Section 43 of the Civil Practice Act (Ill. Rev. Stat. 1979, ch. 110, par. 43) requires that pleadings must plainly set forth facts constituting any affirmative defense. No facts were pleaded, only conclusions. Nowhere is it alleged in what manner the wall was defective. Nowhere is it alleged, for instance, that defective concrete blocks were used in construction, that defective mortar was placed between the blocks, or that any other “defect” contributed to the loss claimed. Absent the filing of an amendment, we cannot review what the court might have done had plain facts been subsequently pleaded. We are limited to a determination of whether there was error in striking the affirmative defense in the first instance. We are not persuaded that the court erred in striking this defense. Cf. Lowrey v. Malkowski (1960), 20 Ill. 2d 280, 170 N.E.2d 147; Lloyd v. Sears Bank & Trust Co. (1978), 67 Ill. App. 3d 141, 384 N.E.2d 742.

The remaining question then is whether the inadequate or improper design or construction of the wall in conjunction with the consolidation of backfill material exerting pressure thereon is a “risk” insured against under the all risk homeowner’s policy. Fundamentally, an all risk homeowner’s policy provides coverage for losses not covered under traditional named perils policies. This is reflected in the additional premiums paid for such coverage. But the term “all risks” as used in policies of the type here in question is somewhat misleading. See 13A Couch on Insurance sec. 48:138, at 596 (2d ed. 1982).

State Farm has cited and appended to its brief, Gorman, All Risks of Loss v. All Loss: An Examination of Broad Form Insurance Coverages, 34 Notre Dame Law. 346 (1958). This article contains a comprehensive overview of all risk policies to that date. The author concludes, and we agree, from many cases cited therein that for a loss to come within “all risks” the loss or damage must be fortuitous. The following language from Compagnie des Bauxites de Guinee v. Insurance Company of North America (W.D. Pa. 1983), 554 F. Supp. 1080, is instructive:

“As a matter of law, insurance coverage, even under an all risk policy of insurance, extends only to fortuitous losses, or losses caused by a fortuitous event. Dow Chemical Co. v. Royal Indemnity Co., 635 F.2d 379 (5th Cir. 1981); Atlantic Lines Limited v. American Insurance Co., 547 F.2d 11 (2d Cir. 1976). The determination of whether a loss is fortuitous is a legal question for the court to determine. Redna Marine Corporation v. Poland, 46 F.R.D. 81 (S.D.N.Y. 1969). This requirement of a ‘fortuitous’ event has been utilized by the courts as a fundamental principle of law in interpreting insurance contracts, and is not a new or novel concept. See G. Couch, Couch on Insurance 2d sec. 48:141 (1951).” 554 F. Supp. 1080, 1082.

Several leading cases have established the standards by which fortuity may be determined under all risk policies. In Schloss Bros. v. Stevens (1906), 2 K.B. 665, 674, the court found that “all accidental causes of damage” were included. Lord Sumner in British Foreign Marine Insurance Co. v. Gaunt, [1921] All E.R. 447, stated that certainties of occurrence were not contemplated by all risk coverage. “[The term 'all risk'] covers a risk, not a certainty; it is something which happens to the subject-matter from without, not the natural behaviour of that subject-matter, being what it is, in the circumstances ***.” ([1921] All E.R 447, 455.) The supreme court of Mississippi has adopted the following language: “ ‘There must be some casualty, something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of the police is to secure an indemnity against accidents which may happen, not against events which must happen.’ ” (Gulf Transp. Co. v. Fireman’s Fund Insurance Co. (1920), 121 Miss. 655, 664, 83 So. 730, 733.) Most recently, the court in Compagnie des Bauxites de Guinee v. Insurance Company of North America (W.D. Pa. 1983), 554 E Supp. 1080, had this to say:

“ ‘Fortuitous’ means happening by chance or accident, occurring unexpectedly or without known cause; accidental and undesigned. Black’s Law Dictionary (Rev. 4th Ed. 1968). The damage or loss must therefore result from an extraneous cause, and not wholly from an inherent defect in the subject matter or from the inherent deficient qualities, nature, and properties of the subject matter insured. Greene v. Cheetham 293 F.2d 933 (2d Cir. 1961); Mellon v. Federal Insurance Co. 14 F.2d 997 (S.D.N.Y. 1926). (A. Hand, J.)” 554 F. Supp. 1080, 1083.

In Compagnie des Bauxites de Guiñee, the insured brought suit to recover business interruption losses allegedly sustained as the result of structural failure and collapse of a tippler building and ore crusherhouse. The court found the structures were defectively designed and for that reason concluded that the structure was bound to collapse; hence, there was no fortuitous event. We do not think that this decision represents the better view regarding the fortuitous nature of loss occasioned by design defects. See, e.g., Essex House v. St. Paul Fire & Marine Insurance Co. (S.D. Ohio 1975), 404 F. Supp. 978.

In Essex House the court found that brick failure of the insured’s apartment building was caused by a combination of poor workmanship, design defects and natural causes and that some of the causes were detectable and some were not. The court concluded that “[s]o far as the parties were concerned at the time the policy was issued, any loss to the building during the term of the policy would be dependent upon chance, and was a fortuitous event covered by the provisions of the ‘All Risk’ policy,” 404 F. Supp. 978, 985.

We cannot say as a matter of law that the loss sustained by plaintiffs was inevitable or certain to occur because of an inherent deficiency in the home as built; other homes were built with concrete block foundations without foundation failure. The Restatement of

Contracts sec. 291, comment a (1932), defines a fortuitous event as:

“*** an event which so far as the parties to the contract are aware, is dependent on chance. It may be beyond the power of any human being to bring the event to pass; it may be within the control of third persons; it may even be a past event *** provided that the fact is unknown to the parties.” (Emphasis added.)

Although State Farm’s expert testified that plaintiffs’ loss could have been predicted had he conducted tests and analysis, we do not think that hindsight provides an adequate basis to remove the loss from the ambit of fortuity as contemplated by the all risk policy. See Essex House v. St. Paul Fire & Marine Insurance Co. (S.D. Ohio 1975), 404 F. Supp. 978.

The evidence established that a proximate cause of the loss was settlement and consolidation of backfill material placed adjacent to the north basement wall some four years previous. We have concluded that a proximate cause of the loss was inadequate or improper design or construction of the dwelling at the particular site. The cause of the loss was a combination of natural and human failure. It is possible to conclude that but for this interaction and contribution of causes the event may never have occurred. But it is not possible to conclude that absent one cause the other cause would have by itself brought about the loss. It is this that makes the loss fortuitous and therefore an insurance risk. See Vormelker v. Oleksinski (1972), 40 Mich. App. 618, 199 N.W.2d 287.

Having found the existence of a nonexcluded or nonexcepted insurable risk, and in light of State Farm’s agreement to insure all risks of physical loss except those excluded or excepted, we conclude that the plaintiffs have a compensable loss. We are satisfied that plaintiffs met their burden of proof of a loss within the perils insured against. (See Rutgens Distributors, Inc. v. United States Fidelity & Guaranty Co. (1981), 94 Ill. App. 3d 753, 419 N.E.2d 59; Bliss Ring Co. v. Globe & Rutgers Fire Insurance Co. (1955), 7 Ill. App. 2d 523, 129 N.E.2d 784.) The trial court’s finding on the issue of liability is affirmed.

Plaintiffs have cross-appealed contending that the trial court erred in denying their motion for expenses and attorney fees under Supreme Court Rule 219(b) (87 Ill. 2d R. 219(b)).

On September 18, 1979, State Farm’s structural expert submitted a report to State Farm concluding, among other things, that:

“The cause of this wall failure is apparently due to backfill consolidation and lateral pressure created thereby. These masonry walls were not designed, nor constructed, to withstand these type [sic] of water and soil pressures.”

By letter to plaintiffs dated September 19, 1979, State Farm denied coverage for the loss claimed, citing various policy provisions and the language quoted above from its expert’s report.

On May 9, 1980, plaintiffs filed the following request to admit:

“5. That the masonry walls to the north and west of the dwelling structure were not designed nor constructed to withstand soil and water pressure from the exterior surface.”

Defendant’s reply to this request was filed on May 23, 1980, and stated:

“5. Defendant neither admits nor denies the allegations contained in paragraph five and cannot admit said allegations since Defendant does not have information and expertise to form a judgment as to the design and construction of the dwelling and its ability to withstand soil and water pressure from the exterior surface.”

Subsequently, on March 19, 1981, State Farm pleaded the following affirmative defense.

“7. Although specifically not admitting the nature and extent of the loss described in Plaintiffs’ Complaint, Defendant affirmatively states that said loss was caused by one or more or all of the following:
* * *
E. A latent defect in the home in that the north retaining wall was not properly designed and constructed to withstand the pressure and weight of backfill on said wall; said condition not being apparent after the house was constructed and the backfill moved into place.”

Plaintiffs argue that State Farm’s neutral reply on May 23, 1980, has the same effect as a Sworn denial under the Rule. They argue that this pleading, when coupled with its earlier denial of coverage on September 19, 1979, and defendant’s affirmative defense pleaded on March 19, 1981, requires the mandatory invocation of Supreme Court Rule 219(b) since plaintiffs were able to prove at trial the truth of the matter of fact sought in their request to admit.

There is no question that plaintiffs did prove the content of the requested admission. Explicit in the rule, however, is the requirement that a party serve a sworn denial of the requested admission, thus forcing the requesting party to proof. Thus, Rule 219(b) requires not only that the matters asserted be proved, but also proof that the opposing party lacked good reasons to deny the request. (Exchange Na tional Bank v. DeGraff (1982), 110 Ill. App. 3d 145, 441 N.E.2d 1197.) A refusal to admit is not a denial and will not be treated as such where the replying party sets forth in detail the reasons why he cannot truthfully admit or deny the requested matters. (See 87 Ill. 2d R 216(c)(1).) The request called for more than an admission of fact and required defendant to form an early opinion on the technical matter of the cause of the damage. State Farm’s reply was made in terms of uncertainty; it was not a denial on its face. The refusal to admit was not unreasonable at that early stage of the discovery.

Even though it can be said that State Farm adopted that portion of its expert’s September 18, 1979, report quoted in its September 19, 1979, letter to plaintiffs, we do not think that this is conclusive. State Farm listed thirty-some other policy exclusions or exceptions in that same letter. Discovery was in its earliest stage at this time and at the time of the filing of the request to admit. The expert’s report used the word “apparently” in describing the condition which the plaintiffs sought to have State Farm admit at this early stage. Review of the record before us does not convince us that State Farm acted patently unreasonably in refusing to admit the truth of that which, at the time the admission was requested, it was unsure of the truth of. Further, State Farm cannot be required to have the foresight to anticipate the ultimate basis in law for the trial court’s finding of liability. We affirm the trial court’s denial of plaintiffs’ motion for attorney fees and expenses.

For the foregoing reasons, the judgment of the circuit court of Jackson County is affirmed.

Affirmed.

HARRISON, P.J., and WELCH, J„ concur.


source: Caselaw Access Project

author: JUSTICE LORENZ

license: Public Domain

text:
    LAKE MOTOR FREIGHT, INC., Plaintiff-Appellant, v. RANDY TRUCKING, INC., Defendant-Appellee.
    First District (5th Division)
    No. 82—2515
    Opinion filed September 30, 1983.
    Arnold and Hennessy, of Chicago (William L. Arnold and Randall F. Peters, of counsel), for appellant.

      Law Offices of William E. Phillips, of Chicago, for appellee.
   JUSTICE LORENZ

delivered the opinion of the court:

Plaintiff appeals from a judgment which dismissed its cause of action for contribution from an alleged joint tortfeasor, and we are presented with .two questions of law.

1. Can a tortfeasor who settles a claim filed against it by the employee of a third-party obtain contribution from the employer under “An Act in relation to contribution among joint tortfeasors” (the Contribution Act) (Ill. Rev. Stat. 1981, ch. 70, par. 301 et seq.) even though the employer is immunized from common law and statutory liability to the employee under section 5(a) of the Workers’ Compensation Act (Ill. Rev. Stat. 1981, ch. 48, par. 138.5(a))?

2. Under sections 2(c) and (e) of the Contribution Act (Ill. Rev. Stat. 1981, ch. 70, pars. 302(c), (e)), is it possible for a release given to a named tortfeasor to extinguish the liability of an alleged tortfeasor who is not specifically named in the release?

The answer to the first question is no, and the answer to the second question is yes. We accordingly affirm in part and reverse in part.

The following allegations are taken from the complaint and are material to our decision.

On March 14, 1980, there was a multivehicle collision on the Dan Ryan Expressway involving trucks owned and operated by plaintiff (Lake Motor Freight, Inc.) and defendant (Randy Trucking, Inc.). Among the individuals injured by this accident were Martin R. McGovern, an employee of Randy Tracking, and Robert A. Brudnicki, the operator of a third vehicle. Bradnicki and McGovern filed negligence actions against plaintiff, and these claims were settled, respectively, for $7,500 and $24,500.

In settling their claims, Bradnicki and McGovern each signed a release which states, in part, that the sums listed above were paid by plaintiff “to the undersigned and their attorney by or on behalf of all other persons, firms or corporations liable or who might be claimed to be liable or who may have contributed as a cause to any injuries which are the subject matter of this release including Lake Motor Freight, Inc. ***.”

The complaint further alleges that one of the causes of the accident was defendant’s negligence, and it seeks recovery “for all amounts paid in settlement above [plaintiff’s] pro rata share of liability.”

Ruling on a defense motion, the circuit court entered a judgment dismissing the cause of action on the ground that “Lake Motor Freight, Inc., does not have a right of contribution against Randy Trucking, Inc., since the releases executed by Martin McGovern and Robert Brudnicki do not extinguish the liability of Randy Trucking, Inc.”

Opinion

Defendant initially argues that it is not liable to plaintiff under the Contribution Act for the settlement with its employee, McGovern, because, by operation of section 5(a) of the Workers’ Compensation Act (Ill. Rev. Stat. 1981, ch. 48, par. 138.5), it is not “subject to liability in tort” for McGovern’s injuries — a precondition to liability under the Contribution Act. (See Ill. Rev. Stat. 1981, ch. 70, par. 302(a).) For the reasons given below, we agree with defendant.

When an employee’s injury is compensable under the Workers’ Compensation Act, section 5(a) of the Act provides that the employee has “[n]o common law or statutory right to recover damages from the employer ***.” (Ill. Rev. Stat. 1981, ch. 48, par. 138.5(a).) However, the supreme court held, in Skinner v. Reed-Prentice Division Package Machinery Co. (1977), 70 Ill. 2d 1, 374 N.E.2d 437, that when an employee is injured by joint tortfeasors and one of the tortfeasors files an action seeking contribution from the employer, “The fact that the employee’s action against the employer is barred by the Workmen’s Compensation Act (Ill. Rev. Stat. 1975, ch. 48, pars. 138.5, 138.11) would not preclude the [joint tortfeasor’s] third-party action against the employer for indemnification (Miller v. DeWitt [1967], 37 Ill. 2d 273[, 226 N.E.2d 630]) and should not serve to bar its action for contribution.” 70 Ill. 2d 1, 15-16.

The General Assembly enacted the Contribution Act after Skinner was decided (1979 Ill. Laws 2347), and section 2(a) of the Act provides a right of contribution only in cases “where 2 or more persons are subject to liability in tort arising out of the same injury to person or property, or the same wrongful death ***.” (Emphasis added.) (Ill. Rev. Stat. 1981, ch. 70, par. 302(a).) Therefore, when an alleged tortfeasor settles a claim, the claimant’s employer is not subject to liability under the Contribution Act unless the employer is “subject to liability [to the employee] in tort.” Ill. Rev. Stat. 1981, ch. 70, par. 302(a).

We find that when an injury is compensable under the Workers’ Compensation Act, the employer is not “subject to liability in tort” for the employee’s injury, and the employer is not liable for contribution under the Contribution Act. Not only does section 5(a) of the Workers’ Compensation Act immunize an employer from common law and statutory liability for injuries which are covered by the Act, but when an injured employee seeks compensation under the Act, “[t]he liability of the employer, instead of being a liability in tort, is a liability imposed by law, and is rather in the nature of an implied contract by reason of the relation of the parties or the existence of an obligation or duty.” (Keller v. Industrial Com. (1932), 350 Ill. 390, 397, 183 N.E. 237.) In other words, as a result of this “statutory duty — this obligation imposed by law — there was implied in law a promise to perform it which was contractual in its nature.” 350 Ill. 390, 398.

Since section 5(a) immunizes an employer from common law and statutory liability for a compensable injury, and proceedings under the Workers’ Compensation Act are “contractual in its nature” (350 Ill. 390, 398), an employer is not “subject to liability in tort” for compensable injuries, and in such cases there is no right to contribution against an employer under the Contribution Act. Although the Illinois Contribution Act “makes no reference to the Skinner problem [of contribution against an employer for a compensable injury] its language clearly does not support contribution on the Skinner facts. It authorizes contribution where two or more persons are subject to liability in tort arising out of the same injury.” (2A A. Larson, The Law of Workmen’s Compensation sec. 76.39, at 14— 624 (1982).) It therefore appears that the Contribution Act was intended to modify what has been called the Skinner decision’s “almost complete failure to give any weight to the component of exclusiveness of the compensation remedy.” (2A A. Larson, The Law of Workmen’s Compensation sec. 76.39, at 14 — 625 (1982).) See also Horan, Contribution in Illinois: Skinner v. Reed-Prentice and Senate Bill 308, 61 Chi. Bar. Rec. 331, 332 (1980).

Our decision on this issue is reinforced by rulings in other jurisdictions. Section 2(a) of the Illinois Contribution Act is patterned on section 1(a) of the Uniform Contribution Among Tortfeasors Act (the Uniform Contribution Act), which provides for contribution “where two or more persons become jointly or severally liable in tort for the same injury ***.” (Emphasis added.) (Uniform Contribution Act sec. 1(a), Uniform Laws Annotated (1955 version).) The drafters of the Uniform Contribution Act acknowledged that “[t]he language used [in section 1(a), taken from the 1939 version of the Uniform Contribution Act] has been adequate to exclude cases where the person from whom contribution is sought was not liable to the injured person.” 12 Uniform Laws Annotated, Civil Proc. & Rem. Laws, Commissioners’ Comment, at 64 (Master ed. 1975).

Furthermore, the nearly uniform rule is that an employer is not subject to contribution when an injury is covered by a Workers’ Compensation Act and contribution is sought under a law which is patterned on the Uniform Contribution Act. (Firestone Tire & Rubber Co. v. Thompson Aircraft Tire Corp. (Fla. App. 1977), 353 So. 2d 137, 139, aff'd (Fla. App. 1978), 382 So. 2d 878. See, e.g., Cacchillo v. H. Leach Machinery Co. (1973), 111 R.I. 593, 596, 305 A.2d 541, 543; Diamond State Telephone Co. v. University of Delaware (Del. 1970), 269 A.2d 52, 55; Baltimore Transit Co. v. State, to Use of Schriefer (1944), 183 Md. 674, 679, 39 A.2d 858, 860.) See also Purcell, The Effect of Workers’ Compensation Laws on the Right of a Third Party Liable to an Injured Employee to Recover Contribution or Indemnity From the Employer, 9 Seton Hall L. Rev. 238, 264 (1978).

Plaintiff argues that an employer would be unjustly enriched if it could recoup its compensation payments from the amount its employee recovers by settling a claim against a joint tortfeasor (see Ill. Rev. Stat. 1981, ch. 48, par. 138Í5) while, at the same time, using its immunity from common law and statutory liability to avoid having to pay its pro rata share of the settlement paid to its employee.

We agree that,

“The fact than an employer is allowed to avoid further liability may seem unfair to some, but the unfairness lives not in the law of contribution, but in the policy underlying the Workmen’s Compensation Act, which provides strict liability and specialized benefits for all injuries to insured employees.” Cacchillo v. H. Leach Machinery Co. (1973), 111 R.I. 593, 597, 305 A.2d 541, 543.

Plaintiff also points out that in Doyle v. Rhodes (1982), 109 Ill. App. 3d 590, appeal allowed (1983), 92 Ill. 2d 574, the second district held that, under the Contribution Act, a third-party can obtain contribution from an employer even if the injury in question is covered by the Workers’ Compensation Act. Nevertheless, for the reasons given below, we find Doyle unpersuasive.

The decision in Doyle is based upon a so-called “legislative history” of the statute which states, in part, that:

“It is further the intent of the committee that the right of contribution thus created [by the proposed Act] be recognized as founded upon the doctrine of unjust enrichment. The right is a separate right of restitution. It is not a derivative right and thus is not barred by any common law or statutory immunity which would preclude the prime claimant from pursuing an action directly against the party from whom contribution is sought. For example, the immunity of an employer to any common law action sought to be brought by an employee will not prevent one held liable to that employee from seeking contribution from the employer.” Legislative History 1, 2 (Chi. Bar Ass’n 1981).

This document is quoted, and treated as the report of a legislative committee, in Doyle and the line of cases upon which it is based. Doyle v. Rhodes (1982), 109 Ill. App. 3d 590, 592-93, 440 N.E.2d 895; Larson v. Buschkamp (1982), 105 Ill. App. 3d 965, 969, 435 N.E.2d 221; Wirth v. City of Highland Park (1981), 102 Ill. App. 3d 1074, 1080-82, 430 N.E.2d 236. See also R Clark, Comparative Contribution: The Legislative Enactment of the Skinner Doctrine, 14 J. Mar. L. Rev. 173, 173 n.6, 193 (1980) (quoting and relying upon the “Legislative History” as the report of a legislative committee).

We have examined this so-called “legislative history” and we find that it does not even purport to be a report issued by a committee of the General Assembly. Instead, an internal reference indicates that the document merely represents the views of the Civil Practice Committee of the Chicago Bar Association. There is nothing to indicate that the General Assembly ever considered or adopted the views contained in this bar association report, and we find that it is not appropriate to give it the deference which it received in Doyle, Larson and Wirth.

The pertinent portion of the Illinois Contribution Act is based upon the Uniform Contribution Act, and to further the goal of uniformity in such laws courts generally “defer to decisions of other states and will construe the statute in accordance with the construction given to the same statute in other jurisdictions.” (2A Sutherland on Statutes and Statutory Construction sec. 52.05, at 340 (3d ed. 1973).) More importantly, “When a statute is adopted from another State and has been previously construed by the courts of that State the statute is presumed to have been adopted with the construction placed upon it.” Kerner v. Thompson (1936), 365 Ill. 149, 155, 6 N.E.2d 131.

Based on all the reasons given above, we find that the General Assembly intended to adopt the nearly unanimous rule that when an employee’s injury is covered by the Workers’ Compensation Act, the employer is not “subject to liability in tort,” and is not liable under the Contribution Act. It may be that the General Assembly did not fully realize the import of the language it used, but if so this can only be rectified by the General Assembly, not by the courts.

Next, we consider defendant’s argument that it is not subject to liability under the Contribution Act on the grounds that the release signed by Brudnicki did not extinguish its liability.

Section 2(e) of the Contribution Act states that “[a] tortfeasor who settles -with a claimant pursuant to paragraph (c) is not entitled to recover contribution from another tortfeasor whose liability is not extinguished by the settlement.” (Ill. Rev. Stat. 1981, ch. 70, par. 302(e).) The pertinent portion of section 2(c) provides:

“When a release or covenant not to sue or not to enforce judgment is given in good faith to one or more persons liable in tort arising out of the same injury or the same wrongful death, it does not discharge any of the other tortfeasors from liability for the injury or wrongful death unless its terms so provide ***.” (Emphasis added.) Ill. Rev. Stat. 1981, ch. 70, par. 302(c).

The release executed by Brudnicki discharged from liability “all” defendants and potential defendants “including Lake Motor Freight, Inc.,” the plaintiff in the present action. According to defendant, however, even though it is one of “all” the potential defendants, “including” plaintiff, it was not discharged from liability because — unlike plaintiff — it was not specifically named in the release.

The pertinent portion of section 2(c) of the Illinois Act is based on section 4(a) of the Uniform Act (Uniform Contribution Act sec. 4(a), Uniform Laws Annotated (1955 version)), and we again consider cases on point from other jurisdictions. “The majority of cases from other jurisdictions have held that language releasing any and all persons in addition to the named parties satisfies the requirements of the Uniform Act ‘unless the release so provides.’ ” Douglas v. United States Tobacco Co. (8th Cir. 1982), 670 F.2d 791, 794. See also D. Horan, Contribution in Illinois: Skinner v. Reed-Prentice and Senate Bill 308, 61 Chi. Bar Rec. 331, 336 (1980) (“The plaintiff’s release must specifically name all possible tortfeasors and/or contain language showing that the intent of the [injured claimant] is to extinguish entirely the common liability”).

We agree that,

“If [defendant’s] views were sound, we would have to read this requirement of the Act to be ‘does not discharge the other tortfeasors unless the release so provides by specifically naming the other tortfeasors.’ We must reject such a proposed construction as strained and unrealistic. We think a release can ‘so provide’ without so naming the other tortfeasors, and that such was accomplished in this case.” Hodges v. United States Fidelity & Guaranty Co. (D.C. App. 1952), 91 A.2d 473, 476 (construing a portion of the 1939 Uniform Act which was retained in the 1955 version).

Based upon all the reasons given above, we affirm the judgment of the circuit court insofar as it dismissed the portion of plaintiff’s action which sought contribution for the settlement with Martin R. McGovern. Also, we reverse the portion of the judgment which dismissed plaintiff’s action to obtain contribution for the settlement with Robert A. Brudnicki, and we remand for further proceedings.

Affirmed in part; reversed in part; and cause remanded.

WILSON, P.J., and SULLIVAN, J., concur.


text:
    ARCO PETROLEUM PRODUCTS COMPANY, Plaintiff and Counterdefendant-Appellee, v. R & D AUTOMOTIVE, INC., Defendant-(E. L. “Dude” Watts, Defendant and Counterplaintiff-Appellant).
    First District (5th Division)
    No. 83—237
    Opinion filed September 30, 1983.

      Berlin & Braude, of Chicago, for appellant.
    Lord, Bissell & Brook, of Chicago (Robert A. Knuti and Nick J. Di Giovanni, of counsel), for appellee.
   JUSTICE LORENZ

delivered the opinion of the court:

Plaintiff, Arco Petroleum Products Company (Arco), filed suit for breach of contract against defendants, R & D Automotive, Inc. (R & D), a corporation, and its president E. L. Watts (Watts), alleging, inter alia, that plaintiff was holding a $50,000 certificate of deposit pledged by Watts as collateral for defendants’ indebtedness under a security agreement between the parties. Watts filed a counterclaim seeking the return of the certificate or judgment for the value thereof. Subsequently, judgment by agreement was entered against defendant (R & D) and both parties moved for summary judgment on the issue of entitlement to the certificate of deposit. The trial court entered summary judgment for plaintiff, and Watts appealed.

The issues on appeal are: (1) whether the trial court properly granted summary judgment in favor of plaintiff; and (2) whether genuine issues of material fact remain as to either the formation or duration of the contract of pledge between the parties.

The following facts are pertinent to our decision.

In May or June of 1980, plaintiff agreed to supply defendants with AC Delco automotive parts for wholesale distribution in accordanee with a TEA Reseller Agreement. Pursuant to the terms of a financing statement and security agreement between the parties, plaintiff extended a $75,000 line of credit to defendants and acquired a security interest in defendants’ inventory, accounts receivable, and the proceeds thereof.

By October of 1980, however, plaintiff had extended approximately $125,000 of credit to R & D. Plaintiff thereupon advised Watts that additional security in the form of a letter of credit or a pledge would be required before credit in excess of $75,000 would be extended to him.

After discussing plaintiff’s request for additional security with R & D’s major customer, Watts and the customer agreed to pledge $50,000 and $100,000 certificates of deposits to plaintiff respectively.

Subsequently, plaintiff sent a blank pledge of certificate and power of attorney to Watts which provided, inter alia, that the $50,000 certificate of deposit was to be delivered as collateral security for the full performance of the TEA Reseller Agreement and “for the payment of any amount for which R & D Automotive, Inc. may be indebted to [Arco] ***.” The power of attorney assigned Watts’ certificate of deposit to Arco. Both instruments were executed by Watts on October 11, 1980, and were returned to plaintiff with a typewritten memorandum dated October 6, 1980, which provided in pertinent part: “Per our phone conversation I am clarifying our agreement. We are giving you a $100,000 C.D. as a guarantee for extending credit to R & D Automotive, Inc. in excess of $125,000. We hereby authorize the sale of said C.D. subsequent to our receiving a 15 day written notice at our place of business *** [of R & D] being delinquent in payments to [Arco] in excess of $125,000 under normal terms per the TEA Reseller agreement ***. Our liability shall be restricted to the amount owed and past due that is in excess of $125,000.00. We have absolutely no liability on the 1st $125,000.00 of indebtedness of [R & D] to [Arco]. This agreement shall be for a term of six months from October 6th, 1980 to April 5th, 1981.”

Watts had signed this memorandum and left blank a space for plaintiff’s signature.

Upon receipt of these documents plaintiff informed Watts that the pledge as submitted was acceptable although the six-month-term limitation imposed by Watts was “under review.”

During October 1980 through April 5, 1981, plaintiff shipped additional goods to defendants on credit in excess of $125,000. Throughout this time, Watts requested that plaintiff return his pledge and certificate. Plaintiff offered to return the certificate in exchange for a substitute form of security from Watts, e.g., a letter of credit, in an amount equal to the certificate, but Watts declined to do so.

On April 24, 1981, Watts met with plaintiff’s Field Credit Manager, R.F. Boeke, and requested that plaintiff cancel his pledge and return the certificate to him. Although Boeke offered to return the certificate upon condition that Watts provide a substitute form of security, Watts again told him to retain it as security for the credit previously extended to R & D.

Defendants subsequently defaulted in their obligations under the security agreement and, on June 11, 1981, plaintiff filed a complaint in replevin. This was later nonsuited. Plaintiff then brought suit for breach of contract against defendants, and Watts filed a counterclaim seeking the return of his certificate or judgment for the value thereof. By agreement, judgment was entered against defendant in the amount of $194,731.86, and both parties moved for summary judgment on the issue of entitlement to the certificate.

Following a hearing, the trial court denied Watts’ motion and granted plaintiff’s motion for summary judgment. Defendant Watts appeals.

Opinion

Initially, we note the confusion engendered by both parties’ interchangeable characterization of the contract in issue as both a “pledge” and a “guaranty.”

A pledge is the lien created by the delivery of personal property by the owner to another, upon an express or implied agreement that it shall be retained as a security for an existing or future debt, and to create a pledge, the pledgee must have the possession and control of the property (Immel v. Travelers Insurance Co. (1940), 373 Ill. 256, 26 N.E.2d 114). The necessary elements of a pledge are a pledgor, a pledgee, a debt or obligation, and a contract of pledge. 30 Ill. L. & Prac. Pledges sec. 11 (1957).

A guaranty, on the other, is a third party’s promise to answer for payment of an obligation if the person primarily liable fails to make payment or perform an obligation. Gridley v. Capen (1874), 72 Ill. 11.

As a practical matter, a party’s exposure is limited with a pledge because the obligation is secured only by the asset pledged. However, in contrast, a guaranty requires that a party place all his assets behind a guaranty, resulting in a primarily unlimited exposure.

Thus, while the contract between the parties in the instant case might arguably be labeled a guaranty, in the sense that Watts, within his capacity as president of R & D, authorized the sale of the C.D. in the event of a default by R & D in the body of the contract, we nonetheless believe that the transaction in issue is correctly characterized as a pledge. Consequently, in order to determine what debts are secured by collateral in the contract of pledge, the whole transaction between the parties must be looked to and the intention of the parties must be ascertained. Knight v. Seney (1918), 211 Ill. App. 324, aff’d (1919), 290 Ill. 11, 124 N.E. 813.

In the present case, the thrust of Watt’s central argument is that both the contract of pledge and the accompanying October 6, 1980, memorandum were void because of a defect in the formation of the contract.

Watts maintains that no meeting of the minds existed between the parties because submission of the October 6 memorandum to plaintiff constituted a counteroffer which precluded an effective acceptance. We do not find this to be established, however, by the record.

Our review of the record indicates that Watts did not alter the terms of the unconditional pledge which recited that he was delivering the C.D. as “collateral security for the payment of any amount for which [R & D] may be indebted to [Arco] and which further authorized its sale in the event of default.” It is also clear that plaintiff, while agreeing to review the limitations set forth by Watts in the October 6 memorandum, did not accede to these limitations by execution and return of the document.

Watts maintains, however, that plaintiff’s acceptance of the October 6 memorandum became a condition precedent to the formation of the contract. We do not agree.

In the present case, neither party disputes that Watts accepted the shipment of plaintiff’s goods to R & D from October 1980 through April 1981, despite his continuing requests for plaintiff to approve the limitations on his pledge.

Since it is axiomatic that an offer can be accepted by the performance of a desired act (17 Am. Jur. 2d Contracts sec. 45 (1964)), an offeree 'may also be regarded as having accepted a tendered contract by accepting the benefits of the contract. (Toto v. Durand & Kasper Co. (1919), 214 Ill. App. 449.) As stated in the Restatement of Contracts sec. 45 (1932): “If an offer for a unilateral contract is made, and part of the consideration requested in the offer is given or tendered by the offeree in response thereto, the offeror is bound by a contract ***.” Accord, Central National Bank & Trust Co. v. Consumers Construction Co. (1972), 5 Ill. App. 3d 274, 282 N.E.2d 158.

With the foregoing legal principles in mind, we find that Watts’ October 6 memorandum did not, by operation of law, repudiate, reject or establish nonreliance upon the contract of pledge originally executed by Watts, and that Watts agreed to the terms of the unconditional pledge by accepting plaintiff’s extension of credit to R & D. Consequently, we find that a valid and binding contract resulted.

Similarly, we reject Watts’ argument that the contract of pledge limited the use of the pledged certificate of deposit as collateral only from October 6, 1980, to April 5,1981.

As a general rule, the pledgee may ordinarily satisfy the debt out of property pledged, pursue his remedy against the pledgor or hold the pledged property until the debt is paid. 30 Ill. L. & Prac. Pledges sec. 51 (1957).

Although Watts persistently argues that the pledge was of limited duration in accordance with the October 6 memorandum, unexecuted by plaintiff, there is nothing on the face of the unconditional pledge itself which indicates any time limitation. It is clear that if a limitation upon the scope of the lien is intended, such limitation must be impressed in the agreement which is executed. (Kramlich v. Home Federal Savings & Loan Association (1974), 26 Ill. App. 3d 430, 325 N.E.2d 657.) In Kramlich, the court, citing Union Brewing Co. v. Inter-State Bank & Trust Co. (1909), 240 Ill. 454, 461, 88 N.E. 997, stated the well-settled rule: “The terms of the contract under which the property is pledged may be such as to authorize it to be held for the satisfaction of other debts in existence at the time of the execution of the contract and also for future advances which may be made by the pledgor.” (Emphasis added.) (See also Immel v. Travelers Insurance Co. (1940), 373 Ill. 256, 26 N.E.2d 114; Mongoven v. Watts (1930), 258 Ill. App. 106.) As the Mongoven court observed: “A lien of this character [a pledge] ‘is measured by the extent of the advances and the amount of debt.’ ” 258 Ill. App. 106, 113.

Where, as here, the pledge recites that the certificate of deposit is to be delivered as collateral security “for the payment of any amount for which [R & D] may be indebted to [Arco],” we are of the opinion that the executed pledge contained a clear expression of the intent that the collateral was to be used for future, as well as past advances.

As a result of this conclusion, we find that the contract of pledge was not terminated by the expiration of the six-month term alluded to in the October 6 memorandum.

Accordingly, we find that the trial court properly granted plaintiff’s motion for summary judgment , on the issue of the entitlement to the certificate.

For the foregoing reasons, the judgment of the circuit court of Cook County is affirmed.

Affirmed.

WILSON, P.J., and SULLIVAN, J., concur.


author: JUSTICE NASH

text:
    CITY BANK AND TRUST COMPANY IN DIXON, Trustee, Plaintiff-Appellee, v. JOE MORRISSEY, Ex’r of the Will of William Tyne, et al., Defendants-Appellees—(Margaret Henry et al., Defendants-Appellants).
    Second District
    No. 82—934
    Opinion filed October 7, 1983.
    Rehearing denied November 7, 1983.

      Warren H. Badger and David W. Badger, both of Badger & Badger, of Dixon, and Reese, Reese & Bagley, of Rockford, for appellants.
    Charles T. Beckman, of Keller, Magdich & Beckman, of Dixon, for appellees.
   JUSTICE NASH

delivered the opinion of the court:

Plaintiff, City Bank and Trust Company, as trustee of the Margaret Tyne Trust (Trust), brought this action seeking instructions as to the proper disposition of the assets remaining in the Trust following the death of the life beneficiary, William Tyne. The circuit court found the Rule in Shelley’s Case applicable to the provisions of the Trust and ordered the real assets of the Trust distributed to appellees, Julia Appleman, Jane Morrissey, Jo Ann Hademan, William Morrissey, Pat Donaldson and Kathleen Muldoon, as the residuary legatees under William Tyne’s will. The personal assets of the Trust were ordered distributed to the appellees and the appellants, Margaret Henry, Edward Tyne, Patricia Tyne and Margaret Tyne (nonbeneficiaries of William Tyne’s will), as the heirs at law of William Tyne. Appellants contend that the trial court erred in applying the Rule in Shelley’s Case and that the realty of the trust should have been distributed in the same manner as the personalty.

The parties submitted this cause to the circuit court upon an agreed statement of facts. The record reflects that on January 2, 1952, Margaret Tyne died leaving a last will and testament which was admitted to probate on February 14, 1952. The will established the Trust pursuant to its fifth paragraph which provides:

“FIFTH: I GIVE, DEVISE, and BEQUEATH all the rest, residue and remainder of my property now owned by me or hereafter acquired, whether the same be real, personal, or mixed, or wherever situated, one-third part thereof to my son Thomas Tyne, one-third part thereof to my daughter Frances Tyne, and the remaining one-third I GIVE, DEVISE, and BEQUEATH to my daughter Margaret Henry, in the trust for the following uses and purposes to wit:
To lease, manage, control, sell, or operate all real estate; to collect the income from all property of any kind or nature whatsoever; to pay all taxes and assessments levied thereon; to sell and invest the proceeds in another real estate or appropriate securities; to become a party to the agreements for operating all real estate which may be of the nature of an undivided interest with the co-owners; to bring all suits and actions necessary to preserve and protect said property; to distribute the net income to my son, William Tyne, at least quarterly or more often as my trustee shall deem best, and to retain such part thereof as may be necessary to preserve and protect said estate.
Said trustee shall have the right to encroach on principal and expend the same for the purpose of the welfare, health, and maintenance of the said William Tyne and I further DIRECT that the income from said trust and the principal thereof shall be payable to the persons entitled thereto only upon their own individual receipt and shall not be subject to assignment, transfer, or any legal process of any kind or nature. I further DIRECT that upon the death of the beneficiary, William Tyne, that all the assets of the trust be converted into cash or distributed in kind to the heirs at law of the said William Tyne who survive him.” (Emphasis added.)

In 1974, Margaret Henry resigned as trustee of the Trust and was succeeded by the plaintiff, City Bank and Trust Company.

On November 13, 1980, the life beneficiary of the Trust, William Tyne, died testate and appellees were the residuary legatees of his will; however, William Tyne’s heirs at law included both the appellants and appellees. As a result, plaintiff brought this action seeking instructions as to the distribution of the assets of the Trust.

The trial court found that the fifth paragraph of Margaret Tyne’s will which created the Trust invoked the application of the Rule in Shelley’s Case. Thus, at the time the Trust was created in 1952, William Tyne received an equitable fee simple interest in the realty of the Trust and its proceeds; this interest was fully alienable by William Tyne pursuant to the provisions of his will. Conversely, since the Rule does not apply to personalty, William Tyne received only a life estate in those assets which upon his death passed to his heirs at law pursuant to the fifth paragraph of Margaret Tyne’s will. Accordingly, the court ordered plaintiff to distribute the realty and its proceeds to appellees as legatees under William Tyne’s will and the personalty was ordered distributed to appellees and appellants as the heirs at law of William Tyne. The sole issue on appeal is whether the Rule in Shelley’s Case applies to the fifth paragraph of Margaret Tyne’s will which created the Trust.

Initially, we note that although the Rule was abolished by statute in 1953 (Ill. Rev. Stat. 1981, ch. 30, par. 186), the statute has no retroactive application and the rule must be given effect to instruments executed and delivered prior to the enactment of the statute. (Ill. Rev. Stat. 1981, ch. 30, par. 187; Arnold v. Baker (1962), 26 Ill. 2d 131, 134, 185 N.E.2d 844, 846; Orme v. Northern Trust Co. (1962), 25 Ill. 2d 151, 160, 183 N.E.2d 505, 510; see also Evans v. Giles (1980), 83 Ill. 2d 448, 415 N.E.2d 354.) The Rule in Shelley’s Case provides that if an estate of freehold is granted by any instrument and the remainder is limited by the same instrument, either mediately or immediately, to the heir or heirs of the body of the person taking the freehold as a class, without explanation, the person taking the freehold also takes the remainder, thus vesting him with a fee simple interest. (Churchill v. Marr (1921), 300 Ill. 302, 308, 133 N.E. 335, 337; Seymour v. Heubaum (1965), 65 Ill. App. 2d 89, 95-96, 211 N.E.2d 897, 900, appeal denied (1966), 33 Ill. 2d 627.) There are three requisites for the application of the Rule: (1) a freehold estate must be granted to the ancestor; (2) a remainder must be limited to his heirs, general or special; and (3) the two estates, freehold and remainder, must both be of the same quality, either legal or equitable. (Sutliff v. Aydelott (1940), 373 Ill. 633, 636, 27 N.E.2d 529, 531; Seymour v. Heubaum (1965), 65 Ill. App. 2d 89, 95-96, 211 N.E.2d 897, 900, appeal denied (1966), 33 Ill. 2d 627.) The Rule has been applied to the equitable interests in trusts (Sutliff v. Aydelott (1940), 373 Ill. 633, 636, 27 N.E.2d 529, 531; Wilson v. Harrold (1919), 288 Ill. 388, 393-94, 123 N.E. 563, 565); however, it does not apply to trusts insofar as the trust contains personal property. Sutliff v. Aydelott (1940), 373 Ill. 633, 638, 27 N.E.2d 529, 532; Lord v. Comstock (1909), 240 Ill. 492, 505, 88 N.E. 1012, 1018.

The Rule in Shelley’s Case is a rule of law and not of construction. (Lord v. Comstock (1909), 240 Ill. 492, 499, 88 N.E. 1012, 1015; McFall v. Kirkpatrick (1908), 236 Ill. 281, 296, 86 N.E. 139, 143; Restatement of Property sec. 312, comment k, at 1759 (1940, 1982 Supp.).) Thus, if the requirements for the application of the Rule are present, the Rule will be applied regardless of the intent of the grantor. (Cahill v. Cahill (1949), 402 Ill. 416, 421, 84 N.E.2d 380, 384; Lord v. Comstock (1909), 240 Ill. 492, 499, 88 N.E. 1012, 1015.) men applied the Rule operates on the remainder alone, taking it from the heirs and vesting it in the ancestor, thus giving the ancestor, through the doctrine of merger, a fee simple interest. Lydick v. Tate (1942), 380 Ill. 616, 623, 44 N.E.2d 583, 589; Seymour v. Heubaum (1965), 65 Ill. App. 2d 89, 96-97, 211 N.E.2d 897, 900-01, appeal denied (1966), 33 Ill. 2d 627.

When the foregoing authority is applied to the instrument before us, it is clear that the trial court correctly applied the Rule in Shelley’s Case. The appellants do not contest that the first two elements necessary for the application of the Rule are present in the instant case, i.e., that William Tyne received a freehold estate and that the remainder was to his heirs at law. No contrary conclusion is possible since the word “heirs” is a technical word which is presumed to have been used in its strict legal sense absent clear and affirmative language to the contrary. (Lydick v. Tate (1942), 380 Ill. 616, 625, 44 N.E.2d 583, 589; Seymour v. Heubaum (1965), 65 Ill. App. 2d 89, 97, 211 N.E.2d 897, 901, appeal denied (1966), 33 Ill. 2d 627.) Since no such language is used in the Margaret Tyne will, the first two elements for the application of the Rule are satisfied.

Appellants contend, however, that the third element necessary for the application of the Rule in Shelley’s Case is missing since the estate conveyed to William Tyne and the estate conveyed to his heirs are not of the same quality. Initially, appellants contend that the interest of William Tyne was in realty whereas the heirs’ interests was in personalty. They assert that the portion of the will which states that upon the death of William Tyne, the assets of the Trust are to be “converted into cash or distributed in kind” creates an equitable conversion of the realty in the Trust, thus making their interest in personalty rather than realty. Since William Tyne’s interest is in realty, they contend the estates are not of equal quality and the Rule does not apply.

While a direction to convert land into cash may result in an equitable conversion, that direction must be clear and mandatory; if the trustee is given any option, choice or discretion as to whether the property is sold, then an equitable conversion does not occur because there is no duty to sell. (Rehbein v. Norene (1954), 2 Ill. 2d 363, 370, 118 N.E.2d 287, 291-92; Young v. Sinsabaugh (1930), 342 Ill. 82, 86, 173 N.E. 784, 786; In re Estate of Achilli (1979), 71 Ill. App. 3d 473, 476, 389 N.E.2d 644, 646.) In the instant case, a plain reading of the will reveals that the trustee has complete discretion to either distribute the assets in kind or convert them into cash. Accordingly, no equitable conversion occurs and the two estates, freehold and remainder, are of equal quality as interests in realty.

In the alternative, appellants contend that the two estates are not equal in that William Tyne had an equitable interest in the realty whereas the heirs’ interest was legal. They argue that title to the real property vested in the heirs immediately upon the death of William Tyne since the Trustee’s legal title ended upon the death of William Tyne and the immediate vesting makes their interest legal, not equitable.

Under the terms of a will, the trustee will take whatever legal estate is necessary for him to carry out the purpose of the trust and his duties thereunder and a devise to a trustee which grants the power to sell, convey, rent or mortgage necessarily vests the fee in the trustee. (Lord v. Comstock (1909), 240 Ill. 492, 502, 88 N.E. 1012, 1016; Seymour v. Heubaum (1965), 65 Ill. App. 2d 89, 98-99, 211 N.E.2d 897, 901-02, appeal denied (1966), 33 Ill. 2d 627.) If the trustee is vested with fee simple title in the residuary, the life estate in the ancestor and the remainder in the heirs are both equitable since the duties of the trustee would not be completed until after a conveyance is made to the heirs upon the death of the ancestor, thus there can be no legal vested remainder in the heirs. (Lord v. Comstock (1909), 240 Ill. 492, 503, 88 N.E. 1012, 1016; Seymour v. Heubaum (1965), 65 Ill. App. 2d 89, 101-02, 211 N.E.2d 897, 901-02, appeal denied (1966), 33 Ill. 2d 627.) In the case at bar, it is apparent that the will gave the trustee power to convey, manage and sell, which powers lasted after the life of William Tyne. As such, the heirs’ interest in the Trust was equitable as was that of the life tenant.

As a result of the foregoing, all three of the elements necessary for the application of the Rule are present and once the Rule is applied it does not matter that the quality or nature of one of the estates is altered at a later date. (Seymour v. Heubaum (1965), 65 Ill. App. 2d 89, 103-04, 211 N.E.2d 897, 904, appeal denied (1966), 33 Ill. 2d 627; Restatement of Property sec. 312, comment h, at 1756 (1940, 1982 Supp.).) Thus, William Tyne received a fee simple interest in the realty of the Trust at the time of its original conveyance and that interest continued even though the realty may later have been converted into personalty. Accordingly, the trial court was correct in applying the Rule to the realty of the Trust and its proceeds and distributing them to the appellees as legatees of William Tyne’s will. The court was also correct in not applying the Rule to the personalty which was ordered distributed to the appellants and appellees as William Tyne’s heirs at law.

For the foregoing reasons the judgment of the circuit court of Lee County is affirmed.

Affirmed.

SEIDENFELD, P.J., and YAN DEUSEN, J., concur.


author: JUSTICE MILLER

text:
    RURAL ELECTRIC CONVENIENCE COOPERATIVE COMPANY, Plaintiff-Appellee, v. ILLINOIS COMMERCE COMMISSION, Defendant-(Central Illinois Public Service Company, Defendant-Appellant).—RURAL ELECTRIC CONVENIENCE COOPERATIVE COMPANY, Plaintiff-Appellee, v. ILLINOIS COMMERCE COMMISSION, Defendant-Appellant-(Central Illinois Public Service Company, Defendant).
    Fourth District
    Nos. 4—83—0019, 4—83—0056 cons.
    Opinion filed October 11, 1983.
    Rehearing denied November 4, 1983.

      William S. Hanley and Stephen R. Kaufmann, both of Sorling, Northrup, Hanna, Cullen & Cochran, Ltd., of Springfield, for appellant Central Illinois Public Service Company.
    Neil F. Hartigan, Attorney General, of Springfield (Hercules F. Bolos, of Illinois Commerce Commission, Special Assistant Attorney General, and Edward P. O’Brien, Assistant Attorney General, of counsel), for appellant Illinois Commerce Commission.
    Edward G. Pree, of Pree & Pree, and Jon W. DeMoss, both of Springfield, for appellee.
   JUSTICE MILLER

delivered the opinion of the court:

Rural Electric Convenience Cooperative Company (RECC) filed a complaint with the Illinois Commerce Commission (Commission), pursuant to the Electric Supplier Act (Ill. Rev. Stat. 1981, ch. lll2/3, par. 401 et seq.), requesting that the Commission declare that RECC was entitled to provide electric service to the Freeman United Crown III Coal Mine in Macoupin County. The Commission found that Central Illinois Public Service Company (CIPS) should furnish electric service to the Crown III Mine. RECC sought administrative review of the Commission’s decision, and the circuit court of Macoupin County reversed the Commission’s decision and held that RECC was entitled to provide service to the mine. CIPS and the Commission appeal from the judgment of the circuit court.

RECC filed a complaint with the Commission on July 10, 1978. In its complaint, RECC alleged that it had received notice from CIPS of a proposed extension of electrical service to the Freeman United Crown III Coal Mine in Macoupin County. RECC alleged that it had the right to serve the mine pursuant to a service-area agreement entered into by RECC and CIPS or, in the alternative, that it was entitled, under the provisions of the Electric Supplier Act (111. Rev. Stat. 1977, ch. lll2/3, par. 401 et seq.), to provide such service. CIPS answered, denying RECC’s allegations.

The Crown III Mine’s main surface facilities are located in section 1 of Nilwood Township in Macoupin County. Freeman United acquired a total of 810 surface acres for its mining operation and mineral rights in 17,500 subsurface acres. Freeman United estimated that the mine would be in production by May 1982. Freeman has erected buildings, roadways and railroad tracks on the surface acreage it owns and has no plans to use any of that area for farming purposes.

Several hearings were held over a 10-month period. Roy Goode testified that he is the manager of RECC. He stated that RECC had provided electric service to Marvin Moore, whose farm was located on a portion of the land comprising the surface area of the Crown III Mine. RECC began serving the Moore farm in 1961 and service was terminated in 1978. The nearest CIPS line in existence on July 2, 1965, was about one mile from the present site of the mine.

Goode testified that RECC purchases its electricity from Western Illinois Power Cooperative (WIPCO). RECC does not own any transmission (34.5 KV or higher) lines. The service provided to Marvin Moore by RECC was metered at 15 amps and 240 volts. RECC’s electricity is supplied by WIPCO through 34.5 KV and 69 KV transmission lines. WIPCO generates its own electricity and also purchases electricity from CIPS. In order to provide electricity to RECC for the purpose of serving the Crown III Mine, WIPCO would purchase electricity from CIPS.

Richard Fairchild, a member of an engineering consulting firm hired by RECC to provide electrical consulting services, testified that RECC is planning to build a substation in Waggoner in late 1983 or early 1984. This substation would be served by a 34.5 KV transmission line furnished by WIPCO. The WIPCO transmission line would run near the Crown III Mine. RECC proposed to tap that line and run a transmission line .35 miles to the Crown III Mine. This transmission line would connect to a metering structure on the premises built by WIPCO and RECC. Fairchild stated that the WIPCO transmission line would tap the CIPS 34.5 KV line, go a mile south, and then turn west .35 miles.

Francis Harmon testified that he is the chief electrical engineer for Freeman United and is familiar with the Crown III operation. The surface areas of the Crown III Mine will require 30-40% of the total power demand at the mine. The mine itself will extend over 17,500 acres at depths of up to 2V2 miles. The total demand for power in the mine’s first normal year of operation will be 7,000 to 7,500 kilowatts.

Pursuant to the Commission’s rules, the prepared statement of R. W. Donaldson was read into the record by the respondent. Donaldson indicated that CIPS proposed to service the Crown III Mine by an extension of the transmission line approximately 1.35 miles from the CIPS existing 34.5 KV line. He stated that RECC has only 7.2/12.5 KV distribution lines in the area, which were not sufficient to service the mine. Donaldson stated that accepted engineering practices required that the Crown III Mine be supplied through a connection to or extension of an existing 34.5 KV line. Donaldson testified that the power demand at the mine would be 700 times greater than the demand of the average farm.

On February 17, 1982, the Commission entered an order directing CIPS to continue furnishing service to the Crown III Mine. A motion for reconsideration was filed by RECC and denied by the Commission. RECC then filed for administrative review in the circuit court of Macoupin County. A hearing was held on December 6, 1982, before Judge Russell and a letter opinion was filed on December 10, 1982. In his opinion, Judge Russell reversed the Commission and found that RECC was entitled to provide service to the mine. A written order was filed on December 30, 1982. A notice of appeal was filed on January 6, 1983.

Both RECC and CIPS have filed motions for judicial notice of certain exhibits in this court. Those motions have been taken with the case and are now decided.

In its motion, CIPS asked this court to take judicial notice of 20 exhibits. Exhibits 1 through 18 are orders of the Commission approving certain service-area agreements between CIPS and various electric cooperatives. CIPS maintains that its agreement with RECC is an adaptation of a model agreement which also forms the basis of the agreements comprising exhibits 1 through 18. Exhibit 19 is a copy of a brief filed by RECC’s attorneys in a Commission proceeding involving Wayne-White Electric Cooperative. CIPS contends that this brief is demonstrative of “the prior interpretation of the ‘model agreement’ ” by electric cooperatives in this State. Finally, CIPS asked that judicial notice be taken of RECC’s brief in General No. 14252, filed in this court on May 20, 1977. CIPS maintains that the arguments made by RECC in that brief are inconsistent with the position it has taken in this case.

RECC, in its motion, asks that the court take judicial notice of its brief and the brief of CIPS filed with the Commission in ESA 208. RECC maintains that these briefs, filed in a subsequent proceeding, rebut the CIPS claim that, because RECC did not raise a theory of contract interpretation until it filed its reply brief with the Commission, CIPS did not have an opportunity to present evidence to the Commission on that issue.

Judicial notice may be taken by an appellate tribunal at any time, even if judicial notice was denied by the trial court or the parties did not seek it below. (In re Estate of Ersch (1963), 29 Ill. 2d 572, 195 N.E.2d 149; Wheeler v. Aetna Casualty & Surety Co. (1973), 11 Ill. App. 3d 841, 298 N.E.2d 329, vacated on other grounds (1974), 57 Ill. 2d 184, 311 N.E.2d 134.) Orders of the Illinois Commerce Commission may be judicially noticed as public records (Nordine v. Illinois Power Co. (1965), 32 Ill. 2d 421, 206 N.E.2d 709). CIPS exhibits 1 through 18 are Commission orders approving various service-area agreements. These agreements are relevant to the CIPS claims that the agreement in this case was based upon a model agreement commonly used by CIPS and certain electric cooperatives. The motion with respect to exhibits 1 through 18 is allowed.

Exhibit 19 is a brief filed by RECC’s attorneys on behalf of Wayne-White Electric Cooperative in a Commission proceeding involving CIPS. Historically, courts refused to take judicial notice of records of other proceedings either in their court or before other tribunals. (People v. McKinlay (1937), 367 Ill. 504, 11 N.E.2d 933; People ex rel. Zilm v. Carr (1914), 265 Ill. 220, 106 N.E. 801.) Recent cases indicate a more flexible approach to the question. In People v. Davis (1976), 65 Ill. 2d 157, 357 N.E.2d 792, the trial court took judicial notice of a guilty plea by the defendant in a prior proceeding in that court. The supreme court held that judicial notice of the earlier plea was proper. The court stated:

“In our judgment, the extension of the doctrine of judicial notice to include facts which, while not generally known, are readily verifiable from sources of indisputable accuracy is an important aid in the efficient disposition of litigation, and its use, where appropriate, is to be commended.” (65 Ill. 2d 157, 165, 357 N.E.2d 792.)

In Davis, neither the fact that the conviction occurred nor that defendant was the person convicted was disputed. See also May Department Stores Co. v. Teamsters Union Local No. 743 (1976), 64 Ill. 2d 153, 355 N.E.2d 7 (court took judicial notice of NLRB determination letter where both parties agreed the letter was accurate); Walsh v. Union Oil Co. (1972), 53 Ill. 2d 295, 291 N.E.2d 644 (judicial notice of other proceedings in other courts is proper where those proceedings involve the same parties and were determinative of the result in the pending case).

However, we decline to take judicial notice of exhibit 19 because it is not relevant to this case. The fact that the attorneys representing RECC may have taken a different position in litigation involving another party is not relevant to the question of whether judicial estoppel should be invoked in this case. RECC should not be held to have adopted the positions its attorneys took in their representation of a completely separate client in a similar proceeding.

Exhibit 20 is the brief of RECC filed in an earlier proceeding in this court. CIPS contends that this brief is relevant on the issue of RECC’s previous interpretation of the service-area agreement at issue in this case. We agree. The CIPS motion for judicial notice is allowed as to exhibit 20. See Davis.

A similar analysis would govern RECC’s motion for judicial notice. Therefore, the motion of RECC for judicial notice of its brief and the brief of CIPS filed in ESA 208, a subsequent proceeding before the Commission, is granted.

The record shows that the parties entered into a “service area agreement” on February 19, 1969. This agreement provides, in pertinent part:

“1. The parties hereto covenant and agree that each shall continue to be entitled to (a) furnish service to customers at locations which each was serving on July 2, 1965, ***.
2. The parties hereto covenant and agree that Cooperative shall be entitled exclusively to serve all consumers with their electric service requirements in the area or areas designated as RECC on the maps hereto attached as Appendices 1 to 5, inclusive, and Utility shall be entitled exclusively to serve all consumers with their service requirements in the area or areas designated as CIPS on said Appendices 1 to 5, inclusive, provided, however, that each party may continue to serve any locations or premises which it is entitled to serve under Paragraph 1 above even though such locations or premises be located in the areas designated on Appendices 1 to 5, inclusive, as the area of the other party; *** and provided further, however, whenever the electrical load of a prospective consumer in any area outside of incorporated areas is such that its anticipated load during the first year of normal operation will require, as determined in accordance with accepted engineering practices, that the load be supplied through a connection to and/or extension of an existing as of July 2, 1965 line having a voltage of 34.5 KV or higher, the supplier shall be determined under the Electric Supplier Act as approved July 2,1965.”

In the proceedings before the circuit court, RECC maintained that it had a right under paragraph 1 of the service-area agreement to serve the Crown III Mine and that right was independent of any of the provisos contained in paragraph 2 of the agreement. The trial court accepted RECC’s argument and held that, under paragraph 1 of the agreement, RECC had a right to serve the mine because it had been providing service to the same location on July 2,1965.

CIPS maintains that RECC did not take the position that it had the right to provide service under paragraph 1 of the agreement until after the case was marked “heard and taken” and briefing had begun in the Commission proceeding. CIPS argues that RECC sought administrative review under a different theory and may not now assert its new theory regarding the basis of its right to serve the Crown III Mine. CIPS claims that RECC has employed the “mend the hold” strategem in this case.

CIPS cites several cases in support of its position. In Townsend v. Postal Benefit Association (1931), 262 Ill. App. 483, defendant insurance company claimed that it was not liable to the plaintiff because the insured was not insured by the defendant at the time of the insured’s death. Defendant switched its defense during the suit and argued that plaintiff failed to give the defendant proper notice of the insured’s death. The trial court granted judgment to the defendant. The appellate court reversed, stating:

“When appellee elected to place its defense on the ground that the insured was not a member at the time of her death it will not be permitted, after costs and expenses have been incurred in prosecuting the action, to mend its hold and set up other defenses, even though at the outset such other defenses may have been available. [Citation.]” 262 Ill. App. 483, 488.

In Larson v. Johnson (1953), 1 Ill. App. 2d 36, 116 N.E.2d 326, defendants sought to defend against an action for specific performance of a contract to purchase a one-half beneficial interest in certain real estate on the grounds that plaintiffs had acted fraudulently in obtaining execution of the agreement. The case was referred to a master, who found for plaintiffs on the issue of fraud, but held that specific performance should not be granted because the contract was indefinite.

On appeal, plaintiffs argued that defendants elected to base their defense on fraud and should not have been allowed to “mend their hold” and shift their position to attack the indefiniteness of the contract. The appellate court agreed with plaintiffs, holding that once defendants gave a reason for their conduct in the controversy, they could not change their ground and assert a different basis for their action.

In the present case, RECC filed a complaint with the Commission listing several grounds which RECC claimed gave it the right to serve the Crown III Mine. In paragraphs 4 and 5 of its complaint, RECC set up paragraphs 1 and 2 of the service-area agreement and claimed that it had the right to serve the Crown III Mine pursuant to paragraph 2 of the agreement. It claimed that the 34.5 KV exception of paragraph 2 did not apply because it could supply the mine without connection to an existing 34.5 KV line. In paragraph 7 of its complaint, RECC claimed a right to serve the mine under the Electric Supplier Act. RECC did not claim any right to serve the mine under paragraph 1 of the service-area agreement until after the case had been marked “heard and taken” and briefing had begun. RECC changed its theory, or at least added an additional ground which it claimed entitled it to provide service, after all the evidence in the case had been heard. We conclude, therefore, that RECC could not “mend its hold” and that RECC’s claim of a right to serve the Crown III Mine pursuant to paragraph 1 of the service-area agreement should not have been considered by the trial court.

CIPS maintains that the grandfather clause contained in paragraph 1 is subject to modification by the language of paragraph 2 of the agreement. CIPS argues that the facts presented to the Commission place this case under,the “transmission voltage” exception contained in paragraph 2 and that the question of who is entitled to serve the Crown III Mine must be determined in accordance with the Electric Supplier Act (Ill. Rev. Stat. 1981, ch. lll2/s, par. 401 et seq.).

CIPS” interpretation of the service-area agreement was adopted by this court in the Crown II litigation. In Rural Electric Convenience Cooperative Co. v. Illinois Commerce Com. (1977), 56 Ill. App. 3d 281, 371 N.E.2d 1143, this court discussed the effect of the service-area agreement entered into by RECC and CIPS:

“The agreement gives each company the right to serve areas in which they are already providing service subject to the following exception:
'*** [Hjowever, whenever the electrical load of a prospective customer in any area outside of incorporated areas is such that its anticipated load during the first year of normal operation will require, as determined in accordance with accepted engineering practices, that the load be supplied through a connection to an/or extension of an existing as of July 2, 1965, line having a voltage of 34.5 KV or higher, the supplier shall be determined under the Electric Supplier Act as appraised July 2,1965.’
We agree with the ICC that this exception purposely left open the question as to who is entitled to serve any new loads that may locate in any of the parties’ respective service areas and which would require line voltage of 34.5 KV or higher. We also concur with CIPS that the investment in a 34.5 KV line is substantial and electrical suppliers would not enter into service-area agreements if by so doing their 34.5 KV or higher voltage lines existing as of July 2, 1965, would be rendered useless as far as providing service from such lines to any such new loads is concerned, unless availability to serve such new loads is left open for determination under the Electric Supplier Act. Therefore, the Electric Supplier Act must be consulted.” 56 Ill. App. 3d 281, 282, 371 N.E.2d 1143.

The supreme court later vacated and remanded with directions that the Commission determine whether “accepted engineering practices” would require that the mine’s load be supplied through a connection to or extension of a 34.5 KV line in existence on July 2, 1965. (Rural Electric Convenience Cooperative Co. v. Illinois Commerce Com. (1979), 75 Ill. 2d 142, 387 N.E.2d 670.) After the remand, the Commission found in favor of CIPS, and the circuit court affirmed the Commission’s finding. This court affirmed the circuit court. Rural Electric Convenience Cooperative Co. v. Illinois Commerce Com. (1982), 109 Ill. App. 3d 243, 440 N.E.2d 404, appeal denied (1983), 92 Ill. 2d 579.

The same service-area agreement is at issue in this case. We therefore hold that our interpretation of the agreement in the earlier Crown II litigation controls and that the right to serve the Crown III Mine must be decided under the provisions of the Electric Supplier Act.

In its order granting CIPS the right to serve the Crown III Mine, the Commission held that low voltage service, such as that provided Marvin Moore by RECC, was “inadequate to invoke the priority provisions of Section 5 of the Act as to new customers at a location requiring service by a line having a voltage of 34.5 KV or higher,” citing this court’s opinion in the Crown II case (Rural Electric Convenience Cooperative Co. v. Illinois Commerce Com. (1977), 56 Ill. App. 3d 281, 371 N.E.2d 1143). The Commission then determined, after considering the factors listed in section 8 of the Act (Ill. Rev. Stat. 1981, ch. lll2/s, par. 408), that CIPS should be allowed to serve the Crown III Mine.

RECC contends that since it was providing electric service to a customer at the location of the mine on July 2, 1965, it has a right to serve any new customer at that same location. RECC concedes that, if it does not have a “grandfathered” right, under section 5(a) of the Act (111. Rev. Stat. 1981, ch. lll2/3, par. 405(a)), to serve the mine, then CIPS must prevail as RECC does not claim it is entitled, under section 8 of the Act, to serve the mine.

In the case at bar, RECC was supplying a 372-acre farm leased by Marvin Moore when the Electric Supplier Act was enacted. Moore’s demand for power was small; the farm was metered for 15 amp — 240 volt service. The Crown III Mine, on the other hand, will require service from 34.5 KV lines and the power demand will be at least 700 times the amount of power required by Marvin Moore. RECC is not equipped to supply that amount of power and would have to contract with WIPCO, a generation and transmission cooperative, to furnish the service.

The facts present in this case are almost identical to the facts before this court in Rural Electric Convenience Cooperative Co. v. Illinois Commerce Com. (1977), 56 Ill. App. 3d 281, 371 N.E.2d 1143. This court rejected Rural Electric’s claim of the right under section 5(a) to furnish electricity to the Crown II Mine. The court refused to equate the small farming operation previously in existence on the tract now comprising the coal mine and the coal mine as the same customer at the same location within the meaning of section 5(a) of the Act. The court said:

“The effective date of the Act was July 2, 1965, and Rural Electric claims it was serving the site of the Freeman Coal Mine on section 23 on that date. The only competent evidence supporting Rural Electric is the testimony of its manager, Roy Goode, who testified that Rural Electric was furnishing the former owner of section 23, a farmer, with electrical service. Even if Rural Electric was in fact furnishing rural and domestic power to the section, we do not conclude that farm buildings served by low voltage distribution lines and a coal mine requiring a 34.5 KV line can be equated as the same customer at the same location under the intent of section 5 of the Electric Supplier Act. (Ill. Rev. Stat. 1975, ch. lll2/3, par. 405.) If such an intent were to be attributed to the Act, it would have the effect of allowing an electrical supplier the absolute right to serve an area in which it was providing minimal service even though the new customer might require service of a completely different magnitude which would be entirely beyond the scope of the minimal supplier.” 56 Ill. App. 3d 281, 283, 371 N.E.2d 1143.

On appeal, the supreme court vacated the judgment and remanded on another issue, but specifically declined to express an opinion on the validity of this court’s analysis and application of section 5(a).

This court’s earlier construction of section 5(a) controls in the present case. The service required by a large industrial user, such as a coal mine, is quite far removed from the service required by a small tenant farmer. Under our analysis in the Grown II litigation, the service provided by RECC to Marvin Moore and the proposed service to the Crown III Mine cannot be equated as the same customer at the same location within the intent of section 5 of the Electric Supplier Act.

Therefore, we hold that the Commission was correct in its determination that section 5 of the Act does not apply under the facts of the present case and that the right to serve the Crown III Mine must be determined pursuant to section 8 of the Electric Supplier Act. Since RECC concedes that it does not have a right, under section 8 of the Act, to serve the Crown III Mine, we need not pass on the propriety of the Commission’s finding that CIPS is entitled to serve the Crown III Mine.

The judgment of the circuit court of Macoupin County reversing the Commission is hereby reversed.

Reversed.

MILLS and GREEN, JJ., concur.