author: PRESIDING JUSTICE HARTMAN

text:
    MICHAEL E. RONNETT, Plaintiff-Appellant, v. AMERICAN BREEDING HERDS, INC., et al., Defendants-Appellees.
    First District (2nd Division)
    Nos. 82—2485, 82—2726, 82—2851 cons.
    Opinion filed June 5, 1984.

      Keith J. Kulie and Frank R. Wiemerslage, both of Chicago, for appellant.
    Ronald M. Brown and David M. Heisler, both of Brown & Shinitzky, Chartered, of Chicago, for appellees American Breeding Herds, Inc., Irwin Fischman, and Tobin C. Carlin.
    Stuart M. Widman, of Much, Shelist, Freed, Denenberg, Ament & Eiger, P.C., of Chicago, for appellees John M. Shannon & Associates, Inc., and Bernard A. Levin.
    Stuart D. Perlman and Emil Shafran, both of Chicago, for appellees Investorplan, Inc., and Robert A. Coe.
   PRESIDING JUSTICE HARTMAN

delivered the opinion of the court:

Michael E. Ronnett (Ronnett) brought an action to rescind an alleged investment contract under the Illinois Securities Law of 1953 (Ill. Rev. Stat. 1983, ch. 1211/2, par. 137.1 et seq.) (Securities Law) and to recover monies expended under the agreement. Named as defendants were American Breeding Herds, Inc., Irwin Fischman and Tobin C. Carlin (ABH); Investorplan, Inc., and Robert A. Coe (Investorplan); and, John M. Shannon & Associates, Inc., and Bernard A. Levin (Shannon) (collectively defendants). Defendants’ separate motions for summary judgment were granted upon the finding that the agreement was not the purchase of a security under the Securities Law.

Ronnett appeals, raising as the principal issue whether the agreement is an investment contract or security subject to the Securities Law.

Ronnett, a full-time practicing physician, claimed to have received investment advice from Shannon from time to time and was allegedly counseled to invest in a cattle breeding plan offered by ABH. In November 1972, Ronnett entered into a contract with ABH for the purchase of 36 Charoláis cows at $3,000 per head and a one-quarter interest in a Charoláis bull at $5,000, totalling $113,000. The contract allowed Ronnett one breeding privilege for each cow, with the selection of the sire reserved exclusively to ABH. Ronnett paid $50,000 by check to the order of Investorplan and executed a nonrecourse installment promissory note for $74,520, payable over a term of seven years to ABH. Within the same contract and during the same term, Ron-nett also agreed to pay quarterly maintenance fees of $80 per animal. The ABH agreement described itself as a “tax shelter program * * * unlike the purchase of securities such as stocks and bonds.” Upon 90 days’ written notice to ABH, Ronnett was entitled to cancel the maintenance program, with the decision as to whether to sell at public or private auction reserved solely to ABH. From 1972 through 1977, Ronnett paid ABH approximately $204,000. When, in June 1977, Ron-nett requested their sale, the herd was sold at auction together with the cattle owned by others. He received a settlement check from ABH in the amount of $7,016.27. Under the contract, ABH reserved certain other powers exclusively to itself, including: maintenance and fee for the animals; and the choice of location for maintenance of the animals, ABH employees to “maintain complete jurisdiction and control of the animals.”

Pursuant to the agreement, 36 cows were ear-tagged and identified as Ronnett’s. They were shipped to an ABH approved breeding ranch where they were intermingled with those owned by others. He received periodic status reports and, after personally inspecting his herd and the facilities, indicated he was satisfied with the care given to the animals.

In a 1975 meeting with Shannon’s representative to discuss the high cost of herd maintenance, Ronnett was told that although the cattle market was depressed, the high costs would “turn around.” The cattle market did not improve, however, and Ronnett assented to an ABH proposal to join other investors who were selling their cattle at an auction. He was aware that he would incur some loss. Ronnett’s tax returns for 1972-77 indicate tax deductions and credits, in connection with the cattle, of over $190,000.

In 1977, after Ronnett’s attorneys were advised by the Illinois Secretary of State that no report of exemption under the Securities Law was on record regarding the ABH agreement, they filed a complaint against ABH, Investorplan and Shannon, asserting that the ABH agreement was not an exempt transaction under section 4 of the Securities Law (Ill. Rev. Stat. 1977, ch. 1211/2, par. 137.4), no report of sale was filed in accordance with section 4G of the Securities Law (Ill. Rev. Stat. 1977, ch. 1211/2, par. 137.4G) and that that transaction was in violation of section 12 of the Securities Law (Ill. Rev. Stat. 1977, ch. 1211/2, par. 137.12). Ronnett sought rescission of the agreement and a refund of all monies paid. A nine-count second amended complaint, filed in December 1978, added claims for breach of alleged fiduciary duties against Shannon. Shannon’s answer to the second amended complaint denied that the agreement was a security, requested the court to dismiss the complaint and set forth affirmative defenses, including failure to tender the alleged security to the court or defendant and failure to comply with the applicable statute of limitations under the Securities Law. (Ill. Rev. Stat. 1977, ch. 1211/2, pars. 137.13A, 137.13B, 137.13D.) Investorplan and ABH filed separate motions to dismiss the second amended complaint. AH motions were denied. Investorplan and ABH subsequently filed answers. Investorplan and Levin filed counterclaims against ABH seeking indemnification. ABH’s answer to the counterclaims denied any such liability, setting forth affirmative defenses. These counterclaims are still pending.

Shannon moved for summary judgment, claiming that Ronnett: suffered no injury because the tax benefits he received offset any loss; cannot tender the security as required by the Securities Law; failed to establish the existence of a fiduciary relationship; failed to prove common law fraud; and, Shannon was not a party to the transaction. Attached to the motion were two affidavits. The first, by Shannon’s attorney, indicated Ronnett realized a tax savings of $118,986. In the second, Levin denied any involvement between himself and ABH, between Shannon and ABH, or between himself and Shannon (other than rental of office space). Ronnett responded that material issues of fact existed and attached his own affidavit averring: he relied on Shannon for financial advice; Shannon recommended that he invest in ABH; the Investment was consummated by Investorplan; and, communications from Levin on a Shannon letterhead listed Levin as its executive-vice-president. The circuit court found that Shannon could not set off Ronnett’s tax benefits against the amount of monies paid and that tender of the agreement constitutes adequate tender under the Securities Law. Summary judgment was denied with respect to Ronnett’s counts for rescission and the counts alleging breach of fiduciary duty. The motion as to the alleged violations of fiduciary obligations under two counts of the second amended complaint was thereafter denied.

Investorplan’s subseqñent motion for summary judgment, claiming the agreement was not a security, was granted. The court found that Ronnett’s ownership, maintenance and control over identifiable cattle, and his right to sell and his sale of the cattle in 1977, removed the agreement from consideration as a security. For the same reasons, ABH’s motion for summary judgment was also granted. Shannon’s summary judgment motion was thereafter reconsidered and allowed on the same grounds.

The principal issue presented in this appeal is whether the transaction between the parties amounted to an investment contract, in which case it would be deemed a security under section 2.1 of the Securities Law (Ill. Rev. Stat. 1983, ch. 1211/2, par. 137.2 — 1) and thereby subject to the provisions of that law. The Federal Securities Act of 1933 and the Securities Law are substantially similar; therefore, Illinois courts have adopted the United States Supreme Court construction of “investment contract” under the Federal act as “a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.” (Securities & Exchange Com. v. W. J. Howey Co. (1946), 328 U.S. 293, 298-99, 90 L. Ed 1244, 1249, 66 S. Ct. 1100 (Howey)] Norville v. Alton Bigtop Restaurant, Inc. (1974), 22 Ill. App. 3d 273, 278-79, 317 N.E.2d 384.) In application of Howey to a given transaction, the substance rather than the form of the transaction controls, as does the relationship between the parties. Further, emphasis is placed on the economic reality of each situation presented. Condux v. Neldon (1980), 83 Ill. App. 3d 575, 404 N.E.2d 523; Polikoff v. Levy (1965), 55 Ill. App. 2d 229, 204 N.E.2d 807, cert. denied (1965), 382 U.S. 903 15 L. Ed. 2d 156, 86 S. Ct. 237; Meihsner v. Runyon (1960), 23 Ill. App. 2d 446, 163 N.E.2d 236; Sire Plan Portfolios, Inc. v. Carpentier (1956), 8 Ill. App. 2d 354, 132 N.E.2d 78; Young, Exemptions From Registration Under the Illinois Securities Law of 1953, 1961 U. Ill. L.F. 205.

No defendant questions that Ronnett invested his money in this arrangement. The remaining issues to be resolved under Howey are whether there was a “common enterprise” between Ronnett and ABH and whether Ronnett was led to expect profits “solely” from the efforts of ABH, as he claims, by virtue of ABH’s exclusive right to determine the location, control and breeding of the herd, its sole control over the place, time and mode of sale, and the fact that the animals were never registered in his name with the American International Charoláis Association.

Defendants argue that “common enterprise” requires a relationship among investors, sometimes referred to as “horizontal” commonality, not a relationship between the promoter and an investor, also called “vertical” commonality. The terms “horizontal” and “vertical” commonality relate to tests utilized by Federal courts in ascertaining whether a common enterprise may be found in a particular transaction. A common enterprise is said to exist under “horizontal” commonality when there is a linkage between the fortunes of individual investors and other investors by reason of the entire venture’s success or failure. Common enterprise is said to exist under “vertical” commonality when the investor’s fortunes are interwoven with and dependent upon the success of the promoter. See Securities & Exchange Com. v. Koscot Interplanetary, Inc. (5th Cir. 1974), 497 F.2d 473; Securities & Exchange Com. v. Glenn W. Turner Enterprises, Inc. (9th Cir. 1973), 474 F.2d 476, 482 n.7, cert. denied (1973), 414 U.S. 821, 38 L. Ed. 53, 94 S. Ct. 117.

Upon applying the Federal test of “horizontal” commonality, the record in this case fails to support Ronnett’s assertion that a common enterprise existed under the statute. His account was not dependent upon the success or failure of any other investor under the ABH agreement. Conversely, the success or failure of other investors as a group had no direct impact on Ronnett’s profit or loss. (Milnarik v. MS Commodities, Inc. (7th Cir. 1972), 457 F.2d 274, 276-77, cert. denied (1972), 409 U.S. 887, 34 L. Ed. 144, 93 S. Ct. 113.) There is no evidence in the record as to how many other investors participated in the ABH plan, nor whether the ABH contract is traded publicly, nor whether each account sold is individually managed. Nevertheless, from the exhibits attached to the motions and responses, it is clear that Ronnett’s account was placed in a segregated fund and treated individually. The record also lacks evidence that any other investor’s funds were pooled with Ronnett’s. Although Ronnett was invited to allow his cattle to be sold at auction along with cattle owned by other investors, he could have declined the offer.

With regard to “vertical” commonality however, the conclusion compelled is that a common enterprise did exist between ABH and Ronnett. The underlying format of the contract required Ronnett to purchase individual cows and a fractional interest in a bull. For its part, under its maintenance agreement, ABH undertook to build up the herd for the ultimate purpose of sale and profit. As a practical matter, the contract precludes Ronnett, the individual investor, from involving himself in any maintenance or breeding aspect related to the enterprise. Maintenance and breeding were vital to the success or failure of the scheme. ABH reserved unto itself those powers directly connected with and dependent upon the success of the enterprise: the selection of a sire for breeding purposes; the choice of location as to where the herd would be raised under ABH’s complete jurisdiction and control; and the breeding methods, maintenance and feed provided for the animals. Ronnett was permitted to observe his herd, and he commented upon his satisfaction with the way things were going; yet, he could not have participated in the foregoing vital aspects of the operation in terms of its potential for success since they were within the sole control of ABH. In cases involving similar promotions in breeding and raising animals for sale, courts have held that where, as here, the promoter is charged with performing every act necessary to increase the size of the herd, which is the profit making aspect thereof, the necessary dependency by the investor upon the promoter’s acts is present. Kemmerer v. Weaver (7th Cir. 1971), 445 F.2d 76; Continental Marketing Corp. v. Securities & Exchange Com. (10th Cir. 1967), 387 F.2d 466; Barry v. Ceres Land Co. (1982), Fed. Sec. L. Rep. (CCH) par. 99,008 (Dec. 21, 1982); McLish v. Harris Farms, Inc. (E.D. Cal. 1980), 507 F. Supp. 1075; Plunkett v. Francisco (N.D. Ga. 1977), 430 F. Supp. 235; Securities & Exchange Com. v. Payne (S.D.N.Y. 1940), 35 F. Supp. 873; Tomei v. Fairline Feeding Corp. (1977), 67 Cal. App. 3d 394, 137 Cal. Rptr. 656; Marshall v. Harris (1976), 276 Or. 447, 555 P.2d 756; People v. Witzerman (1972), 29 Cal. App. 3d 169, 105 Cal. Rptr. 284; Hollywood State Bank v. Wilde (1945), 70 Cal. App. 2d 103, 160 P.2d 846.

In contrast, in a case involving a similar cattle raising agreement (Nichols Charolais Ranch, Inc. v. Barton (M.D. Fla. 1975), 460 F. Supp. 228, aff’d (5th Cir. 1979), 587 F.2d 809), the court examined the sale and maintenance agreement entered into there and noted that the putative investor retained the right to sell and actually personally sold some of the cattle he had purchased from the promoter. He acquired additional cattle and bulls on his own, as well as semen, directing the promoter as to their use with respect to the enlargement of the herd. The purchaser in Nichols also directed the removal of his cattle from the promoter’s ranch when he became dissatisfied with the arrangement. Under these circumstances, the court found no common enterprise to exist. Here, Ronnett had no right to exercise any of those powers. His fortune was interwoven with and dependent upon ABH’s successful breeding, maintenance and sale of the cattle. Whether Ronnett’s cattle and proceeds were intermingled with that of other investors or whether his payments maintained his specific ear-marked cattle is of no significance here since, under the “vertical” commonality test, the concern is fixed upon the relationship between the individual investor and promoter.

The third aspect of the Howey test is an expectation of profits “solely” from the efforts of others. Federal courts have rejected a literal application of “solely” because it would frustrate the remedial purposes of the securities law. (Securities & Exchange Com. v. Glenn W. Turner Enterprises, Inc. (9th Cir. 1973), 474 F.2d 476, 482, cert. denied (1973), 414 U.S. 821, 38 L. Ed. 53, 94 S. Ct. 117; Hector v. Wiens (9th Cir. 1976), 533 F.2d 429, 433.) A literal application of “solely” is also rejected in Securities Law, Rule 200, 1A Blue Sky L. Rep. (CCH) par. 22,631 (1980):

“The term ‘investment contract’ means and includes: (A) any interest or participation in a contract, transaction, scheme, common enterprise, or profit-seeking venture whereby the investor transfers capital to the promoter or promoters thereof or invests therein and looks to the promoter or promoters for the success of the venture ***.” (Emphasis added.)

An enterprise is deemed to be a security where, as here, the investor is without real control or has little or no control over the enterprise (Sire Plan Portfolios, Inc. v. Carpentier (1956), 8 Ill. App. 2d 354; Meihsner v. Runyon (1960), 23 Ill. App. 2d 446), as compared with those situations in which the investor has an equal right of or shares in the control of the enterprise. Condux v. Neldon (1980), 83 Ill. App. 3d 575; Polikoff v. Levy (1965), 55 Ill. App. 2d 229; Kaiser v. Olson (1981), 105 Ill. App. 3d 1008, 435 N.E.2d 113.

Defendants urge that by delegating maintenance responsibilities to ABH via the agreement which contained a privilege of termination, Ronnett possessed significant control over the enterprise, relying on Federal securities law cases which held that purchasing an entire business and hiring a management company to operate the business is not a security because the purchaser chose whether to hire the company, which company to hire, and could dismiss the company. (Fargo Partners v. Dain Corp. (8th Cir. 1976), 540 F.2d 912; Schultz v. Dain Corp. (8th Cir. 1978), 568 F.2d 612.) Here, however, Ronnett purchased only cattle. An entire business would have included rights to choose and utilize grazing land, feed, shelter and other necessities in addition to the rights ABH reserved unto itself. The maintenance fees he paid were applied to the purchase of his cattle, not toward the purchase of a cattle business. It is apparent that neither Ronnett nor any of the other purchasers entered into this venture for the purpose of taking delivery of the animals, breeding, raising or marketing the cattle themselves. These activities are performed by persons having the experience and skills necessary to do so. (Securities & Exchange Com. v. Payne (S.D.N.Y. 1940), 35 F. Supp. 873, 878.) The requisite control over the cattle from Ronnett’s standpoint is absent under these circumstances.

The fact that Ronnett directed the sale of the cattle does not alter this conclusion. There is evidence in the record which shows that he did not “authorize” the sale until “advised” to do so. Ronnett had no demonstrated expertise in cattle breeding or selling upon which he could base decisions regarding this cattle investment. Ronnett, as a “knowledgeable investor” in previous transactions, does not necessarily mean that he knew how to increase profits from his cattle investment; it could also mean that he was aware of the risk of loss involved in investing money. Unless specified by law, private investors are not denied the protection of the securities laws simply because they have some experience or sophistication. (Martin v. Orvis Brothers & Co. (1974), 25 Ill. App. 3d 238, 323 N.E.2d 73; Jenkins v. Dearhorn Securities Corp. (1976), 42 Ill. App. 3d 20, 355 N.E.2d 341.) Furthermore, the ABH contract provides that once authorized “*** to sell any of the animals or their female progeny, on behalf of the Owner *** [ABH] may sell the animals at private sale or public auction, at American’s sole discretion.” (Emphasis added.) Therefore, Ronnett was limited only to authorizing the sale of the cattle — when, how, where and for what price was within the sole discretion of ABH.

Although we find, as did the circuit court, that there is no issue of material fact precluding summary judgment (Ill. Rev. Stat. 1983, ch. 110, par. 2 — 1005), we conclude the circuit court erred in failing to apply Howey and those authorities dealing with animal breeding and maintenance agreements. As a consequence, the circuit court also erred in its conclusion that Ronnett’s purchase of cattle was not a security under the Securities Law.

Accordingly, judgment for the defendants is reversed and the cause remanded for further proceedings.

Reversed and remanded.

STAMOS and BERLIN, JJ., concur.


source: Caselaw Access Project

author: JUSTICE LINDBERG

license: Public Domain

text:
    JOEL WHEELER, Plaintiff, v. SCOTT T. ELLISON et al., Defendants (Scott T. Ellison et al., Third-Party Plaintiffs-Appellants, v. Chief Track Lines, Inc., Third-Party Defendants-Appellees; Caravan Refrigerated Cargo, Inc., Counterplaintiff, v. Richard Mindemann, d/b/a/ Mindemann Trucking Company, Counterdefendant).
    Second District
    No. 2—83—0117
    Opinion filed June 1, 1984.

      Robert K. Clark, of Clark & Heaslip, of Rockford, for appellants.
    Joel S. Ostrow, Philip J. McGuire, and Michael E. Dowd, all of Dowd & Dowd, of Chicago, for appellee.
   JUSTICE LINDBERG

delivered the opinion of the court:

Defendant and third-party plaintiff, Richard Mindemann (Mindemann), and defendant and third-party plaintiff, Scott T. Ellison (Ellison) (together referred to as third-party plaintiffs), appeal from an order of the circuit court of Winnebago County entering judgment on the pleadings in favor of third-party defendant and appellee Chief Truck Lines, Inc. (Chief). Third-party plaintiffs contend that count I of their complaint seeking indemnity from Chief and count II seeking contribution under the Contribution Among Joint Tortfeasors Act (Ill. Rev. Stat. 1981, ch. 70, par. 301 et seq.) (Act) properly stated valid causes of action. Chief responds that third-party plaintiffs are precluded from asserting their indemnity claim because of their active negligence and that third-party plaintiffs’ contribution claim is unwarranted because Chief’s actions did not contribute to plaintiffs’ injuries. We affirm.

Chief is the holder of a license under the authority of the Interstate Commerce Commission (ICC) to carry freight interstate. In order to ship a freight load to the State of Florida, Chief as carrier-lessee entered into a lease agreement on January 14, 1980, with lessor Mindemann. Under the terms of the lease, Chief leased from Mindemann a truck owned by Mindemann. Mindemann agreed to furnish his own driver to transport the shipment tendered by Chief. The lease further provided that “[s]uch employee-drivers, driver-helpers and laborers are understood to be employees of the Contractor [Mindemann], and Contractor shall be solely responsible for the direction and control of such employees***.” In addition, the lease contained the provision that if Chief were unable to provide a return load for the trip from Florida to Illinois, Mindemann could enter into a trip-lease arrangement with another interstate carrier so long as the load handled on the trip-lease basis was destined for a point within a 50-mile radius of Chief’s home terminal point.

Sometime during June 1980, Ellison, acting as an employee of Mindemann, transported Chief’s shipment to Florida using Mindemann’s truck according to the terms of the lease agreement between Chief and Mindemann. Chief did not have a return load, so Ellison leased the truck space on Mindemann’s behalf to defendant Caravan Refrigerated Cargo, Inc. (Caravan), for a return load to Macomb, Illinois. Ellison completed the trip to Macomb and then drove to Rockford, where he was involved in an accident with plaintiff, Joel Wheeler (Wheeler), who was operating a motorcycle at the time of the accident.

In a one-count complaint filed on June 16,1981, Wheeler alleged that Ellison, employed as agent of Mindemann and Caravan, operated his truck negligently and struck Wheeler’s motorcycle. The truck when involved in the accident displayed Chief’s legend on the cab. On July 19, 1982, Ellison and Mindemann filed their two-count third-party complaint against Chief; count I sought indemnity and count II sought contribution. Chief filed a motion to dismiss or in the alternative for judgment on the pleadings. On January 6, 1983, the trial court granted judgment on the pleadings in favor of Chief as to both the indemnity and contribution counts. The trial court denied the motion of third-party plaintiffs for reconsideration, entered a finding pursuant to Supreme Court Rule 304(a) (73 Ill. 2d R. 304(a)), and third-party plaintiffs filed a timely notice of appeal.

The first question presented is whether this court has jurisdiction to hear this appeal. Chief argues that third-party plaintiffs’ notice of appeal is defective because it recites only that the appeal is taken from “the Order of the Circuit Court of the 17th Judicial Circuit of the County of Winnebago, State of Illinois, entered in said cause on January 20, 1983, in favor of Third Party Defendants-Appellee, CHIEF TRUCK LINES, INC., for dismissal with prejudice and costs of suit.” Since the notice of appeal does not refer to the final judgment on the pleadings which was entered on January 6, 1983, and instead only refers to the January 20 nonfinal order denying the motion for reconsideration, Chief contends third-party plaintiffs have failed to confer jurisdiction upon this court.

A notice of appeal must “specify the judgment or part thereof appealed from.” (73 Ill. 2d R. 303(c)(2).) An appellate court may not review a matter which is not raised as an issue in the notice of appeal unless the deficiency is one of form and not substance. (In re Estate of Malloy (1981), 96 Ill. App. 3d 1020, 422 N.E.2d 76.) A notice of appeal is jurisdictional, but where the deficiency is one of form only, the reviewing court is not necessarily deprived of jurisdiction especially where the appellee is not otherwise prejudiced. (Illinois Bell Telephone Co. v. Purex Corp. (1980), 90 Ill. App. 3d 690, 413 N.E.2d 106.) The notice of appeal in the instant case is sufficient to confer appellate jurisdiction. While third-party plaintiffs should have referred to the final judgment entered January 6, 1983, granting judgment on the pleadings, the error was one of form, not substance. Chief has not alleged nor shown prejudice resulting from the error. In their appellate briefs, the parties argue the merits of the order entering judgment on the pleadings; thus, Chief has not been misled by the notice of appeal. Chief was informed by the notice that third-party plaintiffs were appealing the order dismissing the lawsuit with prejudice. The notice of appeal included the substance if not the date of the court’s January 6, 1983, order and the appeal was filed within 30 days of the final judgment entered on January 6, 1983. Therefore, this court has jurisdiction to entertain this appeal. See Pickle v. Curns (1982), 106 Ill. App. 3d 734, 435 N.E.2d 877; Illinois Bell Telephone Co. v. Purex Corp. (1980), 90 Ill. App. 3d 690, 413 N.E.2d 106.

Third-party plaintiffs assert that their complaint stated a cause of action for implied indemnity. Third-party plaintiffs argue the lease agreement between Mindemann and Chief establishes the existence of a pretort relationship and further, that the complaint alleges a qualitative distinction between the conduct of the parties. In response, Chief argues that this court should rule that the doctrine of indemnity has not survived the adoption in Illinois of contribution among joint tortfeasors. Even if indemnity is still viable, Chief contends, the complaint of third-party plaintiffs failed to state a cause of action because it did not allege a qualitative distinction between the conduct of the parties; a necessary element in an implied indemnity cause of action. Chief further argues that the pleadings demonstrate it and not third-party plaintiffs is entitled to indemnification based upon the terms of the parties’ agreement.

Chief moved for judgment on the pleadings under section 2— 615(e) of the Code of Civil Procedure. (Ill. Rev. Stat. 1983, ch. 110, par. 2 — 615(e).) The rules pertaining to judgment on the pleadings are well settled.

“A motion for judgment on the pleadings: requires an examination of the pleadings to determine the existence or absence of an issue of fact, or whether the controversy can be resolved solely as a matter of law, or not; admits all well-pleaded facts set forth in the respondent’s pleadings; draws all fair inferences from the respondent’s pleadings; and contemplates that the moving party is entitled to judgment as a matter of law.” (Baker-Wendell, Inc. v. Edward M. Cohon & Associates, Ltd. (1981), 100 Ill. App. 3d 924, 927, 427 N.E.2d 317, 319.)

In reviewing an order granting judgment on the pleadings, the appellate court must ascertain whether the trial court determined correctly that no genuine issue of material fact was presented by the pleadings, and if there was no such issue, whether judgment was entered correctly. Teeple v. Hunziker (1983), 118 Ill. App. 3d 492, 454 N.E.2d 1174; Kemper v. Worcester (1982), 106 Ill. App. 3d 121, 435 N.E.2d 827.

A third-party complaint in an action for indemnity must allege a qualitative difference between the negligence of the two third-parties. (Bednar v. Venture Stores, Inc. (1982), 106 Ill. App. 3d 454, 436 N.E.2d 46; Burgdorff v. International Business Machines (1975), 35 Ill. App. 3d 192, 341 N.E.2d 122.) Some courts have also stated the requirement that the complaint allege a pretort relationship between the parties, but one commentator disputes whether Illinois courts have required the pretort relationship in addition to the requirement of a qualitative difference between the two parties’ negligence. (See Kissel, Developments in Third-Party Practice-Contribution and Indemnity, 71 Ill. B.J. 654, 664-65 (1983).) In any event, this requirement is satisfied in this case because Illinois courts have recognized that a lease between the parties, as is alleged here, is sufficient to constitute a pretort relationship. See, e.g., Mierzejwski v. Stronczek (1968), 100 Ill. App. 2d 68, 241 N.E.2d 573; Blaszak v. Union Tank Car Co. (1962), 37 Ill. App. 2d 12, 184 N.E.2d 808.

To satisfy the qualitative difference requirement, a party must demonstrate that his fault for the injuries of the original plaintiff is different in quality or nature, rather than in quantity, from that of the proposed indemnitor. (Harris v. Algonquin Ready Mix, Inc. (1974), 59 Ill. 2d 445.) One who is actively negligent will not be allowed to shift responsibility to another person regardless of the relative degree of their negligence. (Carver v. Grossman (1973), 55 Ill. 2d 507.) The facts of the case in which indemnity is sought “must clearly justify indemnification” (55 Ill. 2d 507, 512), as application of another standard would permit the total shifting of responsibility to one negligent party while permitting the other to escape responsibility for his negligent conduct (55 Ill. 2d 507, 512). What constitutes active negligence so as to preclude the shifting of liability between joint tortfeasors is not susceptible of precise definition and depends upon the facts of a particular case. (Moody v. Chicago Transit Authority (1974), 17 Ill. App. 3d 113, 307 N.E.2d 789.) A party is not entitled to indemnification where he has breached an affirmative duty to the plaintiff in the underlying action, as the indemnitee’s negligence must be of a “technical” or secondary nature. Burgdorff v. International Business Machines (1975), 35 Ill. App. 3d 192, 341 N.E.2d 122.

We believe judgment on the pleadings was granted properly on the indemnity count. “ '*** [0]ne is passively negligent if he merely fails to act in fulfillment of a duty of care which the law imposes on him ***. One is actively negligent if he participates in some manner in the conduct or omission which caused the injury.’ ” (Sargent v. Interstate Bakeries, Inc. (1967), 86 Ill. App. 2d 187, 193, 229 N.E.2d 769, 772, quoting King v. Timber Structures, Inc. (1966), 240 Cal. App. 2d 178, 49 Cal. Rptr. 414.) By this definition, Ellison who drove the truck which was involved in the automobile accident was actively negligent. Mindemann as employer of Ellison was responsible for his negligence under the doctrine of respondeat superior. Chief became responsible for the truck’s operation only because of its identifying signs on the truck. While under the governing ICC regulations, plaintiff was entitled to sue Chief directly (see Kreider Truck Service, Inc. v. Augustine (1979), 76 Ill. 2d 535), Chief’s liability can hardly be characterized as active while the actions of Ellison, the driver, and Mindemann, the owner, are labeled as passive or merely technical negligence. As the third-party plaintiffs were actively negligent, they are not entitled to indemnification. (Carver v. Grossman (1973), 55 Ill. 2d 507.) Since we conclude third-party plaintiffs are not entitled to indemnity, we need not decide whether the doctrine of implied indemnity has survived the adoption of the contribution rule in Illinois. See Heinrich v. Peabody International Corp. (1984), 99 Ill. 2d 344, 350-51.

Third-party plaintiffs’ reliance on Long v. Bucyrus-Erie Co. (1983), 112 Ill. App. 3d 578, 445 N.E.2d 934, does not mandate a different result. There, the plaintiff brought a negligence action against Consolidated Coal Co. (Consol), the owner of the mine site. Consol in turn filed a third-party complaint against the employer of the plaintiff, F & E Erection Company (F & E). The jury ruled that Consol was not entitled to indemnification from F & E. In affirming the trial court’s denial of Consol’s motion for judgment notwithstanding the verdict, the appellate court emphasized that the jury’s verdict and the evidence demonstrated that Consol was guilty of active negligence in causing the plaintiff’s injury. At trial, evidence was presented that Consol was involved in aspects of worker safety and the appellate court found that this control created a duty of care which Consol had breached. Third-party plaintiffs argue that like the owner of the mine site in Long, Chief exercised control over the truck based upon the ICC regulations. Long, however, actually supports Chief’s position, for that court ruled that Consol was precluded from seeking indemnification because of its own active negligence. Similarly, the active negligence of third-party plaintiffs here prevents them from obtaining indemnification from Chief.

Nor are third-party plaintiffs entitled to implied indemnity based upon the lease agreement. Paragraph 20 of the lease provides that “Contractor [Mindemann] will indemnify Carrier [Chief] for any loss, damage, or expense whatsoever which Carrier may sustain or become liable for as a result of any act or acts or failure to act, as provided in this agreement, of Contractor, his servants, employees, or representatives, excepting any amount thereof for which Carrier is compensated under any applicable insurance or otherwise.” The Supreme Court in Transamerican Freight Lines, Inc. v. Brada, Miller Freight Systems, Inc. (1975), 423 U.S. 28, 41, 46 L. Ed. 2d 169, 179, 96 S. Ct. 229, 236, specifically upheld the validity of such agreements, stating the indemnity clause was not violative of public policy:

“We hold only that the presence in an equipment lease of an indemnification clause directed to the lessor’s negligence is not in conflict with the safety concerns of the Commission or with the regulations it has promulgated.”

Therefore, rather than providing third-party plaintiffs with a cause of action for implied indemnity, the lease agreement empowers Chief to recover for any damages assessed against it because of the negligent acts of third-party plaintiffs. We hold that the trial court properly entered judgment in favor of Chief as to count I of the third-party complaint.

Third-party plaintiffs also contend that the trial court erred in entering judgment on count II of their complaint seeking contribution from Chief under the Act. (Ill. Rev. Stat. 1981, ch. 70, par. 301 et seq.) They contend that the lease agreement coupled with Chief’s legend affixed to the truck makes Chief vicariously liable for the acts and omissions of Ellison, the driver of the truck. Third-party plaintiffs argue that under the terms of the statute, Chief is liable because both Chief and third-party plaintiffs were subject to liability in tort for the same injury. In response, Chief contends that the cases cited by third-party plaintiffs all involve two defendants with separate duties owed to the plaintiff. In contrast, Chief claims, here both third-party plaintiffs and Chief owed only one duty to plaintiff-that of ordinary care in the operation of the truck.

Prior to 1978, Illinois courts adhered to the rule that joint tortfeasors were not entitled to contribution. Our supreme court, however, in Skinner v. Reed-Prentice Division Package Machinery Co. (1977), 70 Ill. 2d 1, cert. denied (1978), 436 U.S. 946, 56 L. Ed. 2d 787, 98 S. Ct. 2849, overturned this rule and held that joint tortfeasors were entitled to contribution. Subsequently, the Illinois legislature enacted the Contribution Act to codify, and not to restrict the Skinner rule. (Doyle v. Rhodes (1984), 101 Ill. 2d 1, 8.) Section 2(a) provides “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, there is a right of contribution among them, even though judgment has not been entered against any or all of them.” (Ill. Rev. Stat. 1981, ch. 70, par. 302(a).) The “same injury,” that to plaintiff in the original suit, undeniably is involved and is not disputed by the parties. Therefore, the question presented under the statute is whether Chief is “subject to liability in tort.”

Case law interpreting the Interstate Commerce Act (49 U.S.C. sec. 301 et seq. (1976)) and its regulations makes clear that plaintiff could have sued Chief directly. Under the Interstate Commerce Act, the ICC is authorized to promulgate regulations “with respect to the use by motor carriers (under leases and contracts), of motor homes not owned by them, ***” and “such other regulations as may be reasonably necessary in order to assure that while motor vehicles are being so used the motor carriers will have full direction and control of such vehicles and will be fully responsible for the operation thereof in accordance with applicable law and regulations, as if they were the owners of such vehicles ***.” 49 U.S.C. sec. 304(e) (1976); Schedler v. Rowley Interstate Transportation Co. (1977), 68 Ill. 2d 7, 10-11.

Pursuant to that authorization, the ICC has adopted rules and regulations several of which are specifically pertinent to this case. Rule 1057.4(a)(4) states “[t]he lease shall provide for the exclusive possession, control, and use of the equipment and for the complete assumption of responsibility thereto by the lessee for the duration of said contract, lease or other arrangement.” (49 C.F.R. sec. 1057.4(a)(4) (1978).) Rule 1057.4(d)(1) provides that “[t]he authorized carrier operating equipment under this part shall remove any legend, showing it as the operating carrier, displaying on such equipment and shall remove any moveable device showing it as the operating carrier, before relinquishing possession of that equipment.” (49 C.F.R. sec 1057.4(d)(1) (1978); Occidental Fire & Casualty Co. v. Padgett (1983), 113 Ill. App. 3d 215, 220, 446 N.E.2d 937, 940.) The import of these regulations is that the lessee has exclusive possession and control of and responsibility for these vehicles (Transamerican Freight Lines, Inc. v. Brada Miller Freight Systems, Inc. (1975), 423 U.S. 28, 39, 46 L. Ed. 2d 169, 178, 96 S. Ct. 229, 235), and such possession is not terminated until the legends are removed from the lessor’s vehicle. Absent compliance with Rule 1057.4(d)(1), the lessee remains in possession and is vicariously liable for the negligence of the lessor’s driver. Schedler v. Rowley Interstate Transportation Co. (1977), 68 Ill. 2d 7, 13.

In St. Paul Fire & Marine Insurance Co. v. Frankart (1977), 69 Ill. 2d 209, 213, the court identified the main purpose of the regulations; to prevent licensed carriers from escaping liability to injured members of the public by claiming that the lessor-drivers were independent contractors rather than employees. Thus, injured persons need not establish that the carrier had the right to control the lessor-driver’s activity or that the lessor-driver was acting within the scope of his employment. (Kreider Truck Service, Inc. v. Augustine (1979), 76 Ill. 2d 535, 540-41; Schedler v. Rowley Interstate Transportation Co. (1977), 68 Ill. 2d 7, 13.) This court recently has articulated several additional goals underlying the ICC regulations imposing responsibility on the carrier-lessee:

“(1) to prevent ICC carriers from avoiding safety standards imposed by the ICC by the simple practice of leasing equipment from nonregulated carriers; (2) to promote highway safety by insuring that drivers furnished by exempt carriers as part of the leased agreement do not violate safety regulations of the leased equipment; and (3) to provide shippers and other members of the public with financially responsible carriers.” Hershberger v. Home Transport Co. (1982), 103 Ill. App. 3d 348, 352, 431 N.E.2d 72, 75.

Third-party plaintiffs argue that the vicarious liability is sufficient to support a contribution action and rely upon this court’s recent decision in Morgan v. Kirk Brothers, Inc. (1982), 111 Ill. App. 3d 914, 444 N.E.2d 504. In Morgan, the plaintiff brought a suit for injuries she received when the automobile in which she was a passenger collided with a truck owned by Kirk Bros. Kirk Bros, then filed a third-party complaint against three taverns alleging that they served alcoholic beverages to the driver of the car in which plaintiff was a passenger. The driver became intoxicated, collided with the defendant, and directly and proximately caused the plaintiff’s injuries, the question presented in Morgan was whether the Act allowed a cause of action for contribution against a party whose liability arose from a violation of the Dramshop Act. (Ill. Rev. Stat. 1981, ch. 43, par. 135.) The trial court granted the dramshop’s motion to dismiss the third-party complaint finding as a matter of law that Kirk Bros, could not obtain contribution from a party subject to potential dramshop liability. On appeal, this court reversed.

Mindemann contends that certain of the arguments raised by the tavern in Morgan are pertinent here. The one dramshop on appeal argued its liability to plaintiff was based not in tort, but rather upon a purely statutory regulation of its status which imposed liability without fault for the sale of alcohol proven to cause intoxication of the customer. Rejecting this argument, this court held that a tavern acts as a wrongdoer when it serves alcohol which causes intoxication and thereafter injury. The Dramshop Act, this court found, prescribes a standard of conduct to which those within its scope are required to conform. Third-party plaintiffs argue that like the dramshop’s liability under the Dramshop Act, Chief as the carrier-lessee violated the tort duty created by the ICC regulations and statute. Chief attempts to distinguish this case by stating that in other contribution cases, the third-party plaintiff and third-party defendant owed separate duties to the plaintiff. In the Morgan case for example, the dramshop owed a duty not to serve alcohol which created the intoxication causing the injury. The driver owed a separate duty not to operate his car in an unsafe manner. In contrast, Chief argues that in the case at bar, Chief, Ellison and Mindemann all owe the same duty of care; to ensure the safe operation of the truck.

The Act contains only two express requirements: that the parties be (1) subject to liability, (2) for the same injury. (Ill. Rev. Stat. 1981, ch. 70, par. 302; Morgan v. Kirk Brothers, Inc. (1982), 111 Ill. App. 3d 914, 444 N.E.2d 504.) We are hesitant, therefore, to engraft upon the statute the requirement that both tortfeasors owe separate duties to the original plaintiff. Nevertheless, we agree with Chief’s conclusion that third-party plaintiffs were not entitled to maintain their contribution action. As previously noted, the Act codified the rule announced in Skinner v. Reed-Prentice Division Package Machinery Co. (1977), 70 Ill. 2d 1, cert. denied (1978), 436 U.S. 946, 56 L. Ed. 2d 787, 98 S. Ct. 2849. In Skinner, the court held “that the third-party complaint, although pleaded in terms of negligence, alleges misuse of the product and assumption of risk on the part of the employer and states a cause of action for contribution based upon the relative degree to which the defective product and the employer’s misuse of the product or its assumption of the risk contributed to cause plaintiff’s injuries.” (Emphasis added.) (70 Ill. 2d 1, 16.) This holding clearly articulates the requirement that the actions of both tortfeasors have contributed to the injuries suffered by the plaintiff.

An examination of several recent decisions finding a cause of action under the Act reveals that the actions of the joint tortfeasors in each case “contributed” to the plaintiff’s injuries. For example, in Doyle v. Rhodes (1984), 101 Ill. 2d 1, the court held that the third-party defendant highway contractor was subject to a contribution action filed by the defendant and third-party plaintiff motorist who struck the plaintiff highway flagman. Both tortfeasors there contributed to the plaintiff’s injuries: the defendant and third-party plaintiff was alleged to have operated her car in a negligent manner and the highway contractor allegedly acted negligently and in violation of “An Act to protect workers and the general public from injury or death during construction or repair of bridges and highways ***” (Ill. Rev. Stat. 1981, ch. 121, par. 314.1 et seq.). As the Doyle court stated, “the intent of the contribution statute was to reach anyone who is culpable regardless of whether they have been immunized from a direct tort action by some special defense or privilege.” (Doyle v. Rhodes (1984), 101 Ill. 2d 1, 9.) A similar statement was made by the appellate court in Rhodes.

“One who is culpable in contributing to an injury in the sense that his wrongful conduct in some part caused the injury may be liable for contribution under the broad language of the statute.” Doyle v. Rhodes (1982), 109 Ill. App. 3d 590, 593, 440 N.E.2d 895, 897.

Similarly, in Morgan v. Kirk Brothers, Inc. (1982), 111 Ill. App. 3d 914, 444 N.E.2d 504, the defendant and third-party plaintiff driver owed a duty not to operate his motor vehicle in a negligent fashion and the dram shops owed a statutory duty not to sell or give intoxicating liquors which in fact caused “the intoxication of persons and as a result of the intoxication causefd] injury to others.” (111 Ill. App. 3d 914, 918, 444 N.E.2d 504, 507.) This court in Morgan reiterated its earlier statement in Rhodes that one who is culpable may be liable for contribution.

In contrast to the circumstances in Skinner, Rhodes and Morgan, Chief is not culpable in the sense that its wrongful conduct contributed to plaintiff’s injuries. The third-party complaint alleges only that third-party defendant is liable because of the lease agreement and because its legend was displayed on Mindemann’s truck. As we have previously stated, however, the lease agreement makes third-party plaintiffs and not Chief liable for plaintiff’s injuries. Furthermore, while the Interstate Commerce Act and its regulations require the carrier-lessee to be liable in negligence to injured members of the public, the Supreme Court in Transamerican Freight Lines, Inc. v. Brada Miller Freight Systems, Inc. (1975), 423 U.S. 28, 46 L. Ed. 2d 169, 96 S. Ct. 229, approved of private agreements between the carrier-lessee and the lessor allocating between them the risk of loss because of the driver’s negligence. The fact that Chief’s legends were on Mindemann’s truck while subjecting Chief to vicarious liability also does not support a contribution action. In no way can we construe this vicarious liability imposed because of the legends as wrongful conduct contributing to plaintiff’s injuries or as similar in nature to a dramshop’s sale of alcohol or an employer’s misuse of a defective product. As the trial court aptly stated, “The letters on the truck in no way contributed to the accident in this case.” Absent culpable conduct which somehow contributed to plaintiff’s injuries, we conclude the trial court properly held that a contribution action against third-party defendant could not lie.

Mindemann responds, however, that the public policy underlying the Interstate Commerce Act and its regulations supports the contribution action in this case. In Morgan, where as here liability was predicated on a statute, we examined the statute’s public policy in determining whether contribution should lie. After reviewing Morgan, the trial court concluded that allowing a contribution action would not serve the public policy underlying the statute of protecting injured members of the public because “[wje’re not faced with Chief’s liability to the original plaintiff in this case.” We agree. That public policy, as articulated by our supreme court, is to eliminate the need for the injured member of the public to establish which party had control of the vehicle and driver at the time of the accident. We interpret Mindemann’s contribution action as an attempt to share the burden of its liability with another party whose actions were not culpable and did not contribute to plaintiff’s injuries in the case at bar. Our holding in no way restricts a plaintiff’s existing right to sue directly the carrier-lessee who displays its legends on a lessor’s vehicle.

Accordingly, we affirm the order of the circuit court of Winnebago County granting judgment on the pleadings to third-party defendant Chief Truck Lines, Inc.

Affirmed.

SEIDENFELD, P.J., and UNVERZAGT, J., concur.


author: JUSTICE SULLIVAN

text:
    HARRY WEISBERG et al., Plaintiffs-Appellants, v. ROYAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee.
    First District (5th Division)
    No. 83—2240
    Opinion filed June 1, 1984.

      Davidson & Schwartz, of Chicago (David Davidson and Roger V. McCaffrey, of counsel), for appellants.
    Kiesler & Berman, of Chicago (Marvin D. Berman and Robert L. Kiesler, of counsel), for appellee.
   JUSTICE SULLIVAN

delivered the opinion of the court:

Plaintiffs appeal from the dismissal of their action to recover an amount allegedly due them under a homeowner’s insurance policy issued by defendant. The sole question before us is the applicability of section 143.1 of the Illinois Insurance Code (section 143.1) (Ill. Rev. Stat. 1981, ch. 73, par. 755.1) to policies issued prior to that statute’s effective date of January 1, 1982.

Plaintiffs and defendant entered into a contract of insurance covering damage or loss to plaintiffs’ residence and various items of personal property, which included theft losses. The policy was renewed annually over an undisclosed period of time, the last renewal certificate being issued on March 4, 1981, for a one-year period ending March 4, 1982. Among the terms of that policy was a clause (the limitation clause) which provided in relevant part that “[n]o action shall be brought [against defendant] unless *** the action is started within one year after the occurrence causing loss or damage.” Plaintiffs allegedly suffered a theft loss in the amount of $61,364 on June 26, 1981, and filed a proof of loss, as required under the terms of the policy, on August 25, 1981. For reasons not pertinent hereto, defendant in a letter dated April 27, 1982, rescinded the policy, and refunded the premiums paid thereunder.

Plaintiffs filed the instant action on October 15, 1982, and defendant moved for dismissal pursuant to section 2 — 619 of the Code of Civil Procedure (Ill. Rev. Stat. 1981, ch. 110, par. 2 — 619) on the ground that the limitation clause barred any suit not commenced on or before June 26, 1982, one year after the occurrence which occasioned plaintiffs’ loss. In response, plaintiffs assert that (a) defendant, by its conduct in investigating the claim and seeking to negotiate a settlement, had waived the limitation period or was estopped from relying thereon; and (b) their action was timely, because the one-year limitation period provided in the contract was tolled during the eight-month period between the filing of their proof of loss and defendant’s denial of the claim, pursuant to section 143.1, which provides:

“Whenever any policy or contract for insurance, except life, accident and health, fidelity and surety, and ocean marine policies, contains a provision limiting the period within which the insured may bring suit, the running of such period is tolled from the date proof of loss is filed, in whatever form is required by the policy until the date the claim is denied in whole or in part.”

After considering the pleadings, exhibits, affidavits, and arguments of the parties, the trial court found that plaintiffs had failed to allege any conduct by defendant which would constitute waiver of the limitation clause or estop it from relying thereon, and further ruled that section 143.1 was inapplicable to contracts or policies of insurance entered into before its effective date of January 1, 1982. The complaint was therefore dismissed, and this appeal followed.

Opinion

Plaintiffs appeal only from that portion of the order of dismissal which holds that section 143.1 is inapplicable, contending that the trial court erred as a matter of law in so ruling. In support of their position, they rely on cases which hold that a statutory amendment affecting only procedures or remedies, such as an amendment altering the time within which a claim must be filed, may be applied retroactively (see, e.g., Orlicki v. McCarthy (1954), 4 Ill. 2d 342, 122 N.E.2d 513), unless the claim in question was already barred on the effective date of the amendment (see, e.g., Conner v. Copley Press, Inc. (1984), 99 Ill. 2d 382, 459 N.E.2d 955), and they reason that, until this period has passed, no one has a “vested right” in the continuance of the existing law (see People ex rel. Eitel v. Lindheimer (1939), 371 Ill. 367, 373, 21 N.E.2d 318, 321). Plaintiffs argue that these cases, which concern statutory amendments, are equally applicable to statutory changes which affect limitations established by contract and, since defendant had no “vested right” in a contractual limitation period which had not expired as of January 1, 1982, section 143.1 may be applied retroactively to extend the time within which they must bring their action.

Recently, in Steel City National Bank v. Aetna Insurance Co. (1983), 116 Ill. App. 3d 7, 452 N.E.2d 65, we had occasion to consider the applicability of section 143.1 to claims arising prior to the statute’s effective date. There, the contractual limitation period had expired prior to January 1, 1982, and we ruled that section 14)3.1 could not be applied retroactively to revive a claim which had been previously barred (116 Ill. App. 3d 7, 10, 452 N.E.2d 65, 67), citing Arnold Engineering, Inc. v. Industrial Com. (1978), 72 Ill. 2d 161, 380 N.E.2d 782. Plaintiffs acknowledge that, in Steel City, we were concerned with a different factual situation; nevertheless, they assert that our decision therein is dispositive of the instant case, noting that our ruling was based on prior decisions concerning statutory, rather than contractual, limitation periods.

It is true that we did not attempt in that case to distinguish between limitations arising by contract and those established by statute; however, no distinction was made because none was necessary under the particular facts before us. The applicable principles regarding the retroactive application of statutes was set forth recently in Maiter v. Chicago Board of Education (1980), 82 Ill. 2d 373, 390-91, 415 N.E.2d 1034, 1041-42, wherein the supreme court stated:

“In absence of express language declaring otherwise, an amendatory act is ordinarily construed as being prospective in its operation. [Citations.] This general rule is based upon the principle that the legislature may not impair the obligation of contracts [citation] or interfere with vested substantive rights. [Citation.] However, in the absence of a saving clause, an amendatory act may be retroactively applied where the legislature so intended and where the statute affects the remedy or matters of procedure. When a change of law merely affects the remedy or law of procedure, all rights of action will be enforceable under the new procedure, without regard to whether they accrued before or after such change of law and without regard to whether or not the action has been instituted, unless there is a saving clause as to existing litigation. [Citations.] Changes in procedure or existing remedies will not be applied retrospectively, however, where a vested, constitutionally protected right will be deprived by such application.”

In Steel City, there could be no question but that the insurer’s rights were vested, whether they arose by contract or by statute, since the action therein was barred by the limitation provision before section 143.1 ever became effective. Therefore, we had no occasion to consider whether application of section 143.1 to policies issued prior to its effective date would be an unconstitutional impairment of the obligation of contracts, or whether an insurer has a “vested right” in a contractual limitation period prior to its expiration. We now reach those questions, which were not addressed in Steel City.

Initially, we note that, just as with any other type of contract, it is generally held that statutory provisions applicable to insurance policies, which are in existence at the time the policy is issued, are treated as part of the agreement. (DC Electronics, Inc. v. Employers Modern Life Co. (1980), 90 Ill. App. 3d 342, 413 N.E.2d 23; Harper v. City Mutual Insurance Co. (1978), 67 Ill. App. 3d 694, 385 N.E.2d 75.) Thus, under the law as it existed on March 4, 1981, when the policy in question was issued, there was no statutory provision which would have operated to extend a contractual limitation period, and such limitations had been expressly found not contrary to public policy (McMahon v. Millers National Insurance Co. (1971), 131 Ill. App. 2d 339, 266 N.E.2d 714) and therefore valid and enforceable, if reasonable (O’Brien v. Country Mutual Insurance Co. (1969), 105 Ill. App. 2d 21, 245 N.E.2d 30), unless the insurer, by its conduct, was precluded from asserting the limitation clause as a defense (Florsheim v. Travelers Indemnity Co. of Illinois (1979), 75 Ill. App. 3d 298, 393 N.E.2d 1223; Salloum Foods & Liquor, Inc. v. Parliament Insurance Co. (1979), 69 Ill. App. 3d 422, 388 N.E.2d 23). The parties here contracted in the light of that existing law, and there was nothing in the statutes or in case law which would have made their agreement subject to later changes in the law; to the contrary, there were cases holding that subsequent enactments were not a part of policies issued prior to their effective dates (see, e.g., Smiley v. Estate of Toney (1968), 100 Ill. App. 2d 271, 241 N.E.2d 116). Therefore, it appears that the parties did not contract with the understanding that future changes in insurance law would alter the terms of their agreement, and it is our view that application of section 143.1 to this policy would have the effect of impairing the obligations thereof.

Plaintiffs contend, however, that the subject matter of the limitation clause, which they characterize as merely affecting their remedies under the contract, somehow distinguishes it from cases which hold that statutes may not be applied retroactively where they would impair the obligation of contracts. We disagree. In Dickirson v. Pacific Mutual Life Insurance Co. (1925), 319 Ill. 311, 150 N.E. 256, the supreme court considered the applicability of a statute governing the issuance and conditions of insurance policies, which became effective on January 1, 1916 (the standard provisions statute). There, the policy in question had been originally issued in 1910, approximately six years before the statute’s effective date, and contained a six-month limitation on the commencement of actions thereunder. The standard provisions statute fixed a minimum two-year limitation on the filing of actions, and the supreme court held that the latter period was applicable because the policy had been renewed several times after the statute’s effective date, ruling that a renewal of a policy was in, in effect, a new insurance contract made subject to then-existing statutes. However, the court also noted that “[i]f the policy sued upon was issued in 1910 [without annual renewals] the Standard Provisions statute cannot be held to apply, for *** the legislature has no power to change or vary the terms of a contract of this character.” (319 Ill. 311, 314, 150 N.E. 256, 257.) Thus, contrary to plaintiffs’ assertions, statutes which would serve to alter a contractual limitation period are not exempt from the general constitutional principle that the legislature may not enact laws which impair the obligation of contracts.

Other courts have also found that statutes which extend a contractual limitation period are not merely remedial, but constitute an impairment of the obligations of the contract. For example, in Home Insurance Co. v. Dick (1930), 281 U.S. 397, 74 L. Ed. 926, 50 S. Ct. 338, the Supreme Court considered whether a Texas statute declaring invalid any contractual limitation period shorter than two years could be applied to a foreign contract of insurance containing a one-year limitation period. The insured there argued that the statute did not impair the obligations of the contract, analogizing it, as plaintiffs do here, to the lengthening of a statutory limitation period. The Supreme Court, however, ruled that the statute could not be applied to contracts which were neither made nor performed in Texas, noting:

“The cases relied upon, in which it was held that a State may lengthen its statute of limitations, are not in point. [Citations.] In those cases, the parties had not stipulated a time limit for the enforcement of their obligations. It is true that a State may extend, the time within which suit may be brought in its own courts, if, in doing so, it violates no agreement of the parties. And, in the absence of a contractual provision, the local statute of limitations may be applied to a right created in another jurisdiction even where the remedy in the latter is barred. In such cases, the rights and obligations of the parties are not varied. When, however, the parties have expressly agreed upon a time limit on their obligation, a statute which invalidates the agreement and directs enforcement of the contract after the time has expired increases their obligation and imposes a burden not contracted for.” (Emphasis added.) (281 U.S. 397, 408-09, 74 L. Ed. 926, 934, 50 S. Ct. 338, 341-42.)

Thus, where a statute affects a contractual rather than a statutory limitation period, it has the effect of altering a mutually agreed upon term of the contract, and cannot be considered a mere change in statutory remedy or procedure.

Plaintiffs further argue that, since no right to assert the defense of the contractual limitation period had arisen under the policy at the time section 143.1 became effective, defendant had no “vested right” therein which would be impaired by retroactive application of the statute. We do not find this reasoning persuasive, since as noted, statutes may not be applied retrospectively if they would either impair the obligation of contracts or interfere with vested rights. (Matter v. Chicago Board of Education (1980), 82 Ill. 2d 373, 415 N.E.2d 1034.) Moreover, similar reasoning was rejected recently in McAleer Buick-Pointiac Co. v. General Motors Corp. (1981), 95 Ill. App. 3d 111, 419 N.E.2d 608, wherein the court noted that rights under a contract become “vested,” for purposes of the retroactive application of a statute, when the contract is entered into, rather than when rights thereunder are asserted. There, the parties had entered into a franchise agreement under which either party could elect not to extend the agreement' upon its expiration. Subsequently, the Motor Vehicle Franchise Act (Ill. Rev. Stat. 1979, ch. 1211/2, par. 751 et seq.) was adopted, and provided that it was a violation thereof “to fail or refuse to extend the franchise or selling agreement of a motor vehicle dealer upon its expiration without good cause ***.” (Ill. Rev. Stat. 1979, ch. 1211/2, par. 754(d)(5).) The defendant, without stating any reason, had notified the plaintiff that the franchise agreement would not be renewed upon its expiration, and the plaintiff sought injunctive relief, arguing that the act was applicable because the conduct sought to be enjoined occurred after the effective date of the act. The court held that the act in question was inapplicable, stating:

“The Illinois Supreme Court has defined a retroactive law as:
‘ “*** one that takes away or impairs vested rights acquired under existing laws, or creates a new obligation, imposes a new duty, or attaches a new disability in respect of transactions or considerations already past.” ’ (United States Steel Credit Union v. Knight (1965), 32 Ill. 2d 138, 142, 204 N.E.2d 4, 6.)
Thus, retroactivity is defined in terms of the effect a law would have on vested contractual rights, not in terms of the time when a party happens to assert those rights.
At the time this franchise agreement was entered, there was no statute forbidding nonrenewal of it without showing good cause. Nor was there case law to that effect. *** Thus, when CMC and McAleer entered this agreement, each party acquired the right to refuse to renew it without showing good cause. To require CMC to make such a showing would impose a new duty in respect of a transaction already past and would therefore constitute retroactive application of the Illinois Motor Vehicle Franchise Act.
* * *
The rule against giving a statute retroactive application is grounded at least in part upon the constitutional guarantee against the impairment of the obligation of contracts — a guarantee that could be violated if a law enacted subsequent to a party’s acquiring constitutional rights were applied to that contract.” (McAleer Buick-Pontiac Co. v. General Motors Corp. (1981), 95 Ill. App. 3d 111, 113-14, 419 N.E.2d 608, 610.)

Similarly, here, defendant acquired a right under the policy, i.e., a right to have suit brought, if at all, within one year of the date of loss, and there was no statute or case law restricting that right at the time the policy was issued. Application of section 143.1, under these circumstances, would attach a new disability to defendant’s contractual right, and it is immaterial that it did not have occasion to assert that right prior to the effective date of section 143.1. Its right to do so was “vested,” within the meaning of the rule against retroactive application of statutes, when the policy was issued.

It is therefore our view that, if section 143.1 is construed as applying to policies enacted before its effective date, it would be invalid. Of course, where possible, we must avoid any construction which would render a statute invalid. (Laffoon v. Bell & Zoller Coal Co. (1976), 65 Ill. 2d 437, 359 N.E.2d 125.) In the instant case, any constitutional infirmity is avoided by simply construing section 143.1 as prospective in operation, since, as the supreme court noted in Schewe v. Glenn (1922), 302 Ill. 462, 466-67, 134 N.E. 809, 810-11:

“A statute tending to impair the obligation of a contract may be invalid as to contracts existing at the time of its passage but valid as to future contracts. The law existing at the time a contract is made becomes a part of it, and the constitutional provision has reference only to a statute enacted after the making of a contract. We believe these rules are universally applied by the courts. *** '*** The State, therefore, may legislate as to future contracts as it may see fit, and, accordingly, if a law is prospective, only, it is valid. ***’ ”

There is nothing within the language of this statute to indicate that the legislature intended retroactive application thereof, and we therefore will adopt that construction which renders it valid and hold that section 143.1 is prospective only, and may not be applied to policies issued prior to its effective date of January 1, 1982.

For the foregoing reasons, the order of the trial court is affirmed.

Affirmed.

MEJDA, P.J., and LORENZ, J., concur.