author: PRESIDING JUSTICE HARRISON JUSTICE JONES,

text:
      In re ESTATE OF DANIEL SWIECICKI, a Minor (Chester J. Swiecicki, Successor Guardian-Appellant, v. The Farmers and Merchants Bank of Highland, Former Guardian-Appellee).
    Fifth District
    No. 82—675
    Opinion filed February 8, 1984.

      JONES, J., dissenting.
    Earl L. Vaugniaux, P.C., of Edwardsville, for appellant.
    Donald C. Rikli, of Highland, for appellee.
   PRESIDING JUSTICE HARRISON

delivered the opinion of the court:

Chester Swiecicki, the successor guardian of the estate of Daniel Swiecicki, appeals from a judgment of the circuit court of Madison County which overruled his objections to the final report and account of the Farmers and Merchants Bank of Highland, the prior guardian of Daniel’s estate. For the reasons which follow, we reverse and remand.

The facts relevant to this appeal are not in dispute. Daniel Swiecicki was born in 1969. Both of his parents died on June 18, 1977. The Farmers and Merchants Bank of Highland (Bank) was appointed as guardian of Daniel’s estate on June 9, 1978, and held this position until submitting its resignation on January 30, 1981. During its tenure as guardian, the Bank invested Daniel’s money in two six-month certificates of deposit in itself, and one similar certificate of deposit in the First National Bank of Nashville. These certificates paid interest of between 11% and 13%. During the times that Daniel’s money was not invested in these certificates, it was placed in a passbook savings account at the Bank. This account paid 51/4% interest. By making commercial loans at an interest rate higher than that which it paid on its own certificates of deposit and savings accounts, the Bank made a profit on the estate’s funds during its term as guardian. In objecting to the final report and account of the Bank, the successor guardian, Chester J. Swiecicki, sought, inter alia, judgment against the Bank for the amount of the profits it derived from investing the minor’s money in itself. The circuit court overruled this objection, and in a subsequent order approved the Bank’s final report and account, with the exception of certain insurance payments not relevant to this appeal.

The sole question presented by this appeal is whether a bank, acting as guardian of the estate of a minor, which invests the estate’s funds in its own savings accounts and certificates of deposit and makes a profit through use of the invested funds, must account to the estate for that profit. It should initially be noted that this case involves no claim that the Bank failed to keep the minor’s money invested, commingled any funds or acted wrongfully in investing the funds without prior approval of the court. Rather, it is the claim of the successor guardian that the Bank, having made money by the manner in which it invested and then used the estate’s funds, is required by its fiduciary responsibilities to turn its profit over to the estate. The search for the answer to this narrow question necessarily begins with an examination of what duties the Bank, as guardian of the estate, owed to the minor.

Illinois has long recognized the principle that a trustee shall not make any advantage to himself out of the trust fund, and that all profits thus made belong to the cestui que trust. (Rowan v. Kirkpatrick (1852), 14 Ill. 1, 10.) The purchase by a trustee for his own account of property of his trust is a breach of his duty to serve the interests of the beneficiary with complete loyalty. (Home Federal Savings & Loan Association v. Zarkin (1982), 89 Ill. 2d 232, 239, 432 N.E.2d 841.) There is an inherent conflict of interest in such purchases since the trustee, as purchaser, is interested in acquiring the property at the lowest possible price, while his required loyalty to the beneficiary dictates that he seek to obtain the highest possible price for the trust property. 89 Ill. 2d 232, 239-40.

Applying these principles to the instant case, we are compelled to conclude that the estate is entitled to the profit which the Bank made through the use of the estate’s money. As the vice-president and trust officer of the Bank candidly testified at the hearing on the final report and objections thereto, “the function of any bank is to make money *** and to reinvest these funds into a community by loans and things of this order, to make a community prosper.” In seeking to maximize this profit, a bank has an undeniable interest in acquiring at the least possible cost the monies which it will later use to make commercial loans. Thus, in the instant case, the Bank’s financial motives and fiduciary responsibilities were incompatible. As “buyer” of Daniel’s money for its own use, the Bank had an interest in acquiring the money at the lowest possible rate, in order to insure the profitability of that acquisition. As “seller” of that same money for the purpose of earning interest income for the estate, the Bank as guardian was faced with the conflicting responsibility of considering only the interests of the estate in determining how to invest the estate funds. While it is not claimed, and there is no evidence to suggest, that the Bank acted with anything less than good faith in carrying out its responsibilities as guardian, this fact does not preclude application of the rule prohibiting the trustee from dealing with the trust property on his own account. “It avails nothing to show that the intentions of the trustee were honest ***. [T]he only safe rule is one which absolutely forbids a trustee to occupy two positions inconsistent with each other.” Joliet Trust & Savings Bank v. Ingalls (1934), 276 Ill. App. 445, 451.

In making the determination which we reach here, we are cognizant of the fact that courts in other jurisdictions have found no conflict of interest on facts similar to those presented in this case. These cases essentially treat the institutional trustee as two separate entities, one which acts as trustee and the other which acts as custodian of the estate. From this premise it is reasoned that the trustee is not actually buying trust property on its own account (see, e.g., Breedlove v. Freudenstein (5th Cir. 1937), 89 F.2d 324, 325), or that money made by the institution through its handling of the trust fund constitutes a reasonable profit for the institution in its capacity as custodian, provided that the trust is paid at least the prevailing rate of interest on the fund. (Hayward v. Plant (1923), 98 Conn. 374, 119 A. 341.) We find these cases unpersuasive, because we reject the premise underlying them. There is nothing to suggest that, in reality, the Bank here is anything other than one business entity, controlled by one board of directors and owned by a single set of stockholders. That acquisition of money at a low rate and subsequent loaning of money at a higher rate inures to the benefit of the Bank as a whole is a fact undoubtedly within the understanding of both the trust and commercial departments of the Bank, and we think it unrealistic to rigidly compartmentalize the Bank’s business functions for purposes of analyzing its adherence to its fiduciary obligations. Moreover, it

does no injustice to the Bank to hold that it is not entitled to profit from its role as custodian of the deposit, since sections 1 — 2.15 and 27 — 1 of the Probate Act of 1975 (Ill. Rev. Stat. 1981, ch. 110½, pars. 1 — 2.15, 27 — 1) allow the Bank reasonable compensation for its services as guardian.

In an additional argument in support of affirmance, the Bank relies on that section of the Probate Act of 1975 which provides that a representative of a ward’s estate may, “*** without approval of the court, invest in United States obligations and obligations of which both the principal and interest are guaranteed unconditionally by the United States.” (Ill. Rev. Stat. 1981, ch. 110½, par. 21 — 2(b).) We do not believe, however, that this statute operates to alter the common law duties of the Bank in the situation presented here. That the legislature chose to allow a guardian to invest in obligations guaranteed by the United States provides no indication that it also intended to permit the guardian to profit from those investments. “When a statute is enacted which covers an area formerly covered by common law, such statute should be construed as adopting the common law unless there is clear and specific language showing that a change in the common law was intended by the legislature.” (Proud v. W.S. Bills & Sons, Inc. (1970), 119 Ill. App. 2d 33, 45, 255 N.E.2d 64.) Nothing in the statute permitting a guardian to invest in obligations guaranteed by the United States indicates a legislative intent to override the common law duty owed by the guardian, and we will not infer the existence of such an intention.

Finally, we believe that the remaining statutes discussed by the parties lend additional support to the result reached here. Section 21 — 1.03 of the Probate Act of 1975 (Ill. Rev. Stat. 1981, ch. 110½, par. 21 — 1.03) expressly permits the representative of a decedent's estate to invest in savings accounts or certificates of deposit in a State or national bank “*** even though the bank of deposit is the representative of the estate ***.” That section of the Act allowing the representative of a ward’s estate to make similar investments, however, contains no provision permitting the representative to invest in itself. (Ill. Rev. Stat. 1981, ch. 110½, par. 21 — 2.06.) It is not within the province of this court to enlarge the meaning of a statute by adding language aimed at correcting any supposed omission or defect (Belfield v. Coop (1956), 8 Ill. 2d 293, 307, 134 N.E.2d 249), and we will not presume in this case that the legislature intended to significantly alter the common law fiduciary rules pertaining to guardians without saying so. Nor do we believe that section 3 of “An Act to provide for and regulate the administration, of trusts by trust companies” (Ill. Rev. Stat. 1981, ch. 17, par. 1555), discussed in the dissenting opinion, affects the result here. The funds in question were not “awaiting investment or distribution” as contemplated by section 3; rather, the bank actually invested these funds in its own savings accounts and certificates of deposit during the 2½ years it served as guardian of the minor’s estate.

For the foregoing reasons, the judgment of the circuit court of Madison County is reversed, and this cause is remanded to the circuit court for further proceedings consistent with this opinion.

Reversed and remanded.

KASSERMAN, J., concurs.

JUSTICE JONES,

dissenting:

I respectfully dissent.

The majority’s holding that a bank serving as guardian of a minor’s estate violates its duty of loyalty when it deposits the estate’s funds in its own savings accounts and certificates of deposit is, I believe, contrary to legislative intent regarding a bank’s investment of funds held in trust. Notwithstanding the general common law rule that a trustee shall not make any advantage to itself of a trust fund, the legislature of this State has specifically authorized the deposit of trust funds by a corporate trustee in its own banking department under certain conditions. Such a deposit of trust funds “awaiting investment or distribution” is proper under section 3 of “An Act to provide for and regulate the administration of trusts by trust companies” (Ill. Rev. Stat. 1981, ch. 17, par. 1555), provided the deposit is protected by securities set aside for that purpose or is guaranteed by the Federal Deposit Insurance Corporation. Since the facts of this case bring it squarely within the scope of that section, the result reached by the majority is erroneous.

In considering whether, under the general common law rule regarding a trustee’s duty of complete loyalty to its cestui que trust, a bank may deposit trust funds in its own banking department, courts of other jurisdictions have reached different conclusions. (See 2 Scott, Trusts sec. 170.18 (3d ed. 1967); Bogert, Trusts & Trustees sec. 543(K) (2d rev. ed. 1978), sec. 598 (2d rev. ed. 1980); Hunsicker, Conflicts of Interest Economic Distortions, & the Separation of Trust & Commercial Banking Functions, 50 So. Cal. L. Rev. 611, 619-26 (1977) (hereinafter Hunsicker, Conflicts of Interest); Annot., 88 A.L.R. 205, 212-18 (1934); see E. Herman, Conflicts of Interest: Commercial Bank Trust Departments 107-21 (1975) (hereinafter Herman, Commercial Bank Trust Departments).) Courts dealing with this question have noted the inherent conflict of interest that arises from a bank lending trust money to itself individually. Thus, it has been said, a corporate trustee may be tempted to leave large amounts of trust monies on deposit for an unnecessarily long time due to the convenience and profit derived from the use of such funds (Bogert, Trusts & Trustees sec. 543 (K), at 313 (2d rev. ed. 1978), sec. 598, at 488 (2d rev. ed. 1980)), and may be tempted to make and continue such deposits despite knowledge by the bank’s officers that the bank is in a precarious financial position. 2 Scott, Trusts sec. 170.18, at 1357 (3d ed. 1967).

The potential for self-dealing resulting from the temptation to consider the commercial activities of a bank in administering its trusts (see 2 Scott, Trusts sec. 170.23A, at 100 (Supp. 1983)) has led in some instances to a flat prohibition against a corporate trustee depositing trust funds in its own accounts. Indeed, the American Law Institute, after much deliberation (see 2 Scott, Trusts sec. 170.18, at 1357-58 (3d ed 1967)), adopted the position in its Restatement of Trusts that a bank or trust company that makes a general deposit of trust funds in its own banking department thereby commits a breach of trust, unless it is authorized to do so by the terms of the trust (Restatement of Trusts sec. 170, comment m (1935)). This rule was continued in the Restatement (Second) of Trusts sec. 170, comment m (1959). It is, however, common practice for banks and trust companies to deposit trust funds in their own institutions (see Herman, Commercial Bank Trust Departments 108-09), and, despite the view of some courts that such transactions involve disloyalty, this practice is sanctioned by the weight of authority at common law. Bogert, Trusts & Trustees sec. 598, at 488-89 (2d rev. ed. 1980); Hunsicker, Conflicts of Interest 620.

Notwithstanding the treatment of the issue at common law, in Illinois, as in many other States, the matter of deposits by a corporate trustee in its own banking department is controlled by statute. (See 2 Scott, Trusts sec. 170.18, at 1359-61 (3d ed. 1967); Bogert, Trusts & Trustees sec. 543(K), at 314-16 (2d rev. ed. 1978), sec. 598, at 492-94 (2d rev. ed. 1980).) The Illinois statute states, in pertinent part:

“All funds deposited with or held in trust by [a corporation authorized to accept or execute trusts] awaiting investment or distribution, whether intrusted to it for investment by [the] court, or otherwise, shall be carried in a separate account and shall not be commingled with its own funds or used by such corporation in the conduct of its business unless it shall first set aside in its trust department *** [proper securities] having an aggregate market value, at all times, of at least 100% of the amount of such trust funds, unless such trust funds are insured by the Federal Deposit Insurance Corporation or the Federal Savings and Loan Insurance Corporation; in that event the aggregate market value may be reduced by the amount of federal insurance.” (Ill. Rev. Stat. 1981, ch. 17, par. 1555, formerly ch. 32, par. 289.)

A Federal statute (12 U.S.C. sec. 92a(d) (Supp. 1983)) makes similar provision for national banks operating in the State. See Comptroller of the Currency Regulation 9.10, 12 C.F.R. sec. 9.10 (1983).

These statutes, providing conditions under which the deposit of trust funds in a bank’s own accounts is proper, effectively qualify the general common law fiduciary rule against self-dealing in the case of a corporate trustee holding funds for investment or distribution. (Hunsicker, Conflicts of Interest 620; New England, Trust Co. v. Triggs (1956), 334 Mass. 324, 135 N.E.2d 541 (interpreting similar Massachusetts statute); cf. First National Bank v. Weaver (1932), 225 Ala. 160, 142 So. 420 (statute “inferentially authorized” deposit of funds held by executor bank so as to relieve bank from liability under rule against a self-dealing); Humane Society v. Austin National Bank (Tex. 1975), 531 S.W.2d 574, cert. denied (1976), 425 U.S. 976, 48 L. Ed. 2d 800, 96 S.C. 2177 (executor bank’s purchase of its own certificates of deposit authorized by statute and thus not per se violation of its fiduciary duty).) As such, they provide an exception to the general rule prohibiting a trustee from dealing with trust property on its own account (see Home Federal Savings & Loan Association v. Zarkin (1982), 89 Ill. 2d 232, 432 N.E.2d 841).

This exception can be justified on policy grounds as allowing “efficient temporary investment of funds held in trust by a bank pending their ultimate disposition, while providing maximum security for those funds.” (Humane Society v. Austin National Bank (Tex. 1975), 531 S.W.2d 574, 579.) The convenience for a corporate trustee of making such deposits in itself rather than in another institution is evident. (See Bogert, Trusts & Trustees sec. 543(K), at 317 (2d rev. ed. 1978); Commissioners’ Prefatory Note, Uniform Trusts Act, 9A Uniform Laws Annotated 335 (1968); New England Trust Co. v. Triggs.) Moreover, by reason of the security requirements of the statute,

“[t]he situation of the beneficiaries *** is superior to that which existed at common law in those states which prohibited the corporate trustee from depositing with itself and required it to make the deposit with another bank. Under that rule the deposit had no security behind it, and in case of failure of the bank of deposit there was no preference. Under the *** statutory rule there is great security for the trust deposits, first through the insurance provided by the F.D.I.C., and secondly through the fund which is set apart in the trust department of the bank as security for all trust deposits.” Bogert, Trusts & Trustees sec. 598, at 495 (2d rev. ed. 1980).

While it may be objected that, despite these considerations of convenience and security, there remains the potential for self-dealing inherent in a bank’s use of trust funds deposited in its own accounts, the statutes here referred to reflect a legislative recognition of the distinctive character of corporate trustees. (See In re Smith’s Estate (1931), 112 Cal. App. 680, 297 P. 927.) Banks serving as trustees are subject, not only to rules regarding investments applicable to trustees generally, but also to various requirements regarding capital, surplus, reserves, securities and inspection. (See Ill. Rev. Stat. 1981, ch. 17, pars. 1551-70.) Such trust companies operate in a regulated environment under the supervision of banking authorities and are required to be examined, separately from an affiliated banking department, regarding their investment of funds and their actions generally. (See Ill. Rev. Stat. 1981, ch. 17, par. 1564; but see Hunsicker, Conflicts of Interest 623-25, where the author argues that regulation affords only limited protection against abuse in the holding of cash by trust departments.) There is the additional factor of competition among corporate trustees for fiduciary accounts, which would arguable induce trust companies to invest trust funds profitably in order to secure these accounts. (Herzel & Colling, The Chinese Wall & Conflict of Interest in Banks, 34 Bus. Law. 73, 108-09 (1978); see New England Trust Co. v. Triggs; Hunsicker, Conflicts of Interest 625.) In any event, the legislature of this State, by enacting section 3 to allow the deposit of trust funds by a corporate trustee in its own banking department, has made a policy decision that the benefits to be afforded outweigh the potential for self-dealing inherent in such transactions. For this reason, the omission, referred to by the majority, of express statutory language permitting the representative of a ward’s estate to invest in its own accounts (see majority opinion) must be regarded as mere legislative oversight rather than as an expression of legislative intent.

Although the statutes here noted authorize the use of trust funds in the conduct of a trustee bank’s business, these statutes do not relieve the bank of its fiduciary duty as trustee. (Humane Society v. Austin National Bank (Tex. 1975), 531 S.W.2d 574.) Rather, it has been said, “[a] trustee bank which exercises its statutory right to hold trust funds in its commercial department accepts *** the increased responsibilities which the circumstances impose” (New England Trust Co. v. Triggs (1956), 334 Mass. 324, 334, 135 N.E.2d 541, 548) and “must act in scrupulous good faith, casting aside completely its personal interest and opportunities for gain resulting from the fiduciary relationship.” (Humane Society v. Austin National Bank (Tex 1975), 531 S.W.2d 574, 580; see Hunsicker, Conflicts of Interest, at 625; In re Estate of Jones (1960), 400 Pa. 545, 162 A.2d 408.) Thus, while not improper per se, the deposit of trust funds in a trustee bank’s own accounts may be improper where held for an unreasonably long time (cf. New England Trust Co. v. Triggs ($100,000 left uninvested for over two years); In re Jones’ Estate (cash proceeds of decedent’s estate not invested for at least five years); In re Estate of Lare (1969), 436 Pa. 1, 257 A.2d 556 (substantial sums of cash allowed to lie idle over 20-year period)) or where deposited at a time when the officers of the bank knew that it was in a precarious financial condition (see 2 Scott, Trusts sec. 170.18, at 1361 (3d ed. 1967)). The deposit of trust funds in itself by a corporate trustee, then, must be consonant with principles of good faith and reasonableness in order to come within the cloak of immunity afforded by the statutes authorizing such deposits.

In the instant case, as the majority notes, there is no claim that the trustee bank acted wrongfully in failing to keep the minor’s money invested or exhibited anything less than good faith in carrying out its responsibilities as guardian. Rather, the appellant seeks, and the majority imposes, a per se rule that the bank’s use of trust funds in the conduct of its business constitutes a violation of its fiduciary duty and renders the bank liable for profits derived from such funds. As the above analysis reveals, this result is inconsistent with the plain meaning of the statute authorizing the deposit of trust funds in the accounts of a trustee bank.

It appears from an examination of the record that the facts of the instant case bring it squarely within the scope of section 3. The bank’s trust officer testified, and it was not disputed, that the minor’s funds deposited in the bank’s savings accounts and certificates of deposit were fully insured by the F.D.I.C. so as to meet the security requirement of the statute. As to the temporary nature of the deposits, it was also undisputed that the decision to make such deposits was based on the “uncertainty of when this guardianship would be leaving [the bank].” The trust officer testified that he had been informed that the minor’s relatives wished to change guardians from his bank to another bank. He stated that

“this did give me an amount of uncertainty as to what to invest in, because I did not know what the successor guardian would want the monies in, and also the timing [sic]. My information was we would be losing this as soon as the estate of Daniel Swiecicki’s mother was settled, and so I was uncertain of the timing of when this could be done [sic].”

Therefore, he stated, the minor’s funds “[were] left in a savings position, a ready liquid position to be disbursed to the successor guardian.” From this testimony it can be seen that the minor’s funds were “awaiting investment or distribution” so as to come within the provision of the statute. See Humane Society v. Austin National Bank (Tex. 1975), 531 S.W.2d 574.

Finally, it should be noted that the funds of the minor here were invested at all times in accounts paying interest at the market rate. There is no contention that the funds were placed in non-interest-paying checking accounts or that the interest rate was less than that paid by the bank on other deposits of a similar nature. The Illinois statute provides that a trustee bank “shall pay” interest on trust funds deposited in its own accounts

“***at such rate as may be agreed upon at the time of its acceptance of [an] appointment, or as shall be provided by the order of the court.” (Ill. Rev. Stat. 1981, ch. 17, par. 1556.)

While there is no indication here of an express agreement regarding the interest rate to be paid, it is consistent with the bank’s acceptance of the appointment and its fiduciary duty to the minor to imply an agreement to pay the same rate of interest as the bank paid on similar deposits. (See Hayward v. Plant (1923), 98 Conn. 374, 119 A. 341; see also Annot., 88 A.L.R. 205, 214-17 (1934); Bogert, Trusts & Trustees sec. 598, at 496 (2d rev. ed. 1980).) In the absence of a basis for holding the bank liable for profits from the use of the minor’s funds, the bank’s payment of interest at the market rate leads to the same result as if the bank had taken the funds to any other institution and deposited them in similar accounts. (See In re Moore’s Estate (1905), 211 Pa. 348, 60 A. 991; In re Smith’s Estate.) Thus, the bank’s actions here were proper, and the decision of the trial court approving the bank’s final report and account should be affirmed.


source: Caselaw Access Project

author: JUSTICE UNVERZAGT

license: Public Domain

text:
    THE PEOPLE OF THE STATE OF ILLINOIS, Plaintiff-Appellee, v. ENRIQUE MIRANDA MERRERO, Defendant-Appellant.
    Second District
    No. 83—355
    Opinion filed February 1, 1984.
    Rehearing denied March 6, 1984.

      G. Joseph Weller and Paul J. Glaser, both of State Appellate Defender’s Office, of Elgin, for appellant.
    Fred L. Foreman, State’s Attorney, of Waukegan (Phyllis J. Perko and Raymond L. Beck, both of State’s Attorneys Appellate Service Commission, of counsel), for the People.
   JUSTICE UNVERZAGT

delivered the opinion of the court:

Defendant, Enrique Miranda Merrero, was charged in a four-count information with the offenses of murder (Ill. Rev. Stat. 1981, ch. 38, par. 9 — 1) and armed violence (Ill. Rev. Stat. 1981, ch. 38, par. 33A — 2). At the conclusion of the trial, the jury returned verdicts of guilty on all counts. Defendant was sentenced to 40 years’ imprisonment for the offense of murder. No sentence was imposed on the armed violence charge as a lesser-included offense of murder. The defendant appeals, contending: (1) that defendant’s motion to suppress custodial statements should have been granted where defendant’s waiver of his constitutional rights was not voluntary; (2) that improper references to the murder victim’s family at trial and at the sentencing hearing constitutes reversible error; and (3) that a corrected mittimus deleting the armed violence charge should be issued.

The defendant was arrested for the shooting murder of Jesus Cruz on November 27, 1982, in front of Fernando’s Tap on Tenth Street in North Chicago. Defendant was interrogated by David Fermaint of the North Chicago police department. After being read his Miranda warnings in Spanish, defendant signed a Spanish-version of the waiver of rights form and gave a custodial statement. In that statement, defendant said he went to Fernando’s Tap on the night of the shooting and recognized a man there as one of three men who allegedly assaulted him three weeks earlier. The defendant remained in Fernando’s until the man went outside. The defendant followed and shot the man with a .22-caliber pistol. The defendant then ran to a bar on Ninth and Lincoln Streets. As he was running, he threw the gun into a lot on Tenth Street. Defendant walked around until he was told by some men that he was wanted by the North Chicago police. The defendant again was read his Miranda warnings and asked to sign a waiver of rights form before he repeated his statement for a taped recording.

Prior to trial, defense counsel moved to suppress the defendant’s statements on the grounds that due to the defendant’s limited mental capability and knowledge of the English language, the defendant did not understand his constitutional rights and, as such, his waiver was not knowingly, voluntarily and intelligently made. At the hearing on the motion, Officer Fermaint testified that the two interrogations were conducted in Spanish when the defendant indicated he had been in the United States about two years and spoke little English. The first interview was at 10:45 a.m. on November 27, and the second taped interview took place at 11:04 a.m. that day. During those interviews, Fermaint, who is fluent in Spanish, read the police department’s Spanish version of the Miranda warnings to the defendant. After each line, Fermaint asked the defendant if he understood his right to which defendant replied that he did. Defendant was then told by Fermaint to read aloud the Miranda warning. Defendant did so and then signed the waiver of rights form. According to Fermaint, defendant never indicated he wanted a lawyer. He stated that no threats or force were used and the defendant did not seem to have trouble understanding Fermaint and his answers were responsive to Fermaint’s questions.

On cross-examination, Fermaint admitted that there were some differences between the Spanish and English versions of the Miranda warning that the police department used. The Spanish version did not contain the statement, as in the English version, that the defendant may stop the interrogation at any time and request an attorney. Also, the Spanish version inquires whether the accused understood his rights, while the English version states that an accused must fully understand his rights before answering any questions.

The defendant testified, through an interpreter at the hearing, that he left Cuba in 1979. He completed a first grade education in Cuba. He admitted reading the warning forms presented to him by Fermaint; however, he stated that he did not think he understood the meaning of the warnings. He stated that he thought the right to remain silent meant that he was “to be quiet.” When told that anything he said could be used against him, he thought it meant “to state why.” He was not aware that he could stop talking at any time. Although he admitted he had been represented by a court-appointed attorney in prior criminal matters in the United States, he stated he did not understand his right to an attorney. Defendant also testified that although he did not ask for an attorney and that the police did not threaten or strike him, he signed the waiver of rights form because he thought he would be beaten if he did not do so. The motion was denied, the trial court finding the defendant’s waiver to have been knowing and voluntary.

At trial, the State’s first witness was Madeline Cruz, the victim’s wife. She testified that she and the deceased had spent the day of the shooting together. Around 8 p.m., on November 26, he left home to visit with his friends, Jose Gonzales and Jose Ayala. Over defense counsel’s objection, Mrs. Cruz identified her husband from a family photograph of Cruz with his wife and daughter.

As defendant does not challenge the sufficiency of the evidence to convict, a summary of the significant testimony follows. Jose Ayala testified that around midnight on November 26, Ayala and Cruz, along with Jose Gonzalez and David Vargas, went to bars in North Chicago. Cruz went to Fernando’s Tap at Tenth and Lincoln and the others went to another bar. Around 1:30 a.m., Ayala went to Fernando’s where he spoke briefly with Cruz before going to the men’s room. A few moments later, Ayala was told there was a fight outside. Ayala went outside and saw Cruz on the ground, his face covered with blood. The defendant was a half block away, shooting a gun.

Joseph Gonzalez testified that later that evening he went to Fernando’s and that Cruz and he left the bar at about 2 a.m. Once outside, Gonzalez saw a Cuban give a pistol to the defendant and told him to “fire it.” The defendant fired the gun five or six times, hitting Cruz who was standing on the sidewalk in front of Fernando’s.

Eugenio Rivera testified that he was at Tony’s bar on Ninth and Lincoln at 2 a.m. on the 27th. He stated that the defendant came into the tavern with a revolver in his hand and said that he had just finished killing someone on Tenth Street.

David Fermaint of the North Chicago police department testified about his interrogation of the defendant on November 27. The taped statement of the defendant was played to the jury, and a stipulated translation of the statement was transcribed on the record. The taped statement was substantially consistent with the defendant’s first statement to Fermaint. The defendant, testifying on his own behalf through an interpreter, stated that on November 15, 1982, he was allegedly attacked by Cruz and two other men. Defendant saw Cruz again, by chance, at Fernando’s Tap on Tenth and Lincoln on the night of November 26. While the defendant was there, defendant ran into Cruz in the men’s washroom. He stated Cruz pushed defendant two or three times and the defendant then left the washroom. Later that night, the defendant followed Cruz as he was leaving the bar. The defendant stated Cruz had his hands in his pockets and looked at the defendant “like wanting to call [him].” The defendant then' shot Cruz. The defendant stated that although he was “pretty well drunk,” he thought that Cruz was going to attack him again. He did not see any weapon on Cruz. He said he was not trying to kill Cruz but was merely trying to scare him.

Following the conclusion of the testimony, the defense objected to the display of a family picture to the jury intended as a “life” picture of the victim. After hearing arguments from both sides, the court ruled that cardboard would be placed over the pictures of the victim’s wife and child and that the photograph would be circulated through the jury but not allowed into the jury room during deliberation.

The jury found the defendant guilty on all counts. At a sentencing hearing, the trial judge heard testimony in aggravation from the victim’s wife. No other witnesses testified at the hearing. The trial judge entered a judgment sentencing the defendant to 40 years’ imprisonment for the offense of murder. With the concurrence of the State, the trial court did not impose a sentence on the armed violence charge, finding the latter to be a lesser-included offense of murder. The defendant’s post-trial motion having been denied, this appeal followed.

The defendant initially contends that the trial court erred in denying his motion to suppress the inculpatory statements made by him while in custody in violation of Miranda v. Arizona (1966), 384 U.S. 436, 16 L. Ed. 2d 694, 86 S. Ct. 1602. He asserts that due to his subnormal intelligence and inability to understand the English language he could not knowingly, voluntarily and understandingly waive his constitutional rights to remain silent and to consult with an attorney during the custodial interrogation.

An accused is guaranteed under the constitution the rights of assistance of counsel and to remain silent during in-custody police interrogation. Any statement obtained in derogation of those rights is inadmissible in a subsequent criminal prosecution. (Miranda v. Arizona (1966), 384 U.S. 436, 16 L. Ed. 2d 694, 86 S. Ct. 1602.) A suspect may waive his constitutional rights provided he does so knowingly, voluntarily and intelligently. The determination of whether a waiver has been knowingly and intelligently made depends on the particular facts and circumstances of the case and the accused’s background, experience and conduct. (People v. Turner (1973), 56 Ill. 2d 201, 205-06.) Although no single factor is determinative, the mental capacity and familiarity of the defendant with the English language must be taken into consideration in determining whether his actions are voluntary. (People v. Baker (1973), 9 Ill. App. 3d 654.) Unless a defendant possesses sufficient intelligence to understand his constitutional rights, the fact that his rights were read to him more than once is of little consequence. People v. Turner (1973), 56 Ill. 2d 201, 205; People v. Gonzales (1974), 22 Ill. App. 3d 83, 87.

In the present case, the record is clear that the defendant was advised of his constitutional rights twice before making his statement to the police. The issue here centers on whether the defendant’s waiver was knowing and intelligent. On a motion to suppress oral statements, the State has the burden to prove the voluntariness of the statement by a preponderance of the evidence. (People v. Torres (1973), 54 Ill. 2d 384, 392-93.) Mindful that the trial court is in a superior position to judge the credibility of the witnesses, the finding of the trial court as to whether a statement is voluntary will be sustained unless contrary to the manifest weight of the evidence. People v. Higgins (1972), 50 Ill. 2d 221, cert. denied (1972), 409 U.S. 855, 34 L. Ed. 2d 100, 93 S. Ct. 195; People v. Baker (1973), 9 Ill. App. 3d 654, 661.

The defendant argues that merely because he was able to read the Miranda warnings does not make his confession voluntary where he lacked the capacity to understand the meaning and effect of his confession and, therefore, could not have knowingly and voluntarily waived his rights. The defendant relies solely upon his testimony at the suppression hearing in support of his contention. He testified that he had only a first grade education in Cuba. He stated that while he read the warning forms he did not understand them. He testified that he thought the right to remain silent meant “to be quiet.” When told that anything he said could be used against him, he thought the warning meant “to state why.” He did not understand his right to an attorney. He also was not aware he could stop talking at any time. Further, he said he signed the waiver of rights forms because he thought he would be beaten by the police if he did not do so.

Balanced against this evidence, the defendant testified that his Miranda rights were read to him and that he told the interviewing police officer that he understood what was read to him. Furthermore, defendant admitted that since his arrival in the United States he was represented by court-appointed attorneys in prior criminal actions. On behalf of the State, Officer Fermaint testified that the defendant appeared coherent and responsive to his questions during the interrogation and the transcript of the taped statement corroborates this. The fact the defendant may have believed the police would have beaten him if he did not confess has no support in the record. The defendant testified that he was not threatened or beaten by the police.

On the basis of the testimony presented, the trial court found that the State had shown by a preponderance of the evidence that the defendant voluntarily waived his constitutional rights. Aside from the defendant’s own testimony at the suppression hearing, there is no evidence that the defendant’s limited formal education and lack of familiarity with the English language prevented him from understanding his constitutional rights. (See People v. Gonzales (1974), 22 Ill. App. 3d 83.) In Gonzales, the defendant testified that he did not understand his constitutional rights. A psychologist testified that the defendant scored in the lower 1% of the population in language efficiency but defendant’s nonverbal ability was average. The court concluded that the finding of the trial court that defendant’s waiver was understanding was not contrary to the manifest weight of the evidence. In the instant case, the ruling of the trial court was not against the manifest weight of the evidence.

The defense also points out certain discrepancies between the police department’s Spanish version of the Miranda warnings and the English version as further evidence that the defendant was not informed of his constitutional rights. Defendant argues that the Spanish version of the warnings inquires whether the accused understood his rights, while the English version states that an accused must fully understand his rights before answering any questions. Also, the Spanish version does not advise an individual of his right to stop the interrogation at any time. However, Miranda does not specify the precise language to be used in advising a defendant of his constitutional rights. It requires not a ritualistic recital of words but an intelligent conveyance of the right to remain silent and of the general right of counsel. (People v. Prim (1972), 53 Ill. 2d 62, 67, cert denied. (1973), 412 U.S. 918, 37 L. Ed. 2d 144, 93 S. Ct. 2731; People v. Reyes (1981), 102 Ill. App. 3d 820, 828; People v. Walters (1979), 69 Ill. App. 3d 906, 914-16; People v. Sims (1978), 58 Ill. App. 3d 668, 673-74.) Further, although an individual has the right to cut off questioning at any time, Miranda does not require that the individual be informed of this right as part of the warnings. (Miranda v. Arizona (1966), 384 U.S. 436, 16 L. Ed. 2d 694, 86 S. Ct. 1602.) The defendant was advised he had the right to remain silent; that anything he said could be used against him; that he had the right to the presence of counsel during interrogation, and that he could have court-appointed counsel if he could not afford an attorney. The record shows that the defendant was fully informed of his constitutional rights.

Even if the defendant’s statement was erroneously admitted, it was harmless error beyond a reasonable doubt where his statement was supportive of his testimony at trial and substantiated his assertion that his attack on Cruz was involuntary manslaughter, and could not have contributed to the finding of guilt by the jury. (People v. Smith (1967), 38 Ill. 2d 13, 15; People v. Felton (1982), 108 Ill. App. 3d 763, 767.) Aside from the defendant’s exculpatory statements during his trial testimony that Cruz approached him with his hands in his pockets and that the defendant shot Cruz in order to scare him, his testimony that he recognized Cruz at Fernando’s as one of three men who allegedly assaulted him three weeks earlier, that the defendant followed him outside and shot him is essentially the same statement he gave to police during interrogation. Therefore, the admission of the defendant’s custodial statement does not constitute reversible error.

The defendant next contends that during trial, and again at the sentencing hearing, evidence concerning the deceased’s family was admitted which was irrelevant and highly prejudicial, thereby denying the defendant a fair trial. Specifically, defendant first contends that during trial the trial court abused its discretion in allowing into evidence a family picture of the deceased as the State’s “life” picture of the deceased. Second, the defendant argues that the trial court erred in allowing the victim’s wife to testify in aggravation at the sentencing hearing. The State responds to both contentions that the defendant has waived appellate consideration of these claims of errors by failing either to object to the admissibility of this evidence or to raise them in his post-trial motion.

The failure to object to the admission of this evidence or to raise it in the post-trial motion operates as a waiver of the right to consider the question on appeal. (People v. Jackson (1981), 84 Ill. 2d 350, 358-59.) As the evidence is not so closely balanced on these issues nor is it contended that the evidence is insufficient to establish defendant’s guilt beyond a reasonable doubt, we see no reason for departing from the general rule that issues not properly preserved for review are waived. People v. Jackson (1981), 84 Ill. 2d 350, 359-60.

The defendant’s final contention is that the cause should be remanded with directions that a corrected mittimus be issued reflecting that defendant was convicted only on the murder charge. As the State concedes that the judgment of conviction of the offense of armed violence should be vacated as a lesser-included offense of the murder charge (People v. Donaldson (1982), 91 Ill. 2d 164; People v. King (1977), 66 Ill. 2d 551, cert. denied (1977), 434 U.S. 894, 54 L. Ed. 2d 181, 98 S. Ct. 273), the State’s request for an assessment of costs against the defendant should be denied. As this court held in People v. Smith (1983), 113 Ill. App. 3d 917, 926, where a defendant has prevailed solely on his request for remandment with directions for the issuance of a corrected mittimus, he has prevailed on one of the issues raised on appeal and, therefore, the State’s request for costs will be denied. Accordingly, this cause is remanded with directions that a corrected mittimus be issued to reflect the actual sentence imposed. The State’s request for assessment of costs is denied.

For the reasons stated, the judgment of the circuit court of Lake County is affirmed. This cause is remanded with directions that a corrected mittimus be issued to delete the armed violence charge.

Affirmed in part and remanded with directions.

SEIDENFELD, P.J., and REINHARD, J., concur.


author: PRESIDING JUSTICE MILLS

text:
    JUDITH A. AUTON, Adm’r of the Estate of Rodney J. Auton, Deceased, Plaintiff-Appellant, v. LOGAN LANDFILL, INC., et al., Defendants (Deere & Company, Defendant-Appellee).
    Fourth District
    No. 4—83—0127
    Opinion filed December 28, 1983.
    Rehearing denied March 15, 1984.

      Robert D. Owen, Linda M. Castleman, and Robert M. Owen, all of Owen, Roberts, Susler, Ltd., of Decatur, for appellant.
    Richard F. Record, Jr., and Michael D. Gifford, both of Craig & Craig, of Mattoon, for appellee.
   PRESIDING JUSTICE MILLS

delivered the opinion of the court:

A highway construction accident.

A products liability suit.

A jury verdict for the manufacturer.

We affirm.

THE FACTS

In the fall of 1980, Rodney Auton was working on the Fitzgerald Road highway construction project in Decatur. He was assigned to shoot grade for the operator of the dirt scraper on the project. As a grade shooter, Auton used a hand level and a surveyor’s stake to check the level of dirt in the area being scraped. Then he would indicate to the scraper operator the amount of dirt to be removed.

On the morning of October 13, Auton was shooting grade for Keith Spencer. Spencer had made several runs that morning and had backed up to make another when he noticed Auton’s hand level in the bowl of the scraper. Spencer dismounted his machine and found Auton crushed to death under the rear tires,

Auton’s wife, Judith, filed suit against John Deere — the manufacturer of the scraper — claiming that the machine was unreasonably dangerous. She alleged that it was not equipped with adequate rear view mirrors and that the design of the wiring leading to the backup warning signal was faulty. After a jury trial, judgment was entered on the jury’s verdict in Deere’s favor.

On appeal, Judith raises several issues, the first few of which deal with the doctrine of assumption of risk.

ASSUMPTION OF RISK

The trial judge instructed the jury that if Deere proved that the decedent assumed the risk of working with the scraper, then Judith Auton was completely barred from obtaining any recovery from Deere. Auton argues that it was reversible error for the court to give the instruction because the Supreme Court of Illinois recently changed the rule that assumption of risk acts as a total bar to recovery. Although she is correct that the supreme court did recently change the rule, that change is not controlling in this case.

The rule in Illinois at the time of the trial was that if a defendant could prove his affirmative defense that the plaintiff assumed the risk, then the plaintiff was totally barred from seeking recovery for his damages. (See Williams v. Brown Manufacturing Co. (1970), 45 Ill. 2d 418, 261 N.E.2d 305.) That rule was changed, however, in the recent case of Coney v. J.L.G. Industries, Inc. (1983), 97 Ill. 2d 104, 119, 454 N.E.2d 197, 204, where the supreme court stated:

“[T]he defenses of misuse and assumption of the risk will no longer bar recovery. Instead, such misconduct will be compared in the apportionment of damages. Specifically, we hold: Once defendant’s liability is established, and where both the defective product and plaintiff’s misconduct contribute to cause the damages, the comparative fault principle will operate to reduce plaintiff’s recovery by that amount which the trier of fact finds him at fault.”

Although Coney changed the law, that change had not occurred until after the appeal in this case had been filed. Therefore, Coney’s application in the present case depends on whether the change wrought by the decision should be applied retroactively.

Unfortunately, the supreme court did not state in Coney whether the new rule regarding assumption of risk should be applied retroactively or prospectively. Historically, the supreme court has applied new rules which radically change existing tort law prospectively. (See, e.g., Alvis v. Ribar (1981), 85 Ill. 2d 1, 421 N.E.2d 886; Skinner v. Reed-Prentice Division Package Machinery Co. (1977), 70 Ill. 2d 1, 374 N.E.2d 437.) And, as the supreme court stated in Molitor v. Kaneland Community Unit District No. 302 (1959), 18 Ill. 2d 11, 27, 163 N.E.2d 89, 97, “an overruling decision should be given only prospective operation whenever injustice or hardship due to reliance on the overruled decisions would thereby be averted.” The situation in the present case clearly meets that test. Consequently, we hold that the rule in Coney should not be applied retroactively. Ergo, the trial court did not err when it instructed the jury that the decedent’s assumption of the risk acted as a total bar to recovery.

Next, Auton argues that the trial judge erred in denying her motion for a directed verdict on Deere’s defense that the decedent assumed the risk. Her argument here is two-fold. First, she contends that her husband was not a user of the scraper and therefore assumption of risk was not a proper defense. Secondly, she maintains that Deere failed to allege any acts by her husband which constitute assumption of risk. We disagree with her on both points.

First, as part of a two-man team assigned to operate the scraper, the decedent was a “user” of that machine. As a grade shooter, it was his responsibility to direct and assist the driver. He was directly involved in the operation of the machine. He was a user of the machine.

Secondly, Deere’s allegations were sufficient to allege assumption of risk. Deere alleged that the decedent knew that the backup warning alarm on the scraper was malfunctioning and that the decedent continued to use the machine. That is sufficient allegation to allege assumption of risk.

MANIFEST WEIGHT OF THE EVIDENCE

Auton argues that the jury’s verdict in Deere’s favor was against the manifest weight of the evidence because the evidence clearly and unequivocally demonstrated that, as designed and manufactured by Deere, the scraper was unreasonably dangerous. A verdiet is against the manifest weight of the evidence only when the opposite conclusion is clearly apparent or when the findings appear to be unreasonable, arbitrary, or not based on the evidence. Duffek v. Vanderhei (1980), 81 Ill. App. 3d 1078, 401 N.E.2d 1145.

At the trial, Auton attempted to persuade the jury that Deere designed the wiring leading to the backup alarm in such a manner that it would not withstand continuous use and therefore the alarm would eventually fail. She argued that while designing, testing, and manufacturing the scraper, Deere became aware of the problem and failed to either correct it or to warn potential users of its existence. She maintained that this failure, coupled with the inadequate rear view mirrors, resulted in an unreasonably dangerous condition which caused the death of her husband. Deere, on the other hand, maintained at trial that the scraper was not unreasonably dangerous. After hearing a great deal of testimony in support of both parties’ arguments, the jury chose to accept Deere’s position.

On careful review of the record, we are not convinced that the jury’s verdict was against the manifest weight of the evidence.

THE NOTE FROM THE JURY

During jury deliberations, the jury foremen sent the trial judge the following question:

“Our current question involves whether any installation whereby the electrical wiring passes through the hitch area or over the hitch area as is done by other manufacturers can be regarded as a condition that is unreasonably unsafe or can it be construed to be reasonably safe and still pass through or over the hitch area?”

Auton’s counsel asked the judge to answer the jury that whether or not similar conditions in other scrapers rendered them unreasonably dangerous was not an issue in this case and should not be considered by the jury. Auton’s counsel was concerned that two of the jury members were employees of Caterpillar Tractor Company and that they might be reluctant to find Deere liable because such a verdict might result in Caterpillar being found liable in some later case.

The court refused to give the answer Auton’s counsel requested and instead instructed the jury:

“The evidence has been presented and you have been instructed by the Court what law is applicable. The issues to be decided by you and the applicable law is stated in the instructions. You must follow the instructions as you continue your deliberations.”

On appeal, Auton argues that the court’s refusal to give the answer her attorney requested constitutes reversible error. W¿ disagree.

Auton’s characterization of the two jurors’ concern about their employer’s future liability is pure speculation. There is no basis whatever in the record for her argument. The jury may have instead been concerned about whether Deere’s design met industry standards and what effect that would have on Deere’s liability. In any event, the jury was in fact asking the trial judge to decide one of the issues in the case — whether an electrical design which passes wiring through a hitch area is unreasonably dangerous per se. He could not have answered that question without unfairly prejudicing the position of one of the parties. Indeed, he chose to respond with a neutral answer which guided the jurors back to their instructions.

The court responded to the jury’s question correctly. No error.

DISCOVERY

Auton argues that she was denied a fair trial because Deere provided only fractional disclosures to several of her discovery requests. She contends that Deere’s alleged violations of the rules of discovery require that this court reverse the jury’s verdict.

Although this court views fractional disclosure with great disfavor, the specific instances Auton complains of do not constitute fractional disclosure. Deere’s answers were not as complete as Auton hoped they would be. But, it appears to us that the problem lay not with Deere’s answers but instead with Auton’s requests. For example, in one interrogatory Auton asked Deere to state the names of all the persons involved in the development of the design of the wiring in the scraper. She complains that Deere’s failure to provide her with the names of all the persons who knew of potential problems with the wiring design constituted fractional disclosure. We disagree. She got what she asked for — no more and no less — and she can’t be heard now to complain that Deere did not volunteer any extra information.

In another interrogatory, Auton asked Deere to supply the names of everyone who foresaw the failure of the wiring harness. Auton argues that Deere supplied only fractional disclosure when it failed to supply the name of one of its employees who had discussed the problem with one of the engineers on the scraper project. This was not fractional disclosure. Auton chose not to depose the project engineer in order to learn to whom he spoke concerning the possible wiring problems and it was not bad faith on Deere’s part to not know and supply the names of all its employees who had had conversations concerning the wiring problems.

In sum, we find that the answers supplied by Deere to Auton’s discovery requests did not constitute fractional disclosure. A plaintiff should not be allowed to simply cast her hook into the water and expect the fish to impale itself thereon. No error.

DEERE’S PAYMENT TO SPENCER

Finally, Auton argues that it was reversible error for the trial court to refuse to allow her to elicit testimony from Keith Spencer, the operator of the scraper, concerning witness fees paid by Deere to him during an earlier trial. As a general rule, it is permissible to show that a witness has an interest in the outcome of the litigation. But admission of the impeaching testimony lies within the discretion of the trial judge. We will not overturn the trial judge’s decision unless it is clear that he abused his discretion. (See Johns-Manville Products Corp. v. Industrial Com. (1979), 78 Ill. 2d 171, 399 N.E.2d 606.) Here, because the fees were paid in a prior mistrial of this case and the relevancy here is debatable, we find that the court did not abuse its discretion when it refused to allow Auton to elicit the testimony from Spencer.

Therefore, for all of the above reasons, we affirm.

Affirmed.

MILLER and WEBBER, JJ., concur.


author: JUSTICE HARRISON

text:
    BETTE WARGEL, Special Adm’r of the Estate of C. Douglas Wargel, Deceased, Plaintiff-Appellant, v. THE FIRST NATIONAL BANK OF HARRISBURG et al., Defendants-Appellees.
    Fifth District
    No. 82—613
    Opinion filed January 13, 1984.

      Harris, Lambert and Wilson, of Marion, for appellant.
    Charles R. Jelliffe, of Jelliffe & Ferrell, of Harrisburg, for appellee The Lincoln National Life Insurance Company.
    Charles M. Ferguson, of Harrisburg, for appellee The First National Bank of Harrisburg.
   JUSTICE HARRISON

delivered the opinion of the court:

Plaintiff, Bette Wargel, the special administratrix of the estate of C. Douglas Wargel, deceased, appeals from a directed verdict entered in favor of the Lincoln National Life Insurance Company (hereinafter referred to as Lincoln) and the First National Bank of Harrisburg (hereinafter referred to as the bank), defendants, following a jury trial on plaintiffs amended complaint. Count I of the complaint, directed against Lincoln only, alleged that a policy of insurance issued by Lincoln on the life of C. Douglas Wargel came into effect on September 2, 1978, that C. Douglas Wargel died on September 4, 1978, and that Lincoln has refused to pay the $24,500 due under the policy. Count II alleged, in the alternative, that in the event the policy of insurance was not in effect at the time of C. Douglas Wargel’s death, the lack of insurance coverage was attributable to negligent acts on the part of both defendants; namely, Lincoln’s failure to act upon C. Douglas Wargel’s insurance application within a reasonable time, and the bank’s failure to accept a premium payment tendered by Wargel on September 2, 1978. Two remaining counts of the complaint were voluntarily dismissed by plaintiff prior to trial, and are not relevant to this appeal. For the reasons which follow, we reverse the judgment of the circuit court as to count I, and find it unnecessary to consider the questions raised concerning count II.

The evidence offered at trial established that, in the early part of August 1978, C. Douglas Wargel applied to the bank for a loan of $24,500, in connection with his intended purchase of certain real estate located in Gallatin County, Illinois. The loan was approved by the bank, and the documents necessary to the transaction were executed on August 3, 1978. On that same day, Wargel and Linda Watson, an assistant cashier at the bank, filled out an application to Lincoln for decreasing term life insurance covering the mortgage note which Wargel had executed. Wargel signed his name as proposed insured, filled in his height and weight, and marked several “no” boxes in response to questions concerning prior illnesses and hospitalization. Watson filled in the remainder of the application, naming the bank as applicant and indicating the monthly premium amount as $6.13 and the initial amount of insurance as $24,500. Near the top of the application was the following printed language:

“APPLICATION IS HEREBY MADE TO THE LINCOLN NATIONAL LIFE INSURANCE COMPANY FOR DECREASING TERM LIFE INSURANCE ON THE LIFE OF THE PROPOSED INSURED NAMED BELOW AND THE APPLICANT IS HEREBY AUTHORIZED TO INCREASE THE MONTHLY MORTGAGE PAYMENT OF THE PROPOSED INSURED TO THE EXTENT OF THE PREMIUM THEREFOR. IT IS UNDERSTOOD AND AGREED THAT NO INSURANCE COVERAGE SHALL BE EFFECTED UNLESS AND UNTIL THIS APPLICATION IS APPROVED BY THE COMPANY AND THE FIRST FULL PREMIUM IS PAID DURING THE CONTINUED GOOD HEALTH OF THE PROPOSED INSURED.”

On August 3 or August 4, 1978, the application was mailed to Lincoln. Because the application did not contain Wargel’s street address, the underwriting clerk who received the application at Lincoln’s office, Marjorie Seheumann, did not immediately process it; rather, she wrote the word “street” in red ink on the application and filled out a form requesting the missing information. One copy of the missing information request was sent to Wargel, and another to the bank. The request was dated August 14, 1978. Subsequently, Ms. Seheumann received the white copy of the missing information request back in the mail. “Box 207” was written on the request. On August 24, 1978, the application for insurance was approved by the underwriter, and Ms. Seheumann stamped the back of it accordingly. The application was then mailed to the bank in an envelope postmarked August 31, 1978.

On Saturday, September 2, 1978, C. Douglas Wargel came into the bank and made his first monthly mortgage payment. He asked Linda Watson if the bank had received approval of the insurance application, and was told that it had not. Wargel then offered to pay the $6.13 insurance premium, and Ms. Watson refused to accept the money. It is undisputed that Wargel was in good health at the time he offered payment of the premium.

On Monday, September 4, 1978, C. Douglas Wargel accidentally drowned while wading in the Ohio River. On September 5, 1978, the bank received the approved insurance application in the mail. The bank, believing itself to be the primary beneficiary under the policy, submitted a death claim to Lincoln on January 18, 1979. The claim was denied by Lincoln. Plaintiff Bette Wargel, mother of C. Douglas Wargel and special administratrix of his estate, testified that she had continued to make the mortgage payments on the real estate purchased by her son.

Evidence concerning the relationship between Lincoln and the bank was offered by plaintiff through the testimony of Robert Curtis, the vice-president of the bank. Curtis testified that the bank had been assisting its customers in applying for insurance from Lincoln since approximately 1967, and that Lincoln supplied the insurance application forms to the bank. Also, according to Curtis, the bank used a chart supplied by Lincoln to determine the amount of the premium to be paid by each insured, and sent each insured a policy which was supplied to the bank by Lincoln. Curtis explained that those customers insured through this arrangement made their premium payments to the bank, not to Lincoln, and that these customers “normally” made their mortgage and insurance payments in a lump sum each month. Upon receipt of the monthly premium payments, bank employees would put them in a special account for each customer. In early November of each year, the bank would receive a bill from Lincoln indicating the total amount which the bank was to remit to Lincoln. Pursuant to the terms of a 1967 agreement between the bank and Lincoln, the bank retained 20% of the total amount of premium payments collected each year. According to this written agreement, which was admitted into evidence, this 20% fee was payable “because of effort expended and the expense incurred by the Administrator [the bank] for calculation and collection of the insured’s contribution toward the insurance, maintenance of records of insured debtors, transmission to The Lincoln of the contribution so secured, the issuance of policies to the insured debtors, the processing of death claim notice forms and such other administrative services as Administrator may be called upon to perform.” The agreement further stated that the fee was “not intended in any way to be a commission or other means of compensation for the selling of credit insurance.”

An additional document entitled “Administrative Guidelines for Mortgage Cancellation Insurance and Mortgage Payment Insurance” was admitted into evidence upon motion of the bank. This document, which Curtis testified that he received from Lincoln, discussed, among other things, methods of soliciting the insurance application, the manner in which the application should be filled out, and the procedures for reporting new insureds to Lincoln and calculating the amount of insurance in force on a given insured at a given time. It instructed the administrator not to accept any money with the insurance application, and indicated that, “[technically, MCI [mortgage cancellation insurance] does not go into force until the first day of a month following underwriting approval and in which the first premium is paid.” In response to questioning concerning the solicitation provisions contained in the document, Curtis testified that the bank did make one direct mailing to its customers for the purpose of informing them that the bank was “going into the program” with Lincoln and would be able to assist customers in obtaining insurance.

At the close of all of the evidence, the court granted Lincoln’s motion for a directed verdict on count I, finding that the application for insurance was a mere offer which had not been accepted by Lincoln. The court also directed a verdict in favor of both Lincoln and the bank on count II, finding that the evidence showed no negligence on the part of either defendant. Plaintiff’s motion for a directed verdict as to count I was denied.

On appeal, plaintiff initially asserts that the court erred in directing a verdict for Lincoln, and in failing to direct a verdict for plaintiff, on count I of plaintiffs complaint. Plaintiff contends that the evidence established, as a matter of law, that a contract of insurance on the life of C. Douglas Wargel came into existence on September 2, 1978, when Wargel offered to pay his insurance premium to the bank. Since the offer to pay was made to the bank, and not to Lincoln, our analysis must necessarily begin with an examination of the nature of the legal relationship between Lincoln and the bank.

While the written agreement between Lincoln and the bank stated that the bank was not an agent of Lincoln, the legal relationship between the parties must be determined by analysis of their actual practices, and not merely by reference to the written agreement between them (Tansey v. Robinson (1960), 24 Ill. App. 2d 227, 233-34, 164 N.E.2d 272). An agent is generally defined as one who undertakes to manage some affairs to be transacted for another by his authority, on account of the latter, who is called the principal, and to render an account. (Mills v. State National Bank (1975), 28 Ill. App. 3d 830, 834, 329 N.E.2d 255.) The test of agency is the existence of the right to control the method or manner of accomplishing a task by the alleged agent, as well as the agent’s ability to subject the principal to liability. (Kozasa v. Guardian Electric Manufacturing Co. (1981), 99 Ill. App. 3d 669, 676, 425 N.E.2d 1137.) While the nature and extent of an agency are facts to be proved, these questions become ones of law where the evidence is not disputed. Farrell v. Lincoln National Bank (1974), 24 Ill. App. 3d 142,146, 320 N.E.2d 208.

Applying these principles to the case at bar, we are compelled to conclude that the evidence establishes, as a matter of law, the existence of an agency relationship between Lincoln and the bank. In administering Lincoln’s “program” pursuant to the guidelines set forth in the relevant documents, the bank was substantially under the control of Lincoln. It used applications provided by Lincoln, filled them out pursuant to instructions issued by Lincoln, and accepted premium payments from each insured on behalf of Lincoln. Upon notice of the approval of an application, the bank sent each new insured a policy provided by Lincoln. In late October or early November of each year, the bank was required to account to Lincoln for the premiums it had collected, and to remit those premiums, less the 20% service fee, to Lincoln. Under the terms of the insurance application, the bank was authorized to collect premiums on behalf of Lincoln, thereby obligating Lincoln to continue providing insurance coverage to those insured under its policies. Taken as a whole, these facts unequivocally establish the right of Lincoln to substantially control the method and manner of the bank’s activities pursuant to Lincoln’s “insurance program,” and, accordingly, also establish the existence of an agency relationship.

Having determined that the bank was an agent of Lincoln, we must next consider the effect of the bank’s failure to accept Wargel’s tendered premium payment on the question of whether a contract for insurance was in existence at the time of Wargel’s death. It appears that the bank, as agent of Lincoln, did not have actual authority to accept Wargel’s money prior to the approval of his application, since the written guidelines issued to the bank by Lincoln specifically instructed the bank not to accept money under such circumstances. This instruction, however, was not known to Wargel at any time, and it cannot operate to relieve Lincoln of its contractual obligations toward him or his estate. Rather, it necessitates a further inquiry into whether, at the time Wargel offered his premium payment, the bank, as agent of Lincoln, had apparent authority to accept it on Lincoln’s behalf.

“Apparent authority in an agent is such authority as the principal knowingly permits the agent to assume or which he holds his agent out as possessing — it is such authority as a reasonably prudent man, exercising diligence and discretion, in view of the principal’s conduct, would naturally suppose the agent to possess.” (Wing v. Lederer (1966), 77 Ill. App. 2d 413, 417, 222 N.E.2d 535.) The apparent authority of an agent must be based on words and acts of the principal, and not on anything the agent himself has said or done. (Lawcock v. United States Trotting Association (1965), 55 Ill. App. 2d 211, 217, 204 N.E.2d 802.) Here, the evidence, particularly the language contained on the insurance application, was such as would convince a reasonably prudent person that the bank was authorized to accept premium payments prior to Lincoln’s approval of the underlying application. The application provided that “no insurance coverage shall be effected unless and until this application is approved by the company and the first full premium is paid during the continued good health of the proposed insured.” Nothing in this language states, or even remotely suggests, that notification of approval, or even the fact of approval itself, must precede the payment of the first premium by the insured. Indeed, the application strongly suggests the opposite, as it specifically indicates that the bank, as applicant, “is hereby authorized to increase the monthly mortgage payment of the proposed insured to the extent of the premium therefor.” This authorization is not made contingent upon approval of the application by Lincoln; rather, the plain meaning of the words used indicates that the bank’s ability to accept WargePs premium payment arose upon the filling out of the application, and not upon its approval. The law is well settled that a principal is bound equally by the authority which he actually gives to his agent and by that which, by his own acts, he appears to give. (Nash v. Classen (1896), 163 Ill. 409, 414, 45 N.E. 276.) Here, having held its agent out as possessing the authority to accept WargePs premium at any time subsequent to the time of application, Lincoln is estopped as against Wargel from denying the existence of such authority. (See Faber-Musser Co. v. William E. Dee Clay Manufacturing Co. (1920), 291 Ill. 240, 244-45, 126 N.E. 186.) Under these circumstances, the fact that Wargel at no time actually paid the premium is irrelevant, for the bank’s refusal of his offer to pay operated to relieve him of his obligation to actually do so. See Needy v. Sparks (1979), 74 Ill. App. 3d 914, 918, 393 N.E.2d 1252.

In summary, we hold that the evidence established, as a matter of law, that the bank was an agent of Lincoln for the purposes relevant herein, and that the language used by Lincoln in its insurance application was such as to vest the bank with apparent authority to accept premium payments at any time after the application was filled out by the proposed insured. At the time of C. Douglas WargePs death on September 4, 1978, everything necessary to create a contract of insurance under the terms expressed in the application had occurred. The application had been approved by Lincoln on August 24, 1978, and Wargel had offered to pay his premium on September 2, 1978, at a time when he was in good health. Since the apparent authority of the bank fully justified WargePs efforts to pay his premium prior to his death, Lincoln is estopped from relying on the bank’s lack of actual authority to accept WargePs money prior to approval of his insurance application. Thus, the trial court erred both in directing a verdict for Lincoln and in failing to direct a verdict for plaintiff on count I of plaintiff’s complaint.

For the foregoing reasons, the judgment of the circuit court of Saline County is reversed. This cause is remanded to the circuit court, which is directed to enter judgment in favor of plaintiff on count I of her complaint, and to calculate plaintiff’s damages in accordance with applicable law. In view of our disposition of this case, we need not consider those questions raised with respect to count II of the complaint.

Reversed and remanded with directions.

WELCH, P.J., and EARNS, J., concur.


author: PRESIDING JUSTICE WELCH

text:
    GARY L. HEFLER et al., Plaintiffs-Appellees, v. BILL WRIGHT, d/b/a Bill Wright Construction, Defendant-Appellant.
    Fifth District
    No. 5—83—0357
    Opinion filed February 9, 1984.
    Earl S. Hendricks, Jr., of Murphysboro, for appellant.
    J. Phil Gilbert, of Gilbert & Gilbert, of Carbondale, for appellees.
   PRESIDING JUSTICE WELCH

delivered the opinion of the court:

Plaintiffs Gary and Sharon Hefler brought suit against defendant Bill Wright, doing business""as Bill Wright Construction, alleging that he built their house in an unworkmanlike manner and breached an implied warranty of fitness or habitability. Specifically, they complained that there were cracks in the wall and ceiling, certain trusses were loose, the soffit was separated from the kitchen cabinets, and the dry wall and the center beam of the house were not properly installed. Subsequently, the plaintiffs sought to amend their complaint to add as a defendant Reasor Corporation (Reasor), which manufactured the home package used to construct plaintiffs’ dwelling. The trial court denied the motion to add Reasor as a defendant. Judgment was entered in favor of the plaintiffs on May 4, 1983, in the amount of $5, 718 for breach of the implied warranty of habitability. The defendant appeals and raises two arguments. First, he asserts that the trial court should have allowed plaintiffs to amend their complaint to add the manufacturer of the packaged home as a defendant. Second, he argues that he is not a “builder-vendor” and should not be liable to the homeowner under an implied warranty of habitability. We affirm.

In denying plaintiffs’ motion to add Reasor as a defendant, the trial court ruled that the proposed amendment was legally insufficient to state a cause of action because the terms of any contract between the plaintiffs and Reasor were not attached or recited. On appeal, the defendant argues that the trial court erred in denying plaintiffs’ motion since the amended complaint sought relief under a products liability theory and not a contract theory. The defendant relies on Maxfield v. Simmons (1983), 96 Ill. 2d 81, 449 N.E.2d 110. In Maxfield, the builder sought indemnity by filing a third-party complaint against the manufacturer of roof trusses, after a homeowner brought suit against him. The builder’s complaint alleged tortious conduct on the part of the manufacturer of the trusses, which was held sufficient to give rise to the right of indemnification and contribution. Accordingly, the third-party complaint was held to state a cause of action. Under Maxfield v. Simmons, the plaintiffs’ motion to amend their pleadings was sufficient to state a cause of action against Reasor because it alleged tortious conduct by the corporation, despite the fact that the terms of a contract were not attached or recited. Nonetheless, the trial court’s failure to add Reasor as a defendant did not prejudice the defendant. If the defendant wishes to seek indemnity from Reasor, he may file a third-party action. (See generally Maxfield v. Simmons (1982), 107 Ill. App. 3d 341, 347, 437 N.E.2d 839, 843 (Welch, J., dissenting).) Absent any error which was substantially prejudicial and affected the outcome of the trial, we must deem any error harmless. Holsapple v. Country Mutual Insurance Co. (1983), 112 Ill. App. 3d 512, 445 N.E.2d 909; Stromquist v. Burlington Northern, Inc. (1983), 112 Ill. App. 3d 37, 444 N.E.2d 1113.

Next, we consider defendant’s argument that he is not a builder-vendor and therefore cannot be liable under an implied warranty of habitability. He asserts that he is not a builder-vendor because he merely erected a house manufactured by another company and because he built the house on land the plaintiffs already owned, not land he sold to them with the house. Neither argument is persuasive.

The purpose of the warranty of habitability is to protect purchasers of new houses when latent defects are discovered (Petersen v. Hubschman Construction Co. (1979), 76 Ill. 2d 31, 389 N.E .2d 1154.) The supreme court pointed out in Petersen that the primary reason for the warranty is “because of the unusual dependent relationship of the vendee to the vendor.” (Petersen v. Hubschman Construction Co. (1979), 76 Ill. 2d 31, 41, 389 N.E.2d 1154, 1158.) In many cases, the purchase of a home is the most important transaction of a lifetime and it would be unjust to apply the rule of caveat emptor to an inexperienced home buyer in favor of a builder who is in the business of building and selling homes. (See generally Annot. 25 A.L.R.3d 383 (1969).) The supreme court has stated that the implied warranty does not arise as a result of the execution of the deed, but arises by virtue of the execution of the agreement between the vendor and the vendee. The warranty is an implied covenant that the house built and conveyed by the builder-vendor is reasonably suited for its intended use. Petersen v. Hubschman Construction Co. (1979), 76 Ill. 2d 31, 389 N.E.2d 1154.

Since Petersen, the warranty of habitability has been applied in a broad fashion to protect home buyers. For example, in Tassan v. United Development Co. (1980), 88 Ill. App. 3d 581, 410 N.E.2d 902, the “developer-seller” of a condominium complex was held liable as if it were a builder-seller even though the company did not build the condominiums. The court reasoned that the condominium purchasers depended on the developer to hire a competent contractor and the purchaser had no control over the developer’s choice. Under these circumstances, the dependent relationship between the buyer and the developer was said to be the same as if the developer were a builder-seller. (Tassan v. United Development Co.; see generally Annot., 50 A.L.R.3d 1071 (1973).) More recently, in Minton v. Richards Group (1983), 116 Ill. App. 3d 852, 452 N.E.2d 835, a subcontractor which worked on a purchaser’s new house was found liable for defects under a warranty of habitability after the builder-vendor was dissolved. Again, the focus of the court’s analysis was on the protection of home purchasers, even to the point of extending the warranty of habitability to the subcontractor when the builder-vendor is insolvent. Minton v. Richards Group.

The Illinois Supreme Court discussed the definition of the term “builder-vendor” in Park v. Sohn (1982), 89 Ill. 2d 453, 461, 433 N.E.2d 651, 655, stating, “Courts have defined the builder-vendor as one who is engaged in the business of building, so that the sale is of a commercial nature, rather than a casual or personal one.” In Park, the court noted that a builder need not have extensive experience in the construction industry in order to be liable as a builder-vendor for purposes of warranty. Liability was found to exist in Park despite defendant’s arguments that the dwelling was only the second one he had constructed and that the house was not “new” because he had lived in it for a short time. Park v. Sohn.

Applying the principles of these cases to the case at bar, we reject defendant’s arguments that he is not a builder-vendor because he erected a packaged house and because he built the house on land the plaintiffs already owned. A builder of packaged homes is in a position where buyers are unusually dependent on him, especially to obtain materials reasonably suited for their intended use. (See Petersen v. Hubschman Construction Co. (1979), 76 Ill. 2d 31, 389 N.E.2d 1154; Tassan v. United Development Co. (1980), 88 111. App. 3d 581, 410 N.E.2d 902.) In addition, the implied warranty arises from the execution of the agreement between the vendor and the vendee and does not arise as a result of the execution of the deed. (Petersen v. Hubschman Construction Co. (1979), 76 Ill. 2d 31, 389 N.E.2d 1154.) There is no requirement that a builder-vendor must have sold buyers land in order for recovery to be allowed under an implied warranty of habitability. (See Minton v. Richards Group (1983), 116 Ill. App. 3d 852, 452 N.E.2d 835; Tassan v. United Development Co. (1980), 88 Ill. App. 3d 581, 410 N.E.2d 902.) Moreover, the defendant is a builder-vendor under the definition outlined in Park v. Sohn in that he was engaged in the business of building and made a sale of a commercial nature to the plaintiffs. Accordingly, the defendant is liable as a builder-vendor under an implied warranty of habitability.

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

Affirmed.

EARNS and KASSERMAN, JJ., concur.