author: JUSTICE UNVERZAGT

text:
    GORDON TEEPLE et al., Plaintiffs-Appellees, v. JUNIOR HUNZIKER et al., Defendants-Appellants.
    Second District
    No. 82—907
    Opinion filed October 5, 1983.

      Melvin L. Schlueter and Gregory E. Barrett, both of Schlueter, Ecklund, Olson, Barrett & Moore, of Rockford, for appellants.
    Alfred Y. Kirkland, Jr., Glen T. Dobosz, and Wiley W. Edmondson, all of Brady, McQueen, Martin, Collins & Jensen, of Elgin, for appellees.
   JUSTICE UNVERZAGT

delivered the opinion of the court:

This appeal arises from an action brought by the plaintiffs, Gordon Teeple and Harold Teeple, against the defendants, Junior Hunziker, Arthur L. Clay, Jr., Daniel Hoy, Betty Credicott, and Illinois National Bank & Trust Company of Rockford, to quiet title to certain real estate purportedly transferred by deed into a trust. On a motion for judgment on the pleadings, the trial court ruled in favor of the plaintiffs as to counts 1 and 2 of their complaint. The defendants appeal from that order, raising the following issues: (1) whether the pleadings presented a material question of fact that should have precluded a judgment on the pleadings; (2) whether “The Teeple Trust” was invalid as a matter of law as disclosed in the pleadings; and (3) whether two deeds dated May 4, 1981, transferring property into the Teeple Trust, were void as a matter of law.

The plaintiffs and defendant Betty Credicott are the only children and sole heirs at law of Henrietta Teeple, who died on January 7, 1982, at the age of 96, leaving a 216-acre farm with a residence on it. The plaintiffs’ five-count complaint to quiet title to that property sought, inter alia, a declaration that a certain trust entitled “The Teeple Trust” was void and that the deeds transferring real property owned by Henrietta Teeple to that trust were also void and of no legal effect. Several documents were attached to the complaint and amended answer filed by the defendants.

(1) A will dated September 2, 1976, left a tract of land including the house on the Teeple farm to Gordon Teeple, with the rest of the estate to be split equally among Gordon Teeple, Harold Teeple, and Betty Credicott.

(2) A trust agreement dated December 3, 1976, which named Henrietta Teeple as both settlor and trustee, purported to establish a revocable trust of her real property for the benefit of the settlor, with the dwelling house and certain land on the farm to go to Gordon Teeple upon her death the rest of the trust estate to be distributed equally to Gordon Teeple, Harold Teeple, and Betty Credicott. Defendant Illinois National Bank & Trust Company of Rockford was named as successor trustee.

(3) A will dated December 10, 1976, left all of Henrietta Teeple’s property to the bank to become part of the December 3, 1976, trust.

(4) Trust minutes, dated March 29, 1980, noted a desire to amend the trust dated December 3, 1976, in order to increase the land to be transferred to Gordon Teeple. It also acknowledged that a power of attorney was being granted to Daniel L. Hoy.

(5) A power of attorney, dated March 29, 1980, and signed by Henrietta Teeple, gave Daniel Hoy the authority to deal fully with her real and personal property, with the restriction that he not give away any of her estate whatsoever.

(6) An amendment to the trust agreement, dated April 2, 1980, substituted defendants Arthur L. Clay, Jr. and Junior Hunziker for the bank as successor trustees and increased the amount of land left to Gordon Teeple. The amendment was signed “Henrietta M. Teeple by power of attorney Daniel L. Hoy.”

(7) On January 5, 1981, another amendment to the trust agreement was executed by Daniel Hoy by power of attorney for Henrietta Teeple. It expressed an intention to rewrite the trust agreement and amendments in a single trust agreement to be called “The Teeple Trust,” which would be irrevocable. It also stated that Henrietta Teeple intended the Teeple Trust to be considered the final amendment of the December 3,1976, trust and not a revocation thereof.

(8) A cancellation of will, dated April 29, 1981, and signed by Henrietta Teeple, declared the December 10, 1976, will void. It further stated that the will was replaced by a declaration of trust dated April 30, 1981, which would be the final and binding document concerning all of her estate.

(9) A document entitled “The Teeple Trust,” dated April 30, 1981, purported to create an irrevocable trust, naming defendants Junior Hunziker and Arthur L. Clay, Jr., as trustees. The “creator” was designated Daniel Hoy and the handwritten name of Daniel Hoy appeared on the signature line for the grantor. According to the terms of the trust agreement, the properties of the creator would be exchanged for all of the trust certificates of beneficial interest, and the holders of the certificates would be the beneficiaries. The trust would continue for 25 years, and upon termination the corpus would be distributed pro rata to the certificate holders. The certificates were to be issued by the trustees and were transferable only to certain relatives of the grantor.

(10) On May 4, 1981, two deeds executed “Henrietta M. Teeple by power of attorney Daniel L. Hoy” conveyed the farm property from Henrietta Teeple to the Teeple Trust.

Counts 1 and 2 of the plaintiffs’ complaint alleged that the December 3, 1976, trust was not legal because it contained no res; that the Teeple Trust was not valid in that it did not identify the beneficiaries or describe the res; that the Teeple Trust’s provision for property to be transferred to the trust referred to that of Daniel Hoy or an unidentified transferor; that Hoy did not and would not transfer his own property to the Teeple Trust; that, since the Teeple Trust was not valid, subsequent transfers to it were a nullity; and that two deeds transferring certain real property of Henrietta Teeple to the Teeple Trust and executed by Daniel Hoy under his power of attorney were also void because he exceeded his power of attorney by giving away part of Henrietta Teeple’s estate. In their amended answer, the defendants denied the invalidity of the trust, noting that those allegations were conclusions of law and not affirmations of fact; stated that Hoy’s execution of the Teeple Trust was as attorney-in-fact for Henrietta Teeple, who was the grantor, and that the Teeple Trust was an amendment to the December 3, 1976, trust; and denied that the deeds lacked consideration and were invalid and that Daniel Hoy exceeded his power of attorney.

The plaintiffs moved for a judgment on the pleadings as to the transfer to the Teeple Trust. Pursuant to that motion, the trial court entered an order disposing of counts 1 and 2, which set forth the issues of the validity of the Teeple Trust and the two deeds. The court found that, because the Teeple Trust did not by its terms describe the res or subject matter of the trust or identify the beneficiaries by name or by designation of an ascertainable class of persons, it was not a valid trust under Illinois law. The court further found that the deeds transferring the real property to the trust were a nullity since they were outside the power of attorney and since the entity to which they were purportedly transferred did not have the legal capacity to accept and hold property on the date of the transfer.

The defendants argue first that there were material issues of fact raised by their amended answer that alone should have precluded a judgment on the pleadings and also that the judgment should be reversed because the trial court’s findings were inconsistent with the law. The plaintiffs reply that the Teeple Trust declaration was an integrated document that was invalid on its face as a matter of law, in that the description of beneficiaries was inadequate and it contained no res; that the deeds were unauthorized under the power of attorney and therefore invalid; and that parol or extrinsic evidence is not permissible to attempt to show that a party who signs a document with his name alone intended to act in a representative capacity.

A motion for judgment on the pleadings tests the sufficiency of the pleadings by determining whether the plaintiff is entitled to the relief sought by his complaint or, alternatively, whether the defendant by his answer has set up a defense that would entitle him to a hearing on the merits. (Hartlett v. Dahm (1981), 94 Ill. App. 3d 1, 3.) A judgment on the pleadings is proper if only questions of law and not of fact exist after the pleadings have been filed. (Walker v. State Board of Elections (1976), 65 Ill. 2d 543, 552-53.) It admits all well pleaded facts set forth by the opposite party’s pleadings and draws all fair inferences therefrom. (Baker-Wendell, Inc. v. Edward M. Cohon & Associates, Ltd. (1981), 100 Ill. App. 3d 924, 927.) The moving party also admits the untruth of its own controverted allegations. (Hartlett v. Dahm (1981), 94 Ill. App. 3d 1, 3.) In deciding the motion, a court must disregard all surplusage and conclusory allegations. If the pleadings put in issue one or more material facts, evidence must be taken to resolve such issues, and a judgment may not be entered on the pleadings. (Bank & Trust Co. v. Arnold N. May Builders, Inc. (1980), 90 Ill. App. 3d 454, 456-57.) The motion does not test whether there is any evidence to support the pleadings. (Whildin v. Kovacs (1981), 93 Ill. App. 3d 582, 583.) It is well settled that where the court can determine the relative rights of the parties and the subject matter solely from the pleadings, a motion for judgment on the pleadings is the proper procedure (Bank & Trust Co. v. Arnold N. May Builders, Inc. (1980), 90 Ill. App. 3d 454, 456), and a motion for judgment on the pleadings is allowed only in such circumstances (In re Estate of Rettig (1981), 100 Ill. App. 3d 653, 656). Where there are a complaint and an answer filed, the facts on which the trial court may base its judgment on the pleadings are limited, substantially, to those that the defendant has admitted or asserted in his affirmative defense. (Hartlett v. Dahm (1981), 94 Ill. App. 3d 1, 3.) On review of an order granting judgment on the pleadings, the appellate court must ascertain whether the trial court correctly determined that no genuine issue as to any material fact was presented by the pleadings and, if there was no such issue, whether judgment was correctly entered. Kemper v. Worcester (1982), 106 Ill. App. 3d 121, 123.

In the present case, the trial court found that the Teeple Trust lacked both sufficiently ascertainable beneficiaries and a res. The instrument creating an express trust must describe with certainty the subject matter, the beneficiaries, the nature of the beneficiaries’ interests, and the manner in which the trust is to be performed. (Jones v. McCollen (1967), 85 Ill. App. 2d 375, 379.) Therefore, if either of the trial court’s conclusions could be drawn from the pleadings as a matter of law, the judgment on the pleadings would have been proper.

The plaintiffs’ argument that there was no sufficiently described res is not persuasive. The trust agreement specifically provided that the creator of the trust would exchange “all of the Trust Certificates of Beneficial Interest in this Trust Organization *** for all of the Real and Personal properties of the Creator or Transferor of this Trust.” Five days later, there was a transfer by deed of real property from Henrietta Teeple to the trust. On the same day, the 100 certificates of beneficial interest were issued to Henrietta Teeple, copies of which were attached to the defendants’ response to the motion for judgment on the pleadings. Even if the trust was not effective as to the real property until the conveyance by deed, the trust terms nevertheless were -complete at the time of the actual transfer of the real property giving the trustees the necessary title, assuming that the deeds were valid and were intended to establish the trust.

In order to determine whether the pleadings showed the deeds to be invalid, it is first necessary to address the plaintiffs’ challenge to the treatment of Henrietta Teeple as the true grantor of the trust. Stewart v. Merchants National Bank (1972), 3 Ill. App. 3d 337, upon which the defendants rely, is on point. In Stewart, an attorney set up a 10-year spendthrift trust for a client following the settlement of a personal injury action. The attorney designated himself as the settlor and his client as the beneficiary. The client sought to revoke the trust after three years, arguing .that the trust was void as a matter of law in that the attorney had acted as 'settlor without having full ownership of the trust property. Loomis v. Loomis (1862), 28 Ill. 454, was cited for the principle that a trust cannot be created by a person having no title to the premises, since it would be impossible to transfer any interest in something not owned. This court chose rather to adopt the rule of Guaranty Trust Co. v. New York Trust Co. (1947), 297 N.Y. 45, 74 N.E.2d 232, that the person who furnishes the consideration for the creation of a trust is the settlor, even though in form the trust is created by another. The court then held that, so long as the client had intelligently ratified the trust, it was not void for want of a competent settlor. Stewart v. Merchants National Bank (1972), 3 Ill. App. 3d 337, 338.

In the present case, even though Daniel Hoy signed the trust agreement without reference to his power of attorney for Henrietta Teeple, the transfer of Henrietta Teeple’s real property to the Teeple Trust made it apparent that she was furnishing the subject matter of the trust, which was the consideration for the beneficial shares she received. If so, under Stewart, she would be the grantor. The plaintiffs argue that the Teeple Trust is complete and unambiguous and oppose the use of extrinsic evidence to clarify its terms. However, since the trust was ostensibly completed by the deeds, and the deeds showed Henrietta Teeple as the transferor of the property to the trust, the documents themselves evoke a question as to who the true settlor was. Where an agreement is ambiguous, a court may look beyond the document to ascertain the sense in which the parties used particular terms; the object of judicial construction in the construction of trust instruments is to determine the intent of the parties and to carry it out, provided that the court does not modify the document or create new terms different from those to which the parties have agreed. (Northern Trust Co. v. Tarre (1981), 86 Ill. 2d 441, 450.) Thus, the defendants should have been given the opportunity for a hearing as to whether Henrietta Teeple was intended to be the grantor of the Teeple Trust, which was a material issue of fact.

The plaintiffs’ contention that the deeds were invalid rests on the premise that Hoy was the creator of the trust and, as such, was entitled to the certificates of beneficial interest. The plaintiffs argue that the transfer of real property from Henrietta Teeple to the trust was therefore a gift, prohibited under the power of attorney, making the deed void. However, as the defendants point out, their amended answer denied the allegations that the. deeds were not supported by adequate consideration, that they would amount to a gift of Henrietta Teeple’s estate, and that in executing the deeds Daniel Hoy exceeded his power of attorney, and it affirmatively stated that Hoy executed the Teeple Trust as attorney-in-fact for Henrietta Teeple and that the Teeple Trust was an amendment to the earlier trust. The deeds themselves stated that the property was conveyed “in consideration of One Dollars [sic], and other good and valuable consideration.” As the defendants urge, it is quite possible that Henrietta Teeple did indeed receive adequate consideration for that transfer in the form of the beneficial interest in the trust. This too presents an issue of material fact.

The plaintiffs also urge that the designation of beneficiaries in the Teeple Trust was defective. The Teeple Trust provided that all 100 units of beneficial interest were to be issued to the creator of the trust. The holders of the certificates of beneficial interest would be the beneficiaries of the trust. The certificate holders would hold their shares as tenants in common, and at the death of any certificate holder the certificate would succeed to the same beneficial interest upon the surrender of the void certificate to the trustee for the reissuance of a new certificate to the then lawful holder or owner. The units of beneficial interest, in certificate form, would be issued by the trustees and transferable only to certain relatives of the grantor as specifically set forth in the trust agreement.

The plaintiffs posit that through these provisions the trust instrument did not name a beneficiary, but instead it improperly empowered the trustees to create beneficiaries in the future by the issuance of certificates of beneficial interest, and that they were authorized to issue the certificates only to Hoy, since he was named in the document as the creator. However, we have determined that there is a material question of fact as to who the actual grantor was. According to the Restatement (Second) of Trusts sec. 112, comment a, at 243 (1957), it is sufficient that a beneficiary be either specifically named or capable of ascertainment from facts existing at the time of the creation of trust. Here, it was clear that the trustees had a duty to issue all of the certificates of beneficial interest to the creator of the trust, and who the grantor was could be determined from facts existing when the trust was created. Therefore, the trust did not fail for lack of specificity as to beneficiaries.

The judgment of the circuit court of Kane County is reversed and the cause is remanded.

Reversed and remanded.

SEIDENFELD, RJ., and LINDBERG, J., concur.


source: Caselaw Access Project

author: PRESIDING JUSTICE WEBBER

license: Public Domain

text:
    THE PEOPLE OF THE STATE OF ILLINOIS, Plaintiff-Appellant, v. STEVEN P. ELLERBUSCH, Defendant-Appellee.
    Fourth District
    No. 4—83—0196
    Opinion filed October 4, 1983.

      David L. Bartholomew, State’s Attorney, of Tuscola (Robert J. Biderman and Thomas W. Lacy, both of State’s Attorneys Appellate Service Commission, of counsel), for the People.
    Raymond Lee, Jr., and James D. Lee, both of Lee & Lee, Ltd., of Tuscola, for appellee.
   PRESIDING JUSTICE WEBBER

delivered the opinion of the court;

The State appeals from an order of the circuit court of Douglas County which found in favor of the defendant at the close of the People’s evidence in an implied consent hearing under section 11 — 501.1 of the Illinois Vehicle Code (Ill. Rev. Stat. 1981, ch. 951/2, par. 11— 501.1). The basis of the trial court’s order was that the arrest of the defendant was not “evidenced by the issuance of a Uniform Traffic Ticket” as required by the statute.

A State trooper was the sole witness at the hearing. She testified that she had been summoned to the scene of a fatal accident at about 2 a.m. on November 27, 1982. Two vehicles were involved, one of them being a pickup truck in which defendant was sitting. A strong odor of alcohol permeated his presence, his speech was slow, and he was unable to retrieve his driver’s license from his wallet. Based upon her prior observations and experience, the trooper was of the opinion that the defendant was under the influence of alcohol. He was taken to a local hospital in Tuscola and there admitted that he was driving one of the vehicles involved. Thereupon, the trooper advised him that he was under arrest, read to him the customary Miranda warnings, and requested him to take a breath test. The defendant refused both breath and blood tests. He was taken to the Douglas County jail but released without bond a short time later and without any charge being lodged.

The trooper testified further that while at the hospital she wrote out a ticket charging the defendant with driving while under the influence of alcohol in violation of section 11 — 501 of the Illinois Vehicle Code (Ill. Rev. Stat. 1981, ch. 95V2, par. 11 — 501) but did not serve a copy of the ticket upon him nor did she file a copy with the circuit clerk of Douglas County. On December 13, 1982, she filed a report concerning the defendant’s refusal to take the test, and the clerk then sent a notice to the defendant pursuant to statute, and the defendant petitioned for a hearing, which resulted in the order in his favor.

On December 22, 1982, the State filed a 16-count indictment against the defendant. The most serious charges were reckless homicide and driving under the influence of alcohol; all of the other charges were traffic violations of various sorts. The ticket which the trooper filled out at the hospital on November 27 was introduced into the record at the hearing. It recites that the accident occurred on November 27, 1982, but is dated December 22, 1982. The hearing was held on February 22,1983.

In announcing his findings in favor of the defendant, the trial court stated that while the statute did not specifically provide when the ticket was to be issued, a charge was a necessary predicate for the breath test; he further stated that the evidence sustained a finding that the officer had reasonable cause to believe that the defendant was driving while under the influence of alcohol; however, he held that the arrest must be evidenced by the issuance of a ticket. We disagree and reverse.

The pertinent part of section 11 — 501.1 of the Illinois Vehicle Code provides:

“(a) Any person who drives or is in actual physical control of a motor vehicle upon the public highways of this State shall be deemed to have given consent, subject to the provisions of Section 11 — 501.2, to a chemical test or tests of blood, breath, or urine for the purpose of determining the alcohol, other drug, or combination thereof content of such person’s blood if arrested, as evidenced by the issuance of a Uniform Traffic Ticket, for any offense as defined in Section 11 — 501 or a similar provision of a local ordinance. The test or tests shall be administered at the direction of the arresting officer. The law enforcement agency employing said officer shall designate which of the aforesaid tests shall be administered by their enforcement personnel.” Ill. Rev. Stat., 1982 Supp., ch. 951/2, par. 11 — 501.1(a).

The parties have laid emphasis in their briefs on the matter of “issuance” of the ticket. We believe that such emphasis is misplaced. The chief consideration must be the matter of arrest, which is the predicate for the test. There is no controversy in the instant case over the arrest. The evidence is uncontradicted that the trooper placed the defendant under arrest and administered the Miranda warnings. The defendant has never claimed that he was not under arrest.

In our opinion the statute, being neither penal in nature (People v. Finley (1974), 21 Ill. App. 3d 335, 315 N.E.2d 229), nor in derogation of the common law, should be liberally construed to accomplish its obvious purpose: to protect the citizens of this State upon the highways. To that end, we find that the issuance of a ticket is directory and not mandatory; it is only one way in which the fact of arrest may be established, albeit a very convincing one. This court has previously noted that a ticket need not precede the officer’s request that a driver submit to tests. People v. Wierman (1982), 107 Ill. App. 3d 7, 436 N.E.2d 1081.

In many cases the charge will be a single one — driving under the influence — in which case the Uniform Traffic Ticket is the proper manner of bringing it. Doubtless this was the extent of the legislative intent. However, such a situation does not encompass a case like the instant one where another charge exists which cannot be brought by a traffic ticket, but only by indictment or information; viz., reckless homicide.

Under section 3 — 3 of the Criminal Code of 1961 (Ill. Rev. Stat. 1981, ch. 38, par. 3 — 3), commonly called the “compulsory joinder” statute, the prosecuting authority must bring in a single prosecution all offenses known to the authority. In the instant case, if a traffic ticket had been issued and defendant had pleaded guilty to it before the charging instrument for reckless homicide could be prepared, the plea to DUI would bar prosecution on the more serious charge. (Ill. Rev. Stat. 1981, ch. 38, par. 3 — 4(b)(1).) We cannot envision that the legislature intended any such result.

Nor can we believe that the State should be forfended from attempting to revoke defendant’s driver’s license for refusal to submit to a breath test simply because the prosecutor elected to charge the offense of DUI in a multicount indictment. That indictment was handed up by the grand jury prior to the implied consent hearing.

We will not be understood as condoning the wholesale pocketing of tickets by police officers. However, when the evidence is clear that multiple charges could grow out of the incident, some of which are not prosecutable by a Uniform Traffic Ticket and the evidence is equally clear that the defendant has been placed under arrest, the failure of the officer to hand the defendant a copy of the ticket and to file it "with the local circuit clerk will not be sufficient as a defense in the implied consent hearing. On the other hand, when there is a single charge, or multiple charges, all of which are prosecutable by a Uniform Traffic Ticket, the trial court should scrutinize with great care the fact that no ticket was given to the driver.

The order of the circuit court of Douglas County is reversed and the cause is remanded to that court for further proceedings not inconsistent "with the views expressed herein.

Reversed and remanded.

GREEN and MILLER, JJ., concur.


author: JUSTICE RIZZI

text:
    SENN PARK NURSING CENTER et al., Plaintiffs-Appellees, v. JEFFREY C. MILLER, Director, Department of Public Aid, Defendant-Appellant.
    First District (3rd Division)
    No. 80—2714
    Opinion filed September 28, 1983.

      Tyrone C. Fahner, Attorney General, of Springfield (Ellen P. Brewin, Special Assistant Attorney General, of counsel), for appellant.
    Richard F. Zehnle, of Vedder, Price, Kaufman & Kammholz, of Chicago, for appellees.
   JUSTICE RIZZI

delivered the opinion of the court:

Plaintiffs, three Illinois nursing home facilities, sought a writ of mandamus against defendant, Jeffrey C. Miller, Director of the Illinois Department of Public Aid (IDPA), directing him to reimburse plaintiffs for Medicaid services in accordance with the inflation update procedure set forth in the Illinois State Medicaid plan which was in effect prior to January 1, 1980, rather than the procedure adopted in a rule amending the plan, which was effective January 1, 1980. On cross-motions for summary judgment the court found that the amendment was invalid and ordered that, beginning with services rendered on February 15, 1980, defendant update plaintiffs’ operating costs for inflation by using the method contained in the State plan in effect prior to January 1, 1980. Defendant appeals. Plaintiffs cross-appeal that portion of the order which provides that their requested method of reimbursement begin with services rendered on February 15, 1980. We affirm in part, modify in part and remand.

The State of Illinois provides nursing home care for needy individuals through Medicaid, which is a cooperative State-Federal, partially federally reimbursed program authorized under the Social Security Act (see 42 U.S.C. sec. 1396 et seq.). The program is implemented in accordance with Federal regulations (42 C.F.R. sec. 430 et seq. (1979)) and administered by IDEA. To participate in the Medicaid program, Illinois must have a State plan, approved by the Department of Health and Human Services (HHS) (42 U.S.C. sec. 1396), which provides, inter alia, “for payment of the skilled nursing facility and intermediate care facility services provided under the plan on a reasonable cost related basis, as determined in accordance with methods and standards which shall be developed by the State on the basis of cost-finding methods approved and verified by the Secretary [of HHS] ***.” (42 U.S.C. sec. 1396a(a)(13)(E).) In determining rates of reimbursement, IDEA must reasonably take into account economic trends such as inflation. (See 42 C.F.R. sec. 447.303 (1979).) Thus, Illinois nursing home facilities such as plaintiffs submit to IDEA annual cost reports which detail their expenses for the fiscal year preceding the calendar rate year. (See 42 C.F.R. sec. 477.274 (1979).) On the basis of these cost reports, IDEA calculates reimbursable costs and inflation updates of those costs. Frior to January 1, 1980, IDEA calculated the inflation update by comparing the two most recent cost reports of all nursing homes with the Consumer Erice Index experience over the same period, and multiplying that factor by the projected price changes for the upcoming year.

On December 14, 1979, IDEA sent plaintiffs and other nursing home facilities copies of changes to the State Medicaid plan which included an amended procedure for calculating the inflation update factor whereby all available cost reports rather than the two most recent cost reports would be compared. From December 17 through December 24, IDEA published notice of the amended inflation update procedure in the newspaper of widest circulation in each Illinois city with a • population of 50,000 or more. The notice did not provide for comments. The notice was not published in the Illinois Register because it was refused by that publication. On May 14, 1980, HHS approved the amendment retroactive to January 1,1980.

On February 14, 1980, plaintiffs received their first payments

computed in accordance with the amended inflation update procedure, and on February 15, 1980, plaintiffs demanded that IDPA pay them in accordance with the preamended method. After IDPA refused plaintiffs’ demand, plaintiffs filed their complaint for mandamus. The court found that the amended inflation update procedure was invalid (1) because it is a rule within the meaning of the Illinois Administrative Procedure Act (IAPA) (Ill. Rev. Stat. 1979, ch. 127, par. 1001 et seq.), but was not published as required by that Act and (2) because it was not published as required by Federal regulations (42 C.F.R. sec. 447.205 (1979)). The court then ordered defendant to “update Plaintiffs’ operating costs for inflation by using the method contained in the State plan in effect prior to January 1, 1980 commencing with services rendered on February 15, 1980, the date of Plaintiffs’ demand on defendant to do so.”

On appeal defendant argues that IAPA rulemaking procedures do not apply to the amendment of the State Medicaid plan, that he has not failed to comply with Federal notice and comment regulations, and that plaintiffs have not established the prerequisites for the issuance of a writ of mandamus.

The IAPA establishes notice and comment procedures for the adoption of agency rules. (Ill. Rev. Stat. 1979, ch. 127, pars. 1005 through 1005.03.) Defendant first contends that the notice and comment procedures are inapplicable here because the amended inflation update procedure, which constituted an amendment to the State Medicaid plan, is not a rule within the meaning of the IAPA. We note that although defendant frequently phrases his arguments in terms of the “state plan,” it is only a rule amending the plan which is at issue here. Specifically, defendant asserts that the State Medicaid plan is a contract between the State and the Federal government which is without legal effect until it is approved by HHS. Defendant argues that since administrative rules have the force and effect of law, agency statements are not rules if their legal effect is contingent upon approval by a Federal agency. Thus, defendant maintains that “the lack of autonomy of the State Plan robs it of the essential ingredients of a rule.” We believe that defendant’s argument is not tenable.

Under the IAPA, a rule is defined as follows:

“ ‘Rule’ means each agency statement of general applicability that implements, applies, interprets, or prescribes law or policy, but does not include (a) statements concerning only the internal management of an agency and not affecting private rights or procedures available to persons or entities outside the agency, (b) informal advisory rulings issued pursuant to Section 9, (c) intra-agency memoranda or (d) the prescription of standardized forms.” (Ill. Rev. Stat. 1979, ch. 127, par. 1003.09.)

The definition of a rule is very broad and it has only four specific, narrowly defined exclusions. In addition, we must construe the term liberally in order to effectuate the purposes underlying administrative procedure acts, one of . which is to increase the opportunity for members of the public to have input into the formulation of agency policies which affect them. See Bonfield, The Iowa Administrative Procedure Act: Background, Construction, Applicability, Public Access to Agency Law, The Rulemaking Process, 60 Iowa L. Rev. 731, 828 (1975); see also Bums, Judicial Enforcement of the Illinois Administrative Procedure Act’s Rulemaking Provisions, 55 Chi.-Kent L. Rev. 383, 391 (1979).

Plainly, the amended inflation update procedure is an agency statement of general applicability that implements policy. Looking at the IAEA definition of a rule and its exclusions, it is obvious that the emphasis is on general applicability, not on an agency’s autonomy in adopting a rule. None of the exclusions even suggests that a Federal approval requirement would have any effect on the characterization of an agency statement as a rule. Thus, we will not read an autonomy requirement into the definition for a rule.

We believe that defendant’s reliance on Wolston v. District of Columbia Department of Human Resources Social Services Administration (D.C. App. 1972), 291 A.2d 85, is misplaced. In Wolston, a food stamp recipient challenged an increase in the cost of his food stamp allotment on the ground that the increase was based upon rules and regulations which had not been promulgated and published as required by the District of Columbia Administrative Procedure Act. The Wolston court concluded that food stamp eligibility was controlled by the regulations of the Secretary of the United States Department of Agriculture as implemented by its Food and Nutrition Service, not by District of Columbia regulations, and that the Federal regulations were not rules which the District of Columbia was required to publish. 291 A.2d 85, 87.

The reimbursement of nursing home facilities under Medicaid does not involve the amount of Federal control found in Wolston. The statute in effect at the time IDPA amended the inflation update procedure required a State plan which provided for payment “in accordance with methods and standards which shall be developed by the State on the basis of cost-finding methods approved and verified by the Secretary [of HHS] ***.” (Emphasis added.) (42 U.S.C. sec. 1396a(a)(13)(E).) The current statute increases State control by eliminating this approval requirement. (See footnote 1.) Thus, HHS does not provide a fixed basis for the reimbursement of nursing home facilities. Rather, the States, with Federal guidance, set reimbursement rates. Moreover, even if this case involved the amount of Federal control found in Wolston, we believe that under the IAPA, Federal control would not be dispositive of the question of whether the amended inflation update procedure is a rule, but rather, would go to the question of whether general or peremptory rulemaking procedures are required. (See Ill. Rev. Stat. 1979, ch. 127, pars. 1005.01, 1005.03.) We conclude that the amended inflation update procedure is a rule within the meaning of the IAPA.

Defendant next argues that if the amended inflation update procedure is a rule within the meaning of the IAPA, it comes under either the public contracts or the agency management exception to which the notice and comment procedures of the IAPA do not apply. (See Ill. Rev. Stat. 1979, ch. 127, par. 1005(c).) We disagree.

We first turn to defendant’s contention that the amended inflation update procedure comes under the contracts exception. In defendant’s initial brief, the basis of his contracts exception argument appears to be his contention that the State Medicaid plan is a contract between the Federal government and the State. In defendant’s reply brief, the basis of his contracts exception argument appears to be his assertion that there are contracts between IDPA and plaintiffs in which plaintiffs agreed to accept payment pursuant to reimbursement rates as adopted or amended by IDEA. We believe, however, that the contracts here, whether State-Federal or agency-provider, do not bring the amended inflation update procedure within the contracts exception to the notice and comment procedures of the IAPA.

We note first that public participation “in the rule-making process is essential in order to permit administrative agencies to inform themselves and to afford adequate safeguards to private interests.” (Bonfield, Public Participation in Federal Rulemaking Relating to Public Property, Loans, Grants, Benefits, or Contracts, 118 U. Pa. L. Rev. 540, 540 (1970), quoting Final Report of the Attorney General’s Committee on Administrative Procedure 102 (1941).) Nevertheless, it would be unreasonable to require notice and comment every time an agency entered into, cancelled or rescinded a contract. (See Rainbow Valley Citrus Corp. v. Federal Crop Insurance Corp. (9th Cir. 1974), 506 F.2d 467, 469.) Thus, we believe that the contracts exception to the IAPA notice and comment procedures represents an attempt to balance the need for public participation with the need for agency efficiency. However, while the contracts exception is potentially very broad, the salutary effect of notice and comment procedures is such that courts should only reluctantly recognize the exception. (See Humana of South Carolina, Inc. v. Califano (D.C. Cir. 1978), 590 F.2d 1070, 1082.) It is noteworthy that the contracts exception and other exceptions in the Federal APA (5 U.S.C. sec. 553(a)(2)) have been the subject of substantial criticism, and that many Federal agencies, including HHS, have agreed to follow rulemaking procedures even if the subject matter would fall within the Federal APA’s grants, benefits and contracts exceptions. See Vigil v. Andrus (10th Cir. 1982), 667 F.2d 931, 937.

Although we lack legislative history similar to that referred to by Federal courts in construing the exceptions to the rulemaking requirements of the Federal IAEA, Federal decisions provide guidance in this area. (See People ex rel. Lignoul v. City of Chicago (1977), 67 Ill. 2d 480, 484, 368 N.E.2d 100, 103.) We are persuaded that under the IAEA, as under the Federal APA, a matter comes under the contracts exception only when contracts are clearly and directly involved. (See Humana of South Carolina, Inc. v. Califano (D.C. Cir. 1978), 590 F.2d 1070, 1082.) We believe that with regard to the reimbursement of nursing homes, contracts, whether State-Federal or agency-provider, are not clearly and directly involved, but rather, are only incidental means to the end of providing nursing home care for needy individuals. (See Vigil v. Andrus (10th Cir. 1982), 667 F.2d 931, 936 (where the court found that a Federal free school lunch program was not within the Federal contracts exception).) Accordingly, we conclude that the amended inflation update procedure is not a matter relating to contracts within the meaning of the IAEA.

We believe that the three cases on which defendant relies are distinguishable. In Humana, the court did not uphold the district court’s determination that an HEW regulation limiting a recoverable cost for Medicare providers could be regarded as a contract within the Federal APA exception. (Humana of South Carolina, Inc. v. Califano (D.C. Cir. 1978), 590 F.2d 1070.) Rather, Humana was decided on the basis of the benefits exception to the Federal APA, and the Humana court specifically stated that it did not consider the scope of the contracts exception. (590 F.2d 1070, 1083 n.98.) In Housing Authority v. United States Housing Authority (8th Cir. 1972), 468 F.2d 1, the relationship between the Federal and local agencies was quite different from the relationship between the State agency and the providers here. Housing Authority involved the Department of Housing and Urban Development’s (HUD) annual contributions contract with local housing authorities whereby HUD furnished a certain amount of money to local authorities over a period of years. The Housing Authority court specifically characterized this contract as representing a governmental proprietary interest, effectuating "the government’s stewardship over public housing projects which are purchased with public funds.” 468 F.2d 1, 9.

The third case relied on by defendant, Department of Health & Mental Hygiene v. Lions Manor Nursing Home (1977), 281 Md. 425, 378 A.2d 1351, was decided on the basis of the contracts between the parties, not on the basis of a contracts exception to an administrative procedure act. In Lions Manor, the court found that if a prior contract between the nursing home and the State agency did not provide for modification, or if it reflected an intent that modification must follow certain procedures which had not been satisfied, then the agency could not alter the terms of the contract. (378 A.2d 1351, 1354.) Here, plaintiffs agreed to receive payment pursuant to the reimbursement rates then in effect, as adopted or amended by IDPA. However, the agreement also provided that acceptance of the rates was not a waiver of the right to pursue legal or administrative remedies or negotiations for rate adjustments or increases. We believe that plaintiffs’ agreement to accept payment pursuant to amended rates presupposes that any amendments would be properly promulgated under the IAEA, particularly because (1) the agreement contains the “no waiver” language, (2) the Illinois Fublic Aid Code incorporates the provisions of the IAEA (Ill. Rev. Stat. 1979, ch. 23, par. 12 — 13) and (3) the Illinois Fublic Aid Code specifically requires that IDEA “provide, during the process of establishing the payment rate for skilled nursing and intermediate care services, or when a substantial change in rates is proposed, an opportunity for public review and comment on the proposed rates prior to their becoming effective.” (Ill. Rev. Stat. 1979, ch. 23, par. 5 — 5.7.) Thus, we simply cannot conclude, as defendant suggests, that the contracts between plaintiffs and IDEA operate independently of the IAEA. Accordingly, even if we were to adopt the Lions Manor approach, the amended inflation update procedure was plainly insufficient as promulgated here to effect a change in plaintiffs’ payments.

Next, defendant contends that the amended inflation update procedure comes under the agency management exception which provides that notice and comment procedures to not apply to a matter relating solely to agency management (Ill. Rev. Stat. 1979, ch. 127, par. 1005(c)). We find no merit in defendant’s contention. We believe that the agency management exception, like the contracts exception, reflects an attempt to balance the need for public participation with the need for agency efficiency. Where a matter relates solely to agency management, the value of public participation may be minimal and the burden of notice and comment procedures may be unwarranted. (See Steward v. Smith (D.C. Cir. 1982), 673 F.2d 485, 506 (Wright, J., dissenting).) Nevertheless, that the agency management exception in the IAPA is intended to have limited scope is evident from the use of the word “solely” (see Aguiar v. Hawaii Housing Authority (1974), 55 Haw. 478, 488, 522 P.2d 1255, 1262), which manifests that matters which extend beyond agency management would not come under the exception.

We believe that under the IAPA, matters which relate solely to agency management are those which relate only to the internal affairs of the agency and do not affect private rights. (See Walker v. Commissioner, Department of Income Maintenance (Conn. 1982), 446 A.2d 822, 824-25.) This construction harmonizes with the IAPA definition of a rule, which specifically excludes “statements concerning only the internal management of an agency and not affecting private rights or procedures available to persons or entities outside the agency ***.” (Ill. Rev. Stat. 1979, ch. 127, par. 1003.09(a).) Thus, we conclude that a rule which has a substantial effect on persons outside the agency cannot be characterized as a matter relating solely to agency management. (See Batterton v. Marshall (D.C. Cir. 1980), 648 F.2d 694, 707-08.) Here, the amended inflation update procedure did not relate solely to the internal affairs of the agency, but rather, constituted a change which would substantially affect the reimbursement to plaintiffs and to other nursing homes. Plainly, the amended procedure was not merely a “technical ‘internal management’ change” as defendant contends. Since the amended procedure does not relate solely to agency management, the notice and comment procedures of the IAPA apply.

Defendant next argues that since plaintiffs received actual notice of the amended inflation update procedure approximately two weeks before the procedure became effective, plaintiffs cannot challenge the agency’s failure to comply with IAPA publication requirements. We disagree.

Section 4(c) of the IAPA provides:

“No agency rule is valid or effective against any person or party, nor may it be invoked by the agency for any purpose, until it has been made available for public inspection and filed with the Secretary of State ***. This provision is not applicable in favor of any person or party who has actual knowledge thereof.” (Ill. Rev. Stat. 1979, ch. 127, par. 1004(c).)

Section 4(a) involves the adoption of rules, public information and availability of rules, and it specifically provides that its requirements for the adoption of rules of practice and for the availability of rules for public inspection are “[i]n addition to other rule-making requirements imposed by law ***.” (Ill. Rev. Stat. 1979, ch. 127, par. 1004(a).) It is section 5 of the IAPA which deals with rulemaking. We believe that the rulemaking requirements of section 5 are separate and distinct from the “available for public inspection” requirement of section 4. We therefore conclude that the actual knowledge provision of section 4 applies only to the “available for public inspection” requirement and not to the rulemaking requirements of section 5. If we were to find actual knowledge sufficient to preclude a challenge to an agency’s failure to comply with rulemaking requirements, we would effectively do away with the public’s opportunity to comment and the agency’s duty to consider comments. Thus, we conclude that despite actual knowledge, plaintiffs may challenge IDPA’s failure to comply with the IAPA rulemaking requirements in amending the inflation update procedure.

Having rejected defendant’s arguments regarding the IAPA, we conclude that the court properly found that the amended inflation update procedure is a rule within the meaning of the IAPA. Defendant does not contend that he followed IAPA rulemaking procedures, and we believe that the court properly found that the amended inflation update procedure was not published as required under the IAPA.

The court further found that the amended inflation update procedure was invalid because it was not published as required by Federal regulations (42 C.F.R. sec. 447.205 (1979)), which provide that the agency must give “public notice of any proposed change in the Statewide method or level of reimbursement for a service, if the change is expected to increase or decrease Medicaid payments for that service by 1 percent or more during the 12 months following the effective date of the change.” Defendant maintains that plaintiffs do not have a private right of action to compel State compliance with the conditions of the Social Security.Act or the regulations promulgated thereunder. However, in this mandamus action, plaintiffs do not seek to compel defendant to publish the amended inflation update procedure as required by Federal regulations. Rather, plaintiffs seek to compel defendant to reimburse them in accordance with the previous inflation update procedure, and plaintiffs can establish that this is defendant’s legal duty only by demonstrating that the amended procedure is invalid. We therefore believe that defendant’s argument is in-apposite.

Alternatively, defendant contends that he did not violate Federal notice and comment regulations. We disagree. First, we note that the Federal notice and comment regulations which were in effect when defendant attempted to change the inflation update procedure have been amended to eliminate the 1% expenditure threshold, and they now require the agency to provide “public notice of any significant proposed change in its methods and standards for setting payment rates for inpatient hospital services and long-term care facility services.” (42 C.F.R. sec. 447.254(a) (1982).) We believe that even if we were to apply the current regulations (see Seniors United for Action v. Ray (8th Cir. 1982), 675 F.2d 186), public notice is still required since plaintiffs provide long-term care facility services within the meaning of the regulations (see 42 C.F.R. sec. 447.251 (1982)), and the amended inflation update procedure is a significant change in the method for setting payment rates. However, the amended notice and comment regulations eliminated the 60-day prior notice requirement and merely require publication of notice before the proposed effective date of the change. (42 C.F.R. sec. 447.254(d)(1) (1982).) Thus, if current regulations apply, defendant did not fail to comply with the publication requirements. However, both the current regulations and the regulations in effect in December 1979 also specify the proper content of the notice, including the requirement that the notice “[g]ive an address where written comments may be sent and reviewed by the public ***.” Since the notice which defendant published contained no reference to comments, we believe that regardless of whether we apply the regulations in effect now or in December 1979, defendant failed to comply with the requirements. Therefore, we conclude that the court properly found the amended inflation update procedure invalid on the basis of defendant’s failure to comply with Federal notice and comment regulations.

Next, we turn to the question of relief. Plaintiffs sought a writ of mandamus directing defendant to reimburse them according to the inflation update procedure in effect prior to January 1, 1980. The court ordered the requested reimbursement beginning with services rendered on February 15, 1980. Plaintiffs contend that since the amended inflation update procedure was never valid, they are also entitled to the requested relief for services rendered between January 1 and February 15. Defendant maintains that plaintiffs have not established a clear and undoubted right to mandamus, that confusion or disorder will result from the reimbursement, that an award of such “money damages” is inappropriate here and that if reimbursement is appropriate, the court properly found that it should not begin until the date of plaintiffs’ demand on defendant.

We believe that plaintiffs correctly assert that it is the date on which plaintiffs have a clear legal right to relief rather than the date of plaintiffs’ demand on defendant which determines the extent of relief in this case (cf. Chriswell v. Rosewell (1979), 70 Ill. App. 3d 320, 324, 388 N.E.2d 175, 178), particularly since a demand is unnecessary where, as here, the duty to act is of a public nature (see People ex rel. Busch v. Green (1917), 281 Ill. 52, 58, 117 N.E. 764, 766). Thus, we conclude that plaintiffs are entitled to relief beginning with services rendered on January 1,1980.

A writ of mandamus is extraordinary relief which is issued in the discretion of the court according to what seems necessary and proper to achieve a just result. (See People ex rel. Pletcher v. Dolan (1943), 317 Ill. App. 496, 500, 47 N.E.2d 124, 126.) Here, as Medicaid providers, plaintiffs have a clear legal right to reimbursement in accordance with valid rules. Defendant has a corresponding duty to promulgate valid rules and to reimburse plaintiffs in accordance therewith. In amending the inflation update procedure, defendant failed to comply with the IAPA and the Federal notice and comment regulations. As a result, the amended inflation update procedure was an invalid rule. Therefore, plaintiffs have a clear and undoubted right to reimbursement according to the inflation update procedure in effect prior to January 1, 1980. We are not persuaded that, as defendant suggests, such confusion and disorder would result from the reimbursement as to require a denial of the writ of mandamus.

Accordingly, the judgment of the circuit court of Cook County is affirmed in part and modified in part and the case is remanded for further proceedings consistent with this opinion.

Affirmed in part, modified in part and remanded.

McNAMARA, P.J., and WHITE, J., concur.

      Effective October 1, 1980, 42 U.S.C. sec. 1396a(a)(13)(E) was redesignated as sec. 1396a(a)(13)(A) and amended to require nursing home reimbursement on the basis of “rates *** which the State finds, and makes assurances satisfactory to the Secretary, are reasonable and adequate to meet the costs which must be incurred by efficiently and economically operated facilities ***.”

      Defendant estimates that the additional cost to the State for the reimbursement is $4,800,000. The source of defendant’s estimate is the affidavit of an employee of the Office of Health Finance, Illinois Department of Public Health. In this regard, defendant has stated that payments to nursing homes during 1980 computed in accordance with the preamended inflation update procedure would have exceeded 1979 payments by 15%. Plaintiffs maintain that $4,800,000 is the maximum potential cost if payments are made in accordance with the preamended inflation update procedure for the entire year (1979) to all nursing homes in Illinois.


author: JUSTICE CAMPBELL

text:
    BROWN & SHINITZKY CHARTERED, Plaintiff-Appellant, v. THOMAS A. DENTINGER et al., Defendants-Appellees.
    First District (1st Division)
    No. 82—2590
    Opinion filed September 19, 1983.
    Rehearing denied October 31, 1983.
    Edwin J. Shinitzky, of Chicago (Nelson Hembree, of counsel), for appellant.
    Michael L. Pritzker, pro se, and Marcia L. Smith, both of Chicago, for appellees.
   JUSTICE CAMPBELL

delivered the opinion of the court:

Plaintiff, Brown & Shinitzky, a professional corporation, appeals from a judgment dismissing its complaint against one of the defendants, Michael L. Pritzker. On appeal, plaintiff raises two issues: whether the trial court erred in dismissing plaintiff’s action as barred by the Statute of Frauds and whether the trial court erred in denying plaintiff discovery against Pritzker in order to allow plaintiff to cure defects in its complaint.

Plaintiff brought suit in the circuit court of Cook County seeking to recover fees for legal services provided in pursuing a petition for reorganization under chapter XII of the Bankruptcy Act on behalf of the limited partnership known as the 185 North Wabash Associates. Plaintiff sued the general partner, Thomas A. Dentinger and the limited partners, Michael L. Pritzker, Leon D. Shapiro and Marvin J. Glass. Plaintiff’s amended complaint alleged that at the request of each of the partners plaintiff performed legal services for the partnership; that notwithstanding their capacity as limited partners, Pritzker, Shapiro and Glass each individually guaranteed payment to plaintiff of its professional fees on behalf of defendants; and, that after all set-offs $7,653 remained owing plaintiff.

Defendant Pritzker filed a motion to dismiss pursuant to section 48(l)(g) (Ill. Rev. Stat. 1981, ch. 110, par. 48(l)(g)) and alleged that he was at all times a limited partner of the 185 North Wabash Associates. Pritzker further alleged that as there was no written statement exhibiting a personal guarantee executed by him, plaintiff’s complaint fails to state a cause of action against him. In response to Pritzker’s motion, plaintiff alleged that its complete performance of the contract prevents Pritzker from asserting the Statute of Frauds as a defense. Plaintiff also filed the affidavit of Raymond M. Brown, plaintiff’s president. Brown stated that each defendant participated in numerous meetings with plaintiff concerning the reorganization of 185 North Wabash Associates, and each defendant authorized plaintiff to file the petition for reorganization of the partnership. Brown also stated that on numerous occasions each defendant, and specifically Pritzker, advised plaintiff that he would personally guarantee payment of plaintiff’s fees and costs. In a counteraffidavit, Brown further stated that Dentinger advised him that management of the partnership funds was being handled by Pritzker and that plaintiff should collect any fees due from Prtizker. Brown stated that when he contacted Pritzker, Pritzker advised him that Pritzker was collecting funds for the sale of the partnership’s assets and when those funds became available, Pritzker would pay plaintiff’s outstanding bill.

Pritzker filed a counteraffidavit stating that he never met with Brown in regards to any partnership matter; that all services performed by plaintiff were for the benefit of the partnership; that he never personally guaranteed payment of plaintiff’s fees; and, that after the services were performed, he had his only conversation with Brown in which he told Brown to contact a general partner because he, Pritzker, was merely a limited partner. The trial court granted defendant’s motion to dismiss.

In its argument before this court, plaintiff has conceded that its complaint is for Pritzker’s breach of his personal promise to pay for the debt of the partnership and not against Pritzker for the partnership’s breach. Plaintiff contends, however, that the Statute of Frauds is not a bar to the enforcement of defendant’s oral contract. Plaintiff argues that where there is complete performance by one party, the nonperforming party cannot assert the Statute of Frauds as a defense to an action to enforce the contract. (Kozasa v. Guardian Electric Manufacturing Co. (1981), 99 Ill. App. 3d 669, 425 N.E.2d 1137.) Pritzker denies that he made any personal guarantee of sums owed by the partnership. Pritzker further contends that even if he did, such an unwritten guarantee is unenforceable under the Statute of Frauds.

The Statute of Frauds provides:

“No action shall be brought *** whereby to charge the defendant upon any special promise to answer for the debt, default or miscarriage of another person * * * unless the promise or agreement upon which such action shall be brought, or some memorandum or note thereof, shall be in writing, and signed by the party to be charged therewith, or some other person thereunto by him lawfully authorized.” (Ill. Rev. Stat. 1981, ch. 59, par. 1.)

A promise to pay the debt of another which is not written and duly signed cannot be enforced either at law or in equity. (Reisch v. Bowie (1937), 367 Ill. 126, 10 N.E.2d 663.) In Evans v. Owens (1961), 30 Ill. App. 2d 114, 173 N.E.2d 850 (abstract of opinion), the court stated,

“A promise to pay the debt of another is within the Statute unless it is founded upon a new and independent consideration passing between the newly contracting parties and independent of the original contract. In the absence of such a consideration the promise is collateral. And a collateral promise whether made before or after or contemporaneous with the promise of the primary or original debtor is void unless in writing. Laughlin v. Dalton, 200 Ill. App. 342.”

Neither party contests the fact that the defendant’s alleged oral guarantee to pay the legal fees of the partnership is without independent consideration. Plaintiff seeks to avoid the application of the statute by arguing that its contract is executed as opposed to executory, and, therefore, cannot be voided by the Statute of Frauds. (Mapes v. Kalva Corp. (1979), 68 Ill. App. 3d 362, 386 N.E.2d 148.) Plaintiff, however, has not cited any authority for the position that this exception which is normally applied to the Statute of Frauds provisions requiring a writing for the transfer of land and for contracts not to be performed within the space of one year (see Meyer v. Logue (1981), 100 Ill. App. 3d 1039, 427 N.E.2d 1253) applies with equal force to the Statute of Frauds provisions on surety contracts.

An application of an executed contract exception to the surety provisions of the Statute of Frauds would render these provisions totally meaningless. A performing party in normal circumstances does not attempt to enforce a surety contract until after performance under the contract is complete and the primary debtor has failed to satisfy his obligation. We will not apply an exception to the Statute of Frauds provision requiring that a promise to answer for the debt of another be written which would destroy the effect of that provision.

Under the State of Frauds, an oral contract to guarantee the debt of another is unenforceable. The affidavits and pleadings of the parties clearly show that the alleged contract at issue here falls within the Statute of Frauds. Therefore, the trial court properly dismissed plaintiff’s suit.

Additionally, plaintiff claims that the trial court erred in denying it discovery against Pritzker in order to allow plaintiff to cure defects in its complaint. In deciding Pritzker’s motion pursuant to section 48, the trial court had before it the pleadings of the parties and affidavits of the principals which admitted all relevant facts. It is difficult to imagine how discovery could change the outcome of this case. The trial court did not err in denying plaintiff’s motion for discovery.

Accordingly, the decision of the circuit court of Cook County is affirmed.

Judgment affirmed.

BUCKLEY, P.J., and GOLDBERG, J., concur.


author: PRESIDING JUSTICE BUCKLEY

text:
    SHIRLEY BODDIE, Plaintiff-Appellant, v. LITTON UNIT HANDLING SYSTEMS et al., Defendants-Appellees.
    First District (1st Division)
    No. 82—1664
    Opinion filed September 26, 1983.
    Rehearing denied November 7, 1983.

      Jeffrey M. Goldberg, of Chicago, for appellant.
    James K. Toohey and Barbara Ross, both of Ross, Hardies, O’Keefe, Babcock & Parsons, of Chicago, for appellee Litton Unit Handling Systems.
    Michael J. Ross, of French, Rogers, Kezelis & Kominiarek, P.C., of Chicago, for appellee Orr & Associates.
   PRESIDING JUSTICE BUCKLEY

delivered the opinion of the court:

This appeal arises out of an action brought to recover damages for injuries plaintiff Shirley Boddie suffered as a result of her exposure to a conveyor system furnished by defendants. The trial court granted summary judgment on counts sounding in strict liability, wilful and wanton conduct and breach of warranty and also granted a motion to dismiss counts sounding in negligence.

Plaintiff was an employee of the United States Post Office, working in the bulk mail center in Forest Park, Illinois. On August 17, 1976, plaintiff’s hand was caught in a partially exposed chain and gear drive mechanism which was part of the conveyor resulting in amputation of two fingers and injury to a third finger. The instant action was subsequently filed against defendants Orr & Associates (Orr), the general contractor, and Litton Unit Handling Systems (Litton), the subcontractor who designed and built the conveyor system.

The record reveals that Kaiser Engineers and A. T. Kearney, Inc., provided the postal service with the initial plans and specifications for the Forest Park postal facility. The plans submitted by Kaiser gave general specifications for the conveyors and guards but did not provide an actual design for the chain guard. Rather, the specifications included only a general description of the type of guards to be used, and provided:

“(a) 10.2.12.1 — All chain drives shall be totally enclosed in drip tight steel chain casings ***.
(b) 10.1 — All equipment items and accessories shall be designed and fabricated in accordance with industrial safety practices to eliminate hazards to employees, including entanglement of clothing ***.
(c) 10.12.1 — Protective Enclosures and Guards. For inclined conveyor, protective enclosures shall be provided *** to provide safety guarding against contact by personnel with moving belts, pulleys or rollers.”

Subsequently, these plans were let out for bid and Orr, the successful bidder, entered into a contract with the Corps of Engineers. Thereafter, Orr entered into a subcontract with Litton under which Litton agreed to design and manufacture the conveyor system involved in this accident. The sections of the conveyor were to be built at Litton’s plant and shipped in a completed state for assembly at the job site. During the process of assembling the conveyor, it was determined that the completely enclosed guard would not fit the telescoping conveyor section involved in this accident. Litton subsequently equipped the conveyor with an open back three sided guard which ultimately resulted in plaintiff’s injuries and the filing of the instant action to recover damages.

In granting defendants’ motions for summary judgment on the strict liability counts, the court below made the following findings: (1) there was no genuine issue of material fact as to whether the change to the open back guard was authorized; (2) the doctrine of strict liability was inapplicable because the conveyor was not a product but rather a fixture which had become merged with the realty; and (3) the doctrine of strict liability did not apply because the conveyor never entered the stream of commerce. With respect to the warranty counts filed pursuant to the Uniform Commercial Code (UCC) (Ill. Rev. Stat. 1981, ch. 26, par. 2 — 101 et seq.), the court found (1) the contracts involved were not for the sale of goods and therefore did not come under the purview of article 2 of the UCC; (2) the plaintiff did not qualify as a third-party beneficiary under section 2 — 318 of the UCC (Ill. Rev. Stat. 1981, ch. 26, par. 2 — 318); and (3) there was no material issue of fact on the issue of contract compliance by defendants. The court had previously granted summary judgment on counts asking for, punitive damages based on a determination that there was contract compliance and the change to the open back guard was authorized.

Plaintiff was then given leave to amend her complaint to include counts sounding in negligence. Defendants filed motions to dismiss, arguing that the court had already determined that the open back guard eventually installed on the conveyor was authorized by the Corps of Engineers and, therefore, under Hunt v. Blasius (1978), 74 Ill. 2d 203, 384 N.E.2d 368, plaintiff was precluded from recovering on a negligence theory. On June 23, 1982, the court granted defendants’ motions.

Plaintiff appeals from the trial court’s rulings dismissing the negligence counts and granting summary judgment on the strict liability, warranty and punitive damages counts.

I

We will first address plaintiff’s arguments raised in connection with the dismissal of the negligence counts.

The standard by which contractors and subcontractors are to be judged in determining if they are liable for injuries caused by their negligence in carrying out another’s design specifications is set out in Hunt v. Blasius (1978), 74 Ill. 2d 203, 384 N.E.2d 368. There, the court held that an independent contractor owes no duty to third persons to judge the plans, specifications or instructions he has merely contracted to follow. If the contractor carries out the specifications provided him, he is justified in relying upon their adequacy unless they are so obviously dangerous that no competent contractor would follow them. Accordingly, to recover against a contractor on a negligence theory, a plaintiff must demonstrate either noncompliance with contract specifications proximately resulting in injury or that the contract specifications are so defective a builder of ordinary prudence would be put on notice that the work was dangerous and likely to cause injury. 74 Ill. 2d 203, 209-10.

In the case at bar, the trial court’s dismissal of the negligence counts against the contractor Orr and the subcontractor Litton was predicated on previous findings in the court’s rulings on motions for summary judgment with respect to the strict liability, warranty and punitive damages counts. There, the court found that there was no material issue of fact as to whether the change to the open back guard was authorized and approved and, therefore, Orr and Litton had complied with all contract specifications. Plaintiff contends the court erred in dismissing the negligence counts since the pleadings, exhibits, and depositions filed by the parties in connection with the motions for summary judgment clearly revealed the existence of a significant factual dispute on this issue. We agree.

Since the trial court’s granting the dismissal was based on a prior finding that there was no material issue of fact to be tried with respect to contract compliance, the motion was in reality one for summary judgment and will be treated as such on review. Summary judgment is appropriate if there is no genuine issue as to any material fact such that the moving party is entitled to a judgment as a matter of law. (Ill. Rev. Stat. 1981, ch. 110, par. 2 — 1005(c).) In ruling on a motion for summary judgment, the trial court should construe the pleadings, affidavits, exhibits and depositions most strictly against the moving party and most liberally in favor of the opponent (Shockley v. Ryder Truck Rental, Inc. (1979), 74 Ill. App. 3d 89, 93-94, 392 N.E.2d 675) and should grant the motion only where the right of the movant is clear and free from doubt (Burks Drywall, Inc. v. Washington Bank & Trust Co. (1982), 110 Ill. App. 3d 569, 442 N.E.2d 648).

In the present case, it is clear that the open back chain guard provided by Litton did not comply with the original specifications which called for a totally enclosed guard. In order to demonstrate contract compliance, Litton relied solely on an oral modification of the original contract specifications approved by Robert Schmeiser, a Corps of Engineers inspector. However, after reviewing the record, we find that a material issue of fact exists as to whether Schmeiser had authority to approve changes in contract specifications.

In the deposition of William Wyner, Orr’s project manager, testimony was elicited to the effect that Robert Schmeiser had no authority to approve contract changes in specifications. Wyner further testified that only Howard Gregory, the authorized representative of the contracting officer, had such authority.

Of greater import is Robert Schmeiser’s own testimony. When questioned specifically about his authority, he stated in his evidence deposition:

“Q. I understand that, sir. Howard Gregory had to authorize the change. He was the one that was the contracting officer. Is that correct?
A. Yes.
* * *
Q. *** Is it correct that Howard Gregory had the only authority to approve changes?
A. Yes.
Q. So, you don’t recall as you sit here today whether you ever discussed substituting chain guards with Howard Gregory. Is that right?
A. That is correct.”
When asked similar questions in a discovery deposition, Schmeiser testified:
“Q. You do know that he (Howard Gregory) never gave you any authorization to change or to authorize contractors not to comply with written specifications. Is that correct?
A. I am sure.
Q. You are sure he didn’t?
A. He didn’t.”

Testimony given by Orr employees also indicates that Orr was unaware of any change or authorization to change the guards and that Litton had never received an order to change or modify its contract with Orr on this matter. Under these circumstances we find that material issues of fact existed with respect to whether the changes in contract specifications permitting an open back guard were properly authorized and approved. These factual issues bear directly on whether Litton and Orr complied with contract specifications and, therefore, dismissing the counts sounding in negligence was improper. Accordingly, we reverse the trial court’s dismissal of the negligence counts against Orr and Litton.

II

Plaintiff next contends that the trial court erred in granting defendants’ motions for summary judgment on the strict liability counts. Since we have already found that a material issue of fact exists with respect to contract compliance, an alternative basis for affirmance must be found if the court’s ruling on the motion is to be upheld. Defendants advance two arguments — first, that the conveyor system was a real estate fixture which had merged with the realty and was therefore not a product; and second, that the conveyor had never entered the stream of commerce. The proper resolution of this case will therefore require an examination' of what items may be deemed products and thus be subject to an action for strict liability in tort, as well as a construction of the term “stream of commerce” for strict liability purposes.

In Suvada v. White Motor Co. (1965), 32 Ill. 2d 612, 210 N.E.2d 182, the supreme court adopted the doctrine of strict products liability embodied in section 402A of the Restatement (Second) of Torts. That section provides in relevant part:

“(1) One who sells any product in a defective condition unreasonably dangerous to the user or consumer or to his property is subject to liability for physical harm thereby caused to the ultimate user or consumer, or to his property, if
(a) the seller is engaged in the business of selling such a product, and
(b) it is expected to and does reach the user or consumer without substantial change in the condition in which it is sold.” Restatement (Second) of Torts sec. 402A (1965).

Our supreme court has not directly ruled on what constitutes a product for strict liability purposes. However, this court has stated that the social policy justifications underlying the imposition of strict liability in tort rather than the dictionary definition of the term “product” should be determinative on this issue. (Lowrie v. City of Evanston (1977), 50 Ill. App. 3d 376, 365 N.E.2d 923.) Those public policy considerations have been set forth as being: (1) the public interest in human life and health; (2) the invitations and solicitations of the manufacturer to purchase the product; (3) the justice of imposing the loss on the manufacturer who created the risk and reaped the profit; and (4) the superior ability of the commercial enterprise to distribute the risk of injury proximately caused by the defective condition of its product by passing the loss on to the public as a cost of doing business. (Immergluck v. Ridgeview House, Inc. (1977), 53 Ill. App. 3d 472, 474, 368 N.E.2d 803.) Several appellate court decisions have had occasion to apply these policy considerations in resolving whether buildings and their component parts should be considered products under the doctrine of strict liability.

In Lowrie v. City of Evanston (1977), 50 Ill. App. 3d 376, 365 N.E.2d 923, the court affirmed the dismissal of strict liability counts • brought against the operator of an open air parking garage. The action was brought by the personal representative of an individual killed in a fall from one of the upper levels of the garage. The Lowrie court refused to find that such a garage was a product within the purview of section 402A, basing its decision on the belief that the original framers of the Restatement did not contemplate a structure such as a building to be a proper subject for a strict liability action. The court noted that buildings were not included in the listing of product types given in comment d to section 402A and also that the liability of builders was articulated in other sections of the Restatement. 50 Ill. App. 3d 376, 384-85.

In Immergluck v. Ridgeview House, Inc. (1977), 53 Ill. App. 3d 472, 368 N.E.2d 803, the plaintiff fell from a window in a sheltered-care facility and brought a strict products liability action against the owner. She alleged that the facilities were unreasonably dangerous because of the absence of any device to prevent egress through the windows. In affirming the dismissal below, the court held that a sheltered-care facility was not a product for strict liability purposes and, referring to the policy considerations inherent in the doctrine, the court stated:

“[D]efendant is clearly not in the business of the mass production or supply of sheltered-care facilities, and the facility in question is not in any stream of commerce. It must also be noted that there is no difficulty of access to a remote manufacturer or supplier, and there is no mass production over which a risk of injury may be distributed.” 53 Ill. App. 3d 472, 476.

A similar result was reached in Heller v. Cadral Corp. (1980), 84 Ill. App. 3d 677, 406 N.E.2d 88, where plaintiff had purchased a condominium home and sought to recover damages for construction defects based on a strict products liability theory. Citing Lowrie and Immergluck with approval, the court held that a condominium unit was not a product for strict liability purposes. In reviewing the cases from other jurisdictions which had extended the doctrine to buildings and their component parts, the court noted that in those cases permitting recovery the court “focused upon a defect in some product in the home rather than the home itself. Strict liability was thus applied to a contractor who built and/or sold homes containing a defective product.” 84 Ill. App. 3d 677, 680.

Most recently, in Walker v. Shell Chemical, Inc. (1981), 101 Ill. App. 3d 880, 428 N.E.2d 943, the court had occasion to further articulate the law of strict products liability in relation to buildings and component parts of buildings. In Walker, a worker brought an action against a guardrail manufacturer and others for injuries sustained in a fall on a construction site when a guardrail broke. Referring to Heller, Lowrie and Immergluck, the court concluded that if the guardrail was actually a component and indivisible part of the entire building structure, it may not be considered a product for strict liability purposes. In reviewing the dismissal of the strict liability counts below, the court found the factual allegations insufficient, and affirmed.

A review of the above cases reveals an attempt to define the limits of strict products liability in relation to buildings and component parts of buildings. Clearly, the scope of strict products liability does not extend so far as to include buildings per se and other similar structures. However, a defective item associated with a building may give rise to such an action, provided the item has not become an indivisible component part of the building or structure.

Applying our previous decisions to the present case, we find the conveyor in the instant action to be a product subject to the doctrine of strict products liability. Accordingly, we reject defendants’ contention that the conveyor’s status as a real estate fixture precludes a recovery based on strict liability. Numerous cases in Illinois and elsewhere have either applied the doctrine of strict liability in tort to products which would be clearly classifiable as real estate fixtures or have specifically held such items to be products for strict liability purposes. (See Brannon v. Southern Illinois Hospital Corp. (1978), 69 Ill. App. 3d 1, 386 N.E.2d 1126 (dumbwaiter); Luna v. Rossville Packing Co. (1977), 54 Ill. App. 3d 290, 369 N.E.2d 612, and Karabatsos v. Spivey Co. (1977), 49 Ill. App. 3d 317, 364 N.E.2d 319 (conveyor systems); Troszynski v. Commonwealth Edison Co. (1976), 42 Ill. App. 3d 925, 356 N.E.2d 926 (electric utility meter box); Begay v. Livingston (1981), 99 N.M. 359, 658 P.2d 434 (heating unit in motel room); Kaneko v. Hilo Coast Processing (Haw. 1982), 654 P.2d 343 (component parts of a prefabricated building); De Crosta v. A. Reynolds Construction & Supply Corp. (1975), 49 App. Div. 476, 375 N.Y.S.2d 655, aff'd (1977), 41 N.Y.2d 1100, 396 N.Y.S.2d 357, 364 N.E.2d 1129 (in-ground swimming pool).) These holdings are in accord with comment d to section 402A of the Restatement, which lists fixtures such as a water heater and a gas stove as products for strict liability purposes.

Our holding in Walker should not be read so broadly as to incorporate the law of fixtures into products liability law. What items are to be deemed products must be based on the underlying policies for strict liability in tort to which the law relating to fixtures is only tangentially relevant. Walker imposes a limitation on the application of strict liability only with regard to those items which are an indivisible part of the building structure itself, such as the bricks, supporting beams and railings. Such items are significantly different than a conveyor system housed in a building since they do not have an indivisible identity prior to installation but are rather indivisible component parts of the building itself.

We also reject defendants’ contention that the conveyor never entered the stream of commerce because it was produced solely for government use. The phrase “stream of commerce” is not found in the text of section 402A, nor in the accompanying comments. However, the phrase has been used by courts to make the distinction between the one time or casual seller to whom strict products liability does not apply and a defendant engaged in the business of selling products as required by section 402A(l)(a). (See Luna v. Rossville Packing Co. (1977), 54 Ill. App. 3d 290, 369 N.E.2d 612.) “Stream of commerce” does not require that the product be mass produced or placed on the shelf at numerous locations. It is sufficient if the defendant is engaged in the business of selling the product and markets it to a buyer for the buyer’s use even if the buyer is the United States government. (See Foster v. Day & Zimmermann, Inc. (8th Cir. 1974), 502 F.2d 867.) Clearly, Litton is in the business of designing and marketing conveyor systems and clearly Orr was in the chain of distribution. Accordingly, we reject defendants’ contention that the product never entered the stream of commerce.

In view of the foregoing, we reverse that portion of the judgment granting summary judgment on the strict liability counts.

Ill

Plaintiff next contends that the court erred in granting defendants’ motions for summary judgment on the warranty counts filed pursuant to article 2 of the UCC as enacted in Illinois (Ill. Rev. Stat. 1981, ch. 26, par. 2 — 101 et seq.). Defendants argue that the contracts involved were service contracts and therefore the UCC warranty provisions are inapplicable. In the alternative, defendants contend that if the UCC is applicable, plaintiff is not a third party beneficiary of the UCC warranty provisions under section 2 — 318. Since plaintiff alleges breach of warranty with respect to both the Orr-United States government general contract and the Litton-Orr subcontract, the applicability of the UCC to each of these contracts will be considered separately.

The scope of article 2 is specifically limited to “transactions in goods.” (Ill. Rev. Stat. 1981, ch. 26, par. 2 — 102.) A contract which is primarily for the rendition of services is not a “transaction in goods” within the meaning of article 2 and is therefore not covered by the UCC warranty provisions. (Pitler v. Michael Reese Hospital (1980), 92 Ill. App. 3d 739, 415 N.E.2d 1255.) Where a contract mixes the sale of goods with the rendition of services, the following frequently cited test is used in determining whether the contract falls within the scope of article 2:

“ ‘The test for inclusion or exclusion is not whether [the contracts] are mixed, but, granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved {e.g., contract with artist for painting) or is a transaction of sale, with labor incidentally involved {e.g., installation of a water heater in a bathroom).’ ” Meeker v. Hamilton Grain Elevator Co. (1982), 110 Ill. App. 3d 668, 670, 442 N.E.2d 921, citing Bonebrake v. Cox (8th Cir. 1974), 499 E2d 951, 960.

Applying these principles to the case at bar, we must reject plaintiff’s contention that the Orr-United States government contract falls within the ambit of article 2. We note that contract bears the legend “Construction Contract” and requires Orr to (1) complete the remaining construction work for the mail processing center; (2) complete various alterations and modifications on the building; (3) complete the construction of exterior utilities and services, including drainage, pavement, walks, fencing and demolition work; (4) construct caisons, including excavation, metal casings, concrete and related work; (5) construct lookout galleries from prefabricated modules; and (6) furnish, install, connect, adjust, and test a complete package-sorting conveyor system. Such general construction contracts encompassing the erection of buildings, the installation of utilities and services, with extensive excavation and demolition, have as their primary thrust the rendition of services rather than the sale of goods. Since the Orr-government contract was clearly not a transaction in goods, Orr's motion for summary judgment on the warranty count was properly granted.

The character of the Litton-Orr subcontract is more problematic. However, we need not address that issue for, assuming arguendo that the subcontract comes within the scope of article 2, plaintiff still fails to satisfy the section 2 — 318 requirements for third party beneficiaries.

Section 2 — 318 provides in relevant part:

“A seller’s warranty whether express or implied extends to any natural person who is in the family or household of his buyer or who is a guest in his home if it is reasonable to expect that such person may use, consume or be affected by the goods and who is injured in person by breach of the warranty.” Ill. Rev. Stat. 1981, ch. 26, par. 2 — 318.

This section defines the class of persons entitled to benefit from the warranty provisions of article 2, even though they are not buyers of goods within the distributive chain. The States that adopted the UCC were free to choose from among three alternative drafts of section 2 — 318. Illinois chose the most restrictive version, alternative A, which limits nonbuyer coverage to family members, household members and household guests of the buyer. Alternative B extends the article 2 warranties to any natural person who may reasonably be expected to use, consume or be affected by the goods and who is injured in person by a breach of warranty. Alternative C goes further, extending coverage to any person, natural or otherwise, and does not limit liability to breaches resulting in personal injury. Thus, both alternatives B and C do away with the requirement that a nonbuyer must have some relationship to a buyer of the goods causing injury (family member, household member or household guest) before he can recover under the warranty provisions of the UCC as a third-party beneficiary.

The express words of section 2 — 318 as adopted in Illinois do not include employees of buyers among the class of persons entitled to protection as third-party beneficiaries. Nevertheless, plaintiff argues that it would be illogical to extend warranty protection to guests of the buyer’s household who are only remotely connected with the product and refuse protection to employees of a purchaser of a machine intended for industrial use. Plaintiff cites Knox v. North American Car Corp. (1980), 80 Ill. App. 3d 683, 399 N.E.2d 1355, in support of her contention, wherein the court stated in dicta that where the employer is the last purchaser of goods, an employee stands in a relationship that is the functional equivalent of a guest or family member. (80 Ill. App. 3d 683, 689.) We agree with plaintiff’s argument that third-party beneficiary status can and should be expanded to include employees of ultimate purchasers even under the restrictive section 2 — 318 adopted in Illinois. (See Delta Oxygen Co v. Scott (1964), 238 Ark. 534, 383 S.W.2d 885; Barfield v. Atlantic Coast Line R.R. Co. (Fla. App. 1967), 197 So. 2d 545; Salvador v. Atlantic Steel Boiler Co. (1974), 457 Pa. 24, 319 A.2d 903 — all extending coverage to employees of buyers.) However, plaintiff’s argument misses the mark.

The threshold issue here is whether plaintiff is an employee of the buyer of goods under a contract of sale covered by the UCC. As plaintiff has maintained throughout her brief, Litton had no direct contractual relation with the government. Its only contract was with Orr for the design and manufacture of the conveyor system. Consequently, the only buyer of goods in the Litton-Orr contract was Orr.

In order for plaintiff to be a third-party beneficiary under the restrictive alternative of section 2 — 318 adopted in Illinois, she must demonstrate that a contract for the sale of goods within the ambit of article 2 exists and that she is either a family member, household member, household guest or employee of the buyer under that contract. Here, the two elements never coincide. Plaintiff can demonstrate that she is an employee of a party that has received goods incidentally under a service contract (Orr-government contract) not covered by the UCC. She can also demonstrate she was injured by a product sold in the Litton-Orr transaction which is covered by the UCC, but her relationship to the buyer Orr is lacking. In order to grant plaintiff third-party status, we would be forced on one hand to eliminate the requirement that the contract be within the scope of article 2, and, on the other, to eliminate the requirement that the third party stand in proper relation to a buyer. This we decline to do.

Accordingly, that portion of the judgment granting defendants’ motions for summary judgment on the warranty counts is affirmed.

IV

Finally, plaintiff contends that the court erred in granting defendants’ motions for summary judgment on the wilful and wanton counts seeking punitive damages.

Punitive damages are in the nature of a criminal penalty and are not favored under the law. (Cornell v. Langland (1982), 109 Ill. App. 3d 472, 440 N.E.2d 985.) The general purposes for imposing punitive damages are to punish wrongdoers and to deter them and others from engaging in similar conduct. (Kelsay v. Motorola, Inc. (1978), 74 Ill. 2d 172, 186, 384 N.E.2d 353.) In addressing this issue, the court in Kelsay expressed the traditional standard for awarding exemplary damages:

“It has long been established in this State that punitive or exemplary damages may be awarded when torts are committed with fraud, actual malice, deliberate violence or oppression, or when the defendant acts willfully, or with such gross negligence as to indicate a wanton disregard of the rights of others [citation].” 74 Ill. 2d 172,186.

The awarding of punitive damages within the context of products liability cases presents problems unique to that area of law. The defendants are generally manufacturers, frequently large national concerns that command little sympathy from jurors. Ascribing the human qualities of malice or wilfulness to corporate entities is often paradoxical. Noting these problems, the court in Moore v. Remington Arms Co. (1981), 100 Ill. App. 3d 1102, 427 N.E.2d 608, formulated a test for evaluating commercial misconduct and the propriety of granting an award of punitive damages:

“ ‘The first [characteristic] is the manufacturer’s lack of concern for the public safety, a spirit of utter indifference to whether the product might cause unnecessary injuries. The second characteristic is the flagrancy of this indifference as reflected by the extent of the manufacturer’s awareness of the danger and its excessiveness, the over-all magnitude of the danger to the public, the ease of reducing the risk, and the motives and other circumstances attending the manufacturer’s failure to reduce the risk.’ ” (100 Ill. App. 3d 1102, 1114, quoting Owen, Punitive Damages in Products Liability Litigation, 74 Mich. L. Rev. 1257,1266 (1976).)

Thus, punitive damages are proper where the defendant’s conduct reflects a flagrant indifference to public safety. 100 Ill. App. 3d at 1115.

With respect to defendant Litton, we cannot say that the pleadings, exhibits and depositions submitted in connection with its motion for summary judgment raise no triable issue of fact on whether exemplary damages are justified. The original contract specifications called for a totally enclosed guard. Testimony elicited from Litton employees indicates Litton knew that the substituted open guard was not as safe, knew that a totally enclosed guard could have prevented the accident, and knew that a totally enclosed guard could have been built in conformance with the original contract specifications. Viewing these depositions most liberally in favor of plaintiff and strictly against the movant Litton, we find a material issue of fact exists on whether Litton’s conduct rises to the level of flagrant indifference to public safety. Accordingly, we reverse the granting of summary judgment in favor of Litton on the wilful and wanton count seeking punitive damages.

With respect to defendant Orr, however, we find the trial court properly granted the motion for summary judgment. The testimony given by representatives of Orr, Litton and the government all indicate that Orr played a minimal role in the design and manufacture of the conveyor system. While a question of fact exists on Orr’s negligence in connection with the performance of its contract with the government, evidence of its awareness of a danger to the public is absent. Accordingly, Orr’s conduct does not constitute a flagrant indifference to public safety warranting the imposition of exemplary damages.

In summary: we reverse the dismissal of the negligence counts against Orr and Litton; we reverse the granting of summary judgment on counts sounding in strict liability as to both defendants; we affirm the granting of summary judgment on counts sounding in warranty; and the granting of summary judgment on the wilful and wanton counts is reversed as to Litton and affirmed as to Orr.

Affirmed in part; reversed in part; remanded for further proceedings.

GOLDBERG and CAMPBELL, JJ., concur.

      In view of our finding on the issue of contract compliance, we also do not reach the issue raised by defendants on whether compliance with contract specifications precludes recovery in strict liability.

      This point is addressed in comment f to section 402A of the Restatement, which provides:
      “The rule does not, however, apply to the occasional seller of food or other such products who is not engaged in that activity as a part of his business. Thus it does not apply to the housewife who, on one occasion, sells to her neighbor a jar of jam or a pound of sugar. Nor does it apply to the owner of an automobile who, on one occasion, sells it to his neighbor, or even sells it to a dealer in used cars, and this even though he is fully aware that the dealer plans to resell it.” Restatement (Second) of Torts sec. 402A, comment /, at 350 (1965).

      Throughout part III of this opinion we are assuming for purposes of argument only that the UCC is applicable to the Litton-Orr contract.