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Boise Cascade H. & L. Corp. v. Utilities





Appeal from the Circuit Court of Cook County; the Hon. Thomas J. Janczy, Judge, presiding.


This appeal arises from a contract action filed by Boise Cascade Home & Land Corp. and a counterclaim for breach of contract filed by Utilities, Inc. Utilities, Inc., appealed from a judgment entered on directed verdicts in favor of Boise on both claims. On appeal, Utilities contends (1) the trial court's finding that the contract was unambiguous and its construction of the contract were erroneous; (2) a question of fact in Utilities' counterclaim precluded the entry of a directed verdict; (3) the trial court erred in directing a verdict on Boise's claim against Utilities; and (4) the trial court erred in awarding prejudgment interest on Boise's claim at Indiana's statutory rate.

We affirm in part, reverse in part and remand.

The actions from which this appeal arises were based on a contract for the sale of Twin Lakes Utilities, Inc. (Twin Lakes), an Indiana corporation. In 1961, a predecessor and subsidiary of plaintiff-counterdefendant Boise Cascade Home & Land Corp. (Boise) was engaged in planning and developing a project in Indiana known as Lakes of the Four Seasons Development. Twin Lakes had been incorporated to provide water supply and sewage treatment and disposal facilities for the development. In 1968, defendant counterplaintiff Utilities, Inc. (Utilities), purchased Twin Lakes from Boise.

In 1977, Boise filed an action against Utilities seeking, inter alia, payment of fees allegedly due under the purchase agreement. The contract provided that Utilities was to pay Boise $250 for each connection to the utility system commencing with the 101st customer and ending with the 500th customer and $200 for each connection commencing with the 501st customer and ending with the 1500th customer. In addition to an answer, Utilities filed a counterclaim in which it alleged that Boise breached article III, paragraph 3, of the sales agreement. This section provides in pertinent part:

"As an additional inducement to Purchaser to enter into this agreement, Seller agrees * * * to construct and install, or to cause to be constructed and installed, without cost or expense to Utility or to Purchaser all sanitary sewage collection facilities portrayed by the plans therefor * * * heretofore delivered to Purchaser, along with all facilities and equipment incident thereto and reasonably required to provide complete and adequate sewerage service to lot purchasers in the Development."

Utilities specifically alleged that the sewage system lacked sufficient main capacity to serve all lot purchasers in the Lakes of the Four Seasons Development and that new mains had to be installed at a cost in excess of $200,000.

The actions were consolidated with another not involved in this appeal, and Utilities proceeded first in presenting its evidence at trial. Utilities called as witnesses David Owens, its executive vice-president, and Joseph Rezek, an engineering expert in the design and construction of sewer systems.

Owens identified the sales contract and testified that the certificate of territorial authority referred to therein was a certificate issued by the Indiana Public Service Commission authorizing the utility to provide water and sewer service in a particular area. Boise had applied for the certificate and defined the area to be serviced. In May 1979, an area north of the northeast section of Lakes of the Four Seasons known as T-Bone Lake was added to the certificated area. An agreement dated May 25, 1966, entered into by Twin Lakes and Mid-America Homes, Incorporated, the developer of T-Bone Lake subdivision, required Twin Lakes to apply for the certificate of territorial authority when Mid-America chose to develop the area. Under its contract with Boise, Utilities was obligated to honor the agreement between Twin Lakes and Mid-America.

Owens further testified that when Utilities purchased Twin Lakes, only about half of the sewage system had been installed. Boise agreed to pay for and install the remainder of the system. Utilities received design plans of the water supply and sewage disposal and treatment facilities.

According to Owens, the sewer system in the Development was neither designed nor built correctly. As a result, the capacity was inadequate and maintenance was difficult. Owens explained that the system operated on principles of gravity and the slope and diameter of the mains determined the system's capacity. The system would have functioned properly if the existing mains had been installed at a steeper angle or if larger mains had been used. Owens calculated the projected peak sewage flows for the single-family lots, the 14 major multifamily and commercial lots within the originally certificated area, and the T-Bone Lake subdivision. Owens concluded that the existing sewer system would not be able to accommodate the sewage flow from these areas when each was fully developed. Utilities had considered using the existing system to its maximum capacity and adding new trunk lines to handle excess sewage.

On cross-examination, Owens admitted that the majority of the T-Bone Lake Subdivision was not part of the certificated area when Utilities purchased Twin Lakes. He also stated that his conclusion on the inadequacy of the system depends on the inclusion of T-Bone Lake and the commercial tracts in the Lakes of the Four Seasons. The system would be adequate to service single-family lots in the Lakes of the Four Seasons. Owens further testified that the inadequacy would not become apparent for several more years, when all of the property used in his calculations was fully developed. Prior to purchasing Twin Lakes, Utilities inspected the existing sewage treatment plant, lift stations, pumps, wells, and sewer and water mains and found the facilities acceptable. The plans for the sewer system were delivered prior to closing and had been examined by Utilities and approved by the State of Indiana.

On redirect, Owens testified that in a few instances, Utilities found mains running in the wrong direction or missing. He assumed that the agreement between Boise and Mid-America obligated Boise to install mains in the originally certificated area which would have the capacity to service T-Bone Lake when such service was requested.

Joseph Rezek testified that during the summer of 1979 his engineering firm was retained by Utilities to design a sewage treatment plant expansion in Lakes of the Four Seasons. Utilities had requested Rezek's services because areas within and outside of the originally certificated area were under development and required sewer facilities. Rezek reviewed the plans of the existing sewer facilities and conducted a field survey in Lakes of the Four Seasons and T-Bone Lake to determine the capacity of the system. He explained that sewer systems are generally designed for 40 to 50 years of service and testified that under this standard, the system installed at Lakes of the Four ...

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