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Scott & Fetzer Co. v. Montgomery Ward

OPINION FILED DECEMBER 24, 1984.

SCOTT & FETZER COMPANY, PLAINTIFF-APPELLANT,

v.

MONTGOMERY WARD & COMPANY, INC., ET AL., DEFENDANTS AND THIRD-PARTY PLAINTIFFS-APPELLANTS (BURNS ELECTRONIC SECURITY SERVICES, INC., THIRD-PARTY DEFENDANT-APPELLEE). SALES DEVELOPMENT SERVICES, INC., PLAINTIFF-APPELLANT,

v.

MONTGOMERY WARD, INC., ET AL., DEFENDANTS AND THIRD-PARTY PLAINTIFFS-APPELLANTS (BURNS ELECTRONIC SECURITY SERVICES, INC., THIRD-PARTY DEFENDANT-APPELLEE). AETNA INSURANCE COMPANY, PLAINTIFF-APPELLANT,

v.

MONTGOMERY WARD & COMPANY, INC., ET AL., DEFENDANTS AND THIRD-PARTY PLAINTIFFS-APPELLANTS (BURNS ELECTRONIC SECURITY SERVICES, INC., THIRD-PARTY DEFENDANT-APPELLEE). TOYOMENKA (AMERICAN), INC., ET AL., PLAINTIFFS-APPELLANTS,

v.

MONTGOMERY WARD & COMPANY, INC., ET AL., DEFENDANTS AND THIRD-PARTY PLAINTIFFS-APPELLEES (BURNS ELECTRONIC SECURITY SERVICES, INC., THIRD-PARTY DEFENDANT-APPELLEE).



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

PRESIDING JUSTICE BUCKLEY DELIVERED THE OPINION OF THE COURT:

The instant consolidated appeals arise from a fire which broke out in the Montgomery Ward & Company, Inc. (Wards), warehouse in Bensenville. Wards' fire alarm and sprinkler system allegedly malfunctioned, and the fire spread to the adjoining premises of the warehouse. Extensive property damage resulted. The tenants of the adjoining premises brought an action in tort against Burns Electronic Security Services, Inc. (Burns), who supplied, installed and maintained the alarm system. The trial court dismissed the action, reasoning that recovery in tort for the loss incurred was barred by the economic loss rule. The court also dismissed a third-party action brought by Wards against Burns seeking contribution and rescission. Both dismissals are now appealed from.

The record reflects that on November 21, 1973, Wards leased a warehouse at 1010 Foster Avenue in Bensenville. The warehouse was part of a larger storage facility covering 1010 to 1020 Foster Avenue. The building at 1020 Foster Avenue was leased by General Warehouse & Transportation Company, who in turn subleased the premises to the following six plaintiffs in this case (hereinafter referred to as "adjacent tenants"): Scott & Fetzer Company, Toyomenka (American Sales Development Services, Inc.), the Readers Digest Association, Inc., R.D. Manufacturing Corporation and N.S.I. Merchandising, Inc., who is represented in this matter by Aetna Insurance Company as its subrogee. The adjacent tenants stored stock, inventory and supplies on the premises. Wards stored flammable materials on its premises and was required under its lease with the owner to provide the appropriate safety appliances.

On December 18, 1973, Wards and Burns entered into a contract by which Burns undertook to install fire protection equipment and a fire warning system in the Wards premises at 1010 Foster Avenue. A fee of $1,712 covered installation of the "central station protection signaling system." An additional monthly charge initially set at $1,358 obligated Burns to maintain the system "in good working order" until the termination of the agreement. For an additional cost, Wards subscribed to Burns' sprinkler "water flow system," which included the installation of numerous additional protective devices, plus Burns' provision for "stand-by power supply." Additionally, paragraph 10 of the contract contained the following exculpatory provisions:

"* * * [Wards] does not desire this contract to provide for full liability of [Burns] and agrees that [Burns] shall be exempt from liability for loss or damage due directly or indirectly to occurrences, or consequences therefrom, which the service is designed to detect or avert; that if [Burns] should be found liable for loss or damage due to a failure of the service in any respect, its liability shall be limited to a sum equal to 10% of the annual service charge or $250.00, whichever is the greater, and that the provisions of the paragraph shall apply if loss or damage, irrespective of cause or origin, results directly or indirectly to persons or property from performance or nonperformance of the obligations imposed by this contract or from negligence, active or otherwise, of [Burns], its agent or employees."

The adjacent tenants were not parties to the contract between Wards and Burns.

The above contract was in force on September 21, 1978, when a fire began at Wards' Foster Avenue warehouse. Burns' equipment allegedly failed to function properly and timely detect or warn of the fire. Eventually, a fire alarm signal was transmitted to Burns' central station. Despite its receipt of the signal, Burns purportedly delayed in notifying the local fire department of the existence of the fire. When firemen finally arrived, the fire was no longer containable and had spread into portions of the warehouse occupied by the adjacent tenants. The warehouse was destroyed, along with most of the personal property located in it. The loss from the fire is alleged to total millions of dollars.

On June 8, 1979, Wards brought an action in the circuit court of Cook County against the owners of the warehouse for a refund of real estate tax overpayments made under a prepayment formula in the lease. On September 14, 1979, the owners filed a counterclaim seeking recovery for losses caused by the warehouse fire. The owners alleged, inter alia, that under the lease with Wards, Wards "was required to keep the leased premises' fire protection system in good working order, repair and condition." The owners further alleged that Wards was negligent in storing flammable materials in the warehouse, and by causing "a lighted cigarette to be thrown into flammable articles of clothing stored on the floor."

Subsequently, the adjacent tenants filed suit against Wards and La Salle National Bank, as trustee, the legal title holder of the property. The adjacent tenants sought recovery for property damage and business losses purportedly caused by the fire. They alleged in their complaints that as a result of various negligent acts and omissions by Wards and/or its employees, the fire started in Wards' portion of the warehouse and spread throughout, destroying the tenants' premises, products and inventory.

Wards thereafter filed five identical third-party actions against Burns, alleging in each action that Burns negligently performed its contractual duties. The amended third-party complaint attempted to state a cause of action for breach of contract (count I), rescission (count II), contribution based on negligence (count III) and wilful and wanton negligence (count IV), and fraudulent misrepresentation (count V). Burns filed a motion to dismiss the amended third-party complaint.

Proceeding along a track parallel to Wards, the adjacent tenants filed amended complaints adding Burns as a party defendant. The two counts directed against Burns sought recovery under an ordinary negligence theory and under the doctrine of res ipsa loquitur. In their amended complaints, the adjacent tenants alleged, inter alia, that Burns assumed a duty toward them to exercise due care and caution in its installation, service and maintenance of fire protection equipment and warning systems in Wards' portion of the warehouse. The adjacent tenants further alleged that Burns' negligent breach of these duties proximately caused the destruction of their property by the fire. Burns moved to dismiss the amended complaint, asserting that the adjacent tenants were seeking recovery in tort for purely economic loss which is not permitted under present Illinois law. Burns further alleged in its motion that it owed no duty to the adjacent tenants as a result of its contract with Wards.

On May 17, 1983, following a lengthy hearing, the trial court dismissed with prejudice the adjacent tenants' actions against Burns on the ground that their loss was purely economic and, thus, not recoverable in tort under Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill.2d 69, 435 N.E.2d 443. The court found there was no need to resolve Burns' assertion that it owed no duty to the adjacent tenants. The adjacent tenants appealed the dismissal under Docket No. 83-1747.

On June 14, 1983, the trial court issued a written opinion dismissing with prejudice counts II, III and IV of Wards' amended third-party complaint against Burns (counts I and V are still pending below). The court dismissed count II based on Wards' inability to restore to Burns any consideration previously provided by it. In dismissing counts III and IV, which sought contribution, the trial court reasoned that since it previously ruled that Burns was not "subject to liability in tort" to the adjacent tenants, Wards could not maintain a cause of action for contribution against Burns. Wards filed an appeal from the dismissal of counts III and IV (Docket No. 83-2328), and filed a motion to reconsider and vacate the dismissal of count II. In a written opinion filed on September 12, 1983, the trial court denied the motion for reconsideration on the ground that Wards' remedy at law is adequate. Wards appealed the denial of its motion for reconsideration and dismissal with prejudice of count II of the amended third-party complaint (Docket No. 83-2225).

Hence, we are now asked to review the propriety of the following: (1) the dismissal of the actions in tort brought by the adjacent tenants against Burns; and (2) the dismissal of counts II, III and IV of Wards' amended third-party complaint against Burns.

I

(A ...


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