Scott & Fetzer Co. v. Montgomery Ward & Co.

• Decision Date: 21 May 1986
• Docket Number: No. 61373,61373
• Citation: 493 N.E.2d 1022,112 Ill.2d 378,98 Ill.Dec. 1
• Parties: , 98 Ill.Dec. 1 SCOTT & FETZER COMPANY, Appellee, v. MONTGOMERY WARD & COMPANY et al., Appellees. (Burns Electronic Security Services, Inc., Appellant).
• Court: Illinois Supreme Court

Page 1022

493 N.E.2d 1022

112 Ill.2d 378, 98 Ill.Dec. 1

SCOTT & FETZER COMPANY, Appellee, v. MONTGOMERY WARD & COMPANY et al., Appellees (Burns Electronic Security Services, Inc., Appellant).

No. 61373.

Supreme Court of Illinois May 21, 1986.

Robert A. Downing, Gerald L. Angst, David F. Graham, Sidley & Austin, Christopher J. Michas, Montgomery Ward & Co., Inc., Chicago, for third party plaintiff-appellee Montgomery Ward & Co., Inc.

Sandra Young, Edward C. Purcell, D. Timothy McVey, Purcell & Wardrope, Chtd., Chicago, for defendant-appellant Burns Electronic Sec. Services, Inc.

Clausen, Miller, Gorman, Caffrey & Witous, P.C., Chicago (James T. Ferrini, Thomas A. McDonald, Thomas J. Skeffington and Lisa Marco Kouba, of counsel), for appellee Scott & Fetzer Co., et al.

Roy W. Sears, David A. Ullrich, Eckhart, McSwain, Hassell & Silliman, Chicago, Jane Leifer, Atty. Gen., American Dist. Telegraph Co. New York City, for brief amicus curiae of American Dist. Telegraph Co. Supporting appellant.

Justice RYAN delivered the opinion of the court:

A fire originated in the portion of a large warehouse which was partially occupied by Montgomery Ward & Company, Inc. (Wards). Pursuant to an agreement with Wards, Burns Electronic Security Services, Inc. (Burns), had installed and maintained fire-warning systems in this portion of the building. This equipment allegedly malfunctioned, and the fire spread throughout the warehouse, causing extensive damage to Wards' property and to the property of the tenants of the remaining portions of the building. The briefs speak of losses totaling "millions of dollars." These tenants brought actions in tort for their losses originally against Wards and, by later amendments, included Burns as a party defendant. After the filing of the original complaints, Wards filed third-party actions against Burns for rescission and for contribution. The trial court dismissed the tenants' actions against Burns, ruling that recovery was barred by the rule against recovery in tort for purely economic loss. The counts of Wards' third-party complaints seeking contribution and rescission were also dismissed. The appellate court reversed the order dismissing the tenants' suits and the order dismissing Wards' actions for contribution. (129 Ill.App.3d 1011, 85 Ill.Dec. 53, 473 N.E.2d 421.) Pursuant to Rule 315 (94 Ill.2d R. 315), we granted Burns leave to appeal.

The record shows that Wards leased warehouse space at 1010 Foster Avenue in Bensenville. The space constituted a portion of a large storage facility covering 1010 to 1020 Foster Avenue. The remaining portion was later leased by General Warehouse & Transportation Company, which subleased to the plaintiffs in this case. These plaintiffs are hereinafter referred to as "adjacent tenants." These adjacent tenants utilized their portions of the building as storage for valuable stock, inventory and supplies. Wards stored flammable materials at the facility and was obligated under the terms of its lease to equip its portion of the premises with appropriate safety devices.

Pursuant to its lease obligations, Wards contracted with Burns for the installation and maintenance of a "central station protective signaling system" and a "waterflow alarm system" at 1010 Foster Avenue. Burns further agreed to transmit to the municipal fire department all fire-alarm signals received from the system or to investigate the cause of such signals. Paragraph 10 of the contract contained the following exculpatory provisions:

"It is understood that the contractor [Burns] is not an insurer * * * and the amounts payable to [Burns] hereunder are based upon the value of services and the scope of liability as herein set forth, and are unrelated to the value of [Wards'] property or the property of others located in [Wards'] premises. [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 system 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 this paragraph shall apply if loss or damage, irrespective of cause or origin, results directly or indirectly to person or property from performance or nonperformance of obligations imposed by this contract or from negligence, active or otherwise, of [Burns], its agents or employees."

The initial annual service charge under the agreement was $1,358.

This contract was in force when a fire began on Wards' premises. Wards alleged that Burns' systems failed to function as intended, that Burns failed to transmit to the local fire department all of the alarm signals that were received from the premises, and that as a result, what began as a small, containable fire turned into a dangerous conflagration which spread to the portions of the warehouse occupied by the adjacent tenants. The warehouse was totally destroyed, and the adjacent tenants suffered losses to personal property which, as noted earlier, the briefs speak of as totaling millions of dollars.

The adjacent tenants filed suit against Wards and the La Salle National Bank, the legal titleholder of the warehouse, to recover for their property damage and business losses. The complaints asserted that due to various negligent acts or omissions the fire started in Wards' portion of the warehouse and spread throughout the building, destroying the adjacent tenants' products and inventory.

In response to the complaints filed against it, Wards filed five identical third-party actions against Burns, alleging that Burns had negligently performed its contractual duties. Wards' amended third-party complaint attempted to state causes of action for breach of contract (count I), rescission (count II), contribution based on Burns' alleged negligence (count III), contribution based on Burns' alleged wilful and wanton behavior (count IV), and fraudulent misrepresentation (count V). Counts I and V are still pending in the trial court.

The adjacent tenants then filed amended complaints adding Burns as a party defendant. Each of the adjacent tenants filed counts seeking recovery based on Burns' alleged negligence and on the doctrine of res ipsa loquitur. The amended complaints alleged, inter alia, that the adjacent tenants relied upon Burns to properly complete its contract with Wards, and that in entering into the contract with Wards, Burns voluntarily assumed a duty towards both Wards and the adjacent tenants to exercise reasonable care and caution in the installation, maintenance, repair, service, monitoring, and operation of the warning systems. The adjacent tenants maintained that Burns' negligent breach of these duties proximately caused their losses.

Burns moved to dismiss the adjacent tenants' complaints and Wards' third-party complaints.

The adjacent tenants' suits were consolidated, and a hearing was held on the motion to dismiss. The trial court found that the adjacent tenants' losses were purely economic, and that they could not recover in tort under Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill.2d 69, 61 Ill.Dec. 746, 435 N.E.2d 443. The court did not address the duty or proximate-cause issues. The counts against Burns were dismissed with prejudice, and the adjacent tenants appealed.

The court also issued a written order dismissing with prejudice counts II, III, and IV of Wards' third-party actions against Burns. The trial court's dismissal of count II, which sought rescission, was affirmed by the appellate court. That issue is not involved in this appeal. Counts III and IV were dismissed because the court had previously ruled that Burns was not liable in tort to the adjacent tenants, and that, thus, Wards could not seek contribution. Wards appealed the dismissals.

The adjacent tenants' and Wards' appeals were consolidated, and the appellate court reversed the dismissal of the adjacent tenants' action and the dismissal of counts III and IV of Wards' third-party action. (129 Ill.App.3d 1011, 85 Ill.Dec. 53, 473 N.E.2d 421.) The dismissal of count II of Wards' third-party complaint was affirmed. 129 Ill.App.3d 1011, 1021-22, 85 Ill.Dec. 53, 473 N.E.2d 421.

The appellate court found that the economic-loss doctrine did not apply to the adjacent tenants' action. (129 Ill.App.3d 1011, 1016-18, 85 Ill.Dec. 53, 473 N.E.2d 421.) The court also determined that the allegations of the adjacent tenants' complaints were sufficient to establish that Burns owed a duty to the adjacent tenants based upon section 324A(c) of the Restatement (Second) of Torts (1965) (129 Ill.App.3d 1011, 1018, 85 Ill.Dec. 53, 473 N.E.2d 421) and that a jury could reasonably find that Burns' negligence was the proximate cause of their losses (129 Ill.App.3d 1011, 1020-21, 85 Ill.Dec. 53, 473 N.E.2d 421).

In reversing the dismissal of counts III and IV of Wards' third-party complaint, the appellate court reasoned that since the economic-loss doctrine did not bar the adjacent tenants' recovery in tort, Burns was a party "subject to liability in tort" under "An Act in relation to contribution among joint tortfeasors" (Ill.Rev.Stat. 1983, ch. 70, par. 301 et seq.) (hereinafter cited as the Contribution Act). (129 Ill.App.3d 1011, 1022-23, 85 Ill.Dec. 53, 473 N.E.2d 421.) The court also found that the exculpatory provisions of the contract did not prevent Wards from pursuing a claim for contribution. 129 Ill.App.3d 1011, 1023-24, 85 Ill.Dec. 53, 473 N.E.2d 421.

We note initially that the order of dismissal at issue was entered upon allowance of Burns' motion to dismiss; therefore, all facts properly pleaded in the adjacent tenants' complaints and Wards' third-party complaint must be taken...