Economy Mechanical Industries, Inc. v. T.J. Higgins Co.

FIFTH DIVISION
December , 1997

No. 1-96-2099

ECONOMY MECHANICAL INDUSTRIES, ) Appeal from the
INC., ) Circuit Court of
) Cook County.
Plaintiff-Appellant, )
) No. 95 L 11112
v. )
)
T.J. HIGGINS COMPANY, ) The Honorable
) David G. Lichtenstein,
Defendant-Appellee. ) Judge, Presiding.


JUSTICE HOURIHANE delivered the opinion of the court:
In this appeal, we are asked to determine whether a clause
in a commercial lease is void as against public policy pursuant
to the provisions of the Landlord and Tenant Act (Act) (765 ILCS
705/0.01 et seq. (West 1996)). We find that it is and therefore
affirm the judgment of the circuit court dismissing the
plaintiff's complaint with prejudice.
Plaintiff, Economy Mechanical Industries, Inc., filed a one-
count Complaint for Breach of Lease against defendant, T.J.
Higgins Company. Plaintiff leased certain warehouse space to
defendant pursuant to the terms of an "Industrial Building
Lease". Paragraph 5 of the lease, titled "Indemnity for
Accidents", provides as follows:
"Lessee covenants and agrees that he will
protect and save and keep the Lessor forever
harmless and indemnified against and from any
penalty or damages or charges imposed for any
violation of any laws or ordinances, whether
occasioned by the neglect of Lessee or those
holding under Lessee, and that Lessee will at all
times protect, indemnify and save and keep
harmless the Lessor against and from any and all
loss, cost, damage or expense, arising out of or
from any accident or other occurrence on or about
the Premises, causing injury to any person or
property whomsoever or whatsoever and will
protect, indemnify and save and keep harmless the
Lessor against and from any and all claims and
against and from any and all loss, costs, damage
or expense arising out of any failure of Lessee in
any respect to comply with and perform all the
requirements and provisions hereof."
Plaintiff alleged that one of its employees sustained
injuries while on the leased premises and that as a result
plaintiff was required to pay $35,135.92 in workers' compensation
benefits. Plaintiff seeks to recover this sum from defendant
based on the provisions of paragraph 5 of the lease. The
complaint is devoid of any detail as to the circumstances of the
injury, and contains no allegation as to whether the negligence
of defendant, plaintiff, or plaintiff's employee proximately
caused the injury.
Defendant filed a motion to dismiss pursuant to section 2-
619(a)(9) (735 ILCS 5/2-619 (West 1996)), arguing, inter alia,
that under the Act, paragraph 5 of the lease is void as against
public policy.[fn1] The trial court ruled that plaintiff's
contract claim against the defendant is barred by virtue of
Illinois public policy forbidding indemnity claims in the
circumstances averred and dismissed plaintiff's complaint with
prejudice. Plaintiff appeals. 155 Ill. 2d R. 301.
ANALYSIS
Under section 2-619(a)(9), a cause of action will be
dismissed where "the claim asserted is barred by other
affirmative matter avoiding the legal effect of or defeating the
claim." 735 ILCS 5/2-619(a)(9) (West 1996). An "affirmative
matter" is something in the nature of a defense which completely
negates the cause of action or refutes crucial conclusions of law
or conclusions of material fact unsupported by allegations of
specific fact contained in or inferred from the complaint. Bucci
v. Rustin, 227 Ill. App. 3d 779, 782, 592 N.E.2d 297 (1992). We
review de novo the grant of a section 2-619 motion. Kedzie &
103rd Currency Exchange, Inc. v. Hodge, 156 Ill. 2d 112, 116, 619 N.E.2d 732 (1993).
The Act provides, in its entirety, as follows:
"Every covenant, agreement or understanding
in or in connection with or collateral to any
lease of real property, exempting the lessor from
liability for damages for injuries to person or
property caused by or resulting from the
negligence of the lessor, his or her agents,
servants or employees, in the operation or
maintenance of the demised premises or the real
property containing the demised premises shall be
deemed to be void as against public policy and
wholly unenforceable." 765 ILCS 705/1 (West
1996).
Citing Madigan Brothers, Inc. v. Melrose Shopping Center
Co., 198 Ill. App. 3d 1083, 556 N.E.2d 730 (1990), plaintiff
argues that because this is a contract action, not a negligence
action, the Act is inapplicable. In Madigan Brothers, a shopping
center tenant sued his landlord for breach of contract when the
roof over the tenant's store collapsed due to water damage. In
defense of the action, the landlord invoked the exculpatory
provisions of the lease. The tenant argued that such provisions
were void as against public policy under the Act. On appeal, the
court held that because the Act refers only to lease provisions
that relieve the landlord of liability for its own "negligence",
application of the Act is limited to negligence actions. Since
the landlord was sued in contract, the Act did not apply, and the
exculpatory provisions would be given effect. Only after
determining that the Act did not apply, did the court consider
the lease language.
We decline to adopt the rationale set forth in the Madigan
Brothers decision. Under Madigan Brothers, where a lessor is
sued under theories of both negligence and breach of contract and
defends both claims on the basis of an exculpatory covenant in
the lease, such covenant would be void as to the negligence
claim, but not void as to the contract claim. Similarly, where a
lessor has multiple tenants and uses a standardized lease
containing an exculpatory provision, such provision would be void
only as to those tenant claims asserting negligence, but not
those tenant claims arising under the lease. We do not believe
that the same lease provision can be simultaneously void and not
void.
Zion Industries, Inc. v. Loy, 46 Ill. App. 3d 902, 361 N.E.2d 605 (1977), cited in the Madigan Brothers decision, lends
scant support to the proposition that the theory of recovery
controls whether an exculpatory lease provision will be deemed
void. In Zion Industries, the Act was held inapplicable not
because the claim was based on a breach of contract, but because
the subject lease was executed prior to the effective date of the
Act. In dictum, the court speculated that even if the Act was in
effect at the time of execution of the lease, the Act's
applicability was "doubtful". The court cited two reasons: (1)
because the action was not founded on negligence; and (2) because
nowhere in the lease did the landlord attempt to excuse himself
from injuries due to his negligence. Thus, we do not find Zion
Industries or Madigan Brothers persuasive.
The Act makes it clear that certain types of lease
provisions shall be deemed void as against public policy.
Whether a particular lease provision is void depends not on the
cause of action in which the lease provision is invoked, but
rather, whether the language of the lease provision runs afoul of
the statutory prohibition. If it does, the lease provision is
void and without effect. A void lease provision cannot be used
to avoid liability nor to shift financial responsibility
therefor. Thus, in the case at bar, the fact that the plaintiff
landlord has filed a contract action against its tenant, rather
than a negligence action, is of no consequence. If the lease
provision is void under the Act, it cannot be the basis for a
claim by the plaintiff, irrespective of how the claim is
denominated.
We consider, therefore, whether the lease provision at issue
here is in conformity with the Act. Although the Act expressly
prohibits only lease exculpatory provisions, it has been
construed as also prohibiting certain lease indemnification
provisions. McMinn v. Cavanaugh, 177 Ill. App. 3d 353, 356-57,
532 N.E.2d 343 (1988). An exculpatory clause deprives the tenant
of its right to recover damages for harm sustained by the tenant
as a result of the landlord's negligence. An indemnification or
"hold harmless" clause concerns the risk of harm to third parties
caused by the landlord's negligence and seeks to shift the
financial burden, for ultimate payment of damages, from the
landlord to the tenant. See generally Annotation, Validity of
Exculpatory Clause in Lease Exempting Lessor from Liability, 49
A.L.R.3d 321, 323 n.2 (1973). The same lease provision may have
characteristics of both indemnification and exculpation.
No argument was made before the circuit court or in
defendant's appellate briefs that paragraph 5 of the lease seeks
to exculpate plaintiff from liability for its own
negligence.[fn2] Rather, the only issue raised is whether
paragraph 5 indemnifies plaintiff for its own negligence.
Plaintiff argues that under the strict construction rules
applicable to indemnification agreements, paragraph 5 should not
be construed as indemnifying plaintiff against its own negligence
unless such intention is expressed in unequivocal terms. Mosely
v. Northwestern Steel and Wire Co., 76 Ill. App. 3d 710, 717, 394 N.E.2d 230 (1979). Plaintiff contends that paragraph 5 plainly
refers to the conduct of lessee as the basis of indemnification
and that the agreement does not, therefore, run afoul of the Act.
We disagree.
While it is true that the first clause of paragraph 5 refers
to the "neglect of Lessee" as the basis of indemnification, the
second clause is not so narrowly tailored. The second clause
provides that:
"Lessee will at all times protect, indemnify and
save and keep harmless the Lessor against and from
any and all loss, cost, damage or expense, arising
out of or from any accident or other occurrence on
or about the Premises, causing injury to any
person or property whomsoever or whatsoever ***."
(Emphasis added.)
In an indemnity agreement, a general reference to "any and
all" claims, losses, injuries, and the like, will generally be
construed as indicating an intention by the parties that the
indemnitee be indemnified for damages resulting from the
indemnitee's own negligence. See Ahlvers v. Terminal Railraod
Ass'n, 31 Ill. App. 3d 166, 171, 334 N.E.2d 329 (1975); Rios v.
Field, 132 Ill. App. 2d 519, 522, 270 N.E.2d 98 (1971). It is
not necessary that there be a specific reference to
indemnification for the indemnitee's own negligence. Duffield v.
Marra, Inc., 166 Ill. App. 3d 754, 764, 520 N.E.2d 938 (1988);
J.B. Stein & Co. v. Sandburg, 95 Ill. App. 3d 19, 22, 419 N.E.2d 652 (1981); Ahlvers, 31 Ill. App. 3d at 171; Rios, 132 Ill. App.
2d at 521-22. Thus, the "any and all" language appearing in
paragraph 5 of the lease is sufficient to include indemnification
for the plaintiff's own negligence. Furthermore, language
identical to the second clause of paragraph 5 has been found
sufficient, under the rules of strict construction, to indemnify
the lessor from his own negligence. Leach v. Eychaner, 1 Ill.
App. 3d 327, 273 N.E.2d 55 (1971). We see no reason to depart
from this court's prior construction of these standard lease
clauses. Accordingly, we find that paragraph 5 of the lease
indemnifies plaintiff for its own negligence and thus that
paragraph 5 is void as against public policy under the Act. That
plaintiff may not have been seeking to be indemnified for its own
negligence does not impact our construction of the lease.[fn3]
We next consider plaintiff's argument, raised for the first
time in its reply brief, that indemnity clauses of this type are
nonetheless valid under the doctrine of active-passive
negligence. See Kuhn v. General Parking Corp., 98 Ill. App. 3d
570, 424 N.E.2d 941 (1981). Under this doctrine, courts
recognized a right of equitable implied indemnity, permitting the
passively negligent party to shift the entire burden of the
plaintiff's loss to the actively negligent tortfeasor. Frazer v.
A.F. Munsterman, Inc., 123 Ill. 2d 245, 256, 527 N.E.2d 1248
(1988). Initially, we note that implied indemnity based on
active-passive negligence is no longer a viable theory of
recovery. Allison v. Shell Oil Co., 113 Ill. 2d 26, 35, 495 N.E.2d 496 (1986). Even assuming the continuing validity of this
now obsolete doctrine, plaintiff's claim is not based on a right
of implied indemnity, but rather, on the express indemnity
provisions of the lease. Moreover, even if the plaintiff had a
right of implied indemnity under some other theory (see
Richardson v. Chapman, 175 Ill. 2d 98 (1997)), such is not
determinative of whether the subject lease provision is void
under the Act.
Finally, plaintiff cites Giger v. Mobil Oil Corp., 823 F.2d 181 (7th Cir. 1987), in support of its contention that the Act
does not apply where the lessor has relinquished complete control
of the premises to the lessee. Assuming that plaintiff did, in
fact, relinquish complete control of the premises to defendant--
and there is no such allegation--such circumstances would not,
under Giger or otherwise, trigger some sort of exception to
application of the Act. In Giger, plaintiff sued Mobil Oil for
injuries plaintiff sustained while on property owned by Mobil
Oil, but leased to a third party. Mobil Oil moved for summary
judgment, asserting that its lessee controlled the premises.
Plaintiff opposed the motion, arguing that because the Act
prohibits a landlord from exempting itself from liability, a
landlord must always retain control over the premises. The court
of appeals properly rejected this argument, declining to equate
the Act's prohibition of a lessor's exemption from liability with
a lessor's relinquishment of control of the leased premises.
Thus, Giger lends no support to plaintiff's argument that the Act
is inapplicable under the circumstances present here.
For the reasons set forth above, we affirm the judgment of
the circuit court dismissing plaintiff's complaint with
prejudice.
Affirmed.
PRESIDING JUSTICE HOFFMAN, dissenting:
The majority concludes that the lease clause in issue
arguably requires the defendant-lessee to indemnify the
plaintiff-lessor for losses sustained as a consequence of the
plaintiff's own negligence. While I agree conceptually with such
a conclusion, I must respectfully dissent as I do not believe
that indemnity clauses are void by reason of the provisions of
section 1 of the Landlord and Tenant Act (Act) (765 ILCS 705/1
(West 1996)).
Section 1 of the Act renders unenforceable "[e]very
covenant, agreement or understanding in or in connection with or
collateral to any lease of real property, exempting the lessor
from liability for damages for injuries to person or property
caused by or resulting from the negligence of the lessor ***."
(Emphasis added.) 765 ILCS 705/1 (West 1996). The clear and
unambiguous language of this statute addresses only exculpatory
clauses, that is, clauses which exempt a landlord from liability.
No mention is made of indemnity clauses which have no effect upon
the landlord's underlying liability to an injured party but which
merely shift the loss by creating an action over in favor of the
landlord against the lessee-indemnitor.
In McMinn v. Cavanaugh, 177 Ill. App. 3d 353, 356, 532 N.E.2d 343 (1988), this court recognized that the proscription in
section 1 of the Act is in derogation of the common law and must,
therefore, be strictly construed. The McMinn court also
acknowledged the distinction between exculpatory contracts and
indemnity contracts. McMinn, 177 Ill. App. 3d at 356-57.
However, in spite of its own legal analysis and the clear
language of the Act, the McMinn court concluded that:
"Despite the distinction between exculpation and
indemnification, an indemnity clause in a lease has the
same effect as a lease exculpation clause: the landlord
does not pay. We cannot believe that the legislature,
while prohibiting landlords from avoiding paying claims
through exculpation intended to allow landlords to
avoid paying claims through indemnity. We hold that
the Act, by clear and necessary implication, forbids
indemnity agreements in leases as well as exculpatory
agreements." McMinn, 177 Ill. App. 3d at 362.
Although I agree with the legal analysis set forth in McMinn as
it relates to the construction of statutes in derogation of the
common law and the distinction between excuplatory and indemnity
clauses, I cannot agree, however, with the conclusion reached by
the McMinn court that the Act renders indemnity agreements in
leases void.
The primary rule of statutory construction is to ascertain
and effectuate the intent of the legislature. People ex rel.
Hanrahan v. White, 52 Ill. 2d 70, 73, 285 N.E.2d 129 (1972). If
the intent of the legislature is manifest through its use of
plain, clear, and unambiguous language, courts must enforce the
statute as enacted without resorting to other aids for
construction. In re Marriage of Logston, 103 Ill. 2d 266, 469 N.E.2d 167 (1984). Courts are not at liberty to alter the plain
meaning of the words employed by forced or subtle construction.
People ex rel. Pauling v. Misevic, 32 Ill. 2d 11, 15, 203 N.E.2d 393 (1964). "There is no rule of construction which authorizes a
court to declare that the legislature did not mean what the plain
language of the statute imports." People ex rel. Scott v.
Schwulst Building Center, Inc., 89 Ill. 2d 365, 371, 432 N.E.2d 855 (1982).
A simple reading of section 1 of the Act reveals that the
legislature voided only excuplatory clauses in leases. When it
chooses, the legislature is well able to address the
enforcability of indemnity agreements. See 740 ILCS 35/1 (West
1996) (voiding certain indemnity agreements in contracts for
improvements on real property). But in the case of section 1 of
the Act, the legislature chose, for whatever reason, not to do
so, and no amount of judicial construction can change that fact.
The majority seems to base its holding on an acceptance of
the conclusion reached in McMinn when it finds that the
indemnification clause in the lease agreement between the parties
in this case is void under the Act. Because I do not believe
that the Act renders indemnification clauses such as the one in
issue void as against public policy, I would decline to follow
McMinn and reverse the judgment of the trial court.
Consequently, I must respectfully dissent.
[fn1] Plaintiff also sought dismissal under section 2-
619(a)(5), claiming the action was barred by the relevant
statutes of limitations. The trial court apparently did not
adopt this argument and plaintiff does not raise this issue on
appeal.
[fn2]But see American Transportation Co. v. U.S. Sanitary
Specialties Corp., 2 Ill. App. 2d 144, 118 N.E.2d 793 (1954)
(where, in an action by the tenant against the landlord for
breach of the covenant of quiet enjoyment, trespass, and
negligence, the parties and the court treated identical language
as exculpating the landlord from liability for all such claims).
[fn3]Tangentially, we note that during oral argument
plaintiff maintained that there is no suggestion in the complaint
that plaintiff sought to be indemnified for its own negligence,
but that it is irrelevant which party may have been negligent.
Thus, plaintiff's interpretation of paragraph 5 necessarily
includes indemnification for plaintiff's own negligence.