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Chicago Bridge & Iron Co. v. Reliance Ins. Co.

JANUARY 13, 1969.

CHICAGO BRIDGE & IRON COMPANY, A CORPORATION, PLAINTIFF-APPELLANT,

v.

RELIANCE INSURANCE COMPANY, A CORPORATION, DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Cook County; the Hon. ALBERT E. HALLETT, Judge, presiding. Affirmed.

MR. JUSTICE BURMAN DELIVERED THE OPINION OF THE COURT.

The Chicago Bridge & Iron Company (hereinafter sometimes called "plaintiff"), as subcontractor to Taheny Brothers Company (hereinafter sometimes called "Taheny"), filed suit against defendant Taheny as general contractor to the Chicago Transit Authority and against Reliance Insurance Company (hereinafter sometimes called "Reliance") as surety for the general contractor on a payment and performance bond given by Taheny to the CTA pursuant to sections 1 and 2 of the Payment Bond Statute (Ill Rev Stats, c 29, §§ 15, 16). In its four-count complaint, plaintiff sought to recover from the defendant the sum of $30,200.50 for work and material supplied by the plaintiff in erecting a water tank at facilities being constructed by the CTA in Forest Park, Illinois.

The pertinent facts alleged in the Complaint are that the plaintiff had received a subcontract from the general contractor, Taheny Brothers Company, for building an elevated water storage tank. The subcontract incorporated the provisions of the prime contract by reference, and those provisions required the furnishing of lien waivers as a condition precedent to a right to payment. The plaintiff had completed most of the work required by the subcontract prior to the time that the principal contractor was declared to be in default by the CTA, and was at that time entitled to payment of $30,200.50, for which it had given "lien waivers" to Taheny as required by its subcontract. Taheny was paid by the CTA for that portion of the project represented by the subcontract work, but the plaintiff was never paid by Taheny.

In Count IV of the plaintiff's complaint it was alleged that under and by virtue of the performance and payment bond executed by the defendant, Reliance Insurance Company, said defendant was obligated to pay plaintiff's claim. Reliance moved to strike Count IV and to dismiss plaintiff's suit against it on the ground that plaintiff executed a partial release of lien of its claim to the general contractor and was, therefore, precluded from recovery against the bonding company. An order was entered striking Count IV of the Complaint and plaintiff's suit against Reliance was dismissed. The order recited that plaintiff elected to stand on Count IV and that "[t]here is no just reason for delaying enforcement or appeal of this Order." On the bottom of the order appears the notation of the trial judge to see Board of Education v. Hartford Accident & Indemnity Co., 60 Ill. App.2d 320, 208 N.E.2d 51. This appeal involves only one defendant, the bonding company.

The special statute here involved is found in sections 1 and 2 of chapter 29 of the Ill Rev Stats (hereinafter referred to as the Payment Bond Statute) and reads, in part pertinent to the issues raised in the case at bar, as follows:

"§ 1. All officials . . . of this State, or of any political subdivision thereof in making contracts for public work . . . shall require every contractor for such work to furnish, supply and deliver a bond . . . to the political subdivision thereof entering into such contract . . . with good and sufficient sureties, and in an amount to be fixed by said officials . . . and such bond, among other conditions, shall be conditional for the payment of material used in such work and for all labor performed in such work, whether by subcontractor or otherwise.

"Each such bond shall be deemed to contain the following provisions whether such provisions be inserted in such bond or not:

"The principal and sureties on this bond agree to pay all persons, firms and corporations having contracts with the principal or with subcontractors, all just claims due them under the provisions of such contracts for labor performed or materials furnished, in the performance of the contract on account of which this bond is given, when such claims are not satisfied out of the contract price of the contract on account of which this bond is given, after final settlement between the officer, board, commission or agent of the State or of any political subdivision thereof and the principal has been made."

"§ 2. Every person furnishing material or performing labor . . . as a sub-contractor for any contractor . . . where bond shall be executed as provided in this Act, shall have the right to sue on such bond . . . provided, however, that this Act shall not be taken to in any way make the State, or the political subdivision thereof entering into such contract, as the case may be, liable to such sub-contractor, materialman or laborer to any greater extent than it was liable under the law as it stood before the adoption of this Act. . . ."

The plaintiff informed us that the specific purpose of this appeal is to challenge the validity and general applicability to public construction projects of the decision of the Appellate Court for the Third District in the case of Board of Education v. Hartford Accident & Indemnity Co., 60 Ill. App.2d 320, 208 N.E.2d 51, "and to establish that in the circumstances under which public improvement construction contracts are customarily carried on, at least in the metropolitan Chicago area, the required bond guaranteeing payment by the general contractor to subcontractor applies whether or not the subcontractors have executed so-called lien waivers for delivery to the owner-municipality."

It is the plaintiff's contention that the bonding company received premiums for writing a bond under which it unequivocally guaranteed that the general contractor would pay each subcontractor for the latter's work. "The point is that the insuring of the honesty of the general contractor in paying over to the subcontractor is not the responsibility of the subcontractor, but is precisely the risk that the bonding company undertook in writing this payment bond with the general contractor as its principal and the subcontractor as beneficiary." Furthermore, the plaintiff argues, the purpose of the Payment Bond Statute is to protect subcontractors and the only time they need protection is when they have given lien waivers in the customary practice of the industry. It is the position of the plaintiff that the loss of the subcontractor's lien rights is clearly made immaterial under the statute by the express provision that the statute operates to require payment by the surety to subcontractors "when such claims are not satisfied out of the contract price of the contract on account of which this bond is given."

In Board of Education v. Hartford Accident & Indemnity Co., 60 Ill. App.2d 320, 208 N.E.2d 51, the Appellate Court affirmed a judgment in favor of the bonding company stating:

"Defendant, Hartford, . . . by reason of the relationship of the parties here as surety and assured, had a right exercisable at any time, to pay plaintiff's claim and to be subrogated thereby to its rights of lien against public moneys in the hands of the School District. By extinguishing this right through the delivery of partial waiver certifying payment, which induced the release of public moneys, as plaintiff intended, plaintiff is estopped by its own conduct, pro tanto, from recovering against Hartford."

60 Ill. App.2d 320, 324, 208 N.E.2d 51. There, as here, the subcontractor argued that the Payment Bond Statute provided an additional remedy independent of lien rights and that public policy required sureties on statutory bonds to satisfy claims of subcontractors, notwithstanding the execution of lien waivers. The Appellate Court concluded, however, and we agree, that the statute does not ...


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