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Rao Elec. Equip. Co. v. Macdonald Engineering

APRIL 28, 1970.

RAO ELECTRICAL EQUIPMENT CO., INC., A CORPORATION, PLAINTIFF-APPELLEE,

v.

MACDONALD ENGINEERING CO., A CORPORATION, DEFENDANT-APPELLANT.



Appeal from the Circuit Court of Cook County; the Hon. NATHAN M. COHEN, Judge, presiding. Reversed and remanded with directions.

MR. JUSTICE LYONS DELIVERED THE OPINION OF THE COURT.

Rehearing denied June 10, 1970.

The defendant, Macdonald Engineering Co. (hereinafter referred to as Macdonald), prosecutes this interlocutory appeal (Ill Rev Stats 1969, c 110A, § 307) from a temporary injunction order, as later modified by the court, entered against it and in favor of the plaintiff, Rao Electrical Equipment Co., Inc. (hereinafter referred to as Rao).

In its verified complaint Rao alleged that it is a foreign corporation in Illinois with its principal place of business in New York City whereas Macdonald is also a foreign corporation but is qualified to do business in Illinois with its principal place of business in Chicago; that on or about February 7, 1969, a written contract was entered into between Rao as electrical subcontractor and Macdonald as general contractor for the electrical work required in the construction of a cement plant in Pennsuco, Florida, on premises owned by Maule Industries, Inc.; that Rao proceeded to perform under this written contract which was later modified by the mutual consent of the parties, as the contract price was increased from $1,067,000 to $1,251,154, exclusive of $250,000 overtime pay and the completion date was allegedly changed from August 1, 1969 to a date to be mutually agreed upon by Rao and Macdonald. Thereafter, on or about June 18, 1969, Rao and Koppers Company, Inc. entered into a written contract whereby Rao, as subcontractor, was to install for Koppers on the same cement plant site in Pennsuco, Florida, certain electrical air pollution equipment for the price of $79,400 (Koppers was another subcontractor for Macdonald performing other work on the Florida project); and that the written contract between Rao and Macdonald, which contract was attached to the complaint as an exhibit, contained a provision stating that:

"Should the Sub-contractor (Rao) fail to prosecute said work or any part thereof with promptness and diligence, or otherwise violate the terms of this agreement, the General Contractor (Macdonald) shall be at liberty, after three (3) days' written notice to the Sub-contractor, to provide such labor or materials as may be necessary to complete the work, and to deduct the cost and expense thereof from any money then due or thereafter to become due to said Sub-contractor under this agreement, and the General Contractor shall be at liberty to take possession, for the purpose of completing the work included in this contract, of all materials, tools, scaffolding and appliances thereon, and to employ or contract with any other person or persons to finish the work and provide the materials therefor."

The verified complaint then referred to a letter prepared on Macdonald's stationery, signed by Roy White, Vice-President of Macdonald, and hand-delivered to Rao in Florida on October 11, 1969. The typed letter, attached to the complaint as an exhibit, stated that since Rao had advised Macdonald that it (Rao) was not going to perform any further work under its written contract with Macdonald, Macdonald — pursuant to its contract with Rao — would take possession of all materials, tools, scaffolding and appliances on the job site for the purpose of completing the work and would withhold all further payments to Rao. In its complaint Rao also alleged that on October 10, 1969, the date of the typed letter, it employed over one hundred men on the project site and on that date Macdonald owed it $550,364.45; that on October 14, 1969, agents and employees of Macdonald broke the locks on Rao's tool sheds located on the construction site and wrongfully confiscated and took possession of: (1) Rao's tools and equipment inventory valued in excess of $52,000; (2) Rao's vehicles valued at $25,750; and (3) Rao's supply and material inventory located on the site which was not valued in the complaint.

In conclusion, Rao's complaint alleged that it had never refused to complete the work required of it under the written contract with Macdonald but rather was performing with promptness and diligence; that Macdonald had wrongfully prevented Rao's employees from working on the job site thereby keeping Rao from further performing under the contract and had wrongfully taken Rao's tools, materials, supplies and equipment in addition to wrongfully preventing Rao from performing its contract with Koppers Company by such conduct Rao alleged that Macdonald, by its wrongful actions, had caused Rao to suffer irreparable loss and damage for which it had no adequate remedy at law and prayed for the following relief: (1) that a temporary mandatory injunction be entered immediately, to be made permanent later after a final hearing, whereby the court would compel Macdonald to return to Rao all of the latter's tools, equipment, materials and supplies; (2) that a temporary injunction be entered against Macdonald, to be made permanent later after a final hearing, enjoining the defendant corporation from terminating its contract with Rao and attempting to employ other electrical subcontractors to perform Rao's work and enjoining Macdonald from all actions tending to prevent Rao from performing its contractual obligations with Macdonald and with Koppers Company, Inc.; (3) that a temporary injunction be entered against Macdonald enjoining it from instituting proceedings in other courts in other states against Rao wherein the subject matter would be the same as the matters presented in the complaint at bar; and (4) that a money judgment be entered in Rao's favor and against Macdonald for the sum of $550,364.45 and statutory interest.

Macdonald filed a motion to strike the complaint alleging that chancery had no jurisdiction since Rao had an adequate remedy at law for damages arising from the alleged breach of contract. After argument, this motion was denied. Macdonald filed its verified answer admitting the existence of the written contract between the parties but denying that Rao had performed under this contract and affirmatively stating that Rao had refused to finish the work required by the contract.

The answer went on to state that on February 9, 1969, Rao forwarded a letter to Macdonald which indicated that Rao would complete its subcontract with Macdonald by September 1, 1969, with no overtime being necessary but that on September 1, 1969, Macdonald gave Rao a second extension of time and agreed to overtime pay which eventually resulted in the authorization of six ten-hour workdays each week as Rao had requested; that on October 10, 1969, Rao informed Macdonald that it would complete its subcontract only upon three conditions: (1) that Macdonald pay immediately all of Rao's invoices for material and labor which had been submitted to Macdonald but not yet paid by it; (2) that Macdonald pay over immediately to Rao the 15% retainage which it had been withholding from each monthly payment; and (3) that the contract between them be changed from a lump-sum contract to a cost plus 5% (of cost) contract.

In conclusion, the sworn answer alleged that on October 10, 1969, Rao had completed only 30% of the electrical work whereas 96% of the cement plant was completed including 92% of the machinery and 70% of the piping; and that the court enter judgment for Macdonald and against Rao.

At the numerous hearings held on Rao's motion for a temporary injunction order, three witnesses testified for Rao: Chester Yablonski and Frank Sineri, both Rao Vice-Presidents, and Roy White, Vice-President of Macdonald, who testified as an adverse witness under section 60 of the Civil Practice Act (Ill Rev Stats 1969, c 110, § 60). Testifying for Macdonald were Roy White and James W. Macdonald, Jr., President of Macdonald, and Yablonski, who was questioned as an adverse witness.

These witnesses all agreed that under the written contract between Rao and Macdonald, Rao was to submit invoices monthly, and after the architect approved them as reflecting work actually completed by Rao on the site, Macdonald was to pay these invoices within a month and withhold 15% retainage; that Macdonald was the architect, designer, and general contractor for the cement plant so that it both approved Rao's invoices as architect and paid them as general contractor; that Macdonald promptly paid Rao's first six invoices and also the seventh, after Rao had adjusted it in accordance with Macdonald's suggestion so that it reflected only the work actually done during the billing month, but that Macdonald had not paid Rao's eighth invoice, the billing for work done in September, 1969, which had been submitted to Macdonald in early October, 1969, and which had been in its possession for ten or fifteen days as of the dates of the hearings on Rao's motion for a temporary injunction order; that although the contract between the parties had a completion date of August 1, 1969, this was later extended to September 1, 1969, then to October 15, 1969, and eventually to some future date; and that as Rao worked on its electrical subcontract with Macdonald, it was concurrently working on its Koppers contract located on the same cement plant site so that Rao's tools, vehicles, materials, and supplies used on both contracts were commingled at the construction site.

As to the breach of contract, however, each side's witnesses charged the other side with the breach. Testifying for Rao, Yablonski and Sineri both stated that during the week of October 6-10, 1969, Rao had about one hundred and twenty-seven men working on the site with ninety men working six ten-hour days on the Macdonald contract and thirty-seven men working on the Koppers contract; that Rao's tools located on the site were valued at $52,000, its vehicles at $25,000, and its materials and supplies at about $200,000; that when Yablonski and Sineri spoke with Roy White on the construction site in Florida on or about October 3, 1969, many dates of completion for the electrical subcontract were discussed including December 7, 1969, for the completion of one unit and December 24, 1969, for completion of the entire electrical work but the parties never agreed to complete the contract by a date certain; that on or about October 9, 1969, Yablonski said to White in Sineri's presence that the overtime currently being worked by Rao's employees coupled with the additional equipment, tools, and supplies necessary to support the acceleration in construction was putting a burden on Rao's cash position and he recommended three alternatives to aid Rao: (1) Macdonald was to pay in full all of Rao's invoices, meaning Macdonald would immediately pay Rao's September billing, would surrender the 15% retainage, and there would be no retainage applied to future invoices; or (2) Macdonald was to keep $75,000 of the retainage but was to pay the rest to Rao and, in the future, was to reimburse Rao fully for all its costs plus 5% overhead; or (3) if Maule, the owner, thought that Rao should be replaced as electrical subcontractor, Rao would assist in the transition so as not to delay construction but wanted to be paid in full for all invoices it had submitted to Macdonald including the retainage.

Continuing, Yablonski and Sineri testified that in response to these suggestions, White stated that he believed all three proposals would be unacceptable; that during the early morning hours of October 11, 1969, White came to Yablonski's motel room and in the presence of Yablonski, Sineri, and Joseph Rao Jr., asked for a memo from Rao, through Yablonski, which would state that if none of the conditions were met, Rao would not proceed with the electrical subcontract but Yablonski declined saying Rao wanted to complete its contract with Macdonald; that eight hours later White returned to Yablonski's motel room at a time when Sineri and Rao Jr. were again both present, and handed Yablonski a typed letter, the same letter referred to and attached to Rao's complaint, advising Rao that since it had advised Macdonald that Rao was not going to perform further under its contract, Macdonald would make no further payments and was going to take possession of all materials, tools, scaffolding and appliances ...


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