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Robinhorne Constr. Corp. v. Snyder





APPEAL from the Appellate Court for the Fourth District; heard in that court on appeal from the Circuit Court of Champaign County; the Hon. BIRCH E. MORGAN, Judge, presiding.


Rehearing denied January 27, 1971.

This case arises out of a contract under which Robinhorne Construction Corporation, Red Arrow Construction, Inc., and Orin L. Robson (Contractors) were to erect a Howard Johnson Motor Lodge for Jack O. Snyder (Owner). While the project was under construction, a dispute arose, and Robinhorne instituted an action in the circuit court of Champaign County against Red Arrow, Robson, and Snyder for a declaratory judgment, an accounting, and damages. The Owner subsequently terminated the contract, and the Contractors then filed suit to enjoin the Owner from completing the project and to recover the balance due to them as reimbursement for their expenditures plus a fee of six percent of the cost of the work completed prior to termination, to which they claimed they were entitled under the contract. The Owner filed a counterclaim against the Contractors and their surety, United States Fidelity and Guaranty Company, to recover the costs he incurred in completing the contact, together with costs, fees and expenses of suit. The two cases were consolidated, a jury was waived, evidence was heard, and the trial court entered judgment against the Contractors on their claims, and for the Owner on his counterclaim. The appellate court, fourth district, affirmed (113 Ill. App.2d 288), and we granted leave to appeal.

In April, 1965, the Owner employed an architect to prepare plans and specifications for the construction of a Howard Johnson motel and restaurant complex on the Owner's land in Urbana. The project was then put out for lump-sum bids, but only one general bid was received, and it was rejected as too high. Thereafter the Owner contacted Robinhorne Construction Corporation and on July 10, 1965, entered into a contract with it for the construction of the unit. The written agreement executed by the parties was a 1951 form contract recommended by the American Institute of Architects. The form stated that it was to be used "when the cost of the work plus a fee forms the basis of the contract" and that it was to be used "only with the Institute's standard general conditions of the contract, Sixth Edition, 1951 * * *." The parties did not use the Institute's standard general conditions, however, but rather attached the conditions which had been prepared by the architect for the lum-sum bidding. Nor did they use article 4 of the form contract which was to be filled in with the contractor's appropriate compensation, but rather attached a typewritten rider to article 4 which provided that the contractor was to be paid the "cost of the improvements, plus 6%; provided, however, the cost plus 6% shall not exceed `1,018,700.00'."

The contract required Robinhorne, as general contractor, to provide a performance bond in the amount of $1,018,700.00. Shortly after the contract was executed, however, Robinhorne discovered that the premium for such a bond was substantially more than it had anticipated. Thereupon, Robinhorne contacted Red Arrow Construction, Inc., about becoming a joint venturer on the project, to which Red Arrow agreed. Thereafter, on September 21, 1965, Robinhorne sent a letter to the Owner in which it explained that Red Arrow had agreed to become a joint venturer, and proposed that the performance bond for the general contract work which was to be furnished by the joint venture contractors be reduced to $500,000; that subcontractors be obtained for the mechanical, electrical, masonry, store front and dry wall portions of the buildings, who would furnish performance bonds for their respective portions of the contract; and that a new contract be entered into by all parties. The letter stated: "We agree that the total cost to you for the complete construction, according to the plans and specifications incorporated into the original agreement of July 10, 1965, will not exceed $1,018,700.00, and affirm and ratify, thereby making a part of this agreement, the provisions of that original agreement relating to this total price, * * *. The purpose of the execution of the new contract, also dated the 10th day of July, 1965, is solely to add as an additional party to the contract, Orin Robson, [the president of Red Arrow Construction] and to facilitate the bonding of the over-all project and thereby affecting a saving in the bonding fee."

The Owner agreed to the changes stated in the letter and prepared another AIA form contract for execution. This was a 1963 form, but it was substantially the same as the 1951 form, and differed mainly in the numbering system of the provisions. The form was headed "where the basis of payment is the COST OF THE WORK PLUS A FEE" and stated: "This form to be used only with the latest edition of AIA document A201, general conditions of the contract." Again the corresponding general conditions were not used, and the conditions which had originally been drawn for the lump-sum bidding, and which were appended to the first contract, were adopted unchanged into the new contract. The contractor's fee was again expressed in a rider to the payment provision of the contract, article 5. This rider was identical to the payment rider of the first contract except that the maximum price was reduced from $1,018,700 to $500,000, as the parties had agreed. The rider provided:

"Owner agrees to pay the contractor for the work to be done, cost of the improvements, plus 6%, provided, however, the cost plus 6% does not exceed $500,000. The parties hereto, in computing the above maximum figure agree that it is comprised of a base figure of $269,960.00 for the Motor Lodge, plus the contractor's bond in the amount of $5,290.00, plus the following items and amounts: (a) Sauna Baths $3,000 (b) Dumb Waiter 3,000 (c) Demolition 3,700, (d) Laundry 6,000 (e) Pool and filters 18,000 (f) Landscaping 10,000 (g) Incinerator 800 (h) Gas lighting of pool area 500 * * *.

"In the event that actual costs of any of the items (a) through (h) are greater than the above amounts, the increment shall be added to the maximum of the contract of $500,000. In the event the cost is less than the amounts shown above, such reduction shall be deducted from the maximum.

"In the event that the total cost, plus 6%, is less than the maximum of $500,000, as adjusted by the previous paragraph, the contractor shall be entitled to receive 50% of the difference between the cost plus 6% and said maximum amount; * * *."

On October 19, 1965, the contract was signed and backdated to July 10, 1965, and at that time the performance bond of the surety, United States Fidelity and Guaranty Company, in the amount of $500,000 was delivered to the Owner.

The contract had a completion date of February 1, 1966, but the construction was still incomplete in June, 1966, when several meetings were held to discuss the delay. The cause of the delay was disputed, but it became apparent that the job was in financial difficulty. The Owner discussed the matter with representatives of the bonding company, and considerable correspondence passed between the parties as to the date and cost of completion. In late June, representatives of Howard Johnson Company threatened to cancel the Owner's lease and franchise agreement if the restaurant was not completed within 30 days. During the latter part of June and the early part of July, 1966, the work proceeded at an extremely slow rate; testimony was given that few, if any, workers remained on the job and that the construction superintendent had been removed and sent back to Wichita, Kansas. On July 11, 1966, Robinhorne filed its action for a declaratory judgment, an accounting, and damages. By July 18, the construction had come to a virtual standstill, and on July 20, 1966, the Owner delivered a copy of a notice of contract termination to Orin L. Robson and his attorney. The bonding company was notified of the contract termination by letters dated July 22 and 28, 1966.

In August, 1966, the Contractors filed the second suit to enjoin the Owner from completing construction and to recover $88,148.55 in damages to reimburse them for payments made prior to termination, plus a fee of 6%. The Contractors moved from the job site August 12, 1966. The Owner completed the project himself and did not rent any equipment from the Contractors. The appellate court, in affirming the judgment of the trial court, first determined that the final contract between the parties was not simply a cost-plus contract as the Contractors had contended, but a cost-plus contract with a maximum price provision. It then rejected the Contractors' arguments that article 16 of the contract entitled them to reimbursement for the payments made by them prior to termination, plus a 6% fee, and prohibited the Owner from recovering the costs he incurred in completing the project.

Both article 16 and paragraph 18 of the general conditions provided for termination of the contract. Article 16 is the provision of the AIA's cost-plus contract form and provides:

"The provisions of this Article supersede all of Article 22 of the General Conditions of the Contract ...

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