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Stringer Construction v. American Ins. Co.

OPINION FILED NOVEMBER 4, 1981.

STRINGER CONSTRUCTION COMPANY, INC., PLAINTIFF,

v.

THE AMERICAN INSURANCE COMPANY, DEFENDANT-APPELLANT. — (LAGRANGE STATE BANK, DEFENDANT-APPELLEE; CHICAGO HOUSING AUTHORITY ET AL., DEFENDANTS.)



APPEAL from the Circuit Court of Cook County; the Hon. JOSEPH M. WOSIK, Judge, presiding.

JUSTICE MCGILLICUDDY DELIVERED THE OPINION OF THE COURT:

This action was brought by Stringer Construction Company, Inc. (Stringer), the plaintiff, to enjoin the defendant, LaGrange State Bank (LaGrange), from paying out on its letter of credit to the defendant, American Insurance Company (American). *fn1 After a hearing, plaintiff's motion for a preliminary injunction was granted and LaGrange was enjoined from honoring American's draft until further order of the court. American filed this interlocutory appeal pursuant to Supreme Court Rule 307(a)(1) (Ill. Rev. Stat. 1979, ch. 110A, par. 307(a)(1)).

The issues presented for review are whether the plaintiff satisfied the requirements for a preliminary injunction and whether the issuance of the preliminary injunction contravened article 5 of the Uniform Commercial Code Letters of Credit (Ill. Rev. Stat. 1979, ch. 26, pars. 5-101 to 5-117).

Stringer has not filed an appellee's brief in this matter. LaGrange argues that the issuance of the preliminary injunction should be affirmed.

Stringer had contracted with American to complete construction of a Chicago Housing Authority project in accordance with provided plans. As a prerequisite for the award of this contract, Stringer was required to provide American with security in the form of a $50,000 deduction from the first payout on Stringer's work and a $150,000 letter of credit. Stringer obtained a letter of credit from LaGrange after a security agreement and promissory note in the amount of $150,000 had been signed. Philip Stringer (the president of Stringer), Linda Stringer (Philip's wife), and Allan G. Levine (Stringer's attorney) signed the promissory note. The irrevocable letter of credit provided in part:

"We hereby authorize you to draw on us for account of Stringer Construction Company up to an aggregate amount of $150,000.00, U.S. Currency, available by your draft at sight accompanied by your signed statement that funds are required to cover liability, loss, cost, or expense incurred by you as a result of any breach by Stringer Construction Company * * * of a certain contract dated August 2, 1977, between Stringer Construction Company and American Insurance Company.

We hereby agree with you that all drafts drawn under and in compliance with the terms of this credit will be duly honored on delivery of documents as specified."

The construction contract between American and Stringer was signed on August 15, 1977. *fn2 Construction under the contract progressed until February of 1980 when the Chicago Housing Authority advised American and American advised Stringer that the right to complete the project had been terminated. The termination was allegedly due to Stringer's failure to complete the project in accordance with the terms of the contract dated August 15, 1977.

On April 11, 1980, William J. Saelinger, surety claims supervisor for American, presented to LaGrange a letter, affidavit and sight draft in the amount of $150,000. The letter provided:

"Pursuant to Irrevocable Letter of Credit No. 688 dated August 3, 1977 and renewed effective August 3, 1978 and further renewed effective as of August 3, 1979, American Insurance Company hands you herewith sight draft in the amount of $150,000.00 accompanied by the signed, certified statement of American Insurance Company that the funds in the amount of $150,000.00 are required to cover the liability, loss, costs and expense incurred by American Insurance Company as a result of the breach by Stringer Construction Company * * * of a certain contract dated August 2, 1977 between Stringer Construction Company and American Insurance Company.

We trust that this sight draft will be honored and funds in the amount of $150,000.00 will be immediately transferred to American Insurance Company."

The accompanying affidavit provided:

"William J. Saelinger, being first duly sworn on oath, deposes and says that he is Surety Claims Supervisor for American Insurance Company. He is familiar with the liability, loss, costs and expenses incurred by American Insurance Company as a result of the breach by Stringer Construction Company * * * of a certain contract dated ...


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