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03/16/88 Centerre Trust Company of v. the Continental Insurance

March 16, 1988

CENTERRE TRUST COMPANY OF ST. LOUIS, TRUSTEE, PLAINTIFF-APPELLANT

v.

THE CONTINENTAL INSURANCE COMPANY, DEFENDANT-APPELLEE



APPELLATE COURT OF ILLINOIS, FIFTH DISTRICT

521 N.E.2d 219, 167 Ill. App. 3d 376, 118 Ill. Dec. 151 1988.IL.372

Appeal from the Circuit Court of Jefferson County; the Hon. Donald E. Garrison, Judge, presiding.

APPELLATE Judges:

JUSTICE KARNS delivered the opinion of the court. WELCH and LEWIS, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE KARNS

Centerre Trust Company of St. Louis appeals a judgment of the circuit court of Jefferson County in which Centerre was held to have waived its right to liquidated damages arising from a breach of a construction contract. The trial court held that the making of final payment waived liquidated damages under the contract and that Centerre's conduct in light of its liquidated damage claim also evidenced an intent to relinquish its right to claim liquidated damages and therefore constituted a waiver under the principles of common law.

On November 3, 1979, the Grove Partnership entered into a contract with U.D.E., Inc. (hereinafter contractor), for the construction of a facility then known as the Jefferson Memorial Hospital, later known as the Mt. Vernon Hospital Project. Art Lewis and Glen Lewis executed the contract on behalf of Grove Partnership and one of the Lewises executed the contract on behalf of the contractor. Theodore Hoener was the project architect.

Funding for the project was provided by a $9.375 million revenue bond issue underwritten by Hereth, Orr and Jones. To obtain tax-exempt status for the bonds, a nonprofit corporation known as the Jefferson County Health Authority (the Authority) was organized to hold legal title to the project. Another entity, Mt. Vernon Hospital, Inc., was organized to operate the hospital and the Authority, as landlord, executed a lease with Mt. Vernon Hospital, Inc.

Centerre Trust was chosen as trustee for the bondholders and executed an indenture of mortgage and deed of trust with the Authority. Centerre agreed, pursuant to the trust agreement, to collect the revenue from the sale of the bonds and the revenue derived by the Authority from rent for the hospital and to distribute principal and interest to the bondholders as the bonds were retired. Centerre further agreed to distribute construction funds to the contractor as the work progressed, in accordance with the lease and the trust.

Pursuant to the lease, a bond was obtained to insure the contractor's performance. At the time, only $1.5 million of work remained to be performed under the contract and this was the amount of the bond issued by defendant, Continental Insurance Company. A dual obligee rider was also issued making Centerre a direct beneficiary of the performance bond.

Article 3 of the construction contract provides that "substantial completion" of the work was to be achieved by January 1, 1981 (the "substantial completion date"). Article 3 further provides that the contractor must pay the owner liquidated damages in the amount of $3,000 per day for each calendar day that transpired between the substantial completion date and the date of actual completion, such liquidated damages to be paid to the owner within 60 days after the date of actual completion.

The Mt. Vernon Hospital Project was actually completed on May 27, 1981, almost five months after the substantial completion deadline. The record shows that Centerre continued disbursing construction funds to the contractor after January 1, 1981, even though it knew that a claim for liquidated damages had arisen. The final payment of $50,000 was made on May 21, 1981.

On April 18, 1983, Centerre filed suit against Continental based on the dual obligee rider to the performance bond, seeking $438,000 in damages. After a bench trial, the circuit court of Jefferson County ruled that Centerre had waived its claim to liquidated damages by virtue of section 9.9.4 of the "General Conditions." Section 9.9.4 states:

"The making of final payment shall constitute a waiver of all claims by the Owner ...


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