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11/29/88 the Illinois State Toll v. Gust K. Newberg

November 29, 1988





531 N.E.2d 982, 177 Ill. App. 3d 6, 126 Ill. Dec. 355 1988.IL.1713

Appeal from the Circuit Court of Du Page County; the Hon. William E. Black, Judge, presiding.


JUSTICE NASH delivered the opinion of the court. DUNN and WOODWARD, JJ., concur.


Plaintiff, the Illinois State Toll Highway Authority (Authority), appeals from a summary judgment entered in favor of defendants, Gust K. Newberg, Inc. (Newberg), The Travelers Indemnity Co., and Fidelity & Deposit Company of Maryland, in an action in which the Authority sought liquidated damages for Newberg's alleged delay in performing a construction contract. The trial court found that the liquidated damages provision in the contract between the parties required the Authority to deduct any claimed liquidated damages from amounts due Newberg retained by the Authority; that the Authority's final payment of the retainage waived its claim for liquidated damages; and that a provision in the contract that payment does not operate as a waiver of the contract or of damages did not apply to liquidated damages. Newberg cross-appeals from an interlocutory order which denied its motion to amend its answer to plead additional reasons for delay which, it asserts, would have entitled Newberg to an extension of time under the contract, and also cross-appeals from an order granting the Authority's motion for partial summary judgment on the issue of whether the trial court's findings of fact and judgment under counts I and II of Newberg's complaint against the Authority, which were affirmed by this court in Gust K. Newberg, Inc. v. Illinois State Toll Highway Authority (1987), 153 Ill. App. 3d 918, 506 N.E.2d 658, are res judicata and resolve Newberg's present defense to the Authority's claim for liquidated damages.

Litigation continues to arise from a contract entered into between the Authority and Newberg-Krug-Brighton, a joint venture consisting of three corporations, for the construction of sections E-7AB and E-8AB of the East-West Tollway extension. The Newberg joint venture initially filed a two-count complaint against the Authority seeking $9 million in damages which it contended were caused by the Authority's delays in obtaining right-of-way parcels, in settling crop damage claims, and in obtaining relocation of utility crossings (hereinafter Newberg I). While that case was pending, the Authority's board of directors passed a resolution which purported to settle Newberg's claim against the Authority for $2.75 million. The Illinois Attorney General subsequently disapproved of the settlement, and Newberg then added a third count to its complaint alleging a breach of the settlement agreement. Ultimately, this court held that the Authority's settlement resolution was unenforceable because it did not have the approval of the Illinois Attorney General. (Newberg-Krug-Brighton v. Illinois State Toll Highway Authority (1978), 63 Ill. App. 3d 780, 380 N.E.2d 1029, appeal after remand (1982), 103 Ill. App. 3d 557, 431 N.E.2d 1375, aff'd (1983), 98 Ill. 2d 58, 456 N.E.2d 50).) After a bench trial on counts I and II of Newberg's amended complaint, the trial court entered judgment for the Authority which this court affirmed on appeal. (Gust K. Newberg, Inc. v. Illinois State Toll Highway Authority (1987), 153 Ill. App. 3d 918, 506 N.E.2d 658.) During the above proceedings, the Authority filed a second amended 15-count complaint against Newberg and its sureties, The Travelers Indemnity Co. and Fidelity & Deposit Co. of Maryland, which was severed from the above cause (hereinafter Newberg II). All counts of that complaint have been dismissed except those seeking the liquidated damages, which are the subject of the current appeal.

The Authority's claim for liquidated damages is based on Newberg's delay in completing the road construction project. Under the contract, Newberg was to complete all of the grading, paving, shoulder placement, guard rail installation, structures, crossroad and other work to enable the road to be opened to traffic by October 1, 1972, but it was not completed and open until August 1974. The liquidated damage provision of the contract, "Standard Specification" 108.4, provides for liquidated damages based on a set schedule for each day of delay. It further provides that the Authority "shall" recover any liquidated damages by deducting the damages from amounts due or that become due to the contractor; if any deficiency remains, the contractor is required to remit the same; and that "[nothing] herein contained shall be construed as limiting the right of the Authority to recover from the Contractor any and all amounts due or to become due, and any and all costs and expenses sustained by the Authority for improper performance hereunder, repudiation of the Contract by the Contractor, failure to perform, or breach or breaches in any other respect including, but not limited to, defective workmanship or materials."

SS 105.14 of the contract allowed Newberg to request an extension of time by notifying the Authority, in writing, before commencing the anticipated delayed work, and all extension requests were to be considered by the Authority upon satisfactory completion of the contract. While the record does not contain a copy of SS 108.1, that provision of the contract apparently required the contractor to also submit a written application for an extension of time within 10 days after the delay ended. Newberg did notify the Authority, pursuant to SS 105.14, that it intended to seek an extension of time, but it never applied for an extension of time in accordance with SS 108.1.

The Authority notified Newberg in August 1975 that a final inspection had been made and that the work was complete and acceptable; it denied Newberg's requests for the time extensions in February 1978 and shortly thereafter filed its complaint for liquidated damages. The Authority's letter denying the extension requests stated that the requests were being denied because the delays encountered were the contractor's fault but did not mention Newberg's failure to comply with the written application requirement under SS 108.1. While the Authority's letter contains a specific reference to section E-7AB of the project, and does not mention section E-8AB, the Authority does not dispute Newberg's assertion that the letter was intended as a denial of Newberg's extension requests for both sections. The Authority stated in its annual report that "the project was delayed by a 100-year rainfall. Contractors lost more than half of the 427 calendar days available for construction work from September, 1971 to October, 1972." In another of its annual reports, the Authority stated that "[much] of the area became unworkable after periods of rain due to saturated soil conditions. Beginning in late July, 1973, and continuing into September, shortages of . . . cement delayed construction. For a time, cement was not available at all."

Throughout the project, the Authority retained 10% of amounts due Newberg which was to be made as a final payment after completion and acceptance of the work. SS 109.7 of the contract provided that acceptance of final payment by the contractor released and waived any claims the contractor may have against the Authority. At a meeting with the Authority, Newberg requested that the Authority pay the retainage without requiring it to release its claim against the Authority. In February 1975, Assistant Attorney General Lavery wrote to the attorneys for Newberg summarizing their prior meeting and, subsequently, the Authority's board of directors approved a modification to SS 109.7 which would allow the contractors to accept final payment without releasing their claims as long as suit was filed on any claim within 60 days of such payment. In September 1975, final payment in the amount of $2,445,909 was made to Newberg. While twice the amount of crop and drainage damage claims by Newberg were deducted from the retainage and put into escrow, no amounts were withheld by the Authority for the payment of liquidated damages.

The following provisions in the contract are also pertinent to the Authority's appeal. SS 108.11, entitled "TERMINATION OF CONTRACTOR'S RESPONSIBILITY," states that when the work is accepted by the Authority in writing, the contract shall be deemed to be complete and that the contractor is released from "all further obligations and requirements except as set forth in his bond and provided for in Responsibility for Damage Claims, 107.18; No Waiver of Legal Claims, 107.19; and Guaranty Against Defective Work, 109.9." "NO WAIVER OF LEGAL CLAIMS," SS 107.19, provides:

"The Authority shall not be precluded or stopped [ sic ] by any measurement, estimate, or certificate made either before or after the completion and acceptance of The Work and payment therefor from showing the true amount and character of The Work performed and materials furnished by the Contractor, or from showing that any such measurement, estimate or certificate is untrue or incorrectly made, or that The Work or materials do not conform in fact to the Contract. The Authority shall not be precluded or estopped, notwithstanding any such measurement, estimate, or certificate and payment in accordance therewith, from recovering from the Contractor and his sureties such damages as it may sustain by reason of his failure to comply with the terms of the Contract. Neither the acceptance by the Authority or any representative of the Authority, nor any payment for or acceptance of the whole or any part of The Work, nor any extension of time, nor any possession taken by the Authority, shall operate as a waiver of any portion of the Contract, or of any power herein reserved, or any right to damages herein provided, or as a release of the contractor, or his surety or sureties. A waiver of any breach of the Contract shall not be held to be a waiver of any other or subsequent breach. (Emphasis added.)

SS 107.16, "CONTRACTOR'S RESPONSIBILITY FOR WORK," holds the contractor responsible for damage or injury to the work or materials prior to final ...

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