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06/09/89 American Fidelity Fire v. General Railway Signal

June 9, 1989

AMERICAN FIDELITY FIRE INSURANCE COMPANY, PLAINTIFF-APPELLEE

v.

GENERAL RAILWAY SIGNAL COMPANY, DEFENDANT-APPELLANT



APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIFTH DIVISION

540 N.E.2d 557, 184 Ill. App. 3d 601, 132 Ill. Dec. 817 1989.IL.874

Appeal from the Circuit Court of Cook County; the Hon. E.C. Johnson, Judge, presiding.

APPELLATE Judges:

JUSTICE PINCHAM delivered the opinion of the court. MURRAY, P.J., and COCCIA, J., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE PINCHAM

Defendant, General Railway Signal Company (Railway Signal) appeals from a $803,500 judgment, plus pre- and post-judgment interest, in favor of plaintiff, American Fidelity Fire Insurance Company . Plaintiff has cross-appealed from the trial court's post-trial order reducing the amount of the judgment to $683,500, with pre- and post-judgment interest. For the following reasons, we affirm.

On March 27, 1979, Transit Systems Technology, Inc. (Transit Tech.), entered into a contract with Jamaica Buses, Inc. (Jamaica Bus), a private transit system in Long Island, New York. Transit Tech. was to install 160 electronically registering bus fareboxes and certain ancillary equipment for Jamaica Bus for the sum of $360,000. Jamaica Bus required a performance bond from Transit Tech., and on June 7, 1979, Transit Tech. and its principal owners, Jimmy H. Gomez and Jose E. Davila, executed a general agreement of indemnity in favor of plaintiff, AFFI, as a condition to AFFI acting as surety on the performance bond. Also, on the same day, June 7, 1979, the United States Small Business Administration issued a surety bond guaranty agreement, in which SBA agreed to reimburse AFFI up to 80% of its loss, if any, on the bond in favor of Jamaica Bus.

On July 3, 1979, Transit Tech. delivered to Jamaica Bus its performance bond in the amount of $360,000 and Jamaica Bus made a payment of $36,000 to Transit Tech., thereby leaving a contract balance of $324,000.

On October 15, 1979, Transit Tech. entered into two contracts with and to provide the Orange County, California, Transit District 180 electronically registering bus fareboxes and other specified equipment, for the sum of $463,500, plus tax. Like Jamaica Bus, Orange County Transit District also required performance bonds from Transit Tech. and AFFI became the surety on these performance bonds. However, AFFI required letters of credit in the amount of $120,000 as a condition to writing these performance bonds.

On November 9, 1979, the SBA issued two surety bond guarantee agreements, by the terms of which SBA agreed to reimburse AFFI up to 80% and 90% of its loss, if any, on Transit Tech.'s performance bonds to Orange County Transit District. Accordingly, on November 16, 1979, Transit Tech. issued to Orange County Transit District, Transit Tech.'s performance bonds in the amount of $463,500 and on November 19, 1979, Orange County Transit District made a payment of $122,827.50 to Transit Tech., thereby leaving a contract balance of approximately $368,482.50.

In 1979, the defendant, Railway Signal, a subsidiary of a publicly held company whose principal business was the manufacture and sale of control and signaling systems for railroads and the rail transit industry, began investigating ways to enter the bus farebox manufacturing and installation business. The business development manager of defendant Railway Signal, Wheeler D. Maynard, learned from another farebox manufacturing company that Transit Tech. had new technology and had contracts with Orange County Transit District and Jamaica Bus to install electronically registering fareboxes on their buses.

In the summer of 1980, Transit Tech. encountered financial difficulties which prevented it from producing its electronic fareboxes. Also in the summer of 1980, Maynard spoke with an Orange County Transit District official and learned the amount of the Orange County Transit District's contract orders with Transit Tech. and that Transit Tech. had not delivered the 180 electronically registering bus fareboxes to Orange County Transit District. Thereafter, on August 22, 1980, Maynard went to Kankakee, Illinois, where Transit Tech. was located. There Maynard met with Transit Tech. principals Gomez and Davila and Transit Tech.'s attorney, Lester Thacker. Maynard informed Transit Tech. that defendant Railway Signal was planning to enter the bus farebox manufacturing and installation business and that Railway Signal might be interested in Transit Tech.'s technology and contracts. At that time, Maynard received and reviewed the first pages of the Orange County Transit District and the Jamaica Bus contracts with Transit Tech.

On September 27, 1980, Transit Tech. failed to deliver the bus fareboxes to Orange County Transit District and was placed in default on its contracts with Orange County Transit District.

Thereafter, on November 5, 1980, after negotiating with Transit Tech. principals Gomez, Davila and attorney Thacker, for the purchase of certain of Transit Tech.'s assets, defendant Railway Signal and Transit Tech. entered into four contracts: (1) an agreement of purchase between Railway Signal and Transit Tech., whereby Railway Signal acquired from Transit Tech. a patent to the "fare collection system" and various enumerated personal property, including documents, computer programs, drawings, four prototype fareboxes, a truck and miscellaneous materials; (2) a non-competition agreement between Railway Signal, Transit Tech., Gomez and Davila; (3) a consulting agreement between Railway Signal and Gomez; and (4) a consulting agreement between Railway Signal and Davila.

On November 12, 1980, Railway Signal business development manager Maynard and Railway Signal's attorney David Kunkel met with American Fidelity Fire Insurance Company attorneys, Richard Wisner and Robert Heyne, to discuss Railway Signal performance on Transit Tech.'s contracts. A "three party relet" agreement was discussed, in which Orange County Transit District, Railway Signal and AFFI would be contracting parties.

In February of 1981, Transit Tech. was placed in default of its Jamaica Bus contract for failure to deliver fareboxes to Jamaica Bus. Subsequently, in late February 1981, Jamaica Bus filed suit against AFFI under the performance bond.

On March 2, 1981, Railway Signal sent to Jamaica Bus a new contract which increased the contract price to $474,000 from the previously agreed $324,000. Also, on March 27, 1981, Railway Signal sent AFFI and Orange County Transit District Railway Signal's new third-party agreement for Orange County Transit District which increased the contract price to $417,500 from the previous contract balance of $368,000.

In June of 1981, plaintiff AFFI drew on Orange County's letter of credit and on July 14 and July 17, 1981, paid to Orange County Transit District $463,500, the amount of the contract between Orange County Transit District and Transit Tech.

Subsequently, AFFI filed a four-count complaint against Railway Signal. Count I of the complaint sought damages for Railway Signal's alleged breach of its November 5, 1980, contracts. In count I AFFI alleged that Railway Signal agreed to perform Transit Tech.'s obligations under the Orange County Transit District and Jamaica Bus contracts and that AFFI succeeded to the rights of Transit Tech., Gomez and Davila by reason of the general agreement of indemnity. In count II, AFFI claimed damages as a third-party beneficiary of the November 5, 1980, contracts. In counts III and IV, AFFI pleaded promissory estoppel and breach of an oral

Defendant Railway Signal answered the complaint, alleging (1) that Railway Signal's promise to Gomez and Davila contained in the consulting agreement concerning Orange County Transit District and Jamaica Bus contracts was not a promise to perform the contracts, (2) that Gomez and Davila failed to perform conditions precedent to Railway Signal's obligation to take over Transit Tech.'s performance of the Orange County Transit District and Jamaica Bus contracts, (3) that Transit Tech., Gomez and Davila waived any performance due from Railway Signal with respect to the Orange County Transit District and Jamaica Bus contracts because conditions precedent to Railway Signal's performance did not occur, and that as an indemnitee, AFFI was owed no performance by Railway Signal, (4) that AFFI failed to perform the condition precedent and that AFFI caused the nonperformance of which it complained, (5) that AFFI waived any right it had to performance of the Orange County Transit District and Jamaica Bus contracts, and (6) that neither Orange County Transit District nor Jamaica Bus ever approved of the assignment of their contracts to Railway Signal for performance as required by the Orange County Transit District and Jamaica Bus contracts, and accordingly, Railway Signal had no right or duty to perform these contracts.

During the jury trial, defendant Railway Signal's motions for a directed verdict at the close of plaintiff AFFI's case, and again at the Conclusion of all the evidence, were denied. The jury returned a verdict on count I against the defendant Railway Signal in the amount of $803,500. On October 10, 1986, the trial court entered judgment in favor of plaintiff AFFI and against defendant Railway Signal in the amount of $803,500, plus $168,793 prejudgment interest.

On December 9, 1986, Railway Signal filed post-trial motions for (1) arrest of judgment, (2) judgment notwithstanding the verdict, (3) a new trial, (4) a new trial as to damages only, and (5) for a remittitur. The trial court granted defendant Railway Signal's motion for a remittitur in the sum of $120,000, the amount plaintiff AFFI received on the letters of credit and prejudgment interest, and denied Railway Signal's other post-trial motions.

On appeal, defendant Railway Signal maintains that because the conditions precedent to its performance of the Orange County Transit District and Jamaica Bus contracts did not occur, the trial court should have directed a verdict or entered a judgment notwithstanding the verdict on count I of AFFI's complaint.

Count I of AFFI's complaint alleged that Railway Signal "agreed to complete the performance of [Transit Tech.] under the Jamaica and Orange County contract for the balance of the contract prices" and that "[under] the terms of the General Agreement of Indemnity" AFFI succeeded to the rights of Transit Tech., Gomez and Davila.

Railway Signal argues that for it to be liable to perform the Orange County Transit District and Jamaica Bus contracts for the balance of the contract prices "the contracts had to be assigned or new contracts executed directly with the bonding company or the Transit property." We disagree. Railway Signal cannot now avoid its contractual obligations when ...


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