Appeal from the Circuit Court of Cook County. Honorable NORMAN SANDS, Judge Presiding.
Released for Publication April 24, 1997.
The Honorable Justice Buckley delivered the opinion of the court. Campbell, P.j. and Gallagher, J., concur.
The opinion of the court was delivered by: Buckley
JUSTICE BUCKLEY delivered the opinion of the court:
Plaintiff, Dragon Construction, Inc. (Dragon), brought this action seeking a declaratory judgment as to the rights and obligations of Dragon, William C. Rieck and Shirley V. Rieck (the Riecks), and National American Insurance Company (NAIC) under an agreement whereby NAIC issued surety bonds for construction work Dragon was hired to do for the Riecks. The Riecks filed a cross-claim against NAIC and Dragon, and NAIC filed a counterclaim against Dragon. The trial court granted Dragon's motion for summary judgment and dismissed both the Riecks' cross-claim and NAIC's counterclaim, finding that the surety bonds were null and void. The Riecks appealed, raising the following issues: (1) whether the trial court erred in finding that there was no genuine issue of material fact and that the surety bonds were null and void as a matter of law; and (2) whether NAIC waived its right to declare a forfeiture of the bonds.
While the Riecks' appeal was pending, the trial court granted Dragon's motion for the release of a $30,000 letter of credit Dragon issued to NAIC to collateralize the surety bonds. NAIC appealed that decision, claiming that the trial court was without jurisdiction to issue that order. This court consolidated the two appeals.
In October 1988, the Riecks hired Dragon to build a hardware store in Park Ridge, Illinois. The contract between the Riecks and Dragon (the construction contract) required Dragon to obtain a performance bond and a materials and labor bond for the project. Dragon obtained the bonds from NAIC. The Riecks paid NAIC $25,000 for the bonds, and Dragon issued a letter of credit in the amount of $30,000 as collateral.
Under the terms of the construction contract, the Riecks were entitled to terminate the contract if Dragon failed to supply enough workers, failed to pay subcontractors, disregarded relevant laws and regulations, or breached a substantial provision of the contract. In order to exercise their right to terminate the contract upon the occurrence of any of these conditions, the Riecks were required to (1) obtain certification from their architect that sufficient cause existed to justify the termination, and (2) give Dragon and NAIC seven days written notice prior to the termination.
The performance bond obtained by Dragon from NAIC incorporates the construction contract by reference. It further provides that if Dragon promptly and faithfully performs under the construction contract, NAIC's obligation under the performance bond "shall be null and void, otherwise, it shall remain in full force and effect." If, on the other hand, Dragon's contract is terminated, NAIC may either complete the contract in accordance with its provisions or obtain bids from other contractors and select the lowest responsible bidder.
The original completion date for the project was April 12, 1989, but that date was later extended to July 12, 1989. The store was set to open on September 1, 1989, the same date that the Riecks' lease on their old store expired. Progress on the project was slow, and the Riecks continuously asked Dragon to provide more workers so the store could be completed on time. On July 27, 1989, 15 days after the deadline for completion, the project was still unfinished, and the Riecks terminated Dragon for failure to provide enough workers and for substantial breach of contract. Some time prior to July 27, the Riecks' architect, Jeffrey Finkle, contacted other general contractors about taking over the project, and on July 27, the Riecks hired Solarcrete Energy Efficient Building Construction, Inc. (Solarcrete). Solarcrete began work on the project the next day.
On August 1, 1989, the Riecks sent NAIC notice that "due to intolerable lack of progress and pursuant to the certification of architect Jeffrey Finkle, we have been compelled to replace Dragon Construction Company." The notice further stated that Finkle was still taking competitive bids for the project and requested that NAIC contact Finkle "for details with respect to the bidding of the remaining work." Finkle testified in his deposition, however, that he never took competitive bids after Solarcrete was hired. No general contractor other than Solarcrete was ever hired. NAIC did not contact Finkle until October 23, 1989, after the store was completed.
On August 24, 1989, Dragon brought an action in the chancery division of the circuit court of Cook County against the Riecks, NAIC, and Parkway Bank and Trust Company (Parkway), the record title owner of the real estate in question and the obligee of the NAIC surety bonds. Dragon sought to recover for the work already completed, either pursuant to a mechanic's lien or under a quantum meruit theory. On March 15, 1990, Dragon amended its complaint to add a count for a declaratory judgment as to the various parties' rights and obligations under the surety bonds. On April 9, 1990, the Riecks filed a cross-complaint against Dragon and NAIC for breach of contract, seeking damages in the amount of $224,175.30. On May 18, 1990, NAIC filed a counterclaim against Dragon for indemnification.
On October 24, 1991, Dragon filed a motion for summary judgment on the declaratory judgment count, seeking a determination of the parties' rights and obligations under the surety bonds. On July 17, 1992, the trial court granted Dragon's motion for summary judgment and dismissed both the Riecks' cross-claim and NAIC's counterclaim. The court found that the surety bonds were null and void because Parkway and the Riecks (1) failed to properly and promptly notify NAIC of Dragon's termination, and (2) violated the construction contract and the performance bond by engaging a successor contractor prior to giving notice of Dragon's termination to NAIC. Dragon's mechanic's lien and quantum meruit claims remained, but the trial court found no just reason to delay enforcement or appeal of its ruling on the declaratory judgment claim. On August 14, 1992, the Riecks filed their notice of appeal.
The trial court's July 17, 1992, ruling also provides that, "after the time of appeal has expired," NAIC must release the letter of credit funds in the amount of $30,000 to the First American Bank - Golf Mill, which in turn shall release the money to Dragon. It further states, "in the event an appeal of this order is taken, this paragraph shall be stayed." On December 15, 1994, while the Riecks' appeal of the July 17, 1992 order was pending, the trial court ordered that the letter of credit funds be released. NAIC filed its notice of appeal. On December 19, 1994, ...