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Lake County Grading Co., LLC v. Village of Antioch

Supreme Court of Illinois

October 17, 2014

LAKE COUNTY GRADING COMPANY, LLC, Appellee,
v.
THE VILLAGE OF ANTIOCH, Appellant

Appellate court judgment reversed. Circuit court judgment reversed. Cause remanded with directions.

SYLLABUS

The Public Construction Bond Act protects subcontractors for whom no right of mechanic's lien exists against a public body by guaranteeing that labor and materials furnished to one who contracts with a public body are paid for, even if such provisions are not specifically included in the bonds provided under the Act.

Robert J. Long, of Daniels, Long & Pinsel, LLC, of Waukegan, and Lawrence R. Moelmann and Nancy G. Lischer, of Hinshaw & Culbertson LLP, of Chicago, for appellant.

Bogdan Martinovich, of Ray & Glick, Ltd., of Libertyville, for appellee.

Brian Day and Roger Huebner, of Springfield, for amicus curiae The Illinois Municipal League.

JUSTICE THEIS delivered the judgment of the court, with opinion. Chief Justice Garman and Justices Thomas, Kilbride, and Karmeier concurred in the judgment and opinion. Justice Freeman dissented, with opinion, joined by Justice Burke.

OPINION

THEIS, JUSTICE.

Page 616

[¶1] The circuit court of Lake County granted summary judgment to plaintiff, Lake County Grading Company, LLC on its third-party beneficiary breach of contract claims against defendant, Village of Antioch (Village). The appellate court affirmed, holding that the Village breached the subject contracts by violating section 1 of the Public Construction Bond Act (Bond Act) (30 ILCS 550/1 (West 2008)). 2013 IL App. (2d) 120474, ¶ ¶ 39-40, 985 N.E.2d 638, 368 Ill.Dec. 831. For the reasons that follow, we hold that the Village did not violate section 1 of the Bond Act, and, therefore, reverse the judgments of the appellate and circuit courts.

Page 617

[*P2] BACKGROUND

[¶3] This cause of action arises from construction work performed in two residential subdivisions located in Antioch, Illinois, known as the NeuHaven subdivision (formerly the Deercrest subdivision), and the Clublands subdivision. Neumann Homes, Inc. (Neumann) was the developer of both subdivisions.[1]

[¶4] The Village entered into two infrastructure agreements (the contracts) with Neumann to make certain public improvements in the subdivisions for the benefit of the Village. Pursuant to the contracts, and based upon section 1 of the Bond Act, Neumann was required to provide surety bonds, the amount of which was based on the total cost of the improvements.

[¶5] Section 1 of the Bond Act provides, inter alia, that a political subdivision of the State, such as the Village, contracting for public works above a specific dollar amount shall require the contractor, as part of the agreement, to supply and deliver a bond. 30 ILCS 550/1 (West 2008). Each such bond is " deemed" to contain certain provisions, even if they are not expressly included in the bond, and must provide for the completion of the contract, the payment of materials used in the work, and all labor performed in the work, including work completed by subcontractors. Id.

[¶6] Neumann provided four surety bonds issued by Fidelity and Deposit Company of Maryland (Fidelity) that were substantively identical. Each bond provided, in pertinent part:

" [The P]rincipal [Neumann] shall perform and complete *** improvement(s) to *** development in accordance with either the plan(s)/specification(s)/agreement [prepared by Pearson Brown & Associates, Inc. or Manhard Consulting], then this obligation shall be void ***. This bond will terminate upon written acceptance of the improvements by the obligee [Village] to the principal [Neumann] and/or surety [Fidelity]."

The four surety bonds totalled $18,128,827.

[¶7] It is undisputed the bonds provided by Neumann did not contain specific " payment bond" language that expressly guaranteed payment to subcontractors for labor or materials. A payment bond generally provides that if the contractor does not pay its subcontractors and material suppliers, the surety will pay them. See Western Waterproofing Co. v. Springfield Housing Authority, 669 F.Supp. 901, 903 (C.D. Ill. 1987). In contrast, a " completion bond" (also known as a " performance bond" ) provides that if the contractor does not complete a project, the surety will pay for its completion. Id.

[¶8] Plaintiff and Neumann also entered into agreements for plaintiff to provide certain labor and materials for the public improvements required under the contracts. Plaintiff completed the work, but was not paid in full. Neumann later defaulted on its contract with the Village and declared bankruptcy on November 1, 2007. Plaintiff last performed work on the Clublands subdivision on December 23, 2006. Plaintiff last performed work on the NeuHaven subdivision on April 16, 2007. On February 18, 2008, plaintiff served Neumann and the Village with notices of a lien claim for the work it had completed on the project.

[¶9] Plaintiff ultimately filed a five-count second amended complaint seeking to recover payment from the Village. In counts II and IV, the only counts at issue

Page 618

here, plaintiff alleged breach of contract claims related to the work performed by plaintiff in the NeuHaven and Clubland subdivisions. Specifically, plaintiff alleged the Village breached the contracts because the surety bonds provided by Neumann did not contain actual language guaranteeing payment to subcontractors as mandated by the first paragraph of section 1 of the Bond Act. Plaintiff further alleged that by virtue of this provision in section 1, it became a third-party beneficiary of the contracts between the Village and Neumann because the requirements contained therein are read into every public works contract for the benefit of subcontractors such as itself.

[¶10] The parties filed cross-motions for summary judgment. The Village in its motion also relied upon section 1. It asserted that based upon the " deeming language" contained in the statute, the bonds procured by Neumann were sufficient because they contained both completion and payment provisions as a matter of law and covered all of the site improvements which plaintiff constructed. The Village argued that plaintiff's only cause of action was against the bonds themselves, but because plaintiff gave notice of its claims more than 180 days after last working on the project, the claims were barred by the limitations period found in section 2 of the Bond Act (30 ILCS 550/2 (West 2008)).

[¶11] In response to the Village's motion for summary judgment, plaintiff did not dispute that it made its notices of claims more than 180 days after last performing work or providing materials, but argued that the limitations period applied only to a suit on the bond. Plaintiff claimed that the 180-day limitations period was inapplicable to its breach of contract claims because in a case such as this where no payment bond was procured, a suit on the bond is impossible.

[¶12] The issue before the trial court was therefore whether the surety bonds provided by Neumann to the Village conformed with the relevant requirements of section 1 of the Bond Act.

[¶13] The trial court granted plaintiff's motion for summary judgment on counts II and IV of the second amended complaint for the work it performed on the two subdivisions, but granted the Village's cross-motion for summary judgment as to counts I, III, and V, dismissing those counts with prejudice. As to counts II and IV, the only counts at issue here, the trial court concluded that the bonds provided by Neumann were completion bonds, not payment bonds, and that it could not impute the " deeming language" contained in section 1 into a completion bond that did not specifically contain a payment bond provision. The trial court ultimately entered judgment in plaintiff's favor in the amount of $246,054.73.

[¶14] The appellate court affirmed. 2013 IL App. (2d) 120474, ¶ 40. In interpreting section 1 of the Bond Act, the appellate court held that the Act mandates the public entity require the general contractor to obtain a bond that contains language that expressly provides payment for the benefit of subcontractors. Id. ¶ 36. It found the Village breached its contractual obligation by not requiring Neumann to furnish a bond with an express payment provision for subcontractors. Id. ¶ 33. The appellate court held that the requirement to obtain such a bond became a term of the contract between Neumann and the Village and that plaintiff, as a subcontractor, was a direct third-party beneficiary with the right to sue on the contract. Id.

[¶15] The appellate court further held that the language found in section 1, which provides that payment provisions are deemed to be included in the bond, applies

Page 619

only after the public entity satisfies the predicate condition of requiring the contractor to procure a bond with a payment guarantee. Id. ¶ 36. The appellate court concluded that the limitations period found in section 2 applied only to a suit on the bond and that where no payment bond is procured, this section is inapplicable. Id. ¶ 39. Consequently, the appellate court found that plaintiff's breach of contract claims were not time barred because the four-year statute of limitations for construction contracts (see 735 ILCS 5/13-214 (West 2008)) applied rather than the 180-day limitations period contained in the Bond Act. 2013 IL App. (2d) 120474, ¶ 39.

[¶16] This court granted the Village's petition for leave to appeal (Ill. S.Ct. R. 315(a) (eff. July 1, 2013)) and also allowed the Illinois Municipal League to file an amicus curiae brief in support of the ...


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