Carroll Seating Company v. Verdico J.J.L. Inc.

• Court: Appellate Court of Illinois
• Decided: December 21, 2006
• Docket: 1-04-3026 & 1-04-3457 Rel
• Status: Published

Opinion

FOURTH DIVISION December 21, 2006

1-04-3026 & 1-04-3457 (Cons.)

CARROLL SEATING COMPANY J.J.L. ) Appeal from the Inc., d/b/a/ American Roofing ) Circuit Court of and Repair Company, LOMBARDI ELECTRIC, ) Cook County. INC., and TEAM MECHANICAL, INC., ) ) Plaintiffs-Appellees, ) ) v. ) ) PETER B. VERDICO and JULIE VERDICO, ) ) Defendants and Intervenors-Appellants ) ) ) (P.B. Verdico, Inc., an Illinois ) Corporation; Travelers Casualty and ) Surety Company of America, a Foreign ) Corporation, and Berkeley School ) District No. 87, a body politic, ) The Honorable ) Clifford L. Meacham, Defendants). ) Judge Presiding.

MODIFIED UPON REHEARING

PRESIDING JUSTICE QUINN delivered the opinion of the court:

Defendant-intervenors are the owners of a construction

company, P.B. Verdico, Inc. (Verdico), that was hired by School

District 87 in Berkeley, Illinois, to renovate and build additions

to several school buildings. Plaintiffs Carroll Seating Company1,

J.J.L., Inc., d/b/a American Roofing and Repair Co., Lombardi

1 Carroll Seating did not file a brief in this matter. 1-04-3026 & 1-04-3457 (Cons.) Electric, Inc., and Team Mechanical, Inc., were subcontractors

hired by Verdico for the project.

As required by section 1 of the Public Construction Bond Act

(Bond Act) (30 ILCS 550/1 (West 2002)), Verdico posted a payment

bond for the project, with Travelers Casualty and Surety Company of

America (Travelers) acting as the surety for the bond. When

Verdico failed to pay plaintiffs the entire amount owed to them

under their respective subcontracts, they sued Verdico, Travelers,

and the school district to recover on the bond.

After the circuit court had granted summary judgment to

Carroll Seating, Verdico's owners intervened, claiming that they

had a stake in the case because they had agreed to indemnify

Travelers for any payments made under the bond. Seeking to have

the circuit court reconsider and vacate its grant of summary

judgment to Carroll Seating, intervenors argued that plaintiffs'

claims on the bond were untimely because the six-month time limit

contained in section 2 of the Bond Act (30 ILCS 550/2 (West 2002)),

and not the one-year time limit contained in the bond supplied by

Verdico, was applicable. The circuit court denied intervenors'

motion for reconsideration. This appeal followed.

ANALYSIS

On appeal, plaintiffs first argue that intervenors lacked

standing to intervene in the underlying lawsuit. In their

petition to intervene, intervenors alleged that they had an

2 1-04-3026 & 1-04-3457 (Cons.) interest in the proceedings because they had "personally

guaranteed to Travelers payment of any losses suffered by

Travelers regarding the subject payment bond." Plaintiffs argue

that intervenors provided no evidence of that guarantee in the

record before this court.

As intervenors point out, however, plaintiffs did not

contest their standing to intervene in the circuit court below.

Thus, we find that plaintiffs' lack-of-standing argument is

waived and express no opinion as to whether intervenors had

standing to intervene. See Greer v. Illinois Housing Development

Authority, 122 Ill. 2d 462, 508 (1988) (stating that "lack of

standing in a civil case is an affirmative defense, which will be

waived if not raised in a timely fashion in the trial court").

The next question on appeal is which claim-filing

limitations period is applicable, the six-month time limit found

in the Bond Act, or the one-year time frame contained in the bond

supplied by Verdico. Prior to the passage of the Bond Act,

materialmen and laborers had no right to impose a mechanic's lien

on a public work. See Fodge v. Board of Education of the Village

of Oak Park, District 97, 309 Ill. App. 109, 122, 32 N.E.2d 650,

656 (1941), citing Gunther v. O'Brien Bros. Construction Co., 369

Ill. 362, 370 (1938). Additionally, in interpreting public works

contracts between the state and its contractors, Illinois courts

had found that those contracts did not confer upon subcontractors

the status of third-party beneficiaries to those contracts or

3 1-04-3026 & 1-04-3457 (Cons.) create a "common-law right of action against a surety," even

where, in some cases, those contracts contained a provision

stating that "the principal contractor agree[d] 'to pay the

subcontractor.'" Fodge, 309 Ill. App. At 122, 32 N.E.2d at 656.

Without the ability to place a lien on public property and with

no imputed rights under the bond contract between the state and

general contractor, many subcontractors were left with no legal

recourse when a general contractor failed to fulfill his

contractual obligation.

In 1931 the Bond Act was passed, requiring that state

officials obtain a payment bond2 from contractors who agree to

2 The practical benefits of requiring a "payment bond" have

been stated as follows:

"By guaranteeing payment for labor and materials

furnished the contractor under the contract, the

payment bond assures the contractor's credit, and thus

expedites the subcontractor's performance. It reduces

to a minimum the filing of mechanic's liens and the

loss of time and money necessary for enforcing them by

litigation. As mechanic's liens or other liens cannot

be filed against property of the United States and of

most states, the payment bonds have a singular value

with respect to public works contracts as they assure

payment to those who might otherwise have to depend

solely on the personal responsibility of the

4 1-04-3026 & 1-04-3457 (Cons.) perform "public work of any kind costing over $5,000." 30 ILCS

550/1 (West 2002). The aim of the Bond Act was twofold: it

protected "those who furnish[ed] labor or materials on public

works" and guarded "the tax money allotted for public works."

Housing Authority v. Holtzman, 120 Ill. App. 2d 226, 241 (1970);

see also Aluma Systems, Inc. v. Frederick Quinn Corp., 206 Ill.

App. 3d 828, 853-54 (1990) ("The purpose of sections 1 and 2

[citation] of the Bond for Public Works Act is to protect payment to contractors and materialmen for whom no right of mechanics'

liens exists against a public body, and to regulate claims

against public monies").

These dual aims were codified into the claim-filing

procedures contained in section 2 of the Bond Act, which allows

subcontractors, materialmen, or laborers employed on a public

works project to sue on the payment bond, but requires any such

suit to be filed within six months of the state's acceptance of

the project:

"Every person furnishing material or performing

labor, either as an individual or as a sub-contractor

for any contractor, with the State, or a political

contractor. Hence, the bond requirement tends to lower

bids because it eliminates the tendency to add to the

bid a figure to cover the credit hazard." T. Hass,

The Corporate Surety and Public Construction Bonds, 25

Geo. Wash. L. Rev. 206, 210 (1956-57).

5 1-04-3026 & 1-04-3457 (Cons.) subdivision *** in this Act, shall have the right to

sue on such bond or letter of credit in the name of the

State, or the political subdivision thereof entering

into such contract, as the case may be, for his use and

benefit ***. Provided, however, that this Act shall

not be taken to in any way make the State, or the

political subdivision thereof entering into such

contract, as the case may be, liable to such

subcontractor, materialman or laborer to any greater

extent than it was liable under the law as it stood

before the adoption of this Act.

***

Provided, further, that no action shall be brought

until the expiration of 120 days after the date of the

last item of work or the furnishing of the last item of

materials *** nor shall any action of any kind be

brought later than 6 months after the acceptance by the

State or political subdivision thereof of the building

project or work. Such action shall be brought only in

the circuit court of this State in the judicial circuit

in which the contract is to be performed." 30 ILCS

550/2 (West 2002).

Intervenors argue that the Bond Act's claim-filing

provisions (i.e., the six-month limitations period which begins

to run after the project is accepted) are applicable to the bond

6 1-04-3026 & 1-04-3457 (Cons.) provided by Verdico because (1) the plain language of the bond

itself evidences an intent to incorporate the Bond Act's claim-

filing provisions, and (2) even if the bond cannot be so read,

the Bond Act's provisions preempt or "override[]" the bond's one-

year filing period. We disagree.

Paragraph 11 of the bond provided by Verdico states:

"No suit or action shall be commenced by a Claimant

under this Bond other than in a court of competent

jurisdiction in the location in which the work or part

of the work is located or after the expiration of one

year from the date (1) on which the Claimant gave

notice required by Subparagraph 4.1 or Clause 4.2.3, or

(2) on which the last labor or service was performed by

anyone or the last materials or equipment were

furnished by anyone under the Construction Contract,

whichever of (1) or (2) first occurs. If the

provisions of this Paragraph are void or prohibited by

law, the minimum period of limitation available to

sureties as a defense in the jurisdiction of the suit

shall be applicable."

Thus, the plain language of paragraph 11 allows subcontractors

one year from the date on which the last work was done or

material was furnished by anyone on the project to file suit,

unless that time allowance is "void or prohibited by law."

Paragraph 13 states:

7 1-04-3026 & 1-04-3457 (Cons.) "When this Bond has been furnished to comply with a

statutory or other legal requirement in the location

where the construction was to be performed, any

provision in this Bond conflicting with said statutory

or legal requirement shall be deemed deleted herefrom

and provisions conforming to such statutory or other

legal requirement shall be deemed incorporated herein.

The intent is that this Bond shall be construed as a

statutory bond and not as a common law bond."

Intervenors argue that the "void or prohibited by law"

language of paragraph 11, coupled with paragraph 13's "delete"

and "incorporate" mechanism in the event of conflicting

provisions, evidences an intent by the parties to the bond that

the Bond Act's claim-filing provisions be engrafted into the

bond; this is so, according to intervenors, even though nowhere

in the bond is the Bond Act mentioned or referenced.

Their argument, however, hinges on the effect the Bond Act's

claim-filing provisions have on public works bonds. If those

provisions are mandatory for all such bonds, then they are right

because either (1) the one-year time limit contained in the bond

is "void or prohibited by law" or (2) a conflict exists between

the claim-filing provisions of the bond and the Bond Act,

activating the delete and incorporate provision of paragraph 13.

We find, however, that the Bond Act's claim-filing provisions are

not mandatory for all public works bonds for two reasons.

8 1-04-3026 & 1-04-3457 (Cons.) First, where the legislature intended to mandate the

inclusion of Bond Act provisions into all public works bonds, it

did so expressly. See 30 ILCS 550/1 (West 2002) (containing a

mandatory insert for all public works bonds "whether such

provisions are inserted in such bond or not"). The Bond Act

contains no similar mandate for its claim-filing provisions.

Second, this court has consistently found that due to the

Bond Act's remedial nature, parties to a public works bond "are

free to contract for protection that exceeds the [Act's]

minimum." William J. Templeman Co. v. United States Fidelity &

Guaranty Co., 317 Ill. App. 3d 764, 770 (2000) (finding that the

parties to a public works bond could set the notice requirement

for a claim on that bond at 90 days, instead of the 120 days

required by the Bond Act, because "[i]t is well established that

parties who enter into contracts may waive provisions beneficial

to them" and "a contractor and its surety are free to contract

for protection that exceeds the minimum statutory provisions");

Aluma Systems, 206 Ill. App. 3d at 855 ("Although the express

provisions of the statute are deemed to be contained in every

bond for a public construction project, whether actually inserted

in the bond or not, the contractor and its surety are free to

contract with the public entity for additional liability which

exceeds the statutory provisions"); Illinois State Toll Highway

Comm'n ex rel. Patten Tractor & Equipment Co. v. M.J. Boyle &

Co., 38 Ill. App. 2d 38, 51 (1962) ("There is nothing to prevent

9 1-04-3026 & 1-04-3457 (Cons.) the parties from entering into a contract and bond which go far

beyond the statutory provisions, where they are entered into by

parties competent to contract and they are not prohibited by

law").

In this case, the parties did just that; instead of allowing

materialmen six months from the date that the project was

accepted in which to file suit on the bond, they chose to allow

them one year from the date the last work was performed by anyone

on the project. These provisions do not conflict with the Bond

Act's mandates in a manner like a provision that allowed

materialmen only one week from the date the project was accepted

to file suit would; they merely extend the Bond Act's protective,

remedial reach.

We find Templeman to be instructive. In Templeman, the

public works bond exempted claimants who had "a direct contract

with the principal" from providing notice of a claim on the bond.

Templeman, 317 Ill. App. 3d at 770. When one such claimant filed

suit on the bond without providing notice, the bond's surety

objected and argued that the claimant should have followed the

notice requirement contained in section 2 of the Bond Act.

Templeman, 317 Ill. App. 3d at 771, citing 30 ILCS 550/2 (West

1996). We rejected the surety's attempt to rely on the Bond

Act's notice provisions:

"In effect, [the surety] asks to be permitted to

issue a bond that provides no notice is required prior

10 1-04-3026 & 1-04-3457 (Cons.) to suit, but when a claimant relies on that language,

to avoid payment by invoking the Bond Act, which

contains a notice requirement. This we refuse.

Instead, we construe the language contained in the bond

issued and drafted by [the surety] against [the surety]

and conclude as a matter of law that notice by [the

claimant] was waived." Templeman, 317 Ill. App. 3d at

771.

Just as in Templeman, the parties in this case utilized a

bond that provided materialmen one year from the last date anyone

on the project finished their work. Because the Bond Act's

claim-filing provisions are not mandatory for all public works

bonds, but merely a minimum below which parties may not go (see

Templeman, 317 Ill. App. 3d at 770; Aluma Systems, 206 Ill. App.

3d at 855; Illinois State Toll Highway Comm'n, 38 Ill. App. 2d at

51), the bond's claim-filing provisions are both valid and

applicable.

The final issue before us is whether the circuit court

properly found that no genuine issue exists as to whether

plaintiffs' lawsuits to recover on the bond were timely. The

question, under paragraph 11 of the bond, is whether these

lawsuits were filed "one year from the date *** on which the last

labor or service was performed by anyone or the last materials or

equipment were furnished by anyone under the Construction

Contract."

11 1-04-3026 & 1-04-3457 (Cons.) Plaintiffs filed suit on the following dates:

Team Mechanical on July 8, 2003;

Carroll Seating on August 28, 2003;

American Roofing on September 9, 2003; and

Lombardi Electric on January 13, 2004.

In its motion for summary judgment, Carroll Seating provided an

affidavit indicating that it had performed work on the project on

April 4, 2003, when it replaced a drawer that had been damaged.

Intervenors do not dispute that Carroll Seating replaced

this drawer on that date. Instead, they argue that this date

should not qualify as the starting point for the one-year claim

limitations period contained in paragraph 11 of the bond because

the work performed by Carroll Seating on that day was not

"substantive" work but, rather, merely repair or replacement

work.

In their petition for rehearing, intervenors repeat their

argument on appeal that this distinction is significant in that

the bond form used in the present case, the AIA A312, uses

language that is virtually identical to the language found in

both the federal Miller Act (40 U.S.C. § 270 et seq.) and the Illinois Bond Act.

The relevant language of the bond provides that a claimant

must bring suit before the "expiration of one year from the date

*** on which last labor or service was performed by anyone under

the Construction Contract."

12 1-04-3026 & 1-04-3457 (Cons.) The federal Miller Act provides that suit must be brought by

a claimant no later than "after the expiration of one year after

the day on which the last of the labor was performed or material

was supplied by him." 40 U.S.C. § 270b(b).

The Illinois Bond Act requires that a claimant furnish

notice within "180 days after the date of the last work or the

furnishing of the last item of materials." 30 ILCS 550/2 (2002).

In MQ Construction Co. v. Intercargo Insurance Co., 318 Ill.

App. 3d 673 (2000), this court held:

"Because of the absence of Illinois authority and

the similarity of the purposes of the Bond Act, the

Miller Act and the Mechanics Lien Act, we believe

that the term 'last work,' as used in the Bond Act,

should be interpreted in a manner similar to the

nearly identical terms in the Miller Act and the

Mechanics Lien Act. Under those Acts, ***

corrective or repair work is not considered in

determining the date that a contractor supplied

its 'last work' on a project for purposes of

calculating the limitations period for claims

relating to that work. We find that the

legislature's use of a similar term in the Bond

Act suggests that the legislature also intended to

exclude corrective or repair work when determining

the date of 'last work' under the Bond Act." MQ

13 1-04-3026 & 1-04-3457 (Cons.) Construction Co. v. Intercargo Insurance Co., 318

Ill. App. 3d at 684.

We agree with intervenors that it is important that language

in published bond forms be interpreted in the same manner as

similar language contained in public statutes. However, this

interpretation does not aid intervenors' position. The

intervenors strenuously argue that Carroll Seating's replacement

of a drawer on April 4, 2003, was repair work, not substantive

work. It would appear that the trial court found otherwise,

considering the court's order denying intervenors' motion for

reconsideration explicitly stated: "The Court specifically finds

that 'work' as used in the phrase 'last day of work' means

substantive work, as opposed to warranty or remediation work."

In addition to Carroll Seating's affidavit, the legal

significance of which intervenors question, Team Mechanical's

project manager, Wayne Orlowski, also provided an affidavit to

the court on May 18, 2004. In that affidavit, Mr. Orlowski

averred that Team Mechanical performed "balancing work" on the

school building's heating and air conditioning system in February

2003. He further averred that this was not repair work, was not

on the punchlist, had not been previously performed and was not

related to Team Mechanical's warranty. Team Mechanical submitted

its final pay application number in May 2003.

Taking Orlowski's uncontradicted affidavit as providing the

"date on which the last labor or services was performed by anyone

14 1-04-3026 & 1-04-3457 (Cons.) *** under the Construction Contract," all of the subcontractors'

suits were filed within the one-year period provided under

paragraph 11 of the bond.

Affirmed.

CAMPBELL and GREIMAN, JJ., concur.