Carroll Seating Company v. Verdico J.J.L. Inc. ( 2006 )

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
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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
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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
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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).
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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
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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:
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"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.
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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
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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
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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."
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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."
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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
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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
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*** 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.
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