Cherry v. Aetna Cas. & Sur. Co.

• Decision Date: 07 February 1940
• Docket Number: No. 25296.,25296.
• Citation: 25 N.E.2d 11,372 Ill. 534
• Court: Illinois Supreme Court
• Parties: CHERRY v. AETNA CASUALTY & SURETY CO.

372 Ill. 534

25 N.E.2d 11

CHERRY

v.AETNA CASUALTY & SURETY CO.

No. 25296.

Supreme Court of Illinois.

Dec. 12, 1939.

Rehearing Denied Feb. 7, 1940.

Error to Appellate Court, Third District, on Appeal from Circuit Court, Vermilion County; George W. Bristow, Judge.

Action in debt by John W. Cherry, receiver of the Danville Hotel Company, for the use of A. C. Trueblood, and others, trustees, against the AEtna Casualty & Surety Company, on a penal bond. A judgment for plaintiff was affirmed by the Appellate Court, 300 Ill.App. 392, 21 N.E.2d 4, and defendant appeals.

Affirmed.Acton, Acton & Baldwin, of Danville (William M. Acton, of Danville, Edmund D. Adcock, of Chicago, and W. Braxton Dew, of Hartford, Conn., of counsel), for appellant.

Hutton, Clark & Hutton and Gunn, Penwell, Lindley & Burk, all of Danville (H. Ernest Hutton, Horace E. Gunn, Harold F. Lindley, and Jackson R. Hutton, all of Danville, of counsel), for appellees.

WILSON, Chief Justice.

The Danville Hotel Company, a corporation, on November 11, 1925, entered into an agreement with Charles Benson, Inc., building contractor, for the construction of a nine-story hotel building in Danville, Illinois (afterward known as the Wolford Hotel), for the amount of $604,899 cash and $217,800 in common stock of the hotel company. Certain of the funds for the construction of the building were provided or to be provided by the sale of stock of the corporation. The hotel company, on March 31, 1926, executed and delivered a trust deed to the hotel property to the Liberty Central Trust Company of St. Louis to secure bonds in the sum of $700,000. Caldwell & Company of Nashville, Tennessee, underwrote the bond issue. The bonds, after certain assurances were received by the underwriter as to additional financing, were sold to various persons, who were subsequently represented by a bondholders' committee.

Charles Benson, Inc., as principal, and the AEtna Casualty & Surety Company, as surety, on May 2, 1926, executed a bond in the penal sum of $822,699 to the hotel company, as obligee, providing for the faithful performance of the contract for the construction of the hotel building by the contractor, and indemnifying the owner against costs and damage suffered by reason of default. The bond provided that all persons who had contracts directly with the principal for labor or material should be paid. The underwriter made certain payments to the general contractor as the work on the building progressed. The total amount so paid was $442,821.75. The general contractor failed to pay some of the subcontractors, and the latter filed mechanics' liens against the hotel property. The hotel company did not fully pay the general contractor and it was adjudged a bankrupt in the United States district court on August 19, 1927. John W. Cherry was appointed receiver.

The receiver of the hotel company, on September 23, 1927, filed in the circuit court of Vermilion county an original declaration in debt against the surety on the contractor's bond, for the use of the subcontractors. The declaration was amended and another subcontractor's claim was added. The suit proceeded on the amended declaration, pleas filed thereto and a demurrer to the pleas. The demurrer was sustained. The defendant elected to stand by its pleas. By agreement, however, the cause was submitted to the court for a hearing on the question of damages. The court entered judgment against the defendant for the amount of the penalty, $822,699, and damages for one subcontractor for $33,122.16 and for another subcontractor for $15,554.61. An appeal was prosecuted to the Appellate Court on the merits of the respective pleas. That court held the pleas were bad, and the judgment of the circuit court was affirmed. Cherry v. Benson, 264 Ill.App. 199. The claims in favor of the two subcontractors were settled and the judgments awarding them damages were satisfied. The hotel building was completed about May 1, 1927.

The plaintiff, on August 17, 1932, was given leave to file a third amended declaration. A demurrer thereto was sustained, and, on February 14, 1934, the plaintiff filed his fourth amended declaration. It contained seven counts or assignments of breach of the surety bond. Pleas, amended and additional pleas and demurrers were filed to the various assignments. Replications to various pleas, and demurrers to pleas and to replications were also filed. The issues presented by these pleadings, will hereafter be considered. It is sufficient here to say that certain issues were decided in the circuit court and the cause was appealed to the Appellate Court, where the judgment of the circuit court was reversed and the cause remanded with directions. Cherry v. AEtna Casualty & Surety Co. 285 Ill.App. 601, 3 N.E.2d 105. Upon the remandment, further pleadings of the character of those mentioned, together with rejoinders and surrejoinders were filed. A decision was rendered in the circuit court consistent with the directions of the Appellate Court, but the cause was again taken to the Appellate Court and the judgment of the circuit court was then affirmed. Cherry v. AEtna Casualty & Surety Co. 300 Ill.App. 392, 21 N.E.2d 4. The cause is here on appeal from the judgment of the Appellate Court on a certificate of importance.

Previous to the time the decisions above mentioned were rendered the bankruptcy proceeding had been conducted to its termination in the United States district court (In re Danville Hotel Co., 33 F.2d 162) and by appeal to the United States Circuit Court of Appeals. In re Danville Hotel Co., 7 Cir., 38 F.2d 10. The trustee in bankruptcy, during the pendency of the proceeding in the Federal court, had filed a petition in that court to marshal assets and sell the property free and clear of liens. The district court ordered that, as a condition precedent to bidding for the hotel property, the bondholders deposit $200,000, to provide for payment to the lien claimants. That amount was deposited in court. The property was sold by the trustee in bankruptcy on August 17, 1928. The bondholders' committee made the only bid and purchased the property for somewhat less than the amount of the bonds held by them. Personal property was also sold but it is not here essentially involved. From the amount deposited by the bondholders, subcontractors, who had not been paid, received the amounts due them.

Without setting forth the substance of the voluminous pleadings, reference, when necessary, will be made to them and the facts and circumstances in the record bearing upon the issues, when each specific contention is being considered. Among the contentions are the following: That the action presented in the fourth amended declaration was barred because not instituted within twelve months after the due date of final payment under the construction contract, as provided in the surety bond; that the plaintiff was not a third party beneficiary in the surety bond; that the plaintiff was not subrogated to the rights of lien claimants; that the plaintiff was barred by res judicata, estoppel and laches; that the provisions of the State and Federal constitutions were contravened by the rulings and findings of the circuit court and Appellate Court; that the damages assessed, and the date from which interest should be allowed, were not properly determined.

It is contended by the defendant that the amended declaration filed on August 17, 1932, introduced a new cause of action not stated in the original declaration; that the final due date under the construction contract was June 1, 1927, and the plaintiff did not assert the claim of the bondholders until 1932. The action of debt by the receiver of the obligee in the bond was commenced on September 23, 1927, which was within one year of the date for final payment as provided in the construction contract. Proof was made of default and a judgment in debt was rendered for $822,699. All causes of action on the penal bond were merged into the penalty judgment, and assignments of breaches were not the commencement of a new action. Section 35 of the Practice Act, in force when the suit was commenced, provided, in part: ‘In actions brought on penal bonds, conditioned for the performance of covenant, the plaintiff shall set out the conditions thereof, and may assign in his declaration as many breaches as he may think fit; and the jury, whether on trial of the issue or of inquiry, shall assess the damages for so many breaches as the plaintiff shall prove, and the judgment for the penalty shall stand as a security for such other breaches as may afterwards happen, and the plaintiff may, at any (time) afterwards, sue out a writ of inquiry to assess damages for the breach of any covenant or covenants contained in such bond, subsequent to the former trial or inquiry,’ etc. Smith-Hurd Stat.1933, chap. 110, § 35, p. 2160, Smith-Hurd Stats. c. 110 Appendix, § 35. It was not essential that subsequent assignments of breach of the bond, based upon liens or judgments on subcontractors' liens, should be sued on within a year from the due date of final payment under the construction contract. Lesher v. United States Fidelity & Guaranty Co., 239 Ill. 502, 88 N.E. 208;McDole v. McDole, 106 Ill. 452;Dent v. Davison, 52 Ill. 109.

It is contended that the surety bond was not intended for the benefit of the bondholders and that they have no right of action thereunder as direct beneficiaries, nor by subrogation to the rights of the subcontractors, but that the defendant is entitled to subrogation. There is both oral and documentary evidence that the underwriter of the bonds was insistent upon the execution of the surety bond, but, novertheless, there is no language in the bond indicating that it was executed for the benefit of the bondholders. In the absence of an expressed intention to that effect the bondholders, as such, would not be within the protection of the bond. The mere fact that the bondholders...