Travelers Cas. & Sur. Co. v. Bowman

• Citation: 893 N.E.2d 583,229 Ill.2d 461
• Decision Date: 24 July 2008
• Docket Number: No. 103759.,103759.
• Parties: TRAVELERS CASUALTY & SURETY COMPANY, Appellee, v. James A. BOWMAN et al., Appellants.
• Court: Supreme Court of Illinois

893 N.E.2d 583

229 Ill.2d 461

TRAVELERS CASUALTY & SURETY COMPANY, Appellee, v. James A. BOWMAN et al., Appellants.

No. 103759.

Supreme Court of Illinois.

July 24, 2008.

Carl F. Safanda, Geneva, for appellants.

Hinshaw & Culbertson LLP, Chicago (Stephen R. Swofford, John E. Sebastian, Clifford E. Yuknis, of counsel), for appellee.

Clausen Miller P.C., Chicago (Randall I. Marmor, Agelo L. Reppas, of counsel), for amicus curiae Surety & Fidelity Association of America.

OPINION

Justice KILBRIDE delivered the judgment of the court, with opinion:

Plaintiff, Travelers Casualty & Surety Company, filed suit against defendants, James A. and Barbara B. Bowman, for breach of a written indemnity agreement relating to performance bonds. The circuit court of Kane County granted the Bowmans' motion to dismiss, finding the cause of action time-barred by the four-year statute of limitations in section 13-214(a) of the Code of Civil Procedure (Code) (735 ILCS 5/13-214(a) (West 2004)), for construction improvements to real property. The appellate court reversed the circuit court's judgment, holding that Travelers' action is subject to the 10-year statute of limitations generally applicable to written contracts in section 13-206 (735 ILCS 5/13-206 (West 2004)). 368 Ill.App.3d 519, 306 Ill.Dec. 694, 858 N.E.2d 491. We allowed defendants' petition for leave to appeal. 210 Ill.2d R. 315. We affirm in part and vacate in part the judgment of the appellate court and remand the cause to the circuit court.

I. BACKGROUND

On October 5, 2004, plaintiff, Travelers Casualty & Surety Company, filed suit against A.G. Carlson, Inc., a metalworking firm, and defendants, James A. and Barbara B. Bowman, in the circuit court of Kane County. James Bowman was Carlson's president and Barbara Bowman was its sole shareholder. Carlson was subsequently dismissed with prejudice from the suit.

Travelers' complaint alleged that Reliance Insurance Companies and United Pacific Insurance Companies issued performance bonds to Carlson. According to the complaint, Travelers was the successor in interest to the rights of Reliance and United Pacific.

The first performance bond applied to metalwork for expansion of the Du Page County jail. The second performance bond covered metalwork at a federal correctional facility in Pekin, Illinois. The third performance bond applied to metalwork on an addition to a building at Northern Illinois University. In consideration of the issuance of the performance bonds, the Bowmans signed a general indemnity agreement.

Travelers' complaint alleged that it incurred $510,904.52 in losses, costs, and expenses on claims against the performance bonds in 1994 and 1996, when Carlson breached the underlying construction contracts. Travelers alleged that the Bowmans breached the indemnity agreement.

The Bowmans moved to dismiss Travelers' complaint pursuant to section 2-619(a)(5) of the Code (735 ILCS 5/2-619(a)(5) (West 2004)) on statute of limitations grounds. The Bowmans argued Travelers' claims were barred by the four-year statute of limitations in section 13-214(a) of the Code, for construction improvements to real property.

Travelers argued in a written response in opposition to the Bowmans' motion to dismiss that its action on the written indemnity agreement could only be subject to the 10-year statute of limitations generally applicable to written contracts in section 13-206. Travelers asserted that the plain and unambiguous language of the indemnity agreement imposed an absolute contractual obligation on the Bowmans to indemnify and that Travelers' action is based upon the express contractual terms of the indemnity agreement.

The circuit court granted the Bowmans' motion to dismiss based on the four-year statute of limitations in section 13-214. The circuit court reasoned that Travelers' complaint was time-barred because more than four years had elapsed since the claims against the performance bonds.

Travelers appealed, arguing that the trial court erred by not applying the 10-year statute of limitations in section 13-206. The Bowmans countered that the trial court correctly applied the four-year statute of limitations in section 13-214. In the alternative, the Bowmans asserted, for the first time on appeal, that the two-year statute of limitations in section 13-204 for contribution and indemnity actions applies to Travelers' cause of action. The appellate court reversed the circuit court's dismissal of Travelers' complaint, holding applicable the 10-year statute of limitations in section 13-206. 368 Ill.App.3d 519, 306 Ill.Dec. 694, 858 N.E.2d 491. We granted the Bowmans' petition for leave to appeal. 210 Ill.2d R. 315.

II. ANALYSIS

On appeal, the Bowmans contend that the appellate court erred in applying the 10-year statute of limitations pursuant to section 13-206 of the Code (735 ILCS 5/13-206 (West 2004)). In its objection to the Bowmans' motion to dismiss pursuant to the 4-year statute of limitations in section 13-214, Travelers maintained that the 10-year statute of limitations in section 13-206 applied to their cause of action. The basis of Travelers' appeal was that the circuit court erroneously applied the 4-year statute of limitations in section 13-214, rather than the 10-year statute of limitations pursuant to section 13-206.

The appellate court determined that the 10-year statute of limitations in section 13-206 applied to Travelers' cause of action because its complaint stated a cause of action for breach of contract. Section 13-206 provides, in relevant part:

"[A]ctions on bonds, promissory notes, bills of exchange, written leases, written contracts, or other evidences of indebtedness in writing, shall be commenced within 10 years next after the cause of action accrued * * *." 735 ILCS 5/13-206 (West 2004).

The applicability of a statute of limitations to a cause of action presents a legal question we review de novo. Belleville Toyota, Inc. v. Toyota Motor Sales, U.S.A., Inc., 199 Ill.2d 325, 345, 264 Ill. Dec. 283, 770 N.E.2d 177 (2002). In Armstrong v. Guigler, 174 Ill.2d 281, 220 Ill. Dec. 378, 673 N.E.2d 290 (1996), this court considered whether the 10-year statute of limitations in section 13-206 for actions on a written contract or the 5-year statute of limitations in section 13-205 for "all civil actions not otherwise provided for" applied to a cause of action alleging breach of an implied duty. In Armstrong, this court began its analysis by noting that "[t]he determination of the applicable statute of limitations is governed by the type of injury at issue, irrespective of the pleader's designation of the nature of the action." Armstrong, 174 Ill.2d at 286, 220 Ill.Dec. 378, 673 N.E.2d 290. In identifying the applicable limitations period, Armstrong recognized, "[w]e have long held that `it is the nature of the plaintiff's injury rather than the nature of the facts from which the claim arises which should determine what limitations period should apply.'" Armstrong, 174 Ill.2d at 286-87, 220 Ill.Dec. 378, 673 N.E.2d 290 (quoting Mitchell v. White Motor Co., 58 Ill.2d 159, 162, 317 N.E.2d 505 (1974), and citing Handtoffski v. Chicago Consolidated Traction Co., 274 Ill. 282, 113 N.E. 620 (1916)). To determine the true character of a plaintiff's cause of action, Armstrong emphasized that "[t]he focus of the inquiry is on the nature of the liability and not on the nature of the relief sought." Armstrong, 174 Ill.2d at 291, 220 Ill.Dec. 378, 673 N.E.2d 290, citing Mitchell, 58 Ill.2d at 162, 317 N.E.2d 505. Armstrong observed that "[t]he essence of any contractual action is found in the agreement's promissory language." Armstrong, 174 Ill.2d at 291, 220 Ill.Dec. 378, 673 N.E.2d 290. This court concluded in Armstrong that a cause of action constitutes "an action on a written contract" within the meaning of section 13-206 only when liability emanates from the breach of a contractual obligation. Armstrong, 174 Ill.2d at 291, 220 Ill.Dec. 378, 673 N.E.2d 290. This court explained in Armstrong:

"It is irrelevant whether the aggrieved party seeks monetary damages, specific performance, rescission or restitution. As long as the gravamen of the complaint rests on the nonperformance of a contractual obligation, section 13-206 applies." Armstrong, 174 Ill.2d at 291, 220 Ill.Dec. 378, 673 N.E.2d 290.

Armstrong found that the plaintiff's claim for breach of fiduciary duty did not result from the nonperformance of contractual obligations and, consequently, the claim was not an action on a written contract, but was collateral to the contract. Armstrong, 174 Ill.2d at 293, 220 Ill.Dec. 378, 673 N.E.2d 290. Accordingly, the court held that the 5-year statute of limitations in section 13-205, rather than the 10-year statute of limitations in section 13-206, applied to plaintiff's claim for breach of fiduciary duty. Armstrong, 174 Ill.2d at 296, 220 Ill.Dec. 378, 673 N.E.2d 290.

Applying Armstrong to the allegations of Travelers' complaint reveals that Travelers seeks damages for the Bowmans' failure to perform their contractual duties in the written indemnification agreement. Travelers' complaint alleges that the Bowmans breached the indemnity agreement based on the second paragraph of the indemnity agreement. In the second paragraph of the indemnity agreement, the Bowmans agreed:

"To indemnify, and keep indemnified, and hold and save harmless the Surety against all demands, claims, loss, costs, damages, expenses, and attorney fees whatever, and any and all liability therefore, sustained or incurred by the Surety by reason of executing or procuring the execution of any said Bond or Bonds, or any other Bonds, which may be already or hereafter executed on behalf of the Contractor, or renewal or continuation thereof, or sustained or incurred by reason of making any investigation on account thereof, prosecuting or defending any action brought in connection therewith, obtaining a release therefrom, recovering...