W.E. Erickson Const., Inc. v. Congress-Kenilworth Corp.

• Decision Date: 20 November 1986
• Docket Number: CONGRESS-KENILWORTH,Nos. 62000,62001,s. 62000
• Citation: 115 Ill.2d 119,104 Ill.Dec. 676,503 N.E.2d 233
• Parties: , 104 Ill.Dec. 676 W.E. ERICKSON CONSTRUCTION, INC., et al., Appellants and Cross-Appellees, v.CORPORATION et al., Appellees and Cross-Appellants.
• Court: Illinois Supreme Court

Page 233

503 N.E.2d 233

115 Ill.2d 119, 104 Ill.Dec. 676

W.E. ERICKSON CONSTRUCTION, INC., et al., Appellants and Cross-Appellees, v. CONGRESS-KENILWORTH CORPORATION et al., Appellees and Cross-Appellants.

Nos. 62000, 62001.

Supreme Court of Illinois.

Nov. 20, 1986.

Rehearing Denied Jan. 30, 1987.

Nathan Diamond-Falk, Paul M. Daugerdas, Chicago, for Congress-Kenilworth Corp. et al.

J. Samuel Tenenbaum, Alan E. Gitles, Becker & Tenenbaum, Chicago, for W.E. Erickson Const., Inc., et al.

Chief Justice CLARK delivered the opinion of the court:

This appeal involves a suit for an alleged breach of a construction contract. W.E. Erickson Construction, Inc., and Wilbert E. Erickson (collectively referred to herein as Erickson), plaintiffs, brought a breach of contract action against the defendants, Congress-Kenilworth Corporation, James Adams and John Stafford (collectively referred to herein as Congress), to recover monies Erickson alleges are due under its contract to construct the "Thunder Mountain Rapids," a concrete waterslide in Crestwood, Illinois. Erickson also sought appointment of a receiver and equitable relief. Congress filed a counterclaim for damages due to alleged construction defects.

In the circuit court of Cook County, following a 22-day bench trial, a $202,000 judgment was entered in favor of Erickson on count II of its third amended complaint for breach of contract. The other five counts of Erickson's complaint and Congress' counterclaim were dismissed. Congress was awarded attorney fees from a fund held by the receiver who was appointed at Erickson's request at a pretrial hearing.

Both Erickson and Congress appealed to the appellate court. Erickson appealed from tile award of damages, the dismissal of the remaining five counts of its amended complaint and the award of attorney fees to Congress. Congress filed a notice of appeal but did not pursue its appeal. 132 Ill.App.3d 260, 87 Ill.Dec. 536, 477 N.E.2d 513.

An earlier appeal in the appellate court involved these same parties on the issue of whether a receiver should have been appointed. In that appeal, the appellate court reversed the circuit court's order appointing a receiver. See W.E. Erickson Construction, Inc. v. Congress-Kenilworth Corp. (1983), 112 Ill.App.3d 847, 68 Ill.Dec. 356, 445 N.E.2d 1209.

In the appellate court, in the appeal which is now before us, the appellate court held that although Erickson had substantially performed under the contract, the "trial court's award was not a proper method of computation of damages under the doctrine of substantial performance." (132 Ill.App.3d 260, 266, 87 Ill.Dec. 536, 477 N.E.2d 513.) The appellate court therefore vacated the judgment as to damages and remanded the cause for a recalculation of damages. The appellate court also held that Erickson was not entitled to interest because of Erickson's failure to comply with the contract provision requiring Erickson to make written application for monthly progress payments. The appellate court reasoned that since the right to interest was predicated on the submission of an application and Erickson failed to properly apply, interest was not due. 132 Ill.App.3d 260, 266, 87 Ill.Dec. 536, 477 N.E.2d 513.

Erickson had also proceeded in the appellate court on an alternative ground for recovery--an account stated. The basis of the account-stated theory of recovery was a letter Congress' attorney had sent to Erickson allegedly acknowledging an indebtedness of $550,000. The appellate court held that the facts did not establish an account stated. 132 Ill.App.3d 260, 268, 87 Ill.Dec. 536, 477 N.E.2d 513.

Erickson also argued the theory of accord and satisfaction in the appellate court, but the court again found that there was not sufficient evidence to establish an accord and satisfaction. 132 Ill.App.3d 260, 269, 87 Ill.Dec. 536, 477 N.E.2d 513.

Erickson also maintained in the appellate court that the circuit court erred in denying Erickson's request for an equitable lien upon the waterslide and its proceeds. The appellate court held that Erickson was entitled to an equitable lien on the premises for the reasonable value of the permanent improvements Erickson placed on the premises because Erickson and Congress made a mutual mistake about the validity of a warranty deed which Erickson received from Congress as security for additional financing of the improvements. 132 Ill.App.3d 260, 270, 87 Ill.Dec. 536, 477 N.E.2d 513.

Lastly, Erickson argued that Congress was not entitled to the award of attorney fees out of the receivership fund because the receiver should only pay attorney fees for activities which benefit the receiver or protect and preserve the receivership fund. Erickson argued that Congress' contest of the receivership did not benefit the corporation. The appellate court rejected this argument and held that the attorney fees were properly awarded to Congress. The appellate court also held that the award of attorney fees to Congress would not be affected by the existence of Erickson's equitable lien. 132 Ill.App.3d 260, 272, 87 Ill.Dec. 536, 437 N.E.2d 513.

Both parties filed petitions for leave to appeal in this court (94 Ill.2d R. 315), and we have granted their petitions and consolidated the cause.

The appellate court opinion sets forth the relevant facts, and those facts will be restated only to the extent necessary to resolve the issues the parties have raised in this appeal.

Erickson entered into a contract with Congress for the construction of a concrete water slide. The total cost for the slide was not to exceed $535,000, exclusive of specified costs and interest. According to the contract, Erickson, as the general contractor, was to be paid the cost of the work performed by the subcontractors and a contractor's fee of 15% of the project cost, exclusive. The $535,000 was not to include the cost of concrete, carpentry, architectural and engineering costs, Erickson's labor for concrete and carpentry work, and overhead, as well as additional amounts attributable to the costs of extra or modified work, permits, engineering fees, certain sewer and sanitary work, and interest at the rate of 2% over prime for overdue balances. Construction of the slide began on April 15, 1981, and the slide was completed on July 3, 1981, the day before the projected opening date. According to the record, Erickson has received $150,000 on the contract to date.

In count II of its amended complaint for breach of contract, Erickson sought damages in the amount of $550,000 for full performance under the contract. The trial court awarded $352,000, less the $150,000 already paid to Erickson, for a judgment of $202,000.

On appeal before this court, Erickson raises three main issues. The first issue is whether Erickson is entitled to interest on the alleged unpaid contract balance at the rate of 2% over the prime rate since June 20, 1981, the date Erickson alleges that Congress acknowledged its debt and waived its requirement that Erickson submit a final bill.

Second, Erickson argues that the cause should not be remanded for a reassessment of damages. Although Erickson believes it is entitled to substantially more than it was awarded in the trial court, it does not agree that a remand is necessary. Erickson believes this court should increase the damage award without remanding the cause.

The third issue involves the award of attorney fees to Congress out of funds which Erickson argues were subject to Erickson's equitable lien.

In its brief, Congress, as cross-appellant, argues that the appellate court erred in finding that Erickson had substantially performed. Congress further argues that the amount of the judgment was proper, even if the appellate court correctly found substantial performance. Lastly, Congress argues that the appellate court erred in denying it a setoff of $67,587.26 as damages for the alleged wrongful appointment of a receiver.

Since Congress argues that Erickson did not substantially perform under the terms of the parties' construction contract, we must necessarily resolve this issue before deciding the tangential issues raised regarding the trial court's calculation of damages and whether Erickson is entitled to interest.

"The question of whether there has been substantial performance of the terms and conditions of a contract sufficient to justify a judgment in favor of the builder for the contract price is always a question of fact." Petersen v. Hubschman Construction Co. (1979), 76 Ill.2d 31, 44, 27 Ill.Dec. 746, 389 N.E.2d 1154.

In People ex rel. Peterson v. Omen (1919), 290 Ill. 59, 124 N.E. 860, this court stated:

"Substantial performance of a contract means performance in all the essential elements necessary to the accomplishment of the purpose of the contract. [Citation.] 'Substantial' means in substance; in the main; essential, including material or essential parts. [Citation.] It has been said by this court that 'in building contracts a literal compliance with the specifications is not necessary to a recovery by the contractor. A substantial performance in good faith is sufficient.' " (290 Ill. 59, 65-66, 124 N.E. 860.)

As the appellate court stated, a purchaser who receives substantial performance of a building contract must pay the price bargained for, less an offset for defects in what he received as compared to what strict performance would have given him. (Park v. Sohn (1982), 89 Ill.2d 453, 464-65, 60 Ill.Dec. 609, 433 N.E.2d 651.) On appeal, since the issue of whether there was substantial performance is a question of fact, the trial court's finding will not be disturbed unless it is against the manifest weight of the evidence. Schulenburg v. Signatrol, Inc. (1967), 37 Ill.2d 352, 356, 226 N.E.2d 624.

We agree with the appellate court that the trial court did find that Erickson substantially performed under the contract and that the trial court's finding is not against the manifest weight of...