Western Waterproofing v. Springfield Housing Auth.

• Decision Date: 22 September 1987
• Docket Number: No. 86-3144.,86-3144.
• Citation: 669 F. Supp. 901
• Parties: WESTERN WATERPROOFING COMPANY, INC., Mid-Continental Restoration Company, Inc., Plaintiffs, v. SPRINGFIELD HOUSING AUTHORITY, Defendant.
• Court: U.S. District Court — Central District of Illinois

669 F. Supp. 901

WESTERN WATERPROOFING COMPANY, INC., Mid-Continental Restoration Company, Inc., Plaintiffs, v. SPRINGFIELD HOUSING AUTHORITY, Defendant.

No. 86-3144.

United States District Court, C.D. Illinois, Springfield Division.

September 22, 1987.

Gary L. Cline, Springfield, Ill., for plaintiffs.

Donald A. LoBue, Springfield, Ill., for defendant.

OPINION ORDER

MILLS, District Judge:

As far as the Court and the parties can discern, this case presents a novel issue under Illinois law.

The ultimate issue: Whether a third party beneficiary contract action may be asserted by an unpaid subcontractor against a public entity where such entity has failed to procure from a general contractor a payment bond as required by the Illinois Bond Act.

The case is before this Court on cross motions for summary judgment. Under Count III of their complaint, Plaintiff Western Waterproofing Company, Inc., prays for judgment in the amount of $129,000. Under Count VI of their complaint, Mid-Continental Restoration Company, Inc., prays for judgment in the amount of $22,456. Defendant Springfield Housing Authority prays for judgment dismissing Counts III and VI of Plaintiffs' complaint.

Summary judgment will be granted where there is no genuine issue as to any material fact and the movant is entitled to a judgment as a matter of law. Fed.R. Civ.P. 56(c).

The pertinent facts of this suit are undisputed. Plaintiffs were subcontractors for a federally funded construction project of the Defendant, Springfield Housing Authority (SHA). In January 1985, the SHA entered into an agreement with Bildoc, Inc. (Bildoc), for the waterproofing and weatherization of five hi-rise apartment buildings. The general contractor, Bildoc, then entered into contracts with various subcontractors which included Plaintiffs Western Waterproofing Company, Inc. (Western) and Mid-Continental Restoration Company, Inc. (Mid-Continental). Both Plaintiffs contributed labor and materials toward the completion of the project. Both were to receive payment 63 days from completion of the project. Work was completed and final payment, less retainage in the amount of $12,481.16, was made to Bildoc on December 13, 1985.

Western was to be paid $129,000 under its agreement with Bildoc. Mid-Continental was to be paid $22,456 under its agreement with Bildoc. Neither Plaintiff has received any payments for work performed.

Plaintiffs filed their complaint on May 2, 1986. They secured a default judgment against Defendant Bildoc based on Counts I and IV of the complaint in a judgment order entered July 11, 1986. The Plaintiffs have been unable to collect on this judgment. Plaintiffs then resumed proceedings in this case in February 1987 against the SHA. Plaintiffs confessed SHA's motion to strike Counts II and V of the complaint. Thus, Counts III and VI of the complaint, which allege that the Plaintiffs are third party beneficiaries of SHA's contract with Bildoc, remain unlitigated and are the subject of the cross motions for summary judgment.

I.

The basis of the Plaintiffs' claim as a third party beneficiary of the contract between SHA and Bildoc stems from the following provision in the general contract:

PERFORMANCE AND PAYMENT BOND

A performance bond in the amount of total amount of contract for cost of installation of windows will be furnished to the authority as a separate cost item and will be added to the contract price. After the first shipment of windows and payment thereof by SHA, the Contractor shall provide SHA with a Waiver of Lien against all materials on site.

The SHA failed to procure from Bildoc either a performance bond or a payment bond. Both parties agree that had a payment bond been secured the Plaintiffs, as subcontractors, would have collected monies due them under such bond. The parties further agree that subcontractors have no rights under a performance bond. Thus, the initial bone of contention is, what exactly was required under the contract. If only a performance bond was required, as stated in the body of the provision, then Western and Mid-Continental as subcontractors have no claim. If, however, a payment bond was also required as stated in the heading of the provision, then Plaintiffs have stated a colorable claim.

The nature of the bonds involved is as follows. Generally, as a condition of the construction contract between an owner (SHA) and a general contractor (Bildoc), the owner requires the contractor to obtain a surety bond. "There are two kinds of surety bonds, performance bonds and payment bonds. A performance bond simply insures that the contractor will perform the work as contracted.... A payment bond, on the other hand, requires that the contractor pay all subcontractors and materialmen before the owner will make final payment." Taylor Woodrow Blitman Const. Corp. v. Southfield Gardens Co., 534 F.Supp. 340, 344 (D.Mass.1982) (footnotes omitted); see also J. Calamari & J. Perillo, The Law of Contracts 621 (2d ed. 1977). Thus, although the two bonds can be combined into a single bond, they serve separate and distinct purposes. J. Calamari & J. Perillo, supra.

It is the SHA's contention that although the above quoted "section is entitled Performance and Payment Bond, it requires only a Performance Bond. There is nothing that requires Bildoc to supply a Payment Bond under the contract." The Court disagrees with this interpretation for two reasons. First, under 29 Ill.Rev.Stat. ¶ 15 (1985), An Act in Relation to Bonds of Contractors Entering into Contracts for Public Construction (Bond Act),

all officials, boards, commissions or agents of this State, or of any political subdivision thereof in making contracts for public work of any kind to be performed for the State, or a political subdivision thereof shall require every contractor for such work to furnish, supply and deliver a bond to the State, or to the political subdivision thereof entering into such contract, as the case may be, with good and sufficient sureties. The amount of such bond shall be fixed by such officials, boards, commissions, commissioners or agents, and such bond, among other conditions, shall be conditioned for the completion of the contract, for the payment of material used in such work and for all labor performed in such work, whether by subcontractor or otherwise.

Id. (emphasis added).¹ The Act contains mandatory language directing the requirement of a payment bond to protect materialmen and subcontractors. Fodge v. Board of Educ. of the Village of Oak Park, Dist. 97, 309 Ill.App. 109, 124, 32 N.E.2d 650 (1941).

Under Illinois law, "statutory provisions applicable to a contract ... are deemed to form a part of that contract and must be construed in connection therewith." DC Electronics, Inc. v. Employers Modern Life Co., 90 Ill.App.3d 342, 348, 45 Ill.Dec. 690, 413 N.E.2d 23 (1st Dist.1980); see also Local 165, Int'l Bhd. of Elec. Workers v. Bradley, 149 Ill.App.3d 193, 102 Ill.Dec. 20, 32, 499 N.E.2d 577, 589 (1st Dist.1986) (involving union contract); Lehmann v. Arnold, 137 Ill.App.3d 412, 422, 91 Ill.Dec. 914, 484 N.E.2d 473 (4th Dist. 1985) (involving mortgage contract); Weisberg v. Royal Ins. Co. of Am., 124 Ill. App.3d 864, 868, 80 Ill.Dec. 187, 464 N.E.2d 1170 (1st Dist.1984) (involving insurance contract); National Fidelity Life Ins. Co. v. Karaganis, 811 F.2d 357, 362 (7th Cir. 1987) (involving insurance contract). Further, it has been held in Illinois that the "Mechanics' Liens Act becomes a part of every construction contract between an owner and contractor for the erection or improvements of a building." Deerfield Elec. Co. v. Herbert W. Jaeger & Assocs., Inc., 74 Ill.App.3d 380, 384, 30 Ill.Dec. 149, 392 N.E.2d 914 (2d Dist.1979). Similarly, this same rule should apply to the Bond Act where a contract for public work is involved as it has been held that "paragraphs 15 and 16 (of Chapter 29) are remedial and were intended to protect subcontractors and materialmen for whom no right of mechanic's lien exists against a public work." Board of Educ., ex rel. Palumbo v. Pacific Nat'l Fire Ins. Co., 19 Ill.App.2d 290, 299, 153 N.E.2d 498 (1st Dist.1958). Thus, because the mechanic's lien was inapplicable under this public works contract, and because the Bond Act was established to achieve the same remedial goal as the mechanic's lien in a public works situation, it follows that the Bond Act should be read into the public works contract between SHA and Bildoc, requiring the procurement of a payment bond as required by the Bond Act.

The second reason a payment bond and not simply a performance bond is held to be required under the contract is that ambiguous contractual language is to be construed against the drafter of the language. Duldulao v. St. Mary of Nazareth Hosp. Center, 115 Ill.2d 482, 106 Ill.Dec. 8, 505 N.E.2d 314 (1987). The contract was apparently drawn by the SHA and would therefore be construed against it. Under this rule, again, a payment bond would be required under the contract. Additionally, it should be noted that, the contract language notwithstanding, the Executive Director of SHA stated in his deposition that: "It is our policy there should be a performance and payment bond. So—I am not sure how to phrase this. Our directors just didn't follow their responsibilities and duties here in regard to that getting a performance and payment bond from Bildoc."

II.

Having established that a payment and performance bond was necessary under the contract, the Court must now decide whether Plaintiffs are third party beneficiaries under the contract and are, therefore, able to assert the bond provision. The Court determines that they are.

There is no question that had a payment bond been procured Plaintiffs would have been third party beneficiaries under it. The question arises here, however, whether Plaintiffs are third party beneficiaries under the contract provision to procure a bond where none has been procured. The answer in...