Subcontractor May Proceed

on Breach of Contract Theory

against Village’s Bond

-----------------------------------

Not limited to Bond Act;

can sue as Third Party Beneficiary

             Neumann Homes went bankrupt a few years ago. One of its last projects was upgrading infrastructure in the Village of Antioch, a contract on which it defaulted.  Lake County Grading Co. (“LCG”) did not get paid for all of its work as a sub of Neumann and, with Neumann in bankruptcy, sued the Village.

             LCG claimed that the Village erred by not requiring payment bonds for the benefit of subcontractors from Neumann, which had only provided performance bonds.  Section 1 of the Public Construction Bond Act requires public bodies to get payment bonds for the benefit of subs.  LCG sued for breach of contract on the theory that it was a third-party beneficiary of the contract between Neumann and the Village.

             The Village won summary judgment on this theory in the trial court, arguing that Section 1 of the Bond Act incorporates payment and performance provisions in all surety bonds for all public construction even if the bonds do not include them expressly. But since LCG gave notice of its claims more than 180 days after leaving the project, the Village went on, the claim was barred by the 180 day deadline in Section 2 of the Act. 

            The appellate court disagreed, holding that LCG was not limited to the Bond Act for recourse Lake County Grading Company LLC v. The Village of Antioch, 2013 IL App (2d) 120474.  The plaintiff qualified as a third party beneficiary because the Section 1 payment bond requirement, which is read into a public works contract, refers to “work completed by subcontractors.”  Although noting a case that went the other way out of the First District, this court ruled that a subcontractor’s third-party beneficiary action is not a suit on the bond and the 180 day statute of limitations does not apply. 

             The court noted that the contract between Neumann and the Village expressly referred to subcontractors “selected from time to time by Neumann.” 

 

4/26/13