## Facts

- A school board contracted with a general contractor to construct swimming pool facilities for two high schools.
- The contractor delivered a performance bond and a labor-and-material payment bond, each in the contract amount, with a surety issuing both bonds.
- The project was deemed substantially complete on August 4, 1975, when the architect issued a certificate of completion; under the contract, final payment became due upon that certificate.
- Years later, the board alleged defective construction and asserted the contractor was no longer a legal entity.
- On April 19, 1985, the board sued the surety to recover on the performance bond for defective work and on the payment bond as an alleged beneficiary.
- The performance bond required any action to be brought within two years after final payment became due.
- The payment bond was in standard form securing payment to subcontractors and material suppliers furnishing labor or materials to the project.

## Issues

1. Whether a two-year contractual limitation in a public construction performance bond, running from when final payment became due, is enforceable to bar a suit filed roughly ten years later.
2. Whether a public owner is an intended third-party beneficiary with standing to sue on a labor-and-material payment bond issued for a public construction project.

## Decision

- The appellate court affirmed summary judgment for the surety on the performance bond claim.
- The court enforced the bond’s two-year suit limitation, measured from when final payment became due, and held the board’s action was time-barred.
- The appellate court affirmed dismissal of the payment-bond claim.
- The court held the board was not an intended beneficiary of the labor-and-material payment bond and therefore could not enforce it.

## Legal Principles

- Contractual suit-limitation provisions in surety bonds are enforceable when reasonable and not contrary to statute or public policy.
- When a bond ties the limitations period to “final payment,” accrual occurs when final payment becomes due under the contract (here, upon issuance of the architect’s completion certificate).
- Absent a sufficient basis for tolling, waiver, or estoppel, a claimant must comply with the bond’s contractual filing deadline.
- A labor-and-material payment bond on a public project is intended to protect those furnishing labor and materials (e.g., subcontractors and suppliers), particularly where lien remedies are unavailable against public property.
- Under third-party beneficiary doctrine, only parties for whose direct benefit the contract was made may sue; incidental benefit to a public owner does not confer standing to enforce a payment bond.

## Conclusion

The court enforced the performance bond’s two-year deadline for suit measured from when final payment was due and rejected the public owner’s attempt to sue on the labor-and-material payment bond because the owner was not an intended beneficiary of that bond.


Board of Education v. Hartford Accident & Indemnity Co., 504 N.E.2d 1000 (Ill. App. Ct. 1987)