Beal Bank Nevada v. NorthShore Center THC, LLC
64 N.E.3d 201
| Ill. App. Ct. | 2016Background
- Owner contracted with FCL (Contractor) to develop property; FCL subcontracted excavation and related work to Lake County Grading (Subcontractor).
- Subcontractor performed work and invoiced $775,872.60 (after an earlier $130,343.40 payment); Owner refused further payments to Contractor.
- Subcontractor recorded a mechanics lien; Contractor recorded its own lien and later obtained a money judgment against Owner, but Owner became insolvent/dissolved and Contractor did not assign that judgment to Subcontractor.
- BankForeclosure litigation ensued; parties litigated a breach-of-contract claim by Subcontractor against Contractor for unpaid subcontract amounts.
- The subcontract’s Article 5 tied partial and final payment timing to Contractor’s receipt of payment from the Owner, and also allowed Contractor to make discretionary advance payments.
- The trial court granted summary judgment for Contractor, treating the subcontract language as a condition precedent (pay‑if‑paid); Subcontractor appealed.
Issues
| Issue | Plaintiff's Argument (Subcontractor) | Defendant's Argument (Contractor) | Held |
|---|---|---|---|
| Whether subcontract makes Owner payment a condition precedent to Contractor’s duty to pay Subcontractor | Subcontractor: provisions govern timing only; Contractor still has an independent obligation to pay for completed work | Contractor: subcontract unambiguously conditions its payment obligation on receipt from Owner (pay‑if‑paid) | Court: Reversed trial court — provisions are timing/mechanics (pay‑when‑paid), not an absolute condition precedent to Contractor’s obligation to pay |
| Whether Conte controls and mandates enforcement of pay‑if‑paid construction | Subcontractor: Conte distinguishable; clauses here do not clearly shift owner‑nonpayment risk | Contractor: Conte is controlling and similar language creates condition precedent | Court: Distinguished Conte on facts; Conte’s clear language created condition precedent, but this subcontract lacks such clear language |
| Whether courts should invoke Restatement §227 preference against forfeiture where ambiguity exists | Subcontractor: courts should avoid construing clauses to cause forfeiture or shift upstream insolvency risk | Contractor: clause is unambiguous so §227 inapplicable | Court: Applied the preference; absent clear language allocating owner‑nonpayment risk to Subcontractor, do not create condition precedent |
| Whether extrinsic evidence or other defenses (misrepresentation re: financing) needed | Subcontractor: extrinsic facts and alleged misrepresentations support relief | Contractor: contract is unambiguous; no need to consider extrinsic evidence | Court: Contract unambiguous as to its meaning here; no need to resolve extrinsic claims on summary judgment regarding condition precedent, but remanded for further proceedings consistent with holding |
Key Cases Cited
- Conte v. Campbell-Lowrie-Lautermilch Corp., 132 Ill. App. 3d 325 (Ill. App. Ct. 1985) (upheld subcontract language as condition precedent — subcontractor paid only if contractor received owner payment)
- BMD Contractors, Inc. v. Fidelity & Deposit Co. of Maryland, 679 F.3d 643 (7th Cir. 2012) (distinguishes pay‑when‑paid from pay‑if‑paid; enforces clear pay‑if‑paid clauses)
- Killianek v. Kim, 192 Ill. App. 3d 139 (Ill. App. Ct. 1989) (recognizes architect/certification conditions as condition precedent to payment)
- Coey v. Lehman, 79 Ill. 173 (Ill. 1875) (upheld superintendent/architect certificate as condition precedent to final payment)
- Brown & Kerr Inc. v. St. Paul Fire & Marine Ins. Co., 940 F. Supp. 1245 (N.D. Ill. 1996) (pay‑when‑paid clause did not preclude surety liability; discusses Mechanics Lien Act §21(e) policy against treating pay‑when‑paid as condition precedent)