Beal Bank Nevada v. NorthShore Center THC, LLC
2016 IL App (1st) 151697
| Ill. App. Ct. | 2016Background
- Owner (Northshore) contracted with FCL (Contractor); Lake County Grading (Subcontractor) performed excavation/sewer work under a subcontract.
- Subcontractor invoiced ~$906k total; Owner paid part but refused/failed to pay remainder; subcontractor recorded lien and later settled its lien for $475,000, reducing its claim.
- Contractor recorded its own lien and obtained a judgment against Owner; Owner became insolvent/dissolved and contractor did not (and subcontractor did not accept) assignment of that judgment.
- Subcontractor sued Contractor for breach of the subcontract for unpaid amounts; Contractor defended that subcontract made Contractor’s payment obligation conditional on Contractor receiving payment from Owner (a condition precedent / pay‑if‑paid).
- Circuit court granted summary judgment for Contractor, relying on Conte to read subcontract payment clauses as a condition precedent. Subcontractor appealed.
- Appellate court reversed: it held the subcontract required Contractor to pay Subcontractor (sections 5.1–5.2 govern timing/amounts), did not unambiguously create a condition precedent shifting owner‑nonpayment risk to Subcontractor, and interpreted Section 5.4 (advance payments) as corroborating that primary payment obligation remained with Contractor.
Issues
| Issue | Subcontractor's Argument | Contractor's Argument | Held |
|---|---|---|---|
| Whether subcontract made Contractor’s payment obligation conditional on Contractor’s receipt of payment from Owner (i.e., a pay‑if‑paid/condition precedent) | Clauses regulate timing/amounts (pay‑when‑paid); no clear language shifting risk of owner nonpayment to Subcontractor, so Contractor remains obligated to pay after reasonable time | Contract language (sections 5.1, 5.2) establishes Owner payment as condition precedent; Conte controls and bars recovery absent Owner payment | The subcontract does not unambiguously impose a condition precedent; sections 5.1–5.2 address timing/amounts (pay‑when‑paid), and Contractor remains obligated to pay Subcontractor; summary judgment for Contractor reversed. |
Key Cases Cited
- A.A. Conte, Inc. v. Campbell-Lowrie-Lautermilch Corp., 132 Ill. App. 3d 325 (Ill. App. 1985) (upholding subcontract language construed as condition precedent/pay‑if‑paid)
- 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. 1989) (contract condition precedent where final certificate required before owner’s payment obligation)
- Coey v. Lehman, 79 Ill. 173 (Ill. 1875) (architect’s certification 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 does not bar recovery under surety bond; cites Mechanics Lien Act policy)