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) contracted with FCL to perform excavation and related work.
- Subcontractor performed work and invoiced ~$906k total; Owner paid part but refused/failed to pay later invoices; Subcontractor filed mechanics lien and later reduced claim by settlement to ~$300,872.60.
- Contractor recorded liens and obtained a judgment against Owner, but Owner became insolvent/dissolved; Contractor did not assign its judgment to Subcontractor.
- Contractor moved for summary judgment asserting subcontract made Contractor’s receipt of payment from Owner a condition precedent to paying Subcontractor (relying on Conte).
- Circuit court granted summary judgment for Contractor, finding subcontract created a condition precedent; Subcontractor appealed.
- Appellate court reversed: it held the subcontract did not unambiguously make Owner payment a condition precedent to Contractor’s fundamental duty to pay; clauses govern timing/amounts (pay-when-paid), not absolute obligation (pay-if-paid).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether subcontract made Contractor's receipt of Owner payment a condition precedent to Contractor's obligation to pay Subcontractor | Subcontractor: clauses only govern timing; Contractor still obligated to pay for completed work | Contractor: subcontract language (Art. 5) makes Contractor’s receipt from Owner a condition precedent, relieving Contractor if Owner doesn't pay | Court held: Not a condition precedent; clauses are pay-when-paid (timing/amount mechanics), Contractor still obligated to pay Subcontractor |
| Whether Conte requires finding here that Subcontractor assumed risk of Owner nonpayment | Subcontractor: Conte distinguishable; no clear, unambiguous language shifting upstream risk | Contractor: Conte controls because language is similar and should be enforced | Court held: Conte distinguished—its language was clear pay-if-paid; here subcontract lacks plain unambiguous language to allocate owner-nonpayment risk to Subcontractor |
Key Cases Cited
- A.A. Conte, Inc. v. Campbell-Lowrie-Lautermilch Corp., 132 Ill. App. 3d 325 (Ill. App. 1985) (upheld subcontract language that unambiguously made contractor's receipt from owner a condition precedent to subcontractor payment)
- BMD Contractors, Inc. v. Fidelity & Deposit Co. of Maryland, 679 F.3d 643 (7th Cir. 2012) (analyzed pay-if-paid vs. pay-when-paid clauses; enforced clear pay-if-paid clause)
- Killianek v. Kim, 192 Ill. App. 3d 139 (Ill. App. 1989) (contract provision making issuance of architect’s certificate a condition precedent to final payment was enforced)
- Coey v. Lehman, 79 Ill. 173 (Ill. 1875) (superintendent/architect certification of work and payment is binding absent fraud or mistake)
- Brown & Kerr, Inc. v. St. Paul Fire & Marine Ins. Co., 940 F. Supp. 1245 (N.D. Ill. 1996) (treated a pay-when-paid clause as not precluding payment under a surety bond and discussed Mechanics Lien Act §21(e) policy against conditioning subcontractor payment on upstream receipt)