The opinion of the court was delivered by: Robert D. Morgan, Chief Judge.
This is an action by the United States, for and on behalf of
the Small Business Administration (hereinafter SBA), to foreclose
a mortgage lien on two parcels of real estate, one of which is
owned by defendant Eklund & McFarlane Construction Co., and the
other of which is owned by defendants Glenn H. Eklund and Lila L.
Eklund, his wife. Also joined as defendants are nine named
mechanics lienors, each of whom has recorded a lien on one or the
other of the above-mentioned parcels of land, as well as any
unknown persons who claim an interest in said realty. Harold L.
Simkins, as Trustee, under each of two trust deeds covering said
parcels of real estate, is further named as a defendant to this
Jurisdiction is found in Title 28, Section 1345, of the United
The case is now before the court on plaintiff's motion for a
judgment on the pleadings. Said motion is directed at defendants
Charles Allen, Joseph Allen, and Joseph Allen, Jr., doing
business as Allen Lumber Co. and Allen Kitchen Mart,*fn1 Ivan J.
Moore, and Hunter, Doherty & Company, all of whom are mechanics
lienors. The motion is considered without oral hearing under
local rule 12(b).
It is undisputed that on August 2, 1971, the First National
Bank of Peru, Illinois, made a loan in the principal amount of
$350,000 to Eklund & McFarlane Construction Co., pursuant to a
participation agreement between said bank and the SBA. In
exchange, Eklund & McFarlane Construction Co. gave the bank a
promissory note in the amount of the loan and secured it with a
trust deed covering certain realty owned by the borrower.
In addition, as an inducement for making the loan, Glenn and
Lila Eklund personally guaranteed repayment of the loan and
jointly executed a promissory note in the amount of $25,000. To
secure this note (as well as a second note in the principal
amount of $10,000 which was executed individually by Glenn
Eklund), Lila and Glenn Eklund executed a trust deed to Harold
Simkins, as Trustee, conveying real estate described as follows:
Lot 3 in Century Oaks Subdivision to the City of
Spring Valley, Bureau County, Illinois; Except the
coal and other mineral underlying the surface of the
land and all rights and easements in favor of the
estate of said coal and minerals.
This trust deed, dated July 7, 1972, was properly recorded on
July 17, 1972.
Thereafter, on February 24, 1973, the bank assigned all of the
above-mentioned notes, guarantees, and trust deeds to the SBA. In
the meantime, Hunter, Doherty & Company, and Charles Allen,
Joseph Allen, and Joseph Allen, Jr., doing business as Allen
Lumber Co. and Allen Kitchen Mart, Inc., recorded — on January
31, 1973 and February 20, 1973, respectively — mechanics liens on
the above-described real estate. Ivan Moore filed a mechanics
lien on the same property on May 1, 1973.
Defendants Eklund & McFarlane Construction Co., Glenn Eklund,
and Lila Eklund are all in default on payments due under the
promissory notes they executed. As a consequence, the maturity of
said notes has been accelerated and this foreclosure action has
The sole issue presented by the motion now before the court is
a legal one, namely, whether the mortgage lien of the government
is superior to the mechanics liens involved, or whether all or
some of them are superior. It is the conclusion of this court
that the lien held by the United States Government must be given
priority over all of them, for the reasons set forth below.
It is well settled that the relative priority of any lien
competing with a lien held by the federal government is to be
determined by federal law. United States v. Acri, 348 U.S. 211,
75 S.Ct. 239, 99 L.Ed. 264 (1955). Where, as here, there is no
controlling federal statute, federal common law must be applied.
The governing principle of that common law is that the lien
"first in time, first in right." United States v. City of New
Britain, 347 U.S. 81, 74 S.Ct. 367, 98 L.Ed. 520 (1954); United
States v. County of Iowa, 295 F.2d 257 (CA 7 1961). For purposes
of this rule, a lien attaches or becomes choate for purposes of
determining priority when the identity ...