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Armco Steel Corp. v. La Salle Nat'l Bk.

SEPTEMBER 4, 1975.




APPEAL from the Circuit Court of Kane County; the Hon. PAUL W. SCHNAKE, Judge, presiding.


This is an appeal from a judgment in favor of the plaintiff in an action to foreclose a mechanic's lien. After a trial on the merits the court issued a decree of foreclosure and awarded the money judgment prayed for.

The defendants (La Salle National Bank, as trustee, and L.W. Besinger, as beneficiary) appeal on the grounds that the trial court erred in finding that the legal and beneficial owners of the land in question (hereinafter referred to as lessors) "knowingly permitted" the improvements which are the subject of the lien to be made by the defendant lessor. The mechanics' lien statute, section 1 (Ill. Rev. Stat. 1973, ch. 82, par. 1) provides in part as follows:

"Any person who shall by any contract or contracts, express or implied, or partly expressed or implied, with the owner of a lot or tract of land, or with one whom the owner has authorized or knowingly permitted to contract, to improve the lot or tract of land, furnish material, fixtures, apparatus or machinery, forms or form work used in the process of construction * * * to the lot or tract of land * * * is known under this Act as a contractor, and has a lien upon the whole of such lot or tract of land * * *."

The facts of the case are relatively simple. Prior to 1966 L.W. Besinger, the beneficial owner of the land in question, constructed and operated an automobile racetrack on the subject land. In 1966 Besinger entered into a lease with Meadowdale International Raceways, Inc., whereby Meadowdale was to improve the site and operate it as a racetrack under their own name.

By Article 4 of the lease, the lessee covenanted to improve the racetrack in various ways to make it bigger and improve visibility and to do other construction work and "repair bridges and track course in a satisfactory condition to run events."

Article 4 in another paragraph also provided as follows:

"All such improvements and repairs to be completed by Lessee without cost of Lessor and be completed on or before June 5, 1967. Estimates and bids by responsible contractors for work to be performed shall be furnished by Lessee to Lessor for the aforementioned improvements not later than February 28, 1967, and if, in the opinion of the Lessor, all the estimates and bids are adequate, the Lessor will give his permission to proceed, which permission shall not be unreasonably withheld. Funds for making the improvements shall then be deposited with a bank or savings and loan association in an escrow account, which amount shall be sufficient to complete the necessary improvements heretofore set forth according to the estimates and bids. Verification of such escrow deposit shall be furnished Lessor by Lessee. No work shall be commenced until such deposit is made in a manner to assure payment therefor. * * *"

The lease also provided that the improvements in question were to become the property of the lessor at the expiration of the lease.

The lease provided it should not be recorded but that a short memorandum lease might be recorded if either party so requested. Neither party did so request and apparently no memorandum of the lease was ever recorded.

Pursuant to the covenants of the lease the lessee proceeded with improvements to the premises and incidental thereto ordered from Armco Steel Corporation material for a fence to be erected for the protection of spectators. The material in question, according to the complaint, was supplied during the period from April 10, 1968, to July 2, 1968. This was after the date specified for completion in the lease but it is not claimed by the lessor that it ever objected to construction work proceeding or material being delivered to the premises after the date (June 5, 1967) specified in the lease, or that either the lessee or the contractor was requested to desist from such delivery or that the lessor disclaimed responsibility therefor. It is true that the guard rails in question were not specifically authorized by the terms of the lease. However, they are claimed by the lessee to have been an incidental and necessary part of other required improvements to bring the racetrack to the capacity desired.

The lessor contends, however, that he is not liable to the contractor because the permission he gave to the lessee to make improvements was only valid within the framework of the lease provisions, viz., (1) estimates and bids by responsible contractors to be furnished to lessor; (2) lessor to give permission to proceed, if all bids and estimates are adequate; (3) funds to pay for such improvements to be deposited in an escrow; (4) verification to be given of such escrow deposit; (5) no work to commence until such escrow deposit was made. Since the conditions on which permission to proceed were based were not complied with by the lessee, the lessor contends he did not "knowingly permit" the improvements to proceed.

First, to clarify the exact situation as between the parties, this was not a case of the lessee asking permission to make improvements after a lease had been signed. The lease required the lessee to make improvements as one of the covenants of the lease. Moreover, the lessee was under considerable time pressure to complete these improvements and impliedly if it did not do so by a certain date it would be in default. One of the improvements specified in the lease was to "build bleachers seating approximately 12,000 people." That a fence or guard rail to protect the spectators would be required was obvious and this was a necessary corrollary of the requirement to enlarge the spectator capacity. There was thus more than a mere permission involved here, there was an obligation under a covenant in the lease to make not only specified improvements and enlargements, but also the improvements or enlargements necessarily incidental to those specified.

• 1 The lessor, therefore, by the lease provisions brought about a situation whereby improvements of an extensive character were authorized and required to be made on the leased premises. The lessor's argument relative to permission being conditioned on certain safeguards in the lease being complied with is valid only as between him and the lessee — it does not apply to a third party without actual or constructive notice of such conditions. The lessor initiated the situation by ...

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