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BRH BUILDERS, INC. v. UNITED STATES

June 3, 1985

BRH BUILDERS, INC., PLAINTIFF,
v.
UNITED STATES OF AMERICA, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Baker, Chief Judge.

ORDER

This matter is before the court on the parties' cross-motions for summary judgment. The parties do not dispute the facts underlying this action. Thus, summary judgment is appropriate. Fed.R.Civ.P. 56(c). Plaintiff has sought oral argument on the contested questions of law. The court, however, has determined that oral argument would not aid in the consideration of this cause.

FACTS

On May 16, 1983, "Raymur" (a nationwide developer of classroom buildings) entered into a lease agreement with Sangamon State University (SSU or University), the terms of which provided that Raymur would construct metal classroom buildings to SSU's specifications and lease the buildings to SSU for five years, granting SSU an option to purchase the buildings at the end of the lease period. On the same day Raymur contracted for Plaintiff, BRH Builders, to assemble the prefabricated classrooms. As part of its financing arrangement, Raymur assigned the SSU lease to the Continental Illinois National Bank (the Bank). The assignment was recorded with the county clerk and acknowledged by the lessee (SSU) on November 14 and 15, 1973. At that time, the University had already made its first rental payment to the bank on August 20, 1973. BRH continued construction, the Bank remitted checks payable to BRH and Raymur, and Raymur assigned to BRH the amounts owed on completed construction. The Bank's final payment, due October 15, 1973, was made directly to Raymur without obtaining a lien waiver from BRH. Raymur did not pay BRH the balance then owing.

The record does not so indicate, but it is assumed that BRH attempted to secure payment and in the process learned that Raymur was unwilling or unable to pay the amount due. BRH then faced several unattractive options:

  1. Record and enforce a mechanic's lien against
    Raymur. Raymur still held title to the improvements
    BRH had constructed but the title was subject to a
    lease with a purchase option and thus was
    essentially worthless.
  2. Record and enforce a mechanic's lien against the
    bank. The bank as leaseholder could be said to have
    benefited from BRH's improvements. It certainly had
    knowledge of the improvements. But the bank had not
    requested the improvements. Having already paid the
    $115,000 final installment to Raymur, the bank
    could be counted on to resist strenuously BRH's
    equitable claims for relief.
  3. Record and enforce a mechanic's lien against the
    University:
    (a) as lessee or owner of the underlying land (if
    SSU was the owner of the underlying land, a fact
    not alleged here) on the theory that the University
    knew about, acquiesced in and stood to benefit from
    the improvements. (A few courts have recognized
    this theory, but the University would certainly
    resist this equitable claim.)
    (b) as a public entity for which improvements had
    been constructed. Illinois law provides that a
    subcontractor may file a lien directly against a
    public entity where the prime contractor holding a
    contract to construct a "public improvement" for
    the public entity has failed to pay the
    subcontractor for

    work performed. Ill.Rev.Stat. ch. 82 § 23. The
    statute's applicability to BRH was doubtful since
    Raymur, the prime contractor, held a lease not a
    construction contract with SSU and the buildings —
    technically belonging to Raymur — were not clearly
    "public improvements."

BRH determined that a claim under Ill.Rev. Stat. ch. 82 § 23 had the best chance of succeeding and accordingly filed a lien against the University on January 3, 1974 (the tax year in question). To comply with the state statute's requirements BRH filed an action for an accounting against Raymur on March 1, 1974. It is not clear what response Raymur made to this claim. The University, uncertain as to whom its second annual lease payment should be paid, instituted an interpleader action naming, among others, the bank, Raymur, and BRH as defendants.

The stipulated facts do not indicate but the Court may assume that BRH's tax year 1974 ended on December 31, twenty-two days after the University filed its interpleader action.

BRH claims that as of December 31, 1974, it assessed the likelihood of recovering its $115,000 on its ch. 82 § 23 theory and determined to write off the debt. The IRS contends that at the end of 1974 the debt was not completely worthless as demonstrated by subsequent events:

  1. On March 10, 1975, BRH entered a motion for
     summary judgment on its ch. 82 ยง 23 claim under
     ...

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