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09/29/95 PREMIER ELECTRICAL CONSTRUCTION COMPANY v.

September 29, 1995

PREMIER ELECTRICAL CONSTRUCTION COMPANY, PLAINTIFF-APPELLANT, CROSS-APPELLEE,
v.
AMERICAN NATIONAL BANK OF CHICAGO AS TRUSTEE UNDER TRUST NO. 51001, 666 ASSOCIATES, A LIMITED PARTNERSHIP, 666 SOUTH RESIDENCE CONDOMINIUM ASSOCIATION, DAVID L. PAUL, AM MART REALTY CORPORATION, MORSE/DIESEL, INC., CHEMICAL BANK, ABACUS MORTGAGE INVESTMENT COMPANY, L. A. CENTLIVRE, N. L. SCHREBER, D. R. HARRIS, UNKNOWN OWNERS, UNKNOWN BENEFICIARIES OF AMERICAN NATIONAL BANK AS TRUSTEE UNDER TRUST NO. 51001 AND UNKNOWN LEINHOLDERS, AND FEDERAL INSURANCE COMPANY, DEFENDANTS-APPELLANTS.



Appeal from the Circuit Court of Cook County. Honorable Sheila M. Murphy, Rosemary Duschene La Porta, Edwin M. Berman, and John V. Virgilio, Judges Presiding.

Released for Publication November 3, 1995. Petition for Leave to Appeal Denied December 6, 1995. As Modified December 13, 1995. As Corrected December 20, 1995.

The Honorable Justice Cerda delivered the opinion of the court: Rizzi, J., and Tully, J., Concur.

The opinion of the court was delivered by: Cerda

MODIFIED OPINION

The Honorable Justice CERDA delivered the opinion of the court:

This case arises from the renovation of the building at 666 North Lake Shore Drive in Chicago (project). On December 17, 1980, Morse/Diesel (MDI) entered into a general contract with 666 Associates to remodel and reconstruct the building. On January 13, 1981, MDI entered into a subcontract with Premier Electrical Construction Co. (Premier) for electrical work on the project. On February 6, 1981, Federal Insurance Company (Federal) issued a Labor and Material Payment Bond (Bond) for the project with Federal as surety, MDI as principal, and 666 Associates and others as obligees.

The project was financed through a series of mortgages totalling approximately $115 million, which were eventually assigned to Chemical Bank. Progress payments were made to Premier from a construction loan escrow account.

After MDI failed to pay Premier for all the work it had finished, Premier filed a mechanic's lien against 666 Associates and American National Bank (ANB), the land trustee, on June 13, 1983, for $626,280. MDI filed mechanic's liens totalling over $2.4 million against 666 Associates and ANB on April 26, 1984, and May 7, 1984. The amount owed to Premier was included in MDI's liens.

Premier filed a complaint on January 24, 1984, against MDI, ANB, Federal, and others. Premier's amended complaint included the following claims: (1) count I was a claim to foreclose its mechanic's lien under section 28 of the Mechanic's Lien Act (Act)(770 ILCS 60/28 (West 1992)); (2) count II was a claim on the Bond against Federal as surety; (3) count III was a breach of contract claim against MDI as general contractor; (4) count IV was a claim for acceleration and delay damages against MDI; and (5) count V was a claim for vexatious delay against Federal under Section 155 of the Illinois Insurance Code (215 ILCS 5/155 (West 1992)).

Subsequently, the project filed for bankruptcy. When the automatic stay was lifted in July 1985, Chemical Bank filed a mortgage foreclosure action. Chemical Bank obtained a judgment and decree of foreclosure on May 8, 1987, and later purchased the property at the foreclosure sale.

On March 1, 1988, Judge La Porta dismissed Premier's mechanic's lien claim against Chemical Bank and other subsequent owners for failure to strictly comply with the requirements of section 7. On November 30, 1988, Judge La Porta granted partial summary judgment in favor of Premier on count II, the claim on the Bond against Federal as surety, and count III, the breach of contract claim against MDI as general contractor, in the amount of $362,721.56. The court granted Premier statutory prejudgment interest from June 20, 1983, through entry of the judgment on November 23, 1988.

On March 2, 1989, MDI, Chemical Bank, and the title insurer entered into a settlement agreement providing in part that MDI would release all its mechanic's liens, including Premier's, in return for a payment of $750,000.

On December 30, 1991, Judge Romie Palmer entered summary judgment in favor of Premier and against MDI and 666 Associates on count I (foreclosure of mechanic's lien) for the amount of $362,721.56 plus interest from June 15, 1983, and costs. In addition, Judge Palmer imposed a constructive trust on the settlement proceeds that MDI had received from Chemical Bank.

Upon reconsideration, a successor judge (Judge Sheila Murphy) modified the amount ($362,721.56) awarded to Premier and lifted the constructive trust on March 3, 1993. She entered the amount of $169,895, which was Premier's pro-rata share of the $750,000 settlement amount, plus interest.

On November 29, 1990, Judge Berman ruled in favor of MDI on count IV, which was the claim for acceleration and delay damages against MDI. Prior to a bench trial on count IV, the trial court granted MDI's motion that Premier's expert witnesses be excluded.

Following the trial, judgment was entered against Premier and in favor of MDI. The court found that Premier had failed to prove what, if any, damages it suffered as a result of delays because the damages placed in evidence were highly speculative. Furthermore, the trial court held that the evidence indicated that the delays were caused in part by Premier, thus negating Premier's claim that defendant was solely responsible for the delays.

On October 4, 1990, Judge Virgilio entered summary judgment in favor of Federal on count V, Premier's claim for vexatious delay of payment claim against Federal. The trial court relied on Yassin v. Certified Grocers of Illinois, Inc. (1990), 133 Ill. 2d 458, 551 N.E.2d 1319, 141 Ill. Dec. 791, to rule in favor of Federal on the basis that Premier had no standing to bring the Section 155 claim.

On appeal, MDI asserts that the judgment on the mechanics lien in Premier's favor was an error and Premier asserts that the amount of its pro rata award of $169,895 was improper.

Federal asserts that the trial court improperly entered judgment against Federal on Count II (Bond claim). MDI asserts that the trial court improperly entered judgment against MDI on Count III (breach of contract). Premier appeals the denial of the contract interest rate on both those judgments.

On Count IV (claim for acceleration and delay damages), Premier asserts that the trial court erred by excluding its expert witnesses and that the judgment for MDI was against the manifest weight of the evidence.

Finally, Premier appeals the summary judgment in favor of Federal on count V (vexatious delay claim).

Without setting forth the substance of the voluminous pleadings, facts, and circumstances, we will make reference to those that bear on the issues as each specific contention is being considered. For the following reasons, we affirm.

The first issue on appeal is whether Chemical Bank can be held liable for Premier's mechanic's lien claim pursuant to section 28 of the Mechanic's Lien Act (770 ILCS 60/28 (West 1992))(Act) on the basis that it stepped into the shoes of the owner. Premier maintains that the $750,000 settlement Chemical Bank paid to MDI was money due from the owner under the original contract because the payment was exchanged for MDI's dismissal of its liens claims against the original owner.

The trial court entered summary judgment in favor of Premier and against MDI for Premier's pro-rata share of the $750,000 settlement money Chemical Bank paid to MDI. In its ruling, the trial court held that Chemical Bank, while not an owner under the Act, stepped into the shoes of the owners by purchasing title to the property at a foreclosure sale because the character of the money due and owing from the owner did not change. Furthermore, the trial court ruled that MDI had the authority to release Premier's claims without its consent since the subcontractor's right to a mechanic's lien is dependent on the contract between the owner and contractor. With no evidence of fraud or breach of a fiduciary relationship, the trial court lifted the constructive trust.

The purpose of the Mechanic's Liens Act is to protect those who in good faith furnish labor or materials for construction of buildings or public improvements. ( Lawn Manor Savings and Loan Association v. Hukvari (1979), 78 Ill. App. 3d 531, 532, 397 N.E.2d 247, 33 Ill. Dec. 914.) It balances the owner's benefit of its bargain with the subcontractor's right to be paid for the labor and materials he or she furnishes in good faith. ( Edward Hines Lumber Co. v. Dell Corp. (1977), 49 Ill. App. 3d 873, 882, 364 N.E.2d 368, 7 Ill. Dec. 207.) The Act's technical and procedural requirements must be strictly construed because mechanic's liens are a statutory creation. (Prior Oil Co. v. First Bank & Trust Co. of Mount Vernon (1992), 231 Ill. App. 3d 331, 332, 596 N.E.2d 891, 173 Ill. Dec. 267.) Once the statutory requirements are met, however, the Act should be liberally construed to carry out its remedial purpose. Delaney Electric Co. v. Schiessle (1992), 235 Ill. App. 3d 258, 265, 601 N.E.2d 978, 176 Ill. Dec. 280.

In this case, Chemical Bank was a lender and then later, a purchaser of the property. As such, Chemical Bank was a third party to both Premier's and MDI'S mechanic lien claims. Where the interests of third parties will be affected, a stricter construction of the Mechanics' Liens Act will be adhered to than what is followed in cases arising between the mechanic and the original owner. Because Chemical Bank is a third party, we are required to strictly construe the Act. (Steinberg v. Chicago Title & Trust Company) (1986), 142 Ill. App. 3d 601, 605, 96 Ill. Dec. 834, 491 N.E.2d 1294. The record discloses that Premier's mechanic lien claim against Chemical Bank was dismissed for failure to comply with the requirements of Section 7 of the Act. We agree with the dismissal order. We do not agree that Chemical Bank can be held liable for Premier's claim pursuant to Section 28 of the Act. Section 28 provides for claims and suits against owners and contractors. There is no provision for claims or suits against lenders or purchasers at foreclosure sales in that section. Because we are required to strictly construe the Act in this case ( Steinberg v. Chicago Title & Trust Company, 142 Ill. App. 3d 601, 96 Ill. Dec. 834, 491 N.E.2d 1294), Premier cannot have a valid lien claim against Chemical Bank merely because it purchased the property at a foreclosure sale. This ruling does not affect the outcome of this case.

We affirm the trial court's determination that the settlement money received from Chemical Hank in exchange for the release of all mechanic's lien claims is money owed to all those with pending claims. In this case, the owner's (666 Associates) interest in the property was subject to the mechanic's lien which had been filed by MDI. If the owner had paid $750,000 to MDI in settlement of the lien, Premier Electrical would have been entitled to a share of the settlement proceeds. While Chemical Bank was not responsible for the owner's obligations, the settlement money received by MDI was paid in exchange for a release of all the mechanic's lien claims, including Premier's claim. As such, the settlement money is money owing to all those with pending claims, including Premier.

We further hold that Premier is entitled to its pro rata share of the settlement proceeds, not to the full amount of its claim. Section 28 provides that "the owner shall be liable to [the subcontractor] for no more than the pro rata share than [the subcontractor] would be entitled to with other contractors out of the funds due the contractor." 770 ILCS 60/28 (West 1992).

We reject Premier's assertion that it has the only established subcontractor's lien. Subcontractors were due more than $1.2 million in lien claims at the time of the settlement and their liens were dismissed in consideration of the $750,000 settlement payment. Since the money from Chemical Bank was insufficient to cover all the pending liens, each subcontractor is entitled only to its pro-rata share.

Furthermore, the trial court's finding that there should be no constructive trust was proper. A constructive trust is an equitable remedy that may be imposed to redress unjust enrichment caused by a party's wrongful conduct. ( Charles Hester Enterprises, Inc. v. Illinois Founders Insurance Co. (1986), 114 Ill. 2d 278, 293, 499 N.E.2d 1319, 102 Ill. Dec. 306.) Generally, a constructive trust is imposed (1) where actual or constructive fraud is considered as equitable grounds for raising the trust; (2) where there is a fiduciary duty and a subsequent breach of that duty; or (3) when duress, coercion or mistake is present. Suttles v. Vogel (1988), 126 Ill. 2d 186, 193, 533 N.E.2d 901, 127 Ill. Dec. 819.

None of those criteria exist in this case. Accordingly, the trial court found that the settlement was made in good faith and there was no need for a constructive trust. We agree.

PAY-WHEN-PAID CLAUSES

The next issue is whether the trial court erred in granting partial summary judgment to Premier on counts II and III or whether the subcontract's pay-when-paid clauses bar Premier's claims. Count II was the bond claim against Federal Insurance as surety. Count III was the breach of contract claim against MDI.

Premier claims that MDI breached the contract when MDI failed to pay Premier when Premier completed its work. Under the terms of the subcontract agreement between MDI and Premier, Premier claims that the time to pay could be delayed no longer than three months after the subcontractor completed its work. Therefore, Premier claims it is entitled to $362,721.56 plus interest for the breach of contract and the claim on the surety bonds. There is no dispute that Premier has completed its work under the subcontract.

MDI claims that under the terms of the agreement, it does not have to pay Premier until MDI receives payment from the owner. If MDI receives no money, then both MDI and Premier will go without being paid.

Specifically, the payment clause in article 3 of the subcontract provided as follows:

"If the Subcontractor is making satisfactory progress with the Work (in the General Contractor's reasonable opinion), is not in default under this Agreement, and complies with all the documentation requirements of this Agreement, and if (but only to the extent that) the General Contractor or his approved Agent, i.e., Chicago Title & Trust has received payment from the Owner for such Work, the General Contractor will make monthly payments to the Subcontractor of ninety percent of the value of Work performed during the month until the total of monthly payments equals fifty percent (50%) of the total amount to be paid to the subcontractor for the Work by the General Contractor.* From and after the date such fifty percent amount is reached, the General Contractor shall not retain any further amounts from subsequent monthly payments to the Subcontractor. The amount retained* by the General Contractor shall be disbursed to the Subcontractor upon the last to occur of (a) Three (3) months after final completion of the Work and acceptance by the Owner; (b) the Owner has paid the General Contractor the entire balance related to the Work due to the General Contractor under the Principal Contact; and (c) ...


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