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Beal Bank Nevada v. Northshore Center THC LLC

Court of Appeals of Illinois, First District, Fifth Division

September 30, 2016

BEAL BANK NEVADA, Plaintiff,
v.
NORTHSHORE CENTER THC, LLC, et al., Defendants. LAKE COUNTY GRADING COMPANY, LLC, Counterplaintiff-Appellant,
v.
FCL INVESTORS, INC., formerly known as FCL BUILDERS, INC., Counterdefendant-Appellee.

         Appeal from the Circuit Court of Cook County, No. 08 CH 39446 Honorable Anthony C. Kyriakopoulos, Judge Presiding.

          JUSTICE REYES delivered the judgment of the court, with opinion. Presiding Justice Gordon and Justice Lampkin concurred in the judgment and opinion.

          OPINION

          REYES JUSTICE

         ¶ 1 This appeal addresses the issue of whether a contractor is liable for amounts due to a subcontractor if the property owner fails to make payment to the contractor for the subcontractor's work. The circuit court of Cook County granted summary judgment in favor of contractor FCL Investors, Inc., formerly known as FCL Builders, Inc. (Contractor), and against subcontractor Lake County Grading Company, LLC (Subcontractor), on the Subcontractor's breach of contract claim. Applying A.A. Conte, Inc. v. Campbell-Lowrie-Lautermilch Corp., 132 Ill.App.3d 325 (1985) (Conte), the circuit court found that the provisions of the parties' subcontract "clearly make the receipt of payment from the [property owner] to [the Contractor], the condition precedent to [the Subcontractor's] payment." The circuit court concluded that the condition precedent has not been satisfied because the Contractor has not received payment from the property owner. As discussed below, we reverse the judgment of the circuit court.

         ¶ 2 BACKGROUND

         ¶ 3 As the circuit court proceedings were lengthy and complex, we provide only the facts necessary for the disposition of this appeal. In 2006, Northshore Center THC, LLC (Owner), borrowed funds from BankFirst, secured by notes and a mortgage, to develop real estate in Northbrook, Illinois. The Owner and the Contractor entered into a contract (contract), for the Contractor to perform certain construction work at the Northbrook site. The Contractor and Subcontractor entered into a subcontract (subcontract), for the Subcontractor to provide excavation, sewer line installation and other construction services.

         ¶ 4 After performing a portion of its work under the subcontract, the Subcontractor issued an invoice to the Contractor for $130, 343.40; the said amount was tendered by the Owner. The Subcontractor subsequently issued additional invoices and payment requests to the Contractor for additional amounts totaling $775, 872.60 for work performed under the subcontract. Although the Contractor submitted the invoices for payment to the Owner, the requests were refused and the Owner failed to pay. The Subcontractor recorded a subcontractor's claim for lien against the Contractor and the Owner on February 4, 2008, in the amount of $775, 872.60. The Contractor recorded a contractor's claim for lien on November 26, 2008, claiming an outstanding balance of $943, 494.53 - which included the amount due to the Subcontractor.

         ¶ 5 BankFirst filed a foreclosure complaint against the Owner in the circuit court of Cook County in October 2008. The complaint also named various parties with interests in the mortgaged real estate as defendants, including the Contractor and the Subcontractor. The Subcontractor filed an answer and a counter-complaint, which included a breach of contract claim against the Contractor. The affirmative defense asserted by the Contractor was basically that the subcontract provides that payment by the Owner to the Subcontractor is a condition precedent to any obligation by the Contractor to pay the Subcontractor. In response, the Subcontractor argued that the Contractor's affirmative defense is prohibited by section 21(e) of the Mechanics Lien Act (770 ILCS 60/21(e) (West 2008)), discussed below.

         ¶ 6 Beal Bank Nevada (bank) - substituted as plaintiff for BankFirst - filed a second amended complaint in November 2009. In March 2011, the Subcontractor and the bank entered into a settlement agreement wherein the Subcontractor agreed to release its mechanics lien in exchange for $475, 000. As a result of the settlement, the principal balance sought by the Subcontractor was reduced to $300, 872.60. The Contractor subsequently secured a judgment against the Owner in the amount of $943, 494.53. By that time, however, the Owner had ceased its operations and had been involuntarily dissolved. Although the Contractor's counsel later transmitted an "assignment" of its judgment against the Owner to the Subcontractor's counsel, a stipulation in the record indicates that "[the Subcontractor] did not request and did not agree to take assignment of [the Contractor's] judgment against the Owner."

         ¶ 7 In June 2011, the court entered a judgment of foreclosure and sale with respect to the Northbrook property in favor of the bank. On the bank's motion, the court subsequently amended the judgment to reflect that the Contractor's liens - recorded more than four months after the completion of work - were subordinate and inferior to the bank's mortgage.

         ¶ 8 In November 2013, the Contractor and the Subcontractor filed cross-motions for summary judgment. The Subcontractor's motion acknowledged that the parties had filed prior cross-motions for summary judgment, that the court previously found that certain questions of fact precluded judgment on the sole remaining count - breach of contract (Count III) - of the Subcontractor's counter-complaint, and that the parties had since engaged in substantial discovery and entered into stipulations in an effort to eliminate any material question of fact.

         ¶ 9 The circuit court subsequently entered an order denying the Subcontractor's motion for summary judgment and granting the Contractor's motion for summary judgment. The court rejected the Subcontractor's contention that the Contractor was "barred from bringing the condition precedent as a contractual defense due to the alleged representations and warranties breached by [the Contractor], " i.e., an alleged statement from the Contractor's representative to the Subcontractor's representative that funding had already been secured from the Owner. The court determined that the Contractor's "failure to confirm [the Owner's] funds before allowing [the Subcontractor] to begin performance" could not be considered a breach "as there is nothing in the four corners of the contract making [the Contractor's] confirmation of funds a term or part of performance."

         ¶ 10 After quoting portions of sections 5.1 and 5.2 of the subcontract, the court further found that Conte "is controlling on the instant case, " noting that the "payment provision in the subcontract" in Conte was "nearly identical to the provision in the Subcontract at issue in the case at bar." Sections 5.1 and 5.2 provide in part:

"[5.1] Provided Subcontractor's rate of progress and general performance are satisfactory to the Contractor, and provided that the Subcontractor is in full compliance with each and every provision of the Subcontract Documents, the Contractor will make partial payments to the Subcontractor in an amount equal to 90 percent of the estimated value of work and materials incorporated in the construction and an amount equal to 90 percent of the materials delivered to and suitably and properly stored by the Subcontractor at the Project site, to the extent of Subcontractor's interest in the amounts allowed thereon and paid to Contractor by the Owner, less the aggregate of previous payments, within five (5) days of receipt thereof from the Owner[.] ***
[5.2] Final payment will be made within thirty (30) days after the work called for hereunder has been completed by the Subcontractor to the satisfaction of the Owner and the Contractor and the Contractor has received from the Owner written acceptance thereof ...

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