                                      2016 IL App (1st) 151697


                                                                           FIFTH DIVISION
                                                                           September 30, 2016

No. 1-15-1697

                                                               )
BEAL BANK NEVADA,                                              )
                                                               )    Appeal from the
                Plaintiff,                                     )    Circuit Court of
                                                               )    Cook County
v.                                                             )
                                                               )
NORTHSHORE CENTER THC, LLC, et al.,                            )
                                                               )
                Defendants.                                    )
                                                               )    No. 08 CH 39446
                                                               )
LAKE COUNTY GRADING COMPANY, LLC,                              )
                                                               )
                Counterplaintiff-Appellant,                    )
                                                               )
v.                                                             )    Honorable
                                                               )    Anthony C. Kyriakopoulos,
FCL INVESTORS, INC., formerly known as                         )    Judge Presiding.
FCL BUILDERS, INC.,                                            )
                                                               )
                Counterdefendant-Appellee.                     )


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


                                              OPINION

¶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
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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



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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



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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



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       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 together with payment in full for this portion of the

       work[.] ***”

¶ 11   The circuit court concluded:

       “The provisions outlined in the Subcontract at issue clearly make the receipt of

       payment from the Owner to [the Contractor], the condition precedent to [the

       Subcontractor’s] payment. The condition precedent has not been satisfied as [the

       Contractor] has not received payment from Owner. Therefore, [the Contractor]

       did not breach the contract, and [the Subcontractor’s] claim fails. Accordingly,

       [the Contractor] is entitled to summary judgment in its favor as [the

       Subcontractor] cannot recover on the subcontract.”

The circuit court further observed that it did not need to consider extrinsic evidence because the

language of the subcontract was clear, but “even if it did, [the Contractor’s] and [the



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Subcontractor’s] course of performance is consistent with both parties’ recognition that payment

from the Owner to [the Contractor] was a condition precedent to [the Subcontractor] receiving

payment.” After the circuit court denied its motion for reconsideration, the Subcontractor filed

this timely appeal.

¶ 12                                         ANALYSIS

¶ 13   In this appeal, we are reviewing the circuit court’s ruling on cross-motions for summary

judgment. Summary judgment is appropriate “if the pleadings, depositions, and admissions on

file, together with the affidavits, if any, show that there is no genuine issue as to any material fact

and that the moving party is entitled to a judgment as a matter of law.” 735 ILCS 5/2-1005(c)

(West 2014). Summary judgment rulings are reviewed de novo. Christopher B. Burke

Engineering, Ltd. v. Heritage Bank of Central Illinois, 2015 IL 118955, ¶ 9.

¶ 14   The fundamental issue in this case is whether the parties’ subcontract requires the

Contractor to pay the Subcontractor. While the parties herein interpret the subcontract

differently, such disagreement “does not suffice to establish ambiguity.” Gomez v. Bovis Lend

Lease, Inc., 2013 IL App (1st) 130568, ¶ 14. “A contract is ambiguous if it is subject to more

than one reasonable interpretation.” Id. Although extrinsic evidence may be used to aid in the

interpretation of an ambiguous contract, such evidence may not be used to interpret a contract

that is unambiguous on its face. Id. The construction of a contract presents a question of law,

which we review de novo. Gallagher v. Lenart, 226 Ill. 2d 208, 219 (2007).

¶ 15   As the circuit court correctly recognized, the Conte decision is relevant to our

interpretation of the subcontract at issue. The parties disagree regarding the applicability and

effect of the case. In Conte, the contractor and subcontractor entered into a subcontract relating

to excavation work. Conte, 132 Ill. App. 3d at 326. The owner defaulted and the project



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terminated; the subcontractor was owed approximately $84,000 for work already performed. Id.

at 326-27. After failing to recover on its mechanics lien claim against the Owner, the

subcontractor sued the contractor for the $84,000. Id. at 327. In an affirmative defense, the

contractor argued that the parties’ subcontract set forth a condition precedent to payment, i.e.,

that the contractor must first receive payment from the owners of the project under the general

contract before it was obligated to pay its subcontractors. Id. The Conte subcontract included

the following provisions:

       “ ‘ARTICLE 5: Material invoices submitted before the 25th of the current month

       will be paid by the 28th of the following month, provided the material so

       delivered is acceptable, and if payment for invoiced material has been received by

       [the contractor] under its general contract. ***

                                               ***

       ARTICLE 18: *** [I]f the work has been satisfactorily performed and invoice as

       rendered is approved and if payment for such labor and material so invoiced has

       been received by [the contractor] under its general contract, the subcontractor

       will be paid 85% of invoice as approved, less any payments previously made on

       account for previous periods. ***’ ” (Emphases in original.) Id. at 327-28.

The court granted summary judgment in favor of the contractor and against the subcontractor.

Id. at 328. On appeal, the subcontractor argued that the provisions were a limitation only as to

the time of payment and urged the court to examine factors outside of the subcontract to

determine the parties’ understanding and intent. Id. The contractor responded that the

provisions created a condition precedent to payment and there was no ambiguity in the

subcontract. Id.



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¶ 16    In affirming the judgment of the circuit court, the Conte appellate court stated: “We do

not believe that the record supports [the subcontractor’s] claim that its right to payment by [the

contractor] was absolute and not in anyway contingent upon [the contractor’s] receiving payment

from the owners under the general contract.” Id. at 329. Although the court acknowledged that

“conditions precedent are not generally favored, and courts will not construe stipulations to be a

condition precedent when such a construction would result in forfeiture,” it found that the “plain,

unambiguous language” in the subcontract “binds the parties to a condition precedent.” Id.

¶ 17    The dissenting opinion in Conte discussed section 227 of the Restatement (Second) of

Contracts, “Standards of Preference with Regard to Conditions,” which states: “(1) In resolving

doubts as to whether an event is made a condition of an obligor’s duty, and as to the nature of

such an event, an interpretation is preferred that will reduce the obligee’s risk of forfeiture,

unless the event is within the obligee’s control or the circumstances indicate that he has assumed

the risk.” Restatement (Second) of Contracts § 227 (1981). The dissent wrote that comment (b)

to section 227 of the Restatement states “that the word ‘forfeiture’ is used to refer to the denial of

compensation that results in such a case.” Conte, 132 Ill. App. 3d at 330 (Jiganti, P.J.,

dissenting) (citing Restatement (Second) of Contracts § 227, comment b, at 175 (1981)). The

dissent noted that the “very first illustration” for comment (b) to section 227 “is a virtual

reiteration of the facts in the instant case.” Id. at 330-31. The illustration states:

                “1. A, a general contractor, contracts with B, a sub-contractor, for the

        plumbing work on a construction project. B is to receive $100,000, ‘no part of

        which shall be due until five days after Owner shall have paid Contractor

        therefor.’ B does the plumbing work, but the owner becomes insolvent and fails

        to pay A. A is under a duty to pay B after a reasonable time.” Restatement



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       (Second) of Contracts § 227, cmt. b, illus. 1, at 176 (1981). 1

The dissent concluded that the Restatement (Second) of Contracts, and cases from other

jurisdictions that ruled in accordance with the Restatement, “mandate[d] a finding consistent

with their conclusions.” Conte, 132 Ill. App. 3d at 331 (Jiganti, P.J., dissenting).

¶ 18   The Contractor here contends that the “interpretive principle” set forth in section 227 of

the Restatement “comes into play only if the court has doubts as to whether the contract language

specifies a condition precedent.” Illinois courts have defined a condition precedent as “an event

which must occur or an act which must be performed by one party to an existing contract before

the other party is obligated to perform.” Maywood Proviso State Bank v. York State Bank &

Trust Co., 252 Ill. App. 3d 164, 168 (1993). “The obligations of the parties end in the event that

a condition precedent is not satisfied.” Id.

¶ 19   According to the Contractor, the language of the subcontract in this case – like the

language at issue in Conte – was “clear and unambiguous in setting out a condition precedent,”

i.e., because the Owner did not pay, the Contractor is not obligated to pay the Subcontractor. As

we do not read the parties’ subcontract as establishing such a condition precedent, we reject the

Contractor’s position. Section C of the parties’ subcontract provides that “[t]he Contractor

agrees to pay the Subcontractor for the full, faithful and complete performance of this

Subcontract the sum of $817,000 subject to additions and deductions for changes agreed upon in

writing signed by FCL BUILDERS, INC or determined as hereinafter set forth, and further

agrees to make all partial and final payments on account thereof solely in accordance with the

terms and provisions of the Subcontract Documents including, but without restriction thereto, the

provisions of Section D, Article 5 of this Subcontract.” (Emphasis added.) Based on the “and

1
 We quote the illustration, which was paraphrased by Presiding Justice Jiganti in his Conte
dissent.
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further agrees” language, we read this provision as reflecting two separate obligations of the

Contractor: to pay an amount to the Subcontractor for “full, faithful and complete performance”

of the subcontract and to make partial and final payments on account thereof solely in

accordance with the subcontract documents, including Article 5 of the subcontract.

¶ 20   Section 5.1 in section D, article 5 provides, in part, that “the Contractor will make partial

payments to the Subcontractor in an amount equal to 90 percent of the estimated value of work

***, 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.” Section 5.2 of the subcontract provides, in part: “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 together with payment in full for this portion

of the work.” Unlike in Conte, wherein the subcontractor would be paid “if” the contractor was

paid by the owner, there is no express language in the subcontract at issue which plainly and

unambiguously establishes payment by the Owner as a condition precedent to the Contractor’s

obligation to pay the Subcontractor. Consistent with section C of the subcontract, we interpret

the language of sections 5.1 and 5.2 as addressing the amounts and timing of payments, but not

the threshold obligation of the Contractor to compensate the Subcontractor for its work under the

subcontract. Such interpretation is further bolstered by section 5.4 of the subcontract, which

provides that “[n]otwithstanding the amounts and times of payments set forth above, the

Contractor at any time may make advance payments to the Subcontractor if, in the Contractor’s

sole discretion, such advances will aid the Subcontractor in the performance of this Subcontract.”

(Emphasis added.) Section 5.4 supports the interpretation that sections 5.1 and 5.2 address the



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mechanics of payment, but not the fundamental requirement that the Contractor pay the

Subcontractor.

¶ 21   Citing Killianek v. Kim, 192 Ill. App. 3d 139 (1989), and Coey v. Lehman, 79 Ill. 173

(1875), the Contractor argues that “[w]here a construction contract specifies an event that is to

occur before a payment obligation arises, the specified event is deemed a condition precedent to

the payment obligation.” In Killianek, a homeowner’s contract with a contractor provided:

“ ‘Final payment, constituting the entire unpaid balance of the Contract Sum, shall be paid by the

Owner to the Contractor when the work has been completed, the contract fully performed, and a

final Certificate for Payment has been issued by the Architect.’ ” Killianek, 192 Ill. App. 3d at

141. The homeowner argued that “inasmuch as the contractor has not provided him with a final

certificate for payment” pursuant to their contract, “the lack of compliance therewith amounts to

an unfulfilled condition precedent, and there is no obligation on him to perform,” i.e., to make

the final payment under their contract. Id. The appellate court agreed with the homeowner,

finding that the parties “were bound by the underlying agreement, save that the obligation of the

owner to make final payment is not binding as it was the subject matter of a condition precedent

which was never satisfied.” Id. at 143.

¶ 22   In Coey, the contract between the contractor and certain subcontractors provided that

85% of the contract price was to be paid as the work progressed and the 15% balance was to be

paid upon acceptance of the work by the superintending architect. Coey, 79 Ill. at 175. The

architect ultimately found the work and materials to be unsatisfactory and thus did not provide

the certificate for payment of the 15% balance. Id. at 175-76. The trial court ruled in favor of

the subcontractors. Id. at 174. The Illinois Supreme Court reversed, noting that “where the

parties to a building contract agree that the superintendent shall pass upon the work, and certify



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to the payments to be made, his decision is binding, unless fraud or mistake on his part shall be

shown.” Id. at 176.

¶ 23   Killianek and Coey do not guide our analysis herein. In both cases, the condition

precedent was approval by the architect. The imposition of such a requirement as a condition

precedent to a payment obligation appears logical and practical: a contractor or homeowner

presumably should not be obligated to pay for work or materials that may be unsafe or otherwise

unsatisfactory. Furthermore, the proper completion of work in Killianek and Coey likely was

within the control of the party subject to the condition precedent. Conversely, the parties herein

have stipulated that “[the Subcontractor] performed, in a good and workmanlike manner, all the

work and provided all the materials requested by [the Contractor] in connection with the

Subcontract.” As stated by the Conte majority, “conditions precedent are not generally favored,

and courts will not construe stipulations to be a condition precedent when such a construction

would result in forfeiture,” i.e., denial of compensation. Conte, 132 Ill. App. 3d at 329; accord

Premier Electrical Construction Co. v. American National Bank of Chicago, 276 Ill. App. 3d

816, 824-25 (1995). Without clear language indicating the parties’ intent that the Subcontractor

would assume the risk of nonpayment by the Owner, we will not construe the challenged

language in the subcontract as a condition precedent.

¶ 24   Although not binding, the decision of the Seventh Circuit Court of Appeals in BMD

Contractors, Inc. v. Fidelity & Deposit Co. of Maryland, 679 F.3d 643 (7th Cir. 2012), sets forth

a useful framework for our analysis. The BMD court, applying Indiana law, considered whether

a contractor’s 2 surety was obligated to pay a subcontractor after the owner’s bankruptcy

triggered “a series of payment defaults to flow down the levels of contractors and

2
  The BMD "contractor" was itself a subcontractor in the multi-tiered construction project. For
clarity purposes, we refer to this entity as the "contractor."
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subcontractors.” Id. at 645. The subcontract at issue provided, in part: “IT IS EXPRESSLY

AGREED THAT OWNER’S ACCEPTANCE OF SUBCONTRACTOR’S WORK AND

PAYMENT TO THE CONTRACTOR FOR THE SUBCONTRACTOR’S WORK ARE

CONDITIONS PRECEDENT TO THE SUBCONTRACTOR’S RIGHT TO PAYMENTS BY

THE CONTRACTOR.” Id. at 647. The Seventh Circuit held that because the contractor was

never obligated to pay the subcontractor, the subcontractor could not recover against the surety

on the payment bond. Id. at 646. In so holding, the court discussed the distinction between

“pay-if-paid” and “pay-when-paid” provisions:

               “Two increasingly common contractual provisions address distinct kinds

       of payment risk in construction subcontracting: pay-if-paid clauses and pay-

       when-paid clauses.

               A pay-when-paid clause governs the timing of a contractor’s payment

       obligation to the subcontractor, usually by indicating that the subcontractor will

       be paid within some fixed time period after the contractor itself is paid by the

       property owner. A typical clause of this type might say: ‘Contractor shall pay

       subcontractor within seven days of contractor’s receipt of payment from the

       owner.’ Robert F. Carney & Adam Cizek, Payment Provisions in Construction

       Contracts and Construction Trust Fund Statutes, 24 CONSTRUCTION LAW,

       Fall 2004, at 5, 5. These clauses address the timing of payment, not the obligation

       to pay. They do not excuse a contractor’s ultimate liability if it does not receive

       payment by the property owner, so they do not transfer the risk of ‘upstream’

       insolvency from contractor to subcontractor and on down the chain.

               In contrast, a pay-if-paid clause, as the name suggests, provides that a



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       subcontractor will be paid only if the contractor is paid and thus ensures that each

       contracting party bears the risk of loss only for its own work. A typical clause of

       this type might say: ‘Contractor’s receipt of payment from the owner is a

       condition precedent to contractor’s obligation to make payment to the

       subcontractor; the subcontractor expressly assumes the risk of the owner’s

       nonpayment and the subcontract price includes the risk.’ Id. at 5-6.” (Emphases

       in original.) Id. at 648-49.

Determining that the subcontract language is “properly construed as a pay-if-paid clause” (id. at

645), the Seventh Circuit concluded that “the condition-precedent language is clear and

sufficient on its face to unambiguously demonstrate the parties’ intent” that the subcontractor

would not be paid unless the contractor was paid. Id. at 649.

¶ 25   Applying the foregoing framework, sections 5.1 and 5.2 of the parties’ subcontract

include pay-when-paid – not pay-if-paid – provisions. Although neither “if” nor “when” is used

in the relevant portions of those sections, the sections address the timing of payment, not the

obligation to pay. Furthermore, there is no clear indication in the subcontract of any intent to

“transfer the risk of ‘upstream’ insolvency from contractor to subcontractor.” Id.

¶ 26   We recognize that the contractual provisions at issue in Conte have occasionally been

referred to as “pay-when-paid” provisions (e.g., Brown & Kerr Inc. v. St. Paul Fire & Marine

Insurance Co., 940 F. Supp. 1245, 1249 (N.D. Ill. 1996)). We believe the Conte provisions are

more accurately termed “pay-if-paid” clauses. Ultimately, however, we need not categorize the

language of Conte. Instead, we observe that the Conte majority considered the plain and

unambiguous language of the subcontract as providing that the subcontractor would be paid only

if the contractor is paid “and thus ensure[d] that each contracting party [bore] the risk of loss



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only for its own work.” BMD Contractors, 679 F.3d at 649.

¶ 27   The Contractor argues that the Subcontractor “asks this Court to ‘disavow’ Conte

[citation] and to instead adopt a new set of principles whereby conditions precedent will not be

enforced if they are outside the control of the obligee or if the language of the contract does not

include the literal label ‘condition precedent.’ ” Citing two Illinois Supreme Court decisions

addressing the doctrine of stare decisis – Vitro v. Mihelcic, 209 Ill. 2d 76, 81-82 (2004) and

Wakulich v. Mraz, 203 Ill. 2d 223, 230 (2003) – the Contractor discourages departure from

precedent, i.e., the majority decision in Conte. However, we do not “disavow” Conte, but rather

distinguish its facts from those of this case. We agree with the Contractor that there are no

“magic words,” and we consider the determination of the contracting parties’ intent from the

clear and ordinary language contained within the subcontract as requiring case-by-case analysis.

Our decision herein does not “overhaul” Illinois law, as the Contractor suggests.

¶ 28   Although not necessary for our analysis, we observe that courts in other jurisdictions

have recognized the distinction between pay-if-paid and pay-when-paid provisions and have

treated such provisions differently. For example, in Evans, Mechwart, Hambleton & Tilton, Inc.

v. Triad Architects, Ltd., 965 N.E.2d 1007, 1017 (Ohio Ct. App. 2011), the Court of Appeals of

Ohio reversed the lower court’s grant of summary judgment in favor of a contractor that

disclaimed any obligation to pay its subcontractor because the owner had not paid the contractor.

Citing section 227 of the Restatement (Second) of Contracts, the appellate court concluded that

the subcontract contained pay-when-paid and not pay-if-paid provisions, and thus the contractor

breached its contractual duty to pay the subcontractor within a reasonable time. Id. at 1014,

1017. See also Lemoine Co. of Alabama, L.L.C. v. HLH Constructors, Inc., 62 So. 3d 1020,

1026-27 (Ala. 2010) (discussing paid-if-paid and pay-when-paid clauses); Otis Elevator Co. v.



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Hunt Construction Group, Inc., 859 N.Y.S.2d 850, 851 (App. Div. 2008) (stating that “the pay-

when-paid clause in the subcontract merely regulated the time of payment, and did not shift the

risk of owner nonpayment to plaintiff”); Koch v. Construction Technology, Inc., 924 S.W.2d 68,

71 (Tenn. 1996) (noting that the “overwhelming majority of jurisdictions do not construe” pay-

when-paid clauses “so as to release the general contractor from all obligation to make payment to

the subcontractor in case of nonperformance by the owner”).

¶ 29   Furthermore, we note that a federal district court applying Illinois law in Brown & Kerr

found that a “pay when paid” clause in a subcontract did not preclude payment under a surety

bond when the subcontractor had satisfactorily performed its obligation under the subcontract.

Brown & Kerr, 940 F. Supp. at 1250. The court opined that the dissent in Conte “was later

codified” in section 21(e) of the Mechanics Lien Act, which provides, in part, that “[a]ny

provision in a contract, agreement, or understanding, when payment from a contractor to a

subcontractor or supplier is conditioned upon receipt of the payment from any other party

including a private or public owner, shall not be a defense by the party responsible for payment

to a claim brought under Section 21, 22, 23, or 28 of this Act against the party.” 770 ILCS

60/21(e) (West 2014). “Although this provision applies only to cases brought under the Illinois

Mechanic’s Lien Act,” the district court stated, “it illustrates the Illinois Legislature’s concern

with construing a ‘pay when paid’ clause as a condition precedent to a subcontractor’s payment.”

Brown & Kerr, 940 F. Supp. at 1250.

¶ 30   In sum, the subcontract herein requires the Contractor to pay the Subcontractor and does

not impose any condition precedent on such a fundamental obligation. It does not contain any

plain and unambiguous statement sufficient to overcome our disfavor for conditions precedent,

particularly as to payment obligations. We view this result as consistent with Illinois policy and



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law.

¶ 31   In light of our holding, we need not consider the Subcontractor’s contention that the

incorporation of the contract into the subcontract imposed obligations upon the Contractor to

have confirmed irrevocable or unconditional financing. Furthermore, we need not consider the

Subcontractor’s argument that the Contractor “is barred from asserting that the unavailability of

funds releases it from liability to” the Subcontractor because the Contractor “knew it

misrepresented that it confirmed irrevocable and unconditional financing.” We observe,

however, that Contractor presumably was better positioned than the Subcontractor to confirm the

Owner’s financial viability. Absent an expression in the subcontract indicating the parties’ clear

intent to allocate the risk of nonpayment to the Subcontractor, we will not interpret the

subcontract so as to create or shift such risk.

¶ 32                                    CONCLUSION

¶ 33   The judgment of the circuit court of Cook County granting summary judgment in favor of

the Contractor and against the Subcontractor is hereby reversed. This matter is remanded to the

circuit court for further proceedings consistent with this order.

¶ 34   Reversed and remanded.




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