In re Tri-County Materials, Inc. - 114 B.R. 160 (C.D. Ill. 1990)

Rule:

Section 23(b) of the Illinois Mechanics Liens Act, Ill. Rev. Stat. ch. 82, para. 23(b) provides in part: Any person who shall furnish machinery to any contractor having a contract for public improvement shall have a lien for the value thereof on the money due or to become due to the contractor.

Facts:

The lessee provided the general contractor with sand and gravel from a pit. The lessor leased the equipment to the lessee in order for it to perform under its contract with the general contractor. In return, the lessee assigned to the lessor part of its account with the general contractor to secure the rental charges on the equipment. The lessor did not file a financing agreement. At the time that the lessee filed for bankruptcy, the lessee owed the lessor about 12 percent of the total contract price that it was entitled to receive from the general contractor. The bankruptcy court found that the lessor did not have a security interest in the funds that the general contractor owed to debtor because it had failed to perfect the interest as required under Article 9 of the Uniform Commercial Code. However, the bankruptcy court also found that the Illinois Mechanics Liens Act, Ill.Rev.Stat. ch. 82, para. 23(b) permitted a lien for the cost of renting equipment used in a public contract; accordingly, the creditor was found to have a valid mechanics lien. Both parties appealed. 

Issue:

1. Did the lessor have a valid security interest in the funds that the general contractor owed to debtor?
2. Did the lessor have a mechanics lien based on the equipment that it rented? 

Answer:

1) No. 2) Yes.

Conclusion:

The court affirmed the decision of the bankruptcy court. The lessor had the burden of proving that it did not have to file a financing statement. The court concluded that the lessor should have filed a financing statement because the transaction was not insignificant. However, under the provisions of Ill. Rev. Stat. ch. 82, para. 23(b), the lessor had a mechanics lien based on the equipment that it rented.