Illinois Construction Law Blog : Illinois Construction Lawyer & Attorney : Foran Glennon Palandech Ponzi & Rudloff Law Firm : Chicago IL

Unfortunately we’re getting this question quite a bit in today’s market. If you think you’re alone in not getting payment or in having an invoice refused where you put the time and efforts into the design only to have a developer decide that they can’t go through with the project, think again.

Fortunately, the answer is yes, you do have the right to a lien on the property if the building wasn’t constructed – provided that the other requirements of the Mechanic’s Lien Statute are met, e.g. filing deadlines, proper contractual status with the owner, etc.

The authority for placing the lien comes from the statute and was addressed by the Illinois Supreme Court in 1930 in the case of Crowen v. Meyer, et al., 342 Ill. 46.

In Crowen, the Meyer’s were property owners who had a contract with Crowen to prepare plans and specifications for a laundry building that they would erect between “Ninety-Eighth and Ninety-Ninth streets on the east side of South Michigan avenue, in Chicago.” The price for Crowen’s services was agreed at 6% of the total cost of the building. Crowen completed the plans and specifications, the project was bid on, but the defendant refused to proceed with construction and when Crowen demanded payment for his services, the defendant refused to pay him.

Crowen filed his lien. 

The opinion delineates the testimony given by the different parties regarding the project and will be interesting to anyone wanting to see that the disputes between owners and architects haven’t changed much in 80 years.

The defendants challenged his right to a lien and claimed that there could be no claim for lien unless there had been “actual” improvement to the land and that an architect is not entitled to a mechanic’s lien for plans and specifications for a building that was not constructed.

The trial court found for the plaintiff, the appellate court reversed, and the Illinois Supreme Court found that Section 1 of the mechanic’s lien act “gives to the architect a lien for services rendered for the purpose of improving property.”

This case is also important for lien claimants generally because the proposed building here was to be built on three lots but only two were owned by the defendants. The court found that while the claimant couldn’t lien the third lot, a lien for the proposed improvements was valid as to the two lots the owner did own and only for the amount of the work performed for the improvement of those two lots, not the third.

There is scant case law interpreting this remedy in light of Section 16 of the Act which states:

“Sec. 16. No incumbrance upon land, created before or after the making of the contract under the provisions of this act, shall operate upon the building erected, or materials furnished until a lien in favor of the persons having done work or furnished material shall have been satisfied, and upon questions arising between incumbrancers and lien creditors, all previous incumbrances shall be preferred to the extent of the value of the land at the time of making of the contract, and the lien creditor shall be preferred to the value of the improvements erected on said premises, and the court shall ascertain by jury or otherwise, as the case may require, what proportion of the proceeds of any sale shall be paid to the several parties in interest. All incumbrances, whether by mortgage, judgment or otherwise, charged and shown to be fraudulent, in respect to creditors, may be set aside by the court, and the premises freed and discharged from such fraudulent incumbrance.”

People will want to consider this before incurring the costs of filing because it is possible that any lien might be worthless if the property was mortgaged for its full value (and that mortgage was recorded) prior to the contract with the architect because if the building was not constructed, the mortgage would need to be satisfied before the lien.

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For those of you faced with any attempt by a plaintiff to claim that the implied warranty of habitability can be extended to a design professional, relief has been afforded.   This recent order authored by The Honorable Dennis J. Burke offers some profound insight regarding such a fallible argument.

In the opinion, Judge Burke addresses the contention that an exception to the judicially created doctrine of the implied warranty of habitability can involve design professionals. The exception, briefly stated, is that the case of Minton v. Richards, 116 Ill.App.3d 852, allowed a cause of action against a subcontractor who built part of the structure once, when the builder-developer was insolvent, and that this should create an exception which would allow for a suit against design professionals when no relief can be had against a builder-developer.

The opinion obliterates the argument and correctly holds that the doctrine cannot be extended in such a manner.

Obviously, other courts may disagree with the conclusion but they are unlikely to given the unassailable reasoning.

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Not if it’s against the express language of a statute or the contract requires written modification.

With all the public projects coming on-line thanks to the stimulus package it is time to make sure that you understand the contractual limitations and requirements for getting add-services paid for under your contracts.

The recent case of U.S. NeuroSurgical, Inc. v. City of Chicago (7^th Cir., Doc. Nos. 07-3520 and 08-2851) is an express warning to anyone thinking about performing additional services based on an oral or written representation that they'll be paid for from a municipality’s representative.

In NeuroSurgical, an entity that NeuroSurgical is the successor to, GHS, had a 1995 contract with the City of Chicago’s Department of Health to design and implement a computer information system for use in its clinics. The information system agreement contemplated a system that would accept entries of patient information that were made by input from a keyboard and the possibility of extending the system to include patient information entered by scanning in a form document that would automatically be placed in the system without the need for keyboard input.

The contract between GHS and the City contained a section requiring that no changes to the contract were valid unless they were in writing and signed by the parties.  The contract also had a provision governing the procedure for requesting additional services from GHS which included an obligation that after such a request GHS submit a written work plan and project estimate and description and then, if approved by the City, the agreement was to be codified in a formal “work order” and submitted for approval in accordance with the contractual provision requiring that it be signed by both parties.

During contractual performance, the City requested that GHS implement a system capable of scanning data forms at one of the clinics. Scanning is a difficult process and implementing such a system required what GHS felt was additional service work. GHS claimed it had been given oral authorization to perform the additional work by the City employee responsible for monitoring the project. After the scanning system was implemented, GHS billed the City for the additional work which amounted to $532,033.35. The money wasn’t paid and in 2002, a suit was brought by GHS’ successor against the City for payment of the $532,033.35.

After a bench trial, the district court denied any relief to GHS. In addition to determining that the work was part of the contract, the district court also found that even if the work had been outside the scope of the contract, the fact that the contractual modification wasn’t executed by the City’s chief procurement officer and wasn’t in writing as required both by the City’s municipal code and the contract precluded recovery.

GHS appealed and the Seventh Circuit rendered an opinion upholding the verdict.

So, what’s important for the industry?

The Seventh Circuit held that anyone contracting with a municipality is presumed to know that both the Illinois Municipal Purchasing Act (65 ILCS 5/8-10-16) and any Municipal ordinances pertaining to the contract (in this case Chicago Municipal Code 2-92-050) are in effect. The contractor is also presumed to understand that the authority conferred by such statutes may not confer the authority to authorize payment or alter agreements to the city official who is dealing with the contractor – even though that person may be stating that the additional services are authorized and that payment will be maid.

The appellate court agreed that pursuant to the acts, GHS wasn’t entitled to payment because the procurement officer for the municipality had not approved of the additional services and signed an agreement approving those services, the City was not bound by any agreements to pay for those services. Additionally, because the contractual process for altering the contract was not followed, the City did not have a duty to pay for those additional services. Also, the fact that the city did pay for a small portion of the additional services did not mean that the City could be legally obligated to pay for the rest of the services.

The contractor cannot expect the municipality to pay for the services if the statutes are not followed and the process for amending the contracts isn’t adhered to. A contractor performs additional services at its own peril if the conditions are not met.

On the flip-side, a municipality may find a method through this decision for challenging the additional services performed by a contractor.

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We’ve got some claims that you may want to watch out for in this edition.

In Caicedo v. Stone, the plaintiff alleges that his attorney drafted a deed with the wrong legal description that ultimately resulted in the sale of two of his properties and not one as intended. This complaint alleges that Caciedo wanted to sell his property at 2727 N. Austin in Chicago Illinois and that his attorney drafted a deed not only conveyed the 2727 property but also a lot that the plaintiff owned to the south of the 2727 property, 2725 N. Austin. The plaintiff didn’t become aware of the transfer until he drove by the property in April of 2009 and noticed a fence surrounding what he thought was still his property. The complaint claims that the property is in excess of $75,000. The complaint is one for legal malpractice.

In Illinois v. Jerry Ryce Masonry, Inc., et al., the State of Illinois brings an action under the new Employee Classification Act (820 ILCS 185/1), a recent act that we wrote about here. The complaint alleges that the defendant engaged in the practice of misclassifying their employees “as independent contractors to avoid the payment of, among other things, unemployment insurance contributions.” The action seeks the abatement of the practice along with an award of the wages and benefits to the workers, civil penalties under the act along with the restriction that the employer not be granted any state contracts for a period of four years pursuant to the act. The complaint also alleges counts for consumer fraud and a claim under the whistleblower reward and protection act seeking a fine for each alleged false Wage Report submitted to the State.

In 1618 Sheridan Road Condo Assoc. v. 1616 Condo Assoc., the complaint alleges that a condo association’s neighbor put a loud generator next to its property that violates several Wilmette ordinances. The parties, both condo associations with property on the Lake Michigan shoreline, have a dispute over the “800 kilowatt, Cummins diesel engine generator” that was allegedly placed by the 1616 Condo association “directly behind” the 1618 association’s building. The complaint alleges that the generator violates a portion of the Illinois Pollution Control Board’s regulations concerning loud noises and that the loud noises from the generator are adversely affecting the physiological and psychological well-being of the residents of the 1618 property. The complaint also alleges that attempts to discuss alternatives to the generator with the manager for the 1616 property were not productive. The complaint requests relief under the Noise section of the Illinois Environmental Protection Act (415 ILCS 5/23) for damages, restraining order and an injunction, private nuisance, and trespass.

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It’s a long time to wait to get paid, but a new Northern District decision has held that the 10-year Statute of Limitations contained at 735 ILCS 5/13-206 governs an engineer’s claim for non-payment of invoices issued pursuant to work performed under a contract.

It’s a debate you may see quite often for construction work given that there is a separate statute in this state that applies a four-year statute of limitations for claims based on many acts or omissions in construction work:

“(a) Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 4 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission. Notwithstanding any other provision of law, contract actions against a surety on a payment or performance bond shall be commenced, if at all, within the same time limitation applicable to the bond principal.” 735 ILCS 5/13-214(a).

But that statute does not apply to claims made by a design professional for the owner’s breach of contract by failing to pay invoices.

In Burbach Aquatics, Inc. v. City of Elgin (N.D. Il. Doc. No. 98 CV 4061) an engineer brought a breach of contract action against the City of Elgin for the City’s failure to pay invoices it issued for work it performed under the contract. The complaint can be found here and a copy of a modified 1985 AIA B141 entered into in 1995 between the City and the engineer is attached.

Pursuant to the contract, Burbach alleges that it rendered services for the renovation/replacement of municipal swimming pools and bathhouses owned by the City.

The work was performed and on June 13, 2001; August 9, 2001; and July 2, 2002, the engineer issued invoices for the work. Section 11.5.2 of the contract stated that the invoices were due and payable 20 days from the date on the invoices.

The complaint alleges that Elgin never paid the invoices and on July 17, 2008, Burbach brought suit to collect the $135,559.72 owed under the contract along with the interest owed at 18% per section 11.5.2. (That’s $24,400.75 per year in interest and over the six years is $146,404.50 in interest – more than the amount owed on the contract.) No claim was also brought for the additional interest that also might be owed this engineer under the Local Government Prompt Payment Act (50 ILCS 505/1).

The City filed a motion to dismiss the case saying that the four-year statute of limitations applied and that even if the 10-year statute applied it ran in 2005 because the contract was signed in 1995.

The court disagreed and issued this opinion. In the opinion, the court found that the activity complained of by Burbach giving rise to the breach of contract action was the City’s failure to pay the invoices, and not an activity enumerated in the 13-214 statute. The court cited to two familiar cases, Prate v. Thomas, and Paschen v. Kankakee, both cases involved a breach of contract claim for the failure to pay a contractor for work performed under a contract, where the 13-214 statute was found inapplicable, and held that the 13-206, 10-year statute of limitations applied.

The Court also held that the claims did not arise until 20 days after the date on the invoice since that was how long the City had to pay the invoice and it breached its contract when it failed to do so. The statute of limitations would not expire until 10-years from the 20-day date.

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