The Second District interpreted the Act to mean that the contractor’s failure to provide the consumer with the brochure does NOT remove the contractor’s right to recover in either equity (quantum meruit) or law (breach of contract, mechanic’s lien).
“To hold that a failure to provide a consumer with the brochure allows the consumer to defeat all legal and equitable claims by the contractor would lead to mischief and a result the legislature could not have intended.”
In reaching this conclusion, the Court said it was looking to legislative intent, which is a phrase and methodology addressed in many of the cases involving this Act. However, the Court attempted to discover the legislative intent through reading the “plain language” of the statute but does not examine what the legislature had to say about the bill in debate or committee.
In Roberts d/b/a Roberts Cleaning, Maintenance and More v. Adkins, the Third District has now added its voice to the discussion and disagreed with the Second District. In, Roberts a contractor sued to enforce a mechanic’s lien and the homeowner asserted, as an affirmative defense, that the contractor violated the Home Repair Act by failing to provide a consumer rights brochure or a written agreement. The Court determined that the failure to obtain a written contract was a violation of the Home Repair Act and further determined that, “[W]hen a contract does not comply with the Act, it is invalid and cannot form the basis of a breach of contract action or an action to foreclose a mechanic’s lien.”
Stay tuned for further discussions regarding SB 2540, introduced by Senator Wilhelmi to address at least part of the confusion regarding the remedy associated with the Home Repair Act. The proposed amendment will entirely replace Section 30 of the Act to clarify and more accurately identify the remedies available to private parties under the Act.
“Where a subcontractor asserts a claim for lien on an owner-occupied single-family residence and serves a 90-day notice as provided in Section 24 of the Mechanics Lien Act, does the subcontractor’s failure to serve a 60-day notice as provided in Section 5(b) of the Mechanics Lien Act render the claim for lien invalid?”
The scope of the question was narrowed by the court:
“We interpret the certified question to ask only whether plaintiff’s failure to serve a 60-day notice as provided in section 5(b) of the Act renders plaintiff’s claim for lien invalid as a matter of law.” (Slip Op. at 8).
The answer to the question was “no,” but the resulting discussion implied that a payment turned over to a general contractor that was not passed on to the sub might constitute prejudice to a home-owner under Section 5(b)(iii) of the Act. If it does, then its possible that Section 5(b)(iii) would allow for a different outcome than Weather-Tite (an owner paying the sub’s fee twice where the fee didn’t get to the sub the first time), which did not implicate 5(b)(iii) or owner-occupied single-family residences.
In Crawford, a sub sued the owner of a single-family owner-occupied residence to foreclose on a mechanic’s lien that it filed when it wasn’t paid for the plumbing supplies it delivered. The sub did not provide the home-owner with the 60-day notice required under Section 5(b)(ii) of the Act which requires that a sub on a project at an owner-occupied single-family residence provide the owner or agent with a statutorily specified notice and warning letting the owner know the name and address of the sub, the dates or its work, and the type of work. Owner-occupied single-family residences are different where many owners are not considered the sophisticated construction owner/consumers of commercial or large scale residential projects; the Act, along with other statutes, affords the unsophisticated owner a few added protections.
The owner moved to dismiss the action brought by the sub arguing that the failure to provide the required 60-day notice invalidated the lien. The trial court certified the question above. The appellate court held that the failure to serve the 60-day notice did not invalidate the lien. To hold as much contradicted with Section 5(b)(iii) and would read it out of the Act.
Section 5(b)(iii) states that the failure to serve the 60-day notice after the 60-day time-period will preserve the lien “only to the extent that the owner has not been prejudiced by payments made before receipt of the notice.”
The owner in Crawford had argued that since it never received the 60-day notice, the lien was invalid, although the owner had received the 90-day notice subcontractors must file under Section 24 of the Act (the court found that a 90-day notice substantially complied with the requirement for a 60-day notice). The appellate court found that because there had not yet been any evidence of prejudice and the 90-day Section 24 notice sufficed, Section 5(b)(iii) meant that the lien was not invalid as a matter of law and the claim made by the sub could go forward.
What is important here is that twice during the discussion of the matter the court noted that the owner had not yet introduced evidence of prejudice, and that prejudice might be shown by arguing that the owner had already made payment to the general for the sub’s work because the sub failed to provide the Section 5(b)(ii) notice.
This would mean that although the situation is comparable to Weather-Tite, where payment was tendered, but it didn’t make it to the sub, there is a conceivable situation where, at least with owner-occupied single-family residences, the owner might not have to pay twice if it made payment without getting the Section 5(a) notice. For those working on single-family residences, supplying the 60-day notice is now extremely important.
2009 has been an exciting year for Section 5 of the Illinois Mechanics Lien Act. The Illinois Supreme Court’s Weather-Tite decision set the record straight regarding the failure of an owner to withhold the funds delineated in a Section 5 statement, and the 2nd District’s recent case of Weydert Homes, Inc. v. Kammes, is reiterating some of the other basic rules regarding the Section 5 statement.
Apart from holding that the Section 5 statement must be sealed/signed by an officiant as we discussed yesterday, Weydert is worth reading for the court’s discussion of a few other salient points:
Perfection of the lien claim is not tied to providing a Section 5 statement. Whether or not an owner has requested the statement and whether or not it has been provided by the contractor are irrelevant issues to determining whether the lien is properly recorded under the statute.
Provision of a Section 5 statement is predicate to enforcing the lien claim. The court refused in Weydert to address the absurdity of an owner continually requesting Section 5 statements to preclude a valid foreclosure by the GC. The holding did reaffirm the notion that the failure to provide the statement upon a valid request would defeat a lien claim.
An owner must require the statement before paying the contractor any monies. This means that asking for the statement and then paying money before the statement is received may waive the protections.
The failure to provide the Section 5 statement may not preclude a claim for breach of contract or quantum meruit if the owner is not prejudiced by the possibility of additional, undisclosed, subcontractor claims arising after the enforcement of breach of contract or quantum meruit actions have begun.
Here’s a bit of trivia for today. The name of the clause at the foot of an affidavit or any other oath administered by an official that describes when where and in front of which official the oath was sworn is called the “jurat.” Jurat stems from the latin, juratum “sworn,” which conjugates from the verb jurare “to swear.”
This small clause and the seal of the notary or other official are very important. They distinguish and oath from simple swearing under the Illinois Oaths and Affirmations Act (5 ILCS 255/0.01 et seq.).
While many of us in everyday life make very little distinction between swearing to something before God and swearing to something before another person, the law makes a distinction between written attestations made in front of a person with the authority to administer oaths and simply making the oath, written or not, without the presence of such authority.
Oaths differ from affidavits:
"An oath, which has been defined as any form of attestation by which a person signifies that he or she is bound in conscience to perform an act faithfully and truthfully, is distinguished from an affidavit, which is a voluntary written statement of fact under oath sworn to or affirmed by the person making it before some person who has authority under the law to administer oaths and officially certified by the officer under his or her seal of office. The difference between an affidavit and an oath is that an affidavit consists of a statement of fact, which is sworn to as the truth, while an oath is a pledge." 58 Am. Jur. 2d Oath & Affirmation §3 (2009).
And not all oaths are equal… which is the point of this first post regarding the recent case of Weydert Homes, Inc. v. Kammes, et al., (2nd Dist. Doc. No. 2-08-0768).
The sanctioned method of demonstrating that the oath was made in front of the proper authority is the presence of the officiant’s seal in the jurat. Proving that the attestation is a proper “oath” becomes more difficult without the seal.
The distinction between an oath with a completed jurat and one without such an attestation is critical to today’s case and to future assurances that Section 5 of the Illinois Mechanic’s Lien Act (770 ILCS 60/5) has been complied with.
Section 5 of the Act requires that the statement to the owner, made by the contractor at the request of the owner before amounts are paid which delineates the monies owed to the subcontractors must be “in writing, under oath or verified by affidavit.” In Weydert, a general contractor seeking to assert a mechanic’s lien claim provided a statement to the owner. The GC claimed that the statement was a Section 5 statement, and the owner argued that the statement could not be a proper Section 5 statement where the GC’s president had signed the statement which said that it was “under oath”, but the jurat at the bottom of the statement had not been completed.
The trial court dismissed the mechanic’s lien claim. The issue was presented to the appellate court. The appellate court also invalidated the lien and found that there was a distinction between both affidavits and oaths under the mechanic’s lien act because the word “or” was used in the language of Section 5. The appellate court also held that Illinois’ law codified the requirements of an oath under the Oaths and Affirmations Act. The Oaths and Affirmations act requires that a required oath shall be administered by a person empowered to administer such oaths, namely, a court, judge, clerk of court, county clerk, deputy county clerk, Secretary of State, notary public, certified shorthand reporter or a commissioned officer in active service of the US armed forces.
The failure to have the jurat completed meant that the statement did not comport with Section 5.
Apart from the obvious lesson regarding the need to have the Section 5 statement notarized or signed by a recognized officiant, the distinction between an oath and an affidavit should be of some interest to those consistently confronted with affidavits attempting to establish legal conclusions to advance cases rather than properly limiting their attestations to statements of fact.
In case you don’t feel like re-reading, the split is over the Illinois Home Repair and remodeling Act (815 ILCS 513/1 et seq.) and whether the failure of a contractor to comply with the act will strip the contractor of the right to recover monies that it is owed or whether the failure to comply with the act bars certain claims but not others. For instance, a contractor may be owed $10,000 for a job, but failed to provide a copy of the pamphlet required under the act – in the fourth district, this would be a bar to all claims for payment including mechanics liens, breach of contract claims, unjust enrichment claims and the like. In the first district, the failure to provide the pamphlet would not currently bar an unjust enrichment claim but would bar the mechanic’s lien claim and the breach of contract claim given that the act calls contracts made in contravention of its requirements “unlawful” and unlawful contracts are void. (see K. Miller above.)
Now comes a new wrinkle.
In Artisan, the plaintiff was a contractor who claimed it was owed in excess of $208,695.69 for construction work on a house in Hinsdale, Illinois. The plaintiff wasn’t paid and sued the owner alleging it had a mechanic’s lien for the sum, that the owner had breached the contract, and also pled a claim for unjust enrichment (even if there wasn’t a contract, the owner benefited from the work and should have to pay for that work).
The owner asked the district court to dismiss the case because the plaintiff had failed to provide the owners with the brochure, had failed to commence or complete work within the contracted time period, and didn’t maintain insurance. The district court dismissed the case on the basis that the plaintiff admittedly did not furnish the owners with the consumer rights brochure. The plaintiffs appealed and asked that the appellate court overturn the decision.
The Second District was faced with the same decision as the other districts have been faced with… what, if anything, does a contractor’s failure to comply with the act mean for its claims against the home-owner?
The Second District interpreted the act to mean that the contractor’s failure to provide the consumer with the brochure does NOT remove the contractor’s right to recover in either equity (quantum meruit) or law (breach of contract, mechanic’s lien).
“To hold that a failure to provide a consumer with the brochure allows the consumer to defeat all legal and equitable claims by the contractor would lead to mischief and a result the legislature could not have intended.”
In reaching this conclusion, the Court said it was looking to legislative intent, which is a phrase and methodology addressed in many of the cases involving this act. Oddly, apart from attempting to interpret legislative intent through reading the “plain language” of the statute, none of the cases attempt to examine what the legislature had to say about the bill in debate or committee.
From the Senate and House transcripts on the matter, we see that there was not only opposition to this bill on the part of people who felt the bill just added an extra hoop for honest contractors to have to jump through without punishing the ne’er-do-wells who were the reason for the bill, but that the main justification for its passage was the protection of seniors and unwary consumers. Another point was the information this bill would force on people having their homes repaired – like the rights involved in contracting, an up-front contract price, and – after a 1994 amendment – a knowing acceptance or relinquishment of arbitration and the right to trial by jury. The debates focus on the Attorney General’s ability to prosecute and say nothing about voiding contracts or allowing a private right of action (an issue heavily debated by the justices of the Courts).
During the original House debate, representative Winters had these closing remarks,
“The Attorney General of the State of Illinois has listed home repair fraud as the #1 consumer complaint in their offices. Over the last five years, they average almost 500 complaints from consumers a year of being ripped off by artists who simply go up and down the street looking for the elderly, looking for the unprotected, looking for the uninformed. This Bill seeks to inform the consumer, it is not onerous to the contractors, a simple brochure and contract language is all that it requires….
“The only way that the criminal provision in this would be put forward is in fact that the State’s Attorney or the Attorney General can find a consistent pattern of fraud. And it is only a civil penalty in this Bill, it is not criminal. We have other criminal statutes under deceptive business practices. This Bill is simply civil penalties for failing to have the brochure disseminated and signed off by the consumer. It is a great consumer protection Bill, very little burden to the, to the contractors of this state. And I would urge adoption of this Bill.” [emphasis added] IL H.R. Tran. 2000 Reg. Sess. No. 55
The failure to have the brochure passed out and signed off on was to be the ground for a penalty… and not just the loss of the right to arbitrate or to have a trial by jury, that provision wasn’t even part of the act until 1994, so the statement that there would be a penalty for failure to have the brochure passed out contemplated some other form of a civil penalty.
The notion that there should be some form of a penalty for failure to comply with the act by passing out a brochure along with the “shall” language of the act's requirements seems to make more sense when interpreted with the loss of the legal rights given the nullification or voidance of any contract between parties subject to the act where the act hasn’t been complied with. But again, that reading means that Section 35 of the act giving the AG and SAGs the power to enforce the act is not the sole mechanism for enforcement… If the act was to help seniors, did that really mean that the legislature wanted the “500” annual complaints referenced by representative Winters to be handled solely by the AG’s office? Wouldn’t it make more sense to allow Seniors to void any contracts and eliminate mechanics liens where the act hasn’t been complied with… if, as discussed in the General Assembly’s debates, compliance was as simple as handing over a brochure?
Another issue comes out of the transcripts of the assembly’s deliberations – that of the knowing contractor vs. the unwary contractor.
Back in March of this year, we discussed a case called Kunkel v. P.K. Dependable where the 5th District decided that a contractor guilty of a violation under the act wouldn’t have to pay the attorneys fees of a home owner forced to go to court and pay an attorney to prosecute this kind of action if the contractor didn’t “knowingly” not comply with the act.
Interestingly, the Assembly transcripts show that the “knowing” issue was also important to the legislature and they expected the contractors to know about the act and also thought other State agencies as well as trade associations would hand out brochures and increase awareness… but in the end, that “knowing” would not be an issue.
The best way to make sure there are no problems is to comply with the act.The brochure is linked above and getting the homeowner to sign off on it, having insurance, and delineating the terms of the project in a written contract or statement are what the act requires.No home-owner should be allowed to reap a windfall for the failure to turn over the pamphlet, but if allowing a few wind-falls finally forces everyone to comply with the act, which is what the legislature intended, it is not unlikely that a few more courts may award a few wind-falls to accomplish that.
If there’s one thing our legal system abhors, it’s a lie. Apart from just making a decision about liability or guilt, juries help ferret out the veracity of our fellows by listening to live testimony and making a decision about credibility. The success of a lie, its perpetration on our populace, can shake the foundational beliefs regarding the just nature of our judicial process.
Lie takes on many names. The fun lie of what is possible is fiction. The lie under oath is perjury. The damaging lie we are concerned with today is fraud.
In our previousposts on the case of Cordeck v. Construction Systems, Inc., we have discussed the issues raised by a bank, FMB, with a mortgage on a property against which two mechanic’s liens were filed and foreclosed on. (The liens and the appellate briefs of the parties can be found in the earlier posts) One lien was filed by a contractor, CSI, the other, by the contractor’s sub, Cordeck. Cordeck’s lien alleged that it was owed over $1 Million for work on the project because it had performed close to $1 Million under the contract and $500 thousand in extras and had only been paid $500 thousand.
During discovery on the issue of work performed, Cordeck only supplied evidence of $100 thousand in extra work – the other $400 thousand was not substantiated by the documentation produced. After this revelation, Cordeck apparently settled its claim for the extra work with the general, CSI and amended the Cordeck lien by reducing more than $500 thousand. In the trial court, the bank, in challenging the Cordeck lien, made the argument that the magnitude of the reduction compelled the conclusion that Cordeck’s initial lien claim was intentionally overstated and should therefore be invalidated.
In its opinion, the appellate court provides a litany of examples of overstatement invalidating a lien claim and additional evidence as proof of constructive fraud:
“In Lohmann Golf Designs, Inc. v. Keisler, 260 Ill. App. 3d 886 (1994), the contractor filed liens against each of three separate properties for the full amount of the total claimed to be due, resulting in a total lien filing of triple the outstanding debt. 260 Ill. App. 3d at 891-92. In Fedco Electric Co. v. Stunkel, 77 Ill. App. 3d 48 (1979), the contractor's president admitted that his lien total had intentionally overcharged and undercredited the property owner, apparently due to animosity resulting from prior difficulties in collecting payment. 77 Ill. App. 3d at 50-51. In Marsh v. Mick, 159 Ill. App. 399 (1911), the court found that the contractor's overcharge was a claim for the full amount of a contract that it had not completely performed; the court also found that the overstated liens were intentionally filed to compel the property owners and other lienors to pay him an "unjust amount." 159 Ill. App. at 405.”
The appellate court found that at the trial court level, the bank had not produced any such additional evidence of an intent to deceive, but took note of the fact that the bank had been denied a copy of the settlement agreement between the sub and its general. The Court held that the potential relevance of the settlement agreement was evidenced by the facts that the general’s original answer to the sub’s complaint stated that the sub’s work was substantial or not done at all; that the general spent a substantial sum to correct problems with the sub’s work; that over $400 thousand of the original lien claim was not supported by the evidence provided by the sub during discovery; and that after the settlement, the sub abandoned its claim for the extras reducing the lien by more than half.
With the potential relevance noted, the court found that the bank should have been given a copy of the settlement agreement because to the extent that it may or does demonstrate acknowledgement that any portion of the sub’s original claim was not asserted for a valid debt, it would constitute the additional evidence that would support the bank’s claim of constructive fraud.
Even after the amount claimed by the sub was reduced, proof that the original amount claimed was constructive fraud would invalidate the whole lien.
So what does that mean for the sub? It means that the sub better hope that the settlement agreement doesn’t contain any terms stating that the debt wasn’t valid or even inferring such a case – which it likely doesn’t, given that settlement agreements rarely, if ever, acknowledge anything other than that a claim has been made and usually specifically state that the settlement agreement makes no recognition regarding the validity of the settled claims… but you never know.
The lesson in defending against a lien is to be on the lookout for overstated sums and in filing and prosecuting a lien is to make sure you’re not inflating the amounts owed for some reason.
In yesterday’s post we began our discussion of the issues raised in the recent appellate court opinion of Cordeck Sales, Inc. v. Construction Systems, Inc. et al. (Doc. No. 1-08-0554). The opinion is the second opinion rendered in this case within the past two years. Both opinions discuss a host of issues pertaining to the Illinois Mechanic’s Lien Act and are recommended reading for contractors, subcontractors, owners and anyone involved in a construction project that worries about having to file a lien to get paid.
A short description of the case and the appellate briefs filed by the parties can be found in yesterday’s post. In short, a bank with a mortgage appealed several issues involving liens filed by contractors on a condominium development project. The bank wanted the liens invalidated and the contractors wanted to be paid. The liens filed by the two contractors can be found here, and here. Both purport to be subcontractor liens, but the opinion refers to Construction Systems (CSI) as a general contractor (Section 7(c) of the Act states that a statement that a party is a subcontractor will not invalidate a later determination that the party was, in fact, a contractor).
One of the issues raised by the bank, First Midwest Bank (FMB), in challenging the lien filed by CSI, involved the timeliness of CSI’s lien filing given facts and evidence regarding CSI’s last date of work.
Timeliness is a make-or-break issue under the Illinois Mechanic’s Lien Act. This means that the failure to file within the statutorily prescribed time limits, even by one day, can completely invalidate a lien. This all-or-nothing style issue is contrasted with issues surrounding property descriptions within the lien or innocent errors in stating the amounts owed which can be weighed by court’s and, as we have seen in other posts, ignored if justice may require it. In short, and in lieu of another hyphenated catch-phrase; timeliness is essential.
Under the Act, against private property, a general contractor must file the lien within four months of the date of completion of the work, a subcontractor must send notice of the lien within 90 days of completion to the required parties and the lien must be filed within 4 months from the completion date. For a public contract the timelines are different – here is our post from April regarding the issue – and getting the notice of lien on file with the proper public officer is essential to your claim.
The requirements are not simply some arbitrarily imposed deadlines.The limits protect subsequent purchasers and owners from having their property interests infringed by unforeseen or delinquent claims for payment and provide contractors with a clear map for obtaining payment when it is owed them.The boon is that there are clear guidelines for what must be done that can be relied on; the detriment is that if the guidelines are not followed to the letter, there may be no relief at all.Without the statutory requirements, the Act would be nothing more than another cause of action to add to a complaint that would inevitably take as long to litigate as any other cause of action.The desire to protect the right of contracts and see that the contractor is paid is on equal footing with the rights of the owner when the edicts of the Act are followed, e.g. requiring notice of subcontractors performing work, and statements of amounts owed.This is true because if the Act were followed, assuming the owner had money to satisfy the contract, a lien would not be possible or necessary. When the act is not followed, and liens become necessary, issues like timeliness become important.
Usually, timeliness can be established through work-orders, employee logs, emails or even GPS logs of the location of fleet trucks. However, as is the case with the challenge to the timeliness in this matter, two conflicting assertions regarding the date of a party’s completion of work with adequate proof for each can create an issue of fact that can preclude summary judgment.
In this case, FMB had evidence from logs kept by the project manager, AMEC Construction Management, recording the times and dates that contractors were present that placed CSI on the project at no time from May 25 of 2003 forward. CSI presented an affidavit of its vice president indicating that he and other workers were on the project through June 18th, 2003. This is important because the date for filing the lien in a timely fashion is four months from the last date of work/date of completion. Since the CSI lien was filed on Septembe25, 2003, that date would be May 23, 2005 or after for the lien to be timely. If CSI is correct about the last date of June 18th, the lien is timely, if the logs are correct and CSI was not there on May 25th or afterwards, the lien would not be timely.
After reviewing the evidence the trial court granted summary judgment in favor of CSI because of the affidavit of the vice president, the appellate court reversed that decision and remanded the case for further proceedings finding that the absence of CSI from the project manager’s logs created an inference in favor of FMB, the CSI affidavit created an inference in favor of CSI and that these two competing inferences should be determined by the trier of fact and not resolved in summary judgment. Note that the dissenting opinion in this case offers some additional information about the affidavit – it apparently stated the names of the employees, the hotels that they stayed in, detailed the work they performed and the materials they used.
The lessons from the opinion and its holding are apparent. Adequate documentation of the work performed is essential. Keeping time logs, receipts, and any other form of documentation regarding the work can either win the issue of timeliness, create an issue precluding summary judgment, or even outright defeat a claim that a given lien was timely filed. It is imperative that your operations take these facts into account and that a system for documentation and proof is established.
Tomorrow we will address the issue raised in this appeal regarding constructive fraud in stating the amounts due and owing in a lien claim.
Since the Appellate Court delivered that opinion some of the parties were apparently able to settle their disputes and some of the parties found new issues to appeal. On September 9, 2009, the Court issued a second appellate opinion in this matter addressing several issues surrounding mechanic’s liens. Over the next few days, we will be addressing these decisions.
The full set of facts is available in the opinions. In short, Cordeck was subcontracted to Construction Systems, Inc. (CSI) to supply and install structural steel for a condominium project in Chicago. On January 23, 2003, Cordeck filed this lien stating it was owed $1,003,489.70 for work on the project and filed suit to foreclose on that lien in April 2003. In August of 2003, the condominium declaration was filed (if you want to read it, you’ll have to go to the Cook Count Recorder of Deeds office – it’s document 0324110024). On September 25, 2003, CSI filed this lien claiming it was due $1,979,412.00 and filed an answer and amended counterclaim in the Cordeck case alleging as much.
A bank holding a mortgage on the property, First Midwest Bank (FMB) challenged the validity of the liens filed by both Cordeck and CSI, the challenges and the Court’s decisions are the subject of our posts on this case.
The first challenge raised by FMB to the lien filed by CSI was that the lien failed to sufficiently describe the property encumbered by the lien. Here is the appellate brief filed, you will see that it contains arguments regarding the sufficiency of the description under Section 7 of the mechanic’s lien act, but also that it asks the court to consider the issue of Section 9.1 of the Illinois Condominium Property Act which arguably requires apportionment of a mechanic’s lien on a condominium property once a unit has been conveyed to a purchaser.
Here are the briefs in response to the appellate brief and the reply brief filed. You will see that the argument made in contravention of applying the apportionment rule of 9.1 centers around the fact that no unit had yet been transferred to a purchaser when CSI filed its lien and arguably then, CSI was not required to apportion the lien.
The reason we’re attaching the briefs and discussing the argument is that the appellate opinion didn’t address the issue. While we don’t know why the Court did not want to finally wade into the waters of Section 9.1, we can see from the briefs that a decent argument was advanced in contravention of applying the apportionment requirement to the CSI lien which may be the reason it wasn’t included in the opinion.
FMB also argued that even if Section 9.1 did not apply, the fact that a more recent and particular property description had been filed prior the recording of the CSI lien meant that the CSI lien was invalid if it did not include the most recent and more particular description. The Court addressed the description included in the CSI lien in accordance with the terms of Section 7(a) which requires that the claim for lien include:
“a sufficiently correct description of the lot, lots or tracts of land to identify the same”
The court found that the description of the CSI lien met the requirement that “the description be sufficient to identify the affected land” – adequate under the standard of the Act – and rejected the request to invalidate the lien on the basis of the description.
As you can see from the lien, it used the plat of survey description, included the common address of the property and also had the property identification numbers for the parcels that had existed prior to the apparent merger of the property into a different number. It is also interesting that there was testimony from an employee of the recorder’s office who testified that a lien recorded on the property as a whole would appear in a search of the chain of title of each unit included in the condominium declaration. (This is perhaps true of searching at the actual recorder’s office, but searching online with the PINs for the condominium units shows none of the liens filed by Cordeck or CSI. The first condominium unit PIN can be found on this map from the Assessor’s Office).
There are more than a few parties that would have appreciated a discussion of the application of Section 9.1, but the facts appear to have been against the treatment of the issue. For now, we have another case that offers some welcome guidance regarding the sufficiency of a property description under the Act.
Tomorrow we will discuss the issue of timeliness in filing the lien raised in this case.
This month’s legislation update is no surprise to those whohave been following our posts on the mechanic’s lien act amendments and the amendments to the counties code.
House Bill – 236 has now become Public Act 96-0654 – Amends the Illinois Mechanic’s Lien Act (770 ILCS 60/1 et seq.) - GC lien claimants on owner-occupied single-family residences now need to give an owner written notice of the filing of a lien against the property within 10 days of the filing.
Senate Bill – 1511 has now become Public Act 96-721 – Amends the Illinois Counties Code (55 ILCS 5/1 et seq.)- Allows county boards outside incorporated towns are now allowed to require occupancy permits for residential dwellings located outside the incorporated areas. Removes the right to charge fees for the residential permits unless the residential fees are grandfathered in.
Senate Bill – 138 has now become Public Act 96-0704 – Amends the Capital Development Board Act (20 ILCS 3105/10.09-1) – Orders local governments without building codes to adopt the model codes or inform the Capital Development Board of the adopted codes. Sets requirements for building inspectors enforcing code requirement under the act.
For design professionals who operate under a limited liability company structure, a certificate of registration is now required from the Department of Financial and Professional Regulation. Public Act 96-0679 - This appears to be in addition to the professional design firm registration already required.
And on an off-blog note, bowling alleys now have a safe harbor of their own.
The Bowling Center Act, establishes the requirements for certain exemptions from personal injury suits for bowling alleys caused by patrons wearing bowling shoes outside the alley if the proper signs are posted at all entrances and exits. Citizens can rest easy knowing that the definitions of both “bowler” and “bowling shoes” are now statutorily codified.
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.
House Bill 236 has passed both houses and is now awaiting the signature of the Governor. Once signed, the bill will require the stated 10 day notice to home-owners from general contractors placing liens on owner-occupied homes.
O'Connor Construction Company v. Belmont Harbor Home Development is a classic case in construction dispute damages. The plaintiff filed a mechanics lien against a condominium project after the developer refused to let it complete the project. O'Connor had been the carpentry subcontractor responsible for blocking and for trim finishing. It completed most of its work under its contract and had been asked to work, contrary to the contract, to finish the units as units were sold rather than finishing the project as a whole.
After a dispute over payment applications, O'Connor requested that the developer deliver the materials it needed to complete the project in a timely fashion, and the developer failed to supply the needed materials in a timely way. O'Connor then filed a mechanics lien for the amount it was owed under its contract and refused the developer's demand to rescind the lien. When O'Connor would not rescind its lien, the general contractor terminated the contract with O'Connor.
The facts in the trial court showed that O'Connor's contract price plus extras was $351,989.00. This is what O’Connor would have been paid under its contract if the contract had been completed. It also showed that O'Connor had been paid $175,189.50. The trial court found that O'Connor had substantially completed its contract and that the cost to finish the contract for work that was not performed after O’Connor was let go was $41,200. Using a method of calculating damages that would award damages for the benefit received by the developer from O'Connor's work, the trial court found that O'Connor was owed $50,876.50. On appeal, the appellate court found that this was the wrong measure for damages in both a mechanics lien action and a breach-of-contract action.
The appellate court found that the proper measure of damages owed to O'Connor would be $351,989.00 O'Connor would have received had it been allowed to finish the project minus the $175,189.50 that O'Connor had been paid, and also less the $41,200 it would cost the defendants to finish the work O'Connor was in not allowed to complete. This is in stark contrast with the $50,876.50 figure the trial court had awarded. The appellate court also found that under the mechanics lien statute O'Connor was allowed its attorneys fees where a portion of the payment that O'Connor was owed had not been turned over, and the defendants testified that it was due to O'Connor.
Also worth noting in the opinion is the fact that the mechanics lien statute provides interest at 10% per annum, which was greater than the 5% per annum O'Connor could expect under its contract. As we’ve said before, along with the Contractor Prompt Payment Act the mechanics Lien act provides any party who has not been paid a powerful tool and obtaining payment for services rendered. Knowing that in a fixed-price contract, there is a certain expectation you may have when someone else breaches your contract, using the mechanics in statute to get that payment back allows you a remedy that you otherwise might not have… and awards damages in a manner similar to contractual damages and possibly not just for damages in line with the benefit someone has received from your work.
In a day and age when attorneys fees can become a considerable hindrance to the prospect of recovering on low-cost contracts – it is worth noting that payment held without just cause can entitle someone to remuneration for the fees of having to bring a court action under the statute.
Those of you follow our blog know that we've been waiting for the Illinois Supreme Court's Weather-Tite decision for quite some time. The facts of Weather-Tite were undisputed. The University hired a general contractor who hired subs for the renovation of a residence hall. On five different occasions, the general contractor submitted sworn statements in accordance with the Illinois Mechanics Lien Act to the University requesting payment.
After receiving monies for each of the first four sworn statements, the University paid the general contractor the amount listed on each statement. For the last statement, the University paid the money to the general contractor but the bank where the funds were deposited exercised a right of set-off and took the money from the account of the general contractor before the subcontractors were paid the amounts reflected in the general contractor's last sworn statement.
Several of the subcontractors including Excel filed mechanics lien claims against the University for payment. The University was awarded summary judgment on the Excel claim in the trial court, following a determination that Excel did not have a valid lien pursuant to Section 5 of the Mechanic's Lien Act, the appellate court reversed and the decision was appealed to the Illinois Supreme Court.
In the Supreme Court, the University argued that section 5 of the Mechanics Lien Act only required it to pay the amount listed on the general contractor's sworn statement to the University. Excel argued that under section 5, and in conjunction with other sections of the Act, the university was required to withhold the amounts listed on the general contractor's sworn statement shown due to Excel.
The Illinois Supreme Court has agreed with arguments contrary to those of the University advanced by Excel and the opinion is informative to anyone working on a construction project. The Illinois Supreme Court has ruled that Section 5, read in conjunction with sections 27 and 32 of the Illinois Mechanics Lien Act, requires that any owner receiving a contractor's sworn statement withhold the funds noted on the statement for payment directly to the subcontractor(s). Failure to withhold the funds subjects the owner to the possibility of a mechanics lien against its property if payments are made to the contractor and the contractor in turn fails to pay the subcontractor. The opinion is not only well written, it is extremely informative and delineates certain guidelines a party should follow when paying for work.
As delineated by the court, it was the intent of the Illinois legislature that there be an orderly method for conducting construction transactions to protect subcontractor claims: (1) The owner and general contractor enter into a contract for the construction work; (2) as the work is completed, the general contractor submits a section 5 sworn affidavit that must list all subcontractors and the amount due, or to become due, or advanced; (3) when the section 5 sworn affidavit lists an amount due or to become due a subcontractor, section 24 requires the owner retain sufficient funds to pay the subcontractor; and (4) section 27 requires the owner to make subcontractor payments upon receiving notice of a subcontractor claim pursuant to a section 5 sworn statement. To protect itself an owner can require a lien waiver be provided by a contractor when the subcontractor is paid and the owner can require a lien waiver by every subcontractor when paying the contractor.
In supporting its opinion, the court looked to the Knickerbocker decision of 1914 in the Luczak Brothers decision of 1983.
The Weather-Tite opinion represents sound guidance that the general contractor's sworn statement provides the owner notice of subcontractor claims and imposes a duty on the owner to retain funds sufficient to pay those subcontractor claims. Owners should be aware that if the contractor's sworn statement shows monies owed to the subcontractor the owner should withhold those funds for payment directly to the subcontractor or wait to release those funds until a waiver is provided.
The delineation of construction project payment procedures along with a sound interpretation of section 5 and the requirements given to owners should provide a decent path for anyone to follow regarding when payments can be made to a contractor and what should be requested of the contractor when the owner believes that there may be subcontractors on the project. For subcontractors, in order to avoid an owner's claim that it had no knowledge that a subcontractor was performing on the project, the subcontractor's 60 day notice of performing work on the project should probably be sent at the beginning of the project. Once all parties have knowledge of who is working on the project and who is responsible for payment, the current problem of the possibility of a contractor failing to pay the subcontractors and liens being placed on the premises or the possibility of a contractor going bankrupt before subcontractors are paid funds advanced by the owner can ultimately be lessened or done away with entirely.
For those of you following the Illinois Supreme Court's decisions regarding mechanics liens, you will be happy to know, that the Court, will be releasing its Weather-Tite decision on May 21, 2009. We will update you when the opinion arrives, for now, you can follow these links to our last posts, regarding the Weather-Tite case.
We wrote about HB 236 for the first time back when it was introduced here, and criticized its lack of clarity. When the bill was then amended we wrote about it again, here, and again asked why the bill couldn’t be as specific for the service of notice as other portions of the Mechanic’s lien act, so that contractors, architects, engineers, or anyone practicing in Illinois who could be planning to file a lien could have a little more specificity.
Well, the HB 236 was passed out of the Illinois House after the last amendment and in the Senate, it has finally been amended to address those concerns we’ve raised.
In lieu of amending Section 1, the new proposed Senate Amendment 001 would amend Section 7 by adding paragraph notations “a” through “c” to the already existing paragraphs of Section 7 and then would add the following:
(d) A contractor for improvements of an owner-occupiedsingle-family residence must give the owner written noticewithin 10 days after recording a lien against any property ofthe owner. The notice is served when it is sent or personally delivered. If timely notice is not given and, as a result, theowner has suffered damages before notice is given, the lien is extinguished to the extent of the damages. The mere recording of the lien claim is not considered damages. This subsection does not apply to subcontractors, and it applies only to contracts entered into after the effective date of this amendatory Act of the 96th General Assembly.
For some reason, the Illinois Construction Industry Committee has yet to weigh in on this bill. It appears that the movement in the Senate may be as fast as the movement in the House.
Depending on how you want to spin this, it’s either an added protection for home-owners or another burden to the general contractors involved in home projects.
My personal take is that the ten-day requirement is not a burden in the least and that, since we traditionally treat home-owners differently (i.e. bankruptcy, the home repair and remodeling act) there’s no reason not to let a home-owner know that someone they’ve contracted with directly is claiming that they have not been paid. After all, we make subs notify the home-owner as well. Dropping a piece of mail into a post-office box after you’ve filed the lien isn’t going to lead to the end of enforceable Mechanic’s Liens.
Take a look at that beautiful aerial of Chicago’s City Hall from the Cook County Assessor’s Interactive Mapping Site (the left side with the beautiful garden, that’s it… the right side that’s simply roof… that’s the county’s side). It has a Property Identification Number (PIN), it can be located, but you can’t lien it - it’s public property.
More pertinent to today’s discussion is this:
The Irving Park Brown Line stop… again, a public space, recently renovated and again, you can’t lien it… it’s public. Anyone getting ready to work on building projects for Chicago's hopeful 2016 Olympic bid will want to familiarize themselves with ways to get paid for public works projects.
Section 23 of the Illinois Mechanics Lien Act governs the application of the act to public projects, or rather, to the public funds behind the public project. The distinction is important because unlike a regular action, Section 23 only allows a person performing work for someone who has a contract with the public entity (or someone in the chain of such contracts – but certainly not those entities contracting directly with the public body) who has performed work on a public project to place a lien on public funds dedicated to that project… and only on those funds that haven’t been disbursed by the time it notifies the public entity in charge of the project that it is claiming a lien.
Time is of the essence in exercising your mechanics lien rights on these public funds. You need to get the notice on file as soon as possible so there will still be a chance that funds are left, and then you’ll be forced to file a court action within 90 days after your notice is received or you will lose the rights. An attorney can walk you through the process, but suffice it to say, timing is important, and so is getting the notice right.
To that end, today’s case involves exactly such a lien for work done on the Brown Line Renovation Project mentioned above. Here is a copy of the complaint. EMCO Metalworks is suing the CTA and McHugh for foreclosure of its mechanics lien on the public funds and for breach of contract. The electronic case docket can be found here.
The complaint will be informative not only for the pleading, but also for the notice provided as Exhibit C.
The lessons about timing and making sure you’re ready cannot be overlooked when you know you will be filing suit within 90 days of the notice if you have not been paid.
We’ve been following this mechanic’s lien case for you and wrote about the appellate court opinion here, and the decision to allow appeal here. Now that oral argument has occurred, we can soon expect the opinion, but before that happens, here’s something you’ll want to watch… the video of the oral argument. (.wmv file new window) A link to just the Audio is available as well. (new window)
The new amendment alters the bill substantially, changing its nature from a bill requiring pre-filing notice to a bill that creates a post-filing step for contractors.
The amendment turns the bill into one creating a requirement that a contractor provide the owner written notice by certified mail within 10 days of the recording of the lien.
This is really pointless. A contractor would certainly want the owner to have notice after the lien has been filed because usually those filing liens are trying to get paid without the heavy cost of litigation. The whole point to filing the lien is that you have one more bargaining chip in getting the money you're owed and also have an extra claim if you need to collect in court. So what kind of contractor wouldn't or doesn't let the owner know that a lien is in place?
Additionally, when will "notice" be considered served. Under Section 24 (770 ILCS 60/24) for subcontractors:
"notice by registered or certified mail is considered served at the time of its mailing."
Here, we have not added the caveat for contractors. Why? Do we seek to completely strip a contractor of its rights if it can't get the home-owner to sign for the certified mail? And why was this changed from a pre-filing requirement to a post-filing measure?
It’s unclear if we can go a week without attempting to amend the Illinois Mechanic’s Lien Act to accomplish what the Mechanic’s Lien Act could accomplish if Section 32 were just removed.
Last week we wrote this entry on HB 0236 which sought to keep contractors from filing liens without first providing written notice to the owner.
This week, State Senator Pamela J. Althoff has introduced SB 2073 which would bar a subcontractor from any remedy under the act for work on owner-occupied single-family homes unless the contractor’s written agreement with the home-owner includes this statement:
"THE LAW REQUIRES THAT THE CONTRACTOR SHALL SUBMIT ASWORN STATEMENT OF PERSONS OR SUBCONTRACTORS FURNISHINGLABOR, SERVICES, MATERIAL, FIXTURES, APPARATUS ORMACHINERY, FORMS OR FORM WORK BEFORE ANY PAYMENTS ARE REQUIRED TO BE MADE TO THE CONTRACTOR."
IT IS IMPORTANT THAT YOU READ AND UNDERSTAND THE DUTIESTHAT YOU HAVE AS AN OWNER OF THE PROPERTY TO THE CONTRACTORAND TO ANY SUBCONTRACTOR THAT THE CONTRACTOR USES. THESEDUTIES ARE PRINTED AND INCLUDED IN THIS CONTRACT UNDER THEHEADING NAMED "PROPERTY OWNER'S DUTIES UNDER THE LAW".
The underlined portions are the one’s being added.
Adding “or subcontractors” to the language of the already required statement accomplishes nothing. Subcontractors are included as “persons” in that statement.
This bill requires that a new section entitled “Property Owner’s Duties Under The Law” be included in all contracts, but adds nothing to the Act about what that portion of the contract should say and doesn’t enumerate the duties that need to be included in the statement. Does this amendment seek to now impose a duty to include in contracts a complying section and list every duty owed by a property owner under the law? - Does that mean the Act or the entirety of the Law?
The Amendment also adds the following penalty provision:
(iv) The failure of a contractor to include thestatement contained in paragraph (i) on the face of the contract relieves the owner of the property of any legalobligation to pay any subcontractors under this Act.
Normally, the contractor couldn’t give away the rights of the sub, but since the act is a legislative remedy, the legislature is free to divine the methods and remedies it affords those performing construction work. But what has a subcontractor done by performing work and not getting paid that it would even have a chance to rectify at the time the owner and the contractor enter into an agreement? Usually, subs aren’t even involved in the process at the time the contract is entered into. We understand the goal is to protect home-owners, but why punish the subs?
Again, Section 32 of the Act, that strips the Act's remedies for the home-owner’s already made payments from the home-owner for failure to request and exercise its rights under the Act, could be removed and the home-owner would not have to pay the monies it has already paid for the benefit of the subs to the subs again if the contractor has failed to pay those monies out.
Introduced by Representative Kathleen A. Ryg, HB 0236, the bill seeks to amend 770 ILCS 60/1 (Section 1 of the Mechanic’s Lien Act in Illinois) to include a provision requiring contractors (read “not subs”) on owner-occupied single family residences to given written notice before filing a lien:
(e) A contractor for improvements of an owner-occupiedsingle-family residence must give the owner written notice before filing a lien against any property of the owner.
The act already contains such a similar provision for subcontractors in Section 21(c):
(c) It shall be the duty of each subcontractor who has furnished… work for an existing owner‑occupied single family residence, in order to preserve his lien, to notify the occupant either personally or by certified mail, return receipt requested, addressed to the occupant or his agent of the residence within 60 days from his first furnishing labor… The notification shall include a warning to the owner that before any payment is made to the contractor, the owner should receive a waiver of lien executed by each subcontractor who has furnished labor, services, material, fixtures, apparatus or machinery, forms or form work. The notice shall contain the name and address of the subcontractor or material man, the date he started to work or to deliver materials, the type of work done and to be done or the type of materials delivered and to be delivered, and the name of the contractor requesting the work. The notice shall also contain the following warning:
"NOTICE TO OWNER
The subcontractor providing this notice has performed work for or delivered material to your home improvement contractor. These services or materials are being used in the improvements to your residence and entitle the subcontractor to file a lien against your residence if the services or materials are not paid for by your home improvement contractor. A lien waiver will be provided to your contractor when the subcontractor is paid, and you are urged to request this waiver from your contractor when paying for your home improvements." Such warning shall be in at least 10 point bold face type. For purposes of this Section, notice by certified mail is considered served at the time of its mailing.
As you can see, the description of 21(c) is a bit more informative and contains a lengthy mandate of procedures that are required to be followed as well as prescriptive language for the notice.
The problem with the subcontractor’s failure to perform the task of notifying the home-owner is that the act gives the appearance of protecting the home-owner but fails to follow through.
Section 32 of the act strips the home-owner of its protections if it fails to request the Section 5 statement of entities performing work on the project:
Sec. 32. Payments to contractor by owner.
No payments to the contractor or to his order of any money or other considerations due or to become due to the contractor shall be regarded as rightfully made, as against the sub‑contractor, laborer, or party furnishing labor, services, material, fixtures, apparatus or machinery, forms or form work if made by the owner without exercising and enforcing the rights and powers conferred upon him in Sections 5, 21 and 22 of this Act.
As a home-owner, even if you’ve only made a contract with one entity, you still need to request the list of subcontractors… or you won’t have the protections of the act.If you get the statement from the contractor and it shows that money is owed to a sub, you need to withhold that money from the payment to the Contractor.Unless you comply with all the terms, the fact that the sub is required to give notice to a home-owner is meaningless.
Certainly, the bill makes sense.Home-owners can’t be considered in the same manner as sophisticated developers who may fully understand the rights and obligations that having work performed on their homes entails.The protections provided by the act for subcontractor liens would be better if they had actual teeth and didn’t dissipate completely with the failure to comply with Section 5 in obtaining the statement regarding subcontractors and their work.Especially in an age where we are seeing more and more residential contractors fail to pay their subs or declare bankruptcy leaving the subcontractors without money and putting them in a position to place liens on owner-occupied single family homes.
To apply those same principles to contractors makes sense as well, but the failure of this amendment to specify a time limit for giving the notice prior to filing the lien is an oversight by the legislature to make this amendment have a meaning.
As it reads, notice could be given the day before the lien is filed. What protection does that afford the home-owner?What if it was just taped to the door?
A better amendment would be to require that before a contractor can file a lien, it should have to deliver to the home-owner the required Section 5 notice listing all the subs and the monies owed.This would not only give the home-owner adequate notice, it would, with the proper time limitations, allow the home-owner to obtain financing necessary to pay the amounts owed.
The litigation involved the foreclosure of a mechanic’s lien by a HVAC and plumbing subcontractor. The general had hired the sub based on a contract for $465,000 to perform work on a property in Chicago commonly known as 3947-55 King Drive and 401-415 E. Oakwood. As noted in the Google street map below, this location was home to Chicago's Rosscoe's which was the subject of a suit in 2008 (the Chicago IP Litigation Blog's Entry on the subject can be found here) and has since changed its name to Chicago's Home of Chicken and Waffles.
The sub performed $289,302 in work before the relationship went south and it terminated its relationship with the general. The sub filed liens for the full amount – because the property was on two different parcels, it apparently recorded two separate liens against the properties, each for the full amount, rather than just recording a single document that listed the multiple properties.
Four days after the liens were filed, the sub sued to foreclose its lien and brought two extra counts, one for unjust enrichment and one for quantum meruit (two equitable claims alleging that even if there was no contract with the property owner, the owner benefited from the work the sub did, so the sub should be paid).
After multiple motions, the trial court dismissed all the claims made by the sub. The trial court found that the fact that two liens were recorded for a total that was in excess of the actual amount owed was constructive fraud on the part of the sub requiring dismissal of the foreclosure action. The court also found that the equitable claims were not available because the sub had no contract with the land owner.
The appellate court reversed finding that the duplicative filings did not amount to a showing of constructive fraud where the defendants could not show there was an intent to defraud and even the Illinois Mechanic’s Lien Act stated that the misstatement of the amount required a showing of intent to defraud before the misstatement could be used to defeat the lien. The appellate court upheld the trial court’s determination that the equitable claims were unavailable to a subcontractor that only had a contract with the general.
While no one is going to recommend filing a lien that hasn’t been proofed and double-proofed, it’s nice to see the intent of the law given form here to help people get paid even if a small technical error arises.
An important lesson in asserting a claim for a lien is elaborated in Inter-Rail Systems, v. Ravi Corp. Determining whether your work is maintenance or lienable work that has improved the property as part of an overall plan for improvement, and whether you can and have provided proof of the overall value added to the land because of your work is important where the statute doesn’t explicitly describe your work as an improvement. (See the Mechanic’s Lien Act – 770 ILCS 60/1(b))
In Inter-Rail, the plaintiff was contracted by the land owners to clean up a portion of a site containing drums and waste in a warehouse and an adjacent parking lot deemed hazardous by the U.S. EPA.
Specifically, the plaintiff was contracted for the removal and disposal of drums from both the parking lot and the warehouse. The cleanup also required the plaintiff to scrape, sweep and decontaminate or remove any areas of the site or trailers in the parking lot where spills of the hazardous materials had occurred. The plaintiff completed its cleanup work and the defendant failed to pay the balance due – the plaintiff filed a lien and sued to enforce the lien and for other causes of action.
The defendants moved for summary judgment (a finding that they should win without a trial based on the evidence) and the trial court granted their motion finding that part of the work was non-lienable and that the plaintiff’s failure to apportion the lien amount in order to allow the court to distinguish between the amounts owed for lienable and non-lienable meant that the lien failed. The trial court did allow the plaintiff 30 days to re-plead its causes of action on the lien to include apportionment, but when the plaintiff failed to do so, the court entered judgment for the defendants.
The plaintiff appealed and the appellate court upheld the judgment. In its finding, the court noted that the purpose of the Mechanics Lien Act is to “require a person with an interest in real property to pay for the improvements or benefits which have been induced or encouraged by his or her own conduct.” “The focus of the inquiry to determine whether a mechanic’s lien should be granted is whether the work performed has enhanced the value of the land to be charged with the lien.” This notion of “enhanced value” appears to necessitate that the work be part of an overall plan to improve the property. The court cited cases it distinguished from this one by noting that in all the other cases involving debris clean-up where removal of debris/contamination was concerned, the removal was also part of other work in a plan to improve the property, whether it be the removal of debris from a demolition site, or removal of debris after storage tanks are taken out of the ground, such removal is part of an overall plan to improve the property and thus, not similar to the present case where the plaintiff cleaned up the site.
The court even went so far as to say that the plaintiff had not filled the contaminated drums with the hazardous waste, did not change the structure of the site… “It merely removed and disposed of the drums, already filled with the waste, and performed incidental cleaning activities. None of these activities were shown to be part of an overall plan to improve rather than simply maintain the property.”
Surprisingly, the court went on to distinguish this case from a case of asbestos removal where the removal of asbestos was found by a federal court to have improved the premises where the plaintiff in that case had provided expert testimony that the value of the asbestos contaminated property was significantly less with the asbestos inside of it than without the asbestos – and a trial was held where that information was provided… Here, as the court points out, the plaintiff failed to offer evidence that its work improved the property, “such as evidence of the value of the site prior to and after the work it performed.”
The golden ruling:
“We conclude that the activity of removing and disposing of drums containing hazardous waste, in and of itself, does not constitute an improvement to real property so as to be a lienable activity under the Act. As there was no evidence that plaintiff’s work was part of an overall plan to improve the property, its work was not a lienable activity under the Act.”
The court went on to note that even if some of the work were lienable the failure of the plaintiff to apportion its lien and subsequently amend its complaint meant that the plaintiff had waived the argument.
A lesson in defending against the liens for owners should be obvious… look for a way to argue maintenance. For those looking enforce a lien, apportionment and characterization of the work and proof of an enhanced value should be paramount.
The Illinois Supreme Court has granted leave to appeal in Weather-Tite, Inc. v. University of St. Francis. The case involved whether a subcontractor could recover money from an owner when the owner had not complied with the withholding provisions of the mechanic’s lien act once it received the final notice from the GC and did not withhold the funds stated in the notice for the subcontractor.
We previously covered and discussed this opinion here.
The Court’s determination that it will accept briefing on the matter means that it could address issues related to striking a balance between the statute and the reality that payments are often disbursed to a GC by an owner without meticulously following the act and withholding payments when a balance is owed to subs.
Pepper Construction Company is being sued for its work constructing the high-rise condo building over at 720-726 Randolph in Chicago.The complaint alleges multiple counts including:
Delays on the project
Faulty workmanship
Slandering the title to the land
Breach of warranty
Breach of their contract with the owner
And fraudulent concealment of defective work
This may be the first in a series of suits over this property, the City View Tower.
Starting on page 23 of the complaint, you’ll see an interesting claim regarding the mechanic’s lien and its something worth noting if you’re either involved in the construction of condominium projects (high-rise or not) or if you’re developing them.There are multiple cases presently before the courts regarding this issue.The Condominium Property Act requires that mechanic’s liens be apportioned – Section 9.1.So, in addition to making sure the strict timing requirements of the Mechanic’s Lien Act are followed, anyone seeking to file their lien against a condominium property (any property where the condominium declaration has been recorded) should familiarize themselves with Section 9.1 before filing.
Any business engaged in the construction industry in Illinois should be aware of the rules and requirements for filing a mechanics lien, or at least have someone they can reach out to in order to answer those questions.
The statute is possibly the best method available to any contractor, architect, sub any other person working on a project for ensuring payment.It creates an encumbrance on the land that allows not only for foreclosure, but also forces subsequent buyers to deal with the encumbrance before moving forward by either bonding around the lien or attempting to extinguish it.Whether the claim is for $1,000 in work or for $10,000,000, no matter what the amount, if the requirements are met, you can avail yourself of the act and pursue payment.Depending on the exact situation, the act may force you to get something filed and deliver notice anywhere from 90 days to four months after your last date of work, and knowing and complying with the act’s guidelines helps ensure another method for getting paid (the act also allows for attorney’s fees).If you don’t you will lose your rights and while the amounts of each account receivable may not seem like a lot, if everyone starts to skimp on the receivables, the effect of non-payment can become calamitous to your business.In the current economic climate, even if you know that payment is down the road, it’s best not to sit on these rights and lose them… talk to someone and get it done right.Because if its not done right, you could end up like the plaintiff in Speedy Gonzalez Landscaping, Inc. v. O.C.A. Construction, Inc., (1st Dist., Doc. No. 1-07-2370).
The plaintiff was a sub-contractor hired to perform services for the removal, hauling and disposal of rock and gravel from a site for the construction of a new school.The plaintiff performed its work and sought payment for some $637,382.53 that it was owed.Because the project was for a public building improvement built with public funds, section 23 of the Illinois Mechanics Lien Act applied.The plaintiff complied with the applicable notice required by the section for delivering notice of its lien to the Public Building Commission of Chicago.The plaintiff then properly filed its complaint against the defendants asking for an accounting within the applicable 90-day time limit from the filing of the notice, but failed to abide by the statute and also deliver a copy of the complaint to the public body within the time limits.The GC filed a motion to dismiss the claim based on the failure of the plaintiff to follow the applicable time requirements and the court granted the motion, thereby barring the plaintiff from its count for a mechanics lien.The appellate court upheld the decision of the trial court.
For the simple failure to provide a copy of the complaint to the right person, the plaintiff has lost its mechanics lien claim.
Here's something you're sure to be interested in.We had previously discussed an order in Vancil v. Tres Amigos (C.D.IL, Doc. No. 06-71254) regarding Tres Amigos attempt at attaining summary judgment to extinguish two mechanic's liens filed by former subcontractors of Vancil in a bankruptcy proceeding initiated by Vancil.That entry is here.
Today, the court denied Tres Amigo's motion for reconsideration. Of note to everyone working in the industry and dealing with mechanic's liens, this order, holds that section §60/9 of the mechanic's lien act, which allows the parties to an Illinois mechanic's lien foreclosure to contest each other's rights without the need for multiple pleadings between all of the parties, is a procedural statute and not a substantive right given to the parties.Because the federal court is not bound by state procedure, but rather, by state substantive law, in order to maintain an action against the other lien claimants, a party must file pleadings against the other parties in order to contest the issues between them.Given this assessment of the nature of the rights granted under §60/9 the court denied Tres Amigo's motion for reconsideration and held, again, that it needed to have pleadings on file against the lien claimants it was contesting, or no remedy was available from the federal court.
The Mechanics Lien is a
testament to the fact that the same problems have been occurring in
construction projects since construction began. The concept behind the
act is rooted in equity - a person puts time and effort into
improving something and has a right to remuneration for those
improvements. Usually, the improvements cannot be removed from the thing,
so justice requires some remuneration, either by getting to sell the thing for
the money owed on the improvement or by having a right in any eventual
sale. Many state's have lien laws similar to Illinois' that can cover a
multitude of types of work, from car, boat and horseshoe repair to construction
work, mining work, and liens for judgments awarded to parties in
litigation. What those state laws have in common for the most part, is
the creation of a system for conducting affairs in that trade or business that,
when followed, can grant parties rights they would otherwise not have outside
of the statute.
In the case of the Illinois
Mechanics Lien Act, compliance with the provisions of the act can protect
the owners of property from subcontractors' liens when the owner complies by
requesting statements from the general regarding amounts owed to subs and then
withholds the amounts owed the subs from payment to the general for their
benefit. Subs and generals can protect themselves by providing the proper
documentation required under the act to the owner and will have a claim for
unpaid monies that attaches to the land and allows them to foreclose on the
lien and the possibility of selling the property to satisfy that
judgment. The important point is that the parties need to follow the
letter of the act or problems (the same old problems that were cause for the
creation of the act in the first place) will arise and they will not have the
protections that they thought they did.
Depending on your viewpoint,
a comedy of errors came together and an owner's problems were exacerbated for
not following the act, forcing the Third District to reverse a Will County
trial court decision in favor of an owner (University
St. Francis) against an electrical subcontractor (Excel Electric, Inc.) in this
case.
St. Francis hired a general
contractor to renovate a residence hall at the university. The GC hired
Excel as the sub. Work was performed and up to the final invoice, the GC
submitted invoices showing the subs and the amount due to the subs. The
original invoices were all paid. The final invoice was sent to St.
Francis by the GC showing the amount of the final payment as $458,237.56 and
stating the $130,948.48 was due to Excel. St. Francis transferred the
full amount to the GC (which included the 130k for Excel) to the GC's Harris
Bank account, but instead of having access to the money, Harris Bank took the
funds pursuant to its right of set off for a debt that the GC owed Harris
Bank. Excel and other subs never got their money.
Excel filed its claim for a
lien and noticed St. Francis that it was owed $140,547.09 (likely the amount
plus interest, but the opinion is silent regarding the discrepancy).
Another sub that had a lien filed a foreclosure action and pursuant to the
statute, Excel joined in that action and filed a counter-complaint to foreclose
on its lien. The university and Excel both filed motions for summary
judgment. Excel argued that it had a valid and enforceable lien in the amount
of $130,948.48 and St. Francis argued that the lien was not enforceable.
The trial court agreed with St. Francis and based its opinion on an
understanding that because Excel did not file its notice of lien until after
St. Francis had made final payment to the GC.
The appellate court
reversed. The opinion is worth reading for anyone in the industry who is
interseted in either enforcing liens or trying to get out of them. The
court cited the notice provisions required in §5(a) and §24(a) of the Act and
noted that the final invoice from the GC put the university on notice that
Excel was owed money. Under the act, St. Francis should have withheld the
funds for the benefit of Excel (possibly paying them directly to Excel, or at
least waiting to obtain a final lien waiver from Excel before transferring
payment). It is interesting that if the final statement from the GC had
been fraudulent, and listed the amount as $60 or that no money was owed Excel
and then St. Francis did, in fact either retain the $60 or make payment,
Excel's claim against the university would not stand.
Owners should note that they
need to request that final statement of subcontractors and amounts due and
owing to be protected under the Act. Contractors should note that they
need to get their notices and billings to the owner in a timely fashion under
the act to preserve their rights.
Given the glut of Bankruptcy cases we have been seeing over the past four months where differing lien matters are being resolved over limited funds in bankruptcy actions, it's refreshing to see an interpleader action.(An action filed by a party that has control or possession of property that should go to some other party, but first it needs the court to determine which party is the correct party.In the context of this action, which involved a developer in control of funds that would have been paid to a general contractor but for the fact that the contractor was no longer in business.)The reason this is refreshing is that lately we have been seeing cases where the GC gets behind and starts using all kinds of funds from different projects to pay its bills. Often, the GC does not reveal its financial state to the parties it contracts with know of its financial state until it is too late. The GC goes bankrupt, which consumes the remaining monen that was to be paid out to its subs and other creditors... resulting in a GC that can't pay and multiple liens filed against property owners who had no idea that the payments they were certifying weren't getting to the subcontractors and creditors.
In this action, the company that went under had also failed to make its FICA payments to the IRS.At the time the interpleader action was filed, the developer was still in possession of some money that it intended to use to pay the GC.This money was put forth in the interpleader action with a request to adjudicate a settlement of the pending mechanic's lien claims in state court.The developer also added the US as a party because of the lien the US had on the missing FICA tax payments.The US then filed a motion to remove the case to federal court to which the mechanic's lienors and other creditors objected.The court denied the motion to remove the case back to state court finding that the interpleader action had properly consolidated all the cases, and that venue was correctly in federal court under the USCode.
The case is also a reminder that one quick way to federal court when you can't get diversity jurisdiction is to join the U.S. Government as a party.
In this case, subcontractor brought a suit against the Illinois Department of Transportation (IDOT), and the general contractor on a project.The bid on the project was to perform services for the general to excavate a trench, install a sewer pipe, and supply backfill.The contract required that the parties abide by the IDOT Standard Specifications and the plans specified in the general contract.The suit alleged a claim for foreclosure under the mechanics lien act, in which IDOT was named a party, a claim for breach of contract, and a claim that the GC had violated the State Prompt Payment Act (30 ILCS 540/0.01 et seq.)The trial court dismissed IDOT from the case, and found that the IDOT specs precluded the breach of contract and lien actions.The trial court then determined that retaining payment was improper and awarded interest under the State Prompt Payment Act.The parties appealed.
Here, the appellate court concluded that the trial court was right in dismissing IDOT given that the mechanics lien act authorizes the funds to be set aside before resolution of the issue, but does not authorize making a state agency party to a foreclosure action. The opinion discusses a topic that should be of interest to those contracting with the state when it considers payment under the mechanics lien act.§23 of the act authorizes subcontractor remedies through liens against public funds for state projects, but the act has never applied to contractors.Additionally, suing pursuant to this section means that a subcontractor will be bringing an action for an accounting within 90 days of providing the required notice, and the only way to bring in an officer of the state under the act is in an action claiming they failed to comply with §23 of the statute.
The breach of contract claim filed against the GC was premised on an interpretation of IDOT Standard Specifications.(This may bore some of our readers, but it is actually pertinent to anyone looking for courts to favorably interpret government specs.)§208.03(b) governs methods of measurement quantities for trench backfill, and contains a clause stating that any backfill required in excess of the maximum quantity as calculated but he specs "shall be furnished by the Contractor at his/her own expense."The plaintiff argued that there was no established width to the trench and tried to say that use of the word "shall" in §550.04 (the IDOT spec which states exactly how wide a trench should be on such a project) didn't really mean shall, but meant something like "shall not be less than," which, you don't have to be Bryan A. Garner to understand, is bad form in just about every school of legal interpretation... especially when the court can read other sections of the IDOT specs and see that when IDOT meant to set a minimum limit on something, it used some variant of "shall not be less than" and not just "shall."
Utilizing this reading of §208.03 the court upheld the trial courts determination that the plaintiff was not owed monies for the excess it was required to provide and the dismissal of the breach of contract claim was proper.
With regard to the final argument, the court held that it was IDOT that failed to make prompt payments to the GC who, pursuant to provisions of the contract and federal regulations was then to turn around and hand the money over to the plaintiff.Contrary to the trial court's opinion, the GC was not in error when it did not turn over monies that had not been forwarded by IDOT.The GC would only be in error if IDOT had turned over the funds and then the GC failed to pay them to the subcontractor.The appellate court also said that the trial court had properly interpreted the State Prompt Payment Act, but because the GC did not owe money to the plaintiff, there was no violation of the act.
[NOTE: In addition to the State Prompt Payment Act, there are other prompt payment acts that can be alternative sources for causes of action regarding getting paid such as the Contractor Prompt Payment Act, the Local Government Prompt Payment Act, any of which, along with a host of other methods, can be utilized under the law in securing payments owed.]
It's not often that we get a 97 page opinion from an appellate court, even more rare is the occasion that any such opinion would be of interest to the industry.This week, we were happy to find both in Cordeck Sales, Inc., v. Construction Systems, Inc., et al., (Doc. No. 1-06-3702, 1st Dist).
In Cordeck, a developer had gone belly-up on a multi-million dollar condo development.Multiple mechanics liens were filed by the various entities involved in the construction for work performed, the lender filed a claim to foreclose its mortgage, and a receiver had been appointed to sell the individual units and collect the proceeds into a pot from which the resolved disputes would be compensated.The opinion doesn't go too far in creating any substantively new nuances to the statute that Representative George Scully has called "a patchwork of quilts...of patches put on this quilt over the past hundred years" (Slip op. at 44).Some clarifications and holdings are still important.Of interest are:
A reminder that the dates of the contracts are the attachment dates for the liens of contractors and subs.They will be instrumental in establishing the priority of liens against third parties and other claimants.
The date of recordation for a mortgage will establish the date of a mortgage for the determination of priority in the scheme of liens and claims against third parties.
Construction Managers can have liens, even on contracts prior to the 2004 and 2006 amendments to the Act.
Amendments to a recorded lien for amounts of work done over time past the date of the first recorded lien can still affect the assertions of rights against the owner, but may not have affect as to the right in priority or assertions against third parties.
Fees earned on a project are not inherently "unalienable."
Of note to many practitioners:
If a deponent is claiming a fifth-amendment right against self incrimination in answer to questions, the determination regarding the propriety of such an assertion will be made on a question by question basis in the trial court.
Here's a reminder from the Northern District of Illinois Bankruptcy Court.In Vancil v. Tres Amigos (docket #06-71254) the owner of a property, Tres Amigos, was looking to extinguish liens filed by two subcontractors of Vancil.Tres Amigos brought the action to extinguish the liens where the two subs had not properly served Tres Amigos with their 90 day notices under the Illinois Mechanic's Lien Act.
A problem arose when the Court noted the Tres Amigos had never made one of the subs a party to the action and that it failed to assert a claim against the other sub, which was a co-defendant.The Court pointed out the Tres Amigos would likely have prevailed on its claim, had it not failed to properly plead actions for which relief could be granted against the subcontractors.
The lesson learned here:Make sure all your ducks are in a row before time, effort and money are spent asking the Court for relief that cannot be granted.
In what is sure to be a contested issue, the new House Bill 5572
is a proposition to require written notice from the contractor to the owner of
a single-family, owner-occupied dwelling, prior to filing a lien against any
property of the owner.
Given that there is no time provision installed in this
legislation, and that it does not include a method for serving the notice, and
that the term "any" could be construed in multiple ways, it is likely that we'll
see some revisions of this bill before it could be incorporated into the mechanic's
lien act.
Major construction projects can lead to major construction disputes. These disputes typically involve numerous project participants. Because the disputesMore...
You may recall our discussion of the Second District’s decision in Artisan Design Build, Inc., v. Bilstrom, in which the Second District was faced with the same decision as the other districts have been faced with… what, if anything, does a contractor’s failure to comply with the Act mean for its claims against the homeowner?
In limiting and answering a certified question regarding Section 5(b) statements under the 
2009 has been an exciting year for Section 5 of the 
Here’s a bit of trivia for today. The name of the clause at the foot of an affidavit or any other oath administered by an official that describes when where and in front of which official the oath was sworn is called the “jurat.” 
If there’s one thing our legal system abhors, it’s a lie. Apart from just making a decision about liability or guilt, juries help ferret out the veracity of our fellows by listening to live testimony and making a decision about credibility. The success of a lie, its perpetration on our populace, 
In 
And on an off-blog note, bowling alleys now have a safe harbor of their own.
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.
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Those of you follow our blog know that we've been waiting for the 
For those of you following the Illinois Supreme Court's decisions regarding mechanics liens, you will be happy to know, that the Court, will be releasing its Weather-Tite decision on 
House Bill 236
For some reason, the Illinois 
court opinion 
This week, State Senator 
As it reads, notice could be given the day before the lien is filed. 
As there was no evidence that plaintiff’s work was part of an overall plan to improve the property, its work was not a lienable activity under the Act.”
The plaintiff was a sub-contractor hired to perform services for the removal, hauling and disposal of rock and gravel from a site for the construction of a new school.