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.
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.
An interesting issue we’ve been coming across in contract negotiations over the past few months are the different retainage mandates of the states for private and public contracts. Most states have statutes affecting the amount of retainage permissible in public contracting, and some states have laws governing the amount of retainage allowed in contractual arrangement for private agreements.
What’s fascinating about the different laws regarding retainage is that they evince the true spirit of a republic with the different states acting much like the laboratories Justice Brandeis contemplated in New State Ice Co. v. Liebmann. Some states fashion their laws to protect owners, some to protect contractors, some even attempt to protect subcontractors and owners.
Wisconsin statutes list a maximum percentage of 5% on public contracts and, like many of the retainage statutes for public contracts, states that no funds can be retained after 50% of the work is complete along with terms for additional retainage for nonsatisfactory progress. There is no Wisconsin statute for retainage on private projects.
In Michigan, the statutes for retainage on public contracts cap the amount at 10% and there is no law regarding private retainage.
The retainage statutes outside the Midwest with provisions for private contracts generally deal with either limiting retainage percentages or with specifying to whose benefit interest on retained funds will run.
As with any transaction, where the different incentives rest is important. The question of which party is receiving the benefit of an agreement to retain funds until some future contractually agreed term is met is also varied. Statues like Alabama’s (§8-29-3), provide that retained funds produce interest for the subcontractor while the benefit of retaining monies to ensure proper performance accrues to the contractor/owner.
Texas’ Property Code regulates retainage on private contracts through its mechanic’s lien statute. This method is novel and makes sense by allowing the retainage on the owner’s end while also protecting the owner and any possibly affected subcontractors by ensuring that some funds are at least set aside in case a contractor fails to pay monies through to its subs.
Some states like California and Vermont provide for explicit release dates if retainage has been held back, but make no determinations regarding percentages. Interestingly, none of the 50 states has any egregious conditions for retainage or a law that clearly favors one party to the transaction over the other.
Given the plethora of statutes concerning the matter, it’s best to check for the particular state legislation before deciding to include or exclude a retainage provision and such a provisions specific terms.
The piece is about debunking common copyright myths. Written by Jonathan Pink, it is humorous and informative. Written in a multiple-choice formatted style, you can read the full text here.
Of note to our readers is Myth #9:
“Myth 9:
Sure, you can copyright a book, a movie, or a song, but there is no way you can copyright a house.
a. This must be true. Just drive through Orange County.
b. Not so fast. I'm from Orange County, and the houses are not all alike; those shades of beige are distinctly different.
c. This is false; you can copyright a building, but only if it was built less than a dozen years ago.
The answer is c. Architectural works are entitled to copyright protection if they were created after December 1, 1990, or embodied in unpublished plans or drawings created before that time, even though they were not actually constructed. See 17 USC §102.
This is good to know if you represent architects or developers. If you represent the developer, advise your client to acquire the copyright in any architectural plans he or she commissions. If you represent the architect, advise negotiating hard when it comes to determining the price of that copyright. Remember, working together, we can rid this state of unsightly farmland, pristine hillsides, and bucolic open spaces.”
We’ve written about the issue before. Obtaining the registered copyright puts you in line to make claims for your attorney’s fees and to have the statutory damages from the Act. In contracting for or against any given fee arrangement, realizing that these rights have value is an important step in understanding the full range of incentives inherent even in standard form agreements like the ConsensusDocs or the AIA standard form agreements.
As a design professional, imagine not giving up the copyright until project completion… it is entirely possible that the filed copyright could add another cause of action brought in addition to those for past-due payments if an owner tries to complete the building using your plans with a different design professional.
As an owner, imagine owning copyright to plans and being able to finish the design without worrying about whether your disputes with a previous designer need to be resolved. Or better yet, imagine having full right and authority to use the plans on a second or third project.
The different colored sections represent the jurisdictions of the different appellate court districts in the state. The answer to the question is “yes” if you’re in the green, “no” if you’re in the tan, and “undecided” if you’re red, blue or orange. It’s a split between the districts that just occurred.
As a side note, the 4th District (the tan one above) has ruled that such a claim cannot stand if the requirements of the act are not met in Smith v. Bogard (2007)
In McGinnis, Miller was a contractor that worked on the renovation of McGinnis’ house. After some work was performed, but before it was all completed, the McGinnis refused to continue paying Miller’s invoices which by then were more than $123,000 and demanded that he finish the job before any more payments occurred. Miller took out a $150,000 line of credit to complete the project and when he was done, the McGinnises approved of his work. The opinion notes that the project’s construction price increased to more than $500,000 by the time of completion.
The McGinnises, however, refused to pay more than $177,580.33, and Miller filed suit to recover payment. The opinion notes that Mr. McGinnis is no ordinary consumer, but that as a lawyer, he is a “sophisticated consumer”. The district court dismissed claims made by miller for a mechanics lien and breach of a time and materials oral contract because the terms of the Act provide that such contracts are unlawful if not in writing for home repair. The appellate court agreed. What the appellate court did not agree with was the district court’s interpretation that a claim for unjust enrichment was not available to a contractor who had actually performed the work where that work was accepted.
Noting that the 4th District reached a different conclusion, the 1st District found that where the work was accepted, the availability of an unjust enrichment claim was not quashed by the use of the term “unlawful” in the Home Repair and Remodeling Act.
Where no party disputed that a trial on the unjust enrichment claim would render “justice” to both parties, the appellate court found that because the Act did not expressly repeal the quantum meruit claim the “unlawful” nature of contracts that are not in writing did not preclude the cause of action and such a claim would likely not “reward deceptive practices” or violate public policy.
The court also noted that a real estate attorney like Mr. McGinnis might well utilize his expertise in the field to exploit the 4th District’s interpretation by keeping any contract for home renovation oral in order to deprive a contractor of the reasonable value of his services.
Interestingly, a concurrence by Justice Gordon notes, as several others have contended, that the Home Repair and Remodeling Act was not intended to provide either a cause of action or an affirmative defense to any private party, but rather, the sole remedy under the act is through action by the Attorney General’s Office.
The lesson for all home contractors is to get the agreement in writing. There likely wouldn’t be an appeal if the contract was in writing because the lien claim and the breach of contract claim would have remained as well as the alternative theory of unjust enrichment. However, even if a contractor fails to comply with the law, there is still a possibility that he could receive justice if his intentions and actions are honest.
Not if it’s against the express language of a statute or the contract requires written modification.
With all the public projects coming on-line thanks to the stimulus package it is time to make sure that you understand the contractual limitations and requirements for getting add-services paid for under your contracts.
The recent case of U.S. NeuroSurgical, Inc. v. City of Chicago (7th Cir., Doc. Nos. 07-3520 and 08-2851) is an express warning to anyone thinking about performing additional services based on an oral or written representation that they'll be paid for from a municipality’s representative.
In NeuroSurgical, an entity that NeuroSurgical is the successor to, GHS, had a 1995 contract with the City of Chicago’s Department of Health to design and implement a computer information system for use in its clinics. The information system agreement contemplated a system that would accept entries of patient information that were made by input from a keyboard and the possibility of extending the system to include patient information entered by scanning in a form document that would automatically be placed in the system without the need for keyboard input.
The contract between GHS and the City contained a section requiring that no changes to the contract were valid unless they were in writing and signed by the parties. The contract also had a provision governing the procedure for requesting additional services from GHS which included an obligation that after such a request GHS submit a written work plan and project estimate and description and then, if approved by the City, the agreement was to be codified in a formal “work order” and submitted for approval in accordance with the contractual provision requiring that it be signed by both parties.
During contractual performance, the City requested that GHS implement a system capable of scanning data forms at one of the clinics. Scanning is a difficult process and implementing such a system required what GHS felt was additional service work. GHS claimed it had been given oral authorization to perform the additional work by the City employee responsible for monitoring the project. After the scanning system was implemented, GHS billed the City for the additional work which amounted to $532,033.35. The money wasn’t paid and in 2002, a suit was brought by GHS’ successor against the City for payment of the $532,033.35.
After a bench trial, the district court denied any relief to GHS. In addition to determining that the work was part of the contract, the district court also found that even if the work had been outside the scope of the contract, the fact that the contractual modification wasn’t executed by the City’s chief procurement officer and wasn’t in writing as required both by the City’s municipal code and the contract precluded recovery.
GHS appealed and the Seventh Circuit rendered an opinion upholding the verdict.
So, what’s important for the industry?
The Seventh Circuit held that anyone contracting with a municipality is presumed to know that both the Illinois Municipal Purchasing Act (65 ILCS 5/8-10-16) and any Municipal ordinances pertaining to the contract (in this case Chicago Municipal Code 2-92-050) are in effect. The contractor is also presumed to understand that the authority conferred by such statutes may not confer the authority to authorize payment or alter agreements to the city official who is dealing with the contractor – even though that person may be stating that the additional services are authorized and that payment will be maid.
The appellate court agreed that pursuant to the acts, GHS wasn’t entitled to payment because the procurement officer for the municipality had not approved of the additional services and signed an agreement approving those services, the City was not bound by any agreements to pay for those services. Additionally, because the contractual process for altering the contract was not followed, the City did not have a duty to pay for those additional services. Also, the fact that the city did pay for a small portion of the additional services did not mean that the City could be legally obligated to pay for the rest of the services.
The contractor cannot expect the municipality to pay for the services if the statutes are not followed and the process for amending the contracts isn’t adhered to. A contractor performs additional services at its own peril if the conditions are not met.
On the flip-side, a municipality may find a method through this decision for challenging the additional services performed by a contractor.
It’s a long time to wait to get paid, but a new Northern District decision has held that the 10-year Statute of Limitations contained at 735 ILCS 5/13-206 governs an engineer’s claim for non-payment of invoices issued pursuant to work performed under a contract.
It’s a debate you may see quite often for construction work given that there is a separate statute in this state that applies a four-year statute of limitations for claims based on many acts or omissions in construction work:
“(a) Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 4 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission. Notwithstanding any other provision of law, contract actions against a surety on a payment or performance bond shall be commenced, if at all, within the same time limitation applicable to the bond principal.” 735 ILCS 5/13-214(a).
But that statute does not apply to claims made by a design professional for the owner’s breach of contract by failing to pay invoices.
In Burbach Aquatics, Inc. v. City of Elgin (N.D. Il. Doc. No. 98 CV 4061) an engineer brought a breach of contract action against the City of Elgin for the City’s failure to pay invoices it issued for work it performed under the contract. The complaint can be found here and a copy of a modified 1985 AIA B141 entered into in 1995 between the City and the engineer is attached.
Pursuant to the contract, Burbach alleges that it rendered services for the renovation/replacement of municipal swimming pools and bathhouses owned by the City.
The work was performed and on June 13, 2001; August 9, 2001; and July 2, 2002, the engineer issued invoices for the work. Section 11.5.2 of the contract stated that the invoices were due and payable 20 days from the date on the invoices.
The complaint alleges that Elgin never paid the invoices and on July 17, 2008, Burbach brought suit to collect the $135,559.72 owed under the contract along with the interest owed at 18% per section 11.5.2. (That’s $24,400.75 per year in interest and over the six years is $146,404.50 in interest – more than the amount owed on the contract.) No claim was also brought for the additional interest that also might be owed this engineer under the Local Government Prompt Payment Act (50 ILCS 505/1).
The City filed a motion to dismiss the case saying that the four-year statute of limitations applied and that even if the 10-year statute applied it ran in 2005 because the contract was signed in 1995.
The court disagreed and issued this opinion. In the opinion, the court found that the activity complained of by Burbach giving rise to the breach of contract action was the City’s failure to pay the invoices, and not an activity enumerated in the 13-214 statute. The court cited to two familiar cases, Prate v. Thomas, and Paschen v. Kankakee, both cases involved a breach of contract claim for the failure to pay a contractor for work performed under a contract, where the 13-214 statute was found inapplicable, and held that the 13-206, 10-year statute of limitations applied.
The Court also held that the claims did not arise until 20 days after the date on the invoice since that was how long the City had to pay the invoice and it breached its contract when it failed to do so. The statute of limitations would not expire until 10-years from the 20-day date.
This is yet another reminder that paying attention to these dates in the contracting process, as well as having a decent percentage fee for failure to pay can amount to, as here, a hefty sum if the failure goes on long enough and decreasing the amount of interest may be in the best interest of others.
The bill passed the house with the percentage provisions intact and the Illinois Senate now has amended the bill to include a definition of retainage:
(d) "Retainage" means funds that are earned by the contractor but not paid until some agreed upon date, such as the completion of the job.
The senate amendment also eliminates the percentage restrictions on outright retainage and instead has proposed making this bill a restriction on retainage for materials:
(b) Under a construction contract, it is unlawful to withhold retainage on materials required for completion of the construction contract that are delivered to a job site and are billed in accordance with the periodic payments in the construction contract.
This provision is interesting given that the bill could alter the general nature of invoices by allowing those parties that do not distinguish between materials and labor in their payment applications to parse out the two and demand payment for the materials listed in the payment applications leaving the owner without recourse to its contract's retainage provision for those payments.
CLAB’s posting lists and links to some advocacy groups that can be contacted to comment on the bill.
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.
It's called piercing the corporate veil and the case of Fontana v. TLD Builders, Inc. (2nd Dist. Doc. No. 2-05-0045) is a simple lesson in what to watch out for when you’re running a small business. It is also an excellent read for anyone wanting to know about the factors a court will look to in determining whether or not your choice of operating as a corporate entity will limit your liability.
In Fontana, the Fontanas sued TLD Builders after TLD defaulted on a contract to build the Fontanas' a home in Clarendon Hills, Illinois. The Fontanas had signed a contract for TLD to build the home and TLD started and apparently didn’t finish the project. As a result the Fontana’s had to demolish the partially constructed home because the damage caused by the work stoppage made the cost of completion well in excess of the $2.2 million the home would be worth if it was completed.
The Fontanas also sued the architect who settled with them prior to trial.
The Fontanas sought not only to be reimbursed from TLD, but recognizing that TLD was an underfunded corporation that would likely not have the ability to satisfy the $2 million judgment they were seeking, they also filed an action against TLD’s president seeking to hold him personally liable for any damages – even though his wife was the sole owner of the company and he only ran it.
The Fontanas won their case and the court determined that the president was liable and that the corporation, even though it was properly incorporated, was used as nothing more than a shell where the president ran the operation.
The appellate court upheld the decision… The factors the court looked to in determining whether or not liability would be limited to the corporation or passed on to the president are important factors to watch for in your operations to make sure that the corporate designation you’ve paid for is actually going to protect you:
The fact that the president didn’t own the company but that all the shares were in his wife’s name was not a factor that would protect him – he ran the business and acted as though its assets were his own.
There was no record of the initial $1000 check purported to be paid by the wife for the 1000 shares ($1 per share) when the corporation was created.
The corporation had little to no money in its accounts and even made loans after it was sued – an alleged attempt to divert the assets to try and avoid having any money to pay in satisfying a possible judgment.
The corporate minutes did not reflect resolutions or votes authorizing some of the loans made to various people and entities.
The corporate minutes did not attach legal descriptions to resolutions to sell properties.
The director (owner) had no real decision making power and/or did not exercise it.
Even though by-laws, resolutions, shareholder actions, and tax returns were filed with the state and a separate bank account and financial records were kept, there were many corporate records that were not kept, like the resolutions regarding loans, notes or claims of indebtedness, nor records of repayments.
The company never actually paid a salary to anyone, and the tax returns did not show payment to corporate officers – funds were transferred from the corporate account into personal checking accounts.
Monies were transferred after the suit was filed and the corporation was left with little money at the time of judgment - salaries were paid and monies were loaned when a suit was in place (this was read as an apparent attempt to transfer assets before a judgment was rendered).
For both people going after a corporation that has been less than honest, and for those looking to use their corporate status in order to keep from being held personally liable, paying attention to these formalities is important.
The corporation, or LLC exists as a method of helping us all come together to create more wealth and to take chances on creating capital that we might otherwise not take. Not keeping up the requirements imposed by states for operating those entities will result in losing the protections they offer.
On a different note, this opinion also contains a section on awarding attorneys fees pursuant to a contractual provision that read:
"To the extent Builder or Purchaser fails to comply with provisions of this Contract, the other party may retain an attorney to assist it in the enforcement of the provisions of this Contract, and the party at fault (i.e., not in compliance with the provisions of this Contract), shall pay any and all reasonable expense relating to the enforcement of the provisions of this Contract."
While the court did find that reasonable attorney's fees were recoverable under the contract, the opinion does note that it may be better practice to include the term “attorney’s fees” when drafting a provision for a party to bear the costs of another’s attorney.
With the spring remodeling season underway and construction beginning for many, Madigan addressed the issue – from her press release:
“Home repair, remodeling and construction complaints consistently rank among the top that my office’s Consumer Fraud Bureau receives each year, especially during the warmer months,” Madigan said. “Consumers need to make sure to ask questions before choosing a contractor so that they can avoid the types of companies we have sued today.”
To that end, the Attorney General’s office brought several suits against:
Boss Construction, Inc., a New Lenox, Ill., based company that sells and installs gutters, downspouts, roofing, siding, doors and windows, and its President Steven R. Smith,
Alpine Glass & Window Co., a Wilmette, Ill.-based window and door installation company, and its President Carol L. Bernahl,
John M. Burow, doing business as John’s Home Repair, a Willow Springs, Ill.-based home repair service,
Shane Rasmussen and Paul Haley of 123 General Construction, Inc., a Frankfort-based remodeling company,
The acts alleged in the complaint are important for home-owners and can act as a guideline or at least offer some insight about things to look for when contracting for repair and remodeling work:
Make sure your contractor is licensed as a roofing contractor if they’re doing roofing work for you;
Don’t let payments in advance of work get too costly, you should see some performance before they start taking your money, and then payments should be made incrementally, but not without a waiver (see below);
Check the construction permits to make sure they’re accurate and valid;
Get a full accounting and demand a written sworn statement and waiver of lien before you make any payments… do not give over any form of large down-payment;
Do your research – How was this company recommended? Are they a company? Are there online comments about the company or its work? – Is a license required for their specialty?
If you’re having trouble getting in touch with your contractor, or your phone calls aren’t being returned, you may think about contacting someone who can help;
Protecting yourself and your rights is the first step in making sure you don’t get taken for a ride.
It’s a good feeling when we’re able to show you just how important following through on protecting your rights can be… not to mention the smug satisfaction of being able to say we told you so.
The architect was retained by a client and drafted plans for a veterinary clinic. The parties executed and AIA standard form agreement, likely the B151-1997 because the opinion references an Article 6 that deems the architect the author of the plans and drawings and this all took place in 1998.
The relationship went south over disputes about payment and budgeting. The architect sent the vet a letter warning that all the plans they had produced were proprietary and that no one could use them to complete the project and demanded return of the plans. The vet responded that the plans were useless and that they had been “rolled up and discarded.”
Shortly thereafter, the architect took the step securing a copyright over the plans by filing an application with the United States Copyright Office.
In September of 1999 the parties formally terminated their disputes over payment with a written Termination Agreement and the agreement stipulated that Article 6 remained in full force and effect. The agreement also said that neither the vet nor his proposed hospital would use any of the work solely produced by the architect.
The vet hired a different architect to complete the hospital and in June of 2000, the veterinary hospital opened for business.
In 2004, the architect came across an article in Veterinary Economics featuring a drawing of the floor plan of the veterinary hospital at issue… and that the design had won a merit award. The architect went to city hall and got a copy of the building plans and concluded that his copyright had been violated.
In September of 2005, the architect filed suit in federal court against the hospital, the vet and several other parties alleging copyright infringement and other violations.
The defendants moved to dismiss based on the three-year statute of limitations contained in the copyright act. The district court granted the motion to dismiss ruling that any reasonably diligent person would have learned of the copyright infringement when the hospital opened, so the copyright claim’s three-year statute of limitations ran from that date in June of 2000. The architect appealed.
The appellate court analyzed the lower court’s determination about when a reasonable person would have been aware of the infringement and found that the availability of the plans on file and the fact that the hospital was open for a time did not amount to notice that would start the limitations clock:
“Architects have no general, free-standing duty to comb through public records or to visit project sites in order to police their copyrights.”
The court held that the record in front of them did not compel a finding that the architect had not been vigilant or that the architect had been on notice since 2000 and reversed the dismissal of the copyright claim.
The architect now has the ability to prosecute his copyright claim and if he prevails, he may ask for his attorney's fees as well. For the small cost of filing the copyright he gained this added protection… not to mention, since he retained the rights to the plans, he had the ability to request them when something went south on the project… in Illinois, if one adds these remedies to the contractor prompt payment act and the mechanics lien act - a design professional’s ability to obtain payment is drastically strengthened.
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.
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.
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?
An interesting issue we’ve been coming across in contract negotiations over the past few months are the different retainage mandates of the states for private and public contracts. Most states have statutes affecting the amount of retainage permissible in public contracting, and some states have laws governing the amount of retainage allowed in contractual arrangement for private agreements.
The piece is about debunking common copyright myths. Written by Jonathan Pink, it is humorous and informative. Written in a multiple-choice formatted style, you can read the full text 
The recent case of 
It’s a long time to wait to get paid, but a new 
Joshua Glazov over at the .jpg)
Those of you follow our blog know that we've been waiting for the 
in his wife’s name was not a factor that would protect him – he ran the business and acted as though its assets were his own.
The acts alleged in the complaint are important for home-owners and can act as a guideline or at least offer some insight about things to look for when contracting for repair and remodeling work:
The relationship went south over disputes about payment and budgeting. The architect sent the vet a letter warning that all the plans they had produced were proprietary and that no one could use them to complete the project and demanded return of the plans. The vet responded that the plans were useless and that they had been “rolled up and discarded.”
This week, State Senator 
As it reads, notice could be given the day before the lien is filed. 
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.