Contractor’s Failure to Provide Sworn Statement Dooms Mechanics Lien Suit

A contractor lost its nearly $400,000 mechanics’ lien when it failed to serve a “Section 5 statement”, which lists subcontractors and amounts owed and owing, after the property owner requested one.  770 ILCS 60/5 (the “Lien Act”).

In Cityline Construction v. Roberts, 2014 IL App (1st) 130730, the parties entered into an oral contract for fire restoration work.  The plaintiff contractor sued to foreclose a mechanics lien and for breach of contract and quantum meruit.  The owners, in turn, filed a declaratory judgment counterclaim seeking to invalidate the mechanics’ lien.  During discovery, the contractor admitted in response to the homeowner’s request to admit facts that it (the contractor) never provided a Section 5 statement despite the owner’s request for the statement.  The trial court granted summary judgment for the homeowners on their counterclaim.  The court held that the contractor’s failure to supply the statement was fatal to its lien claim.

Held: Affirmed.

Rules/reasoning:

The Lien Act is strictly construed and its provisions must be scrupulously followed.  Section 5 of the Lien Act requires a contractor to provide (and an owner to request) a sworn statement listing names and addresses of all parties furnishing labor and materials to a job and the amounts due or to become due each party.  770 ILCS 60/5.  The contractor admitted not providing a Section 5 statement but argued that strict compliance should be relaxed and that the failure to give the statement didn’t harm the owners.  Cityline, ¶¶ 11-12.

Rejecting this “no harm, no foul” argument, the Court provided a synopsis of several Illinois cases from the past several years that, in unison, have held that the technical requirements of Section 5 of the Lien Act must be strictly complied with for a lien to be valid.  Cityline, ¶¶ 13-17.  The Court refused to read any exceptions into or engraft any limitations on the Lien Act’s statutory language.  Since the evidence was clear that (a) the owners requested a Section 5 statement, and (b)  the contractor failed to supply the statement, the lien was invalid.

All is not lost for the contractor though.  The contractor still has valid breach of contract and quantum meruit claims.  The Cityline court stressed that a contractor’s failure to provide a Section 5 statement doesn’t defeat a breach of contract or alternative quantum meruit action.  But losing the lien claim is an obvious blow to the contractor though.  With no security for its claim, the contractor must now hope that if it wins a money judgment against the owners, they (the owners) will have non-real estate assets with which to satisfy a judgment.

Take-aways:

An example of strict statutory construction.  The contractor’s equitable (the purpose of the section was met) and policy arguments (the court shouldn’t vaunt form over substance) were discarded.  Lost in the analysis is that Section 5 also imposes a duty on the owner to specifically request a Section 5 statement.  The Court suggests that if the owner fails to ask for the statement, it possibly won’t defeat a contractor’s lien claim.  Cityline, ¶ 22.  But even so, the cases cited by the Court that hold that a Section 5 statement can be waived where the owner fails to request one, are more than 100 years old and involve an outdated version of the Lien Act.  Clearly, the prudent practice is for the owner to request a Section 5 statement and for the contractor to provide a Lien Act-compliant statement in response.

 

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PaulP

Litigation attorney at Fisher Kanaris, P.C. representing businesses and individuals in all types of commercial disputes.