Pre-Development Surveying Work Is Lienable: Illinois 2d District (Part I of II)

survey (photo credit: google images; www.state-engineering.com (visited 11.5.14))

In October 2014, the Second District expanded on the Illinois mechanics’ lien act’s (the “Act”) substantive and timing requirements and also examined Illinois agency law and discussed what services are and aren’t lienable in Young v. CES, 2014 IL App (2d) 131090-U. 

Plaintiff owned two parcels of farm land that were going to be developed into residential subdivisions. He hired a real estate developer to develop the property. That developer, in turn, hired the defendant engineering firm to perform preparatory surveying, grading, storm and sewer work along with construction drawings and elevations for both sites.  There was no direct contract between the plaintiff and the engineering firm.

The two developments stalled and the owner plaintiff filed a quiet title suit.

After a bench trial, the court found for the engineering firm in its mechanics lien countersuit against the owner and entered a foreclosure judgment on the firm’s two mechanics’ liens totaling nearly $150,000 on the two parcels.

The owner appealed arguing that the lien was facially invalid, that he didn’t authorize the developer to hire the engineering firm and that the engineering firm sought to recover for nonlienable services.

Held: Foreclosure judgment affirmed

Reasoning:

Upholding the judgment for the engineering firm, the Court stated and applied some recurring mechanics lien and agency law principles:

 Mechanics liens exist to permit a lien on property where a benefit has been received by a property owner and where value of the property has been augmented due to the furnishing of labor or materials;

– To establish a valid lien claim, the contractor must show (1) a valid contract, (2) with the property owner, (3) to furnish services or materials, and (4) the contractor performed pursuant to the contract or had a valid excuse for nonperformance;

– A contractor must file its lien within four months after completion of the work, verify the lien, include a statement of the contract, set forth the balance due and describe the liened property;

– Section 1 of the Act provides that anyone who authorizes or knowingly permits an agent to contract to improve land may have a lien attach to the land;

– To “knowingly permit” (an agent to contract for an owner) under Section 1 of the Act means to be aware of or to consent to property improvements;

– Illinois agency law has two key elements: (1) the principal has the right to control the manner and method of the agent’s work; and (2) the agent has the power to subject the principal to personal liability;

– The parties don’t have to use the word ‘agency’ nor characterize their relationship as a principal-agent one for a court to find an agency arrangement;

A principal doesn’t have to actually control the agent for a court to find an agency relationship; all that’s required is the principal has the right to control the agent;

– A course of dealing that is ratified by a principal can lead to an agency relationship finding

(¶¶ 99-115, 122-123)

Finding for the engineering firm, the court first held that the defendant’s description of the contract was sufficient under the Act.  Even though the firm made a technical mistake by saying its contract was with the owner (it was actually with the developer), the court still found the engineering firm’s lien was valid where it correctly identified the property, the property owner and because the owner was the developer’s principal (and the developer was the owner’s agent).

In finding an agency relationship between the owner and the developer, the court pointed to the two contracts between the owner and the developer for work on the two sites as well as the owner’s deposition testimony that he completely relied on the developer to handle all aspects of the properties’ improvements.

The court also credited the developer’s testimony that he believed he had expansive authority to handle all aspects of the properties’ development including hiring and scheduling the engineering, surveying and related activities completed by the plaintiff engineering firm. ¶¶ 115-116.

Key Lessons:

(1) An owner’s right to control is all that is required for an agent to bind the owner to a contract affecting the owner’s real estate; (2) Hyper-precision in a recorded lien’s contract description isn’t required for the claim to be valid.  As long as the Act’s other required information (property description, contract price, completion date, etc.) is accurate, the lien will likely comply with the Act; (3) if there is evidence that a landowner knows a third party has worked on  property coupled with proof of communications between an owner and the third party, a court will likely find for the lien claimant against a lack of privity (“we have no contract”) defense.

Published by

PaulP

Litigation attorney at Bielski Chapman, Ltd. representing businesses and individuals in business litigation, post-judgment enforcement, collections and real estate litigation.