Sole Proprietor’s Mechanics Lien OK Where Lien Recorded in His Own Name (Instead of Business Name) – IL Court

 

While the money damages involved in Gerlick v. Powroznik (2017 IL App (1st) 153424-U) is low, the unpublished case provides some useful bullet points governing construction disputes.  Chief among them include what constitutes substantial performance, the recovery of contractual “extras,” and the standards governing attorney fee awards under Illinois’s mechanics lien statute.

The plaintiff swimming pool installer sued the homeowner defendants when they failed to fully pay for the finished pool.  The homeowners claimed they were justified in short-paying the plaintiff due to drainage and other mechanical problems.

After a bench trial, the court entered judgment for the pool installer for just over $20K and denied his claim for attorneys’ fees under the Act.  Both parties appealed; the plaintiff appealed the denial of attorneys’ fees while the defendants appealed the underlying judgment.

Held: Affirmed

Reasons:

A breach of contract plaintiff in the construction setting must prove it performed in a reasonably workmanlike manner.  In finding the plaintiff sufficiently performed, the Court rejected the homeowners’ argument that plaintiff failed to install two drains.  The Court viewed drain installation as both ancillary to the main thrust of the contract and not feasible with the specific pool model (the King Shallow) furnished by the plaintiff.

The Court also affirmed the trial court’s mechanic’s lien judgment for the contractor.  In Illinois, a mechanics lien claimant must establish (1) a valid contract between the lien claimant and property owner (or an agent of the owner), (2) to furnish labor, services or materials, and (3) the claimant performed or had a valid excuse of non-performance.  (¶ 37)

A contractor doesn’t have to perform flawlessly to avail itself of the mechanics’ lien remedy: all that’s required is he perform the main parts of a contract in a workmanlike manner.  Where a contractor substantially performs, he can enforce his lien up to the amount of work performed with a reduction for the cost of any corrections to his work.

The owners first challenged the plaintiff’s mechanics’ lien as facially defective.  The lien listed plaintiff (his first and last name) as the claimant while the underlying contract identified only the plaintiff’s business name (“Installation Services & Coolestpools.com”) as the contracting party.  The Court viewed this discrepancy as trivial since a sole proprietorship or d/b/a has no legal identity separate from its operating individual.  As a consequence, plaintiff’s use of a fictitious business name was not enough to invalidate the mechanic’s lien.

The Court also affirmed the trial court’s denial of plaintiff’s claim for extra work in the amount of $4,200.  A contractor can recover “extras” to the contract where (1) the extra work performed or materials furnished were outside the scope of the contract, (2) the extras were furnished at owner’s request, (3) the owner, by words or conduct, agreed to compensate the contractor for the extra work, (4) the contractor did not perform the extra work voluntarily, and (5) the extra work was not necessary through the fault of the contractor.

The Court found there was no evidence that the owners asked the plaintiff to perform extra work – including cleaning the pool, inspecting equipment and fixing the pool cover.  As a result, the plaintiff did not meet his burden of proving his entitlement to extras recovery. (¶¶ 39-41).

Lastly, the Court affirmed the trial court’s denial of attorneys’ fees to the plaintiff.  A mechanics’ lien claimant must prove that an owner’s failure to pay is “without just cause or right;” a phrase meaning not “well-grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law.” 770 ILCS 60/17(a).  Here, because there was evidence of a good faith dispute concerning the scope and quality of plaintiff’s pool installation, the Court upheld the trial court’s denial of plaintiff’s fee award attempt.

Afterwords:

1/ A contractor doesn’t have to perform perfectly in order to win a breach of contract or mechanics’ lien claim.  So long as he performs in a workmanlike manner and substantially completes the hired-for work, he can recover under both legal theories.

2/ A sole proprietor and his fictitious business entity are one and the same.  Because of this business owner – d/b/a identity, the sole proprietor can list himself as the contractor on a lien form even where the underlying contract lists only his business name.

 

 

Florida Series II: RE Broker Can Assert Ownership Interest in Retained Deposits in Priority Dispute with Condo Developer’s Lenders

Plaza Tower v. 300 South Duval Associates, LLC considers whether a real estate broker or a lender has “first dibs” on earnest money deposits held by a property developer.  After nearly 80% of planned condominium units failed to close (no doubt a casualty of the 2008 crash), the developer was left holding $2.4M of nonrefundable earnest money deposits.  The exclusive listing agreement (“Listing Agreement”) between the developer and the broker plaintiff provided the broker was entitled to 1/3 of retained deposits in the event the units failed to close.

After the developer transferred the deposits to the lender, the broker sued the lender (but not the developer for some reason) asserting claims for conversion and unjust enrichment.

The trial court granted the lenders’ summary judgment motion.  It found that the lenders had a prior security interest in the retained deposits and the broker was at most, a general unsecured creditor of the developer.  The broker appealed.

The issue on appeal was whether the broker could assert an ownership interest in the retained deposits such that it could state a conversion claim against the lenders.

The Court’s key holding was that the developer’s retained deposits comprised an identifiable fund that could underlie a conversion claim.  Two contract sections combined to inform the Court’s ruling.

One contract section provided that the broker’s commission would be “equal to one-third of the amount of the retained deposits.”  The Court viewed this as too non-specific since it didn’t earmark a particular fund.

But another contract section did identify a particular fund; it stated that commission advances to the broker would be offset against commissions paid from the retained deposits.  As a result, the retained deposits were particular enough to sustain a conversion action.  Summary judgment for the developer reversed.

Afterwords: Where a contract provides that a nonbreaching party has rights in a specific, identifiable fund, that party can assert ownership rights to the fund.  Absent a particular fund and resulting ownership rights in them, a plaintiff’s conversion claim for theft or dissipation of the fund will fail.

 

The Illinois Commercial Real Estate Broker’s Lien Statute: A Top 10 List

The Illinois Commercial Real Estate Broker’s Lien Act, 770 ILCS 15/1 (the “Act”), provides a broker whose owed commission money with a strong remedy against a breaching property owner, buyer or tenant. Here are some of the Act’s key provisions:

1. What It Applies To:

“Commercial real estate.”  This is defined as any real estate in Illinois other than (i) real estate containing one to six residential units, (ii) real estate on which no buildings or structures are located, or (iii) real estate classified as farmland under the Property Tax Code.  770 ILCS 15/15

2. What It Doesn’t Apply To:

Real estate that isn’t “commercial”, including single family residential units like condominiums, townhouses, or homes in a subdivision when sold conveyed on a unit-by-unit basis.

3. Is Written Agreement Required? Yes.  770 ILCS 15/10.

4. When Does it Attach?:
The lien attaches when two things happen: (1) the broker becomes entitled to a fee or commission under a written instrument signed by the owner, buyer, tenant (or their agent); and (2) the broker records a notice of lien in the Recorder’s Office of the county where the commercial real estate is located.

5. Does the Lien Relate Back? No.   Unlike mechanics liens, the broker lien does not relate back to the date of contract between broker and owner (or buyer or tenant).  770 ILCS 15/10.

6.  Timing/When To Record:  In the case of a lease, the lien must be recorded within 90 days after the tenant takes possession of the premises,  Exception: if broker is given written notice of the planned lease signing at least 10 days before the intended signing date, the lien claim must be recorded before the lease signing date.

For a purchase, the lien must be recorded before the property is transferred to a buyer. The broker has 10 days from the recording date to mail a copy of the recorded lien to the owner of the property by registered or certified mail, with return receipt requested, or to personally serve the notice on the owner.  The broker’s lien shall be unenforceable if mailing of the copy of the notice of lien recording does not occur at the time and in the manner required by this Act. 770 ILCS 15/15.

7.  How to Enforce the Lien:  The broker enforces the lien by filing suit to foreclose it.  The broker must sue in the Circuit Court for the county where the property is located by filing a complaint and sworn affidavit that the lien has been recorded.  The lawsuit must be filed within 2 years after recording the lien.

8. Contents of the Lien Notice:  The lien notice shall state the name of the claimant, name of the owner, a description of the property upon which the lien is being claimed, the amount for which the lien is claimed, and the real estate license number of the broker.

9.  Q: Can the Liening Broker Recover Her Attorneys’ Fees?  A: Yes. The losing party must pay the winning party’s attorneys’ fees, costs, and prejudgment interest.

10.  Q: What About Priority? A: Prior recorded liens and mortgages against the property shall have priority over a broker’s lien.  770 ILCS 15/15.  These prior recorded liens include mechanics liens recorded after the broker’s lien notice but which relates back to a date prior to the lien recording date and prior recorded liens securing revolving credit and future advances of construction loans as described in Section 15-1302 of the Mortgage Foreclosure Statute.