Tag: mechanics lien

Vague Oral Agreement Dooms Mechanics Lien and Home Repair Act Claims – IL First Dist.

The First District recently examined the quantum of proof necessary to prevail on a breach of oral contract and mechanics lien claim and the factors governing a plaintiff’s request to amend its pleading.

In Link Company Group, LLC v. Cortes, 2018 IL App (1st) 171785-U, the Defendant hired the plaintiff – his former son-in-law – to rehab a residence in the Northern suburbs of Chicago. After a dispute over plaintiff’s construction work and billing issues, the plaintiff sued to foreclose a mechanics lien and for breach of contract. The defendant counter-sued and alleged plaintiff violated the Illinois Home Repair and Remodeling Act (IHRRA) requires, among other things, a contractor to provide certain disclosures in writing to a homeowner client. The trial court granted summary judgment for the defendant on plaintiff’s lien and contract claims and denied summary judgment on defendant’s IHRRA counterclaim. All parties appealed.

Affirming, the appeals court first took aim at the plaintiff’s breach of contract and mechanics lien claims.

While oral contracts are generally enforceable, they must contain definite and essential terms agreed to by the parties. For an oral contract to be enforceable, it must be so definite and certain in all respects that the court can determine what the parties agreed to.

Here, the substance of the oral contract was vague. When pressed at his deposition, the plaintiff was unable to articulate the basic terms of the parties’ oral construction contract. Since the court was unable to decipher the key contract terms or divine the parties’ intent, the plaintiff’s breach of contract failed.

The plaintiff’s inability to prove-up its oral contract claim also doomed its mechanics lien action. In Illinois, a valid mechanics lien foreclosure suit requires the contractor to prove an enforceable contract and the contractor’s substantial performance of that contract. Since the plaintiff failed to establish a binding oral contract, by definition, it couldn’t prevail on its mechanics lien claim.

The First District also affirmed the trial court’s denial of the plaintiff’s motion to amend its complaint. While amendments to pleadings are generally liberally allowed in Illinois, a court will not rubber stamp a request to amend. Instead, the court engages in a multi-factored analysis of (1) whether the proposed amendment would cure the defective pleading, (2) whether other parties would sustain prejudice by virtue of the proposed amendment, (3) whether the proposed amendment is timely, and (4) whether previous opportunities to amend the pleadings could be identified.

Here, the plaintiff’s proposed implied-in-fact contract was “nearly identical” to the stricken breach of oral contract claim. An implied-in-fact contract is one where contract terms are implicit from the parties’ conduct. Here, the parties conduct was too attenuated to establish definite contract terms. As a result, the proposed implied-in-law contract claim was facially deficient and didn’t cure the earlier, failed pleading.

Ironically, the plaintiff’s failure to allege an enforceable oral agreement also precluded summary judgment on the defendant’s IHRRA counterclaim. A valid IHRRA claim presupposes the existence of an enforceable contract. Since there was no written agreement and the parties’ oral agreement was unclear, there was no valid contract on which to hook an IHRRA violation.

Afterwords:

This case cements proposition that a valid oral contract claim requires proof of definite and certain terms. A plaintiff’s failure to allege a clear and definite oral agreement will prevent him from asserting either a mechanics lien or Home Repair Act claim based on the putative oral agreement.

Link Company also illustrates the four factors a litigant must satisfy in order to amend a pleading. If the proposed amended complaint fails to allege a colorable cause of action, a court can properly deny leave to amend despite Illinois’ liberal pleading amendments policy.

Massive Wind Turbine Tower A Trade Fixture, Not Lienable Property Improvement – IL Second Dist.

AUI Construction Group, LLC v. Vaessen, 2016 IL App (2d) 160009 wrestles with whether a massive wind turbine tower that can be removed only by detonating several bombs at a cost of over half a million dollars qualifies as a lienable property improvement or is a non-lienable trade fixture under Illinois law.

The property owner and turbine seller signed an easement agreement for the seller to install a turbine on defendant’s land for an annual fee.  The easement provided the turbine would remain the seller’s property and that the seller must remove the structure on 90 days’ notice.  The seller also had to remove the turbine when the easement ended.  The turbine seller then contracted with a general contractor to install the turbine who, in turn, subcontracted out various aspects of the installation.

The owner-general contractor agreement and the downstream subcontracts referenced the easement and stated the turbine system remained the seller’s property.

When the plaintiff sub-subcontractor didn’t get paid, he sued its subcontractor, ultimately getting an arbitration award of over $3M.  When that proved uncollectable after the subcontractor’s bankruptcy, the plaintiff sued the property owner to foreclose a mechanics lien it previously recorded to recover the unpaid judgment.  The trial court dismissed the suit on the basis that the turbine was a removable trade fixture that was non-lienable as a matter of law.

Affirming, the Second District first noted that Illinois’ Mechanics Lien Act (770 ILCS 60/0.01 et seq.)(MLA) protects those who furnish material or labor for the improvement of real property.  The MLA allows a claimant to record a lien where its labor, materials or services improves the property’s value. In Illinois, real estate improvements are lienable; trade fixtures are not.

The factors considered in determining whether equipment is lienable includes (1) the nature of attachment to the realty, (2) the equipment’s adaptation to and necessity for the purpose to which the premises are devoted, and (3) whether it was intended that the item in question should be considered part of the realty.  Crane Erectors & Riggers, Inc. v. LaSalle National Bank, 125 Ill.App.3d 658 (1984).

Intent (factor (3)) is paramount.  Even where an item can be removed from land without injuring it, doesn’t mean the item isn’t lienable. So long as the parties manifest an intent to improve the realty, a removable item can still be lienable.  Moreover, parties are free to specify in their contract that title to equipment furnished to property will not pass to the land owner until its fully paid for.

Applying the three-factored fixture test, the court found the  nature of attachment, and necessity of the item for production of wind energy weighed in favor of finding the turbine lienable.   However, the all-important intent factor (factor number 3 above) suggested the opposite.

The easement agreement specified the turbine seller retained its ownership interest in the turbine and could (and had to) remove it at the easement’s end.  The court wrote: “the easement agreement establishes that the tower was a trade fixture.”  (¶ 20)

The Court also found that plaintiff’s “third party” rights were not impacted since plaintiff’s sub-subcontract specifically referenced the easement and prime contract – both of which stated the turbine would remain seller’s property. (¶ 23)

The Court examined additional factors to decide whether the turbine was lienable.  From a patchwork of Illinois cases through the decades, the Court looked at (1) whether the turbine provided a benefit or enhancement to the property, (2) whether the turbine was removable without material damage to the property, (3) whether it was impractical to remove the item, (4) whether the item (turbine) was used to convert the premises from one use to another, and (5) the agreement and relationship between the parties.

The sole factor tilting (no pun intended) in favor of lienability was factor 4 – that the turbine was essential to converting the defendant’s land from farmland to harnessing of wind energy.  All other factors pointed to the turbine being a nonlienable trade fixture.

The Court noted the property owner didn’t derive a benefit from the turbine other than an annual rent payment it received and rent is typically not lienable under the law.  The Court also pointed out that the tower could be removed albeit it through a laborious and expensive process.  Lastly, and most importantly, the parties’ intent was that the turbine was to remain seller’s personal property and for it not to be a permanent property improvement. (¶¶ 38-39)

The Court also rejected the subcontractor’s remaining arguments that (1) the Illinois Property Tax Code evinced a legislative intent to view wind turbines as lienable improvements and (2) it is unfair to disallow the plaintiff’s lien claim since it could not have a security interest in the turbine under Article 9 of the Uniform Commercial Code (UCC).

On the tax issue, the Court held that Illinois taxes turbines to ensure that wind turbines do not escape taxation and is purely a revenue-generating device.  Taxation of a structure is not a proxy for lienability. (¶¶ 43-44)

The Court agreed with that the subcontractor plaintiff did not have a security interest in the turbine under UCC Section 9-334 since, under that section, security interests do not attach to “ordinary building materials incorporated into an improvement on land.”  Since the turbine was replete with building materials (e.g. concrete, rebar, electrical conduit), the UCC didn’t give the plaintiff a remedy.  The Court allowed that this was a harsh result but the parties’ clear intent that the turbine remain the seller’s personal property trumped the policy arguments.

Afterwords:

This case strikes a blow to contractors who install large structures on real estate. Even something as immense as a multi-piece turbine system, which seemingly has a “death grip”- level attachment to land, can be nonlienable if that’s what the parties intended.

Another case lesson is for contractors to be extra diligent and insist on copies of all agreements referenced in their contracts to ensure their rights are protected in other agreements to which they’re not a party.

The case also portrays some creative lawyering.  The court’s discussion of the taxability of wind turbines, UCC Article 9 and the difference between a lease (which can be lienable) and an easement (which cannot) and how it impacts the lienability question makes for interesting reading.

 

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.