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.

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.

 

 

Substantial Performance Doctrine: Contractor Defeats Finicky Homeowners in Construction Case (the ‘You Missed A Spot’ Post)

Two diva-esque homeowners (I don’t judge; I just report) who demanded impossible perfection from a contractor got slapped with a $100,000-plus bench trial verdict in Wolfe Construction v. Knight, 2014 IL App (5th) 130115-U. Affirming the damage award, the appeals court gave content to the substantial performance doctrine, expanded on the requirement of contractual definiteness and applied the governing standards for recovering contractual interest and attorneys’ fees,

The plaintiff contractor was hired to perform renovation work on the defendants’ home after a fire damaged the home.  The written contract required the homeowners to pay for any extras and to also foot the bill for any services not covered by their homeowners’ insurance.  Over a span of about a year, the contractor completed nearly all of the restoration work (about 95% of it) and performed some $30,000 of additional work including interior painting, building a new porch and custom-ordering and installing kitchen cabinets – all at the defendants’ specific request.  But according to the homeowners, the contractor’s work was lacking and the homeowners refused to pay and kicked the contractor off the job.  The contractor sued for breach of contract and after a bench trial, won a $100,000-plus judgment against the homeowners, including amounts for unpaid services, extras, contractual interest and attorneys’ fees.  The homeowners appealed.

Held: Money judgment for the contractor affirmed.

Rules/Reasoning:

The Court upheld the judgment for the contractor; noting that the defendants demanded “perfection and the impossible.”  The law doesn’t require surgical precision in construction contract performance.  Instead, the contractor is held only to the duty of substantial performance in a workmanlike manner.  For substantial performance, a contractor must show there was an honest and faithful performance of the contract in its material and substantial aspects.  The contractor must also demonstrate there was no willful departure from, or omission of the contract’s essential elements.  A nebulous standard, the substantial performance test depends on the unique facts of each case.  (¶33).

During trial, both sides presented expert testimony in support of their position and the Court found that the contractor completed about 95% of the job before the defendants fired it (the contractor).  (¶¶ 25-26).  And since the defects asserted by the homeowners involved items which pre-dated the contractor’s involvement, the Court found those deficiencies weren’t the contractor’s fault.  The Court also found the homeowner’s blatantly biased expert’s testimony to be incredible and even “laughable.”  For these reasons, the Court sided with the contractor on all issues. (¶34).

The Court also affirmed the trial court’s award of interest and attorneys’ fees under the contract; but against only one of the homeowners.  Interest and attorneys’ fees generally are not recoverable unless specified in a written contract.  ¶¶36-37.  If a contract does provide for interest and attorneys’ fees, only the party that signs the contract will have to pay them.  (¶ 37).  Here, the parties’ construction contract clearly delineated that the homeowners would be responsible for the contractor’s attorneys’ fees and would have to pay monthly interest at 1.5% on tardy amounts if the contractor sued. The Court held that since the contractual interest and fee-shifting language was clear, it was enforceable – but only against the defendant that signed the contract.  The homeowner that didn’t sign the contract wasn’t responsible for the over $26,000 in interest and nearly $40,000 in attorneys’ fees awarded to the plaintiff contractor.  (¶ 38).

Aftermath:

Definitely a pro-contractor and anti-persnickety homeowner case.  I suppose perfectionism, as character trait and life ethos, has its merits.  But the law doesn’t require it; at least not in the construction setting.   This case illustrates in lurid detail the perils of a property owner having unrealistic and too-exacting expectations of his contractor.  Blemish-free work is not required under the law.  As this case amply shows, if a contractor substantially performs or is prevented from remedying or completing performance by a recalcitrant homeowner, the contractor will win.  Wolfe Construction also seems to set a fairly lenient benchmark for a contractor to establish substantial performance.  This case should and will likely give property owners pause before they declare a default and fail to pay a contractor.