Tag: contractor affidavit

Mechanics’ Lien Claim Defeated Where Contractor Fails to Provide Proper Contractor Affidavit

Pyramid Development, LLC v. DuKane Precast, 2014 IL App (2d) 131131, vividly illustrates the importance of diligent record-keeping practices on construction projects and the dire financial consequences that can flow from a failure to do so.  It emphasizes how crucial it is for a contractor to comply with Section 5 of the mechanic’s lien act – 770 ILCS 60/5 (the “Act”) – the section that requires a contractor to give the owner a sworn statement that lists all persons providing labor and materials on a project.

The plaintiff contractor sued to foreclose a mechanics lien on several townhomes it was hired to build and also sued a subcontractor for defective concrete work supplied to the project.  After a bench trial, the court nullified the lien because it was negated by damage to the property.  Plaintiff appealed.

Result: Plaintiff’s lien is defeated because it didn’t comply with Section  5.

Reasons:

– The purpose of the Section 5 affidavit is to put the owner on notice of subcontractor claims;

– An owner has the right to rely and act upon a contractor’s section 5 affidavit unless the owner has reason to suspect the notice is false or knows that it’s false;

– An owner is protected from subcontractor claims where they’re not listed on the contractor’s affidavit unless the owner knows of the subcontractor omissions or has colluded with the contractor to exclude the subcontractors;

– Section 5 provides that it’s the owner’s duty to ask for and the contractor’s obligation to supply a sworn statement listing all parties furnishing lienable work on the property and the amounts owed to them;

– Where an owner doesn’t request a Section 5 affidavit, the contractor isn’t required to provide one;

– An owner’s previous acceptance of a flawed Section 5 affidavit doesn’t waive the contractor’s compliance with that section. (i.e., Just because an owner has accepted deficient affidavits in the past, doesn’t mean the contractor doesn’t have to comply with Section 5, e.g.)

(¶¶ 26-29).

Here, the property owner had a pattern of accepting faulty Section 5 affidavits. The plaintiff’s principal admitted that the names and amounts on the affidavits were often wrong and the amounts inflated.  Plaintiff also conceded that it routinely named itself as a subcontractor when it didn’t actually do any of the work on the townhomes.

The court held that since the plaintiff’s section 5 affidavits were facially erroneous, the lien claim was properly defeated.

The court also affirmed judgment against the plaintiff on its breach of contract claim. In a breach of contract suit involving construction services, a contractor is held to the “substantial performance” standard: he must perform in a workmanlike manner and a failure to do so is a breach of contract. (¶ 35).

A breach of contract plaintiff must also prove money damages.  And while he doesn’t have to do so with mathematical certainty, he still must offer some basis from which the court can compute the damage with reasonable probability. (¶ 37).

Here, the plaintiff didn’t meet his burden of proving damages.  Its record-keeping was scatter-shot and rife with discrepancies.  The plaintiff’s numbers didn’t match up and it couldn’t explain myriad invoice errors at trial.  This failure to carry its burden of proving damages doomed the plaintiff’s breach of contract claim.

Take-aways:

Accurate record-keeping is essential; especially on high dollar projects with multiple contractors;

Where an owner requests a section 5 affidavit, the contractor must supply one;

An Owner’s past acceptance of a faulty affidavit won’t excuse contractors duty to strictly adhere to section 5.

General Contractor’s Bankruptcy Filing Means Extra Time For Subcontractor To File Lien Suit

Section 34 of the Illinois Mechanics Lien Act (770 ILCS 60/34) presents a way for an owner to quickly dispose of a contractor’s lien recorded against his/her property. Typically, the owner serves the Section 34 notice and the contractor must either sue to foreclose its lien within 30 days or it loses the lien.

But what if after the owner sends a Section 34 notice, the general contractor (who hired the subcontractor) files bankruptcy before Section 34’s notice period ends?  Does the clock stop or does it keep running?

According to Lesniak v. Wesley’s Flooring, Inc., 2013 IL App (1st) 122146-U, the clock stops until the bankruptcy case is resolved.

The subcontractor defendant was hired by a general contractor to do flooring work on plaintiff’s Chicago residence.

After completing the flooring work, the subcontractor liened the home to secure payment.  The homeowners sent the subcontractor a Section 34 notice.  The general contractor filed for bankruptcy protection during the 30-day notice period.

When the subcontractor failed to sue, the homeowners sued the sub to quash its lien.

The trial court granted plaintiffs’ summary judgment motion on the basis that defendant subcontractor failed to file suit within Section 34’s thirty-day period forfeited its lien. 

Held: Summary judgment for homeowners affirmed; but for a different reason.  

Reasoning:

The Court held that the general contractor’s bankruptcy filing does toll the subcontractor’s 30-day period to file suit.  This is because of the automatic stay that applies once a party files bankruptcy. 

Since a general contractor is a necessary party to a subcontractor’s lien action (770 ILCS 60/28), the subcontractor would violate the automatic stay by suing to foreclose its lien after the general contractor filed bankruptcy.  ¶¶ 20-23.  The subcontractor must wait until the general contractor’s bankruptcy stay ends or is lifted to sue on its lien. 

But the Court did affirm summary judgment for the plaintiffs-homeowners under Section 5 of the Act (770 ILCS 60/5).  Section 5 aims to protect an owner from paying twice for the same work.  It requires the owner to demand from the contractor – prior to payment – a sworn statement that details all subcontractors who worked on a given project.  ¶ 14. 

Section 5 imposes a reciprocal duty on the contractor to provide an owner with a sworn statement as a condition to payment.  An owner is entitled to rely on a contractor’s affidavit when making payment and is insulated from unknown subcontractor claims so long as the owner had no knowledge the contractor’s affidavit is false. ¶ 24; 770 ILCS 60/27. 

Here, the bankrupt general contractor provided the plaintiffs with sworn statements that failed to list defendant/sub’s identity or amounts owed it.  Moreover, according to the plaintiffs’ uncontested affidavit, they never received notice of subcontractor’s lien until several months after they paid the general contractor in full.  The Court found that because plaintiffs had fully paid the contractor and had a zero balance on the prime contract  when they received the sub’s lien notice, the sub’s lien claim was invalid.  ¶ 26.

Take-aways:

1/ A general contractor’s bankruptcy stays a subcontractor’s 30-day time period to sue on his lien after receiving a Section 34 notice;

2/ Subcontractors must be vigilant to ensure a general contractor is providing an owner with accurate sworn statement information.