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Commentary on Weather-Tite, Inc. v. University of St. Francis
A property owner must not only request and receive a sworn statement under Section 5 of the Illinois Mechanics Lien Act, it must also withhold any amounts due or be liable to the subcontractor for the balance shown on the sworn statement. That is the holding of a new decision from the Illinois Supreme Court, released May 21, 2009.
The opinion, titled Weather-Tite, Inc. v. University of St. Francis, adjudicates the dispute between the electrical subcontractor and the property owner. The University of St. Francis hired a general contractor, Stonitsch Construction, Inc., who in turn hired a subcontractor, Excel Electric, Inc. (Weather-Tite was another sub who began the litigation but was not a part of the appeal.) There were a series of progress payments made over the course of the project. At each occasion, the University requested and received a sworn statement from the general contractor, which showed a variety of subcontractor claims. The University paid Stonitsch the full amount, and Stonitsch paid the subcontractors.
The problem arose at the final payment. The University got the sworn statement, which showed a number of subcontractor claims, and paid Stonitsch, but Stonitsch failed to pay a number of subcontractors, including the claim by Excel for $130,948.48. There was some mention of a setoff at the final payment, which would give reason to believe that Stonitsch receive substantially less than it expected. Whatever the reason for Stonitsch's nonpayment, Excel recorded a mechanics lien claim and then filed suit.
The University's defense was based on its reading of Section 5:
It shall be the duty of the contractor to give the owner, and the duty of the owner to require of the contractor, before the owner or his agent, architect, or superintendent shall pay or cause to be paid to the contractor or to his order any moneys or other consideration due or to become due to the contractor, or make or cause to be made to the contractor any advancement of any moneys or any other consideration, a statement in writing, under oath or verified by affidavit, of the names and addresses of all parties furnishing materials and labor and of the amounts due or to become due to each. Merchants and dealers in materials only shall not be required to make statements required in this Section. (Emphasis added by the court.) 770 ILCS 60/5 (West 2004).
The University's defense was, in effect, that by obtaining the sworn statement they had fulfilled all of their obligations under the Mechanics Lien Act. The University claimed that this made sense, because the purpose of the Act was to create an orderly system for payments, but not to actually ensure that subcontractors got paid.
The court didn't buy The Univerity's argument. In effect, the Court's response was that, even though the University completed its obligations under Section 5, the Illinois Mechanics Lien Act includes a variety of obligations for the property owner, not only those under Section 5.
For example, Section 27 expressly requires withholding payment when amounts remain owing to subcontractors:
When the owner or his agent is notified as provided in this Act, he shall retain from any money due or to become due the contractor, an amount sufficient to pay all demands that are or will become due such sub-contractor, tradesman, materialman, mechanic, or worker of whose claim he is notified, and shall pay over the same to the parties entitled thereto. 770 ILCS 60/27 (West 2004)
This opinion is in accordance with the payment practices of most experienced property owners and title companies. A property owner may demand lien waivers from all subcontractors listed on the sworn statement before issuing checks, or issue two-party checks for amounts owed to subcontractors, or both. As this new opinion demonstrates, an owner has the power to pay the contractor directly, but only if it is willing to be liable to the subs for a second payment.
This commentary originally appeared in the blog.
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Related Materials:
- Statutes Referenced
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- Williams v. Manchester, 228 Ill.2d 404, 417 (2008)
- MidAmerica Bank, FSB v. Charter One Bank, FSB, No. 106804 (March 19,
2009)
- DeLuna v. Burciaga, 223 Ill. 2d 49 (2006)
- People v. Jones, 214 Ill. 2d 187 (2005)
- People v. Martinez, 184 Ill. 2d 547, 550 (1998)
- R.W. Dunteman Co. v. C/G Enterprises, Inc., 181 Ill. 2d 153 (1998) - (opinion HTML)
- First Federal Savings & Loan Ass’n of Chicago v. Connelly, 97 Ill. 2d 242 (1983)
- Colp v. First Baptist Church of Murphysboro, 341 Ill. 73 (1930)
- Kiefer v. Reis, 331 Ill. 38 (1928)
- Keeley Brewing Co. v. Neubauer Decorating Co., 194 Ill. 580 (1902)
- Knickerbocker Ice Co. v. Halsey Bros. Co., 262 Ill. 241 (1914)
- Luczak Brothers, Inc. v. Generes, 116 Ill. App. 3d 286 (1983)
- Essays and Articles
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