Construction Law

Subcontractor's Mechanics lien allowed where bank seized general's funds

By Werner Sabo

The Illinois Supreme Court, in Weather-Tite v. University of St. Francis, No. 107108 (May 21, 2009), has ruled in favor of the subcontractor in enforcing a mechanics lien. The owner had hired a general contractor who, in turn, had subcontracted some of the work. In four instances, the general had submitted a sworn contractor's statement listing the subcontractor. The owner paid the amounts requested and the general paid the subcontractor. After the owner paid the fifth draw and the general deposited the funds into its bank account, the bank seized the funds in the account because of another debt owed by the general. The subcontractor was not paid, along with a number of other subcontractors.

The trial court held in favor of the owner's motion for summary judgment. The appellate court reversed, ordering entry of summary judgment in favor of the subcontractor. This was upheld:

Reading the Act as a whole, the purpose of the contractor?s sworn statement is to put the owner on notice of subcontractor claims and to create a duty upon the owner to protect the claims of the subcontractors named in the contractor?s sworn statement. The purpose of the contractor?s sworn statement is not, as advanced by the University, to provide an orderly method of making payments to subcontractors through the general contractor. What is clear from our reading of the Act is that the legislature intended the following orderly method of conducting construction transactions to protect subcontractor claims: (1) the owner and general contractor enter into a contract for the construction work; (2) as the work is completed, the general contractor submits a section 5 sworn affidavit that must list all subcontractors and the amount due, to become due, or advanced; (3) when the section 5 sworn affidavit lists an amount due or to become due a subcontractor, section 24 requires the owner retain sufficient funds to pay the subcontractor; and (4) section 27 requires the owner to make subcontractor payments upon receiving notice of a subcontractor claim pursuant to a section 5 sworn statement. Additionally, a lien waiver can be provided to the contractor when the subcontractor is paid, and the owner can require a lien waiver by every subcontractor when paying the contractor. Funds subject to a lien waiver are required to be held by the owner in trust for the subcontractor. See 770 ILCS 60/21.02 (West 2004).

Full post as published by Construction Attorney Blog on May 21, 2009 (boomark / email).