Weather-Tite v. University of St. Francis

• Court: Appellate Court of Illinois
• Decided: June 16, 2008
• Docket: 3-07-0402, 3-07-0462 cons. Rel
• Status: Published

Opinion

No. 3-07-0402 consolidated with No. 3-07-0462 _________________________________________________________________ Filed June 16, 2008 IN THE

APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 2008

WEATHER-TITE, INC., an ) Appeal from the Circuit Court ILLINOIS CORPORATION, ) of the 12th Judicial Circuit ) Will County, Illinois Plaintiff, ) ) v. ) ) UNIVERSITY OF ST. FRANCIS, ) STONITSCH CONSTRUCTION, INC., ) QUAKER WINDOW PRODUCTS ) COMPANY, EXCEL ELECTRIC, INC.,) LAFORCE, INC., SCOTT KARLI ) d/b/a SK SALES, MIDWEST ) ARCHITECTURAL GLASS, INC., ) UNKNOWN OWNERS AND NON-RECORD ) CLAIMANTS, ) ) Defendants. ) ______________________________) No. 06-CH-1131 ) 06-CH-1135 EXCEL ELECTRIC, INC., an ) ILLINOIS CORPORATION, ) ) Counter-Plaintiff- ) Appellant, ) ) vs. ) ) UNIVERSITY OF ST. FRANCIS, ) STONITSCH CONSTRUCTION, INC., ) WEATHER-TITE, INC., QUAKER ) WINDOW PRODUCTS COMPANY, ) LAFORCE, INC., SCOTT KARLI ) d/b/a SK SALES, MIDWEST ) ARCHITECTURAL GLASS, INC., ) UNKNOWN OWNERS AND NON-RECORD ) CLAIMANTS, ) ) Honorable Counter-Defendants- ) Bobbie Petrungaro Appellees. ) Judge Presiding. _________________________________________________________________

JUSTICE LYTTON delivered the Opinion of the court: _________________________________________________________________

Excel Electric, Inc. filed a complaint to foreclose a

mechanic’s lien against University of St. Francis. St. Francis

filed a motion for summary judgment, and Excel filed a cross-motion

for summary judgment. The trial court granted University’s motion

and denied Excel’s motion. We reverse and remand.

BACKGROUND

In March 2005, St. Francis hired Stonitsch Construction, Inc.

to be its general contractor on a project to renovate a residence

hall. Stonitsch hired many subcontractors to complete the

renovation project, including Excel Electric, Inc.. According to

the contract between Stonitsch and Excel, Excel was to provide

electrical labor, materials and services for the project. From May

2005 to November 2005, Excel provided the necessary labor,

materials and services to Stonitsch.

On four occasions during the course of the renovation project,

Stonitsch submitted documents to St. Francis entitled "Application

and Certificate for Payments." In these documents, Stonitsch

requested payment from St. Francis in the following amounts: (1)

$123,703.20 on May 26, 2005, (2) $532,475.10 on June 16, 2005, (3)

$1,204,333.10 on June 15, 2005, and (4) $1,081,999.69 on August 18,

2005. Each of the payment certificates listed Excel as the

electrical subcontractor and showed the amount that it was due.

St. Francis provided Stonitsch payments in the amounts requested in

each "Application and Certificate for Payments." After St. Francis

paid Stonitsch, Stonitsch paid Excel the amount it was due as set

forth in each payment certificate.

2 Stonitsch completed its renovation work in November 2005. On

December 6, 2005, Stonitsch issued its final "Application and

Certificate for Payments" to University. According to that

document, St. Francis owed Stonitsch $458,237.56, of which

$130,948.48 was due Excel. St. Francis made its final payment of

$458,237.56 on January 20, 2006. That amount was wire transferred

into Stonitsch’s account at Harris Bank. Upon receiving the

payment, Harris Bank exercised its right of set off and applied the

funds received to partially satisfy a debt Stonitsch owed Harris.

Excel received no payment from Stonitsch with respect to the final

payment certificate.

On February 22, 2006, Excel served a Notice and Claim for

Mechanic’s Lien on University, claiming it was owed $140,547.09 for

its work on the renovation project. Other subcontractors, including

Weather Tite, Inc., served St. Francis with notices and claims for

mechanics’ liens.

In May 2006, Weather Tite filed a complaint for foreclosure of

its mechanic’s lien. One month later, Excel filed a counter-

complaint to foreclose its mechanic’s lien. St. Francis filed a

motion for summary judgment, arguing that Excel did not have an

enforceable mechanic’s lien. Excel filed a cross-motion for

summary judgment, arguing that it had a valid and enforceable

mechanic’s lien against St. Francis in the amount of $130,948.48.

The trial court entered an order granting University’s motion

for summary judgment and denied Excel’s cross-motion for summary

judgment. In its order, the trial court relied on Luczak Bros.,

Inc. v. Generes, 116 Ill. App. 3d 286, 451 N.E.2d 1267 (1983),

3 which "seemed factually similar to this case." The trial court

summarized that case as follows: "[T]he subcontractor was entitled

to a lien only in the amount show to become due on the last

statement for which payment was made and the subcontractor must

look to the contractor for payment." (Emphasis by trial court),

citing Luczak, 116 Ill. App. 3d at 303, 4512 N.E.2d at 1281. The

trial court concluded that because St. Francis did not receive

Excel’s notice of lien and claim until after it made final payment

to Stonitsch, Excel did not have a valid and enforceable mechanic’s

lien against St. Francis and must look for Stonitsch for payment.

ANALYSIS

Excel argues that it is entitled to a lien of $130,948.48

because that amount was shown to be due Excel in the final payment

certificate Stonitsch provided to St. Francis. St. Francis

responds that Excel is not entitled to a lien because Excel did not

serve its lien notice until after St. Francis made its final

payment to Stonitsch and all work on the project was complete.

The purpose of the Mechanics Lien Act (Act), 770 ILCS 60/1 et

seq. (West 2004), is to protect those who in good faith furnish

material or labor for the construction of a building. State Bank

of Lake Zurich v. Winnetka Bank, 245 Ill. App. 3d 984, 994, 614

N.E.2d 862, 869 (1993). The Act attempts to balance the rights and

duties of owners, contractors and subcontractors. Alliance Steel,

Inc. v. Piercy, 277 Ill. App. 3d 632, 635, 660 N.E.2d 1341, 1343

(1996).

Under section 5 of the Act, it is the owner’s duty, before

making any payments, to require the general contractor to provide

4 a sworn written statement listing the subcontractors and the

amounts due or to become due to each one. 770 ILCS 60/5(a) (West

2004). If a subcontractor’s name is omitted from the contractor’s

statement or the subcontractor is owed an amount different from

what is provided in the statement, the subcontractor must give the

owner written notice of its claim no later than 90 days after its

completion of the contract. 770 ILCS 60/24(a) (West 2004).

When an owner is notified of a subcontractor’s claim, he must

retain from any money due the contractor an amount sufficient to

pay the subcontractor. 770 ILCS 60/27 (West 2004); see

Knickerbocker Ice Co. v. Halsey Bros. Co, 262 Ill. 241, 246, 104

N.E. 665 (1941). If an owner pays a contractor and does not retain

sufficient funds to pay a subcontractor after receiving notice that

a subcontractor is owed, such payment shall be considered illegal

and made in violation of the subcontractor’s rights. 770 ILCS

60/27 (West 2004).

An owner will not be required to pay a greater amount than the

contract price "unless payment be made to the contractor or to his

order, in violation of the rights and interests of the persons

intended to be benefitted by this act." 770 ILCS 60/21(d) (West

2004). An owner who pays a contractor without withholding

sufficient funds for the subcontractor runs the risk of being

obligated to pay the subcontractor even if he already paid the

contractor the full contract price. See Hall v. Harris, 242 Ill.

App. 315, 318 (1926); see also Capital Plumbing & Heating Supply

Co. v. Snyder, 2 Ill. App. 3d 660, 666, 275 N.E.2d 663, 668 (1971)

(once an owner is put on notice that money is due a subcontractor,

5 he acts at his peril unless he retains sufficient funds to pay the

subcontractor).

A payment to a contractor is not wrongful if it is made by an

owner prior to receiving notice of a subcontractor’s claim. See

Contractors’ Ready-Mix, Inc. v. Earl Given Construction Co., Inc.,

242 Ill. App. 3d 448, 458, 611 N.E.2d 529, 535 (1993). However,

when an owner has notice of a subcontractor’s claim, through the

contractor’s statement under section 5 or through the

subcontractor’s 90-day notice under section 24, and nevertheless

makes payment to the contractor without retaining funds for the

subcontractor, such payment is wrongful under the Act. See

Contractors’ Ready-Mix, 242 Ill. App. 3d at 458, 611 N.E.2d at 535;

Snyder, 2 Ill. App. 3d at 667, 275 N.E.2d at 668-69; Gilbert v.

Croshaw, 178 Ill. App. 10, 12-13 (1913); Butler v. Gain, 128 Ill.

23, 26-27, 21 N.E. 350 (1889). When an owner makes a wrongful

payment, the subcontractor is entitled to a lien in the amount of

the wrongful payment. See Contractors’ Ready Mix, 242 Ill. App.

3d at 458, 611 N.E.2d at 535.

In an attempt to balance the rights and duties of owners,

contractors and subcontractors, the Act draws lines establishing

who is entitled to relief when an owner and subcontractor are both

bona fides. Under the Act, a bona fide owner is protected from

having to pay out twice as long as he follows the terms of the Act.

See 770 ILCS 60/21(d) (West 2004); see also Gilbert, 178 Ill. App.

at 13 (an owner will be required to pay more than the original

contract price only if he has not complied with the provisions of

6 the Act). However, if an owner does not abide by the provisions of

the Act, "he acts at his peril." Capital Plumbing, 2 Ill. App. 3d

at 666, 275 N.E.2d at 668. In other words, an innocent owner

protects itself and a subcontractor by complying with the Act; but

if an otherwise innocent owner does not follow the terms of the

Act, the subcontractor is entitled to relief. See Contractors’

Ready-Mix, 242 Ill. App. 3d at 458, 611 N.E.2d at 535; Snyder, 2

Ill. App. 3d at 667, 275 N.E.2d at 668-69; Gilbert, 178 Ill. App.

at 12-13; Butler, 128 Ill. at 26-27, 21 N.E. 350.

Here, we agree with Excel that St. Francis was required to

retain the amount it was due as set forth in Stonitsch’s last

payment certificate. Our analysis begins with the case of

Contractors’ Ready-Mix, 242 Ill. App.3d 448, 611 N.E.2d 529. In

that case, First Midwest Bank contracted with Earl Given

Construction Co. to erect a Wal-Mart. Given entered into a

subcontract with Ready-Mix. In September and October 1990, Ready-

Mix delivered materials to Given and did not receive payment in the

amount of $77,102.77. After that, Given gave First Midwest a sworn

statement showing that Ready-Mix was due $127.25. Given also

served First Midwest with a document purporting to be a waiver of

Given’s lien for $280,800 worth of work that Given had completed.

In November, First Midwest paid Given $280,800. In January 1991,

Ready-Mix mailed its notice of lien to First Midwest.

The appellate court found that Ready-Mix was entitled to a

lien in the amount of $127.25 because "except for the owner’s

failure to withhold $127.25 from the sum which it paid Given on

November 2, 1990, the owner complied with the requirements of

7 section 5 of the Act when the owner obtained Given’s section 5

affidavit on October 25, 1990, and then paid Given $280,800 on

November 2, 1990." Contractors’ Ready-Mix, 242 Ill. App. 3d at

454, 611 N.E.2d at 533. The court held that "Ready-Mix’s section

24 notice to the owners did not render wrongful payments made by

the owner to Given prior to the owner’s receipt of that notice."

242 Ill. App. 3d at 456, 611 N.E.2d at 534. However, the court

found that "[w]here, as here, the owner has made some wrongful

payments, the subcontractor or supplier is entitled to a mechanic’s

lien to the extent of those payments." 242 Ill. App. 3d at 458,

611 N.E.2d at 535. The court found that "the owner wrongfully paid

out the sum of $127.25 and Ready-Mix is entitled to a mechanic’s

lien but only to that extent." 242 Ill. App. 3d at 458, 611 N.E.2d

at 535.

The facts in Ready-Mix are similar to those in the instant

case. In both, the contractor’s sworn statements showed that one

or more subcontractors were owed money. Nevertheless, the owners

paid the contractors the full amount requested and did not withhold

any money for the subcontractor(s). According to the court in

Ready-Mix, such a payment is wrongful and entitles the

subcontractor to a lien in the amount of the wrongful payment. 242

Ill. App. 3d at 458, 611 N.E.2d at 535.

Stonitsch’s final payment certificate requested payment from

St. Francis in the amount $458,237.56, of which $130,948.48 was due

Excel. St. Francis paid Stonitsch the entire amount it requested

and did not withhold $130,948.48 for Excel’s benefit. After making

its final payment to Stonitsch, University received Excel’s Notice

8 and Claim for Mechanic’s Lien, showing that it was owed

$140,547.09.

Because St. Francis did not receive Excel’s section 24 notice

until after it made payment to Stonitsch, that notice would have

been ineffective; however, St. Francis did receive notice of

Excel’s claim in Stonitsch’s final payment certificate, which

showed that Excel was owed $130,948.48. Pursuant to that notice,

St. Francis was obligated to withhold $130,948.48 from its final

payment to Stonitsch. See 770 ILCS 60/27 (West 2004);

Knickerbocker, 262 Ill. at 246, 104 N.E. 665; Contractors’ Ready

Mix, 242 Ill. App. 3d at 458, 611 N.E.2d at 535. Because St.

Francis paid Stonitsch the full amount requested and did not retain

any funds to pay Excel, St. Francis’s payment was wrongful. See

770 ILCS 60/27 (West 2004); Contractors’ Ready Mix, 242 Ill. App.

3d at 458, 611 N.E.2d at 535; Snyder, 2 Ill. App. 3d at 667, 275

N.E.2d at 668-69; Gilbert, 178 Ill. App. at12-13; Butler, 128 Ill.

at 26-27, 21 N.E. 350.

Nevertheless, St. Francis argues that the cases of Luczak, 116

Ill. App. 3d 286, 451 N.E.2d 1267, and Knickerbocker Ice Co. v.

Halsey Bros., Co., 262 Ill. 241, 104 N.E. 655 (1914), support the

trial court’s conclusion that Excel did not have a valid and

enforceable mechanic’s lien against St. Francis. We disagree.

The trial court relied on the court in Luczak, finding that

"the subcontractor was entitled to a lien only in the amount shown

to become due on the last statement for which payment was made * *

*." (Emphasis added by trial court). However, the court in

Luczak actually held that the subcontractors in that case were

9 "entitled to a lien only in the amount shown to be due on the last

statement for which payment was made." Luczak, 116 Ill. App. 3d at

304, 451 N.E.2d at 1281. (Emphasis added). Thus, applying Luczak

to this case, Excel is entitled to a lien in the amount of

$130,948.48, the amount shown to be due Excel on the final payment

certificate.

Nor does Knickerbocker support St. Francis’ argument. In

Knickerbocker, the contractor issued false sworn statements to the

owner. According to the contractor’s last statement, the

subcontractor was owed $900. The subcontractor was actually owed

$1,426.33 and filed a petition against the owner, claiming a lien

in that amount. The trial court held that the subcontractor had a

lien in the amount of $911, the remaining unpaid balance on the

contract between the owner and the contractor. The appellate court

and supreme court affirmed. The supreme court explained: "Having

no knowledge of the falsity of the statements, the owner had the

right to act upon them, and the subcontractor must look to the

contractor for any balance due on its claim over and above the

amount withheld by the owner pursuant to the sworn statements

made." Knickerbocker, 262 Ill. At 245.

Like the courts in Ready-Mix and Luczak, the Knickerbocker

court found that the subcontractor had a valid and enforceable lien

against the owner pursuant to the contractor’s sworn statement.

However, Knickerbocker is distinguishable from this case in a

significant way. In Knickerbocker, the owner properly withheld

from the contractor the amount that the final sworn statement

reflected was still due to the subcontractor. Thus, the owner in

10 Knickerbocker fulfilled all of his duties under the Act and,

therefore, could not be required to pay more than the contract

price. See 770 ILCS 60/21(d). Here, St. Francis had not properly

withheld from Stonitsch the amount Excel was owed pursuant to the

final payment certificate. Thus, St. Francis’ payment to Stonitsch

was wrongful, and St. Francis could be required to pay more than

the contract price. See Hall, 242 Ill. App. at 318; Snyder, 2 Ill.

App. 3d at 666, 275 N.E.2d at 668.

Excel is entitled to a mechanic’s lien of $130,948.48, the

amount shown to be due Excel in the final payment certificate that

St. Francis wrongfully paid Stonitsch. See Contractors’ Ready Mix,

242 Ill. App. 3d at 458, 611 N.E.2d at 535; see also Luczak, 116

Ill. App. 3d at 304, 451 N.E.2d at 1281 (a subcontractor is

entitled to a lien in the amount shown to be due on the last

statement for which payment is made). The trial court erred in

granting St. Francis’s motion for summary judgment and denying

Excel’s motion for summary judgment.

The judgment of the circuit court of Will County granting

summary judgment to St. Francis and denying summary judgment to

Excel is reversed. We remand to the trial court to enter an order

granting Excel’s motion for summary judgment.

Reversed and remanded.

HOLDRIDGE and O'BRIEN, JJ., concurring.