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Subcontractor Wins Lien Case

before Illinois Supreme Court

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Sub Uses §27 To Define

Owner’s Duty When Paying GC

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“Purpose of Sworn Statement is to

Put Owner on Notice of Subs’ Claims –

And to Protect Them”

             It is uncommon for a mechanic’s lien case to go all the way to the Illinois Supreme Court. Recently, in Weather-Tite Inc. v. University of St. Francis, etc. No. 107108 (May 21, 2009) the court held that Excel Electric, a subcontractor on a renovation project for a private university, was entitled to enforce its $130,948 lien, even after the owner had paid all monies due based on sworn statements from the general contractor, Stonitsch Construction, Inc.   The court’s reasoning is technically sound, but the lower courts may have to sort out the implications and clear up the questions Weather-Tite leaves open.

            The problem arose in this case when Stonitsch’s bank took the funds received from the university from draw requests and applied them (including Excel’s money) to an existing debt of Stonitsch.  Excel and others liened the project, then sued to foreclose.

            The university, after a summary judgment in its favor at the trial court had been reversed on appeal, petitioned the supreme court, relying on this contention:  It had the right to trust Stonitsch’s sworn statement and pay the monies due to Stonitsch, and thereby discharged its duty.  But Excel cited §27 of the Mechanic’s Lien Act, which provides that any payment made by the owner to the general contractor after the owner receives the sworn statement listing subcontractors “without [the owner] retaining sufficient money to pay such claims, shall be considered illegal and made in violation of the rights of the laborers and subcontractors.”

            The court agreed with Excel, rejecting the idea that an owner discharges its obligation to subcontractors when it pays the general contractor.  “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,” the court stated.

            Of course, this begs the question.  Sworn statements very frequently are a big factor in the “orderly method of making payments to subcontractors through the general contractor.” Are owners to pay the GC’s draw request amount and set aside money for subcontractors?  When the submission of subcontractors’ waivers (as preconditions to payment) are sworn to by the general contractor when requesting a draw, it is standard practice for the general contractor to disburse monies to its suppliers with the draw money tendered to it by the owner. 

Since the court in Weather-Tite is applying §27 to §5 sworn statements as a trigger, putting the owner on notice to set aside monies for subcontractors and protect them, the lower courts will have to fill in the gaps on how extensive this responsibility really is.  Does the duty change under this ruling, for example, when the owner is provided with subcontractor waivers?  Does the duty change when the general contractor swears that it has received partial (or final) waivers from its suppliers?

 

6/11/09