The Illinois Appellate Court recently allowed a subcontractor to recover directly from the project owner certain funds the subcontractor was owed for work on the project, after the owner issued payment to its general contractor without withholding the amount the owner knew was due to the subcontractor. In Weather-Tite, Inc. v. University of St. Francis, et al., 383 Ill. App. 3d 304 (3rd Dist. 2008), the Appellate Court overruled the lower court, which had held the subcontractor could not recover from the owner.
In Weather-Tite, the owner had hired the general contractor to oversee renovation of a residence hall. The general contractor hired a subcontractor to do electrical work on the project. At the end of the project, the general contractor gave the owner a final application and certificate for payment, which indicated that the general contractor was owed $458,237.56, of which $130,948.48 was due to the subcontractor.
The owner paid the entire $458,237.56 to the general contractor. When the general contractor failed to pay any of this money to the subcontractor, the subcontractor filed suit to foreclose a mechanics lien against the owner, under the Mechanics Lien Act, 770 ILCS 60/1 et seq. The owner responded by asserting it did not receive the subcontractor’s notice of lien until after it paid the general contractor. The owner, as a result, argued that the subcontractor had to look to the general contractor for payment. The trial court agreed and granted summary judgment to the owner.
The subcontractor appealed and the appellate court noted that, regardless of when the owner received the notice and lien from the subcontractor, the owner knew before issuing the final payment that $130,948.48 was due to the subcontractor. The appellate court also noted that, under Section 5 of the Mechanics Lien Act, the owner had a duty to require the general contractor to provide a sworn written statement listing the subcontractors and the amounts due or to become due to each one. The owner then had an obligation to retain from any money due the general contractor an amount sufficient to pay each subcontractor.
The owner paid the general contractor without withholding an amount sufficient to pay the subcontractors on the project. The appellate court ruled the payment to the general contractor was therefore wrongful under the Mechanics Lien Act. The owner’s wrongful payment entitled the subcontractor to assert a mechanics lien against the owner for the amount the owner should have withheld for the benefit of the subcontractor. The subcontractor could recover this amount from the owner, even though this meant the owner had to pay twice for the same work done on the project.
This result means owners must be careful to withhold from payments to their general contractors any money they know is due to a subcontractor. If owners fail to do this, they can be forced to pay twice for the same work. Although the owners can attempt to recover their forced “overpayment” from the general contractor, this is an added burden on the owner with no guarantee of success. The best course is for the owners to simply withhold the subcontractors’ money from payments made to the general contractor.
