The Illinois Supreme Court recently held that an owner has a duty to retain funds due a subcontractor as shown on the general contractor’s worn statement pursuant to Section 5 of the Mechanics Lien Act. In Weather-Tite, Inc. v. Univ. of St. Francis, 2009 Ill. LEXIS 386 (2009), the court held that the subcontractor was entitled to enforce its mechanics lien under the Act.
The subcontractor provided labor, material, and services for the general contractor for the renovation of a residence hall on the university’s campus. The general contractor submitted five separate sworn statements to the university requesting payment. Each sworn statement listed the subcontractor as a subcontractor and showed the amount owed to it. For all but the final request, the university paid the general contractor, which in turn paid the subcontractor.
The final payment was wire transferred from the university to the general contractor’s bank account. At that time, the bank exercised its right of setoff and applied the funds to an outstanding debt of the general contractor. Thus, the subcontractor was not paid the final balance due for electrical work, totaling $130,948.48. Thereafter, the subcontractor served notice and claim for a mechanics lien on the university for its work on the project.
In this case, the university argued that Section 5 of the Act requires the owner to pay the general contractor all sums due once the owner receives the contractor’s sworn statement listing the subcontractors. Section 5 explicitly states the owner has a duty to require the sworn statements “before” paying the contractor. This serves the purpose of putting the owner on notice of any subcontractor claims.
The purpose of the Act is to permit a lien on premises when the owner has received a benefit and the furnishing of labor and materials have increased the value or improved the condition of the property. The Act is intended to protect contractors and subcontractors who provide labor and materials for the benefit of an owner’s property.
The contractor’s sworn statement can provide protection for the subcontractor. The purpose of a contractor’s sworn statement is to give the owner 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 argued by the university, to provide an orderly method of making payments to subcontractors through general contractors. Rather, the purpose under Sections 24 and 27 is to require the owner to retain funds sufficient to pay subcontractors after notice has been given.
The court set out the following orderly method of conducting transactions to protect subcontractor claims:
Because the university entered into a contract for the work and the general contractor issued a sworn statement according to Section 5 listing the subcontractor as a subcontractor and the amount due, the subcontractor is entitled to a lien in the amount of $130,948.48, the amount due the subcontractor on the contractor’s final sworn statement.
