Chapter I What Are the Elements of a Mechanics Lien? 770 Ilcs 60/1(a) and (b) Explained

• Library: Turner on Illinois Mechanics Liens (2016 Ed.)

CHAPTER I - WHAT ARE THE ELEMENTS OF A MECHANICS LIEN? 770 ILCS 60/1(a) AND (b) EXPLAINED

A. How and When a Lien is Created

A mechanics lien comes into existence and attaches to the real estate on the date that the contractor makes a contract for the real estate's improvement.¹ But more than attachment is required for the lien to be enforceable. The term "enforceable" is used rather than perfected because in bankruptcy law and under the Uniform Commercial Code, a lien is perfected when it is enforceable against lien creditors. But here "enforceable" can mean (a) that it can be enforced against everyone, or (b) that it can be enforced against the owner and parties in the chain of contract between the owner and the lien claimant, but not against third parties.²

1. What is a Contractor?

770 ILCS 60/1(a) defines a contractor to be a person who: (a) has a contract express or implied, or partly expressed or implied; (b) with the owner or with one whom the owner has authorized or knowingly permitted to contract; (c) to improve the lot or tract of land or for the purpose of improving the tract of land or to manage a structure under construction thereon. Both a superintendent of construction and a construction manager are contractors.³ A party contracting with a lessee to improve the real estate is also a contractor.⁴ In an express contract, all of the essential terms have been articulated either verbally or in writing.⁵ In an implied contract, all the terms have not been articulated. Some of the terms may be inferred from facts and circumstances, including custom and usage of trade. What the facts and circumstances must show is (a) an agreement as to essential terms and (b) an intent that there be a contract.⁶

2. What is a Subcontractor?

Section 21 of the Act⁷ defines a subcontractor as a person "who shall furnish any labor, services, material, fixtures, apparatus or machinery, forms or form work for the contractor, or shall furnish any material to be employed in the process of construction as a means for assisting in the erection of the building or improvement . . . " Thus the statute would seem to indicate two classes of subcontractor: (a) a person who furnishes labor, services, material, fixtures, apparatus or machinery, forms or form work for the contractor; and (b) a person who furnishes any material to be employed in the process of construction as a means for assisting in the erection of the building or improvement. For priority purposes, a subcontractor's lien dates back to the date of the original contractor's contract.⁸

A person who has a contract with a subcontractor of the contractor is generally referred to as either a subsubcontractor or secondary subcontractor. Generally, the rules that apply to subcontractors also apply to subsubcontractors. In this book, where it is significant, such persons will be referred to as secondary subcontractors.

A.Y. McDonald Mfg. Co. v. State Farm Mut. Auto. Ins.⁹ expanded and changed the definition of what most lawyers at the time thought was a subcontractor. The case recognizes three types of subcontractor. It states:

"Section 21 of the Act provides for three distinct categories of potential lien claimants, each of whom is designated a "sub-contractor": (1) persons furnishing material or machinery, (2) persons furnishing services or labor for the contractor, and (3) suppliers of materials used in concrete form work."

Before A.Y. McDonald Mfg. Co. was decided, most mechanics lien practitioners believed that the only persons who could have mechanics liens were contractors, subcontractors, and secondary subcontractors who had contracts with subcontractors. A.Y. McDonald Mfg. Co. changed that. Now the generally accepted rule is that persons furnishing only material or machinery are subcontractors regardless of with whom they contract. But they still have to be in a chain of contract that includes either (a) a contractor that has a contract with the owner to improve the real estate or (b) someone knowingly permitted by the owner to contract with the contractor to improve the real estate.¹⁰ It is different where the subcontractor furnishes services or labor. In that case the subcontractor or secondary subcontractor will only have a lien if it either (a) has a contract with the contractor; or (b) has a contract with a subcontractor who has a contract with the contractor.¹¹ An employee of a contractor who provides construction services is a subcontractor under the Act.¹² It has not been held that an employee of a subcontractor can be a secondary subcontractor, but logically there is no reason why not.

In summary, there must be a contract between the contractor and the owner or someone knowingly permitted by the owner to contract for the improvements. But the subcontractor does not have to have a contract with the contractor or a subcontractor having a contract with the contractor so long as: (1) it is only furnishing materials or machinery; and (2) the subcontractor is in a chain of contract that begins with the contractor.

Regardless of whether the lien claimant is a contractor, subcontractor, or secondary subcontractor, the lien claimant's contract cannot merely be a contract to furnish services, labor, machinery, or materials for general purposes. The lien claimant's contract must provide that the materials or services are furnished to improve the particular land against which the lien claimant is asserting a lien.¹³

3. Unity of Interest

In Seymour v. Woodstock & Sycamore Traction Co.,¹⁴ the court held that where the president, secretary, directors, and shareholders of both the owner and the contractor were the same, they were in equity one company. Therefore, the lien claimant who had a contract with the "contractor" was treated as if it had a contract with the owner. This situation is often referred to in mechanics lien law as a "unity of interest" between the owner and the contractor which means that the two entities will be considered one entity for purposes of the Mechanics Lien Act. It was, therefore, not necessary for the lien claimant to serve a notice of claim for lien or be listed on a sworn statement as is necessary for subcontractors claiming liens.¹⁵ But partial commonality of interest alone is not enough to consolidate ownership into a single entity for the purposes of the Mechanics Lien Act. There must be both total unity of ownership and unity of control.¹⁶

4. What Does it Mean to Improve the Real Estate?

Subsection 770 ILCS 60/1(b) defines "improve" as:

"to furnish labor, services, material, fixtures, apparatus or machinery . . . in the process of construction . . . or remove any house or other structure . . . or perform any services or incur any expense as an architect, structural engineer, professional engineer, land surveyor or property manager in, for or on a lot or tract of land for any such purpose;
or furnish or perform labor or services as superintendent, time keeper, mechanic, laborer or otherwise, in the building, altering, repairing or ornament-ing of the same; . . . or furnish material, fixtures, apparatus, machinery, labor or services, . . . on the order of (the owner's) . . . agent, architect, structural engineer or superintendent having charge of the improvements . . . "

Improvement requires services to improve the property rather than merely for maintenance. Maintenance services are not lienable.¹⁷

5. When Does a Lien Attach and When is it Secret?

All mechanics liens for improvement of private property, including the liens of the original contractor, its subcontractors, and secondary subcontractors, attach as of the date of the original contractor's contract.¹⁸ Nothing has to be recorded and no notices have to be sent. When liens attach to the real estate is important because the order in which liens attach helps determine issues of priority between mechanics lien claimants and other lien creditors, including mortgage lenders. Priority depends upon whose lien attaches to the real estate first.¹⁹ Until the lien is enforced by either (a) a claim for lien being filed or (b) a subcontractor or secondary subcontractor giving notice of lien, the lien may be secret from the owner, lender, or other persons having interests in the real estate.

6. What is Required for an Enforceable Mechanics Lien Claim?

There is a difference between what is required for the lien to attach²⁰ to the real estate and what is required to enforce it. There are five requirements for a contractor or subcontractor to have an enforceable mechanics lien claim. (1) The contractor must have a valid contract, either expressed or implied in fact;²¹ (2) the contractor's contract must be with the owner of the property or his agent or someone who is knowingly permitted by the owner to contract for improvements;²² (3) The contractor or subcontractor must have furnished lien-able services or materials;²³(4) the contractor or subcontractor must have substantially performed or have a valid excuse for nonperformance;²⁴ and (5) the contractor or subcontractor must take the required actions to preserve its lien.²⁵

Sometimes people refer to the contractor as someone who hires subcontractors to do the work, but that is not what the word "contractor" means under the Mechanics Lien Act. The contractor may be a company engaged in a trade or may be essentially a construction manager subcontracting out all of the work. A contractor is someone who (a) has a contract with the owner to improve the real estate or (b) has a contract with someone whom the owner has knowingly permitted to contract for the work.

B. What is a Contract, Express or Implied, or Partly Expressed or Implied?

Subsection 1(a) of the Act states that in order to have a lien, the lien claimant must have a "contract or contracts, express or implied, or partly expressed or implied . . . ." "The foundation of the lien is the contract with the owner of a lot or tract of land for the improvement thereof and the furnishing of the material...