Chapter IV Filing Suit, Pleadings, Remedies, and Related Matters
| Library | Turner on Illinois Mechanics Liens (2016 Ed.) |
A. Foreclosure of the Contractor's and Subcontractor's Mechanics Lien Claims
1. Nature of the Action
A contractor's basic remedy under the Mechanics Lien Act is to foreclose its lien. The remedy is created by and, to a large extent, governed by Sections 9 and 11 of the Act. A mechanics lien foreclosure action is a chancery action.1 This means, for example, that all claims that the lien claimant has can be filed in a single count pursuant to Supreme Court Rule 135.2 Thus, a suit under 770 ILCS 60/9 to foreclose a lien can be included in the same count as a suit for a joint judgment against the owner and the contractor under 770 ILCS 60/28 and a contract action. But this may not be a wise practice. It may not be possible to obtain a judgment in contract at law based upon a count in equity to foreclose a lien.3 The better practice would be to state the contract claim in a separate count.
a. In Rem or Quasi in Rem and Necessary Parties
There has been some discussion of whether a mechanics lien action is a suit in rem or quasi in rem. The logic of ABN AMRO Mortg. Group, Inc. v. McGa-han4 makes it clear that a mechanics lien action is a quasi in rem action. The court said:
"In rem" jurisdiction is "[a] court's power to adjudicate the rights to a given piece of property, including the power to seize and hold it.". . . "[A] proceeding in rem is one which is taken directly against property or one which is brought to enforce a right in the thing itself."
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A quasi in rem action is "brought against the defendant personally, with jurisdiction based on an interest in property, the objective being to deal with the particular property or to subject the property to the discharge of the claims asserted." . . . Unlike an in rem action, a quasi in rem action operates only as between the parties to the proceedings.
Before the 2005 amendments to Section 11 of the Mechanics Lien Act, every person who had an interest in the real estate had to be made a party. Now only certain parties are necessary parties. Others are permitted parties. If a permitted party is not joined to the proceeding, its interest in the property is not affected by the litigation.5 Therefore, since an in rem action affects all interests in the property, it is clear that a mechanics lien foreclosure suit is only a quasi in rem action.
b. Foreclosure Procedure
It is a fundamental rule of mechanics lien proceedings that all actions to foreclose mechanics lien claims must be joined in a single chancery proceed-ing.6 This is necessary in order to adjudicate all of the lien claims and, if necessary, sell the property and distribute the proceeds of the sale in accordance with the provisions of the Mechanics Lien Act that determine priorities among claimants.
After all mechanics lien claims are adjudicated in the chancery proceeding, a decree is usually entered determining the validity of the various liens, the amounts due each lien claimant, and an order for payment by a certain date. The decree also usually provides for a sale of the property and the distribution of the proceeds of sale among the parties to the litigation. This does not happen very often. Usually cases are settled or one party or another pays the lien claim before there is a sale. Sections 12 through 20 of the Mechanics Lien Act govern foreclosure and sale. The court determines the amount due each claimant and allocates the proceeds of sale accordingly. If the proceeds of sale are not sufficient, the creditors may obtain deficiency judgments as in mortgage foreclosure proceedings. The owner has six months after sale to redeem the property. Priorities among lien claimants and mortgagees are discussed in Chapter VI.
A mechanics lien proceeding is a statutory proceeding in derogation of the common law. The lien claimant must comply strictly with the statute to have a lien. The court has broad discretion. For example, trying a case piecemeal is allowed so long as all mechanics lien claims are disposed of in one proceed-ing.7 But compliance with the Mechanics Lien Act is necessary to give the court jurisdiction over the mechanics lien claim. It is essential that a pleading asserting a lien claim allege every fact that must be proved to establish a mechanics lien.8
The substantive principles of equity are not applicable, but chancery practice and procedure do apply.9 The upshot is that, while the requirements for a valid recordable claim for lien are construed strictly, sometimes procedural matters touching on pleadings and their amendment are construed more liberally.
2. Arbitration Clauses and other Contractual Limitations on the Right to Sue
a. Pre-suit Requirements in Contracts
It is important to carefully read the contracts involved before filing suit. Many construction contracts have conditions precedent to suit which can severely restrict a lien claimant's remedy and also a defendant's ability to assert a defense. In some cases, a ruling by an architect is required even if the architect's decision is not final and binding. In Mayfair Const. Co. v. Waveland Associates Phase I Ltd. P'ship,10 the owner refused to submit an issue to the architect and was for that reason barred from asserting a defense related to the issue. In Him-melstein v. Valenti Dev. Corp.,11 the court reversed and remanded the case to require the architect to furnish "a proper and definitive report."
b. The Requirement to Arbitrate
What follows is not a detailed examination of arbitration. Rather, the purpose of this discussion is to alert the practitioner to arbitration issues that can affect (a) the right to bring suit and (b) the procedures for enforcing claims. Care should be exercised in determining whether an arbitration clause in a contract is applicable to the dispute. An arbitration agreement must be examined carefully. The dispute might not be within the scope of the arbitration clause.12 The clause may cover one remedy under the Mechanics Lien Act but not the other and also may not cover a suit in contract.13
Arbitration remains a matter of contract. A party cannot be required to submit to arbitration unless the agreement clearly so provides.14 An arbitration agreement cannot be oral; it must be in writing.15 The Illinois Uniform Arbitration Act does not determine which disputes are to be arbitrated. That is determined by the contract.16
The arbitration agreement has to be valid. Independent judgment is the cornerstone of the arbitrator's position.17 An engineer or architect on the project cannot be the arbitrator.
Another problem is that many subcontracts incorporate the terms of the general contract by reference. If the subcontract incorporates the general contract by reference, and there is an arbitration clause in the general contract, the arbitration clause may be binding on the subcontractor.18 Therefore, an attorney representing a subcontractor should examine the general contract very carefully if the subcontract incorporates by reference some or all of the general contract, or refers to provisions of the general contract as being binding on the subcontractor.19
If there is a valid and enforceable arbitration clause, it can delay the disposition of the case. Mechanics lien cases are multiparty cases which require that all parties having lien claims be made parties to the proceeding. An arbitration clause between an owner and a contractor is binding and enforceable between those parties even if one or more of the subcontractors are not parties to the arbitration agreement. It is reversible error for a court to fail to order arbitration if there is a valid arbitration clause and the dispute is within the scope of the arbitration clause.20
Subcontractors' liens are often limited by the amount owing from the owner to the contractor. For that reason, if there is an arbitration clause binding on the owner and the contractor, the mechanics lien proceedings which involve subcontractors as well as the owner and contractor are often stayed until the issues between the owner and the contractor are resolved. The claims of subcontractors will often be stayed until the arbitration is concluded. In light of Bd. of Managers of Courtyards at Woodlands Condo. Ass'n v. IKO Chicago, Inc., it is doubtful that any other conclusion is possible unless arbitration is waived by a party submitting an arbitrable issue to the court for determination.21
The right to arbitrate can be waived. A demand on a lien claimant by an owner, contractor, or other party pursuant to 770 ILCS 60/34 is a waiver of arbitration by the party making the demand. But a suit filed by the lien claimant in response to a demand for suit does not waive arbitration.22 Waiver of the right to arbitration can also occur where a party submits an arbitrable issue to the court for decision.23
Sometimes an arbitration will not resolve all of the issues in a mechanics lien case. In that situation, it will be necessary to try or otherwise resolve the unresolved issues.24 In one case, it has been held that where an arbitration did not resolve mechanics lien issues, fundamental fairness required allowing the lien claimant to bring its foreclosure action in court.25
3. Venue and Jurisdiction
The suit should be brought in the county where the real estate is located.26 But if suit is filed in the wrong county, the court may transfer it to the right county even after the statute of limitations has run.27
It is not clear, however, that a mechanics lien foreclosure may be filed in a Federal Court. In Airtite, a Div. of Airtex Corp. v. DPR Ltd. P'ship,28 the court said:
The Mechanics Lien Act provides that a "contractor may bring suit to enforce his lien in the circuit court in the county where the improvement is located." (770 ILCS 60/9 (West 1992).) Perhaps a Federal court has jurisdiction over mechanic's lien cases, but not a Federal court in a district other than where the improvement is located.
The Seventh...
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