Unrepresented Mechanics Lien Claimants Committed Fatal Errors
by John S. Mrowiec

The requirements for service and filing of mechanics lien claims are quite technical.
The requirements are governed by state statutes. The statutes differ by state among Illinois, Indiana and Wisconsin.

Because of the differing statutes and their technical nature, this column typically avoids discussing technical mechanics lien requirements. Three recent cases have reported on claimants' failure to satisfy requirements that resulted in loss of the lien claim. In each of the three new cases, the claimant committed the fatal flaw without the assistance of a lawyer. We thought that fact made the cases newsworthy.

The case of Bale v. Barnhardt, 2003 Ill. App. LEXIS 934 (4th Dist. July 18, 2003), invalidated a contractor's claim. In Bale, the claimant made a contract with the owner of property to construct a pond. When the owner failed to pay, the contractor's wife prepared and recorded a mechanics lien claim within four months of Bale's last work.
Almost one year later, the contractor sued to foreclose the lien claim. A mortgage lender moved to dismiss the suit. The lender argued that the contractor had misdescribed the contract in the lien claim and therefore the claim was invalid. The trial court agreed and dismissed the suit. The contractor appealed.

On appeal, the Bale court summarized the requirements for an original contractor's mechanics lien claim to be enforceable against a third party encumbrancer, like the lender, under §7 of the Illinois Mechanics Lien Act:

1. Filed within four months after the claimant's last work.
2. Verified by the claimant or an agent or employee.
3. Contain "a brief statement of the contract."
4. Set forth "the balance due."
5. Provide a "sufficiently correct description of the lot, lots or tracts of land to identify the same."

The issue in Bale was whether the contractor had correctly described the contract. The contractor's wife had used a pre-printed mechanics lien claim form. She wrote her name in the "Prepared by" blank. Above the body of the claim, the contractor's wife identified Martin L. Bale d/b/a Bale Excavating and Farm Drainage as "Claimant." In the body of the claim, however, she entered her own name as "Claimant" twice.

The Bale court relied on two earlier cases for the proposition that "the improper identification of a party to a contract fails to provide the requisite 'brief statement of the contract'" (Bale, 2003 Ill. App. LEXIS 934, *10.) The contractor argued that the claim properly identified him at the top of the claim form. The Bale court said the contradictory names for "Claimant" meant the claim was unenforceable.

The contractor also argued that his complaint to foreclose correctly described the contract so any error in the lien claim was irrelevant. Not so, said the Bale court, because the complaint was filed more than four months after the contractor's last work. The party seeking to dismiss the claim was a lender and was protected by the "four month" rule.

One judge dissented. The dissenting judge argued that the cases relied upon by the Bale majority were different. In one of those cases, the claim misidentified the non-contractor party to the contract. In the other, the contractor's name, the contract date and even whether the contract was oral or written were wrong. The Bale dissent believed those cases clearly differed from a mistake concerning a sole proprietor-contractor.

The Bale case involved an original contractor. Under Illinois law, subcontractors have additional requirements. The contents and method of service of a subcontractor's notice were found wanting in Seasons-4, Inc. v. Hertz Corp., 338 Ill. (App.3d 565, 788 N.E.2d 179 (1st Dist., Mar. 28, 2003)). Despite actual receipt of notice by the owner, the method of service was incorrect in Rothers Construction, Inc. v. Centurion Industries, Inc., (337 Ill. App.3d 629, 786 N.E. 2d 644 (4th Dist., Mar. 20, 2003)).

Often, an owner does not know who the subcontractors are or how much the contractor might owe them. Therefore, in most states there is a device for subcontractor notice to an owner of the subcontractor's claim.

In Illinois, in addition to complying with Section 7 of the Illinois Mechanics Lien Act, a subcontractor must serve a notice under Section 24 of the Act. (The subcontractor need not abide by Section 24 if the subcontractor is content to rely on the contractor's sworn statement to owner given under Section 5 of the Act for the amount due. Of course, some contractors do not give the statement to owner, a subcontractor seldom sees it anyway, unprocessed or disputed extras typically are not listed and sub-subcontractors certainly are not listed on the prime contractor's statement.)

Section 24 provides the subcontractor, within 90 days of subcontractor's last work, shall "cause a written notice of its claim and the amount due to be sent by registered or certified mail, with return receipt requested, and delivery limited to addressee only, to or personally served on the owner of record or his agent or architect, or the superintendent having charge of the building or improvement and to the lending agency, if known . . ."

770 ILCS 60/24. Section 24 also provides a permitted form of notice.

In Seasons-4, an air conditioner supplier subcontracted with a prime contractor. The subcontractor delivered units to a car rental agency on a leasehold at O'Hare International Airport. The prime contractor did not pay.

Within 90 days of delivery of the units, the subcontractor delivered a letter by facsimile to the prime contractor with a fax copy to the lessee's agent. The letter complained of non-payment but did not assert a mechanics lien claim.

More than 90 days and more than four months after delivery of the units, the subcontractor engaged a lawyer who prepared, served and recorded a Subcontractor's Notice and Claim for Mechanics Lien. Subsequently, the subcontractor sued.

The prime contractor did not defend but the lessee moved to dismiss the subcontractor's count to foreclose a mechanics lien. The trial court dismissed.

On appeal, the Seasons-4 appellate court affirmed that the subcontractor did not have a valid lien claim against the lessee. The fact that lessee's agent did not deny receiving the subcontractor's letter was irrelevant to the Seasons-4 court. The court said the statute does not provide for facsimile delivery of subcontractor mechanics lien notices.

In any event, the content of subcontractor's letter in Seasons-4 was insufficient: it never notified the lessee that the subcontractor intended to assert a mechanics lien claim.
Notably, in Seasons-4, the prime contractor never gave the lessee a Section 5 sworn contractor's statement listing subcontractors and amounts due them.

Rothers Construction also involves an owner who knew that the subcontractor was unpaid but, like in Seasons-4, the subcontractor's lien claim still failed. In Rothers Construction, a subcontractor on a grain bin and material handling system project was not paid by the prime contractor. The subcontractor spoke to the owner's representative who, remarkably, told the subcontractor to record a mechanics lien claim. The owner even referred the subcontractor to owner's lawyer. Owner's lawyer partially completed a mechanics lien claim form and forwarded it to the subcontractor.

The subcontractor recorded a mechanics lien claim within 90 days of subcontractor's last work. However, the subcontractor never served a Section 24 Notice within 90 days of its last work. Instead, the subcontractor served a notice many months later, just before filing suit to foreclose the lien claim.

The owner moved to dismiss for failure to serve a Section 24 Notice to owner. The subcontractor argued that, under Section 25 of the Act, if the owner is not found within the county where the improvement is constructed, recording the lien claim is sufficient notice. The corporate owner's registered agent was outside that county.

The Rothers Construction trial court held that the subcontractor should have given notice to owner under Section 24 under the facts of this case. The subcontractor appealed.

The appellate court affirmed the trial court. The Rothers Construction appellate court held that Section 25 only substituted for Section 24 when none of the owner, owner's agent, architect or superintendent are within the county of the improvement. Here, the owner's agent (not the registered agent) participated in the project and was present where the improvement was constructed. The lien claim failed.

This article discusses only a few of the pitfalls in preparing and serving mechanics lien claims and notices. The case law involving the technical requirements, their interpretation and sometimes even additional "requirements," is extensive. Although many mechanics lien claims appear to be simple, many are not.

John S. Mrowiec is a partner with Chicago-based Conway & Mrowiec, a construction and public contracts law and litigation practice. He may be reached at (312) 658-1100. For information, go to the firm's Web site at www.cmcontractors.com.