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05/27/87 Felix J. Ambrose, D/B/A F. v. Aubrey F. Biggs Et Al.

May 27, 1987

FELIX J. AMBROSE, D/B/A F. J. AMBROSE CONSTRUCTION, ET AL., PLAINTIFFS-APPELLEES AND COUNTERDEFENDANTS-APPELLEES

v.

AUBREY F. BIGGS ET AL., DEFENDANTS-APPELLANTS (AUBREY F. BIGGS ET AL., COUNTERPLAINTIFFS-APPELLANTS)



Before proceeding to the arguments raised by the parties, we note that the trial court's denial of Ambrose's mechanic's lien claim has not been contested on appeal. Therefore, we decline comment on that ruling and confine our decision to the contract claims raised.

APPELLATE COURT OF ILLINOIS, SECOND DISTRICT

509 N.E.2d 614, 156 Ill. App. 3d 515, 108 Ill. Dec. 918 1987.IL.679

Appeal from the Circuit Court of Lake County; the Hon. E. Thomas Lang, Judge, presiding.

APPELLATE Judges:

JUSTICE DUNN delivered the opinion of the court. HOPF AND UNVERZAGT, JJ., concur.

DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE DUNN

This appeal arises from a building contract entered into between Felix Ambrose, d/b/a F. J. Ambrose Construction Company, (Ambrose), and Aubrey and Beverly Biggs (Biggses), for the construction of a house on property owned by the Biggses. A dispute over the final payout on the contract caused Ambrose to file claims for a mechanic's lien and breach of contract against, among others, the Biggses. The Biggses counterclaimed for damages. After a bench trial, the court found in favor of Ambrose on its contract claim, against Ambrose on its mechanic's lien claim, and against the Biggses on their counterclaim. The Biggses appealed.

The contract was signed by the parties on September 1, 1983, and included the following pertinent provisions: (1) payment of the contract price was to be made in three installments-the first payout when construction was under roof, the second payout when the trades were roughed in, and the third and final payout upon substantial completion of the building; (2) Ambrose would comply with the Mechanics' Liens Act (Ill. Rev. Stat. 1983, ch. 82, par. 1 et seq.); (3) the building must be substantially completed in six months; and (4) any extras must be evidenced in writing and any adjustment to the contract price resulting from extras shall be determined by mutual agreement of the parties before starting the work involved.

Ambrose proceeded to build the house, and the Biggses made the first two payouts as the work progressed. The payouts were made despite Ambrose's lack of compliance with the Mechanics' Liens Act's requirement that a sworn contractor's statement be provided prior to any payouts by the owner. (Ill. Rev. Stat. 1983, ch. 82, par. 5.) During construction, the Biggses, one or both of whom were on the premises nearly every day, ordered several extras which Ambrose duly constructed. In August 1984, as the house neared completion, Ambrose requested the final payout. The Biggses refused to make the payment and Ambrose stopped work.

Ambrose initiated suit against the Biggses seeking enforcement of a mechanic's lien and recovery of damages on the contract. The Biggses responded by asserting that Ambrose's failure to file a proper sworn contractor's statement vitiated the mechanic's lien and contract claims. Additionally, the Biggses contended that Ambrose's failure to substantially complete the contract within the contractually required period entitled them to monetary damages and that Ambrose should be denied payment for extras because there was neither written evidence of the extras nor any agreement concerning their price. The court found, inter alia, that Ambrose's failure to file a proper sworn contractor's statement precluded the mechanic's lien claim; the Biggses' failure to comply with the Mechanics' Liens Act allowed Ambrose to recover on the contract claim; the Biggses could not recover damages for Ambrose's delay in completing the house; and the Biggses had waived the procedural requirements of the contractual provision addressing extras.

The Biggses first contend that Ambrose's failure to provide a proper sworn contractor's statement precluded Ambrose from recovering damages on the contract and, therefore, the trial court erred in not dismissing both the mechanic's lien claim and the contract claim. Ambrose, without citation to any supporting legal authority, responds that the trial court correctly found that the Biggses had waived compliance with the mechanic's lien provision of the contract and Ambrose could therefore recover on the contract. We agree with the Biggses that the trial court should have also dismissed the contract claim.

At issue is whether a contractor can recover damages on a contract claim against an owner, despite the contractor's failure to provide a sworn contractor's statement as provided in section 5 of the Mechanics' Liens Act (Ill. Rev. Stat. 1983, ch. 82, par. 5). Section 5, which is applicable to every construction contract between an owner and a contractor, unequivocally imposes a duty on the contractor to give and the owner to require "a statement in writing, under oath or verified by affidavit, of the names and addresses of the parties furnishing materials and labor, and of the amounts due or to become due each," before the owner shall be required to pay moneys due to the contractor. (Ill. Rev. Stat. 1983, ch. 82, par. 5.) In an action involving solely a mechanic's lien claim, the failure of both the owner and contractor to comply with section 5 has been held not to be a bar to a contractor's mechanic's lien claim. (Abbott Electrical Construction Co. v. Ladin (1986), 144 Ill. App. 3d 974.) The apparent rationale being that all subcontractors having a mechanic's lien on the property against which the foreclosure action is brought are necessary parties to the action (Anderson v. Gousset (1965), 60 Ill. App. 2d 309, 311), and, thus, their interests will be protected regardless of whether a contractor's statement is provided.

In the present case, however, we are concerned with a contract claim. Contrary to a mechanic's lien claim, subcontractors are not necessary parties to a contract claim between an owner and a contractor. As a result, in the context of a contract claim, an owner is not protected from potential subcontractors' claims unless a proper contractor's statement is provided. Consequently, an owner acts at the risk of valid subcontractors' claims when making payment to a contractor without the benefit of a contractor's statement. (Deerfield Electric Co. Inc. v. Herbert W. Jaeger & Associates, Inc. (1979), 74 Ill. App. 3d 380, 386.) On account of this substantial risk, the Biggses' refusal to make the final payment in the absence of a contractor's statement was justified in order to protect against potential subcontractors' lien claims. Thus, while the Biggses' failure to obtain a contractor's statement prior to making the first two payments on the contract subjected them to potential claims by subcontractors, we do not believe this unadvisable conduct served to waive subsequent protection provided by the contractor's statement requirement. For these reasons, the trial court erred in finding that Ambrose could recover on the contract claim.

The Biggses next contend that they should have been awarded damages for Ambrose's delay in completing the house. The contract provided that the house would be substantially completed in six months. Ambrose did not finish working on the house until approximately five months after the scheduled completion date. The Biggses argue that the trial court erred in ruling that absent a liquidated damages clause, damages for delay are only recoverable in a commercial situation. Relying on Galbraith v. Chicago Architectural Iron Works (1893), 50 Ill. App. 247, and Korf v. Lull (1873), 70 ...


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