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January 31, 1996


Appeal from Circuit Court of McLean County. No. 93L52. Honorable Luther H. Dearborn, Judge Presiding.

Released for Publication March 1, 1996.

Honorable Robert W. Cook, P.j., Honorable Frederick S. Green, J., Concurring. Honorable Rita B. Garman, J., Dissenting. Presiding Justice Cook delivered the opinion of the court: Justice Garman, dissenting:

The opinion of the court was delivered by: Cook

PRESIDING JUSTICE COOK delivered the opinion of the court:

The trial court entered summary judgment in favor of a subcontractor (materialman) who had brought suit to foreclose a mechanic's lien. The owner appeals. We reverse and remand.

The affidavits filed in connection with the motion for summary judgment show the following facts. Curtis B. Piercy owns and operates Piercy Auto Body in Carlock, Illinois. On August 12, 1991, Piercy entered into a contract with Pre-Engineered Steel, Inc. (the contractor), to erect a steel building at Piercy's place of business. Under the contract, Piercy was to pay the contractor $39,000. The contractor in turn entered into a subcontract, August 27, 1991, with Alliance Steel, Inc., to supply the unassembled steel building which would be erected. Under the subcontract, the contractor was to pay Alliance $18,808.

On October 7, 1991, an Alliance truck driver delivered steel building materials to the Piercy jobsite. The Alliance truck driver requested that Piercy pay for the materials on delivery, and Piercy accordingly gave the driver a cashier's check, showing Piercy as the remitter, made payable to the contractor in the amount of $26,605. The check was received on October 8, 1991, by John Herring, Alliance's former accounts supervisor. Herring immediately faxed a copy of the check to the contractor. On the copy of the fax appear the following notations: (1) "Will send airborne to you tonight please return," (2) "Thanks, John," and (3) "20,000." In its brief, Alliance states the record is not clear whether John Herring made all these notes, and suggests that someone in the contractor's office may have written "20,000" after the fax was received. Alliance, however, did not submit any affidavit from Herring.

The contractor received the $26,605 check by airmail on October 9. That same day the contractor prepared and returned to Alliance a check in the amount of $20,000. The $20,000 check was received and negotiated by Alliance on October 9.

The contractor had previously been involved in other projects where Alliance was the supplier of building materials. In October 1991, the contractor owed Alliance more than $500,000 on those projects. Alliance's practice was that, in the absence of directions from the contractor, it would apply payments it received from the contractor at its discretion, usually on the oldest unpaid invoices. Sometime in October 1991, there was a meeting between the contractor and Alliance to discuss the need to bring the contractor current on its unpaid debts. Around this same time, Alliance decided it was going to start filing liens against the contractor's projects. When Alliance received the contractor's $20,000 check, Alliance did not apply that check to the Piercy account, but instead to two older accounts, Nos. 10796 and 11029.

On January 30, 1992, Alliance mailed a subcontractor's 90-day notice of claim of lien to Piercy. That was more than 90 days after the materials were furnished on October 9, but Alliance's president testified that other materials were furnished later and that the date of last delivery was November 7, 1991. On October 29, 1992, the contractor sent a $500 check to Alliance, with directions to apply it to the Piercy account. Then on December 11, 1992, the contractor sent a letter to Alliance, stating that the $500 check was in error and that the Piercy job was paid in full on October 9, 1991.

Alliance recorded its lien against the Piercy Auto Body real estate on February 20, 1992, then filed this action to foreclose its lien on February 13, 1993. The trial court entered summary judgment in favor of Alliance on February 16, 1995. Piercy appeals.

Alliance argues that Piercy breached his duty under section 5 of the Mechanics Lien Act (Act) (770 ILCS 60/5 (West 1994)) to demand a sworn written statement from the contractor listing the subcontractors and amounts due or to become due each. Alliance suggests that fact alone requires judgment in its favor, although it recognizes that "Piercy could have protected himself and Alliance in a second way, but again did not." That second way would have been to have withheld an amount sufficient to pay Alliance until receiving assurance (perhaps a lien waiver) that Alliance had been paid.

The Act attempts to balance rights and duties of owners, contractors, and subcontractors (materialmen). A subcontractor may give the owner written notice of its claim (and thereby protect itself against subsequent disbursements) any time after the subcontractor enters into its contract with the general contractor, but no later than 90 days after the subcontractor's completion of the contract. (770 ILCS 60/24 (West 1994).) Even if the subcontractor never gives notice to the owner, it is the owner's duty, before making any payments, to require the general contractor to provide a sworn written statement listing the subcontractors and amounts due or to become due each. (770 ILCS 60/5, 21 (West 1994).) The fact that the contractor gives a sworn written statement, however, does not afford complete protection to the subcontractor. The owner is protected against subcontractors not listed or amounts understated on the sworn written statement unless those omissions are with the knowledge or collusion of the owner. (770 ILCS 60/27 (West 1994).) A subcontractor who relies on the contractor's sworn written statement accordingly puts his trust in the contractor.

The Act provides that the owner shall not be required to pay a greater amount than the contract price "unless payment be made to the contractor *** in violation of the rights and interests of the persons intended to be benefited by this act." (770 ILCS 60/21 (West 1994).) The Act provides that no payments to the contractor shall be regarded as rightfully made, "if made by the owner without exercising and enforcing the rights and powers conferred upon him in sections 5, 21 and 22 of this Act." (770 ILCS 60/32 (West 1994).) That is not to say, however, that every time a subcontractor is not paid in full there is a claim against the owner. The Act does not require that the owner obtain lien waivers before the owner makes any payments. ( Contractors' Ready-Mix, Inc. v. Earl Given Construction Co. (1993), 242 Ill. App. 3d 448, 454, 457, 611 N.E.2d 529, 533, 534-35, 183 Ill. Dec. 266 (where the sworn written statement understated the ...

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