Construction projects are structured by contracts and agreements. They keep owners, contractors and subcontractors aligned and projects on track. When a contract is violated or one party fails to hold up his or her end of the deal, the whole project can be derailed. These delays are costly and time-consuming.
At Petti Murphy & Associates, we represent individuals involved in construction contract disputes, putting together strategies and solutions for resolving the issues with minimal disruption to the project and end goal. For more information about construction contract dispute resolution, please contact our Geneva law firm at 630-457-1691. We serve clients throughout greater Chicago and the Tri-Cities area.
Mechanic Liens And Construction Contract Dispute — Resolution Strategies To Keep A Project On Track
When construction work comes to court, the parties dispute is founded in (i) breach of an oral or written contract, and (ii) variance from the customs and usage in the applicable trades as regard the level of performance required of the contractor. The owner claims economic loss founded on the contractor’s delay in performance, poor workmanship, or incomplete or nonconforming performance that varies from the description or scope of the work, and/or generally accepted building practices.
On the other hand, the contractor claims substantial performance and keeping with industry standards, economic loss founded on nonpayment on the part of the owner, or the owner’s prevention or interference with the contractor’s performance. Disputes will involve disagreements over the quality of the product supplied and/or the completeness and care of the services rendered.
Owner-contractor relationships span a broad range of construction projects. The consumer-oriented home repair and remodeling work is often based upon contracts that are but one page, with brief descriptions for the work and payment. This type of work is also covered by an Illinois statute intended to protect consumers, and has been incorporated into the Illinois Consumer Fraud and Deceptive Business Practices Act. Larger projects will involve multipage manuscript contracts with elaborate “contract documents” consisting of pages and pages of specifications and drawings, typically prepared by architects and engineers. The American Institute of Architects publishes short-form and long-form documents for use on the larger construction projects, with clauses bringing professional architect services to fore for supervision and dispute resolution.
Express and implied warranties relating to the work are significant areas of dispute and litigation. Disputes over the completion of a contractor’s performance have given rise to the doctrine of substantial performance. A contractor is entitled to be paid when his work is substantially completed, subject possibly to hold-backs only for the actual cost of the final portion of the work that will complete the contract.
The Economic Loss Doctrine (also referred to as the Moorman Doctrine) has had very significant impact on construction law. Construction law has developed as contractual in nature, so damages for breach of contract have been viewed as limited to economic losses, that is, lost benefits of the contractual bargain. Under the Economic Loss Doctrine, an owner cannot maintain an action against a contractor in tort (e.g., negligence; product liability; fraud; misrepresentation), since the owner’s loss is purely economic loss. Economic loss is loss of the “commercial expectation” or “benefit of the bargain” for that which was purchased in the construction contract. However, where there is an accident or defect at the site causing personal injury or physical property damage, there is an exception to the Moorman Doctrine and negligence lawsuits can be brought for the injuries to persons or damages to property. Another exception is the Illinois Home Repair and Remodeling Act.
The Illinois Mechanic’s Lien law is designed to protect contractors and subcontractors. It is a highly technical law and encompasses the interests of a number of parties involved in construction work. Petti Murphy & Associates is knowledgeable of the ins and outs of this law, and the firm is ready to serve your interests in the area of lien law, from preparation of the lien documents to litigation to foreclose upon a recorded lien.
Whether or not the contractor or subcontractor has protected his right to payment by perfecting his lien rights, the contractor or sub still has his basic right to seek money recovery for damages by bringing a breach of contract action against his immediate contracting party. Also, notwithstanding the absence of a recorded lien to protect a contractor’s claim, the contractor still has the right to bring a mechanic’s lien foreclosure suit against the nonpaying owner for the amounts payable (this, in addition to a breach of contract action). The problem with such remedies, however, is that an innocent third party, such as a construction lender or buyer, may have a prior and superior position to be paid since the innocent third party did not have notice of the contractor’s payment claim.
So, a lien has to be perfected and filed if the contractor or sub is to be fully protected. The claim of lien must (i) be verified by affidavit of the contractor; (i) the nature and scope of the contract must be described, (i) there must be an adequate description of the land that is licensed, so it can be recorded by the Recorder of Deeds in the county of the land improvement, and (iv) there must be a statement of the amount unpaid, and due and owing the contractor. It is desirable to also set out the contract date and the completion date (the date work was last performed by the claimant). The general contractor should provide the owner with a Sworn Statement disclosing subs and material suppliers.
CONTRACTOR’S TIME PERIODS: The contractor’s lien must be filed for record with the Recorder’s Office within four months of the final work, and the contractor must file suit to foreclose upon the recorded lien within two years of the final work.
SUBCONTRACTOR’S TIME PERIODS: For subcontractors (and material suppliers), notice of a mechanic’s lien claim must be served on the owner, lender, title company, general contractor, and all parties in interest in the construction project. The notice must be served personally or by registered or certified mail, return receipt, restricted delivery, to address only, within 90 days of the final work (for residential, owner-occupied property, 60 days from first furnishing labor or materials). The subcontractor’s lien must be filed for record with the Recorder’s Office within four months of the final work. Suit to foreclose upon the subcontractor’s lien (together with a recorded lis pendens notice), must be filed within two years from completion of the subcontractor’s work. For public entities, the entity must provide a designated portion of public funds, bonds or warrants to insure the improvements will be paid. Contractors and subs can impose a lien against such money, bonds or warrants, but cannot place a lien on the public property being improved.