LaSalle Bank National Ass'n v. Cypress Creek 1, LP

(No. 109954. ASSOCIATION,

LaSALLE Appel BANK NATIONAL (Edon 1, LP Construc lant, v. CYPRESS CREEK al., tion et Appellees).

Opinion February Rehearing denied filed 2011. 23,May Seyfarth Buch, F. John H. Anderson and Jerome of George Mahoney Chicago, III, LLP, Shaw of and F. and R Mahoney Cross, LLC, Grometer, Peter Silverman & of appellant. Joliet, for Jacobs, Jones, Jr., and Tina M. of Jones &

Richard C. Chicago, appellee Jacobs, Edon for Construction Company. appellee Greviskes, Batavia, for

Paul L. Concrete, Inc. judgment delivered

JUSTICE GARMAN opinion. court, with Thomas, Kilbride and Justices

Chief Justice judgment Karmeier, concurred in the and and Theis opinion. opinion, joined dissented, Freeman with

Justice Burke. Justice rehearing, upon dissented denial

Justice Freeman opinion,joined Burke. Justice with OPINION is how to distribute foreclosure

The issue in case lien sale and mechanics proceeds mortgagee between a liens, mortgage predated claimants when the all satisfy are foreclosure sale insufficient claims, for improve and the has several mortgagee paid dis ments to the construction loan through bursements under section 16 of the Mechanics Lien Act. (West 2006).

770 ILCS The circuit court of Will 60/16 County it subrogated mortgagee gave priority with those respect to for which paid gave the mechanics lien claimants

to the value of their individual improvements. appel reversed, late court holding mortgagee entitled to subrogation payment perfected mechan liens, ics but that value of those improvements for by the where no was filed and perfected applied was to be first satisfaction of mechanics liens. 398 Ill. 3d 600. For the follow reasons, ing we reverse the on appellate court this point and hold that the of value the foreclosed property that attributable to those improvements for the paid by mortgagee should first toward the applied satisfaction of the mortgage.

BACKGROUND LaSalle $8,018,151 1, Bank loaned to Cypress Creek development for the of Boiling- 13.79 acres of land in LR brook, Illinois, into senior The loan was apartments.

secured a and mortgage security agreement, which 13, were recorded on June 2003. Construction on began the development Cypress and hired appellees, Eagle Concrete and Edon to Construction, perform work on the development. LaSalle funded of eight a total construction before June 2005, draws when it determined that there was no longer enough money in the trust the complete In LaSalle filed to foreclose on the

project. July November, mortgage. following The and Edon $63,478 $285,825.80, recorded mechanics liens for and respectively.

In of foreclosure and sale was April judgment The against Cypress. entered trial court found that the $8,621,110. due on the totaled mortgage balance was amended to reflect judgment subsequently order of $5,577,540, of an amount due on the payment leaving $3,043,570. bought of LaSalle at a mortgage for million. Edon and May sheriff’s sale in $1.3 liens their Eagle filed foreclose their mechanics and were with the foreclosure mortgage actions consolidated proceeding. held 2007, a trial was to determine the September proceeds of

priority lienholders and distribute trial, Edon, At and three other Eagle, the sheriff’s sale. lien claimants for of their liens argued that, testimony over the The court heard mortgage. disbursements, $99,917 in paid the loan through costs, $2,842.50 engineering reports, for environmental $30,000 for to Basic $8,538 paid and utilities. LaSalle also lien, which predated in satisfaction their Development dated one month. In an order October mortgage by 30, 2007, value the land before the court found $1,360,000, made or 40% any and that value property, the total value of LaSalle, enhancements, those including total Based on $2,068,699, or 60% of the value. totaled of the determined that 40% findings, these court go of the sheriffs sale should 60% remaining satisfaction improved had divided those who among should be analysis a proportionality land. The court conducted table: following according sale proceeds allocated $1,542 Expense of sale: $746,244 expenses:

Receiver’s fees and ($552,214):

Remaining proceeds $215,100 attributable to land: Value $331,328.40 to all improvements: attributable Value land $215,100 attributable to the applied The court subrogated and the satisfaction of the toward Bank to the amounts it for construction paid costs, and utili- costs, reports, environmental engineering ties, as the it toward the satisfaction as well amount hen. It then found the perfected of Basic Development’s improvements of the total value of the proportion dividing which each was entitled the value party each the total value of the party’s improvements $2,068,699. The court concluded that improvements, Eagle’s $63,478 hen for accounted for 3% approximately hen improvements value of the and Edon’s $285,827 accounted for approximately 15%. LaSalle entitled to credit for 76% of the value of the improve- ments, lienholders, and the three other with liens $131,629, to a total of amounting were credited with a total of 5.8% of the The court improvements. therefore $50,000 $7,300 awarded and to Edon and Eagle, respec- $256,514 tively. subrogated LaSalle was for the improvements it funded and the remaining lienholders $20,300. total, were awarded a total of LaSalle was $471,614, $215,100 awarded attributable value of the land any before were made $256,614 and attributable those and Eagle

funded. Edon filed motions for modification of denied in judgment, January which were appealed

Edon the allocation of sale Eagle joined appeal. argued Edon and first hen that the mechanics claimants have full over under section 16 of the Mechanics Lien Act that, therefore, satisfied trial court should have any their hens in total before funds to LaSalle disbursing 236 mortgagee. They argued

as 3d at 596. also subrogating that the trial court erred in LaSalle to the paid status of a mechanics lien claimant for amounts it cross-appealed for lienable work. Id. at 596-97. LaSalle request attorney the trial court’s denial of its for fees. Id. appellate majority, concurring, at 594. The court, with dissenting opinions, and affirmed LaSalle’s as mortgagee proceeds to those foreclosure sale attributable (id. unimproved 598), land at but reversed the trial subrogation ruling, holding court’s that LaSalle was subrogated entitled to be to the extent that (id. 600). perfected mechanics liens at The court therefore remaining develop ordered that the construction and subrogated ment costs to which the trial court the bank proportionally be allocated between the mechanics lien appellate claimants. Id. The court also reversed the trial request attorney court’s denial of LaSalle’s for fees. Id. at 601. petition rehearing subroga-

LaSalle filed a on the ruling application ruling tion and the of that to the three appealed lien claimants which had not the trial court’s petition granted January decision. The and, on appellate opinion 2010, the court filed its second majority, concurring, dissenting opinions. and The court ruling subrogation retained issue, its but ordered improvements paid that the value attributable proportionally only with loan disbursements allocated appellants, Eagle. between the two Edon and granted petition appeal. court This LaSalle’s for leave to (eff. 2010). l. S. Ct. R. 315 Feb. Il

ANALYSIS apportion- The issue before this court concerns the proceeds ment of foreclosure sale as between a claimants when the are satisfy insufficient to and the mechanics governed Apportionment liens. is in this situation sec- (770 (West tion 16 of the Mechanics Lien Act ILCS 60/16 2006)). Questions of construction are statutory questions of law and reviewed de novo. People Ill. 2d Perry, (2007). 312, construction, matters of statutory we endeavor to

“ascertain give effect to legislative intent.” Id. at firstWe must look to the plain language of the statute as the best intent, indicator of legislative considering the statute in entirety. its Id. Where the language is clear and unambiguous, we will it as apply Only written. Id. where the language ambiguous do we resort to extrinsic aids to legislative determine intent. Id.

at 323-24.

Plain Language The Mechanics Lien Act affords some protection to contractors who contribute labor or materials to a construction project or provide who services such an as architect or engineer by giving them a lien on the subject (West 2006). property. 770 ILCS The Act modifies 60/1 (see common law first-in-time, first-in-right rule 27A (2003)) Ill. L. and Prac. Mortgages §50 by affording hen- partial holders priority over pre-existing mortgages when the proceeds of a foreclosure sale are insufficient to satisfy all claims:

“No upon land, incumbrance created before or after the making of the contract under provisions act, of this shall operate upon the building erected, or materials furnished until a lien in persons favor of the having done work or furnished material satisfied, shall have been and upon questions arising between incumbrancers and lien creditors, previous all incumbrances preferred shall be to the extent of the value of the land at the time of making of contract, and the lien preferred creditor shall be to the value of premises, erected on said the court shall may require, by jury otherwise, ascertain or as the case proportion

what any sale shall be paid to the several in interest. All incum- otherwise,

brances, by mortgage, judgment or whether fraudulent, credi- respect charged and shown to be tors, court, premises and the freed may set aside be fraudulent incumbrance.” discharged from such (West 2006). ILCS 60/16 interpreted Historically, provision has been give appellate mechanics lien claimant court to each only priority value of the extent of the increased due to that claimant’s property. Co. See, & Finance Mortgage Commercial e.g., App. 2d 64-65 Co., 51 Ill. Construction v. Woodcock (2d 1964); Del v. E.C. Dist. Corp. Moulding-Brownell (1st Dist. 491, 500 Co., Construction fosse 1940). adopt Eagle urge Third us to Edon and 16 of and hold that section decision this case District’s hen claimants Lien Act entitles mechanics the Mechanics improve of all lienable to the added value to be subsequent time the the land made ments on mortgagee, mortgage then, would into. The was entered respect priority to the value entitled to and, contracted the land at the time any improvements through subrogation, the value of by mortgagee. by perfected lienholders made determinations, section With directs that incumbrancers and arising between questions

“upon preferred shall be creditors, incumbrances previous all making of the time of of the land at extent of the value to the preferred contract, lien creditor shall be and the ***.” premises on said erected improvements of the value (West 2006). 770 ILCS 60/16 creating groups, Eagle argues lien creditors that, two giving subsequently “lien incumbrancers, and respect singular, priority the value to unambiguously with creditor,” plural, “improvements,” the statute preference the value gives one hen creditor as few as of all erected on the after the premises mortgage disagree. date that the attached. We First, “the time of the contract” must be making context of the entire statute. The understood in the is here does not refer to the date the language into, entered but rather the time when the creditors entered into their contracts with the question section, owner. This is evident from the beginning which refers to an encumbrance “created before or after making provisions of the contract under the of this act,” clearly referring contracting provi- for the sion of lienable services and materials. 770 ILCS 60/16 (West 2006).

Further, the use of “improvements” in the plural simply that a acknowledges single lienholder could have made multiple improvements that, combined, give rise to the hen creditor’s claim. The “the hen phrase creditor shall be the value of the improvements erected on said premises” must also be understood in context. prior Because priority incumbrancers have with respect to any improvements on the land which predate the hen contract, claimant’s “improvements” cannot mean all improvements. Additionally, because the statute acknowledges possibihty claimants, hen multiple only is logical that each claimant would have to his own improvements. “A statute is ambiguous if it is capable being understood reason ably well-informed persons two or more different ways.” Krohe v. City Bloomington, Ill. 2d (2003). 395-96 find this clearly We statute and unambigu ously prioritizes hen creditors value of their prior and the incumbrancer to the value of the land at the time the contract with the henholder note, however, made. that our reading today We consistent with case prior law as well as the purposes the Act and the practicalities of construction lending.

240 History Mechanics Lien Act

The of the Law

and Prior Case enacted in The current version of section 16 (West language 2006). The at issue ILCS 770 60/16 20 of the Liens Act of in this case tracks section 1845 excep of the Liens Act of 1874 and section 17 preferred the lien creditor shall be tion of the clause “and improvements erected on said to the value of the App. premises.” Buelow, 191 Ill. See Albrecht v. 481, 487 Casey, Gaty (1915); see also v. (1853). 189, 15 Ill. 192 provided in Liens Act section the Mechanics’ 16 1895, the extent that the lien had creditors of the of the land was “enhanced” reason value has and that where owner thereby given material, enhanced value labor or “the and a fund in which shall be treated as pro participate Albrecht, shall rata.” hen-holder Ill. 191 Mechanics Lien Act of 1903 substan at 487. tially sections of the 1845 the aforementioned reenacted specifying shall be Acts, that “the hen creditor 1874 improvements.” preferred See id. to the value of the “upon questions apphed provision This court has arising creditors, hen all incumbrancers and between previous the extent of incumbrances shall be making time of land at the the value of the to section on several With contract” occasions. 20 “the statute court noted that the Act of 1845, paramount gives hens, material men mechanics and upon improvements made them deed, the trust to upon added.) Raymond (Emphasis premises.” v. Ewing, Moore, (1861); see also Smith 329, Ill. 343 26 (noting prior incum that the (1861) Ill. was, as it alone to the “must look brancer before [the attached, or material man’s mechanic’s improvement henholder] materials” or must look added)); (emphasis Cros of their claims for satisfaction Manufacturing Co., key v. Northwestern (1868) (“[trial] should have ascertained at 484-85 court improvements were which what time the commenced for complainants furnished, and should materials mortgagees given prior paramount hen have to the a on improvements property the as it stood when such complainants paramount commenced, and to the a lien improvements they on the which mate towards furnished added))1; (emphases Selby, Ill. rials” Howett v. 54 151 (1872). (1870); language Moore, v. 64 273 Clark Ill. merely provision

added to this in 1903 codifies the interpretation of the This was the conclusion of courts. appellate Buelow, the in court 1915. In v. the Albrecht appellate operation court the summarized of section 20 of the Act of when hen 1845: a mechanics attaches to a previously property by mortgage, encumbered “such paramount hen is of to hen the the premises by extent the of of increased value the reason improvements repairs.” App. Albrecht, the or respect at 490. to court, With the earlier decisions of this appellate “[i]nasmuch concluded, the court as section 16 present materially of the Act does not differ from section *** ruhngs apphcable 1845, 20 of the Act of these are to present the act.” at Id. 491.

1Eagle argues in Croskey its brief to this court “leaves that no mortgagee doubt preferred about the fact that the the is to value improvements the land and at the time of the attachment of the mortgage and that the lien are claimants as supplied improvements thereafter.” This is a misstatement holding Croskey. opinion say “land,” the While the does statute, as improve used in the must “the with mean land such upon ments as there are it at the time of the execution of the mortgage,” security mortgagee the court directed the the is protected by being “preferred to the extent of the value of the land at the time the contract is made with the mechanic or material man,” only and that the lien claimants are to “a entitled paramount they towards which furnished 483, that, Croskey, materials.” 48 Ill. at find read as a We whole, Croskey supports reading our of the statute.

242 every subsequent instance, have almost courts gives priority only

found that statute lienholders respect with to the added of the attribut value forming able to those the basis for the lien gives question mortgagee priority of the at value land the time contract entered e.g., See, into between owner and the contractor. Mortgage Commercial & Finance Co. v. WoodcockCon (1964);Moulding- App. Co., 51 2d 64-65 struction Ill. Corp. Co., v. Ill. Brownell E.C. Construction Delfosse (1940); Development App. Play 491, 500 see also Fair (1931) Organization Sarmach, Ill. (noting subsequent that a mechanics lien was “inferior hen of extent value premises at time when the mechanic’s lien at the tached”). cites, found, we have one case that appel Robinovitz, v. has held otherwise. Mitchell gave prior mortgag late court affirmed an order that priority only respect to the value of the vacant ees with priority with land and four mechanics lien claimants respect improvement. v. Mitchell Robino to the entire (1933). App. 414, 416-17, 424 vitz, 272 Ill. The court against “[a]s rejected mortgagees’ arguments that, preferred prior mortgagee!,] only a contractor is by him, and the value of the erected preferred extent of the value of produced including value land, in that term the enhanced by by other contractors labor and materials furnished paid, waived, or have released who been or who have necessary to assert their liens.” within time failed (Emphases original.) court, Id. 418. The Mitchell at “fail[ed] of the owner of the however, to find evidence making payments.” premises [in] at Id. such involved priority lien- To affords the extent Mitchell by paid for other contractors holders for work done

243 property, by of the we of the owner or on behalf either it. in error and overrule find it is repeatedly applied statute thus

The courts have consistently adoption hundred over one since its ample legislature years ago time to has had and the judicial understanding. This consistent contravene our language interpretation in section 16 is considered legislature part amends it until the a contrary of the statute People interpretation. Woodard, See v. to that (1997) (citing Lockett, Miller v. 98 Ill. 2d (1983)). 2d 478

Purpose of the Act and Practical Considerations reading purpose both the Our is also consistent with lending. practicalities of the Act and the of construction “protect who in The Mechanics Lien Act aims to those good faith furnish material or labor for construction of buildings public improvements.” or Lawn Manor Sav ings Hukvari, & Loan Ill. 3d Ass’n (1979).By giving lienholders improvements, protects

their Act both the contrac prior tors and the encumbrancers. In its brief to the argues predicated court, Edon that the Act is theory pay an “that owner should for the benefit derived provided from the labor and materials a contractor” by providing equitable rights “an balance of the of own ers, ac lenders and contractors.” We find that this is complished prioritizing lien claimants to the value of improvements, improve their instead of the value of all ments. the lien claimants to be Were improvements,

value of all the lien claimants would be unjustly enriched, to the detriment of an owner or mortgagee improvements who funded other than those discourage that form the basis for the hens. This would lending property lenders from more than the is worth at hindering developers’ issued, the time the is financing. access

Further, if, argues as under the appellate decision, court’s only away mortgagee could get “credit” for the value of it has funded is to valid, be subrogated lien, to a perfected mechanics lenders would have every reason to require contractors to file mechanics liens and to then evaluate their validity before paying the contractor for work done on the This property. would increase significantly paperwork and the cost of financing any project. construction If every contractor had to file a lien before getting paid, this would also defeat one of the purposes recording requirement in the Act. Eagle notes that the notice and filing provisions give third existence, “notice of the nature and character of claims,” and allow them gauge enforceabihty such claims. that these argues filings important are give contractors to them an opportunity to review the public record and determine whether a project is “in trouble” based on the liens filed against property. However, if a mortgagee entitled to be preferred to the value of the land at the time the mortgage was contracted any into and not to of the improvements the has funded mortgagee subrogated unless is to a perfected lien, there would be multiple mechanics hens on every project, project whether or not the was “in signaling trouble” and this function of the hens recorded would be lost. reasons, foregoing

For the we hold that section 16 of the Mechanics Lien Act gives mechanics lien claimants priority only with to the value of the at- respect tributable to those for which fur- they nished material or services. To the extent that the appel- gave late court the henholders to all improvements made we find subsequent mortgage, that this was in error.

Priority as Value of Paid-For Improvements if remaining question: We turn now to one to the value of the land at the time the claimants, owner contracts with the lien and preferred only the hen claimants are to the value of those improvements hens, that form the basis of their what any becomes of value attributable to those by that have been made contractors after the contracts question paid in were entered into but who were for their work and therefore never filed hens? In Clark v. Moore, (1872), apportion 64 Ill. 273 this court addressed the proceeds mortgagees ment of as between and mechanics hen claimants when the foreclosure sale were satisfy insufficient to case, both claims. the trial any improvements that, court found before made, were property $3,500, was worth the henholders contrib improvements, $14,000 uted and the owner of the property paid improve $9,000 to other contractors for property. parties disputed ments to the Id. at 282. The prior whether the or the mechanics hens had ity paid by to the enhanced value owner. Id. This court held:

“[W]here, case, as in this there is a large proportion of the enhanced value of produced by the owner paying for labor and by material furnished others than the *** suit, the enhanced produced by value payment money owner, whilst the work was progressing, should applied be to the satisfaction of the mortgages on the property; if any portion and of the fund thus remain, created shall applied to the satisfaction of the liens for labor and always materials. It has been recognized the true rule to hold all placed by the mortgagor on premises being as embraced in subject to the mortgage. suppose We can not they intended, made, when to be for the benefit other lien holders.” Id. at 282-83. Rejecting interpretations give that would lienholders give mortgagees to or would and henholders pro improve- shares in the value attributable to these rata ments, the Clark court further reasoned that the lien- they holders “have their lien on the enhanced value have money property, given have advanced neither but paid; has materials for which the owner nor given subsequent mortgages may secure the have been money very paid materi for the labor and the owner Though Act of Mechanics’ Liens Id. at 283. als.” provided for such that when the owner thereby given improvements, shall value “the enhanced mortgagee and lien- be treated as a fund which legislature pro participate rata,” in 1903 the holder shall language substantially Clark earlier that reenacted the interpreted. Albrecht, at 491. See applies equally logic to of the Clark decision depart case, it. In this case, no reason to from and we see paid $1,587,765in lien- the trial court found that Cy- eight expenses2 funded from the draws over able press’s improve- of these loan. The value construction by paid minimum, or, on the at a thus owner ments was meaningful distinc- find a fail to the owner’s behalf. We paying from his the contractor an owner tion between (given presumably funds borrowed bank account with mortgage preexisting have a that all owners question) statutory provision property inis when this mortgagee pay authorizing the contractor directly through case, the the loan. In either a draw on presumably payments made for the benefit not were Eagle neither Edon nor find that other lienholders. We treating payments compelling for made a case has payments anything by made other than LaSalle as made applying portion by the enhanced that the owner satisfaction of value of the by LaSalle. held lienability of court, questions

2In its brief to this court. subrogated by the trial expenses LaSalle was of the some expenses lienability of these Eagle nor Edon contested Neither is, therefore, forfeited. This issue appellate court. nor in the at trial Board, 38 107 Ill. 2d v. Pollution Control Hauling, Inc. E&E (1985). *** Eagle argues “in a contractor that because perfected provided labor or material became who provided material,” services or claimant as soon as “in held that a or owner should essence Clark perfected get payments made to benefit anyone time, claimants had who, at that who lien provided presume if this to labor or materials.” Even we principles case, relied on be the the Clark court nowhere paid by subrogation or the idea that the contractors perfected in that case lien creditors. owner recognize improve appeared Instead, the court property subject to a ments mortgage owner to presumably paid for out of the

would proceeds mortgage, and therefore it is the mort gagee, lienholders, not the that should take improve to the added value attributable to those (noting “subsequent ments. at Ill. Clark, may mortgages given very money have been to secure the materials”). paid by the owner for the labor and Subrogation distributing sale, of the foreclosure proportionality

the trial court conducted a assessment. Two methods have been used courts to determine the approach value of a mechanics lien—the market value approach. and the contract The trial court determined improvements complete, that, because the are not it is impossible difficult if not to determine their market employed approach, valuing value, and thus the contract price agreed upon by each mechanics lien at the contract the owner and the mechanics hen claimant. None of the parties argued have that this was in error. prior land,

The trial court determined that the to the construction, start $1,360,000. was worth It then improvements determined that the value of all made on (including paid through the land those for draws loan), price, construction valued at their contract $2,068,699. amounted to The trial court held that subrogated to extent it LaSalle was entitled to be paid engineering costs, costs, construction environmental reports, Development, utilities, and the lien of Basic predated mortgage. which analysis subrogation unnecessary Our makes above exception payment this, like a case with Development’s Basic lien. Because the trial court used determining the contract method of the value of the property, improvements claimants’ mechanics hen apply the same method to value all other was correct eight henable draws —those Cypress. The of these made on LaSalle’s loan value improvements, paid mortgage proceeds, for with should mortgage go thus toward the satisfaction of the without subrogation arising. question a By subrogating result, however, The end is the same. improvements, to the value of the the trial court LaSalle type analysis required as would be conducted the same if it valued those that formed the basis had the rest of the for the mechanics liens and then valued given proportionality credit in a land and determination for the latter. Develop paid $30,202 to Basic note that LaSalle

We mortgage. predated ment for hen that a properly subrogated dispute that LaSalle was do not Hudes, Ill. Detroit Products Co. v. this claim. See Steel (1958). argu They presented any App. 2d 514 have not regarding this claim should take with ments arising or the claims out of subsequent therefore, no liens, we take regard position to this issue.

CONCLUSION that, above, hold discussed we For the reasons proportionality under section 16 of determination property attribut- Act, Lien the value Mechanics improvements paid to with of a able for mortgage and should be attributed construction loan mortgage. the toward satisfaction We therefore appellate find that the court when it erred reversed Accordingly, proceeds. trial we court’s distribution of judgment appellate point reverse the of the court on this proceedings and remand to the trial court for further opinion. consistent with this Edon Because appealed appellate have not court’s award (398 601), attorney App. LaSalle’s fees 3d at we af Ill. appellate point. additionally firm the court on that We (1933), v. Robinovitz, overrule Mitchell opinion. extent with inconsistent this Appellate judgment part court affirmed in part; and reversed in cause remanded. dissenting: FREEMAN,

JUSTICE today’s opinion incorrectly I believe construes section respectfully Mechanics Lien Act. I therefore dissent.

Background disputed ap- None of relevant facts are peal. In 2003, LaSalle National Bank lent Association Cypress development group, Creek a $8,018,151 Ll^ housing development. for a construction of The note was by mortgage security agreement, secured recorded represents in June 2003. This loan made Cypress. LaSalle

Subsequently, Cypress agreements entered into development. Impor- various to build contractors tantly, default, loan LaSalle was in after from Cypress continued to $1,557,563 advance from the loan proceeds. Cypress money pay used this contractors performed development construction work at site. Concrete, however, for Eagle was not the concrete paid a performed work and thus recorded mechanics lien $62,478 for in Edon November 2005. Construction not for its Company carpentry was also work on the paid $285,826.80 and it recorded a mechanics lien for project, in November 2005, July

In filed to on suit foreclose the filed on mortgage. Eagle complaint a to foreclose its 30, on in Judgment lien March 2006.3 the in mortgage April foreclosure case was entered the the finding mortgage with balance due on was $8,621,110, fees, late penalties, which included and costs. thereafter, the of point judgment At some order was judgment amended to reflect of payment $5,577,540, $3,043,570 as the final leaving judgment was to LaSalle May amount. the sold million. $1.3

Analysis here one of since the question priority is all satisfy from the sale were insufficient of proceeds Although against property. who have liens this parties is recognizes question the court this to be decided Act, of Mechanics Lien the court’s under section 16 language. statute’s analysis apply plain does not provides: Section 16 land, after upon

“No incumbrance created before or act, this making provisions of the contract under the erected, operate upon or materials building shall persons having done furnished until a lien in favor satisfied, been and or furnished material shall have work and lien questions arising between incumbrancers upon creditors, preferred incumbrances shall be previous all making the land at the time of the extent of the value of lien in complaint its mechanics 3Edon its to foreclose filed actions were consolidated August 2006. The various lien claimants proceeding. mortgage foreclosure with the shall be contract, and the lien creditor premises, on said erected value otherwise, as the case by jury or shall ascertain the court any sale may proportion what require, interest. All incum- to the several shall be otherwise, or brances, by mortgage, judgment whether fraudulent, credi- shown to be charged and court, freed premises and the tors, may set aside incumbrance.” such fraudulent discharged from 2006). (West ILCS 60/16 first look- determined language, Under contracts were the lien claimants’ ing at whether recorded. 770 after the executed before or (West 2006). entered Both Edon and ILCS 60/16 after LaSalle had recorded Cypress into contracts its mortgage. situations, Eagle’s

In such section 16 directs the extent of the value of preferred Edon’s liens are land of their (usually price their made),4 La- any contracts less while original payments Salle, as is to the value of the land mortgagee, (West before those See 770 ILCS improvements. 60/16 2006). 16 further that a provides proportionality Section analysis be used when the sale are insufficient the liens and the in full. See 770 satisfy mortgage (West 2006). This means that the parties ILCS 60/16 rata, share, in their pro proportionate relative interests determined those numbers. using section 16 interprets plain language

The court $1,587,765 to treat the to contrac- Cypress so as determining different methods in 4Illinois courts use two approach improvements, the “market value” and the value of the Associates, price” approach. Lyons Savings v. Gash “contract See (1996) (explaining differences in methods and 279 Ill. 3d 742 approach inappropriate in cases noting that the market value is satisfy proceeds are insufficient to both where sales liens). dispute methodol do not and the mechanics ogy used in this case.

252 tors already from its loan LaSalle, the loan was after equivalent in default, as the of a mechanics lien claim. In project words, other LaSalle’s role as the lender in this put equal footing unpaid it on with the other claimants, Eagle. improperly such as Edon and The effect of this is to pro percentage increase LaSalle’s rata to more than it is disagree approach entitled to under the Act. I with this for several reasons. long recognized

First, this court has that mechanics purely by derogation liens are created statute and are in Koglin of the common law. A. Norman Associates v. (1997); Oro, Inc., Valenz 385, 176 Ill. 2d 390 Koester v. Development (1962); Co., Huron 337, 25 Ill. 2d 340 North (1920); Hecht, 515, Side Sash & Door Co. v. 519 (1917). Tatge, Cronin v. seeking 281 Therefore, Ill. 337 those protections bring to assert the Act’s must provisions. themselves within the Act’s A. Charles Hoh (1932). Knight, meier Lumber Co. v. Ill. 248 The Act strictly requirements construed with reference to those upon right depends. which the to a mechanics hen First Savings Chicago Connelly, Federal & Loan Ass’n (1983). Ill. 2d This means that courts are to enforce mechanics liens whenever lien claimants meet requirements Act, the protections but cannot extend the Act’s provisions.

to those who fall outside the Act’s (1924). Kaplan, Hoier v. 313 Ill. 448 any person Section 1 who, of the Act entitles in order improve provides estate, labor, real services, materials or fixtures either under a contract with owner or someone authorized the owner to assert a lien under (West paid. the Act if he or she is not 770 ILCS 60/1 2006). party privity A contractor is defined as the in with agent anyone estate, the owner of the real the owner’s or knowingly permitted whom the owner has improvements. to make provide labor, Id. Subcontractors who improvement services, material, or fixtures for the

253 may Id.5 real also assert liens under the Act. estate provider simply defined not a material as so is by judicial fiat, not, and the court confer should status on LaSalle. Moore, Ill.

Second, relies 273 the court on Clark (242 244-45), (1872), but its result Ill. 2d at to reach help resolving Clark Clark is of little issue. property priority giving

concerned an owner of property court the owner made. The paid for treated the owner as a lien claimant because he property. not an substantial He was present do not incumbrancer. The issues in the case mortgagee, owner, involve a claim an but a however, critical The court, difference under the Act.

states that it meaningful

“fail[s] to find a distinction between an owner paying the contractor from his account with presum bank ably (given borrowed funds owners preexist that all have a ing statutory provi when this sion is in question) authorizing pay directly contractor a draw through on the loan. case, either payments presumably not made for the benefit of other lienholders.” 2d at 246. might meaningful While the court not see a distinction incumbrancers, between owners the General As- sembly distinguishes does because the Act between own- (770 (West 2006)), 60/4, ers ILCS incumbrancers (770 (West (mortgagees) (770 2006)), ILCS contractors 60/16 (West (770 2006)), ILCS and subcontractors 60/1 (West 2006)). very 60/5, ILCS Indeed, section at distinguishes issue case, section in- between they cumbrancers and are not treated creditors — alike.

5The Act defines subcontractors as who have contracts general with the opposed contractor as to the owner. 770 ILCS (West 2006). provision This is at issue in not this case since 60/21 undisputed directly that both Edon and contracted Cypress. Clark, granting in in this court importantly,

More 23 of the on then-section primarily relied priority, owner in mechanics Law, which vested courts Mechanics Lien Clark, 64 Ill. sweeping equitable powers. hen cases with Mechanics when the repealed Section 23 was at 277-78. 1895, Ill. Rev. Stat. revised in 1874. See Lien Law was court, grant in Thus, it that the 82, appears 54. par. ch. in its equity on notions of the owner relied ing priority, in the There is no section of the lien law.6 construction powers the broad gives Act that courts current Today’s in 1872. court decided Clark existed when this to change acknowledge important not this does opinion the Act. analysis proportionality illustration of the simple

A be used Act and that should by the contemplated that is in Bradley Simpson, can found in this case be In Brad- (1879), today’s opinion. is not cited which confusing. construction, statutory Clark is respect to its 6With law,” stating that the lien opinion to the “12th section of The cites property prior or “declares that incumbrances this section building erecting shall subsequent making the contract for liens in favor upon building or materials until the operate not satisfied; upon and shall be the material-men of the workmen and creditors, previous incumbrancers questions between the land at the value of previous incumbrance shall However, Clark, making 64 Ill. at the contract.” the time of hen law the mechanics section 12 of Clark was decided at the time “Upon the Rather, provided that thing. the section no such stated chapter, court shall provisions of causes under the trial of ap creditor, shall direct each the amount due ascertain proportion to each sales to be made plication of the 1845, 65, par. 12. At Stat. ch. Ill. Rev. their several amounts.” incum decided, regarding “previous language the time Clark was the lien in section 20 of be found and creditors” could brancers shall be previous incumbrance law, “the provided that which at the time of the land extent of the value preferred to the par. 20. This Stat. ch. making Ill. Rev. of the contract.” analysis statutory opinion’s renders the citation erroneous best, outright questionable. if not problematic at $3,200 before was worth subject property ley, building. erect a were made to claimants, in on constructing building hen labor land, “by the value reason of their enhanced $6,292. in the amount of Id. and materials furnished” $5,657. The property property The was mortgage $3,338.91. The trial ruled that the judge was sold for the net entitled to the of mortgagee proportion was the sale: “that the value of the proceeds property it bore to the improvements put upon before the were property improvements total value of the after the made, is, that that she entitled to 3200/9492 $3338.91, being the sum of Id. at 94. This $1125.63.” decision, court affirmed the trial court’s the rejecting mortgagee’s claim that she was entitled to her full $3,200: liens, mortgages

“As the and the mechanic’s between mortgages under the statute the were entitled to satisfac land, building. tion out of the and the other liens out of the building separated the not properly As could be the from lots, in order to realize the the the whole liens benefit of sold, property, building together, land and had to be that it might money proceeds be converted into and the divided. proceeds represent place The the sale and stand in the building,

the land and the and the have the same proportionate proceeds they interest in the that had in the added.) (Emphasis Bradley, it was sold.” before Ill. at 95. analysis This makes clear that to improvements all are added to value of the land before apportioning percentages to the sales those proceeds when cannot and hen satisfy mortgage claimants. Brad from the ley, mortgagee’s percentage ap sale was (3200/9492). proximately analysis 33.7% The Bradley therefore demonstrates that the court is incorrect today when it states that as used in the “improvements” statute improvements.” “cannot mean all (Emphasis original.) Ill. 2d at 239.

Moreover, contrary interpretation court’s (id. n.1), at 241 teaches that Bradley correctly argues that this court’s decision in Croskey Northwest Co., (1868), Manufacturing ern 48 Ill. 481 “leaves no doubt preferred about fact the value of the land and at the time of the attachment of the and that the mechanics hen claimants are as to the preferred improvements sup hen plied contemplates thereafter.” Id. statute claimants will be value of proportionate LaSalle’s loan of its they provided. did property, funds not “enhance” the value under section it is the work done the mechanics hen claimants that “enhances” value. 16, LaSalle,

Under the of section an plain language (i.e., has mortgagee) “incumbrancer” the value of the land before improve- ments. in this case that the value of the Everyone agrees any improvements land before were made was $1,360,000. According plain language to the of section as between “incumbranc- (mechanics “hen creditors” hen- (mortgagees) ers” holders), shall “previous (mortgagees) all incumbrances” the preferred only be to the extent of value of land (here, $1,360,000) making “at of the of the time (each hen- contract” and the hen creditors mechanic holder) improve- “shall be to the value of the Edon, $285,827; ments erected on said for premises [for (West 2006). $63,478].” Here, 770 ILCS 60/16 however, in just Bradley, as because separated be from the building properly

“the could not lots, of the liens the whole in order to realize the benefit sold, building had to be that it property, together, land and money proceeds into and the divided. might converted place in the represent The of the sale stand proceeds the same building, and the and the have of the land they in the in the that had proportionate proceeds interest Bradley, 93 Ill. at 95. it sold.” property before was the lien made $480,934.7 in The sum claimants this case totaled of this figure value of land is plus before $1,840,934. in that is As demonstrated number Bradley, to be in determining pro used as denominator rata interest each to under section 16. party is receive For of the example, proportional LaSalle’s share sale (1,360,000/1,840,934). proceeds Eagle’s is 73.8% propor- (63,478/ tional share of the 3.4% sale I, 840,934), and Edon’s share is 15.5% proportional (285,827/1,840,934). proceeds, The sale once expenses $552,214.06. the sale paid, and receiver were Of that, $407,533.98, LaSalle should receive Eagle should $18,775.28, receive $85,593.18. and Edon should receive This correctly allocation more intent reflects the legislature Act, enacting which was to extend done, statutory protection for work not unpaid money lent.

In light above, have in ascertaining I difficulty the basis for the it holding court’s that is the plain language section 16 which allows be treated as the equivalent of a contractor. 242 Ill. 2d at 248. This conflicts with the analysis postdates which Bradley, Clark and thus appears has Bradley now been overruled sub silentio. I am today’s concerned that opinion law, will add confusion an area Illinois hens, already that has been acknowledged by this court to be both complex.” “technical and Hermit age Co., Corp. Adjustment Contractors 166 Ill. 2d 79 (1995); (Freeman, see also at Hermitage, 166 Ill. 2d , C.J.) joined Bilandic, J. dissenting, (agreeing mechanics hen law is complex”). “technical and Contrib uting possibility the real is the confusion court’s represents 7This by the sum of the hen claimants as found $46,200; $63,478; Eagle: trial Gallagher: court: All American: $46,506; $38,923; $285,827. Plumbing: Another and Edon:

258 on.8 equitable reference to main subrogati opinion tains its in rata increasing pro that result LaSalle’s share by million advanced after the loan was in (again $1.5 default) equitable subroga is not achieved applying 2d at the plain language tion 242 Ill. 248. But principles. permit posi of section 16 does not otherwise LaSalle’s that equated tion as incumbrancer to be of a creditor, that have already reasons I explained. subrogation That leave as the would doing so, argue.9 means for as both in case joins JUSTICE BURKE in this dissent. equitable recognize subrogation:

8Illinois courts two forms of subrogation which based in law and conventional is the common provision subrogation express on an contained in a which is based Forest, Corp. Oak Capital Aames v. Interstate Bank contract. (2000). App. 700, Equitable subrogation, 3d 706 which is rare, court more has been described as a “creature *** prevent injustice unjust chancery [utilized] to enrich LaFramboise, Co. Ill. 2d ment.” Dix Mutual Insurance *** (1992). general As one court has stated “no rule can be equitable subrogation right laid to determine whether a down exists, right upon equities particular depends of each since the Aames, at case.” Ill. 3d mentioning equitable subroga that 9It bears the doctrine pled. priority, priority that

tion is relief must Nor confers Oro, Inc., 176 2d Koglin man Associates v. Valenz Ill. 390-95 A. (1997). LaSalle, Eagle’s its amended affirmative defenses following: paid complaint “By paying the which stated the trust position draws, subrogated to the trust’s construction LaSalle priority hen with trust funds.” which has over the claimants complaint to and affirmative defenses to Edon’s its answer hen, did assert a similar on Edon’s mechanics not foreclose claim, but that claim barred rather maintained Edon’s that in the was limited by laches and Edon’s interest appears sale. hen an in the sheriffs It interest (see alleged properly a counterclaim 735 ILCS priority is more (West suggests 2006)), although there is case law 5/2—608 Rehearing Upon Denial Dissenting Opinion dissenting: FREEMAN, JUSTICE my original the court’s deci I warned that dissent law, hen to Illinois mechanics cause confusion

sion will complex.” practice that is both “technical an area of (Freeman, dissenting, joined J., 2d at 257 242 Ill. J.). attempt to address the made no

Burke, The court concerning legal its raised in that dissent concerns interpretation unsupportable Mechan section 16 of the And, so, both contrac because it did not do ics Lien Act. Eagle Construction, now seek

tors, rehearing, and Edon Concrete large part decision has conse

in because the may they quences have inadvert that believe court ently perhaps, or, not foresee. overlooked could example, Eagle notes that the court’s construc-

For statutory phrase making “at the time of the tion of the impact an on subcon- of the contract” will have adverse liens, have, now, which until related back to the tractor’s original Eagle light asks, date in contractor. also holding, happens given “what to the value court’s project by a a contractor which was neither nor for Eagle explains question whom a lien was filed?” that this interpretation is a direct result of the court’s of section further asserts that the wake of the court’s opinion, “only possible ways there will be two for a payment ensure its work. It will either contractor to require prepay seg- need to the lender for the next alleged it can be as an affirmative defense. See Mountain Center, Allen, 372, Mortgage 381-82 States Inc. v. 3d (1993) 613(d)). (quoting par. Ill. Rev. Stat. ch. An af 2— something legal or “avoid[s] firmative defense is effect of claim, release, satisfaction,” “payment, defeat[s]” a such as 613(d) (West 2006). the like. 735 ILCS Even if a lien has 5/2 — another, that fact “avoid” or “defeat” the over does not action, lien it would mean that both creditors’ foreclosure payment in Une for behind LaSalle. ment of work or require the owner to post payment bond.” Eagle asserts that it is “rare” the construction industry for there to be such bonds.

Edon, part, points that, its out in the wake of the court’s opinion, “trial courts will be confronted with the virtually impossible task of determining the exact components building of a which are subject to claims of creditors,” which is the result of the court’s novel interpretation of section 16.

The points raised these contractors demonstrate the court’s opinion, apart from contradicting exist- law, case will ing unnecessarily disrupt existing com- mercial practices and cause a ripple effect on the reasons, For marketplace these the contractors’ conten- tions should be addressed. As Edon aptly observes: “If the Major- Court fails to reconsider its decision and the *** stands,

ity Opinion mechanic’s longer lien[s] will no provide protection to contractors. The inevitable result will industry. be chaos in the construction Contractors will [no] longer rely upon be able to protection of the Act and advance, will have to require payment in which will increase the risk delay assumed owners and developers, completion projects, of troubled and interfere with eco- recovery.” nomic

The court’s resolution of this unfairly gives case a financial advantage banking industry at expense of the construction industry the area of unfair, mechanics liens. This is merely not it contradicts intent of the General express Assembly enacting Liens Historically, Mechanics Act. this court has consistently viewed the Act’s those purpose “protect” who increase improve, by furnishing or of labor and materials, the “value or condition of the property,” that and Edon. R.W. is, contractors like Dunteman Co. Inc., Enterprises, 153, (1998); 181 Ill. 2d 164 see C/G Francis, Inc., also Weather-Tite v. University St. 233 (2009) (same). 385, Apparently, Ill. 2d is no more. reviewing court

Rehearing appropriate where R. point. overlooked Ill. S. Ct. misapprehended has or (eff. 2006). Rehearing is warranted under 1, Sept. circumstances, I from court’s dissent these denial. joins

JUSTICE BURKE in this dissent.

(Nos. 110199, 110200 cons. WENDLING, SHERRY D. v. SOUTHERN Appellee, SERVICES, HOSPITAL ILLINOIS St. Joseph d/b/a Carbondale, Memorial Memorial Hospital Hospital Appel HOWELL, J. Appel lant.—N ANCY lee, v. SOUTHERN HOSPITAL SER ILLINOIS VICES, Herrin Appellant. Hospital, d/b/a Opinion Rehearing May March denied 2011. filed

Case Details

Case Name: LaSalle Bank National Ass'n v. Cypress Creek 1, LP

Court Name: Illinois Supreme Court

Date Published: May 23, 2011

Citation: 950 N.E.2d 1109

Docket Number: 109954

Court Abbreviation: Ill.