first case on are called the docket for wednesday november seventeenth two thousand and ten nine thirty am is agenda number seventeen case number one serial nine nine five fourth a cell bank actual association versus cypress creek counsel helena's here because this is now up in the law of the state for one hundred thirty eight years and then does bad public policy unless reversed as this case comes before the court the third determination under section sixteen of the mechanic's lien the crux of the issue between the parties and the reason for this appeal is whether subjugation as a principle applies only when a mortgage or on our pays a record of mechanics something that is the issue before the court the third district decision and so ruling is a significant change in illinois law before the third district decision as this court has recognized the well established procedure in illinois was that a contractor would submit a section five sworn affidavit the contractors  some contractors with samit lien waivers and the contractors would promptly be paid the amount still contractors relied on this procedure material men relied on this procedure owners relied on this procedure lenders relied on this procedure and title companies relied on this procedure in issuing policies of clear title the principle was simple submittal a waiver of reading and a party would be paid promptly the whole purpose was to keep title clear that's what happened in this case in this case before the foreclosure was filed the owner with proceeds from the construction loan from the sal paid over one point five million dollars in expenses for construction of the project and more were included in that one point five million dollars were payments of one hundred twenty two thousand dollars to eat and the carpentry contractor and one hundred fifty five thousand dollars to eagle the concrete contractor they were paid without a record of me now they're coming into the court and saying that is not the way it should be that for the lasalle to be subrogated to those construction expenses it should have required those contractors to first record a proper mechanic then the mechanic's lien would have had it with stand the scrutiny or of the bag before being paid and in this case it's just been pending now for over five years you can imagine that the lender would put those mechanically and under the most it would be a disruption of the whole procedure for payment of construction loans and no one on the case law prior to the third district opinion is against what they have or will starting with this court's blame there are a number of reasons why that is not practical here and does not follow the law first section sixteen and its predecessor sections speak in terms of a lien cr r there's nothing there requiring a record when second the case law does not require a record of blame and taking an assignment to win would be problematic for any conscientious lender because then it would be in the impossible position of trying to determine how to file a proper mean it would not control the information over the last day of work the amount due was the work done properly who was the contractor with and also by taking an assignment and paying the contractor the lender would in effect be obviating the need for a lien on the first place the contractor would be paid and it would not take an assignment of any valid legal rights namely the precondition for which is that amounts are owed and so i don't think an assignment would be a solution to the situation it would just simply raise a whole host of other obstacles in what otherwise is a clean procedure for payment of contractors promptly on a construction project in the in the quote molding him to try cases the courts unanimously come to the same conclusion with the same reasoning even though they don't cite each other and it's interesting in each of the cases the courts reasoned that the contractors who have  in the position of even legal should not obtain in the proportionality determination and unjust enrichment that would occur if they are given credit for payments made during the course of the project that unjust enrichment is most the parents in this particular case where the undisputed facts are that egan even an eagle were paid over a quarter of a million dollars of that one point five million downers for which should have been subrogated that is there double recovery in the proportionality determination they get credit not just for their means but under the third district opinion they get credit for the full one point five million including over a quarter of a million dollars that they've been paid those facts are undisputed there were subs showing by the testimony of john merrow no which was cited both in the trial court decision and in both of the third district decisions and the evidence supporting these figures which i'd given the court here was contained in even exhibits three and four which were payments pedraza eight and nine as was the cell exhibits thirteen and fifteen which are more complete copies of the full page dross that's an undisputed fact as a company for the court and that's just the type of unjust enrichment that clark molding and the troika speak again go get credit twice once as part of the five point five million and a second time where they received their actual cash payments as part of that one point five million plus in park molding and detroit none of the cases referred to the brief fact that a record of being was filed and that a record of being should be a precondition for application of aquittal subrogation you won't find that in any of the discussions of those three cases rather they base their decision just applied on the concept of unjust enrichment and equitable subrogation in addition to these three cases m for the proposition that under section sixteen when the mechanics lean when you're deciding what proportion should be accorded to the mechanic's lien mechanic's lien is only entitled to the value of the improvements represented by that i mean that particular increment of to use the language in section sixteen the entire building a record under section sixteen the mechanic's lien claimant is not entitled to the all improvements or the value of the building or rector but rather is entitled to the value of the improvements represented by the increment for which they filed the lien and the case here even found only in for two hundred eighty five thousand dollars which was separate and apart from one hundred twenty two thousand they were paid earlier and with legal the same thing their legal for sixty three thousand dollars which is separate and apart from one hundred fifty five thousand dollars they were paid earlier although the statute language here has changed since eight hundred forty and we attached to our reply brief copies of the five statutes that have been enacted here the statutes all speak together in the same respect and that is they use the separate language of building a reacted and improvements again the improvements as the increment represented by the lean whereas the building a rock that is the entire improvement on the property and the case law on applying the statutes regardless of which tach it is is unanimous and follows kark welding in detroit the third district here should be reversed to maintain the orderly system for prime payment of contractors to maintain one hundred thirty eight years of case law in the state which have been relied upon in construction loans and construction funding and to fulfill the statutory in public policy that contractors of creditors legal fees other fees that would not enhance the value of the property no they do not and here's the reason when you look at troy which was the last straw paid it was even exhibit three and the sale exhibit thirteen it will show that was paid two point eight million dollars on this project and when we went to trial we took out all the soft costs such as you've just referred to lawyer cost the other development cost and included in the one point five five seven only construction cost only lena boy expenses and materials we did not include one sixty three to one sixty nine of the september seventeenth hearing this these expenses were paid and identified the one point five five seven that was covered in judge petulengro in the trial court's opinion and she found that they were in a bill expenses that was not contested by even the eagle on the appeal and the third district in both opinions referenced the one point five five seven as legal expenses and not mr chief justice justices counsel good morning my name is richard jones and i represent a done construction company eden was the carpentry contractor which was hired to provide carpentry labor materials for the construction of improvements in the cypress creek project pursuant to its contract with the owner eden proceeded to provide those labor and materials there were eight draws that were funded by matter was before this court on the issue of subrogation issue is whether a construction lender is entitle to elevate its position through the doctrine of subrogation so the position context it's really irrelevant because the mechanics lean act imposes very strict requirements upon a vein claimant to perfect its mechanic's lien claim in the trial court we were required to prove perfection which entailed serving a notice within ninety days after completion of work recording a claim for lien within four months after completion of work and filing suit within two years after completion of work experts during a three day long trial the trial court in this case found that because this project was defunct because it will sell stop funding the construction draws on and because only part of the project was completed proof of enhancement in this case was impossible the trial court then relied upon the poet court decision in line saving sources gash associates and held that where it is impossible to establish the incremental increase in the value of the project by virtue of the work performed that the court should use the contract as the basis for and hance been thus far the trial court was correct but bend the is an equitable doctrine and it entails one party being placed in the position of another party for the purpose of enforcing a waffle right but the term is it's very important that that party that is subrogated step into the shoes of the other party will sell here seems to want to not step into the shoes of another party but to step up the stairs another equitable and right yes or and tell me we're just as character and as this is what wrong i know you disagree with it so tell me exactly where he went wrong he says and then by the way with respect to unjust enrichment i think there's probably capsulizes the argument we just heard from opposing counsel so in my opinion this is harder an application of the decision the steel and steel requires that will sell be allowed to recover the development expenses it paid no only in existed as to those expenses because will still pay them off and will sell not done so the providers of those services would have filed lien claims and even an eagle would be required to share their ultimate status of power the mortgage she has a recorded mortgage and any disbursements on that construction loan are automatically included as a prior lien on the property for any lien claimant that is that wants to establish a priority over that mortgage has to satisfy the requirements of the mechanic's lien act has to prove perfection and enhancements spliff sell by dispersing it acts that are required under the act in order for us to establish that priority and that is to prove perfection in handsome now will sell was secured by its mortgage it foreclosed its mortgage it filed its lawsuit as a mortgage paid but suddenly when it came to the allocation of proceeds from the sale will sale abandon its mortgage and decided it wanted to be a lean claimant well with less now wants to be a winning claimant with the wor hal has to do what we did we spent three days on trial proving arlene klein will sell the dot we'll sell nearly dispersed loan proceeds now whether these loan that that may have been represented by all or any portion of those long proceeds were never perfected there was never any evidence in the trial court that any of these items were legal and certainly no evidence that any of these items were perfected equivalent to a lien claimant elevated to that status in turn in connection with the dispersant disbursement of construction of the sure sale proceeds without any proof whatsoever that was sal had done any of the of the had performed any of the requirements that all of the other lane claimants were required to perform eden and eagle both perfected their mechanic's lien claims prove perfection proved enhancement and that's what we were that well as a practical matter your honor what happens in that in the construction industry is that there is a construction aswell that construction as row is one stablish with a third party generally a title company the construction proceeds are dispersed into that construction escrow and the money is not dispersed until the contractors perform the work and provide new labors so in this case will sell could easily have performed protected itself by having a construction escrow established instead will sell allowed even an eagle to go out and perform the work in the project didn't fund that work and then refused to pay us for the work that we had performed who paid  yes but we have not provided when waivers for the balance simply because we haven't been paid we would have had we been paid now if the seller were to have yesterday offered to pay even the amount of its lien or sal would be here today sitting in that chair not a next year because they would be entitle subrogation to the position of a ling claimant because eden did perfect its willing even did provide e did approve and hansen and even established all of the elements required by the mechanics living act instead with sal is saying no we're not going to pay you we're going to take the position that under the doct who represents you a concrete thank you statute the mechanic's lien act is a fraud statute it's a comprehensive statute with respect to how it treats mechanic's lien claimants it also treat is comprehensive with respect to how a mortgage should be treated with respect to third party rights the the statute defines who a contract or is it defines what work is lien a bill it defines and tells you what notices are required what filings are required in a more importantly i think it describes what is required in the lane document itself the statute is remedial a danger but it requires strict construction in order to bring yourself within the purview of that statute and is strictly construed against mechanics link claimants and i think it should be strictly construed gets a mortgage in these circumstances if a mechanic's lien claimant does not properly give notice if a mechanic's lien claimant lien claimant section sixteen of the statute talks about lean creditors it doesn't talk about contractors it talks about leaving creditors these are entities or persons that have brought themselves within the purview of the statute that entitle them to a lien and they have a lien and it is only those people who comply with the statute who have a lien status under the act if you do not bring yourself under the you are a contractor only and you have no rights your only right is to sue the person a you had a contract what well south has tried to do is they try to create this impression that they as they made these payments on their mortgage obligations to the owner they are trying to claim that their payment to contractors who at that time were not lien creditors not l to any other contractor was to aling creditor how do you respond to mr anderson's argument that i don't know if it's unjust enrichment or double answered of a recovery but by reason of the fact that those payments were made and those were made or improvements made to the property he done and eagle would now get a disproportionate share of the proceeds of this one point five million it goes back to my original statements that the statute requires strict construction until those contractors file lien claims they are payments to contractors only and it gives lasalle no better status than if it paid anybody else on a project that gives them no better status than the  the development costs interest and things like that that it paid itself but i would also more importantly relied directly on section sixteen because section sixteen talks about payments to lien creditors it doesn't talk about payments to contractors and what it sets out section sixteen is really it as a real a surprise ortiz's and two segments the first segment of the which is in the first few lines of the statute that talks about the mortgage e having the right to be preferred to the value of the land in fact what it says is that no mortgage or no incumbrance is affective as to the building a wreck that doesn't mean creditors are paid always someone going back to justice kerr murs question and we are we somewhat skirting the issue though because we're we're dealing with the equitable principle of unjust enrichment and to answer the question with respect to unjust and risk richmond we  the answer always goes back to the statute in the statutory requirements do we have a direct answer as to i don't think we do a direct answer as to whether eagle in eaton have been unjustly enriched well i mean we're going to round it with equitable and then we're saying what are the practical effects and i think would like an answer to that was that that kind of gets to this notion of assignment of the claim it and as i said the statute the comprehensive statute it provides for a sign of a plane before or after the making of the claim of a before or after the filing of a lien claim it is not because i can claim claims on have get the rights of a mechanic's lien creditor if it wants to do that it has to jump through a few steps it's not as difficult as mr anderson would have us believe because notice under section five is fulfilled by virtue of the contract or sworn statement the bank knows who those people are they know who are being paid as they make those payments they can to take that they can take an assignment they don't have to file any lien cla so it's not all that difficult for them to comply with the statute and as i say the statute is comprehensive it allows them to get these lean right and if they choose not to do that they don't have to and they didn't in this case this also becomes important with respect to proof of mechanic length because under section nine and mechanics link placement has the right to contest the claims of other mechanic's lien claimants if  to get credit for payments made a year earlier as a mechanic's lien claimant that burden is impossible on a mechanic claim claimant in litigation a year later because they theory be relieved of any obligation to prove what they have to do in order to become a link creditor all that they did was they paid a contractor they did not pay a lien creditor and they should not be treated as a ling creditor is is there any difference or maybe is my understanding of the law that a person a material nurse a contractor that supplies work is as a lien for the value of the services or materials now i believe that goes back to section sixteen of the statute which says that wish hard position my position is and i think it's accurate is that the  the leading predators i preferred to the value of the and happen on a property a preferred to the value that were that word title to the statute says lien creditors it doesn't say contractors which is what lasalle wants to do they want to be referred as a lien creditor when all they did was pay contractors and i would try to draw this analysis lets out this by times thank you very much  as dissent he followed the law as it's been in the state for one hundred thirty eight years even though i use that cell head to prove it's lean claim that snatch correct but sell head approved as it did that that one point five five seven million expenses paid on this project were legal bill expenses that includes the construction w even carpentry work for one hundred twenty two thousand and the concrete work by eagle for two hundred fifty five thousand dollars that evidence was on contest the trial and as i said before was reported in the for those items those are typical soft costs on a construction project such as your honor noted legal expenses well sales they do even made the point that was south could've protected itself with the construction escrow there was a construction escrow on this project it was eden exhibit one of the trial and as i explained in my opening comments it required what is standard procedure in a construction loan in illinois that required a sworn statement it required when waivers then the escrow was funded and the contractors are paid just like eden and eagle were paid over a quarter million dollars as part of that one point five five seven eagle made the argument that the mechanic's lien law should be strictly construe there is case law making those statements and those are in reference to the technical requirements of perfecting a lien section thirty nine of the mechanic's lien acts as this act is and sh liberally construed as a remedial act that is the concept that clarke molding and detroit applied in saying that a party in the position of the seller's mortgage mean the in kuwait when that arises for any contractor and the dated signs a contract with the owner at that date the laws of manama's in kuwait lien arises for the contractor who then must perfect about unjust enrichment and in detroit ed page five twenty one the court said to deny subrogation would be to grant expenses the court held that it would have been unjust enrichment to give the parties in the position of eagle an even credit in their proportionality determination for the twenty nine hundred dollars in improvements that the owner had paid and they sample of what happens here is on the proportionality determination if you would to what the third district has said on the even eagle side of the proportion an determination even will have its mean for two hundred eighty five thousand plus eagles leaving for sixty three thousand plus the value of all the improvements one point five five five seven that will be on their side of the proportionality determination for the value of the improvements which the trial court hear were true found with two million dollars on the of the bank side there would only be the basic lien of thirty thousand two hundred two of which was paid so the lien creditors here are the lien claimants even an eagle would get almost one point nine million on their side of the proportionality determination and the bank would have thirty thousand do and the case was unanimous in saying that gives the lien creditors an unjust enrichment in the proportionality determination they're getting credit for the one point five five seven which is the value of all the improvements on the project and that is the unjust enrichment it's especially apparent on the facts of this case where the one point five five seven includes over a quarter million already paid case there's no reference in any of these three cases or any of the other cases cited that a record of lean as a requirement for subrogation rather as i read from detroit the summer geisha is a function of avoiding the un just enrichment which would occur if the only claimants of the position of even needle and the proportionality determination is done get credit for the one point five five  and then as i said here it's especially apparent where they are as part of that one point five five seven they were paid over a quarter million dollars more or says the same thing in the last page of the decision it has always been recognized the true rule to hold all improvements placed by the mortgage or on the premises is being embraced in and subject to the mortgage which we cannot suppose that they were intended when they to be for the benefit of the lien holders but they're saying is that one point five five seven should not be on the lino claimant side or the follow it and the reason is if you have a project that's a large project such as a major construction project in downtown chicago where a lender has paid out one hundred fifty million dollars for construction costs and then at the end there's a couple liens for a couple million dollars and you go to the proportionality determination the lien claimants would receive credit for that hundred fifty million dollars on their side of the proportionality determination instead of the render and so the lender would have to require that every payment it makes be first supported by a mechanic's lien and then in looking at this case the lender would have to realize that before it paid that mechanic's lien it better make sure it's a good one because look what's happened here five years of litigation over these liens and so if you're a rational wonder you're going to put those wins under a microscope before you pale and that's just going to have the effect of the waiting payment to contractors when the existing system does exactly the opposite they submit the lien waiver that promptly paid and everybody moves  it would be a disaster for the lending industry it would be a disaster for the construction industry it would be a disaster for contractors especially small contractors who don't have people on staff that do means regularly and aware of all the technical requirements it would be a tremendous burden on the state of illinois we should be a last resort on a construction project not a requirement for payment the existing procedure works well it has worked for one hundred thirty eight years contractors material non lenders owners title companies of all relied upon the law of the state as it has been existence for one hundred  thirty eight years the whole system is set up to function that way it's fair in the proportionality determination it's a function of equity and that's why it's been in the statute excuse me on my time is up thank thank you case number one zero nine nine five or less cell bank national association versus cyprus at all