Section 5 of the Act reads, in part, as follows:
It shall be the duty of the contractor to give the owner, and the duty of the owner to require of the contractor, before the owner or his agent … shall pay or cause to be paid to the contractor or to his order any moneys or other consideration … a statement in writing, under oath or verified by affidavit, of the names and addresses of all parties furnishing labor, services, materials … and of the amounts due or to become due to each.
Essentially, this portion of the Act, in conjunction with several other similar provisions of the Act, attempt to ensure that the property owner never finds him or herself in a position where he or she is compelled to pay a greater sum for the completion of a project than the price agreed to in the contract. This, of course, makes perfect sense; no property owner would ever want to pay more for a project than what he or she bargained for. However, this is exactly what could happen should the property owner fail to follow certain provisions of the Act.
What Section 5 and the related provisions of the Act require is that the property owner require of the contractor, before the property owner pays the contractor or any known subcontractor, a written statement, under oath or verified by affidavit, which includes the name and addresses of any parties (e.g., all subcontractors) furnishing any materials and/or labor toward the project, and the amounts due to each. The property owner who then makes payments in reliance on these sworn statements is protected against the lien claims of parties not listed in the sworn statements. However, a property owner who fails to obtain the sworn statement may be a risk for making payouts in violation of the rights of the subcontractors and such payments may not be regarded as rightfully made as against any subcontractor. In other words, a property owner who fails to obtain a sworn statement from a contractor and who pays the contract amount in full, and assumes that the contractor will pay each of the subcontractors, could be held liable to the subcontractors, should the contractor fail to pay the subcontractors. That’s right — a property owner who does not comply with the Act could end up paying the subcontractors him or herself, even if the property owner has already paid the contractor in full, thereby paying a price greater than the amount agreed to in the contract.
The moral of this story should be clear: The prudent property owner should refrain from paying the contractor until the property owner receives the contractor’s sworn statement (and appropriate lien waivers).
As with almost all legal issues, there are nuances and exceptions to the general rule. We would be happy to assist you with any questions you may have regarding the issues addressed in this article or with any other issues arising under the Illinois Mechanics Lien Act.