By THOMAS H. WELBY, P.E., ESQ. and GREGORY J. SPAUN, ESQ.
One of the most utilized forms in connection with a construction project is the waiver of lien, which operates to both waive a contractor’s right to assert a mechanic’s lien, and to release the contractor’s claim for money. These forms come in two “flavors,” the partial waiver of lien, and the final waiver of lien. The partial waiver is exactly what the description says it is, a document waiving a part of the contractor’s claim (in exchange for a partial payment in the same amount), usually in conjunction with a contractor’s monthly requisition.
The final waiver, like the partial waiver, is exactly what it is described as, a waiver of the remainder of the contractor’s claim, in exchange for full payment on the project, upon completion. However, in the recent case of C & A Seneca Construction, LLC v G Builders LLC, a court recently reminded us what exactly is necessary to make a final waiver of lien operative for its intended purpose.
In October 2016, C & A Seneca Construction entered into a contract with G Builders for a construction project on Pier 94 in Manhattan for an agreed upon cost of $240,100. In December 2016, C & A executed a partial waiver of lien in exchange for a specifically referenced payment of $75,000, which was payment for all work performed by C & A through Dec. 23, 2016. C & A continued to work on the project, and on March 10, 2017, it executed another partial waiver of lien, this one reciting a payment of $50,000 for all work performed through that date.
A dispute arose between C & A and G Builders as to the quality of C & A’s work, and G Builders claimed that the parties agreed to resolve the dispute by C & A’s accepting a final payment of only $3,184.71 (out of the $115,000 remaining under the contract). Toward that end, a lien waiver denominated as a “final” waiver was executed, reciting payment for “100%” of the contract price. C & A claims it never received anything other than the first $75,000 payment, and it sued to collect the $165,000 balance. G Builders moved to dismiss, citing the final waiver of lien and arguing that the release contained in that document barred C & A’s claims.
The court denied the motion, and permitted C & A’s lawsuit to proceed. In doing so, the court cited well settled case law that in order for a final waiver of lien and release to be operative, it must evidence a clear and unequivocal intent to serve as a release of claims, and it must: (1) contain language clearly indicating finality; and (2) recite the amounts of the payments which were made. Because there was no language as to the specific amount of the release, or that the outstanding balance of $115,000 was being compromised by 97% to account for claimed defective work, it was found that the final waiver of lien document did not evidence an unequivocal intent to serve as a release of the remainder of the claim. Accordingly, a jury will have to sort out the intended function of that document.
Here, the court focused on the lack of unequivocal intent to evidence the release of the remaining $115,000 of C & A’s claim. However, C & A sued for $165,000. While the second release (the one which specified a second payment, in the amount of $50,000) would meet the court’s specified criteria and ostensibly defeat $50,000 of C & A’s $165,000 claim (leaving only the $115,000 mentioned by the court), the fact that C & A alleged that it was not paid that amount was sufficient to permit it to press the claim. This is because a release must be supported by valid consideration (payment), and if that payment is not made, then the release fails.
As a practical matter, sometimes such documents are titled “Lien Waiver & Release,” and operate as both. However, at other times they may simply be titled “Lien Waiver,” but still contain binding release language. Because waivers of lien and releases are such important documents in the construction process—often the gatekeeper to payment—it is crucial that the documents be as specific and “tight” as possible. If they are not, they may be found to either waive more than is intended, or not be operative at all. Further, many waivers of lien—both partial and final—require contractors to waive other aspects of their claim (for disputed change orders, for retainage, etc.) that are not specifically reserved. Contractors should not be so anxious to receive their monthly payment that they ignore the actual language and unintentionally waive outstanding claims, disputed change orders, etc. Accordingly, owners, contractors and subcontractors (basically, anyone who is a party to a waiver of lien) would be well advised to consult with their construction counsel to determine the true nature and effect of the document they are asking someone, or being asked, to sign.
About the author: Thomas H. Welby, an attorney and licensed professional engineer, is General Counsel to the Construction Industry Council of Westchester & Hudson Valley, Inc., and is the founder and senior counsel to the law firm of Welby, Brady & Greenblatt, LLP, which has offices throughout the tri-state metropolitan region. Gregory J. Spaun, an attorney and a partner with the firm, co-authors this series with Mr. Welby.