Lien waivers, including waivers of the right to make a bond claim, are common documents that are exchanged on every construction project. Far from being “throw-away” documents standing in the way of receiving payment, or documents that just need to be rubber-stamped with no review, waivers can have significant consequences and should be treated carefully. Making a lien waiver mistake could cost your business a lot of money.
A recent case from an Arkansas court of appeals provides support for being careful when signing Arkansas lien waivers, and held that a party may waive even more than he/she may have intended if that’s what they waiver says. It’s important to note that what a waiver says may be more important than what actually happened.
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Case Background: Federal Project, Check With “Paid in Full” Memo
The case at issue Travelers Cas. And Surety Co. of America v. Cummins Mid-South stems from a waiver and subsequent payment dispute on an Armed Forces Reserve Center project (a federal project).
The GC on the project, Tycor, subcontracted with Arc Electrical (“Arc”) to perform electrical installation work. In turn, Arc purchased a generator from Cummins. After failing to perform under the subcontract, Arc was terminated prior to the project’s completion. Tycor, pursuant to assuming the liabilities of Arc related to this project, contacted Cummins about any amount outstanding related to the purchase and service of the generator. After incorrectly informing Tycor that the account was paid in full, Cummins contacted Tycor with information that $59,115.14 was still owed for the generator.
After a couple of months, Tycor received notice that a $2,748.16 bill for parts and repair service for the generator had gone into collection.
Tycoon paid the bill, noting on the check that it was “Paid in Full-RE: Armed Forces Res. Ctr.”, and prepared a waiver/release which was signed and returned by the CFO of Cummins.
Lien Waiver Was Unconditional Even Though Payment Not Made
The lien waiver at issue was entitled “SUBCONTRACTOR/MATERIALMAN UNCONDITIONAL WAIVER AND RELEASE UPON FINAL PAYMENT”, and stated that the waiver “cover[ed] the full and final payment of the contract amount for labor, services and equipment, or material furnished on the job of Armed Forces Reserve Center”.
Arkansas has no statutory waiver forms. This means that there is no guidance or requirements provided directly by statute as to the contents of lien (or bond claim) waivers.
Since a waiver is a type contract between the two parties, the general rules regarding contract interpretation and waivers in general control.
The first rule for interpreting a contract is to read the contract giving the language used the intended meaning as written – if there is no ambiguity in the meaning of the contractual wording no further steps are required. In the instant case, the trial court determined, among other things, that the waiver language was ambiguous because:
[T]here was nothing in the proof, circumstantial or otherwise, to indicate that Cummins knew that by accepting the check for $2,748.16 that it was releasing its right to be paid for the generator [instead of just the service call]. The definition of waiver requires full knowledge of material facts and an action which is inconsistent with the right or intention to rely upon the right.
The court of appeals, however, disagreed.
Upon looking at the face of the lien waiver, and specifically at that language quoted above, the court of appeals determined that there was no ambiguity in the language of the lien release. The release purported to be an unconditional waiver and release upon final payment, covering the full and final payment related to the project at issue. Further, that waiver noted that “[T]he undersigned hereby releases and waives any mechanics’ lien, stop notice, or bond right he/she/it has on the said job.”
The court went on to determine that Cummins’s unilateral mistake of signing the waiver was insufficient to revoke the (waiver) contract absent some fraud on the part of the other contracting party.
Since there was no showing of fraud – Cummins’s mistake in signing a final unconditional waiver for full payment even though money was still alleged to be outstanding, or mistake in not understanding the plain language of the waiver to mean that the waiver was not just contemplating the service invoice, was insufficient to render the waiver unenforceable.
What It All Means –> What The Lien Waiver Says Matters A Lot in Arkansas
This case has a clear take-away. While it is most applicable to Arkansas, parties in any state without statutorily mandated waiver forms should pay careful attention to this result. What a waiver says can be more important that what actually happened – not paying attention would be a big mistake.
By signing a waiver without a thorough review, either as an attempt to speed up a payment or otherwise, a party is bound for a lien waiver mistake. Waivers are enforceable contracts, and can be sophisticated legal documents with significant impact on a party’s rights to payment. It is always best to review waivers carefully and understand what is being waived, before signing. See more about this here: Should You Sign That Lien Waiver?