Does a no-lien clause also prohibit bond claims on a State or Federally funded Project?

2 weeks ago

Does a no-lien clause included as a clause or article in a Subcontract prevent a subcontractor from filing a payment bond claim against a Prime on a State or Federally funded Project?
The clause reads; ” WAIVER OF LIENS. It is agreed that no lien or statement of claim shall at any time be filed against the premises upon upon which the work is performed, or any part therof, by Subcontractor or any of his subcontractors or other person employed by or furnishing labor, services, equipment, or materials to Subcontractor or any of his subcontractors for, in or about the performance of the work.” Does that prevent a bond claim for payment on completed work?

Chief Legal Officer Levelset

First, with respect to state projects: Bond claims are not specifically identified as prohibited by the language of the clause itself. Since the waiver is explicitly identified as a waiver of liens or claims “against the premises upon which the work is performed” it appears that this particular prohibition is limited to encumbrances against the property itself. Since a bond claim is not made against the improved property, but rather the bond itself, it does not appear that the ability to make such a claim is explicitly waived by this provision.

In contractual interpretation, however, that is not necessarily the end of the discussion. New Mexico has abandoned the traditional “four corners” doctrine, and courts are permitted to consider evidence both within other parts of the contract, and external to the contract itself, to see if an ambiguity exists and to resolve it, if so. This “contextual approach’ to contract interpretation opens the door for broader strokes in determining ambiguity in a contract.

In fact, the New Mexico Supreme Court has held that “even if the language of the contract appears to be clear and unambiguous, ‘a court may hear evidence of the circumstances surrounding the making of the contract and of any relevant usage of trade, course of dealing, and course of performance,’ in order to decide whether the meaning of a term or expression contained in the agreement is actually unclear.” Mark V, Inc. v. Mellekas 845P.2d 1232 (1993). 

This means that, if “lien or statement of claim against the property or any part thereof” is generally meant and understood to include claims against a project’s bond, it may be interpreted by the court that the clause also prohibits bond claims. And, since the waiver of claims by contract prior to work is allowable in New Mexico, it is possible that the right to make a bond claim could be waived.

This is a question of fact. Contract interpretation prior to the court’s involvement is not an exact science, and multiple readings are colorable and supportable. The clause at issue here appears to not limit the ability to make a bond claim by the exact language itself, but additional information may expand the prohibition.

Second, with respect to federal projects: The right to make a claim against the project’s Miller Act  bond is not easily waived. In fact, the Miller Act prohibits a party from waiving rights in contract prior to work. This prohibition is clearly set forth by Sec. 3133. Rights of persons furnishing labor or material, which states, in part:

“(c) Waiver of Right to Civil Action. – A waiver of the right to bring a civil action on a payment bond required under this subchapter is void unless the waiver is-

(1) in writing;

(2) signed by the person whose right is waived; and

(3) executed after the person whose right is waived has furnished labor or material for use in the performance of the contract.” (emphasis added).

Accordingly, to the extent the project is a federal project subject to the Miller Act, waiving bond claim rights prior to work is not allowed, and any such clause is void and unenforceable.

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