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Waiver Amount vs. Payment Amount

ArizonaLien Waivers

Hello, One question I've never been able to find the answer to is this: What is the impact if a conditional waiver (progress or final) is short paid? Say that the conditional waiver was written for $998 dollars and the subcontractor/supplier was paid $989 dollars in error. If an issue were to arise, would the court find that the subcontractor was still owed $998 dollars because the condition of the waiver wasn't satisfied, or would it find just for the delta of $9 dollars that was still outstanding? If jurisdiction matters, we do work in AZ and CA. Thank You, Brandon Hubbard

1 reply

Apr 6, 2021

Brandon - 

The short answer is that the lien rights would be waived up to the amount paid, leaving a valid lien claim of $9.  

By way of further explanation, your question is resolved by 2 of the major tenants of contract law. First, the law ensures that each party to an agreement get thefull benefit of terms for which they bargained. Second, the law also ensures that neither party is given a windfall gain at the expense of the other.

Unlike some portions of the lien statutes that require strict compliance (i.e. preliminary notice and lien deadlines), the law will seek to equitably apply legal principles to the facts present.

In this example, one party agreed to pay $998 and the other party agreed to accept that amount and release their lien rights agains the property of the payor in exchange for the payment in full. When payment was received in a lesser amount, there was only substantial, but not full compliance. The payee received $989 of benefit, but not the additional $9. The payor therefore will get a relase of lien rights for the amount paid, leaving a lien balance of $9.  

If the partial payment counted as a full release, then it wouldn't be fair to the payee. If the partial payment didn't count for any payment and did not effectuate a release of anything, it would not be fair to the payor. The equitable solution is to have the payment act to waive rights up to the amount paid and leave the unpaid balance subject to lien rights. 

If you have any questions on lien rights, forms of waivers and the difference between strict construction and equitable construction with respect to lien claims, you should consult a qualified construction attorney. 

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