Beware the Impact of the Lien Waiver
Halloween is approaching next month and along with it, we will all be exposed to very scary things. For a contractor, sometimes there can be nothing scarier than a lien waiver. Our firm was recently involved in a case wherein a single lien waiver had the greatest impact of any of the evidence introduced. For the sake of confidentiality, I am unable to share the names of the parties as well as which side of the case we were representing. However, I would like to share a few aspects of the case with you.
The case involved two contractors working for each other. A dispute arose over the lower tier contractor’s performance, and, as a result, the relationship ended. The lower tier contractor initiated legal action for lost profits, believing that its contract was wrongfully terminated. The upper tier contractor defended on the basis that there existed no further contractual obligations between the parties asserting that whatever contractual relationship existing between the parties had ended. In ruling on preliminary motions, the Court found that the evidence was mixed and that questions of fact existed precluding an early dismissal of the case. Thereafter, the parties engaged in discovery which, among other things, produced a lien waiver that had been exchanged between the parties in exchange for payment for work that had been performed. Ultimately, the Court ruled in favor of the upper tier contractor.
The Court reasoned that when a contractor executes a waiver of lien, the party signatory is deemed to be swearing to facts stated therein under oath. A waiver of lien is therefore not just a document exchanged for payment but is tantamount to sworn testimony, akin to any other sworn testimony a witness provides in a legal action. Under certain circumstances, the sworn “testimony” provided in a lien waiver carries more weight than testimony given in a deposition or in court since the testimony is given before any legal action is initiated. In our case, the Court specifically cited to the following excerpt of the lien waiver as the most controlling evidence in the case:
That there are no other contracts for said work outstanding, and that there is nothing due or to become due any person for any material, labor or any work of any kind done or to be done upon or in connection with said work other than the above stated.
The above statement coupled with the fact that the waiver of lien reflected a contract value equal to the work that had been performed and paid in full was enough for the Court to rule in favor of the upper tier contractor. Although lien waivers are exchanged between contractors every day on every project, very often the statements made therein do not accurately reflect the total contract values, payments received or payments due. Contractors are advised to avoid the inclusion of pending change orders and, in many, instances, contractors are advised by their upper tier customers to include only the payment amount that is forthcoming in their lien waiver. Please take caution in tendering a lien waiver that does not accurately reflect the true contract value for the work performed and the balance due as of the date of the waiver of lien. You never know when that waiver of lien may be used against you.