Lien waivers are a fact of life in the construction industry. They are made part of almost every payment application. In fact, lien waivers are so commonplace that the practice is actually very, very messy.
What do I mean by messy?
Well, with some many parties exchanging waivers, haggling over language, and the like, it’s very common for a lien waiver document to have little to no applicability to the actual transaction taking place.
So, for example, a subcontractor or supplier may sign a lien waiver legally waiving claims to one thing, but thinking its a waiver of something totally different. The following case is about lien waivers in Minnesota but provides some valuable lessons for subcontractors across the United States exchanging lien waivers.
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Lien Waivers Mean Something
If you’re not being paid, then don’t provide lien waivers saying you are. Lien waivers are common, but don’t get too comfortable with them. Lien waivers mean something. Every time you sign a lien waiver you are attesting to the existence of a payment. So, as Leonard Street & Deinard put it in their Construction Law Alert “Lien Waivers Sink Bond Claims“: “If you’re not being paid, then don’t provide lien waivers saying you are.”
A general contractor relied upon lien waivers to successfully dismiss a bond claim filed by a subcontractor’s material supplier in a recent Minnesota Court of Appeals Case captioned J.H. Larson Electrical Company v. C&S Electric, LLC et al.
In this case, the general contractor had lien waivers from the supplier saying it was paid in full leaving blank the space where the payment amount is customarily filled-in. The general contractor successfully argued that it relied on this lien waiver – just like contractors do all the time – to conclude the supplier was paid. Had it not received the lien waivers, it would have issued joint checks.
After all, general contractors monitor this sort of thing with software, as we explored in a recent post about GC software.
The Minnesota court agreed, dismissing the bond claim. Had this been a mechanics lien, it’s easy to believe that would have been dismissed too. Here is some excerpts from their reasoning:
[L]ien waivers are ‘customarily used on both public and private construction projects to keep the general contractor…informed of the payment status of subcontractors and suppliers and to protect the projects from…bond claims.’ … The evidence in the record…is sufficient to support the district court’s findings on customs of the industry and reasonable reliance.
…
Larson [the supplier] is equitably estopped from asserting a claim against the payment bond in this case.
Does This Case Change The Law On Lien Waivers?
In a word…No. Not likely, anyway.
First, the decision is unpublished, which means it cannot be referred to as legal precedent.
Second, the Minnesota court of appeals doesn’t make any change in the law here, they simply apply the law of equitable estoppel to this particular set of facts.
Under these facts, so says the court, the supplier cannot recover against the contractor because they are estopped from doing so. The supplier is estopped from recovering because it previously represented to the contractor that it was paid in full, and the contractor relied on that.
It’s easy to contemplate situations where the facts will be different, and this case will not apply at all, and a different decision is reached.
While this case was on lien waivers in Minnesota, it proves an important lesson to suppliers and subcontractors. Lien waivers come across your desk all the time. Sure, they feel like another mundane task, but be careful…you may regret what you sign.
