March 2004
By ALEXANDER A. MIUCCIO, CIC Legal Counsel
As a condition of receiving progress payments, subcontractors are usually required to execute partial releases and waivers of liens. These usually contain language stating that the subcontractor is waiving not only claims for monies actually received, but "all liens, actions, debts, claims, demands and other rights" against the general contractor and owner.
By executing such a release and waiver, does a subcontractor give up the right to demand payment for unpaid contract balances, extra work and delay damages? Although the language of the partial release and lien waiver would suggest that the answer is "yes," a recent decision by the New York Appellate Division answered the question "maybe."
Background
Navillus Tile, Inc. v. Turner Construction Company involved a masonry subcontractor engaged in construction and renovations at the United States Tennis Association's Arthur Ashe Stadium in Flushing Meadow, Queens. During the course of performance, the subcontractor received progress payments, and executed a series of 18 partial releases and lien waivers, which waived and released "all liens, actions, debts, claims, demands and other rights . . . against OWNER and CONTRACTOR on account of all work, services, equipment, and/or materials performed or furnished by it in connection with the construction of the above-referenced project through and including the date hereof." The waivers contained additional language that the waiver and release was "expressly limited, and unconditional, to the extent of, and as covered by, payments actually received" and "conditioned upon receipt of payment."
The masonry subcontractor sued the general contractor and its payment bond surety to recover an unpaid contract balance, extra work, and delay damages totaling more than $4 million. Based on the partial releases and waivers of liens, the general contractor and surety moved for summary judgment dismissing the subcontractor's claims. The trial court granted the defendants' motion, and the subcontractor appealed.
Decision
Essentially, the subconÐtractor's argument was that the partial releases pertained only to the specific progress payments owing at the times that it submitted them, and were not general releases waiving future claims. The general contractor and its surety countered that the plain language of the releases established the subcontractor's waiver of any and all further compensation accruing as of the dates of each release given.
The appellate court reversed the trial court, denied the defendants' motion, and reinstated the complaint. It held that an issue of fact was raised as to the intent of the parties. Specifically, the issue to be decided by the trial court, after hearing the evidence, was what monies the parties intended the partial releases to waive. The court based its finding on the above-quoted language limiting the releases to "payments actually received . . . through the date hereof."
According to the court, "the intent to waive a right must be unmistakably manifested, and is not to be inferred from a doubtful or equivocal act." The language of the partial release and waiver permitted more than one reasonable interpretation, and the choice of which inference reflected the parties' intent is one required to be made by a jury. The court also noted that the general contractor had issued at least 12 change orders after the date of the last partial release, undermining defendants' argument that the parties intended the last partial release to have been a final one.
Commentary
A general contractor (or owner) making a progress payment is legitimately entitled to a waiver of liens as to monies it actually pays to the subcontractor (or general contractor). It is unfair, however, for owners and general contractors to use the threat of withholding progress payments to coerce a release of the right to monies other than what it is actually paying. Subcontractors and general contractors should consider carefully the language of any releases and waivers they are asked to sign in connection with progress payment requisitions, and obtain legal advice on the effect of such releases upon potential claims.
About the author: Mr. Miuccio is a partner in the law firm of Goldberg & Connolly, and legal counsel to the Construction Industry Council of Westchester and Hudson Valley, Inc. Geoffrey S. Pope, a senior associate with the firm, assisted in the preparation of this article.