By: Alexander A. Miuccio Thomas H. Welby Published: November 2007

Court Questions Validity of Progress Payment Releases

Progress payment requisitions signed by contractors can act as a waiver of lien and release of any and all claims against the owner. Construction contracts normally provide for progress payment applications to be accompanied by a contractor’s affidavit stating that there are no claims to the date of the application for payment, and also provide for a waiver of lien for work performed to the date of the requisition. These releases and lien waivers are problematic for contractors where the owner relies on them to reject a contractor’s legitimate claims, such as claims for changes or extra work, which arise before the releases and waivers of lien were signed. In the recent case of E-J Electric Installation Co. v. Brooklyn Historical Society, the court took up the question of the validity of the releases and waivers.

Background

E-J Electric Installation Co. contracted to perform the electrical work at the renovation of the Brooklyn Historical Society’s building for a contract price of $1,399,000.00. On September 6, 2002 the contractor submitted a claim of $1,229,674.00 in additional costs caused by the owner’s breaches of contract, delays, interference and disruptions, and inadequate contract plans and specifications.

During the course of the renovation, the contractor executed a total of 38 lien waivers and affidavits of release, which were submitted in connection with the contractor’s progress payment applications. Ten of the lien waivers and affidavits were submitted after the contractor’s September 6, 2002 notice of claim for extras. The lien waivers and affidavits stated that the contractor waived and released the owner from all claims of payment for work, labor or materials furnished to the date of the application for payment.

The contractor sued the owner for the additional costs claimed due and the owner moved for summary judgment to dismiss the claim. In support of its application for dismissal, the owner argued that the contractor expressly waived any right to payment pursuant to the clear wording contained in the waivers of lien and affidavits.

In contesting the owner’s summary judgment motion, the contractor argued that the parties’ course of dealing and intent as to the waivers of lien and affidavits were controlling, not the language contained in the waivers and affidavits.

The trial court denied the owner’s motion for dismissal and directed that discovery proceedings be conducted regarding the parties’ course of dealing and intent as to the waivers of lien and affidavits. The owner appealed.

Decision

The appellate court affirmed the lower court’s decision. It held that the contractor raised a triable issue of fact as to what the parties intended by the waivers of lien and affidavits and as to their course of conduct during the ongoing renovation while the owner was making progress payments. According to the court, “where a waiver purports to acknowledge that no further payments are owed, but the parties conduct indicates otherwise, the instrument will not be construed as a release.”

The owner’s conduct in subsequently paying the contractor for work theoretically released by prior payments may reasonably be considered by the court as completely inconsistent with the owner’s theory of a general release. For example, the court pointed out that the owner, after making an initial payment on a certain part of the contractor’s work and receiving an executed “Waiver of Lien to Date” with respect to the work performed, made subsequent payments pursuant to the same “Application for Payment for Work.”

The court also held that where the terms of the waiver and the contract between the parties expressly provide for partial payments upon execution of the waiver, a course of conduct between the parties may establish that “the waiver form is construed as merely a receipt for the monies referenced in the waiver.”

Comment

As a general principle, courts will rely on the express language of executed waivers and releases to bar claims for additional payments. This case demonstrates, however, that if the parties act in a manner inconsistent with the theory of a release of claims, the waiver will not be construed as a general release.

Here, after the owner made payments on certain requisitions and receiving lien waivers and executed affidavits of release for the work covered under the requisitions, the owner made subsequent payments pursuant to the same requisitions. This course of conduct by the owner is inconsistent with the lien waivers, which expressly acknowledge that there are no liens or existing claims. Consequently, a trial is required to determine the parties’ conduct and intent as to the lien waivers and affidavits of release.

Contractors are sometimes forced into a difficult position where they are required to execute a lien waiver and affidavit of release as a condition of a progress payment to them. They must guard against executing progress payment documents that may release the owner from its contractual obligations to pay contractors the money they are rightfully owed. Under the circumstances of this case, the contractor was able to raise a triable issue as to whether a waiver and affidavit form could be construed as merely a receipt for the monies referenced in the waiver and not a release, where the parties dealings indicated that a waiver and release was not intended.

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