Question. Over the course of the job, Subcontractor submitted a number of invoices for completed work, including work changes, for which Contractor only made partial payments. When it did make a payment, Contractor required an "Affidavit of Release," which acknowledged receipt of the progress payment and, in pertinent part, stated that such receipt released Contractor "from any liens or suits arising from non-payment on the above referenced job." Contractor argues that the affidavits of release barred the Subcontractor from pursuing the unpaid balance. In response, Subcontractor reasserts that a balance is due and argues that the affidavits of release were never intended to serve as a release of claims for unpaid work. Did the Subcontractor waive his right to collect the unpaid balance?
The answer depends on the parties conduct and intent. The affidavits of release were all-encompassing releases executed without protest. Under normal circumstances the Courts will enforce those releases and deny the Subcontractor further payments.
However, the Subcontractor argues that the executed affidavits of release are ineffective to bar claims for additional payments where it was the Contractor's practice to condition any partial payments due on the execution of the release and the terms of the release itself expressly so provided. Subcontractor further argues that, due to Contractor's financial difficulties during the project, Contractor and Subcontractor orally agreed to a system of partial payments. According to Subcontractor, under this system, the Payment Forms reflected amounts that Contractor was able to pay at the time and Contractor agreed to pay Subcontractor the full amounts stated in the invoices. Contractor did in fact make some additional payments.
In such a case, the waiver form is construed as merely a receipt for the monies referenced in the waiver. Moreover, Contractor's conduct in subsequently paying Subcontractor for work theoretically released by prior payments is completely inconsistent with its theory of general release. Where a waiver form purports to acknowledge that no further payments are owed, but the parties' conduct indicates otherwise, the instrument will not be construed as a release.
New York case law directly on point supports this conclusion: "Where a waiver form [submitted by a subcontractor] 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 same analysis and results would apply as between an Owner and Contractor. The lesson to be learned is that while legal wrangling may save your hide you should not sign a release that does not reflect the reality of the situation. As a general rule, the payment releases should indicate that they are operative only to the extent that payment is actually received.