Court Enforces Waiver of Lien Against Unpaid Contractor
One of the most effective ways to protect an owner from liens is to require as a precondition to payment that the contractor execute an affidavit and waiver of lien which states that it has been paid to date for work performed at the project. But what if the contractor has not received all the money it is due through the date on the lien affidavit and waiver? Is the lien affidavit and waiver a complete bar to the contractor's right to file a mechanic’s lien and sue the owner for monies owed for work performed through the date on the lien affidavit and waiver?
The court addressed the enforceability of the lien affidavit and waiver in the recent case of Atlantic Line Construction LLC v. Marsten Development Corp., et al.
Argyle Development LLC, as owner, hired Marstan Development Corp., as general contractor, in connection with a construction project located at 753 St. Nicholas Avenue in Manhattan. The general contractor subcontracted the project’s carpentry work to Atlantic Line Construction LLC.
On June 9, 2009 the general contractor provided the owner with an "Affidavit & Waiver of Lien", in which the general contractor acknowledged receipt of all sums due from the owner for all work performed and materials furnished through May 29, 2009. On June 11, 2009, the subcontractor filed a mechanic's lien against the project, alleging that $82,300 was past due to it for labor and materials supplied to the project. The subcontractor thereafter attempted to enforce the mechanic's lien by commencing a foreclosure action. The owner moved to dismiss the lien claim, arguing that it had paid the general contractor in full and that the general contractor's own statement contained within the lien affidavit and waiver confirmed full payment. The owner also presented cancelled checks and wire transfers to show that all monies were paid to the general contractor. In opposition, the general contractor argued that, notwithstanding the terms of the lien affidavit and waiver, money remained due from the owner, and that the lien affidavit and waiver had been obtained through fraud.
The court ruled in favor of the owner, dismissing the mechanic's lien foreclosure action. The court noted that mechanic's lien rights are derivative. As stated by the court, "The principle is well settled that the rights of a subcontractor are derivative of the rights of the general contractor and a subcontractor's lien must be satisfied out of funds due and owing from the owner to the general contractor at the time the lien is filed." Since the general contractor provided the owner with a lien affidavit and waiver stating that it had been paid in full, the court ruled that no monies were due from the owner to the general contractor. Accordingly, there was no lien fund from which the subcontractor could recover.
The court further ruled that no evidence was presented to find that the lien affidavit and waiver was procured through fraud.
This case follows the general principle that courts will enforce an affidavit and waiver of lien provided by a general contractor to the effect that the contractor has no existing claims and has paid all of its subcontractors and suppliers on the project. These affidavits and lien waivers may be problematic for contractors where the owner relies on them to reject a contractor’s legitimate claims, such as extra work claims, arising before the affidavit and lien waiver was signed. As this case demonstrates, the owner is entitled to rely on the clear and express terms of the affidavit and lien waiver to reject such claims.
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