Appellate Court Enforces Contractor's Partial Waivers And Releases Of Lien To Bar Its Claim For Delay Damages

One of the most ubiquitous documents in construction is the partial waiver and release of lien, which is invariably a condition precedent to a contractor or subcontractor receiving its progress payment. While the most common question contractors have is whether signing the document before receiving payment actually waives the contractor’s right to receive that payment (it doesn’t), these documents can be a trap for the unwary because they will operate to waive claims for monies that are not specifically recited as being excepted from the partial waiver and release of lien (such as unpaid change order claims, delay claims, etc.). An appellate court, in the recent case of Pizzarotti, LLC v X-Treme Concrete Inc., reminded us of this state of affairs when it dismissed a contractor’s counterclaim for delay damages based on its execution of such monthly waivers.

Background

In September of 2015, Pizzarotti entered into an agreement to perform construction services for a residential construction project on West 27^th Street in Manhattan. Pizzarotti subsequently entered into a subcontract with X-Treme Concrete for X-Treme to perform the concrete scope of work at the project. Of course, as part and parcel of the payment process, X-Treme signed partial waivers and releases of lien monthly, each one of which provided, in capital letters, that X-Treme "AGREES THAT THIS WAIVER OF LIEN AND RELEASE IS NEITHER A RECEIPT FOR PAYMENT NOR A CONDITION PRECEDENT TO PAYMENT, BUT A KNOWING AND WILLFUL ACKNOWLEDGEMENT THAT SUBCONTRACTOR HAS BEEN FULLY PAID . . . THROUGH THE ABOVE-REFERENCED DATE."

Within months, disputes arose on both sides, with Pizzarotti alleging that X-Treme failed to remit payments to its subcontractors and suppliers, and X-Treme alleging that Pizzarotti failed to pay it promptly, and had delayed the job. Ultimately, X-Treme ceased working on the project (with X-Treme alleging that Pizzarotti improperly terminated it, and with Pizzarotti alleging that X-Treme abandoned the job), and X-Treme filed a mechanic’s lien against the project (as did several other of X-Treme’s subcontractors). Pizzarotti sued X-Treme for breaching the contract, alleging that it was going to incur excess completion costs as a result. X-Treme filed several counterclaims, each one of which alleged that X-Treme incurred significant damages as a result of Pizzaroti’s delays arising from its failure to provide complete project drawings, and that Pizzarotti improperly terminated X-Treme as a pretense to cover for its own delays, and in an effort to avoid liability for such actions.

After discovery, Pizzarotti moved for summary judgment dismissing X-Treme’s counterclaims, arguing that the partial releases and waivers of lien executed by X-Treme in exchange for monthly progress payments (eight, in total) barred its delay claim, which—unlike the recitation of unpaid retainage—was not excepted from the otherwise general release language. In opposition, X-Treme argued that the releases were only meant to document payments received to date (receipts, in essence), and not to release any unresolved change orders or delay claims.

Decision

The motion court dismissed X-Treme’s counterclaims, briefly citing the partial waiver and release of lien documents—and holding that X-Treme failed in its burden to demonstrate that the releases did not apply to its claim, or otherwise establish any equitable basis to vitiate their effect. The appellate court affirmed, citing the capitalized language of the partial waiver and release of lien in which X-Treme specifically acknowledged that the document was not a mere receipt but, rather, operated to release any claims not specifically preserved, including its delay claim (which existed prior to the execution of the latest release documents). The appellate court also noted the existence of a no-damages-for-delay provision of the contract, and found that as the incomplete drawings were specifically mentioned in the parties’ contract, they were contemplated and, therefore, not subject to one of the exceptions to the enforceability of such a clause.

Comment

Clearly, contractors are in the construction business to make money. However, this case should caution contractors that they should not simply sign any document put in front of them to get some money flowing in their direction. Setting aside, for the moment, that X-Treme’s delay claim was also barred by specific contractual language, the partial waiver and release of lien documents here serve as clear evidence that simply signing required documents for the sake of getting some money flowing can result in the foreclosure of other claims which may (or, here, may not) have merit. Accordingly, contractors would be well advised to consult with experienced construction counsel as to how to best preserve their right to collect on all of their claims, and not just the ones that will result in an immediate payment. Have your attorney review the partial release and waiver of lien document at the time of the very first requisition—not 8 months into the job, when the damage has already been done.

If you would like more information regarding this topic please contact Thomas H. Welby at twelby@wbgllp.com or call (914) 428-2100