Beware of Standard Lien Waivers and Releases

A few months ago I wrote an article for Construction Executive Magazine about a Western District of Pennsylvania case, Sauer, Inc. v. Honeywell, that discussed the devils that exist in the details of standard lien waivers and releases and the dangers that lurk for those that do not pay attention to them.

My article that appears in today’s Legal Intelligencer which discusses both the Honeywell case and a recent case from the Eastern District of Pennsylvania, First General Construction Corp. v. Kasco Construction Co. Inc, concerning the same subject.

It was also the subject of my June 15, 2011 blog post.

You now have been warned.  Review those lien waivers.

Court Gives Heft to Standard Lien Waivers and Releases

My article in the February 2011 issue of Construction Executive Magazine “The ‘Accidental’ Release: Pay Close Attention to Standard Lien Waivers,” discussed the Western District of Pennsylvania’s decision in Sauer Incorporated v. Honeywell Building Solutions SES Corporation, 742 F.Supp.2d 709 (W.D.Pa.2011) where the Court dismissed Sauer’s delay claims based upon the language contained in standard lien waivers and releases that Sauer submitted with its monthly payment applications.  A copy of the article can be found here.

Recently, the Eastern District reached a similar decision in First General Construction Corp. v. Kasco Construction Co, Inc., 2011 WL 2038542 (E.D.Pa.2011).  In this case, First General, a concrete subcontractor, brought a breach of contract claim against Kasco for payment of additional work it claimed was verbally ordered by Kasco’s project superintendent.    Kasco moved for summary judgment based upon, among other things, releases First General executed throughout the course of the project.  While the Court’s decision does not specifically state that the releases were submitted with monthly payment applications, based upon the language of the releases quoted by the Court, a conclusion can be made that they were.

The Court granted Kasco’s motion for summary judgment and dismissed all of First General’s claims for additional work performed prior to the date of the last release.  The Court rejected First General’s argument that the releases were unenforceable because they lacked consideration stating:

“[t]he consideration for the releases is the same as the consideration for [the] Subcontract. Accordingly, no additional or independent consideration is necessary because the parties were careful to include the releases as a term of the contract.”

What are the lessons from Honeywell and First General?

1. Subcontractors cannot wait to properly document claims;
2. Subcontractors cannot ignore standard lien waivers and releases and treat them as a matter of routine; and
3. Conversely, owners and higher tier subcontractors should not hesitate to use lien waivers and releases to bar change order and delay claims that have not been properly documented.