The hard lesson for contractors in a recent case:1
Do not sign a partial lien waiver for partial payment unless the lien waiver document specifically and expressly limits the waiver to apply to a particular portion of such labor, services, materials, plans, or specifications.
A subcontractor signed a “partial” lien waiver with the prime contractor to get paid $33,000 by the prime, without specifically and expressly limiting the waiver to apply to a particular portion of the $220,000 of work the subcontractor had performed.
The statute, Wis. Stat. section 779.05(1), is unforgiving, and the lien waiver statute applies to private improvement as well as public works construction liens. At the request of the owner of the property to which the lien applied, the court ruled that the entire $220,000 lien on the private property was waived.
Some Background
In Great Lakes Excavating, Inc. v. Dollar Tree Stores, Inc.,2 the original contract between the sub and the prime was for $37,000. The prime signed one change order for some additional work by the sub for an undetermined price.
James S. Thiel, U.W. 1973, retired as chief legal counsel for the Wisconsin Department of Transportation after 40 years’ service dealing with highway, airport, port, rail, and transit public contracting and construction
At the request of the prime, the sub continued with other additional work, but two of the subsequent change orders the sub submitted were never signed and returned.
After the work was completed, the sub asked the prime to pay up, but the prime said it had only $33,000, which it would pay immediately upon the sub signing a lien waiver. But all the sub did was write at the top of the document the word “partial” to get paid $33,000, probably in reliance on the lien on the property for payment for the rest of the work, $189,000. No other wording was added to the lien waiver document.
The Appeal and Ruling
The sub appealed the dismissal of its lien foreclosure action against the property owner. The court ruled that the meaning of section 779.05(1) is clear:
Any document signed by a lien claimant or potential claimant and purporting to be a waiver of construction lien rights under this subchapter is valid and binding as a waiver.
It is binding and valid, whether consideration was paid therefore and whether the document was signed before or after the labor, services, materials, plans, or specifications were performed, furnished, or procured, or contracted for.
Any ambiguity in the document is construed against the person signing it.
Any waiver document is deemed to waive all lien rights of the signer for all labor, services, materials, plans, or specifications performed, furnished, or procured, or to be performed, furnished, or procured, by the claimant at any time for the improvement to which the waiver relates, except to the extent that the document specifically and expressly limits the waiver to apply to a particular portion of such labor, services, materials, plans, or specifications.
The subcontractor failed to properly limit its lien waiver specifically and expressly, according to the strict statutory requirements.
Lessons Learned
By statute, a lien claimant is entitled to refuse to furnish a waiver unless paid in full for the work to which the waiver relates.3 By statute, a contract provision requiring any person to waive their lien rights before being paid is void.4 A subcontractor engaged with such a void contract provision can either tender a lien waiver or refuse to do so until paid in full.5
A waiver furnished is a waiver of lien rights only, and not of any contract rights of the claimant otherwise existing. The Great Lakes court did note in its opinion that all other causes of action by the subcontractor, including a claim of unjust enrichment, remain pending in circuit court.
Any person furnishing labor or materials for a private construction project can perfect a lien against the land on which the improvement is constructed.6Persons furnishing labor or materials for a public works project can perfect a lien on moneys otherwise due and payable by the government to the prime contractor.7 The pitfalls of lien waivers and partial lien waivers apply to both private and public works projects.8
The Takeaway
Do not sign a partial lien waiver for partial payment unless the lien waiver document specifically and expressly limits the waiver to apply to a particular portion of such labor, services, materials, plans, or specifications.
This article was originally published on the State Bar of Wisconsin’s Construction and Public Contract Law Section Blog. Visit the State Bar sections or the Construction and Public Contract Law Section web pages to learn more about the benefits of section membership.
Endnotes
1 Great Lakes Excavating, Inc. v. Dollar Tree Stores, Inc., 2019AP2095 (March 30, 2021) (recommended for publication).
2 Id.
3 Wis. Stat. §779.05(1).
4 Wis. Stat. §779.135(1).
5 Tri-State Mechanical, Inc. v. Northland College, 2004 WI App 100, 273 Wis. 2d 471, 681 N.W.2d 302, 03-2182.
6 Wis. Stat. §779.01(3).
7 Wis. Stat. §779.15(1).
8 Druml Co., Inc. v. City of New Berlin, 78 Wis. 2d 305, 254 N.W.2d 265 (1977).
