Marked Up Lien Waiver Forms Show Parties' Intent

Michael J. Holden
Originally published June 2000

Arizona adopted statutory lien waiver forms in 1992. The forms provide that the release covers all labor, services, equipment or materials furnished to a project through a particular date; even though the form includes a blank for the check amount, the extent of the release is tied to the date rather than the amount paid or the amount due at the time the release is signed.

The statutory lien waiver forms as drafted created problems for subcontractors and suppliers who were tendered payment for less than the full amount due through the date stated on the lien waiver form. Lawyers for subs and suppliers advised them to mark up or alter the forms to reflect the actual scope of the release. However, this practice created problems for general contractors and owners because another provision of the lien waiver law was that a lien waiver that does not follow one of the statutory forms is ineffective and invalid.

These competing interests were at play in a recent decision, United Metro Materials, Inc. v. Pena Blanca Properties, L.L.C., 197 Ariz. 479, 4 P.3d 1022 (Ct. App. 2000). The Arizona Court of Appeals held that a lien claimant can avoid the "full release" effect of an unconditional lien waiver by modifying the express terms of the waiver to "convey the message that only a partial release is intended."

The facts in United Metro are somewhat confusing because the material supplier initially furnished materials to the general contractor and later directly to the owner. The key facts are that the general contractor tendered a payment to the material supplier along with an unconditional lien waiver. The letter explained that the check represented "partial payment through November 30, 1995" and the material supplier was instructed to apply the check to two particular invoices. Although the check equaled the total amount of those two invoices, other invoices for materials delivered during November 1995 remained unpaid.

Consequently, before signing the unconditional lien waiver form, the material supplier typed "Partial through November 30, 1995" in the blank specifying the date covered by the waiver and drew a line from those words to a blank area on the form where he wrote "for invoices 153915 153604 only!"

The material supplier never received payment for the other materials supplied in November nor for additional materials supplied during the following three months. As a result, the material supplier recorded a lien on March 8, 1996.

The owner contested the lien on the grounds that the material supplier waived its rights to recover for materials furnished before November 30, 1995 by signing an unconditional lien waiver form. The owner argued that the express nature of the form should dictate the terms of the release, regardless of the intent of the parties.

The United Metro Court rejected this "very strict interpretation of the statutory form of release." The Court explained that the owner's argument failed to recognize that a lien claimant may create a partial waiver by inserting words in the wavier form that clearly reserve lien rights contrary to the express terms of the lien waiver.

The Court held:

"[Material supplier] effectively executed a partial release, giving up its rights upon execution of that release only as to the invoices specified. Indeed, [material supplier] was being paid for certain invoices when it signed the December 18 release and, therefore, an unconditional waiver as to those invoices was proper. However, because it was not being paid for all of its invoices for material supplied through the date of its release, [material supplier] indicated that it was signing a 'partial' release covering only the invoices it specified. . . ."

United Metro is an important decision because it affirms that subcontractors and material suppliers can and should markup the statutory lien waiver forms to reflect the intended scope of the release. On the other hand, it is still incumbent on owners and general contractors not to accept modified or marked up release forms if the intent is to secure a full release through a particular date. — Michael J. Holden