Lance E. Duroni
Business in the construction industry is not always conducted as attorneys would recommend. Oral agreements or hastily revised documents are sometimes resorted to in the rush to complete a delayed project, or between contractors and subcontractors with a long history together. A recent ruling by the Wisconsin Supreme Court, however, highlights the risks of foregoing legal advice and editing construction lien waivers at the negotiating table.
Last June, Wisconsin’s highest court issued a split decision in favor of a subcontractor who inserted a handwritten notation into a lien waiver, thereby converting what would have been a full waiver into a partial waiver, and salvaging lien rights worth nearly $200,000. That case, Great Lakes Excavating, Inc. v. Dollar Tree Stores, Inc., et al., wound its way through every level of the Wisconsin court system to resolve the confusion created when one party crossed out two words in a lien waiver and added a single word in their place.
The dispute involved subcontractor Great Lakes Excavating, Inc., which was hired by contractor AMCON Design and Construction Co. to perform excavation work for a parking lot tied to a commercial development. Due to poor soil quality, the cost of the excavation ballooned and AMCON failed to pay Great Lakes on a timely basis for its work. After serving a notice of intent to file a construction lien on the owner, Great Lakes met with AMCON to discuss waiving the lien.
AMCON offered Great Lakes $33,448 in partial payment of the $222,238 debt. At the same time, AMCON presented Great Lakes with a preprinted lien waiver form that noted the $33,448 to be paid, but in all other respects was worded as a full waiver of Great Lakes’ lien rights on the project. The form was titled “Lien Waiver to Date.” However, before signing it, a representative for Great Lakes crossed out the words “to Date” and handwrote the word “Partial” in their place, initialing the change.
This simple alteration lit the fuse for a protracted legal fight when Great Lakes filed and then attempted to foreclose on its construction lien. The owner, Riverworks City Center, LLC, convinced two lower courts that Great Lakes had waived the entirety of its lien by signing the form and could not collect from the owner, regardless of the handwritten “Partial” notation. Those courts both agreed that the form ran afoul of Wis. Stat. § 779.05(1), which requires partial lien waivers to “specifically and expressly” limit the waiver to a “particular portion” of the work performed.
On appeal, the Wisconsin Supreme Court overruled the lower courts and allowed Great Lakes to enforce the lien for the full amount Great Lakes was owed. Relying on the contract law principle that handwritten terms control over conflicting provisions on a preprinted form, the justices held that, taken together, the “Partial” notation, combined with the lien waiver’s specific reference to the $33,448 provided in consideration, trumped conflicting language in the document suggesting a full waiver. The decision was not unanimous, as two justices argued in dissent that the statute clearly required Great Lakes to do more than scribble in the word “Partial” on the form to overcome the conflicting language.
A casual observer might consider the decision in Great Lakes as giving contractors the greenlight to hand-edit lien waivers on the fly and trust that courts will figure out what the parties intended should a dispute arise. But that would be the wrong lesson. Because of the lack of careful contract language, Great Lakes had to prosecute its claims before the trial court, lose, appeal the trial court’s adverse decision to the Court of Appeals, lose again, and then squeak out a victory before the Wisconsin Supreme Court in a split decision. The parties’ protracted and costly legal fight, and the disagreement among the Justices of Wisconsin’s highest court over the result, underscore the wisdom of consulting an attorney when altering any documents of legal consequence.
Notably, for construction liens in particular, the property owners who ultimately bear the brunt of the lien are often not privy to waiver discussions between contractors and subcontractors. For that reason, even where the contractor and subcontractor share the same understanding of their agreement, the property owner may contest an ambiguously worded waiver in the event of a dispute, which is what happened in Great Lakes. Thus, the best practice is to document a lien waiver in a carefully worded contract that is reviewed by counsel.
KMK offers a wide array of legal services to businesses in the construction industry, including handling construction liens, lien waivers and construction bond claims. If you are having a dispute with a contractor over payment, would like a review of the contracts you have in place, or need any advice concerning payment for construction work, please contact KMK Attorneys Lance E. Duroni (email@example.com) or David M. Henry (firstname.lastname@example.org). Both can be reached at (414) 962-5110.