Mechanic’s lien waiver. What if the check does not clear?
It is common to receive a mechanic’s lien waiver before being paid a partial installment under your construction contract. We all expect it and in a way, welcome this piece of paper because it means you are going to be paid shortly. But many of us wonder what would happen if we sign the lien waiver and the check received never clears the bank and bounces. What is the legal effect?
For example, assume you are a plumbing subcontractor. The law is clear in almost every state that if the check bounces, as between you and the person writing the check, under basic principles of contract law as well as lack of consideration, it is as if the payment was never made in the first place–the lien waiver would not be effective. This means you would be entitled to recording mechanic’s lien later if unpaid.
But it becomes more problematical as to third parties. Take the same example above, but now the owner relies upon the signed lien waiver, cuts a hefty check to the general contractor, and has every reason to believe the money will filter down to you. If that doesn’t happen, under the principles of detrimental reliance, some states will hold you to your waiver regardless of non-payment. Other states find just the opposite and will protect you just as in the case above.
The solution is all too simple. Simply make sure your waivers contain the following language (if they don’t, re-word them and send the waiver back):
Sample Lien Waiver Provision
Upon receipt by the undersigned Lien Claimant (the person/company receiving the payment) of a check from (individual or company name of person making payment): _______________________________________________________________________
in the sum of $ _____________________, payable to the Claimant and conditioned upon a) the check being properly endorsed, b) the Claimant receiving the full amount above described, and c) the check paid by the bank upon which it is drawn, this document shall become effective to release any mechanic’s lien, stop notice, or bond right the Claimant has on the above project at the location described herein, to the extent of that payment.