The Unconditional Waiver, the Pay-If-Paid Clause, and a Warranty Callback
Summit Mechanical is a subcontractor on a $2.8 million retail remodel. Its contract price is $412,000. Progress billing No. 4 is $410,000, covering work through March 14. The owner's lender has not funded the draw. On March 28, the general contractor's accounts-payable clerk emails Summit a 'conditional progress payment waiver and release' for $410,000 and asks for it back before payment. Summit's office manager signs and returns the form, but the AP clerk had attached the unconditional version by mistake. The owner pays the GC $300,000 on April 10; the GC pays Summit $300,000 and retains $110,000, citing a subcontract clause that says 'payment is due only when and to the extent the owner pays the contractor.' Summit was asked to return on April 22 to replace a faulty control valve under the one-year warranty; it did so. Summit files a lien on July 15, 85 days after the April 22 return, for $110,000. The GC says the unconditional waiver and the pay-if-paid clause both bar the lien and the claim. Summit's contract also requires written notice of nonpayment within 10 days.
1. Evaluate the effect of the unconditional waiver. Did Summit waive its $110,000 lien rights, and what facts and doctrines matter?
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The label matters. A conditional progress waiver is effective only when and to the extent payment is actually received; an unconditional waiver is effective on its face even if payment is not received. Summit signed the unconditional version by mistake. The strongest argument for Summit is that the GC's own clerk sent the form, no payment accompanied it, and the parties intended a conditional waiver. Mistake, lack of consideration, and the absence of any payment may support reformation or a limit of the waiver to the $300,000 actually paid. But courts often enforce a signed unconditional waiver, and a unilateral mistake may not defeat it, especially if the owner or GC relied on it.
Summit should immediately send a written correction, tender a conditional waiver for $300,000, and preserve the $110,000 claim. Do not file a lien based only on the argument that the waiver was a mistake; treat the waiver as a serious obstacle. Check whether Montana's lien-waiver statute prescribes a form and limits progress waivers to amounts paid. If it does, the statutory limits matter more than the form's title.
2. Is the 'only when and to the extent the owner pays' clause a pay-if-paid or pay-when-paid provision, and how does that affect Summit's claim against the GC?
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'Only when and to the extent the owner pays the contractor' is pay-if-paid language, not pay-when-paid. Pay-if-paid makes owner payment a condition precedent to the GC's obligation; pay-when-paid is only a timing provision that requires the GC to pay within a reasonable time after it receives payment. Courts generally enforce clear pay-if-paid clauses but construe them narrowly and may refuse enforcement if the clause is ambiguous, if the GC caused the owner's nonpayment, or if the GC failed to pursue the owner.
If the clause is enforceable, Summit bears the risk of the owner's lender dispute for the $110,000 as a contract matter. That does not necessarily defeat Summit's lien or bond rights, which are separate statutory remedies. Summit should also check the 10-day notice clause: if it is a condition precedent, missing it may bar the contract claim, but it should not bar a timely lien. The practical lesson is that pay-if-paid shifts credit risk to the sub; Summit should seek joint-check payment, a bond claim, or stop-work rights when the owner's funding is in doubt.
3. Assume Montana's 90-day claim-of-lien period applies. Was the July 15 lien timely? Explain the last-furnishing issue and the risk created by the April 22 warranty return.
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Montana's claim-of-lien period is generally 90 days after the claimant's last furnishing of labor or materials; confirm the current statute before relying on it. If April 22 is the last furnishing, 90 days later is July 21, and a July 15 filing is timely. But a warranty or punch-list return to correct defective work usually does not extend the lien period; the last furnishing remains March 14, when Summit completed its contract work. Ninety days after March 14 is June 12. Under that analysis, the July 15 lien is 33 days late and is void.
The April 22 return is risky because it may look like an attempt to revive the lien period. Summit should gather the work order, the warranty clause, and the nature of the valve replacement. If it was extra work outside the original contract, it may be lienable; if it was correcting Summit's own installation, it likely is not. The practical lesson is to calendar the lien deadline from the last substantive furnishing, not from a warranty callback, and to file before the deadline if there is any doubt.