A Material Supplier Wins in Recent Nevada Decision
It’s a win for the material supplier! A recent Nevada court decision invalidated an unconditional lien waiver when the subcontractor’s check to the material supplier failed to clear, leaving the material supplier unpaid.
Cashman Equip. Co. furnished specially fabricated materials to the Las Vegas City Hall project, and signed an unconditional waiver in exchange for payment from two higher tiered contractors, Mojave Electric and Cam.
Mojave Electric paid Cam and then Cam was to pay Cashman. Unfortunately, the first check Cashman received from Cam didn’t clear because Cam placed a stop payment on the check. The second check Cashman received from Cam didn’t clear due to insufficient funds.
Cashman did what was necessary to recover its money by filing a mechanic’s lien and then suit in the amount of $755,893.89. The trial court did award Cashman some funds (just under $300k based on an “equitable analysis”) but decided Cashman’s lien was unenforceable because of the executed unconditional lien waiver.
Cashman was vindicated when the appeals court reversed the trial court’s decision, because it deemed the enforcement of an unconditional waiver, in this case, would violate Nevada’s public policy. Here’s what the judge had to say:
“The purpose of the mechanic’s lien statutes is to ensure payment to those who supply materials and labor on a project… Enforcing the unconditional waiver here would violate Nevada’s public policy, just like the pay-if-paid provision in the contract at issue in Lehrer violated public policy. And the very clear language of NRS 108.2457(5)(e) dictates that the waiver is void and unenforceable because Cashman never received payment. Here, Cashman’s agent testified at trial that he executed the lien release believing, despite the waiver language contained in the release, Nevada law would protect Cashman if Cam’s check did not clear the bank. The parties do not dispute that Cam’s check to Cashman did not clear the bank. Therefore, the waiver is void. Just as we refused to enforce the pay-if-paid provision in Lehrer, we likewise refuse to enforce Cashman’s release.”
Above, I mentioned Cashman had received some funds. This case also addressed “equitable fault” which authors Tracy DiFillippo and Kevin Stolworthy recapped in Nevada Supreme Court Ruling Means Additional Liability for Owners, Contractors and Subcontractors.
“The Court also rejected the application of the equitable fault analysis to reduce a mechanic’s lien. The trial court had initially found that Mojave and Cashman were innocent victims but found Mojave 33 percent responsible and Cashman 67 percent responsible for Cam’s actions. Based on the percentages, the trial court reduced the mechanic’s lien. On appeal, the Nevada Supreme Court concluded that equitable fault analysis was inappropriate to reduce the amount due under the mechanic’s lien.”
If you serve a preliminary notice to preserve mechanic’s lien/bond claim rights, there may be pieces of information within the notice that are statutorily required. For example, in some states your contract amount is required to appear on the notice, so what happens if your customer orders additional materials/labor, increasing your contract amount, and you have already served your notice?
In the event the required information changes after you have served your notice, you may need to send the notice again with updated information. Read Should I Amend My Preliminary Notice? to learn more!
NCS Education: Upcoming Opportunities
November 1st – NEW – The Credit Research Foundation & NCS present Using Security to Expand Your Credit Boundaries.
Mechanic’s Liens & Bond Claims
- November 3rd – NEW – Securing Mechanic’s Lien Rights in Notice of Commencement States
- November 15th An Advanced Look at the Lien and Bond Claim Process
- December 6th Implementing a Lien Bond Claim Program: Overcoming Obstacles
- November 8th An Advanced Look at the UCC Process
- November 29th Implementing a UCC Program: Overcoming Obstacles
- November 15th – Join us in Chicago for full or half day seminar on UCC filings, Mechanic’s Liens and Bond Claims!