What you need to know:
- A project owner may rely on a lien release in a subcontractor’s name, even though the release was forged by the contractor and the subcontractor did not receive payment.
- If the owner complies with the requirements of the lien law, its liability for lien claims will not exceed the direct contract price. This is known as the “proper payments” defense.
In Continental Concrete, Inc. v. Lakes at La Paz III L.P., 758 So.2d 1214 (Fla. 4th DCA May 17, 2000), Whitmer Commercial Contractors, Inc., the general contractor (“GC”), gave the project owner lien releases that were forged to appear as if various subcontractors had signed them. The owner relied on the forged releases in making payment to the GC.
Eventually, Owner terminated the GC based on its repeated failure to timely pay subcontractors. Owner finished the project but ended up paying approximately $63,000 more than the original direct contract price.
One of GC’s subcontractors, Continental Concrete, Inc., claimed that it was unpaid a significant amount of money. Continental also claimed that some of the releases that Owner relied upon were not signed by authorized Continental personnel and, further, that Continental had not received payments for the amounts set forth in them. Continental recorded a construction lien and filed suit to enforce it.
Owner defended against the Continental’s lien claim on the argument that it properly relied upon the lien releases provided by the GC and, further, that because Owner had paid more to complete the project than the price of its direct contract with the GC, Continental’s lien claim was barred by the proper payments defense. Continental responded by arguing that the lien releases were forged, which should defeat Owner’s defense.
In Florida, an owner has the benefit of a “proper payments” defense to subcontractor and supplier lien claims when the owner complies with all of its duties under Florida’s Construction Lien Law. The proper payments defense limits the owner’s liability to the amount of the direct contract so that if it has paid that amount or more, the law will protect the owner against construction liens. Further, an owner may rely on a forged lien release so long as the owner does not have reason to know of the forgery and otherwise acts in good faith.
Because the Owner had paid more than the price of the contract with GC to complete the project, and because there was no evidence that the Owner should have known that the GC had provided lien releases that were not really from Continental but were in fact forged, the trial court granted summary judgment in favor of Owner. Having lost its lien claim, Continental appealed.
The appellate court upheld the trial court’s ruling. It acknowledged that while both Owner and Continental were innocent vis-à-vis the GC’s forgery, Continental, not Owner, had to suffer the loss because Continental’s extension of credit to the GC made the loss possible.
Construction projects are fraught with risks. Certainly, forged lien releases should not be among them. Working with experienced counsel can help avoid those risks and protect your important construction lien rights.