WA Supreme Court - Need Only Sue the Bond for Materialmen Liens
This case arises out of the question of who an indispensable party in an action on a lien release bond is. The Court reviewed this issue de novo, as it was an issue of statutory interpretation, and unexpectedly found that a claim against a lien release bond could be pursued solely against the surety.
The present case involves the supplier of drywall, Inland Empire, the purchaser of the drywall, EWD&P, and the installer of the drywall, Fowler General Construction. Inland Empire alleged that EWD&P failed to pay them for the drywall, taking out a lien on the construction project to do so. In response, Fowler obtained a lien release bond from Western Surety Company, releasing the prior lien on the construction project. The function of the lien release bond serves to free title of the property owner, placing the surety in the shoes of the property owner- allowing a lien claimant to turn to the bond holder. Inland Empire filed the present action against Western Surety’s Bond, not including Fowler as a party.
The trial court ruled in favor of Western, stating that under Washington statute, Inland Empire failed to include Fowler as a necessary party. The Court of Appeals reversed the trial court’s ruling stating that Inland Empire was only required to name Western. Washington statutory law describes the procedure for which a lien must be recorded, and the procedures that a lien claimant must follow. The Court here emphasized the reasoning followed by the Court of Appeals, stating that the substitution of the surety in RCW 60.04.161 for the owner of the subject property is indicative of the legislature’s plain intent that when a lien release bond is filed, the surety shall be substituted for the property owner as the entity that must be sued to recover on a lien. What remains questionable is how the Court can justify stating that the lien claimant must prove the validity and the right to recover the claimed amount, when both supporting the position that a lien claimant may bring suit solely against the surety.
The Court’s reasoning emphasizes important issues regarding the supposed impracticality of bringing suit against a principal, such as the fact that they may be bankrupt or insolvent. The Court here analogizes the parties in the present case with that of a guarantor of a debt, debtor, and obligor. In doing so, the Court seemingly overgeneralizes the duties owed to each party, and their responsibility in the repayment of a bond or lien. The Court provides reasoning in the form that the surety would have the same motivations, means, and conclusive result in determining the principal’s liability. However, what the Court seems to forget is that just because parties may be similar, does not necessarily indicate that one (in this case the principle obligor) may be bypassed or that the parties are interchangeable.
This ruling has implications not limited to construction or suretyship law, as the Washington Supreme Court frames its reasoning through the lens of relationships rather than legal duties. In fact, increasingly it is the work that occurs leading up to the courtroom that wins the day. This includes making sure you have completed the correct procedural steps in providing the strongest basis for your claim, regardless of whether they are required.
Further, this disincentivises contractors such as Fowler from obtaining a lien release bond in the first place. By bringing suit solely against the bond, the principal on the bond loses the ability to contest issues related to work or materials. If there is no ability to contest, then the principal may as well just allow the lien to sit on the property holder, letting it all be sorted out in litigation. We want contractors to obtain these lien release bonds, but we should not preclude their ability to contest the suit.
At Issaquah Law Group, we have extensive experience in construction law and litigation. If you require assistance with your claim or have questions regarding the implications of this holding, please contact our Issaquah attorneys.