Inland Empire Dry Wall Supply Co. v. Western Surety Company , 197 Wash. App. 510 ( 2017 )

FILED
JANUARY 10, 2017
In the Office of the Clerk of Court
WA State Court of Appeals, Division Ill
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
INLAND EMPIRE DRYWALL SUPPLY ) No. 34022-8-111
CO., a Washington corporation, )
)
Appellant, )
)
V. ) PUBLISHED OPINION
)
WESTERN SURETY COMPANY (Bond )
No. 58717161), )
)
Respondent. )
PENNELL, J. - Washington law allows for the recording of a bond to free up
property encumbered by a construction lien. When this happens, the bond is substituted
for the property and a lien claimant can take legal action against the bond. The question
we confront here is who must be sued when a claim is filed against a lien release bond.
The procedural statute governing lien release bonds unambiguously identifies only the
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bond surety as an interested party. This is consistent with general suretyship principles,
which allow a claimant to seek relief directly against a surety. Because the trial court
erroneously ruled that a claim against a lien release bond could not be made solely against
a surety, the judgment in this matter is reversed.
FACTS1
Inland Empire Dry Wall Supply Company (Inland) entered into a credit and sales
agreement with Eastern Washington Drywall & Paint (EWD&P) for a construction
project. EWD&P had been subcontracted by Fowler General Construction (Fowler), the
project's general contractor, to provide labor and materials for the project. Over the
course of the construction project, Inland purportedly supplied $124,653.05 in drywall
materials to EWD&P.
Fowler provided EWD&P with funds to pay Inland, but EWD&P never paid
Inland and eventually ceased working on the project. Inland ultimately initiated a lien
against the project for money owed. It filed a preclaim lien notice against the owner of
the project, Western States Development Corporation, as required by RCW 60.04.031.
Inland then timely recorded the lien as required by RCW 60.04.091.
1
While the facts material to this decision are largely not in dispute, they are
construed in the light most favorable to the appellant.
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Inland Empire Dry Wall Supply Co. v. W. Sur. Co.
In order to release the project from Inland's lien, Fowler obtained a release of lien
bond in the amount of $186,979.57 from Western Surety Company (Western). The bond
identifies Fowler as the "Princip~l," Western as the "Surety," and Inland as the "Obligee."
Clerk's Papers at 84-85.
After the lien release bond was recorded, Inland filed an action against Western in
Spokane County Superior Court to recover on its lien. Fowler was not named a party to
the suit. Western answered Inland's complaint and raised several affirmative defenses,
including that by failing to name and include Fowler as a necessary and indispensable
party, Inland had not satisfied the statute of limitations requirements in chapter 60.04
RCW. Both parties filed motions for summary judgment.
Relying on our decision in Ca/Portland Co. v. Leve/One Concrete, LLC, 180 Wn.
App. 379, 321 P.3d 1261 (2014), the trial court granted summary judgment in favor of
Western. The trial court reasoned that under Ca/Portland, when legal action is taken to
foreclose on a lien release bond, the statute of limitations under RCW 60.04.141 for
service of the lawsuit on a property owner is replaced by an analogous statute of
limitations requiring service on a bond's principal and surety. The court ruled that
because Inland only named Western as a party and served it as the bond's surety, the
statute of limitations was not met and Western was discharged from liability and entitled
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to judgment in its favor. Inland filed a motion for reconsideration, but the motion was
denied. Inland appeals.
BACKGROUND
This case concerns chapter 60.04 RCW, also known as the "mechanics' lien" or
"construction lien" statute. See Ca/Portland, 180 Wash. App. at 385-86. This statute sets
forth a lien procedure to protect the financial interests of persons contributing labor,
materials or equipment to a construction project. If construction costs are not paid, the
statute allows a lien to be placed against the construction project property as a method for
financial recovery. Given the burdens on property imposed by construction liens, the
statute sets forth strict time limits. One asserting a claim of lien must bring an action to
foreclose the lien within eight months of recording the claim. RCW 60.04.141. The
property owner must be served with notice of the suit within 90 days. Id. A lien claimant
who fails to comply with these time constraints loses all rights to recover on the lien. See
Bob Pearson Constr. Inc. v. First Cmty. Bank of Wash., 111 Wash. App. 174, 178, 43 P.3d
1261 (2002).
Apart from protecting the rights of property owners by requiring strict time
compliance, the statute also sets forth a bond procedure that can be used to free up
construction project property from a lien prior to resolution of claims. RCW 60.04.161.
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Under the lien release bond statute, a variety of persons disputing the validity of a lien can
obtain and record a bond, including a property owner, a contractor or a lender. Id. While
the statute allows for flexibility with respect to who can initiate a bond, it has strict
requirements for bond sureties. A surety must be authorized to issue bonds in the state
and must comply with federal bonding requirements. The statute also states a bond
"surety shall be discharged from liability under the bond" if "no action is commenced to
recover on a lien within the time specified in RCW 60.04.141." Id. In other words, strict
time frames for filing suit apply in the lien release bond context, not just the regular lien
context.
The procedure for obtaining relief against a lien release bond under RCW
60.04.161 has been the source of considerable confusion. Relevant here, questions have
arisen with respect to who the necessary parties are when a bond has been obtained to
release property from a lien. Without a bond, the statute is fairly straightforward. The
owner of the real property must be made a party to the suit, along with any person who,
prior to commencement of the action, has a recorded interest in the property which the
lien claimant seeks to have affected. RCW 60.04.141, .171. But who must be served
when a bond releases a piece of property? This is the source of the parties' dispute.
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We attempted to resolve this confusion in Ca/Portland. In that case, like this one,
a general contractor recorded a lien release bond prior to the filing of suit. Unlike this
case, the lien claimant served both the general contractor as lien principal and the surety
company. However, the owner of the underlying real property was not sued. Initially, the
trial court dismissed the lien claim, holding the real property owner was a necessary party.
We reversed. As we explained, because a bond operates to release real property from
being encumbered by a lien, once the bond is recorded, the real property owner is no
longer an interested party. Instead, the bond replaces the property and suit is sufficient so
long as it is against the bond. Ca/Portland, 180 Wash. App. at 387-88. Given this context,
the property owner need not be included as a party for a claimant's case to go forward.
In Ca/Portland, we stated a real property owner is not a necessary party to a suit
against a lien release bond; instead, inclusion of the bond principal and surety is
"sufficient." Id. at 388. This statement forms the basis of Western's current position.
According to Western, the foregoing statement means Inland was required to sue both
Western (as the surety) and Fowler (as the bond principal) in order to proceed on its lien.
We disagree. All we said in Ca/Portland was that a suit against both a bond principal and
bond surety is sufficient for compliance with the lien release bond statute. The ruling did
not address whether suit against both is necessary.
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ANALYSIS
Resolution of this case turns on statutory construction, which we review de novo.
Dep't of Ecology v. Campbell & Gwinn, LLC, 146 Wash. 2d 1, 9, 43 P.3d 4 (2002). Our
"fundamental objective" in this analysis "is to ascertain and carry out the Legislature's
intent." Id. Where a statute's meaning is plain on its face, construction aids such as
legislative history are unnecessary to determine the legislature's intent. While the current
statute is not a model of clarity, its terms are sufficiently plain to resolve the parties'
dispute without resorting to aids of construction. Ca/Portland, 180 Wash. App. at 388.
As previously noted, we are asked to resolve the statutory question of who is a
necessary party when a bond has been recorded to replace a construction lien. For initial
guidance, we look to RCW 60.04.141, which sets procedures to be followed when a bond
has not been filed. In this context, service of a lawsuit to enforce a lien must be made on
"the owner of the subject property" within a tight statutory timeframe. RCW 60.04.141
(suit must be filed within eight months and served within ninety days). By designating
the "owner of the subject property" as the entity that must be served, the construction lien
statute clearly contemplates that the "owner of the subject property" is a necessary party
to a lien foreclosure claim. See Bob Pearson, 111 Wash. App. at 178.
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Once a lien release bond is recorded, the procedural statute shifts from RCW
60.04.141 to RCW 60.04.161. This change alters the governing legal landscape. With a
bond, real property is no longer encumbered. Ca/Portland, 180 Wash. App. at 386-87;
DBM Consulting Eng'rs, Inc. v. US. Fid. & Guar. Co., 142 Wash. App. 35, 40, 170 P.3d
592 (2007). The lien release bond operates as a substitute for the property. Id. at 41. As
a result, the parties interested in a foreclosure action are different. Unlike RCW
60.04.141, RCW 60.04.161 makes no mention of the "owner of the subject property" as
an entity necessarily impacted by a suit. 2 Instead, the statute states it is the "surety" who
must be included in a suit in a timely manner. RCW 60.04.161 ("if no action is
commenced [within the time frame set by RCW 60.04.141], the surety shall be discharged
from liability") (Emphasis added.) This substitution of the "surety" in RCW 60.04.161
for the "owner of the subject property," as used in RCW 60.04.141, indicates 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.
The omission of any reference to the bond principal is significant and indicates the
legislature's intent that a bond principal need not be included.
2 The only reference in RCW 60.04.161 to the owner of the property subject to a
lien is in the context of identifying the owner as one of several entities that may dispute a
lien and record a bond.
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Confusion over who must be sued in this case appears to lie in the belief that,
regardless of the existence of a lien release bond, suit must be filed against a property
owner. Because a bond principal might be considered the lien release bond's owner,
Western claims Inland was required to include Fowler in its suit. We disagree. When it
comes to a bond, the term "owner" is no longer technically applicable. Under the law of
suretyship, once a bond has been obtained, the applicable terms are the obligee (or
claimant or creditor), the principal obligor, and the secondary obligor (or surety). See
RESTATEMENT OF SECURITY§ 82 (AM. LAW INST. 1941); RESTATEMENT (THIRD) OF
SURETYSHIP AND GUARANTY, at IX-XI (AM. LAW INST. 1996). The parties' relationship
to the bond is created by contract. There is no "owner" in this context.
The legislature appears to have understood this terminology. Nowhere in the bond
in lieu of claim statute (RCW 60.04.161) is there any indication a bond lien claimant must
sue an "owner." Nor does this statute incorporate the requirement ofRCW 60.04.141 that
service of suit be effected on an "owner." The lien release statute only incorporates the
provisions ofRCW 60.04.141 as to the timing of an action. It does not incorporate the
requirements ofRCW 60.04.141 regarding who must be sued. 3
3
If the legislature had intended RCW 60.04.141 to apply to the lien release bond
context it would not have specifically limited the applicability ofRCW 60.04.141 to
issues of timing.
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Contrary to the position taken by our dissenting colleague, neither RCW 60.04.141
nor RCW 60.04.171 is directly applicable in the bond context. Both RCW 60.04.141 and
.171 discuss the procedures for foreclosing on a "lien" and the disposition of related
"property." But once a bond is filed, property is no longer encumbered. DBM
Consulting, 142 Wash. App. at 42 ("A lien bond releases the property from the lien, but the
lien is then secured by the bond"). Only the bond is at risk. Although the subject matter
of the proceeding is still the validity of the originally recorded claim of lien, Id. at 40, this
continuity of subject matter does not control who must be made party to the suit. See
Ca/Portland, 180 Wash. App. at 391. 4
Just as it makes little sense, in the context of a bond, to require suit against an
"owner," it also makes little sense to incorporate the "property" concepts discussed in
RCW 60. 04 .141 and .171. The whole point of a bond is to release property from being
tied up in litigation. Once a bond is filed, the statute operates to substitute the bond for
the property. In like manner, application of the bond statute operates to substitute the
bond surety for the property owner as the individual that must be sued in a timely manner.
Contrary to Western' s protests, there is no practical or logical impediment to
4Given this subject matter, it is not surprising that RCW 60.04.161 refers to an
action against a bond as one involving an effort to recover on a lien. We therefore
disagree with the reliance placed on this portion of the statute by our dissenting colleague.
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pursuing a bond claim against only the surety. General suretyship principles apply.
Under those principles, a bond lien claimant such as Inland "has two sets of rights, one set
against the principal obligor and the other against the secondary obligor," also known as
the surety. RESTATEMENT (THIRD) OF SURETYSHIP AND GUARANTY§ 50 cmt. a. The
failure of the claimant to take action against the principal "does not discharge the
[surety]" unless provided by statute or other authority. Id. at§ 50(1). This rule works no
injustice to the surety because, to the extent the surety requires the principal's assistance,
the surety "may seek enforcement of the principal obligor's duty of performance." Id. at
cmt. a. Accordingly, "even if the [claimant] has not sought enforcement of the underlying
obligation, the [claimant's] inaction generally affords no equitable basis for a claim of
discharge by the [surety]." Id. See also Hutnick v. US. Fid. and Guar. C~., 47 Cal. 3d
456, 468-69, 763 P.2d 1326, 253 Cal. Rptr. 236 (1988) (service on surety sufficient to
allow claim against mechanic's lien bond). See also Warren v. Washington Trust Bank,
92 Wn.2d 381,390 n.l, 598 P.2d 701 (1979) ("it is the general rule that, even though the
creditor has a security interest in property of the principal, he may proceed first against
the surety before resorting to the security interest").
The general suretyship principle that a claimant may seek relief only against a
surety is fully consistent with Washington law. This is true under the lien release bond
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statute, which only contemplates suit against the surety. RCW 60.04.161. It is also true
under generally applicable surety law, chapter 19.72 RCW. In fact, RCW 19.72.090
recognizes suits will sometimes be laid directly against sureties. The only caveat is that in
such circumstances, the principal must sometimes be allowed to intervene as a defendant.
By the plain terms ofRCW 60.04.161, Inland was only required to name Western,
as the bond surety, as a defendant to its bond foreclosure action. While Inland could have
also named Fowler, as the bond principal, it was not required to do so. Inclusion of
Fowler may have streamlined the case and would have obviated the need for this appeal,
but it was not a statutory prerequisite. Because Inland satisfied the statute of limitations
for inclusion of a necessary party under RCW 60.04.161, the trial court's judgment in
favor of Western is reversed.
ATIORNEY FEES
Both parties request an award of attorney fees and costs pursuant to RCW
60.04.181(3). Because this matter is remanded for further proceedings, an award at this
juncture is premature. On remand, the trial court may award to Inland reasonable attorney
fees and expenses incurred in the trial and appellate courts if the trial court determines
Inland to be the prevailing party. RAP 18.l(i). We decline to make an award of costs
pursuant to RAP Title 14.
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CONCLUSION
Based on the foregoing, we reverse and remand for proceedings not inconsistent
with this opinion.
I CONCUR:
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FEARING, C.J. (dissenting)-This appeal asks two questions. First, must the
principal or purchaser of a construction lien release bond, under RCW 60.04.161, be
joined and served as a party when a claimant against the bond sues to recover on the
bond? Second, is the principal or purchaser of the construction lien release bond, under
RCW 60.04.161, an indispensable or necessary party in a lawsuit brought by a bond
claimant? Despite answering the first question in the negative, the majority addresses
only the first question. I answer the first question in the positive and thus dissent.
Language in chapter 60.04 RCW and the nature and purpose of the lien release bond
demandjoinder of the bond's principal in that the bond claimant must still adjudicate his
construction lien in the action against the bond. Joinder of the bond principal also avoids
duplicitous litigation. I need not answer the second question, but my answer to the first
question subsumes an answer that the bond principal is a necessary party to an action on
the lien release bond.
FACTS
On October 15, 2012, Inland Empire Dry Wall Supply, Co. (Inland Empire) and
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Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
Eastern Washington Drywall & Paint, LLC (Drywall & Paint) entered a contract, under
which Inland Empire agreed to sell building supplies on open account to Drywall &
Paint, a construction subcontractor. Pursuant to the contract and beginning in April 2014,
Inland Empire began supplying to Drywall & Paint construction supplies for the building
project, Bella Vista Apartments in Richland. Western States Development Corporation
(Western States) owned the apartment project, and the owner hired Fowler General
Construction (Fowler) as general contractor. Fowler, in tum, hired Drywall & Paint to
install the drywall on the project.
During the course of the project, Drywall & Paint purchased $124,653.05 worth of
drywall materials from Inland Empire. According to Inland Empire, Drywall & Paint
paid nothing for the purchases. According to Fowler, Inland Empire collected some
payment since Fowler refused to release some payments to Drywall & Paint without
Inland Empire receiving the payments. Fowler insists that Inland Empire has failed to
properly account for payments from Drywall & Paint.
On April 16, 2014, Inland Empire served a preclaim notice to Western States and
Fowler. On September 26, 2014, Inland Empire recorded a claim of lien with the Benton
County auditor's office on the apartment project realty. On November 17, 2014, Fowler
purchased and recorded a release of lien bond from Western Surety Company (Western
Surety) with the Benton County auditor's office in the amount of $186,979.57 to release
the construction lien on the apartment real property. The bond names Fowler as the
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principal. The bond reads as always in awkward language:
RELEASE OF LIEN BOND
KNOW ALL MEN BY THESE PRESENTS, That Fowler General
Construction, Inc., as Principal and Western Surety Company, as Surety,
are held and firmly unto Inland Empire Drywall Co., as Obligee, in the
amount of One Hundred Eighty Six Thousand Nine Hundred Seventy Nine
& 57/100 (186,979.57) DOLLARS, AND, WHEREAS, Inland Empire
Drywall Co. on September 26, 2014, filed a Lien Number 2014-024259
against the property known as Bella Vista Apartments Phase II and owned
by Western States Development Corporation, AND, WHEREAS, Fowler
General Construction, Inc. does not wish to pay said lien until the validity
of the lien can be properly determined or adjudicated.
NOW, THEREFORE, if the said Principal and Surety shall hold
harmless the said Obligee from and against any loss, costs or expenses
which may accrue due to the filing of said lien, then this obligation to be
null and void, otherwise to remain in full force and effect.
Clerk's Papers (CP) at 23 (emphasis added). Both Fowler and Western Surety signed the
bond.
Before Inland Empire filed suit, it demanded direct payment of the lien from
Western Surety. An agent of Western Surety replied:
The referenced bond states that Fowler does not wish to pay the lien
until the validity of the lien can be properly determined or adjudicated.
RCW 60.04.161 states that the condition ofthe bond shall be to guarantee
payment of any judgment upon the lien. Thus, if judgment is entered
against Fowler, and Fowler does not satisfy the judgment, then demand can
be made against the Release of Lien Bond. It does not appear that a lawsuit
has been filed nor a judgment entered against Fowler. At this time,
Western surety is not obligated to satisfy your demand for payment to
Inland Empire Drywall & Supply.
CP at 82.
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Western Surety's counsel represents Fowler in a separate action brought by
Fowler against Drywall & Paint.
PROCEDURE
Inland Empire filed this lawsuit to recover against or foreclose on the lien release
bond. Inland Empire only named Western Surety as a defendant. The trial court
dismissed this suit because of Inland Empire's failure to join and serve Fowler as a
defendant. Contrary to the majority, I would affirm.
LAW AND ANALYSIS
This appeal requires comparing and contrasting three related construction lien
statutes found in chapter 60.04 RCW. Chapter 60.04 RCW creates a construction lien,
formerly known as a mechanic's or materialman's lien, which binds real estate improved
by construction in favor of one who furnishes labor, professional services, equipment, or
material for the improvement. RCW 60.04.021. Our first crucial statute is RCW
60.04.141, which establishes a statute of limitations for foreclosing on the lien and
demands service of process on the property owner. The statute reads in relevant part:
Lien-Duration-Procedural limitations.
No lien created by this chapter binds the property subject to the lien
for a longer period than eight calendar months after the claim of lien has
been recorded unless an action is filed by the lien claimant within that time
in the superior court in the county where the subject property is located to
enforce the lien, and service is made upon the owner of the subject property
within ninety days of the date of filing the action.
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(Emphasis added.) We must decide if the service proviso ofRCW 60.04.141 still
controls after a lien release bond replaces the real property as security, and, if so, who
becomes the owner of the property.
Our next critical statute is RCW 60.04.161, which permits the owner of the real
estate encumbered by the lien or a contractor on the construction project to post a bond in
order to release the lien on the real property. The statute reads in pertinent part:
Bond in lieu of claim.
Any owner of real property subject to a recorded claim of lien under
this chapter, or contractor, subcontractor, lender, or lien claimant who
disputes the correctness or validity of the claim of lien may record, either
before or after the commencement of an action to enforce the lien, in the
office of the county recorder or auditor in the county where the claim of
lien was recorded, a bond issued by a surety company ... equal to or
greater than the amount of the bond to be recorded. The bond shall contain
a description of the claim of lien and real property involved, and be in an
amount equal to the greater of five thousand dollars or two times the
amount of the lien claimed if it is ten thousand dollars or less, and in an
amount equal to or greater than one and one-half times the amount of the
lien if it is in excess of ten thousand dollars. . . . The condition of the bond
shall be to guarantee payment of any judgment upon the lien in favor of the
lien claimant entered in any action to recover the amount claimed in a
claim of lien, or on the claim asserted in the claim of lien. The effect of
recording a bond shall be to release the real property described in the
notice of claim of lien from the lien and any action brought to recover the
amount claimed. Unless otherwise prohibited by law, if no action is
commenced to recover on a lien within the time specified in RCW
60.04.141, the surety shall be dischargedfrom liability under the bond. If
an action is timely commenced, then on payment of any judgment entered
in the action or on payment of the full amount of the bond to the holder of
the judgment, whichever is less, the surety shall be discharged from
liability under the bond.
(Emphasis added.)
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Our final decisive statute is RCW 60.04.171, which discusses the lien foreclosure
suit. The first paragraph of the statute declares:
Foreclosure-Parties.
The lien provided by this chapter, for which claims of lien have been
recorded, may be foreclosed and enforced by a civil action in the court
having jurisdiction in the manner prescribed for the judicial foreclosure of a
mortgage. The court shall have the power to order the sale of the property.
In any action brought to foreclose a lien, the owner shall be joined as a
party. The interest in the real property of any person who, prior to the
commencement of the action, has a recorded interest in the property, or any
part thereof, shall not be foreclosed or affected unless they are joined as a
party.
(Emphasis added.) We must decide, in part, whether RCW 60.04.171 covers an action to
foreclose or realize on the lien release bond, and, if so, who is the owner.
We are always to construe a statute in order to apply the intent of the Washington
Legislature. Department of Ecology v. Campbell & Gwinn, LLC, 146 Wash. 2d 1, 9, 43
P.3d 4 (2002). We are also to read a statute together with related statutes in an attempt to
discern the wish of the legislature. This court construes the meaning of a statute by
reading it in its entirety and considering its relation with other statutes. Department of
Ecology v. Campbell & Gwinn, LLC, 146 Wash. 2d at 11. Statutes relating to the same
subject matter are to be read together as constituting a unified whole, to the end that a
harmonious, total statutory scheme evolves which maintains the integrity of the
respective statutes. State v. Haggin, 195 Wn. App. 315,319,381 P.3d 137 (2016).
The majority writes that the only statute controlling a suit to recover on the lien
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release bond is RCW 60. 04 .161. I disagree. This statement disregards the connection
between the lien release bond and the original construction lien and violates the principle
that we construe as one related statutes. The majority also writes that RCW 60.04.161
reads that the surety must be included in the suit in a timely manner and implies that only
the surety must be sued. I find no language in the statute about serving or joining the
surety in the lawsuit, let alone stating that the surety is the only party to be served or
joined.
In this instance, we should fastidiously peruse the three statutes to discern the will
of the legislature with regard to whether the principal of the lien release bond must be
joined and served as a party when the bond's obligee forecloses. The statutes are not
models of clarity. But after reading the statutes together, recognizing the purpose behind
the statutes, and reviewing case law, the answer arises that the bond principal must be
joined in the lawsuit.
The majority emphasizes a phrase near the end ofRCW 60.04.161, the statute that
creates the lien release bond. The phrase declares: " ... if no action is commenced to
recover on a lien within the time specified in RCW 60.04.141, the surety shall be
discharged from liability under the bond." According to the majority, the language
suggests that only the surety, and not the bond's principal, need be joined in the lawsuit
to foreclose on the lien release bond. But the majority stretches the language beyond its
elasticity. The language says nothing about the parties to invite to the suit. The phrase
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does not state that only the surety must be sued or that conversely the principal need not
be joined in the suit.
The three statutes refer to only one suit, a suit to foreclose on a lien. RCW
60.04.161 states that, even after the posting of the bond, the claimant proceeds with an
action to foreclose on a lien. RCW 60.04.171 demands that the claimant join the "owner"
in an action to foreclose a lien. The three statutes only describe one procedure regardless
of whether the bond has replaced the land as security for payment.
Note that the phrase emphasized by the majority does not mention filing a suit to
collect on the bond, but rather a suit to foreclose on the lien. To repeat, the statute reads:
" ... if no action is commenced to recover on a lien within the time specified in RCW
60.04.141, the surety shall be discharged from liability under the bond." RCW 60.04.161
(emphasis added). This language confirms that the rules relating to foreclosing a lien
under RCW 60 .04.141 and .171 control a suit against the bond, regardless of whether we
employ the terminology "action to foreclose the lien on the bond" or "action to recover
on the bond."
RCW 60.04.161 uses the indefinite article "a" when referring to foreclosure of a
lien release bond. To repeat a second time, the statute reads, in an important section:
" ... if no action is commenced to recover on a lien within the time specified in RCW
60.04.141, the surety shall be discharged from liability under the bond." (Emphasis
added.) Use of the indefinite article further shows that the same procedure for
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No. 34022-8-III
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
foreclosing on the construction lien encumbering land operates when foreclosing on the
lien release bond. To keep the surety liable on the bond, the claimant must file an action
to recover on a lien or the lien.
One sentence in RCW 60.04.161 declares: "The condition of the bond shall be to
guarantee payment of any judgment upon the lien in favor of the lien claimant entered in
any action to recover the amount claimed in a claim of lien, or on the claim asserted in
the claim of lien." This sentence assumes that, despite the posting of the bond, the
claimant continues with a foreclosure of lien action. Thus, recovery against the bond
demands foreclosing the lien and utilizing the lien foreclosure process. One of the
conditions of the lien foreclosure is that the owner of the property be served and joined.
A sentence in the succeeding statute, RCW 60. 04.171 demands: "In any action
brought to foreclose a lien, the owner shall be joined as a party." (Emphasis added.)
Note that the legislature employed the indefinite article again. This language suggests
that the owner, in addition to the surety, must be joined as a party in a lien release bond
foreclosure. Under such a reading, we need to identify the "owner" in the bond
foreclosure.
I also note that chapter 60.04 RCW does not present an alternate procedure for
foreclosing on a lien release bond instead of foreclosing on land encumbered by the
construction lien. Since the legislature did not provide for an alternate procedure and
since we must construe the statutory scheme as a whole, I conclude that the language of
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Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
RCW 60.04.141 and .171 requiring service on the "owner" extends to a suit on the lien
release bond.
Inland Empire argues that we must construe the construction lien statutes liberally
and thereby rule in its favor. RCW 60.04.900 states:
RCW 19.27.095, 60.04.230, and 60.04.011 through 60.04.226 and
60.04.261 are to be liberally construed to provide security for all parties
intended to be protected by their provisions.
Case law provides flesh for RCW 60.04.900 and ascertains when courts will
employ a liberal construction of the statutes. Under Washington decisions, statutes
creating liens are in derogation of the common law and are to receive a strict
construction. Tsutakawa v. Kumamoto, 53 Wash. 231,236, 101 P. 869, 102 P. 766
( 1909). Their operation will not be extended for the benefit of those who do not clearly
come within the terms of the act. Williams v. Athletic Field, Inc., 172 Wash. 2d 683, 695,
261 P.3d 109 (2011). RCW 60.04.900 means that, when the court determines that
persons come within the operation of the act, the statutes will be liberally applied to
them. Williams v. Athletic Field, Inc., 172 Wash. 2d at 695.
The rule of liberal construction applies in favor of Inland Empire and almost
persuades me to join the majority. Still we cannot use the liberal construction
requirement to support a strained or unrealistic interpretation of statutory language.
Senate Republican Campaign Committee v. Public Disclosure Commission, 133 Wn.2d
229,243, 943 P.2d 1358 (1997). I have already read the statutes to the contrary. This
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No. 34022-8-111
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
reading demands that the bond claimant follow the procedures needed to foreclose on the
construction lien. The nature of the lien release bond as later discussed in other decisions
confirms this reading.
The majority asserts that the prevailing view in America is that the principal need
not be joined as a party when the obligee sues the surety. The majority cites Restatement
(Third) ofSuretyship & Guaranty§ 50 (1996) for the prevailing rule. The majority may
be correct as to this prevailing view. Nevertheless, I question the view's relevance when
we must review a statutory scheme that substitutes a lien release bond for a construction
lien on real property.
74 Am. Jur. 2d Suretyship § 102 (2016) reads, in part:
A surety may in all cases be sued jointly with the principal. If the
obligation is joint and not several, all the obligors must be joined as parties
defendant. However, if the obligation is joint and several, the creditor has
the right to proceed against the surety alone, or if the creditor chooses, it
may sue the principal, and at the same time bring an action also against the
surety, and prosecute both suits concurrently until the creditor obtains
satisfaction from one of them.
(Footnotes omitted).
Both Fowler and Western Surety, respectively as principal and surety, bound
themselves to Inland Empire. Both principal and surety agreed to hold Inland Empire
harmless from any release of the lien on the real property. Both Fowler and Western
Surety signed the bond. Nevertheless, the bond does not read that the parties suffer joint
and several liability.
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Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
Even assuming joint and several liability of Fowler and Western Surety, cases
conflict with 74 Am. Jur. 2d Suretyship § 102. The only case cited by Am. Jur. 2d for the
proposition that the creditor may join only the surety is Morgen & Oswood Construction
Co. v. United States Fidelity & Guaranty Co., 167 Mont. 64,535 P.2d 170 (1975),
wherein the bond specifically read that the principal and surety undergo joint and several
liability. A series of Texas cases hold that, when the surety bond provides for joint and
several liability of the surety and principal, the principal is a necessary party to suit on the
bond. Great American Insurance Company v. Sharpstown State Bank, 422 S.W.2d 787
(Tex. Civ. App. 1967); Iley v. Tapick, 368 S.W.2d 809 (Tex Civ. App. 1963). In Smith v.
Rogers, 34 S.W.2d 312 (Tex. Civ. App. 1930), the court considered a principal on a
sheriffs bond to be a necessary party.
Hutnick v. US. Fidelity & Guaranty Co., 47 Cal. 3d 456, 763 P.2d 1326, 253 Cal.
Rptr. 236 (1988) supports the majority's decision. A landscaper recorded a mechanic's
lien against property on which it had performed services. After the landscaper filed suit
to foreclose on the lien, a purchaser of the land posted a lien release bond from U.S.
Fidelity & Guaranty. Eight months after posting the bond, the landscaper served the
lawsuit papers on the bonding surety. Shortly thereafter the landscaper filed an amended
complaint to add a cause of action for foreclosure on the bond. A California statute read:
"Any action on the lien release bond shall be commenced by the claimant within six
months of the recording of the lien release bond." CAL. CIV. CODE§ 3144.5. The surety
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No. 34022-8-III
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
sought to dismiss the claim against it because the landscaper failed to sue on the bond
within six months of the bond's recording and because the landscaper failed to serve the
lawsuit on the land purchaser, who was also the principal on the surety bond. The
California court rejected the surety's arguments.
The Huntnik court identified the purpose behind the lien release bond and its
operation. The bond provides a means by which, before a final determination of the lien
claimant's rights and without prejudice to those rights, the property may be freed of the
lien, so that it may be sold, developed, or used as security for a loan. The recording of
the lien release bond does not extinguish the lien. Rather the bond replaces the land as
the object to which the lien attaches. The recordation of the bond in effect transfers the
claim of lien from the owner's land to the bond. The court adopted the reasoning of other
courts when writing:
[A] cause of action to foreclose a mechanic's lien is substantially the
same whether relief is sought against the liened property or against a bond
which has been substituted for the property. Thus it has been said that the
bond "does not change the relation or rights of the parties otherwise than in
substituting its obligations for the [property] subject to the lien, and it was
not within the legislative purpose in permitting the substitution to
deteriorate the lienor's rights."
47 Cal. 3d at 463 (quoting Harley v. Plant, 210 N.Y. 405,410, 104 N.E. 946 (1914)).
The court reasoned that the landscaper's amendment to foreclose on the bond rather than
the real property did not commence a new cause of action. Therefore, the landscaper had
commenced the claim against the surety timely. The same reasoning supports a
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No. 34022-8-III
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
conclusion that the bond claimant must follow the procedural rules of the construction
lien foreclosure statutes, including the Washington statutory provisions of joining the
owner of the property.
The Hutnick court later addressed what parties the lien claimant should join to a
foreclosure of the lien release bond. The court cited previous California case law when
writing:
"The defendants on the bond cause of action are the principal and
the sureties." This is so because when the release bond is recorded, the
bond obligations of both principal and surety are substituted for the
property as the object to which the mechanic's lien attaches.
4 7 Cal. 3d at 469 (quoting CAL. CONTINUING EDUC. OF BAR, CALIFORNIA MECHANICS'
LIENS AND OTHER REMEDIES§ 2.61, at 111 (2d ed. 1988)). Despite identifying the bond
principal as a defendant in the bond action, the California high court ruled that the
landscaper need not have served the principal with the summons and complaint in order
to proceed against the surety. The court declared:
Still to be addressed is the more general question raised by the Court
of Appeal regarding the surety's liability when the lien claimant has not
served the release bond principal as a defendant in the foreclosure action.
The present case directly raises this problem because although plaintiffs
have named Anderson, the new owner of the property and the principal on
the bond, as a defendant in this action, Anderson has not been served and
has not appeared.
We may assume arguendo that a judgment on a lien release bond
would not be directly enforceable against a principal who had not been
served and had not appeared in the action. This does not mean, however,
that the surety will be compelled to defend the action alone and unassisted
by the principal. If only the surety is joined, the resulting judgment will be
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No. 34022-8-111
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
binding on the principal, provided only that the surety has given notice to
the principal "and an opportunity at the surety's request to join in the
defense." (Code Civ. Proc.,§ 1912.) A principal notified of the action by
the surety will have the same motivation to defend the action as if formally
named as a party, because the judgment will be equally conclusive as a
determination of the principal's liability. Consequently, the surety has the
means to call upon the principal to defend the lien foreclosure action.
47 Cal. 3d at 469 (citations omitted).
Hutnick can be distinguished. The California statute, unlike the Washington
statute, specifically mentioned "any action on the lien release bond." 47 Cal. 3d at 464.
Washington also does not have a statute by which the principal is bound by a judgment
against the surety if the surety gives the principal notice of the suit. The Hutnick decision
mentions no California statutes requiring the owner of property to be joined in the suit.
Three Washington decisions provide help in answering the first question on appeal
in favor of demanding service on the bond principal. All three support the proposition
that an action on the lien release bond is tantamount to foreclose on the construction lien.
In DBM Consulting Engineers, Inc. v. United States Fidelity & Guaranty Co., 142
Wash. App. 35, 170 P.3d 592 (2007), DBM Consulting Engineers recorded a lien against
the owner of real estate to secure a debt DBM asserted it was owed under a contract. The
owner obtained a lien bond to allow it to sell the property. DBM sued the owner for
breach of contract and to foreclose the lien and prevailed at trial on the contract claim.
DBM did not seek a judgment on its foreclosure claim. DBM then sued the bond surety
to compel it to pay DBM the amount of the bond. This court held that, because DBM
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No. 34022-8-III
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
failed to obtain a judgment on the lien in its first suit and only obtained a judgment on the
breach of contract claim, the surety was not obligated to pay on the lien bond.
In DBM Consulting Engineers, this court interpreted the language ofRCW
60.04.161, the lien bond statute. I have already discussed the relevant sentence in the
statute, which states: "The condition of the bond shall be to guarantee payment of any
judgment upon the lien in favor of the lien claimant entered in any action to recover the
amount claimed in a claim of lien, or on the claim asserted in the claim of lien." 142 Wn.
App. at 39 (quoting RCW 60.04.161) (emphasis omitted). This court agreed with the
surety that the sentence declares that the bond only guarantees payment of a judgment on
the lien. When the lien claimant forecloses on the lien, the judgment is paid from the
bond. The purpose of such a bond is to transfer the lien from the property to the bond to
permit alienation of the property. The bond is not a concession that the lien is valid and
correct. Thus, the claimant must still adjudicate the validity of the lien. Since DBM
failed to adjudicate its lien in the first lawsuit, res judicata barred the second lawsuit.
Failure to adjudicate the lien was fatal to the claim against the surety.
Olson Engineering, Inc. v. KeyBank National Association, 171 Wash. App. 57, 286
P.3d 390 (2012) also supports the conclusion that the construction lien foreclosure
statutes control suits on the lien release bond since the bond claimant must still prove the
validity of its lien. If the action on the bond is tantamount to foreclosure of the
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No. 34022-8-111
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
construction lien, the bond claimant must follow the procedural requirements of the lien
foreclosure statutes, including the requirement that the owner be joined.
The third important Washington decision is this court's newly minted decision in
Ca/Portland Co. v. Leve/One Concrete, LLC, 180 Wash. App. 379,321 P.3d 1261 (2014).
CalPortland answers the question of who is the "owner of the property" when the bond
replaces the real property lien.
CalPortland provided building materials to LevelOne Concrete, a subcontractor
working on the construction of a new Costco building for which Ferguson Construction
served as general contractor. LevelOne Concrete failed to pay for the materials, and
CalPortland recorded a lien against the real property. Before any lawsuit, Ferguson
Construction posted a lien release bond issued by Travelers Casualty and Surety. The
trial court dismissed CalPortland's suit on the bond because CalPortland failed to join
Costco as a defendant. The surety relied on RCW 60.04.141, which requires the lien
claimant to serve the suit on the owner of the property. This court reversed since Costco
need not have been served with process after Ferguson Construction substituted the lien
release bond for the construction lien on the real property. Costco was no longer the
"owner" of the relevant property.
This court in Ca/Portland noted the purpose and operation of the lien release
bond. RCW 60.04.161 allows a party to file a bond to free the real property for
conveyance by transferring the lien to the bond. Filing the bond does not destroy the lien
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No. 34022-8-111
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
entirely, but instead transfers the lien from the real property to the bond. The lien bond
releases the property from the lien, but the lien is then secured by the bond. The plain
language of the statute established that Costco's realty was no longer "property subject to
the lien" for purposes of RCW 60. 04 .141 's procedural requirement.
Ca/Portland does not involve our situation on appeal of the lien claimant failing to
serve the principal under the lien release bond. Some dicta, however, could be read to
demand that the principal of the bond be served. This court wrote:
The bond did not name Costco as a principal or surety. Thus, when
CalPortland filed suit, Costco did not have an ownership interest in any
property "subject" to the lien within the meaning ofRCW 60.04.141. In
fact, the plain terms of the statute rendered Costco's property immune from
"any action brought to recover the amount claimed" by CalPortland. RCW
60.04.161. CalPortland, therefore, had no duty to serve Costco with the
summons and complaint. The only parties with an interest in the bond were
Ferguson and Travelers: the principal and surety named in the security.
Thus, the trial court erred in relying on CalPortland's failure to serve
Costco in granting summary judgment to Ferguson.
Ca/Portland Co. v. Leve/One Concrete LLC, 180 Wash. App. at 388. As a party with an
interest in the bond, the bond's principal should be identified as its owner. Ca/Portland's
dictum thereby supports the conclusion that the principal of the surety is the owner who
must be served in the lien release bond foreclosure action.
Foreign decisions also support my conclusion that the principal of the lien release
bond should be joined and served as a party in the action to recover on the bond. A
closely aligned decision is Synchronized Construction Services, Inc. v. Prav Lodging,
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No. 34022-8-111
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
LLC, 288 Va. 356, 764 S.E.2d 61 (2014). The Virginia high court addressed the
commonwealth's version of a lien release bond statute. The court noted that the bond
replaces the real property as the subject of the foreclosure, and, in turn, parties with an
interest in the bond, including the principal, are necessary parties to the foreclosure. The
court wrote:
Certain "parties in interest" may, in accordance with the rules set
forth by the General Assembly, post a bond after a mechanic's lien
enforcement action has been filed. A properly posted bond releases the real
estate from the mechanic's lien enforcement action. We have previously
recognized that this bonding-off process only "substitutes the bond for the
real estate" that had been subject to the mechanic's lien. Because the real
estate is no longer subject to the mechanic's lien enforcement action once a
bond is properly posted, the "subject matter" or res of the suit is no longer
the real estate, but is instead the posted bond itself.
This has a logical impact on the necessary party analysis. If no bond
has been posted the inquiry turns upon which parties have a real property
interest in the real estate subject to the mechanic's lien, but when a bond is
posted the inquiry focuses upon which parties have a pecuniary interest in
the bond itself which is "likely either to be defeated or diminished" by the
plaintiffs "claim against the bond."
To this end, we have previously considered which parties constitute
"necessary parties-defendant to [a] bond enforcement suit." The principal
on the bond and the surety on the bond are necessary parties. However, the
owner of real estate, the trustee under the deed of trust, and the beneficiary
of the deed of trust are no longer necessary parties when their only relation
to the litigation is their respective real property interests in the real estate
that had been subject to the mechanic's lien, but that was no longer
encumbered once the bond had been posted in accordance with Code§ 43-
70.
764 S.E.2d at 66 (citations omitted) (alteration in original).
In a 4 to 3 decision, the Synchronized Construction Services court held that the
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No. 34022-8-III
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
general contractor, who had no pecuniary interest in the bond posted to release the real
property lien, was not a necessary party to the foreclosure on the bond. The general
contractor did not pay for the bond. A lender and the property owner purchased the bond.
The three dissenters considered the general contractor to also be a necessary party to the
suit since the bond needed to pay only if the subcontractor, who filed the lien, was
obligated to pay the general contractor. The general contractor should have the
opportunity to assert any claims or defenses it might have against payment to the
subcontractor. The general contractor should have the opportunity to protect itself
against claims of the subcontractor.
Another Virginia decision is illustrative. In Johnson Controls, Inc. v. Norair
Engineering Corp., 86 Va. Cir. 138 (2013), the court held that, when a lien release bond
replaces a mechanic's lien, the owners of the real property are no longer necessary
parties. Instead, the bond principal and surety are necessary parties. The court dismissed
the suit. Although the bond principal was named a party in other causes of action within
the same lawsuit, the bond claimant failed to name the principal as a defendant in the
cause of action seeking to foreclose on the bond.
George W Kane, Inc. v. NuScope, Inc., 243 Va. 503,416 S.E.2d 701 (1992),
teaches of the need to join the principal in the bond foreclosure action. In order to
recover against the bond, the claimant must prove a valid lien and the amount of the lien.
Therefore, the same parties as required to enforce the lien should be present in the bond
20
No. 34022-8-111
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
recovery action. The principal of the bond, who is often the general contractor or the
hirer of the claimant, has an interest in the outcome of the suit. The principal generally
has information critical to the resolution of the dispute.
A series of New York cases also supports the conclusion that the principal of the
lien release bond must be joined in a suit to recover on the bond. Under New York law,
all persons should be made parties defendant, in the bond suit, who would be proper
parties to an action for the foreclosure of the lien in case a bond had not be given. Henry
Quentzel Plumbing Supply Co. v. 60 Pineapple Residence Corp., 126 Misc. 2d 751,483
N.Y.S.2d 927 (1984); Von Den Driesch v. Rohrig, 45 A.D. 526, 61 N.Y.S. 341 (1899);
Genninger v. Frank A. Wahlig Co., 116 N.Y.S. 578 (N.Y.C. City Ct. 1909); Morton v.
Tucker, 145 N.Y. 244, 40 N.E. 3 (1895); Sheffield v. Robinson, 80 N.Y. Sup. Ct. (73
Hun) 173, 25 N.Y.S. 1098 (1893). The New York and Virginia cases may conflict with
the ruling in Ca/Portland Co. v. Leve/One Concrete, LLC, 180 Wash. App. 379 (2014) in
that, in Washington, the owner of the improved real property need not be joined in the
bond foreclosure suit. Nevertheless, the foreign cases illustrate the need to at least
require the bond principal to be joined as a party.
Joining the bond principal in the bond recovery suit serves another purpose. The
principal must reimburse the surety for any money paid by the surety. First Interstate
Bank of Washington, N.A. v. Ne/co Enterprises, Inc., 64 Wash. App. 158, 162-63, 822 P.2d
1260 (1992); Leuning v. Hill, 79 Wash. 2d 396, 400-01, 486 P.2d 87 (1971); Eder v. Nelson,
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No. 34022-8-III
Inland Empire Dry Wall Supply, Co. v. Western Surety Co.
41 Wash. 2d 58, 62, 247 P.2d 230 (1952). Typically an indemnity agreement between the
principal and surety confirms this common law rule. Fairness then asks that the principal
be able to litigate the validity of the lien. I assume that the surety will often notify the
principal of the suit, but I cannot be assured that notification will always occur.
Demanding that the bond claimant join the bond principal imposes minimal burden on
the claimant compared to the harm that could result without the presence of the principal
in the lawsuit.
Inland Empire observes that counsel representing Western Surety in this appeal
and at the trial court level in this suit also represents Fowler in a lawsuit brought against
Drywall & Paint. I do not find this observation controlling on the outcome of the appeal.
No case stands for the proposition that a party need not be served and joined in a suit if
that party's counsel in another lawsuit represents another party in the pending suit. In
other lien release bond cases, the surety's attorney may not represent the bond's principal
in another suit.
Fearing, C .J. 0-1
22