Recent Developments In Bonding Off Liens
By: James C. Busch
On May, 1996, in the case of Hendricks v. Blake and Pendleton, the Georgia Court of Appeals ruled on a matter involving a bonded lien. In the Hendricks case, the Georgia Court of Appeals clarified what are the key issues where the lien is bonded off by the general contractor.
In Hendricks, Griffin Corp. hired Hendricks Contracting as a general contractor in the construction of a laboratory. Subcontractor Radney Plumbing Contractors ordered and received over $16,000.00 in materials from Blake and Pendleton. Radney never paid Blake. Blake sought payment from Griffin and Hendricks and filed a timely lien on the property. Radney filed for bankruptcy protection and Griffin paid Hendricks over $123.900.00. Hendricks the executed a property bond to release the lien, listing Hendricks Contracting Co. as principal and Mr. Hendricks as surety. Blake sued Mr. Hendricks for the amount owed and the trial court found for Blake. The trial court rejected Hendricks’ claim that Blake should have sued H. Hendricks Contracting, the principal. The trial court found Radney’s intervening bankruptcy relieved Blake of the obligation under O.C.G.A. Sec. 44-14-361.1 of suing the contractor or subcontractor prior to proceeding against the surety. Furthermore, the Court found the property bond stated the principal and surety “bind ourselves and our legal representatives and successors, jointly and severally” to Blake for $16,854.96, so Blake was entitled to sue Mr. Hendricks alone as the surety.
In reaching its ruling, the Georgia Court of Appeals found that it was undisputed that Blake satisfied the statutory requisites required to prevail on the underlying lien by (1) substantially complying with its contract to supply the materials and (2) filing a claim of lien against the improved property. It was further ruled that Radney’s intervening bankruptcy in fact relieved Blake of the necessity of complying with O.C.G.A. Sec. 44-14-361(a)(3) by commencing an action for recovery of the amount of his claim against the contractor or subcontractor.
The Court of Appeals found the property bond posted under O.C.G.A. Sec. 44-14-364(a) did not relieve Blake of the burden of proving its entitlement to the underlying lien, but simply served as a substitute for the lien, thereby removing a legal barrier to the property’s free conveyance. But by posting a bond, the necessary contractual link between Blake and Mr. Hendricks was created. As in any contract, the liability of a surety on a bond is governed by the intention of the parties as expressed in the agreement. The bond at issue stated the principal and the surety were both obligated. Thus, Blake was not obligated to pursue the principal on the bond prior to pursuing the surety.
This case points out some of the procedures required to pursue a claim of lien which has been bonded off by a general contractor or property owner.
The Hendricks case is also important since it clarifies the steps one must consider and take to perfect ones claim of lien against a bond. It is important to note that the bond involved in the Hendricks case is a bond posted for the sole purpose of removing a claim of lien from the chain of title on a piece of property. This type of bond differs dramatically from a bond posted for a job which guarantees payment and performance.
The Hendricks cas also illustrates the need to timely pursue appropriate parties when a claim of lien is bonded. By taking timely action the lien claimant can exert a significantly large amount of pressure on the bonding party to resolve the claim. However, if the lien claimant takes no action, the bonding party is under little pressure to resolve the disputed matter.
Mr. Busch is an attorney specializing in commercial and construction litigation for Busch, Reed, Jones & Leeper, P.C. in Marietta, Georgia