A Virginia Circuit Court recently dismissed a subcontractor's suit to recover payment on a mechanic's lien bond posted by the general contractor because the subcontractor failed to join the general contractor as a party to the suit. In the case of In re: ADS Construction, Inc. v. Bacon Construction Co., ADS, a subcontractor to Bacon, filed a mechanic's lien based upon Bacon's failure to pay ADS for work performed on a project in Loudoun County. As is routinely done when a mechanic's lien is filed, Bacon petitioned the court to accept a mechanic's lien release bond and release the lien. The court granted the petition and accepted a bond issued by Westfield Insurance Co. as surety and Bacon as principal.
Subsequently, ADS filed suit on the bond against Westfield only, as well as separate claims for breach of contract against Bacon. Westfield challenged the suit on the lien bond, asserting that Bacon was a "necessary party" to the suit and therefore needed to be a defendant to the claim. Moreover, Westfield argued, if the court agreed that Bacon was required as a party, it was nevertheless too late to add Bacon as a party to the claim because the six-month period for bringing suit on the mechanic's lien bond had expired.
The circuit court agreed with Westfield. First, the court determined that the general contractor was a "necessary party" to the suit on the bond. Under the terms of the bond, both Bacon and Westfield were "held and firmly bound" to ADS. Bacon, therefore, had an "immediate interest in resisting the demand" of ADS and therefore was required to be a party.
Second, and fatal to ADS's bond claim, the statute applicable to a suit on a lien bond requires that suit be brought within six months of the date the mechanic's lien was recorded. Since more than six months had transpired from the date of filing the lien, it was too late for ADS to add Bacon as a party to the lien bond claim. Therefore, ADS's bond claim was dismissed.
The decision in this case has less to do with mechanic's lien law and more to do with the law of suretyship. When required on construction projects, sureties issue performance and payment bonds on behalf of their principals which are also parties to the bonds. Claimants bringing actions on these bonds must consider whether the principal on the bond (either a general contractor or a subcontractor as the case may be) is a "necessary party" to the suit and must be named as a defendant. As this case warns, failure to join a necessary party can have dire ramifications.