Inland Empire Dry Wall Supply Co. v. W. Sur. Co.

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This opinion was filed for record
rruE
IN CLERKt OFFICE
8UPRBE COURT,STKIE OF VIMSHNQTOli
at. (Xk on i/.UV /y 7£}1^ J
DATE JAN 1 8

GHIEFJUSTKE SUSAN L. CARLSON
SUPREME COURT CLERK

IN THE SUPREME COURT OF THE STATE OF WASHINGTON

INLAND EMPIRE DRY WALL
SUPPLY CO., a Washington corporation, No. 94118-1

Respondent,

V. En Banc

WESTERN SURETY COMPANY
(Bond No. 58717161),

Petitioner.
Filed JAN 1 8 ?niS

JOHNSON,J.—This case involves the issue of whether the purchaser of a

lien release bond is an indispensable party in an action under chapter 60.04 ROW

by a lien claimant against the surety of the release bond. The Court of Appeals, in a

divided opinion, reversed the trial court's grant of summary judgment in favor of

the surety and held that a claim against a lien release bond could be pursued solely

against the surety. We affirm.
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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

Facts and Procedural History

Inland Empire Dry Wall Supply Company is a supplier of drywall materials.

Inland Empire entered into an agreement to supply drywall materials to Eastern

Washington Drywall & Paint(EWD&P).EWD&P contracted with Fowler General

Construction to work on an apartment complex project in Richland, Washington.

Inland Empire claims to have supplied $124,653.05 worth of drywall for the

apartment complex project work that EWD&P was performing.

Inland Empire claims EWD&P never paid it for the materials supplied. To

pursue payment, Inland Empire filed a preclaim notice and timely recorded a

mechanics' lien against the construction project under RCW 60.04.091. To release

the project property from the lien. Fowler obtained a lien release bond in the

amount of$186,979.57 from Western Surety Company. The lien release bond

identifies Fowler as the "Principal," Western as the "Surety," and Inland Empire as

the "Obligee." Clerk's Papers(CP)at 23. After Fowler recorded the lien release

bond. Inland Empire filed an action asking for "judgment in the principle sum of

$124,653.05" plus interest, costs, and attorney fees, and for "an order foreclosing

[its] claim against Defendant Western Surety's Bond . . . and an Order directing the

penal sum be paid to [it]." CP at 5, 6. The complaint named Western Surety—but

not Fowler, the principal on the bond—as a party to the action. In its answer.

Western raised several affirmative defenses, including the affirmative defense that
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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

Inland Empire failed to name and include Fowler as a necessary and indispensable

party, and that Inland Empire had not satisfied the statute of limitations under

chapter 60.04 RCW.Inland Empire and Western then filed cross motions for

summary judgment.

The trial court granted summary judgment in favor of Western. It ruled that

under RCW 60.04.141, Inland Empire was required to sue and serve both Western

as surety and Fowler as principal in the action to foreclose on a lien release bond. It

reasoned that because the bond, rather than the apartment complex property, was

now the property subject to the claim of lien. Fowler, as purchaser of the bond,

together with Western became owners ofthe subject "property." The trial court

therefore dismissed the lawsuit because Inland Empire failed to name and to serve

Fowler as a party within the 90 days required under RCW 60.04.141.

Division Three ofthe Court of Appeals in a divided opinion reversed, the

majority holding that RCW 60.04.161 controlled under these circumstances and

that Inland Empire was only required to name Western, the bond surety, as the

defendant to its bond foreclosure action. Inland Empire Dry Wall Supply Co. v. W.

Sur. Co., 197 Wn. App. 510, 519, 389 P.3d 717, review granted, 188 Wn.2d 1002,

393 P.3d 785 (2017). Chief Judge Fearing dissented.
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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

Analysis

This case raises the issue of whether under chapter 60.04 RCW the

purchaser of a lien release bond is an indispensable party who must be named and

joined in an action on the lien release bond; this is an issue of statutory

interpretation. Construction of a statute is a question oflaw that this court reviews

de novo. State v. Wentz, 149 Wn.2d 342, 346,68 P.3d 282(2003). Where a

"statute's meaning is plain on its face, then the court must give effect to that plain

meaning as an expression of legislative intent." Dep't ofEcology v. Campbell &

Gwinn, LLC, 146 Wn.2d 1, 9-10, 43 P.3d 4(2002). Such meaning "is discerned

from all that the Legislature has said in the statute and related statutes which

disclose legislative intent about the provision in question," and if the statute

remains susceptible to more than one reasonable meaning, this court resorts to aids

of construction, including legislative history. Campbell & Gwinn, 146 Wn.2d at

11, 12.

Chapter 60.04 RCW creates a cause of action for suppliers of labor,

materials, or equipment to a construction project. The statute is often referred to as

the "construction lien" statute. Before chapter 60.04 RCW was enacted, material

and equipment providers and laborers were limited in pursuing unpaid claims

under contract principles and generally could bring suit against only the purchaser

of the materials or person (or entity) contracting for labor. In the absence ofsome
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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

equitable or contractual theory, no claim existed against the property, property

owner, or others. Construction lien statutes such as chapter 60.04 RCW were

enacted to create a cause of action and remedy under certain circumstances in the

construction industry. The enactment of chapter 60.04 RCW created a limited

cause of action, allowing a claim to be filed against the property and property

owner, so long as strict statutory time requirements were followed. As we have

previously noted, the statute is construed liberally to protect persons who fall

within its provisions. See Williams v. Athletic Field, Inc., Ill Wn.2d 683, 696-97,

261 P.3d 109 (2011).

RCW 60.04.021 allows "any person furnishing labor, professional services,

materials, or equipment for the improvement of real property" to place a lien on the

construction project property as a method of securing payment for services

rendered. A lien claimant, here Inland Empire, is required to give the property

owner and the prime contractor written notice ofthe lien claim and to record the

notice in the county where the subject property is located. RCW 60.04.031,.091.

The statutory scheme includes strict time limits in which to act.

RCW 60.04.141 describes procedures a lien claimant must follow once the

lien has been recorded. It provides, in relevant part:

No lien created by this chapter binds the property subject to the lien
for a longer period than eight calendar months after the claim cif lien
has been recorded unless an action is filed by the lien claimant within
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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

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 .
. . and in case the action is not prosecuted to judgment within two
years after the commencement thereof, the court, in its discretion, may
dismiss the action for want of prosecution, and the dismissal of the
action or a judgment rendered thereon that no lien exists shall
constitute a cancellation of the lien.

RCW 60.40.141. The statutory language makes it clear that RCW 60.04.141

requires "the owner ofthe subject property" to be named in actions where no

release bond has been filed. This makes legal and practical sense: while the

foreclosure suit seeks to enforce payment, if payment is not made,the property

owner's interest in the property may be foreclosed, i.e., forfeited. Based on this

potential remedy, the statute—^RCW 60.04.141—requires joinder of the property

owner. Failure to comply with these statutory provisions results in the loss by the

lien claimant of the right to the lien. See Bob Pearson Constr., Inc. v. First Cmty.

Bank, 111 Wn. App. 174, 179, 43 P.3d 1261 (2002). The type of action created

under RCW 60.04.141 is a quasi in rem type of action where the object, or res, is

the real property.

RCW 60.04.161 authorizes a property owner or contractor, subcontractor,

lender, or lien claimant who disputes the correctness or validity of the claim of lien

to post a lien release bond. The real property then is released from the claim and

becomes unreachable, and the bond purchaser instead posts the bond as security.
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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

The purpose of the lien release bond is twofold. First, the bond protects the

property owner by removing the lien from the real property, thus providing the

owner with clear marketable title. Second, the bond "protects the lien claimant by

taking the place of the property and serving as a form of substitute security should

the lien claimant ultimately prevail." The Law OF Miscellaneous and

Commercial Surety Bonds 155(Todd C. Kazlow & Bruce C. King eds., 2001);

see also CalPortland Co. v. LevelOne Concrete, LLC, 180 Wn. App. 379, 387, 321

P.3d 1261 (2014). Fowler, the general contractor on the project here, obtained a

lien release bond to free up the construction project property. As the Court of

Appeals correctly recognized,"Once a lien release bond is recorded, the procedural

statute shifts from RCW 60.04.141 to RCW 60.04.161." Inland Empire, 197 Wn.

App. at 516. Unlike RCW 60.04.141, the language ofRCW 60.04.161 refers to the

liability of the surety and does not mention either the bond purchaser or property

owner in that context. RCW 60.04.161, of course, necessarily refers to the owner

of the property as one of several entities that may dispute a lien and record a bond.

But aside from that reference, it simply states that "[t]he condition ofthe bond

shall be to guarantee payment of any judgment upon the lien in favor ofthe 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." RCW 60.04.161 (emphasis added). It

further provides:
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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

The effect ofrecording 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 discharged from
liability under the bond. If an action is timely commenced,then on
payment of any judgment entered in the action or on payment ofthe
full amount of the bond to the holder ofthe judgment, whichever is
less, the surety shall be discharged from liability under the bond.

RCW 60.04.161 (emphasis added). The real property owner and the real property

subject to the claim of lien are no longer subject to the claim. The bond becomes

the only available source for the lien claimant to turn to in seeking to collect the

amount owed, and the bond purchaser under RCW 60.04.161 therefore need not be

treated the same way as the property owner under RCW 60.04.141. Nothing in the

statute suggests that the bond purchaser gets the bond back if the claim fails for

any reason. The Court of Appeals majority correctly recognized that

[tjhis 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.

Inland Empire, 197 Wn. App. at 516-17.

Western argues that suing only the surety on a release bond does not satisfy

RCW 60.04.161 and RCW 60.04.Mi's procedural requirements "because a

surety's liability is fully conditional and not triggered and absolute until the lien

claimant successfully litigates with the principal to establish the disputed lien's
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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

correctness and validity." Pet. for Review at 10. The statutory language Western

relies on does not expressly state against whom the action to foreclose on the lien

must be brought.

The main premise of Western's argument is that until the validity of the lien

claim has been adjudicated as between the principal and the lien claimant, no

obligation exists on its part to pay. It is true that the lien claimant must prove the

validity and the right to recover the claimed amount, whether its claim is against

the property and its owner or the bond. But that does not answer the question of

who must be named as a party. That issue is resolved by looking at the statutory

provisions. To that end, nothing in the language of RCW 60.04.161 stating that

"any judgment upon the lien in favor ofthe lien claimant entered in any action to

recover the amount claimed ... or on the claim asserted in the claim of lien"

requires that the lien claimant must first proceed against the principal.(Emphasis

added.)

Western argues that the provisions ofthe lien release authorization of RCW

60.04.161 must be read in conjunction with the general provisions of RCW

60.04.141, which set forth the procedures for bringing an action to foreclose the

original lien as against the real property. It maintains that the procedural

requirements of RCW 60.04.141, and specifically the language that service is to be

made on the "owner of the subject property," should be and have been interpreted
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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

to require that both the principal and the surety be joined in the action to foreclose

on the bond. But reading these provisions together does not support the result that

Western wants. Western reads more into the statutory language than what is

actually there.

While RCW 60.04.161 expressly states that the action to recover the amount

claimed has to be commenced within the time specified in RCW 60.04.141, it does

not transpose any other requirements contained in RCW 60.04.141 on the lien

claimant seeking to commence an action on the bond. Instead, it states that unless

an action to recover on a lien is timely commenced,the surety must be discharged

from liability under the bond. It further states that if the action is timely

commenced,then on payment of any judgment entered in that action or on

payment of the full amount ofthe bond to the judgment holder, the surety's

liability will be discharged. RCW 60.04.161.

As the Court of Appeals here noted,"Unlike RCW 60.04.141, RCW

60.04.161 makes no mention ofthe 'owner of the subject property' as an entity

necessarily impacted by a suit." Inland Empire, 197 Wn. App. at 516. 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 permitted to dispute a

lien and record a bond. RCW 60.04.161 does, however, explicitly refer to the

surety and the conditions that would discharge its obligations, which evinces a

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

legislative choice to treat the surety's rights and obligations distinct from those of

the other parties.

To complete the statutory picture, RCW 60.04.171 provides that "[i]n any

action brought to foreclose a lien, the owner shall be joined as a party." Western,

as well as Judge Fearing in his dissent, relied on this language to construe the

statutory framework and the legislative intent to require that the lien claimant in an

action to recover on the bond is required to join the principal as the "owner" ofthe

bond. Tellingly, RCW 60.04.171 also states that "[t]he court shall have the power

to order the sale ofthe property," which renders any reliance on this provision to

equate Fowler to the owner ofthe subject property unconvincing.

The concept of an "owner" in a two party, owner-versus-lien-claimant

relationship is not easily transposed to a situation where general suretyship law

principles provide that a bond lien claimant, here Inland Empire,"has two sets of

rights, one set against the principal," here Western,"and the other against the

secondary obligor," here Fowler. RESTATEMENT(THIRD)OF SURETYSHIP AND

Guaranty § 50 cmt.(Am.Law Inst. 1996). Further,"[a] suretyship relationship

is a three-party relationship between surety, principal, and obligee [, and] the

surety undertakes to answer for the debt or default of the principal," RICHARD E.

Tasker et al..Practical Guide to Construction Contract Surety Claims 9

(1997). The legislature does not impose the constraints of a rather straightforward,

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

two party relationship between a real estate owner and lien claimant on parties
•»

whose relationship originates from and is generally undertaken under the law of

suretyship.

A similar situation was analyzed in CalPortland, 180 Wn. App.379. In that

case, the Court of Appeals determined that a real property owner is not a necessary

party to a suit against a lien release bond. In CalPortland, a general contractor

recorded a lien release bond after a building materials provider recorded a claim of

lien against the construction property but before the provider filed suit. When the

provider, as a lien claimant, thereafter sued on the lien, it named the general

contractor and the surety among various defendants but did not name the real

property owner as parties. The Court of Appeals held that the trial court erred in

granting summary judgment in favor of the general contractor and stated that

including the bond principal and surety is "sufficient" in an action on a release

bond. But the Court of Appeals in CalPortland did not hold that the bond

purchaser was a necessary party that had to be joined.

Western contends its position is supported by Division One's decision in

DBM Consulting Engineers, Inc. v. United States Fidelity & Guaranty Co., 142

Wn. App. 35, 170 P.3d 592(2007). There, the lien claimant, DBM,recorded a

mechanics' lien against a client's property to secure a debt owed. Subsequently,

the client recorded a lien release bond. In the action alleging breach of contract,

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Inland Empire Dry Wall Supply Co. v. Western Surety Co.,'S\o. 94118-1

unjust enrichment, and foreclosure of the mechanics' lien, DBM failed to ask for
judgment on the lien foreclosure claim and no judgment was entered as to that

claim. When DBM demanded that the surety pay the entire bond amount as partial

satisfaction ofthe judgment,the surety refused, citing DBM's failure to foreclose

on the lien. Division One noted that ROW 60.04.161 was not a model of clarity. It

interpreted ROW 60.04.161 to require judgment against the bond. The DBM court

concluded that because DBM did not obtain a judgment foreclosing its lien, the

surety was not obligated to pay on the lien bond.

DBM does not establish a requirement that a lien claimant seeking to

foreclose on the lien cannot proceed against the surety, here Western, to do so. The

facts and procedure differ. In DBM,the lien claimant initially filed suit against the

property owner before the property owner filed a lien release bond. DBM could

have, and likely should have, amended its pleadings and sought to foreclose on the

lien secured by the bond. It did not do so. Unlike in CalPortland and here, no

claim was asserted against the bond or the surety at the time the lawsuit was

commenced.DBM dots, not impact the statutory analysis here.

Western also cites to Olson Engineering, Inc. v. KeyBank National Ass'n,

171 Wn. App. 57, 286 P.3d 390(2012), for the proposition that "Washington's

construction lien foreclosure statutes control suits on lien release bonds because the

bond claimant must still prove the validity and correctness of its lien." Suppl. Br.

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

of Pet'r at 12. The primary issue before the court in was whether RCW

60.04.161 prevents a trial court from adjudicating the parties' lien priorities when

one party files a release-of-lien bond. Olson, 171 Wn. App. at 63. In reaching the

conclusion that RCW 60.04.161 does allow a trial court to adjudicate the parties'

lien priorities after the filing of such a bond, the Court of Appeals concluded that

"[t]he plain language of the statute ... implies that to be entitled to the proceeds of

the lien release bond, the lien claimant must obtain a favorable judgment on the

lien." Olson, 171 Wn. App. at 66. Relying on this interpretation, the court also

went on to review the trial court's grant of summary judgment as to the validity of

the lien at issue. This reading of the statutory language by the court in Olson is

consistent with our conclusion here that the statutory language allows this

determination of validity to be made in an action brought against the surety without

naming and joining the principal in the action.

Here, Inland Empire filed its lawsuit in the trial court after Fowler, the

general contractor, had already posted the release bond, and in its complaint sought

"judgment in the principle sum of $124,653.05" as well as "an order foreclosing

Plaintiffs claim against Defendant Western Surety's Bond No. 58717161 and an

Order directing the penal sum be paid to Plaintiff to satisfy the principal, interest

and costs incurred in prosecuting this claim." CP at 5, 6. Inland Empire and

Western appear to agree that Inland Empire cannot obtain a judgment on the lien

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

and foreclose against the bond without first litigating the validity of the lien and

correctness of the amount due and owed. The disagreement lies, rather, in that

Western believes that determination requires Inland Empire to name and join

Fowler, the general contractor who purchased the lien release bond from Western,

as a necessary party. Inland Empire, on the other hand, argues that litigating the

validity and correctness ofthe lien, although prerequisite to obtaining a judgment

and foreclosing against the bond, can occur in the same action brought by the lien

claimant obligee against the surety.

Western appears to conflate two unrelated statutory requirements by arguing

that because the validity of the lien must be determined first, the lien claimant

obligee has to do so in an action against the principal before it can bind the surety

and trigger its obligations, yet the remedy that it seeks before this court is

compulsory joinder of the principal in what is essentially the same action. The

analysis of the statutory language and the case law discussed supra does not

support Western's proposition.

First, as previously stated, nothing in the statute or the case law discussed

above suggests that the surety is precluded from challenging and litigating the

validity or amount of the lien. RCW 60.04.161 functions to allow a substitution of

the bond for the real estate, replacing the res to which the lien attaches. But aside

from the requirements ofthe timing ofthe action ofRCW 60.04.141, it does not

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

impose any requirements on the lien claimant such that it would have to litigate

against both the principal and the surety. Nothing in the statute or our case law

prevents the surety from asserting the same claims or defenses as the principal on

the bond, and nothing prevents the surety from impleading the principal or from

seeking its assistance.^ Counsel for the petitioner appears to have recognized as

much at oral argument, agreeing that substantively, nobody's rights or obligations

differ depending on who is named. Wash. Supreme Court oral argument.Inland

Empire Dry Wall Supply Co. v. W. Sur. Co., No. 94118-1 (Sept. 28, 2017), at 8

min., 11 sec., audio recording by TVW,Washington State's Public Affairs

Network, http://www.tvw.org.

Importantly, RCW 60.04.161 authorizes not only property owners but also

contractors, subcontractors, lenders, or other lien claimants to obtain and record a

lien release bond. Inland Empire points out that lien claimants, such as itself, may

have no contractual or other basis for obtaining a judgment against these potential

principals. In this instance. Inland Empire recorded a lien against the real property

project in question on the basis ofEWD&P's alleged nonpayment, not Fowler's.

The statutory lien claim against the property(and now the bond)is the only claim

that can be successfully pursued, and in cases of unavailability or insolvency ofthe

^ Sureties, as well as bond purchasers, can likewise seek indemnification.

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

original debtor, chapter 60.04 RCW operates to establish the only feasible legal

basis for recovery for lien claimants like Inland Empire. While including Fowler as

the principal on the bond it obtained to free up the apartment complex project

would have been feasible,joinder is not a statutory prerequisite.

Western cites to case law from Virginia in support ofthe proposition that a

surety should be considered a necessary and indispensable party in Washington,

focusing on Synchronized Construction Services, Inc. v. Prav Lodging, LLC,288

Va. 356, 764 S.E.2d 61 (2014), and Johnson Controls, Inc. v. Norair Engineering

Corp., 86 Va. Cir. 138 (2013). While those cases do suggest that in Virginia, both

the principal and the surety are necessary parties in a lien foreclosure action, they

rely on and stem from the statutory language of the Virginia mechanics' lien

statute. Va. Code Ann. § 43-71 explicitly states that "[t]he sureties on any [lien

release] bond, which may be involved in any suit or action brought under the

provisions ofthis section, shall be made parties to such suit or action." The

Virginia statutory provision differs from RCW 60.04.161 and is not helpful here.^

^ It is noteworthy that in Oregon, where the lien release statute directs lien claimants to
proceed against the principal on the bond, sureties have also argued a surety is an indispensable
party in an action to foreclose the underlying lien. See, e.g., Valencich v. TMT Homes ofOr.,
Inc., 193 Or. App. 47, 88 P.3d 300(2004)(rejecting a surety's argument that had it been made a
party, it would have been able to contest the validity ofthe underlying liens).

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

Western also cites to statutory provisions out of Arizona(Ariz. Rev. Stat. §

33-1004(C),(D)), New York(N.Y. Lien Law § 37(7)), Oklahoma(Okla. Stat.

tit. 42, § 147.1) and Nevada(Nev.Rev. Stat. § 108.242l(2)(b)) for the

proposition that "general suretyship law principles can be superseded and rendered

inapplicable by contrary statutory requirements or other authority." Suppl. Br. of

Pet'r at 14. Western is correct that lien statutes are viewed by most courts to be in

derogation of common law. See, e.g., THE Law OF MISCELLANEOUS AND

Commercial Surety Bonds,supra, at 158. In applying this principle, we analyze

our statute in accordance with the general guiding principles of statutory

construction. We cannot ignore or add to the language of RCW 60.04.161. The

statute defines a "payment bond"^ to mean "a surety bond issued by a surety

licensed to issue surety bonds in the state of Washington that confers upon

potential claimants the rights of third party beneficiaries," RCW 60.04.011(10),

and further provides that the terms be liberally construed. RCW 60.04.900."^

Although the type of bond at issue is a lien release bond, the rule of liberal

^ A "payment bond" is an agreement in which the surety assures the obligee that the
suppliers of labor, material, and rental equipment to the project will be paid by the principal.
Tasker,supra, at 44.

4 RCW 60.04.900 provides that"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."

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

construction applies^ and is a directive to construe the language of RCW

60.04.011(10) and RCW 60.04.161 in favor ofthe claimant in the event any

question of statutory meaning existed.

In following this directive, the Court of Appeals has relied on a California

Supreme Court decision in Hutnick v. United States Fidelity & Guaranty Co., 47

Cal. 3d 456, 763 P.2d 1326 (1988). In Hutnick, the California State Supreme Court

concluded that "[i]f only the surety is joined, the resulting judgment will be

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.'" 47

Cal. 3d at 469 (quoting Cal. Civ.Proc. § 1912). The court noted that "[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" and that "the

surety has the means to call upon the principal to defend the lien foreclosure

action." Hutnick, 47 Cal. 3d at 469.

This reasoning is persuasive both from a practical standpoint and from the

standpoint of general suretyship principles that confer third party beneficiary rights

on lien claimants in Washington. As previously noted, nothing in the language of

See Williams, 172 Wn.2d at 696-97.

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

RCW 60.04.161 or our case law interpreting it prevents the surety from impleading

the principal or from seeking its assistance or bringing a third party claim.

Western next argues that the general principles of suretyship law should be

inapplicable here because attempting to foreclose on a lien release bond against

only the surety is illogical or impractical. Western insists that we should look only

to the statute in resolving the dispute. While Western's observation that statutory

language should control is correct, nothing in our interpretation ofthe statute runs

afoul ofthe statute's language or renders the foreclosure process illogical or

impractical.

RCW 60.04.161 operates similarly to a situation where, for example,

someone guarantees a debt. In such a situation a lawsuit can properly be pursued

against the guarantor; the debtor need not be made a party. Surety bonds are

underwritten based on the principal's creditworthiness and ability to perform, and

the principal may be obligated to repay the surety for any losses incurred. Tasker,

supra, at 9. The "contract of suretyship is one to answer for the debt, default, or

miscarriage of another." Meyer v. Bldg. & Realty Serv. Co., 209 Ind. 125, 196 N.E.

250, 254(1935). "[D]espite a surety's contract being collateral to a valid principal

obligation contracted by another, a contract of a surety involves a direct promise to

perform the obligations of another person. In other words, the surety is primarily

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

and jointly bound with the principal." 74 Am.Jur. 2d Suretyship § 1 (2017 Supp.)

(footnote omitted).

While not interpreting chapter 60.04 RCW,we have held that an obligee

named in a surety bond containing joint and several promises has a right to sue the

surety alone without joining the principals in the action, where a breach has

occurred. Kampendonkv. Am. Bonding Co. ofBaltimore,6 Wn.2d 312, 318, 107

P.2d 588 (1940); see also Kanters v. Kotick, 102 Wash. 523, 526, 173 P. 329

(1918). This is consistent with the general suretyship law principle that the obligee

has two sets of rights: one against the principal obligor and the other against the

secondary obligor. RESTATEMENT(Therd)OF SURETYSHIP AND Guaranty § 50

cmt.(1996); see also LAURENCE P. SIMPSON, SIMPSON ON SURETYSHIP 9(1950)(a

surety's obligation to pay for another's debt not conditioned on another's default).

The record does not reveal whether the bond in question contemplated that the

parties would be jointly and severally liable, and neither does the bond's

boilerplate language, but that does not change the statutory language.

In similar cases, a payment bond claimant may bring suit solely against the

surety and not against the principal on the bond, often "because the principal is

bankrupt, insolvent, defunct, beyond the reach ofjudicial process, or not otherwise

capable of satisfying the debt owed to the claimant." The Law OF Payment Bonds

894(Kevin L. Lybeck et al. eds., 2d ed. 2011). "[Sjureties have sometimes argued

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Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

that the claimant is obligated to bring suit against both the surety and the principal

in the same action," and the majority of the courts relying on general suretyship

law principles have rejected this argument. The Law of Payment Bonds,supra,

at 895. In the present case, although the bond in question is not a payment bond but

a lien release bond, similar considerations inform lien claimants' decisions to bring

suit solely against the surety. We interpret the statutory language while mindful of

the practical considerations of the parties whose interests the statute protects.

Attorney Fees

Both parties request an award of attorney fees and costs pursuant to RCW

60.04.181(3) and RAP 18.1. Pursuant to RAP 18.1(1) and RCW 60.04.181(3), if on

remand the trial court determines Inland Empire to be the prevailing party in the

lien foreclosure action and upon submission of satisfactory proof of the claimed

amount due,judgment against the bond should be entered. Reasonable attorney

fees and expenses, including statutory fees and costs on appeal, are also

recoverable.

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For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.

Inland Empire Dry Wall Supply Co. v. Western Surety Co., No. 94118-1

Conclusion

We affirm the Court of Appeals and remand the case to the trial court for

further proceedings.

WE CONCUR:

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