Synchronized Constr. Servs. v. Prav Lodging

• Court: Supreme Court of Virginia
• Decided: October 31, 2014
• Docket: 131569
• Status: Published

Opinion

Present: Kinser, C.J., Lemons, Goodwyn, Millette, Mims, and Powell, JJ., and Koontz, S.J.

SYNCHRONIZED CONSTRUCTION SERVICES, INC. OPINION BY JUSTICE LEROY F. MILLETTE, JR. v. Record No. 131569 October 31, 2014

PRAV LODGING, LLC, ET AL.

FROM THE CIRCUIT COURT OF ORANGE COUNTY Daniel R. Bouton, Judge

In this appeal we consider whether a general contractor,

who has no pecuniary interest in the bond posted to release the

real estate subject to a subcontractor's mechanic's lien, is a

necessary party to a subcontractor's mechanic's lien

enforcement action.

I. Facts and Proceedings

In 2008, Prav Lodging, L.L.C. ("Prav") acquired a parcel

of real estate in Orange County, Virginia to build a hotel

facility. Secured by a credit line deed of trust, Virginia

Community Bank ("VCB") financed the construction of the hotel

facility. Prav entered into a contract with Paris Development

Group, LLC ("Paris") to act as construction manager for the

project. As construction manager, Paris had the authority to

enter into subcontracts with subcontractors to facilitate the

project. Paris entered into several such subcontracts,

including a subcontract with Synchronized Construction

Services, Inc. ("Synchronized"). The owner-construction manager contract between Prav and

Paris was a cost-plus agreement, whereby Prav would pay Paris

the cost of the work plus a $192,000 fixed fee. Prav's

payments were scheduled to be made on a monthly basis upon

Paris' submission of an invoice to Prav.

The construction manager-subcontractor subcontract between

Paris and Synchronized was a fee agreement, whereby Paris would

pay Synchronized a $398,000 fee subject to additions and

deductions as the project progressed. Paris' payments were

scheduled to be made on a monthly basis upon Synchronized's

submission of a pay application to Paris.

By February 3, 2010, the construction project was

"substantially complete," with the remaining work to be

"obtainable in a matter of a few days." On March 11, 2010,

Synchronized recorded a mechanic's lien for unpaid work on the

construction project in the amount of $208,250.80 with the

Orange County Clerk's Office. On September 9, 2010,

Synchronized filed a complaint to enforce its mechanic's lien

in the Circuit Court of Orange County, naming Prav, Paris, VCB,

and numerous other subcontractors as defendants. In its

complaint, Synchronized asserted a claim to enforce its

mechanic's lien as well as a claim that Paris breached its

contract with Synchronized by failing to make all payments due

to Synchronized under their subcontract.

2 Paris did not enter an appearance in the case. Indeed, it

could not do so because it no longer existed. According to the

public records of its state of incorporation, Paris was

dissolved on March 12, 2010 – the day after Synchronized had

recorded its mechanic's lien.

Prav and VCB filed an application to post a bond in the

amount of $237,906.80 in accordance with Code § 43-70. The

circuit court granted that application, thereby releasing the

real estate which had been subject to Synchronized's mechanic's

lien.

Prav filed a motion to dismiss the entire complaint on the

basis that Synchronized failed to timely serve numerous

defendants. In response, the circuit court held that

Synchronized "failed to exercise due diligence" to serve Paris

within one year of the date of the filing of the complaint, and

therefore dismissed Synchronized's breach of contract claim

against Paris. However, the court declined to dismiss

Synchronized's mechanic's lien claim.

Later, VCB filed a motion to dismiss the mechanic's lien

claim on the basis that Synchronized failed to timely serve

Paris, who, as the construction manager, was a necessary party

to the mechanic's lien enforcement action. In response, the

circuit court held that Paris was in fact a necessary party,

and that Synchronized's failure to timely serve Paris required

3 dismissing Synchronized's mechanic's lien claim with prejudice.

The court entered an order to that effect and denied

Synchronized's motion for reconsideration.

Synchronized timely filed a petition for appeal with this

Court. We granted the following assignments of error:

1. The [c]ircuit [c]ourt erred in dismissing Synchronized's mechanic's lien enforcement action where Paris, the construction manager, did not have a recognized possessory or expectancy interest in the lien enforcement action which could be defeated or diminished as the result [of that] suit and therefore was not a necessary party to the action. While Paris may have had a contractual claim against the owner of the [p]roject arising out of its [c]ontract, the facts below reveal that Paris never satisfied the express conditions precedent[] found in its [c]ontract in order to preserve and maintain such claims. Hence, even if Paris had contractual claims, those claims would not be sufficient to mandate a finding that Paris was a necessary party to the lien enforcement action brought by Synchronized.

2. The [c]ircuit [c]ourt applied an incorrect standard in analyzing whether Paris was a necessary party to the lien enforcement action and thus erred in dismissing Synchronized['s] mechanic's lien enforcement action where the presence of . . . Paris[, the general contractor,] was not required under Virginia law.

3. The [c]ircuit [c]ourt erred in that Virginia Code § 43-22 does not explicitly require a [general contractor] to be included as a party to a mechanic's lien enforcement action or at all times be [a] viable party in a mechanic's lien enforcement action where the facts below showed that Synchronized had the ability to present proof at trial of the balance due under the Prav Lodging-Paris [c]ontract at all relevant times included at the time Synchronized's mechanic's lien was recorded.

4 II. Discussion

A. Standard of Review

Whether a party is a necessary party to a particular claim

is a question of law that we review de novo. Glasser &

Glasser, PLC v. Jack Bays, Inc., 285 Va. 358, 369, 741 S.E.2d

599, 604 (2013).

B. Necessary Parties in Mechanic's Lien Enforcement Actions

This appeal requires us to address the meeting of two

different areas of law: mechanic's lien enforcement actions,

and necessary party jurisprudence. However, as this is not an

issue of first impression, precedent controls our decision.

A mechanic's lien was "[un]known to the common law or to

courts of equity," and therefore is purely "a creature of the

statute" allowing for its creation. Shenandoah Valley R.R. Co.

v. Miller, 80 Va. 821, 826 (1885); Sergeant v. Denby, 87 Va.

206, 208, 12 S.E. 402, 402 (1890). Being in derogation of the

common law, "there must be a substantial compliance with the

requirement of that portion of the statute which relates to the

creation of the [mechanic's] lien; but . . . the provisions

with respect to its enforcement should be liberally construed."

American Standard Homes Corp. v. Reinecke, 245 Va. 113, 119,

425 S.E.2d 515, 518 (1993). That is to say, a party must

strictly comply with the "specific time frame and in the manner

set forth in the statutes" to perfect its mechanic's lien, "or

5 the lien will be lost." Britt Constr., Inc. v. Magazzine

Clean, LLC, 271 Va. 58, 63, 623 S.E.2d 886, 888 (2006)

(collecting cases). Once a mechanic's lien is created by

operation of law and is perfected in accordance with the

relevant statutory requirements, the party holding the

mechanic's lien is able to bring suit to enforce that lien.

Code § 43-22.

A mechanic's lien enforcement action "must name all

necessary parties within the time set forth by Code § 43-17,

and a failure to name a necessary party as defendant requires

dismissal." Glasser, 285 Va. at 369, 741 S.E.2d at 605. The

Code does not provide an answer as to which parties are

necessary parties to a mechanic's lien enforcement action. See

Walt Robbins, Inc. v. Damon Corp., 232 Va. 43, 46-47, 348

S.E.2d 223, 226 (1986) (rejecting the argument that Code § 43-

22 establishes who is a necessary party in mechanic's lien

enforcement actions). We have therefore relied upon our common

law authority to supply the answer.

We have consistently defined "necessary party" broadly.

See, e.g., Asch v. Friends of Mt. Vernon Yacht Club, 251 Va.

89, 90-91, 465 S.E.2d 817, 818 (1996). Generally, we have

described necessary parties as follows:

6 Where an individual is in the actual enjoyment of the subject matter, or has an interest in it, either in possession or expectancy, which is likely either to be defeated or diminished by the plaintiff's claim, in such case he has an immediate interest in resisting the demand, and all persons who have such immediate interests are necessary parties to the suit.

Id. (internal quotation marks omitted). What constitutes the

"subject matter" or res of a mechanic's lien enforcement action

narrows the necessary party analysis to a specific set of

interests in this type of litigation.

1. Enforcement of a Mechanic's Lien Against Real Estate

A mechanic's lien enforcement action seeks to enforce the

mechanic's lien "against the property bound thereby." Code

§ 43-22. As a mechanic's lien enforcement action implicates

real property rights, we have turned to due process principles

to determine who is a necessary party in such litigation. See

Walt Robbins, 232 Va. at 46-47, 348 S.E.2d at 226.

Such due process principles qualify a necessary party as

any party who has a real property interest in the real estate

subject to the mechanic's lien. See, e.g., James T. Bush

Constr. Co. v. Patel, 243 Va. 84, 87-88, 412 S.E.2d 703, 705

(1992) (beneficiary of a deed of trust, recorded after the real

estate subject to the mechanic's lien was improved, is a

necessary party); Mendenhall v. Douglas L. Cooper, Inc., 239

Va. 71, 75-76, 387 S.E.2d 468, 740-71 (1990) (owner of real

7 estate subject to the mechanic's lien is a necessary party);

Walt Robbins, 232 Va. at 47, 348 S.E.2d at 226 (beneficiary of

a deed of trust, recorded before the real estate subject to the

mechanic's lien was improved, is a necessary party); id. at 48,

348 S.E.2d at 227 (trustee of a deed of trust, recorded before

the real estate subject to the mechanic's lien was improved, is

a necessary party). In sum, the "subject matter" or res of a

mechanic's lien enforcement action is the real estate subject

to the mechanic's lien, and a necessary party is one who has a

real property interest in such real estate because it is that

real property interest "which is likely either to be defeated

or diminished by the plaintiff's claim." Asch, 251 Va. at 90,

465 S.E.2d at 818.

Importantly, the focus is on which parties actually have a

relevant interest in the real property. Just because a party

may be generally "interested" in the mechanic's lien

enforcement action, such as having a pecuniary interest in the

outcome of the litigation, does not mean that the party is

necessary to the proceedings. See, e.g., Air Power, Inc. v.

Thompson, 244 Va. 534, 537-38, 422 S.E.2d 768, 770 (1992) (land

trust beneficiaries are not necessary parties to a mechanic's

lien enforcement action against the trust's real estate because

they only have a personal property interest in the profits from

8 the trust's real estate, and have "no interest, [either] legal

or equitable, in the [real estate] itself").

2. Release of the Real Estate by a Posted Bond

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. Code § 43-

70. A properly posted bond releases the real estate from the

mechanic's lien enforcement action. Id. 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. York Fed. Sav. & Loan Ass'n v. William A.

Hazel, Inc., 256 Va. 598, 602, 506 S.E.2d 315, 317 (1998).

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

plaintiff's "claim against the bond." George W. Kane, Inc. v.

9 NuScope, Inc., 243 Va. 503, 509, 416 S.E.2d 701, 705 (1992)

(internal quotation marks omitted).

To this end, we have previously considered which parties

constitute "necessary parties-defendant to [a] bond enforcement

suit." Id. at 509, 416 S.E.2d at 704. The principal on the

bond and the surety on the bond are necessary parties. Id.

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. Id. at 510, 416 S.E.2d at 705.

3. Concerns Not Addressed by the Necessary Party Doctrine

The circuit court incorporated into its necessary party

analysis concerns that go beyond the scope of this precedent,

and the parties dispute these concerns on appeal. We address

these points to underscore that they are not part of the

necessary party analysis.

First, the court expressed concerns about issues of proof.

The amount that the owner is indebted to the general

contractor, and the amount that the general contractor is

indebted to the subcontractor, are factual issues that the

parties may dispute when a subcontractor seeks to enforce its

10 mechanic's lien. See Code § 43-7(A). And such disputes remain

present even "with respect to a bond enforcement suit,

[because] the party-plaintiff has the burden of proving the

same elements of his claim that he would have had to prove in a

suit to enforce the lien released by that bond." George W.

Kane, 243 Va. at 509, 416 S.E.2d at 704.

However, concerns regarding which parties might be vital

to proving the plaintiff's case are not relevant to the

necessary party analysis. See id. at 509-10, 416 S.E.2d at

704-05. This conclusion is compelled by the fact that we have

previously held that the owner of the real estate subject to a

mechanic's lien is no longer a necessary party once a bond is

posted to release and replace that real estate as the res

subject to the lien. Id. at 510, 416 S.E.2d at 705. If an

owner is not a necessary party even though the mechanic's lien

enforcement action may implicate issues relating to a contract

entered into by that owner, see Code § 43-7(A), then a general

contractor is not a necessary party simply because the

mechanic's lien enforcement action may implicate issues

relating to a contract entered into by that general contractor.

Simply put, the controlling considerations of the

necessary party doctrine are not issues of proof and issues as

to which party may be best situated to provide proof. Instead,

the necessary party doctrine is calculated to ensure that all

11 parties central to a dispute can have their interests resolved,

so that absent parties' interests are not adversely affected

and participating parties may be awarded complete relief. See

Michael E. Siska Revocable Trust v. Milestone Dev., LLC, 282

Va. 169, 173-77, 715 S.E.2d 21, 23-25 (2011). As established,

this requires defining a necessary party to a mechanic's lien

enforcement action as a party who has a recognized interest in

the "subject matter" or res of the litigation.

Second, the circuit court believed that the "subject

matter" or res of a mechanic's lien enforcement action was more

than simply the real estate or the posted bond. The court

expanded those terms to include the contractual issues that may

arise through the course of a plaintiff's prima facie case or

by way of an affirmative defense.

This position incorrectly conflates a mechanic's lien

enforcement claim with a breach of contract claim. A necessary

party to a mechanic's lien enforcement action must have a

specifically defined interest in the "subject matter" or res of

that litigation, which we have repeatedly defined as being

either the real estate or posted bond. See George W. Kane, 243

Va. at 509-10, 416 S.E.2d at 705; Air Power, 244 Va. at 537-38,

422 S.E.2d at 770; James T. Bush Constr. Co., 243 Va. at 87-88,

412 S.E.2d at 705; Mendenhall, 239 Va. at 75-76, 387 S.E.2d at

470-71; Walt Robbins, 232 Va. at 47-48, 348 S.E.2d at 226-27.

12 A party whose only relation to a mechanic's lien enforcement

action is his status as a party to a contract, the terms of

which may be contested during the course of litigation, is akin

to a party who has only a general pecuniary interest in the

outcome of a mechanic's lien enforcement action. We have

previously recognized that such a general, tangential interest

is insufficient to elevate a party to necessary party status.

See Air Power, 244 Va. at 537-38, 422 S.E.2d at 770.

Moreover, as with many mechanic's lien situations, in this

case any litigation in the mechanic's lien enforcement action

will not foreclose the ability for Paris, as the general

contractor, to bring or defend a claim in the future relating

to its contracts with the owner, Prav, or the subcontractor,

Synchronized. Neither collateral estoppel nor res judicata

would encumber such future litigation because Paris would not

have been a party to the mechanic's lien enforcement action,

and no party in that mechanic's lien enforcement action

identifies with Paris' interest to such a degree that it could

be said to have represented Paris' legal rights. See Rule 1:6

(governing res judicata); Raley v. Haider, 286 Va. 164, 170,

747 S.E.2d 812, 815 (2013) (setting forth the requirements for

res judicata to bar suit, including identity of the parties or

their privies); Ellison v. Commonwealth, 273 Va. 254, 258, 639

S.E.2d 209, 212 (2007) (noting the mutuality of parties

13 requirement among the standards for application of collateral

estoppel to bar litigation of an issue of fact).

C. Whether Paris Is a Necessary Party

In this case, Prav and VCB posted a bond that released the

real estate subject to Synchronized's mechanic's lien. Code

§ 43-70. As a bond has been posted, the necessary party

inquiry is whether Paris has a pecuniary interest in that

posted bond, being the "subject matter" or res of

Synchronized's mechanic's lien enforcement action, which is

"likely either to be defeated or diminished" by Synchronized's

"claim against the bond." George W. Kane, 243 Va. at 509, 416

S.E.2d at 705 (internal quotation marks omitted). The answer

is no.

Paris is neither the principal nor the surety on the bond.

Moreover, Paris has no ability to be awarded a judgment to be

paid out from the bond. A posted bond is "subject to the final

judgment of the court upon the hearing of the [mechanic's lien

enforcement action] upon its merits," and is "for the payment

of such judgment." Code § 43-70. That is, a posted bond can

only be paid out to those claimants who have a valid mechanic's

lien on the real estate released by the bond.

Paris does not have such a mechanic's lien. It is true

that Paris was the construction manager and, by providing such

services for the construction of the hotel facility, acquired a

14 mechanic's lien on that real estate. Code § 43-3. But the

continued existence of a mechanic's lien requires the party

acquiring the lien to perfect it in accordance with the Code.

Id.; see Britt Constr., 271 Va. at 63, 623 S.E.2d at 888

(collecting cases).

The requirements for perfection differ depending upon

whether the party asserting the lien is a general contractor, a

subcontractor, or a party who contracts with a subcontractor.

See Code §§ 43-4; 43-7; 43-9. Being the party who

"contract[ed] directly with the owner," Paris was a "general

contractor" for purposes of the mechanic's lien statutory

scheme. Code § 43-1. Code § 43-4, governing the perfection of

a general contractor's mechanic's lien, required Paris to file

a "memorandum of lien" and "a certification of mailing of a

copy of the memorandum of lien [to] the owner of the property"

in the Orange County clerk's office. The record reflects that

Paris did not undertake these actions. As such, Paris failed

to perfect its mechanic's lien on the real estate, and that

mechanic's lien was lost. Britt Constr., 271 Va. at 63, 623

S.E.2d at 888. Because Paris lost its mechanic's lien, the

posted bond is incapable of being subject to a monetary

judgment in favor of Paris through the course of Synchronized's

mechanic's lien enforcement action.

15 We therefore hold that the circuit court can render

"complete relief" in Synchronized's mechanic's lien enforcement

action, even in Paris' absence, because Paris' lack of a

pecuniary interest in the posted bond means that there is no

monetary claim upon which the circuit court could award

judgment in favor of Paris, and no interest held by Paris which

might need to be shielded from an adverse judgment. See Lamar

Co. v. City of Richmond, 287 Va. 322, 324-25, 757 S.E.2d 15, 16

(2014) (proper decree could be entered without participation of

the absent and putatively necessary party).

III. Conclusion

Under the facts of this case, Paris, as the general

contractor, is a proper party but not a necessary party to a

subcontractor's mechanic's lien enforcement action. We will

therefore reverse the circuit court's judgment to the contrary,

vacate the order dismissing Synchronized's mechanic's lien

enforcement claim with prejudice, and remand for further

proceedings consistent with this opinion.

Reversed and remanded.

SENIOR JUSTICE KOONTZ, with whom JUSTICE MIMS and JUSTICE POWELL join, dissenting.

I respectfully dissent. This case presents the issue

whether the general contractor in a project involving the

construction of a hotel was a "necessary party" in a

16 subcontractor's action to enforce its mechanic's lien when that

perfected lien had been discharged, pursuant to Code § 43-70,

upon the filing of an appropriate bond by the owner of the real

estate upon which the hotel was constructed.

Today the majority of this Court holds that because the

general contractor failed to perfect its statutorily granted

mechanic's lien under Code § 43-3 it had no "pecuniary

interest" in the bond and, therefore, was not a necessary party

to the subcontractor's action to enforce its perfected

mechanic's lien. Neither the majority in its opinion, nor the

subcontractor in its appellee's brief, cites to any prior

decision by this Court in which we have held that a general

contractor is not a necessary party to a subcontractor's action

to enforce its mechanic's lien. In my view, the statutory

scheme involving the enforcement of a mechanic's lien by a

subcontractor and the significant role of the general

contractor in all construction projects provide persuasive

reasons that such is the case.

Initially, I am reminded of the old adage that bad facts

can lead to bad law. In this case no evidentiary hearing was

conducted in the trial court and, thus, the material facts are

drawn necessarily from the parties' pleadings, memoranda, and

supporting exhibits filed in that court. While the majority

makes reference to the fact that the general contractor did not

17 enter an appearance in the case because it was apparently

dissolved the day after the subcontractor recorded its

mechanic's lien, there are no facts in the record reflecting

the status of the general contractor at the time the

subcontractor subsequently filed its action to enforce its

mechanic's lien nor at the time the bond was posted by the

owner of the real estate.

What is undisputed, however, is the fact that the general

contractor was not given notice of the subcontractor's action

because the subcontractor "failed to exercise due diligence" to

serve the general contractor. That finding by the trial court

was not challenged by the subcontractor even though it suggests

that the general contractor could have been served. Under

these circumstances, the proper analysis of the issue in this

appeal necessarily must be premised upon the fact that the

subcontractor simply failed to give the general contractor

notice of the proceeding and thereby deprived the general

contractor of the opportunity to appear and provide evidence in

the case if it desired to do so. This is not a case in which

the general contractor with notice declined to participate.

Moreover, under these circumstances there is no factual basis

upon which a determination can be made as to what pecuniary

interest, if any, the general contractor had in the proceeding

initiated by the subcontractor.

18 Nevertheless, the majority opinion seems to suggest that

the posting of the bond made these "bad facts" irrelevant to

its determination that the general contractor was not a

necessary party in this case. In that context, it is not clear

what the reasoning would be had, for example, the general

contractor been given notice, appeared, and asserted that the

owner was indebted to it and that it was not indebted to the

subcontractor. For the reasons that follow, in my view, the

statutory scheme for enforcing a mechanic's lien contemplates

the central role of the general contractor in construction

cases so that all claims may be resolved and future litigation

avoided.

The analysis in this appeal is guided by settled law

regarding the enforcement of a mechanic's lien. Mechanic's

liens arise by statute and are in derogation of the common law.

Britt Constr., Inc. v. Magazzine Clean, LLC, 271 Va. 58, 63,

623 S.E.2d 886, 888 (2006); Carolina Builders Corp. v. Cenit

Equity Co., 257 Va. 405, 410, 512 S.E.2d 550, 552 (1999).

The statutory authority for a mechanic's lien for those

whose labor or materials is incorporated in construction

projects is found in Code §§ 43-1 to 43-23.2. As pertinent to

this appeal, Code § 43-3(A) provides that a mechanic's lien is

created automatically by "performing labor or furnishing

materials of the value of $150 or more . . . for the

19 construction, removal, repair or improvement of any building or

structure." Both the general contractor and subcontractor are

granted a mechanic's lien in this manner. See Code § 43-4

(general contractors); Code § 43-7 (subcontractors).

A mechanic's lien cannot be enforced, however, unless it

is first perfected in accord with Code § 43-7. Britt Constr.,

271 Va. at 63, 623 S.E.2d at 888 (collecting cases). Pertinent

to the present case, Code § 43-7(A) provides that "the amount

for which a subcontractor may perfect a lien . . . shall not

exceed the amount in which the owner is indebted to the general

contractor." This statute further provides that it shall be an

affirmative defense that the owner is not indebted to the

general contractor, or that the amount owed to the general

contractor is less than the amount of the subcontractor's

asserted mechanic's lien. These provisions reflect the central

role of the general contractor in all construction projects.

Thus, we have long held that the burden of proof in a suit to

enforce a mechanic's lien requires the subcontractor to prove

both that he is entitled to payment for labor and materials

furnished under his contract with the general contractor and

that the owner was indebted to the general contractor under

their contract at the time notice of the subcontractor's lien

was given or became so indebted thereafter. John T. Wilson Co.

v. McManus, 162 Va. 130, 135, 173 S.E. 361, 362 (1934).

20 Once a mechanic's lien has been perfected, Code § 43-22

provides, in pertinent part, that the lien "may be enforced in

a court of equity" by a complaint filed in the county or city

wherein the property upon which the building was constructed is

located. The statutory scheme for enforcing a perfected

mechanic's lien is a unique equity proceeding. Once the

subcontractor's suit invokes the equity jurisdiction of the

trial court, "it may go on to a complete adjudication, even to

the extent of establishing legal rights and granting legal

remedies which would otherwise be beyond the scope of its

authority." Such is the case even though the complainant may

have failed to establish its right to a mechanic's lien.

Johnston & Grommett Bros. v. Bunn, 108 Va. 490, 493, 62 S.E.

341, 342 (1908); see also Erlich v. Hendrick Constr. Co., 217

Va. 108, 115, 225 S.E.2d 665 (1976).

In a suit by a subcontractor to enforce a mechanic's lien

the focus of the equity court's determination is upon the

status of the general contractor's accounts with the owner and

the subcontractor. In this context, we have observed that

there is a distinction between a "proper party" and a

"necessary party" in that the failure to include the former is

not a ground for dismissing the suit whereas the failure to

include the latter renders the court powerless to proceed with

the suit. Mendenhall v. Douglas L. Cooper, Inc., 239 Va. 71,

21 74, 387 S.E.2d 468, 470 (1990). There we explained that a

necessary party's "interests in the subject matter of the suit,

and in the relief sought, are so bound up with that of the

other parties, that their legal presence as parties to the

proceeding is an absolute necessity, without which the court

cannot proceed. In such cases the court refuses to entertain

the suit, when those parties cannot be subjected to its

jurisdiction." Id.

In Raney v. Four Thirty Seven Land Co., we stated that

"[w]here an individual is in the actual enjoyment of the subject matter, or has an interest in it, either in possession or expectancy, which is likely either to be defeated or diminished by the plaintiff's claim, in such case he has an immediate interest in resisting the demand and all such parties who have such an interest are necessary parties to the suit."

233 Va. 513, 519-20, 357 S.E.2d 733, 736 (1987) (quoting

Gaddess v. Norris, 102 Va. 625, 630, 46 S.E. 905, 907

(1904))

Code § 43-70 provides that when a suit has been filed

under Code § 43-22 to enforce a mechanic's lien, "parties in

interest" may petition the court "for permission to pay into

court an amount of money sufficient to discharge such lien."

If the court permits the posting of the bond, "the property

affected thereby shall stand released from such lien" and

enforcement of the lien "shall be subject to the final judgment

of the court upon the hearing of the case on its merits." The

22 posting of the bond does not constitute a confession of

judgment or otherwise resolve the underlying controversy of

whether the alleged debt secured by the lien is owed. See York

Fed. Sav. & Loan Ass'n v. William A. Hazel, Inc., 256 Va. 598,

602, 506 S.E.2d 315, 317 (1998). Thus, we held in George W.

Kane, Inc. v. NuScope, Inc., 243 Va. 503, 509, 416 S.E.2d 701,

704 (1992), that "with respect to a bond enforcement suit, the

[subcontractor] has the burden of proving the same elements of

his claim that he would have had to prove in a suit to enforce

the lien released by that bond."

In the present case, the subcontractor filed a complaint

in the Circuit Court of Orange County to enforce its perfected

mechanic's lien on September 9, 2010. Subsequently, in August

2011 the owner filed an appropriate bond in accordance with

Code § 43-70 and the subcontractor's lien was discharged.

Although the complaint named the general contractor as a

defendant, the subcontractor failed to give the general

contractor notice of the proceeding and the general contractor

did not enter an appearance.

It is readily apparent that when a bond is filed under

Code § 43-70 the subject matter of the subcontractor's lien

enforcement suit remains the determination of what

indebtedness, if any, existed between the owner and the general

contractor at the time the lien was perfected or thereafter,

23 and what indebtedness, if any, exists between the general

contractor and the subcontractor. The bond is not the subject

matter of the suit. Rather, the bond provides the monetary

pool from which the equity court makes a "complete

adjudication" of the financial issues between all the parties

involved in the construction project that have been provided

proper notice of the proceeding, while releasing the property

of the owner in question from claims of parties involved in

that construction project. Significantly, in this way the bond

provides the mechanism by which the equity court is able to

resolve any financial claims that may exist between all the

parties to the construction project and thus protect them from

future litigation involving the construction project.

In the present case, the general contractor was not

provided the opportunity to assert any claims it may have had

against the owner or to refute any assertions of the

subcontractor against it in its capacity as the general

contractor in the construction project. Moreover, the equity

court was called upon to render a complete adjudication of the

financial issues in the case "on its merits" without the

benefit of the general contractor's evidence of what, if any,

indebtedness existed between it and the owner and what, if any,

indebtedness existed between it and the subcontractor. In that

circumstance, in my view the general contractor was a necessary

24 party to the subcontractor's suit to enforce its mechanic's

lien, and the trial court did not abuse its discretion in

refusing to entertain that suit and dismissing it with

prejudice.

The majority relies, in part, upon our decision in Kane to

conclude that a general contractor is not a necessary party to

a bond enforcement suit by a subcontractor. There, we held

that the owner of the real estate subject to a mechanic's lien

is no longer a necessary party once a bond is posted to release

the real estate. 243 Va. at 510, 416 S.E.2d at 705. The

majority reasons that if an owner is not a necessary party in

those circumstances then it follows that the general contractor

is also not a necessary party. In Kane, however, the general

contractor, rather than the owner, posted the bond. Id. at

505, 416 S.E.2d at 702. The distinction is significant. When

the owner posts the bond it does so to release a mechanic's

lien claim so that the owner's property is no longer

encumbered. When the general contractor posts the bond it

becomes a party to the subcontractor's enforcement suit and

thereby protects itself from future litigation with the

subcontractor.

The majority also relies upon our decision in Air Power,

Inc. v. Thompson, 244 Va. 534, 422 S.E.2d 768 (1992), to

support its reasoning in this case. There, we held that land

25 trust beneficiaries are not necessary parties to a mechanic's

lien enforcement action against the trust's real estate. This

was so because the beneficiaries only had a personal property

interest in the profits of the trust's real estate. Id. at

537-38, 422 S.E.2d at 770. Obviously, Air Power did not

involve the status of a general contractor and the unique role

the general contractor plays in a construction project and the

resulting role it maintains in the resolution of a

subcontractor's mechanic's lien enforcement suit.

For these reasons, I would hold that the general

contractor, where available for service by a subcontractor in

its mechanic's lien enforcement suit in which a bond has been

posted by the owner in accordance with Code § 43-70, is a

necessary party. Accordingly, I would further hold that the

trial court did not abuse its discretion in refusing to

entertain the subcontractor's action in this case and

dismissing it with prejudice.