MISSISSIPPI CONSTRUCTION BOND, LIEN AND STOP NOTICE CLAIMS
By: Robert P. Wise © 2002
Wise Carter Child & Caraway, P.A.
P.O. Box 651
Jackson, Mississippi 39205
A bond provides the most direct protection for a claimant on a project. The attorney for an owner on a bonded job, for example, would check the performance bond for a remedy to the prime's performance failures, or to the payment bond to provide protection from the claims of subcontractors and materialmen. Similarly, the lawyer for an unpaid subcontractor, laborer or materialman on a private job should first check with the owner or prime to see if the prime (or in turn the prime's sub) was required to put up a payment bond protecting claimants. While there will always be bond protection covering public work as the law requires, there may or may not be bond coverage for private work, so the attorney will need to check.
If the attorney finds no bond protection covering his client's claims, then the attorney will need to check to see if the client is entitled to the protection of a lien against the owner's property if the client is a prime contractor or supplier with a direct contract with the owner, or entitled to a stop notice if the client is a subcontractor, supplier or laborer of the prime contractor.
A. Bond Law: Mississippi Bond law provides bond protection for the following three categories of projects:
B. Lien Law: If, but only if, the claimant on an unbonded private project has a direct contractual relationship with the project owner, the claimant may assert a lien against the project pursuant to §85-7-131.
C. Stop Notice Rights: If, the claimant on an unbonded project has no contractual relationship with the owner, but has a contract with the prime, the claimant may give notice to the owner of the claim pursuant to § 85-7-181 and seek to prevent the owner from paying funds due to the prime contractor pending resolution of the claim.
1) Public Works Projects: Mississippi's Little Miller Act (§§31-5-51 to -57, Miss. Code Ann.) requires prime contractors doing projects for the State of Mississippi or its subdivisions, including the counties, cities and towns, on contracts of more than $25,000, to furnish payment and performance bonds in favor of the public body and protecting as well subcontractors, laborers and material suppliers of the prime or subs;
2) Highway Construction Projects: Mississippi law requires that the successful bidder of a State Highway Commission contract for highway construction or reconstruction provide a performance and payment bond equal to the contract price pursuant to § 65-1-85; and
3) Private Projects: While no bond is required for private projects in Mississippi, if a bond is provided, by statute (§ 85-7-185) the bond inures to the benefit of certain classes of persons furnishing labor and materials under the contract.
II. MISSISSIPPI BOND LAW:
A. PUBLIC WORKS PROJECTS
1. Bid Bonds: A bid bond provides relief to the owner in the event the contractor whose bid has been accepted refuses to proceed with signing the contract and construction (a performance bond, by contrast, covers construction performance). Public authorities in Mississippi in their discretion may require contractors to post bid bonds with bids on public construction contracts. Cities, for example, may impose the requirement of a bid bond pursuant to § 21-17-5 Miss. Code Ann. (1972), which gives cities control over management of their finances. AG Opinion, 1990 WL 547943; AG Opinion, 1990 WL 548140. Generally, there is no statutory requirement that the public authority require a bid bond from contractors. However, the private financing and construction of dorm facilities for the Institutions of Higher Learning requires that bids be accompanied by a check or "bid-bond payable to said board in a sum not less than five percent of the gross construction cost of the facility to be constructed as estimated by said board.... The said bid security...shall be forfeited if the successful bidder fails to enter into the lease contract and commence construction within the time limitation set forth in the notice." § 37-101-43 Miss Code Ann. Further, where the public authority chooses to require a bid bond, it may accept cash or its equivalent, including a personal check or irrevocable letter of credit, in lieu of the bid bond. AG Opinion, 1996 WL 508568 at p. 3; AG Opinion, 1995 WL 526173.
2. Performance and Payment Bonds Required For Public works - The
Little Miller Act: The Mississippi Legislature in 1980 enacted the Little Miller Act which follows closely the model of the Federal Miller Act (40 U.S.C. § 270a et seq.). Mississippi's Little Miller Act appears at §§ 31-5-51 to -57 Miss. Code Ann. (1972).
Mississippi requires general contractors on public projects to provide bonds covering performance and payment because a claimant could have no lien rights against the property of the state. The state, as sovereign, is not subject to private liens or stop notices. Key Constructors, Inc. v. H&M Gas Company, 537 So. 2d 1318, 1321 (Miss. 1989). Thus, §31-5-51(1) provides that for projects exceeding a cost of $25,000, anyone entering a contract with the state, any county or city or other public authority must furnish a performance bond "in favor of or for the protection of such public body, as owner" and "in an amount not less than the amount of the contract". The statute further requires that the contractor provide a payment bond "in an amount not less than the amount of the contract". Id.
(i) Claimants Covered: The Little Miller Act provides that the "only persons" protected by the payment bond required under the Act are: (a) first tier subcontractors and material suppliers below the prime contractor; (b) second tier sub-subcontractors and material suppliers below subcontractors who give notice within 90 days of their last addition of labor or materials (see sec. v below); and (c) laborers with wage claims who have performed work on the project site. § 31-5-51(4). The Little Miller Act leaves out bond protection for materialmen of materialmen, and for subs below the sub-sub level.
(ii) Materialmen: An issue can thus arise whether a materialman was a subcontractor or materialman for the building contractor(s) within the protection of the bond, or was simply just a materialman to a materialman outside the protection of the bond. For example, in a case predating the Little Miller Act, C.E. Frazier v. O'Neal Steel, Inc., 223 So. 2d 661 (Miss. 1969), but illustrative here, the prime contractor on a public schools project entered into a contract with a steel supplier, Ramsey Steel. Ramsey Steel in turn obtained much of the steel it furnished for the project from O'Neal Steel. O'Neal Steel asserted a claim against the project bond after it went unpaid. Ramsey Steel showed that it had punched holes in the steel and bent and welded other parts to meet the specific requirements of the plans for the school buildings project. Nonetheless, Ramsey Steel was merely a material supplier providing inventory to a distinct steel supplier to the project. The Court noted that Ramsey Steel could not recover under the bond "for furnishing material to a materialman." Id. at 663. Further, the Court held that Ramsey Steel was not a "subcontractor" since it had no "contract to construct all or part of the building", and thus again was outside the protection afforded by the bond. Id. at 665.
(iii) Equipment: Mississippi has followed the traditional rule that only materials or the portion of equipment (i.e. rentals) actually used or consumed in the construction of the project are reimbursable under a public works bond. In Houston General Insurance Company v. Maples, 375 So. 2d 1012 (Miss. 1979), the Court upheld the liability of the bond surety to reimburse a fuel supplier, "since the fuel was necessary for the equipment's operation which was essential to the construction." Id. at 1016. However, the Court held that a supplier of tires for heavy equipment could not simply seek reimbursement for the entire price of tires used in the construction, noting that the, "tires were not likely to be substantially consumed in the project." Id. at 1016. The Court remanded for further testimony on the tires' useful life and the portion consumed on the contract. Id. The Court did uphold a claim under the bond for heavy equipment rental payments, noting the equipment was essential to the work, "just as laborers would have been had the equipment not been used." Id. The key in every such case is proof that the specific materials were intended for the use or consumption in the construction of the public project.
(iv) Diversion of Materials: However, the Mississippi Supreme Court, in an opinion by Justice Jimmy Robertson, has recognized also that a supplier of material to a contractor may have no control over the contractor's diversion of materials from the intended public project to another project not covered by the bond. In Key Constructors, Inc. v. H&M Gas Company, 537 So. 2d 1318, 1321 (Miss. 1989), a supplier of fuel to a subcontractor brought suit under the Little Miller Act on the bond. The prime contractor and obligee on the bond attempted to defend against the claim by stating that the subcontractor had diverted the fuel to other unbonded projects that he was working on. The Court held that the claim of diversion was immaterial to the action on the debt to the materialman, citing opinions noting that a materialman's claims should not be denied where the materialman supplied materials in good faith to a subcontractor for the prosecution of the contemplated public work. Id. at 1323-24.
The Supreme Court in Key Constructors also held that the prime contractor could not defend against bond liability to the materialman of the subcontractor by asserting that he also had a claim against the subcontractor and was owed a set off. The Court stated: "The right of a materialman to make a demand on the contractor and/or his surety was legislatively created so that the supplier could distance itself from contractor/subcontractor disputes, thus assuring its prompt payment." Id. at 1324.
(v) Notice Requirement: The Little Miller Act imposes no notice requirement on tier one subcontractors, laborers or materialmen having a direct contractual relationship with the prime contractor as a condition precedent to suit on the bond. However, second tier sub-subcontractors and materialmen of subs not having a direct contractual relationship with the prime can not proceed against a surety bond under the Little Miller Act without first meeting the Act's notice requirement. § 31-5-51(3). The Act requires sub-subs and materialmen of subs to give written notice of the claim to the prime contractor or the surety within 90 days of the claimant's last furnishing of labor or material for which claim is made. The notice must state "with substantial accuracy" the amount claimed, and the party to whom the material was furnished or for whom the labor was done. The notice may be delivered in person or by prepaid certified mail, return receipt requested.
Nonetheless, a Mississippi federal District Court stated it was willing to overlook the certified mail/return receipt requirement for mailing where, "the only failure to comply with the statute was the failure to send notice by certified mail, and where there is no dispute but that actual notice was received by the proper party". Brothers In Christ, Inc. v. American Fidelity Fire Insurance, 692 F. Supp. 701, 703 (S.D. Miss. 1988).
(vi) Commencement of Suit and Statute of Limitations: The Act provides that claimants within the protection of the Act who remain unpaid 90 days following their last furnishing of labor or materials for the public project "shall have the right to sue" on the payment bond. §31-5-51(2). However, the Act also provides that, "[w]hen suit is instituted on a payment or performance bond, it shall be commenced within one (1) year after the performance and final settlement of the contract and not later". (Emphasis added). §31-5-53. The Mississippi Supreme Court stated in Stanton & Associates v. Bryant Construction Co., 464 So. 2d 499, 503 (Miss. 1985), that under § 31-5-53, as well as its predecessor statute, "a suit instituted on a payment or performance bond may not be commenced until notice of the final settlement or abandonment by the primary obligee has been published." Thus, while the right to sue for nonpayment may accrue on the 91st day following the last supply of materials and labor for which the claim is made, it appears that the litigation on the bond can not commence until following the performance and final settlement of the contract.
Section 31-5-53 also provides the outer time limit in which suit on the public bond may commence, stating it is to be within one year following performance and final settlement, or following abandonment by the contractor, "and not later". (Emphasis added). The Mississippi Legislature in 1994 by amendment broadened the list of specific events that can trigger the start of the one year statute of limitations. The statute now runs one year from the earlier of (1) newspaper publication by the obligee of notice of final settlement or determination of abandonment by the contractor; (2) the owner's provision of written acceptance of the project; or (3) the owner's actual occupancy or use of the project.
The Little Miller Act does not follow the old rule that there can only be one suit brought on a payment bond, with all claimants required to intervene. The Act permits multiple suits against the payment bond on state projects.
(vii) Venue: The Act provides that venue for a suit on a public performance or payment bond is available in the county in which the contract or part of the contract was performed, or in a county where service of process may be obtained on the prime contractor or surety on the bond. §31-5-53.
(viii) Right to Examine The Bond: The prime contractor can not stonewall a potential claimant's request to examine the bond and its coverage provisions. The Little Miller Act provides that the prime contractor shall furnish a certified copy of the contract and bonds on the project upon request to, "[a]ny person supplying labor or materials for the prosecution of the work". §31-5-55.
(ix) Attorney's Fees: The Little Miller Act authorizes the judge to impose an award of reasonable attorney's fees against either the payment bond defendant or the bond claimant if either party proceeds in the action on the defense or claim unreasonably for mere delay, or without just cause or in bad faith. § 31-5-57. However, in Key Constructors the Mississippi Supreme Court threw out the portion of the judgment entered below awarding attorneys fees against the bond defendants where the plaintiff failed to show what a reasonable legal fee would be on the basis of the expert testimony of another attorney. The Court stated of attorney's fees that one, "may not merely pull a figure out of the thin air." Key Constructors, Inc. v. H & M Gas Company, 537 So. 2d at 1325. One should check first, of course, to see if there is an attorney's fees provision in the construction contract.
(x) Interest: Prejudgment interest is awardable on liquidated, fixed amounts sought under the Little Miller Act as in other cases since the bond is to insure "prompt payment". In addition, §31-5-27 provides that if a prime contractor on a public construction contract without reasonable cause fails to make payment to his subcontractors and material suppliers within 15 days of his receipt of payment under the contract with the public agency, an interest penalty shall accrue on the principal due at the rate of ½ of 1% per day of the delinquency, not to exceed 15% of the balance due. See Stanton & Associates v. Bryant Construction Co., 464 So. 2d 499, 502 (Miss. 1985).
(xi) Subcontractor Bonds: If the prime requires the sub to put up a bond, the sub's bond falls under the private bond statutes rather than the procedures of the Little Miller Act. U.S.F.&G. v. Dedeaux, 152 So. 274 (Miss. 1934).
(xii) Failure to Require Bond: If a Board of Supervisors fails to require a bond for a public project, the Board members are not individually liable for their negligence. Pidgeon Thomas Iron Co. v. Leflore County, 135 Miss. 155, 99 So. 677 (Miss. 1924).
B. HIGHWAY CONSTRUCTION PROJECTS
1. Bond Coverage: Mississippi has a specific statute setting forth bonding requirements for State Highway Commission construction contracts exceeding $5,000. § 65-1-85. The statute requires bonds for, "[a]ll contracts by or on behalf of the State Highway Commission for construction, reconstruction or other public work...except maintenance, and for the purchase of materials and equipment and supplies". Bonds for construction must be in an amount equal to the contract price. If change orders increase the price after the contract is signed, the statute authorizes the Highway Commission to require additional bonding. The bonds must cover the contractor's performance and payment "of all persons furnishing labor, material, equipment and supplies". § 65-1-85.
2. Equipment: Since heavy equipment plays a major role in highway construction, the legislature in 1968 amended the statute to provide specific definitions for "equipment" as well as "labor" and "materials" as they relate to equipment. The statute states "equipment" includes, "the reasonable value of the use of all equipment ... which are reasonably necessary to be used and which are used in carrying out the performance of the contract, and the reasonable value of the use thereof, during the period of time the same are used in carrying out the performance of the contract". Equipment therefore includes equipment rentals or the value the use of owned equipment during the contract period. § 65-1-85.
The statute states that "labor" includes all reasonably necessary repair work on equipment used in the construction. It defines "materials" and "supplies" as including repair parts reasonably necessary to the efficient operation of equipment used on the job. § 65-1-85.
3. Materialmen: As is true in the case of the Little Miller Act, an issue can arise as to whether a supplier on a highway construction project is a materialman or subcontractor within the protection of the bond, or merely a materialman to a materialman outside the bond's protection. In Webb v. Blue Lightning Service Company, 237 Miss. 862, 116 So. 2d 753 (1960), for example, the Court held that a supplier of gasoline and diesel fuel to a gravel company for use in the mining of gravel which in turn sold the mined gravel to the bonded contractor was not eligible for reimbursement under the bond. The claim was simply for material sold to another materialman. By contrast, in Mississippi Road Supply Company v. Western Casualty & Surety Company, 246 Miss. 510, 150 So. 2d 847, 851 (1963), the Court upheld the claim of a materialman who had furnished supplies directly to a subcontractor on a highway construction.
4. Procedures and Notice: Since the procedural provisions of the former public works statutes had been held to apply to highway bonds, one would assume that the procedural provisions of the Little Miller Act supplement § 65-1-85 and should be followed in highway bond actions. See Dixie Contractors, Inc. v. Ballard, 249 So. 2d 653 (Miss. 1971). Thus, for example, the Little Miller Act should be consulted for the time for bringing suit and notice of suit.
5. Special Notice Provision Relating to Equipment Providers: Providers of equipment to subcontractors for road construction should take special note of the strict nonpayment notice requirement in § 31-5-31. Section 31-5-31 provides that any person who leases, rents or sells to a subcontractor equipment to be used in a road construction contract where the general contractor must be bonded, must (1) notify the general contractor that credit is being extended to the sub and stating the terms and (2) if the sub defaults, notify the general of the nonpayment within 30 days after payment is due. Failure of the creditor to comply with the nonpayment notice provision of the section abrogates any right to proceed against the bond for the equipment leased, rented or sold. § 31-5-31.
C. PRIVATE CONSTRUCTION PROJECTS
1. A General Contractor's Provision of a Private Bond to an Owner Dissolves A Sub's Stop Notice Rights: Mississippi law does not require contractors on private projects to furnish performance or payment bonds. However, the first inquiry one should make on a private job is whether there is a bond since bond rights, where they exist, are in lieu of statutory lien or stop notice rights. In other words, stop notices become legally ineffective where the general contractor provides to the owner a payment bond protecting subcontractors. As a result, a contractor, faced with a sub's stop notice claim that could delay the owner's closing with its lender (preventing final payment to the general, and by the general to all the other subs), can get rid of the stop notice by "bonding around the lien", providing the owner a payment bond that will cover the amount of the stop notice claim. The contractor's provision of a payment bond dissolves the stop notice rights of the sub as a matter of law. Dickson v. U.S.F.&G. Co., 117 So. 245, 248 (Miss. 1928):
Also, the general contractor can achieve the same protection from stop notices at the start of the project by providing the owner a payment bond. Ewin Engineering Corp. v. Deposit Guaranty Bank and Trust, 216 Miss. 410, 62 So. 2d 572, 574 (1953), citing Dickson v. U.S.F.&G. Co., 117 So. 245, 248 (Miss. 1928). Accord., Redd v. L & A Contracting Co., 151 So. 2d 205, 207, 246 Miss. 548 (Miss. 1963). See also, Jesco, Inc. v. Jeffreys Steel Co., Inc., 571 F. Supp. 801 (N.D. Miss. 1983) ("Under Dickson v. USF & G...where the contractor has given bond, as here...no lien, either at law or equity, may be asserted against monies due a contractor under a construction contract or purchase order." Emphasis original.).
One hastens to add that if the prime contractor posts a performance bond instead of a payment bond, Mississippi law automatically writes into the performance bond a payment provision protecting subcontractors, laborers and materialmen of the general contractor at § 85-7-185. Therefore, the private bond statute requires protection of tier 1 contractors and materialmen below the bonded contractor but, unlike the Little Miller Act which protects also the next tier upon their giving timely notice of claims, the private bond statute does not require that the bond protect tier 2 sub-subs and materialmen of subs.
2. Motion to Expunge Stop Notice and Lis Pendens Filing Given the Presence of a Payment Bond: What, though, if the subcontractor stubbornly refuses to remove a stop notice and accompanying lis pendens notice even in the face of the contractor's providing him a copy of a bond? In that case the contractor, preferably joined by the owner, should apply to the county or chancery court to have the lis pendens notice immediately enjoined and expunged under the authority of § 85-7-201 Miss. Code Ann. That section, the false notice statute, allows application to the county or chancery court on two day's notice to expunge the inappropriate lis pendens filing from the land records, and to enjoin the further filing of such notices. At the very least, the court should consider award of attorneys'fees where the sub's stubborness necessitates the motion. The Mississippi Court of Appeals has noted a chancellor's right to examine whether a recorded materialmen's lien is void and of no effect, and whether the lien should be enjoined, in Cummings v. Davis, 751 So. 2d 1055, 1058 (Miss. App. 1999).
3. Remote Materialmen: The Mississippi Supreme Court has held that the bond statute for private projects affords payment protection only to persons furnishing labor or materials to the contractor who provided the bond; it does not protect remote materialmen having no direct contract with the contractor who gave the bond. United States Fidelity & Guaranty Co. v. Maryland Casualty Co., 191 Miss. 103, 199 So. 278, 282 (1940); Alabama Marble Co. v. United States Fidelity & Guaranty, 146 Miss. 414, 111 So. 573, 574 (1927) . For example, the Court held in the Alabama Marble Co. case that a bond provided by the prime contractor for the construction of the Lamar Life Building in Jackson did not cover the claim of a provider of marble to a subcontractor on the job. Id.
4. Equipment: Unlike the Little Miller Act, finding coverage under a private bond for equipment rentals or repairs can be problematic unless the bond specifically covers "equipment" as well as "labor and materials". However, modern bond forms do usually cover equipment as well as "labor and materials". In the case of Western Casualty & Surety Company v. Stribling Brothers Machinery Company, 162 Miss. 581, 139 So. 838, 840-841 (1962), the Mississippi Supreme Court strictly interpreted the terms "labor and materials" under the bond statute to hold that the surety was not liable for the claims of intervenors for unpaid equipment rentals and transportation costs of equipment. The Court did recognize coverage claims for gas and oil and necessary repairs to the equipment used in the work. Id. The Court in a subsequent case, based on the terms of the indemnity bond in that action, broadly disallowed bond claims for equipment rentals, transportation, repairs and parts, stating that "all persons furnishing labor or material under said contract" did not include lessors of equipment. Great American Insurance Company v. Busby, 247 Miss. 39, 150 So. 2d 131, 135, 137 (1963). See also, Carruth v. Standard Accident Insurance Co., 329 F. 2d 690, 692-93 (5th Cir. 1964), reaching the same conclusion. However, the Mississippi Court did find coverage for equipment repairs (as well as fuel and oil consumed) in Seaboard Surety Co. v. Bosarge, 226 Miss. 482, 84 So. 2d 517, 519 (1956), where the private performance bond specifically covered the contractor's obligation to provide "equipment", as well as labor, supervision and tools, to complete a housing project. The Bosarge and Busby cases are compared in Coatings Manufacturers, Inc. v. DPI, Inc., 926 F. 2d 474, 477 (5th Cir. 1991).
5. Joinder In Suit on Bond: The statute also provides that if a claimant brings suit on the bond, other persons furnishing labor or materials under the contract may intervene in the action to have their rights determined under the bond. However, unlike the public project bond requirements under the Little Miller Act, the private bond statute does not require that the bond be sufficient to cover the full amount of the prime's or subcontractor's contract. Therefore, the statute provides that the owner or prime to whom the bond was given (the bond obligee) has the first priority in the bond proceeds for satisfaction of his claim for damages ahead of other parties. § 85-7-185. Remaining claimants are left to share in the available bond proceeds on a pro rata basis. § 85-7-193.
6. Commencement of Suit and Statute of Limitations: Only the owner or the prime to whom the bond was given (the obligee) on a private project can bring suit within the first six months following either notice of abandonment or completion and final settlement of the contract. Thereafter if the bond obligee has not brought suit, any third party supplying labor or materials can initiate suit on the bond. §85-7-187. Once suit is brought by a party eligible to relief under the bond, any other party entitled to bond relief may intervene in the action and be made a party to the suit since by statute only one action can be brought on the bond. §85-7-191. However, while §85-7-191 states there can be only one action on the private bond, the Supreme Court has refused to uphold the one action rule on constitutional grounds against a claimant who had no notice of the suit. American Fidelity Fire Insurance Company v. Athens Stove Works, Inc., 481 So. 2d 292, 295 (Miss. 1985).
The suit on the bond can not be commenced by any party before a notice of abandonment or the complete performance and final settlement of the contract. §85-7-189. However, once the suit can be filed, it must be filed within the statute of limitations of one (1) year after the earliest of the following events: (a) newpaper publication of the performance and final settlement of the contract, or notice of abandonment; (b) written acceptance of the project by the owner; or (c) actual occupancy or use by the owner. Id. The same statute of limitations period also applies to any motions of claimants to intervene in an ongoing suit on the bond. § 85-7-191. The Little Miller Act provides the same limitations periods for suit on public project bonds. Compare § 31-5-53.
7. Priorities in Recovery; Attorney's Fees: As noted previously, if the recovery on the bond turns out to be inadequate to satisfy all parties to the action, the bond obligee is to be satisfied first as to all claims and damages before judgment is given for remaining parties on a pro rata basis. § 85-7-193; § 85-7-185. Section 85-7-193 also authorizes the award of reasonable attorneys fees in an action on a private bond in an amount to be set by the judge.
8. Interest: Prime contractors and subcontractors on private projects who do not received timely payment will be able to charge interest as permitted by the Mississippi Prompt Payment Act. See § 87-7-3 and § 87-7-5.
If the contractor does not give the bond provided by the statute, laborers and materialmen have an equity...in the funds due the contractor by the owner of the building. But where a bond is given as provided by the statute, such funds are released from such equity or trust in favor of materialmen and laborers and go into the hands of the contractor untrammeled. The purpose of the bond section of the statute was to provide for the protection of materialmen and laborers, the bond being in lieu of their equity in the funds arising out of the building contract.".
III. MISSISSIPPI LIEN LAW
1. Claimants Covered: As noted in the discussion of public works projects, the state, as sovereign, is not subject to private liens. Key Constructors, Inc. v. H&M Gas Company, 537 So. 2d 1318, 1321 (Miss. 1989). Therefore on a public project a claimant would look for relief under the required bond rather than under the lien statutes which apply only to private projects.
Justice Jimmy Robertson has noted that, "[t]here is no natural law of materialman's liens" and that claimants can have lien rights, "only to the extent that they have brought themselves within the terms of the statute" governing liens, § 85-7-131. Riley Building Supplies, Inc. v. First Citizens National Bank, 510 So. 2d 506, 508 (1987).
Section 85-7-131 provides that, "[e]very house, building, water well or structure of any kind" is subject to the lien of the statute "for labor done or materials furnished, or architectural engineers' and surveyors' or contractors' service rendered" in construction or repairs. However, it is important at the outset to note that the availability of the lien under § 85-7-131 is limited by § 85-7-135 to claimants having a direct contract made "by the owner, or by his agent, representative, guardian or tenant authorized, either expressly or impliedly, by the owner." § 85-7-135. Therefore, subcontractors, laborers and materialmen who have no contract with the owner, but only with the general contractor or a lower tier contractor, have no statutory right to a lien in Mississippi. Brown v. Gravlee Lumber Co., Inc., 341 So. 2d 907, 909 (1977). Such claimants on an unbonded private construction project must look for other means of relief (see the discussion on stop notice rights and the open account statute below).
2. Tenants: Further, if the work is initiated without the written consent of the land owner by a tenant or guardian, only the structure, or some part thereof, or the estate of the tenant in the land, and not the lot, is subject to the lien. § 85-7-137. Brown v. Gravlee Lumber Co., Inc., 341 So. 2d 907, 909 (1977).
3. Structures and Land Covered: Section 85-7-131 spells out the extent of the lien, depending on whether the structure is in a city, town or village (extending to the lot and curtilage); outside of any city, town or village (extending up to one acre on which the structure stands as selected by the lien holder); is a water well, oil or gas well, railroad or railroad embankment. If the services have been rendered upon the whole of a subdivision, the lien extends the entire subdivision, or to upon the portion of the property for which the services were required or were furnished. § 85-7-131.
4. Materials: The statute also creates a presumption that material shown to have been delivered to the job was used in the job. § 85-7-131. The presumption created by proof of delivery can be overcome only by specific proof that the delivered material was later diverted and not incorporated into the project subject to the lien.
5. Notice Requirements: A lienholder must take steps set forth in the lien
statutes to perfect the lien if the lien is to have priority over the interests of subsequent innocent purchasers, and lenders holding deeds of trust for valuable consideration who have not had actual notice of the lien. Riley Building Supplies, Inc. v. First Citizens National Bank, 510 So. 2d 506, 509 (1987).
The Chancery Clerk in each county of Mississippi maintains a book entitled "Notice of Construction Liens" as a part of the land records where lien holders may file and record their liens. § 85-7-133. The statute states the lien "shall not take effect unless and until some notation thereof shall be filed and recorded" in the Notice of Construction Liens book. Id. Thus, the lien must be recorded in the Notice of Construction Liens book to be effective under the statute.
In addition, the potential claimant may, but is not required to, record the construction contract under which he is proceeding in the land records with the Chancery Clerk. § 85-7-139. The claimant, as a further protection, may also file a notice of lien in the lis pendens book maintained by the Chancery Clerk, in which case he must notify the owner of the filing. § 85-7-197. However, the essential filing is the filing in the Notice of Construction Liens book. § 85-7-133.
In any event, the claimant's lien, "shall take effect as to purchasers or encumbrancers for a valuable consideration without notice thereof, only from the time of commencing suit to enforce the lien, or from the time of filing the contract under which the lien arose, or notice thereof, in the office of the clerk of the chancery court". § 85-7-131. Therefore, timely filing of the notice of lien is essential to establish priority over later innocent purchasers and mortgage holders.
6. Commencement of Suit and Statute of Limitations: The lien statutes provide a relatively short statute of limitations for suit. A claimant must initiate suit on the lien within twelve (12) months after the date the money claimed, "became due and payable, and not after". (Emphasis added). § 85-7-141. Notice that the 12 months runs from the payment due date, not the date of the filing of the lien notice. Thus, one must file both the notice of lien and suit within the 12 months. However, "where there has been a continuous delivery of material, and the time of payment is not fixed by contract, the statute begins to run against the lien from the delivery of the last lot of material." Billups v. Becker's Welding & Machine Co., 186 Miss. 41, 189 So. 526 (1939).
7. Joinder: The lien statutes require that any other parties claiming liens on the property be summoned and made parties to the suit or be allowed to intervene. §§ 85-7-143; 85-7-145. The statutes provide specific requirements as to what must be included in the claimant's complaint. § 85-7-141.
8. Attorney's Fees: If the lienholder is successful in reducing his lien to
judgment, the lien statutes authorize the claimant to ask the judge to add the cost of attorney's fees for the prosecution and collection of the claim. § 85-7-151. Once the judgement is entered, the claimant may proceed to execute on the lien against the property as set forth in the statutes at §§ 85-7-153 to -157.
9. Owner's Protection From False Liens: An owner may recover against a contractor or supplier who without just cause files a lien to which he is not entitled. § 85-7-201. The suit must be brought within one year of the filing of the false lien. Id.
IV. MISSISSIPPI STOP NOTICE LAW
1. Claimants Covered: As we have seen, only primes and others with a
direct contract with the owner have lien rights under Mississippi law. The law, though, affords a remedy to subcontractors, materialmen and laborers of general contractors under the Mississippi Stop Notice statute. § 85-7-181. Cummings v. Davis, 751 So. 2d 1055, 1058 (Ms. App. 1999). However, again, as noted above (Sec. II C), one should first check to see if the general contractor provided a payment bond to the owner for the project before giving a stop notice, since, bond rights are in lieu of stop notice rights, and a stop notice that ignores the presence of a bond is ineffective and may be expunged.
The Stop Notice statute, known also as the Stop Payment statute, states that an unpaid subcontractor or laborer of the prime contractor can give notice in writing to the owner of the amount due, claim the benefit of the statute, and from that time on bind an amount sufficient to cover his claim in the hands of the owner until the claim is resolved. § 85-7-181. However, to be effective and enforceable, the claimant must give the notice while the owner still owes money to the prime contractor. Corrugated Industries v. Chattanooga Glass Company, 317 So. 2d 43 (Miss. 1975). Further, the stop notice only requires the owner to withhold payment from the prime of "the amount claimed in that notice." (Emphasis original). Amerihost Development, Inc. v. Bromanco, Inc., No. 98-CT-00762-SCT (Miss. April 12, 2001), quoting McNair v. M.L. Virden Lumber Co., 193 Miss. 232, 4 So. 2d 684, 689 (1941). Therefore, "the filing of a stop-notice under § 85-7-181 benefits only the subcontractor(s) giving actual notice prior to the time the owner pays the prime contractor." Id. Further, the subcontractor giving the stop notice is not required to notify other subcontractors of the stop notice (although the sub must give notice of any subsequent suit by summons at that time; see sec. 4 below). Id.
The subcontractor or materialman of the general contractor providing a stop notice may wish to give teeth to his notice by at the same time filing a lis pendens notice as permitted by § 85-7-197 Miss. Code Ann. At the very least, the provision of the notice and the filing of the lis pendens notice may cause the general contractor to provide a payment bond for the project in order to clear the record of the stop notice.
The protection afforded by the Stop Notice statute does not extend beyond those with contracts with the prime contractor. "Subcontractors or materialmen to another subcontractor are not entitled to recovery under this statutory provision." Associated Dealers Supply, Inc. v. Mississippi Roofing Supply, Inc., 589 So. 2d 1245, 1247 (Miss. 1991). Such remote contractors and materialmen are mere "general creditors" of the parties with whom they have dealt. Id. at 1248. Accord., Amerihost Development, Inc. v. Bromanco, 2000 WL 137129 (Ms. Ct. App. 2/8/2000); Cummings v. Davis, 751 So. 2d 1055, 1058 (Ms. App. 1999).
Since the coverage of the statute is limited to those dealing directly with the prime, the question can arise as to who is the prime on particular job. In Associated Dealers Supply, Inc. v. Mississippi Roofing Supply, Inc., 589 So. 2d 1245 (Miss. 1991), it was contended that one of the co-owners of a project was not the prime, although it maintained on its payroll a superintendent who oversaw the construction and hired electricians, plumbers, framers, roofers and others to do the work. The Supreme Court found the co-owner was the prime. The Court accepted the dictionary definition of prime as, "'the party to a building contract who is charged with the total construction and who enters into sub-contracts for such work as electrical, plumbing and the like.'" Id. at 1247-8. Further, "[a]n owner is not excluded from this definition." Id at 1248. Indeed, the Court found the ownership issue irrelevant altogether, and that the focus should be on the "activities" of the alleged prime. Id.
2. Costs and Attorney's Fees: The owner has the option under of the statute of paying the amount due by him under the contract with the contractor into the court, summon all known claimants against the contract funds into court to make their claims, and thereby escape any potential liability for costs and attorney's fees. Indeed, if the owner can establish it has acted as a mere disinterested stakeholder, it will be entitled to attorney's fees for the cost of the interpleader action against the interplead fund. Amerihost Development, Inc. v. Bromanco, Inc., No. 98-CT-00762-SCT (Miss. April 12, 2001).
If the subcontractor initiates the suit, the owner retains the option of paying the amount due on the contract or, the amount "sufficient to pay the sums claimed", and again avoid any claim for costs and attorney's fees. However, if the owner, once sued with the contractor, denies the indebtedness sufficient to cover the claims, the court "shall" give judgment and award costs and reasonable attorney's fees. Id. Once judgment is entered against the owner, it becomes a lien from the date of the original stop notice, enforceable against the owner's property on which the work was done. § 85-7-181.
3. Joinder: There can be only one suit following a stop notice. The claimant must summon all other interested parties into the action, and other claimants may intervene if not summoned. § 85-7-181.
4. Equipment: The Mississippi Supreme Court has held that the term "materials" in the stop notice statute (§ 85-7-181) does not include equipment, just as the same term "material" in the private bond statute (§ 87-1-185) has been held not to include equipment. Coatings Manufacturers, Inc. v. DPI, Inc., 926 F. 2d 474, 478-79 (Miss. 1991).
5. Assignments By The Prime: § 85-7-183 provides that no prime contractor can assign, transfer or otherwise seek to defeat the stop notice or other rights of its subcontractors, laborers and materialmen, and that all such assignments, transfers and other dispositions are subordinate to the rights of the subcontractors, laborers and materialmen, as well as of the owner, except where the prime contractor protects such parties by entering into a performance bond subject to the private bond statute of § 85-7-185.
6. Open Account Statute: If all other relief is unavailable under the bond, lien and stop notice statutes, and there is no formal contract, see the Mississippi Open Account Statute under which attorney's fees can attach to an open account claim. § 11-53-81. Remote suppliers, for example, may wish to use the open account statute where there is only an oral contract to provide supplies for which invoices have been presented and remain unpaid. The statute provides authority for the judge to add attorney's fees to the debt where the debtor fails to pay 30 days after claimant has made a written demand correctly setting forth the amount owed with an itemized statement of the account. § 11-53-81. However, the Mississippi Court has refused to recognize an open account claim where the account listed dates and hours worked, but there had been no agreement as to the hourly rate. The open account claim must be for a liquidated amount or sum certain. Stanton & Associates v. Bryant Construction Co., 464 So. 2d 499, 502-03 (Miss. 1985). Further, the court will not permit attorney's fees under the open account statute where the claim is based on a contract rather than an open account, and the contract contains no attorney's fees provision. C.R. Daniels, Inc. v. Yazoo Manufacturing Co., 641 F. Supp. 205 (S.D. Miss 1986).
Moreover, an open account claimant should be cautioned that if it brings suit under the statute and does not prevail, the statute entitles the defendant to attorney's fees to be set by the judge. § 11-53-81. So, the statute can cut either way! Also, where a defendant prevails on the plaintiff's claims and, in addition, wins on a counterclaim establishing an open account debt against the plaintiff, for which the defendant made demand before filing the counterclaim, the defendant is entitled to attorney's fees as the prevailing party under the statute. Par Indust. v. Target Container Co., 708 So. 2d 44 (Miss. 1998).