INTRODUCTION

1. The Players and Their Relationships 1

a. Owners 1

b. General Contractors 3

c. Subcontractors 5

d. Lower-Tier Subcontractors 6

e. Suppliers 6

f. Architects/Engineers 7

g. Construction Managers 8

h. Sureties 8

i. Prospective Purchasers 10

j. Lenders 10

2. Nature, Purpose, and Construction of Lien Laws 12

a. The History, Nature, and Purpose of

Georgia's Mechanics' Lien Law 12

b. Constitutionality of Lien Law. 14

c. Statutory Construction of Lien Law 14

LIEN FILING CONSIDERATIONS

3. Who Can File a Lien 17

a. General Contractors 17

b. Subcontractors 17

c. Lower-Tier Subcontractors 18

d. Material suppliers 19

e. Machinery, Equipment & Tool Suppliers 19

f. Laborers 19

g. Ownership Interest 20

h. Architects and Engineers 20

i. Oral Contracts 20

4. What Property is Lienable 21

a. Private Property 21

b. Leasehold Interests 25

c Condominiums 32

d. Subdivisions 35

e. Public Property 38

5. Lien Notices 41

a. Notice of Commencement 41

b. Notice to Contractor 43

c. Preliminary Notice of Lien 45

6. What Items Are Lienable 49

a. Labor 49

b. Materials Used 50

c. Materials Furnished But Not Used 56

d. Landscaping & Sidewalks 58

e. Equipment 58

f. Temporary Works 59

g. Demolition 60

h. Grading 60

i. Transportation 60

j. Fringe Benefits 60

k. Consequential Damages 60

l. Attorneys' Fees 60

m. Interest 61

n. Overhead 63

7. Filing the Lien 64

a. Statutory Form 64

b. Amount 65

c. Name of Lien Claimant 67

d. Name of Owner 69

e. Description of Property 70

f. Signature 72

g. Attestation or Oath 73

h. Contract Completion Date. 73

i. Time Requirements 79

j. Where to File and Record 81

k. Notice to Owner 81

l. Filing of Bankruptcy 82

8. Amendment of Liens 83

9. Priority of Lien 84

a. Attachment 84

b. Bona Fide Purchaser 86

c. Competing Liens 87

d. Security Deeds 88

e. Tax Liens 93

LIEN PERFECTION AND FORECLOSURE

10. Perfecting a Lien 94

a. Time Requirements 94

b. Jurisdiction & Venue 94

c. Proper Parties 95

d. Sworn Notice of Commencement 96

e. Arbitration 99

f. Abandonment 100

g. Termination 100

h. The Contractor Who Dies, Bankrupts,

Absconds, or Departs from State,

and Pay-When-Paid Clauses 101

i. Substantial Compliance 106

j. Practice & Procedure 108

11. Foreclosing a Lien 109

a. Time Requirements 109

b. Suing the Owner 109

c. Attestation or Oath 111

d. Concurrent Suits 111

e. Senior Encumbrances 112

f. Bankruptcy of Owner 112

g. Foreclosure Procedure 113

LIEN DEFENSES

12. Lien Waivers and Releases 114

13. Lien Bonds 125

14. Lien Affidavits 129

15. Lien Defenses 135

a. Timeliness 135

b. Payment of the Contract Price 135

c. Overlapping Liens 140

d. Setoffs and Credits 141

e. Bona Fide Sale 142

f. Defective Performance 142

g. Taking Personal Security 143

h. Non-Resident Contractors Act 143

i. Claims for Attorneys' Fees 144

16. Tactical and Other Considerations 146

a. Slander of Title 146

b. Abuse or Malicious Use of Process 148

c. Owner Direction or Control 148

d. Direct Suit Against Owner 149

e. Lender Liability 150

f. Criminal Liability 151

g. Joint Checks 151

h. Equitable Liens 159

i. Declaratory Proceedings 161

j. Fraud 162

BASIC SURETY CONCEPTS

17. Suretyship 164

a. Suretyship Defined 164

b. Distinguished from Insurance 164

c. Compensation/Uncompensated Surety 165

d. Statute of Frauds 166

e. General Agreement of Indemnity 167

f. Joint and Several Liability 167

g. Default 168

BID AND PERFORMANCE BONDS

18. Bid Bonds 169

19. Performance Bonds 171

a. Obligations of Owner 171

b. Obligations of Principal 171

c. Obligations of Surety 171

d. Dual Obligee Rider 171

PAYMENT BONDS

20. Private Payment Bonds 172

21. Miller Act Payment Bonds 174

a. Nature and Purpose 174

b. Who is Protected 175

c. What Items Are Covered 177

d. Notice Required 180

e. Filing Suit 183

f. Copy of Bond 185

g. Insolvent Surety 185

22. Georgia's "Little Miller Act" Payment Bonds 186

a. Nature and Purpose 186

b. Projects Covered 188

c. Who is Protected 189

d. What items are covered 191

e. Notices required 192

f. Suit Deadlines 197

g. Copy of Bond 198

h. Liability for Failure to Insist on Bond 199

i. Practice & Procedure 202

SURETY CLAIMS AND DISPUTES

23. Surety's Opinions After Default 203

a. Financing the Principal 203

b. Taking Over and Completing Work 204

c. Taking Over and Re-Letting Work 205

d. Buying Back the Bond 206

e. Doing Nothing (Owner Completes Work) 206

24. Surety's Liabilities 208

a. Cost of Completion 208

b. Liquidated Damages 208

c. Incidental and Consequential Damages 208

d. Attorneys' Fees 209

e. Latent Defects 211

f. Bad Faith 211

25. Surety's Rights 213

a. Defense by Principal 213

b. Exoneration 213

c. Subrogation 214

d. Indemnity 215

e. Receivership 218

f. Specific performance 218

26. Defenses Available to the Surety 219

a. The Principal's Defenses 219

b. No Interest in Bond 219

c. Lack of Notice 220

d. Contract Modifications 220

e. Overpayment by Owner 221

f. Defense of Discharge 222

g. Untimely Claim 223

h. Liability in Excess of the Penal Sum 223

i. Disputed Default 224

j. Three-month Rule 224

k. Forum Selection Clauses 225

27. Dispute Resolution 227

a. Architect's Decision 227

b. Arbitration 227

c. Litigation 229

1. The Players and Their Relationships.

The construction business has many players, each of whom relate to each other in intricate and interdependent ways. The interests of these players are inherently in conflict and must be balanced against each other and reconciled in order to create a fair and workable system of laws. Thus, the only way to fully appreciate Georgia's mechanics' lien and bond laws is to know who these players are and to understand how they interact with each other on the typical construction project.

a. Owners.

The term "owner" will be used in this manual to include both private and governmental owners. Although both private and governmental owners employ contractors, for a variety of reasons mechanics' liens may not be filed against property owned by the government. As a direct result of the inability to file mechanics' liens on projects which are built for the government, both federal and state law requires that on virtually every government construction project that the general contractor post a payment bond to protect the interest of the subcontractors and suppliers for the project.

Both government and private owners may want a general contractor to post a performance and payment bond for a variety of other reasons as well. These include the assurance of working with a "bonded" general contractor, the security of knowing that the general contractor's performance will be backed by a surety with the solvency to respond if the general contractor fails to properly complete the construction contract or pay its subcontractors and suppliers, and for other reasons.

The universal interest of all owners is to obtain a project which is built on time, within budget, and true to the design requirements that the owner specifies.

The sophistication and construction experience of owners varies widely. Real estate developers, government agencies, or large corporations may be constantly involved in the process of constructing buildings and may be familiar with the special challenges and demands of the construction industry. The more typical owner, however, is not routinely involved in building construction and as a result may not be familiar with construction industry custom and practice, including dealing with change orders, extra work claims, delays, disputes with subcontractors, and other common construction problems.

Financial concerns also are often a critical motivating factor for owners. If the owner's financing is tight, and sufficient allowance has not made for unanticipated changes in the work, then the owner may encounter financial difficulties leading to a distressed job.

Although some owners have the financial resources to build a project with their own money, it is far more common for owners to obtain construction loans to finance the cost of construction. Lenders usually consider construction loans to be more risky than other types of loans, and as a result the interest rate charged for construction loans ordinarily is higher than the "take-out financing" that will be arranged by the owner for long-term financing of the completed project. Accordingly, owners usually have an interest in completing the project as quickly as possible so that expensive construction loan financing can be replaced with lower-cost long-term financing.

Likewise, owners may build into their financing plans an anticipated income stream from rents, sales of units, or production from a plant or factory. For example, the owners may be relying on the cash received from rents from the first units completed in an apartment complex, or the proceeds received from the sale of the first units of a condominium project, to finance the completion of the balance of the project. Similarly, an owner may anticipate renting space in a strip shopping center to help finance completion of other phases of the shopping center.

Timely completion of the project also is important to the typical owner. An owner may be giving up rental space or selling an existing home in order to move into the completed project, and severe repercussions could result if the construction schedule for the project is not met.

In order to achieve all of these objectives, owners may seek to obtain leverage over the general contractor by withholding payments if the general contractor is performing improperly or is behind schedule. It also is common for the owner to place pressure on the general contractor by complaining to the contractor's bonding company about the construction progress or the quality of construction and insisting that the bonding company step in to complete the project.

b. General Contractors.

General contractors must address a variety of challenges in order to survive in an increasingly competitive industry. These challenges include preparing and administering a project budget, managing construction progress, coordinating the work of the various subcontractors working on the project, and achieving timely completion of the project.

The general contractor may elect to perform the contract with the owner using only his own personnel, or, more commonly, will employ a wide variety of specialty subcontractors or "trades" to complete various elements of it contract with the owner. Even on small construction projects, such as building a custom home, it is common for a general contractor to employ subcontractors to perform mechanical, electrical, and other specialized work.

In the typical case, the general contractor agrees with the owner to construct the project in accordance with drawings and specifications prepared by a design professional (usually an architect or engineer) employed by the owner. The general contractor and its specialty subcontractors ordinarily will be asked to submit shop drawings describing in greater detail how they plan to execute the various aspects of the design.

It is increasingly common for special "design/build" contractors to provide owners with both building design and construction. Owners may use design/build contractors to construct complex or specialized projects such as powerplants, factories, airline terminals, banks, or other specialized buildings.

One of the most important functions performed by the general contractor is to schedule the progress of construction so that sufficient cash is available to pay the subcontractors and suppliers who are working for the general contractor. The general contractor often will prepare a schedule of values showing the percentage of the project which is devoted to various components of the project. As progress on the project merits, the general contractor will submit an application for payment to the owner for the percentage of the project which is complete as of the day of the application.

The contractor's application for payment typically is subject to a withholding of a percentage of the payment called "retainage." Retainage is withheld by the owner from the general contractor and by the general contractor from subcontractors in order to assure that the work will be satisfactorily completed and so that any corrective or "punchlist" items remaining at the end of the project will be corrected. Many construction litigation battles are fought over release of retainage.

c. Subcontractors.

Subcontractors range in size from small "mom and pop" operations to huge multi-million dollar corporations. Subcontractors usually are hired by general contractors to take advantage of their professional knowledge and skill in specialized trades ranging from plumbing, electric, and mechanical work to roofing, tile installation, and erection of structural steel. Subcontractors often contribute to the detailed design process by preparing shop drawings, erection drawings, or other submittals showing how their work fits with the work of other trades.

General contractors usually receive progress payments from the owner based on billings the general contractor receives from its subcontractors and suppliers, and from its own billings. The subcontractor may be (and usually is) completely unaware of problems between the general contractor and the owner which may prevent the general contractor from getting paid. Since subcontractors routinely receive payment from the general contractor several weeks after submitting their payment application, subcontractors may find themselves deeply in the hole to a general contractor long before they realize that there may be a payment problem on a job.

Problems with subcontractor performance can ripple through an entire construction project. Often the work on a construction project is dependent upon the proper and timely completion of work performed by a preceding trade. If the work of the earlier trades is late or is installed or performed improperly, then the work of the follow-on trades can be adversely affected.

d. Lower-Tier Subcontractors.

Lower-tier subcontractors, commonly called "sub-subs," are contractors who work for other subcontractors on a project. For example, it is common in high rise building construction for a general contractor to subcontract steel to a steel fabricator who in turn will subcontract steel erection to a specialty steel erection subcontractor. The coordination of numerous layers of subcontractors is a challenging task for the general contractor.

e. Suppliers.

All of the contractors, subcontractors, and sub-subs on a project will have suppliers of various types. Indeed, it is not uncommon for the owner to have a direct prime contract with its own suppliers for owner-furnished fixtures or other materials.

Most suppliers keep detailed records of construction deliveries. These records typically will indicate the contractor to whom the supplier has delivered materials, the address where the materials were delivered, and the quantity and nature of the materials delivered. These detailed records are necessary in order to determine which materials actually were delivered to a particular project. Generalized records of account for a contractor which do not break out this information prevents the supplier from tracking its materials to a particular construction site.

f. Architects/Engineers.

Architects and engineers are often described as "design professionals" or A/E's." The architect is typically employed by the owner. The architect in turn typically employs as a "consultant" various specialty engineers.

This architect/engineer team has a professional obligation to design and oversee construction so that the finished structure is safe as well as attractive and functional. A/E's are under increasing financial pressure to tightening design budgets and shorten design development.

The A/E also usually has an inspection function during construction. The A/E ordinarily is responsible for determining that construction is proceeding in accordance with the plans and specifications for the project. The inspection function of the A/E is one of the extremely important aspects of the A/E's job. A/E's are often asked to certify the percentage of completion achieved by the general contractor and many disputes arise from conflicting opinions about the progress of construction. It also is the A/E's responsibility to determine whether construction is safe and built in accordance with the plans and specifications. If necessary, the A/E must order construction stopped and defective construction removed.

g. Construction Managers.

An emerging trend in building construction is the use of construction managers by owners. The construction manager neither designs nor builds the project, but instead advises the owner independently. The construction manager supervises performance by the A/E and also determines whether construction by the general contractor is performing in accordance with the plans and specifications and in accordance with good construction practices. In theory, the construction manager offers an independent opinion to the owner since the construction manager neither designs the project nor is responsible for building it. The use of construction managers is often encouraged due to the fact that the owner can obtain independent counsel that is otherwise unavailable.

h. Sureties.

The surety provides an essential function in building construction. Although often confused with an insurer, the surety performs a much different role than does an insurance company. It is perhaps most useful to consider the surety as a party who substitutes its credit for the credit of the company it bonds, called the "principal." Often, the principal's credit is not sufficient to provide an owner or general contractor with the assurance that the principal will remain solvent and be able to complete construction of the project. The surety's credit is usually based upon substantial financial assets. The surety is jointly and severally liable with the principal. The obligation of the surety is owed to an "obligee," usually the owner in the case of the general contractor or the general contractor in the case of the subcontractor.

The surety usually performs an evaluation of its principal to determine whether the principal has the "character, capacity, and capital" to perform the contract. If the surety is satisfied that the principal can perform the contract, then it issues a bond for the principal. There are a virtually infinite number of bonds which can be provided by sureties. The most common bonds in the construction industry are the bid bond, the performance bond, and the labor and material payment bond.

The surety almost always obtains a general agreement of indemnity from its principal. The "GAI" assures the surety that in the event of a default by its principal that the surety will be able to recover from the principal any monies which have to be spent to satisfy the obligation of the surety's bond.

Suretyship differs from insurance in numerous respects. The most significant distinction is that insurance is based upon certain highly predictable occurrences which if aggregated can be predicted for the group with remarkable accuracy. Due to the unique nature of construction contracting, no two construction projects are alike. Accordingly, insurance principles cannot be applied reliably to the surety's function. As a result, the surety does not issue a bond if it anticipates that the principal may default. This differs from the insurance relationship where an insurer can accurately predict that a certain percentage of its insureds will suffer fires, accidents, or other such occurrences. Suretyship may thus more properly be considered a substitution of the surety's superior credit rather than a spreading or assumption of risk.

i. Prospective Purchasers.

Prospective purchasers of homes, office buildings, or other construction projects have an interest in obtaining free and clear title to the properties that they acquire. In most cases, construction developers build for the express purpose of selling to others, often a group of investors, upon completion of the project. In either case, one of the important interests which must be protected by the lien law is the "good faith purchaser for value," the so-called "bona fide purchaser" ("BFP") who acquires title to the property from an owner or developer without knowledge that those who built the project remain unpaid.

j. Lenders.

The construction lender seeks to determine that funds are not advanced in excess of the percentage of completion of the project.

The lender is particularly concerned that monies advanced to the owner for disbursement on the project are actually employed to complete construction and that the funds set aside for purposes of construction are sufficient to complete the project. In the event of default, the lender will want to foreclose on the property in order to protect its investment.

The owner also prefers to avoid the filing of mechanic's liens which may impair the ability to sell the project. Also, depending upon the priority of the lien, the lien may take precedence over the lender's security interest in the property.

Most lenders seek to avoid this risk by assuring themselves that financing for a project is properly documented and filed of record prior to the start of construction. If this is not the case, then the lender will insist that any contractors or suppliers already working on the project execute lien subordination agreements protecting the lender's first priority status on the project. If the lender does not receive this subordination agreement, then funds will not be advanced for the construction.

2. Nature, Purpose, and Construction of Lien Laws.

a. The History, Nature, and Purpose of Georgia's Mechanics' Lien Law.

The competing and conflicting interests previously described demonstrate that no one system of security will be perfectly equitable for all of the participants in the construction process. Compromises must be made in order to achieve a system of security which is reasonably fair to all of the participants in the process.

Historically, a variety of security mechanisms arose to protect the various interests concerned. From the earliest days of the Colony of Georgia, mechanic's liens have been a mechanism by which mechanics and materialmen were permitted to protect their interests.

Liens to master masons and carpenters were granted by a statute enacted in 1820. This statute was extended to Richmond and McIntosh Counties and the Cities of Macon and Columbus in 1834. In 1837, this statute was extended to all Georgia counties. In 1863, the Georgia Legislature adopted lien laws protecting all mechanics improving real property and in 1873 lien rights were extended to all contractors and materialmen. Prince v. Neal-Millard Co., 124 Ga. 884, 53 S.E. 761 (1905); D.H. Overmyer Warehouse Co. v. W.C. Caye & Co., Inc., 116 Ga. App. 128, 157 S.E.2d 68 (1967).

Since those early days, Georgia's lien statutes have been aggressively modified by numerous legislative enactments. The resulting lien law has been characterized as a "thicket" by one Georgia court. Adair Mortgage Co. v. Allied Concrete Enterprises, 144 Ga. App. 354, 241 S.E.2d 267 (1977). Another court has condemned the Georgia lien law as "an unsophisticated instrument." Bishop v. Forsyth Paving Contractors, Inc., 181 Ga. App. 345, 352 S.E.2d 198 (1986) (disapproved on other grounds in Dallas Building Material, Inc. v. Smith, 193 Ga. App. 512, 388 S.E.2d 359 (1990).

Neither view is entirely correct. Although the Georgia statutes seem complicated to those who are not familiar with them, in fact they are relatively simple in comparison to the laws of other states. The lien law has evolved over many years to create a reasonably balanced solution to an inherently complex web of conflicting interests.

In general, the purpose of the mechanics' lien law is to assure prompt payment to those who furnish labor and material which improves real property. Gignilliat v. West Lumber Co., 80 Ga. App. 652, 56 S.E.2d 841 (1949).

Under Georgia's lien law, the furnishing of labor and materials automatically creates an "inchoate" lien against the improved property. Oglethorpe Savings and Trust Co. v. Morgan, 149 Ga. 787, 102 S.E. 528 (1920).

The proper filing of a claim of lien places a "cloud on the title" to the real estate affected and makes the real estate unmarketable until the lien is removed or satisfied. Ardex, Ltd. v. Brighton Homes, Inc., 206 Ga. App. 606, 426 S.E.2d 200 (1992).

The lien statutes set out the steps necessary to "perfect" the mechanics' lien. These steps include recording a written claim of lien within three months after the last day of work or the last day material was supplied, and the institution of a lawsuit to perfect the lien within one year. These steps preserve the lien and protect the right to establish it against the property. Davis v. Stone, 48 Ga. App. 532, 173 S.E. 454 (1934).

b. Constitutionality of Lien Law.

The lien statute has repeatedly withstood constitutional challenge. See Tucker Door & Trim Corp. v. Fifteenth Street Co., 235 Ga. 727, 221 S.E.2d 433 (1975) (constitutional on notice/hearing due process grounds; Fayetteville-85 Associates, Ltd. v. Sanras, Inc., 241 Ga. 119, 243 S.E.2d 887 (1978) (no unconstitutional taking of property).

c. Statutory Construction of Lien Law.

O.C.G.A. § 44-14-361.1 sets out the requirements for the creation of a valid mechanics' lien, and provides that "on the failure of any of them the lien shall not be effective or enforceable."

The statute providing for the creation and enforcement of mechanic's liens is in derogation of the common law, and strict compliance with the requirements of the statute is required. Kwilecki v. Young, 180 Ga. 602, 180 S.E. 137 (1935); King v. Rutledge, 208 Ga. 172, 65 S.E.2d 801 (1951); Tallman v. Southern Motor Exchange, 97 Ga. App. 565, 103 S.E.2d 640 (1958); Allied Electrical Contractors v. Kern Co., 184 Ga. App. 747, 362 S.E.2d 452 (1987); Roberts v. Porter, Davis, Saunders & Churchill, 193 Ga. App. 898, 389 S.E.2d 361 (1989); Consolidated Systems, Inc. v. AMISUB (McIntosh Trail Regional Medical Center), Inc., d/b/a AMI Griffin-Spalding County Hospital, 261 Ga. 590, 408 S.E.2d 109 (1991). Meco of Atlanta, Inc. v. Super Valu Stores, Inc., 215 Ga. App. 146, 449 S.E.2d 687 (1994).

Statutes involving a materialmen's lien must be strictly construed in favor of the property owner and against the materialman. Green v. Farrar Lumber Company, 119 Ga. 30, 46 S.E. 62 (1903); Palmer v. Duncan Wholesale, 262 Ga. 28, 413 S.E.2d 437 (1992); Mull v. Mickey's Lumber & Supply Company, Inc., 218 Ga. App. 343, 461 S.E.2d 270 (1995); Browning v. Gaster Lumber Company, 267 Ga. 72, 475 S.E.2d 576 (1996).

Nevertheless, one of the earliest cases to interpret the Georgia lien statute, Green v. Farrar Lumber Company, 119 Ga. 30, 46 S.E. 62 (1903), held that the purpose of the lien statute is to protect materialmen and laborers for work done and material furnished to contractors who fail or refuse to pay.

The Georgia courts have explicitly recognized that labor and material contractors are in a particularly vulnerable position. Their credit risks are not as diffused as those of other creditors. They extend a bigger block of credit. They have more riding on one transaction, and they have more people vitally dependent upon eventual payment. They have much more to lose in the event of default. There must be some procedure for the interim protection of contractors in this position. Tucker Door & Trim Corporation v. Fifteenth Street Company, 235 Ga. 727, 221 S.E.2d 433 (1975).

In matters relating to the form of the lien, substantial compliance with the statutory form is all that is required. Broxton Artificial Stone Works v. Jowers, 4 Ga. App. 91, 60 S.E. 1012 (1908).

One court has held that the rule of strict construction is properly addressed to the classes of persons who may claim a lien, and the improvements and property on which a lien may be obtained. "Reason and equity unite in the conclusion that a materialman or laborer should not be deprived of the lien for reasons beyond his control and in the realm of the statute where a strict construction is not required." Athens Lumber Co. v. Burton, 84 Ga. App. 249, 252, 66 S.E.2d 124, 125 (1951), cited with approval in Melton v. Pacific Southern Mortgage Trust, 241 Ga. 589, 247 S.E.2d 76 (1978).

3. Who Can File a Lien.

Georgia law gives lien rights to persons providing labor, services, or materials to mechanics, contractors, subcontractors, materialmen, laborers, registered architects, registered foresters, registered land surveyors, registered professional engineers, material suppliers, machinists, manufacturers of machinery, and railroad contractors. O.C.G.A. § 44-14-361.

a. General Contractors.

The word "contractor" in the lien statute is not intended to be construed in its technical sense to include any person who has a contract of any character with the owner. It is instead intended to be limited persons engaged in the business of making contracts for the improvement of real estate. Pittsburgh Plate Glass Co. v. Peters Land Co., 123 Ga. 723, 51 S.E. 725 (1905). The fact that the contractor is a corporation does not affect the right to file a lien. Tulman v. Southern Motor Exchange, 97 Ga. App. 565, 103 S.E.2d 640 (1958).

b. Subcontractors.

Subcontractor liens are expressly authorized by O.C.G.A. § 44-14-361(a)(6). According to O.C.G.A. § 44-14-360(9), "'Subcontractor' means, but is not limited to, subcontractors having privity of contract with the contractor."

A subcontractor entitled to claim of lien on the owner's property is one who pursuant to a contract with a prime contractor or in a direct chain of contracts leading to the prime contractor performs services or procured another to perform service in furtherance of goals of the prime contractor. Tonn & Blank, Inc. v. D.M. Asphalt, Inc., 187 Ga. App. 272, 370 S.E.2d 30 (1988); Spicewood, Inc. v. Ferro Pipeline Co., Inc., 181 Ga. App. 277, 351 S.E.2d 711 (1986).

c. Lower-Tier Subcontractors.

Under the authority of Tonn & Blank, Inc., 187 Ga. App. 272, 370 S.E.2d 30 (1988), a lower-tier subcontractor, often called a "sub-sub," is entitled to claim a lien against the owner's property. This result is suggested by the definition of "subcontractor" in the Georgia Lien Statute which states that [s]ubcontractor means, but is not limited to, subcontractors having privity of contract with the contractor." O.C.G.A. § 44-14-360(9) (emphasis added).

A lien filing by a sub-sub is not permitted, however, where the sub-sub was hired by a subcontractor in violation of an anti-assignment clause in the subcontractor's contract with the general contractor. In such cases the subcontract is not authorized by the general contractor and thus the subcontract is not within a "direct chain of contracts leading to the prime contractor," as required by Tonn & Blank. Benning Construction Co. v. Dykes Paving and Construction Co., Inc., 263 Ga. 16, 426 S.E.2d 564 (1993).

This holding harmonized the Tonn case with numerous other Georgia cases decided under prior law. See General Supply Co. v. Hunn, 126 Ga. 615, 55 S.E. 957 (1906); The Jordan Company v. Adkins, 105 Ga. App. 157, 123 S.E.2d 731 (1961); Georgia-Pacific Corporation v. Dan Austin Properties, Inc., 126 Ga. App. 191, 190 S.E.2d 131 (1972), aff'd 229 Ga. 803, 194 S.E.2d 472 (1972). See Annot. 24 A.L.R. 4th 963 (1983).

d. Material suppliers.

All material suppliers who furnish material to contractors or subcontractors for improvement of realty have a lien against the property unless the owner can show that the lien has been waived in writing or can produce a sworn statement of the contractor or subcontractor whose request the material was furnished which shows that the cost has been paid. Siplast, Inc. v. Inland Container Corporation, 172 Ga. App. 341, 323 S.E.2d 187 (1984). Contra to Older Georgia cases decided under former law: Cambridge Tile Mfg. Co. v. Germania Bank, 128 Ga. 179, 57 S.E. 311 (1907); Buffalo Forge Co. v. Southern R. Co., 43 Ga. App. 445, 159 S.E. 301 (1931) (agent of owner on joint check still allowed to prevail).

e. Machinery, Equipment & Tool Suppliers.

The Georgia lien statute has been amended to define "materials" to include tools, appliances, machinery, or equipment used in making improvements to the real estate to the extent of the reasonable rental value of such tools, appliances, machinery, or equipment." O.C.G.A. § 44-14-360(3). Older cases citing to the earlier statute are no longer good law.

f. Laborers.

The term "laborer" as used in the statute does not include clerks, agents, cashiers of banks, and the like employees who exercise mental labor and skill. Rountree v. Brown, 22 Ga. App. 79, 95 S.E. 375 (1918). A "working foreman" is not a laborer entitled to a laborer's lien. Almand Construction Co. v. Guye, 123 Ga. App. 630, 181 S.E.2d 907 (1971).

In contrast, a mechanic is one who practices any mechanical art, one skilled and employed in shaping and uniting materials into any kind of a structure, including one who performs manual labor. Wager v. Carrollton Bank, 156 Ga. 783, 120 S.E. 116 (1923).

g. Ownership Interest.

A lien claimant with any ownership interest in the property may not file a claim of lien. Murray v. Chulack, 250 Ga. 765, 300 S.E.2d 493 (1983); Stephens v. Clark, 154 Ga. App. 306, 268 S.E.2d 361 (1980); Osburn v. Harbison, 175 Ga. App. 397, 333 S.E.2d 429 (1985).

h. Architects and Engineers.

Architects and engineers are expressly granted liens by the Georgia lien law. O.C.G.A. § 44-14-361(a)(3) and (5). See 28 A.L.R. 3d 1014; 35 A.L.R. 3d 1391.

i. Oral Contracts.

Oral contracts are sufficient to support a mechanic's lien claim. Murphy v. Fuller, 96 Ga. App. 403, 100 S.E.2d 137 (1957); Christian v. Breemer, 199 Ga. 285, 34 S.E.2d 40 (1945); Wager v. Carrollton Bank, 156 Ga. 783, 120 S.E. 116 (1923).

4. What Property is Lienable

a. Private Property.

Under Georgia law, a special lien attaches to real estate for which labor, services, or materials were furnished if they were furnished at the insistence (that is to say, at the request) of the owner, contractor, or some person acting for the owner or contractor. O.C.G.A. § 44-14-361(b).

The title of the owner cannot be subjected to a lien for material or labor unless the owner expressly or impliedly consents to the contract under which the improvements are made. Reppard, Snedeker & Company v. Morrison, 120 Ga. 28, 47 S.E. 554 (1904); Williams v. Brewton, 170 Ga. 164, 152 S.E. 441 (1930).

A stranger cannot order work and thereby bind the owner's interest in the real estate. Marshall v. Peacock, 205 Ga. 891, 55 S.E.2d 354 (1949); D & N Electric, Inc. v. Underground Festival, Inc., 202 Ga. App. 435, 414 S.E.2d 891 (1992); Underground Festival, Inc. v. McAfee Engineering Company, 214 Ga. App. 243 447, S.E.2d 683 (1994).

With respect to the liens of subcontractors and suppliers, there must be a contractual relationship between the owner and the person to whom the labor and materials were furnished, or else no enforceable lien is created against the owner's property. Liggett v. Harper, 151 Ga. App. 616, 260 S.E.2d 735 (1979).

Even though the owner is aware that improvements are being made on his premises, he is under no legal duty to notify potential lien claimants of any information touching on the ownership of property. Bryant v. Ellenburg, 106 Ga. App. 510, 127 S.E.2d 468 (1962); Reaves v. Meredeth, 123 Ga. 444 (3), 51 S.E. 391 (1905); Dwight v. Acme Lumber Company, 186 Ga. 825(2), 199 S.E. 178 (1938); Rutland Contracting Co. v. Gay Estate, 193 Ga. 468, 470, 18 S.E.2d 835, (1942); Marshall v. Peacock, 205 Ga. 891, 55 S.E.2d 354 (1949); Harris v. Parham, 213 Ga. 725, 101 S.E.2d 722 (1958); Gignilliat v. West Lumber Company, 80 Ga. App. 652(1), 56 S.E.2d 841 (1949).

Georgia law thus differs from those states, such as California, where a notice of non-responsibility is required to be posted where an owner is aware that improvements are being made on his premises but where the owner does not consent to the making of these improvements. See Annot., 85 A.L.R.2d 949.

There have been many attempts to show the authorization of the owner for the works of improvements through estoppel by silence where the owner is aware that the improvements are being made on his premises. Where the owner does not mislead a potential lien claimant, these efforts have generally failed. Rice v. Warren, 91 Ga. 759, 17 S.E. 1032 (1893); Reaves v. Meredeth, 123 Ga. 444, 51 S.E. 391 (1905); Bryant v. Ellenburg, 106 Ga. App. 510, 120 S.E.2d 468 (1962).

The cases appear to contemplate circumstances where the owner could mislead the contractor into performing work on his premises. This could occur, for example, where the contractor believes that he is performing work for another, or where the owner its agent has expressly or impliedly ratified a contract with another, or where the owner has accepted and used the proceeds of an unauthorized contract executed in its behalf. See Underground Festival, Inc. v. McAfee Engineering Company, 214 Ga. App. 243, 447 S.E. 2d 683 (1994).

Likewise, the statute authorizes the filing of a lien where the labor or materials are provided by some person acting for the owner or for the "contractor," defined as meaning a contractor having privity of contract with the owner of the real estate. See O.C.G.A. § 44-14-360(1) (definition of "contractor"). There are numerous cases whereby the act of such other person has been sought to bind the owner. Georgia courts have primarily pursued an agency theory in analyzing this section of the statute.

Where an agent of the owner acts without authority of the owner, then the acts of the agent are not binding on the owner and a lien may not be set up against the owner's property. There are numerous cases of this type.

There are some cases where the acts of the agent do bind the owner, however. These cases fall into four categories. The first is where the agent acts under express authority from the owner. The second is where the agent acts without authority, but where the agent's unauthorized acts are ratified by the owner. It does not appear that such a case has ever been decided by the Georgia courts, but the possibility of this situation has been recognized in Morgan v. May Realty Company, 86 Ga. App. 261, 71 S.E.2d 438 (1952).

The third situation is where the agent's actions are unauthorized but the owner's actions or lack of actions estopped the owner from denying the authority of the agent to bind the owner. This would include cases where the owner actively misleads the contractor as well as those cases where the owner sets up apparent authority for the agent and the agent acts within that apparent authority.

By far the majority of cases which have raised the authority of the owner to be bound are tenant improvement cases, the subject of the next section of this outline.

Georgia follows the rule that permits a claimant who supplied work or materials for separate buildings of one owner to file a single lien claim against all of the affected buildings and lands. See Lyon v. Cedartown Lumber Co., 13 Ga. App. 450(1), 79 S.E. 236 (1913); Athens Lumber Co. v. Burton, 84 Ga. App. 249, 66 S.E.2d 124 (1951); Christian v. Bremer, 199 Ga. 285, 34 S.E.2d 40 (1945).

It does not appear to be the case that Georgia has ruled on the ability of a lien claimant to enforce a single mechanic's lien field upon several parcels but sought to be enforced on less than all of the entire property liened. See Annot., 68 A.L.R.3d 1300 (1976).

With respect to various special situations, the Georgia courts have followed the rule that the lien must arise by the direct or indirect authorization of the work by the owner or one authorized to act for and bind the owner. Thus, an executor acting under the authority of a will can bind the estate. Kreutz v. Dublin Sash & Door Company, 53 Ga. App. 50, 184 S.E. 908 (1936). Likewise, absent court approval, a guardian cannot authorize construction debts binding against the estate of his ward. Greer v. Greer, 218 Ga. 416, 128 S.E.2d 51 (1962).

The leading case establishing ratification of the acts of an agent appears in a case where a husband was acting as agent for his wife. The court held that the evidence established that materials were bought to be used in the house of the wife which was being built by the husband, and that the materials were bought by the husband in the wife's name, that the supplier extended the credit to the wife, and that the wife ratified the husband's purchase of the materials by promising to pay for them at a later date. The court noted that merely proving the relationship of husband and wife and that work was done and material furnished to improve real estate belonging to the wife, without more, was not sufficient to establish the fact that she was an undisclosed principal and the husband was merely her agent, so as to render her liable for the contracts made by him. The evidence was deemed sufficient to show that the wife did ratify her husband's actions. Gibbs v. Carolina Portland Cement Co., 50 Ga. App. 229, 177 S.E. 760 (1934).

In contrast, in a case where the evidence was set up to show that the wife authorized her husband to contract on her behalf and where there was no evidence to infer that she authorized her husband to represent her in the transaction, the evidence was insufficient to establish a lien. Nix v. Luke, 96 Ga. App. 123, 99 S.E.2d 446 (1957). See Reaves v. Meredeth, 123 Ga. 444, 51 S.E. 391 (1905).

b. Leasehold Interests.

The analysis of mechanic's lien cases arising in the context of the leasehold interest are complex due to the wide variety of circumstances under which a lien can arise. By far the majority of cases hold that a landlord's interest cannot be subject to a mechanic's lien as a result of construction work authorized by his tenant. The usual ground for rejecting the lien claim is that the owner did not authorize the improvement.

Proper analysis of this area must include an examination of the issue of whether the mechanic's lien created by the tenant can be effective against the interest of the tenant as opposed to the interest of the owner of the property which the tenant leases. See Annot., 74 A.L.R.3d 330 (1976). Likewise, the cases must be analyzed where the tenant acts as the agent of the landlord. See Annot., 79 A.L.R. 962, 163 A.L.R. 992. Various other issues may arise where the lien is sought only against fixtures installed for the benefit of the tenant. See Annot., 79 A.L.R.2d 685 (1955).

The primary problem encountered by lien claimants in establishing a mechanic's lien against a leasehold interest is that the leasehold interest is a usufruct. In the ordinary landlord-tenant relationship, no estate passes out of the landlord. In that situation, the tenant is considered to have only a "usufruct" which may not be conveyed except by the landlord's consent, and which is not subject to levy and sale.

All leasehold interests of less than five years give only a usufruct unless the contrary is agreed upon by the parties to the contract and is so stated in the contract. O.C.G.A. § 44-7-1.

In Jones v. E.I. Rooks & Son, 78 Ga. App. 790, 52 S.E.2d 580 (1949), the court held that a three year lease which authorized the tenant to make improvements constitutes a usufruct to which a lien could not attach. See Annot., 42 A.L.R.2d 685 (1955).

There is no question, however, that a mechanic's lien can attach to an "estate for years" in leased premises. See James G. Wilson Manufacturing Company v. Chamberlin-Johnson-DuBose Company, 140 Ga. 593, 79 S.E. 465 (1913); Sasser & Company v. Griffin, 133 Ga. App. 83, 210 S.E.2d 34 (1974); Bennett Iron Works, Inc. v. Underground Atlanta, Inc., 130 Ga. App. 653, 204 S.E.2d 331 (1974); Meco of Atlanta, Inc. v. Super Valu Stores, Inc., 215 Ga. App. 146, 449 S.E.2d 687 (1994).

A tenant with an estate for years is considered to be the "true owner" of the property against whose interest in the property a viable lien can attach. D & N Electric, Inc. v. Underground Festival, Inc., 202 Ga. App. 435, 414 S.E.2d 891 (1991); Meco of Atlanta, Inc. v. Super Valu Stores, Inc., 215 Ga. App. 146, 449 S.E.2d 687 (1994).

The factors distinguishing an estate for years from a mere usufruct are carefully analyzed by the court in In re Mikart, Inc., 9 B.R. 144 (N.D. Ga. 1981). The court in that case also pointed out that were the lien is intended to be foreclosed against the leasehold interest of the lessee/tenant holding an estate for years, then the intention to foreclose against this interest only should be reflected in the lien.

An estate for years, as contrasted to a usufruct, passes as realty and must be limited in its duration to a period which is fixed or which may be made fixed and certain. O.C.G.A. § 44-6-10. It does not involve the relationship of landlord and tenant, and conveys more than the mere right of use of the realty. O.C.G.A. § 44-6-101. An estate for years carries with it the right to use the property in as absolute a manner as may be done with a greater estate, subject to certain defined limitations. O.C.G.A. § 44-6-103. One hallmark of an estate for years is the tenant's liability for repairs or expenses which are necessary for the preservation and protected of the property. O.C.G.A. § 44-6-105.

In addition to filing the lien against the interest of the tenant holding an estate for years, the lien claimant may attempt to attach the landlord's fee or reversionary interest as well. In this connection, the cases make a distinction between placing a lien against the property interest of the landlord (an in rem judgment) as opposed to a personal judgment against the landlord (an in personam judgment). Only in cases where the lien claimant has an express or implied contract with the owner is a personal judgment against the owner proper.

There are a large number of cases where the lien claimant attempts to place a lien on the landlord's fee interest. In the vast majority of these cases, the landlord's interest is protected from a lien. For example, where there is no act by the landlord signifying his assent to improvements, a lien on his reversionary interest is improper. Rappard, Snedeker & Company v. Morrison, 120 Ga. 28, 47 S.E. 554 (1904). In that case, the court discusses the logic of this rule, observing that "improvements" to the tenant may in fact diminish the value of the property to the landlord. The improvements may have to be torn out, modified, and may even destroy the value of the property to the landlord.

A tenant cannot order work done upon demised premises and charge the owner with the cost, unless there is some relation existing between him and his landlord other than that of landlord and lessee, by virtue of which the landlord expressly or impliedly consents to the contract under which the improvements are made. Meco of Atlanta, Inc. v. Super Valu Stores, Inc., 215 Ga. App. 146, 449 S.E.2d 687 (1994).

Likewise, where the tenant acts entirely on his own behalf in securing the improvement, the landlord's interest is protected from a lien. Jones v. E.I. Rooks & Son, 78 Ga. App. 790, 52 S.E.2d 580 (1949); Pittsburgh Plate Glass Company v. Peters Land Company, 123 Ga. 723, 51 S.E. 725 (1905).

Where the landlord's only connection to the improvement is mere knowledge of or consent to the improvement, a landlord's interest also is protected from a lien. Stevens Supply Co. v. Stamm, 41 Ga. App. 239, 152 S.E. 602 (1930); Carr & Company v. Witt, 137 Ga. 373, 73 S.E. 668 (1911); Drawdy v. McVeigh, 110 Ga. App. 329, 138 S.E.2d 477 (1964); Accurate Construction Co. v. Dobbs Houses, 154 Ga. App. 605, 269 S.E.2d 494 (1980); MCC Powers v. Ford Motor Company, 184 Ga. App. 487, 361 S.E.2d 716 (1987); Nunley Contracting Co., Inc. v. Four Taylors, Inc., 192 Ga. App. 253, 384 S.E.2d 216 (1989); Meco of Atlanta, Inc. v. Super Valu Stores, Inc., 215 Ga. App. 146, 449 S.E.2d 687 (1994).

The landlord's interest is also protected from a lien where a lease term directly or indirectly makes the tenant solely responsible for the improvements. Stevens Supply Co. v. Stamm, 41 Ga. 239, 152 S.E. 602 (1930); Longino v. Garner, 102 Ga. App. 680, 117 S.E.2d 259 (1961); Seckinger v. Silvers, 104 Ga. App. 396, 121 S.E.2d 922 (1961); Capitol Mechanical, Ltd. v. Dobbs House, Inc., 151 Ga. App. 142, 259 S.E.2d 147 (1979); Accurate Construction Co., Inc. v. Dobbs Houses, Inc., 154 Ga. App. 605, 269 S.E.2d 494 (1980).

The mere fact that the improvements become the landlord's property at the termination of the tenant's lease does not create a basis for imposing a lien against the landlord. Meco of Atlanta, Inc. v. Super Valu Stores, Inc., 215 Ga. App. 146, 449 S.E.2d 687 (1994).

Where there is no obligation under the lease for the landlord to compensate the tenant for the improvements, the landlord's interest also is protected from a lien. Consolidated Lumber Company of Georgia v. Ocean Steamship Company, 142 Ga. 186, 82 S.E. 532 (1914); Central of Georgia Railway Company v. Shiver, 125 Ga. 218, 53 S.E. 610 (1906); Wall v. Mills, 126 Ga. App. 149, 190 S.E.2d 146 (1972).

The lien also may be lost where the lien does not adequately identify whether the claim is being made against the interest of the tenant or the landlord. Meco of Atlanta, Inc. v. Super Valu Stores, Inc., 215 Ga. App. 146, 449 S.E.2d 687 (1994); Ansley Park Plumbing and Heating Co., Inc. v. Mikert, Inc., 9 B.R. 144 (N.D. Ga. 1981).

A landlord's interest is not protected from a lien where a landlord expressly or impliedly authorized the tenant to make improvements for the owner's benefit. Columbus Square Shopping Center v. B & H Steel Company, 150 Ga. App. 774, 258 S.E.2d 600 (1979); Bennett Iron Works, Inc. v. Underground Atlanta, Inc., 130 Ga. App. 653, 204 S.E.2d 331 (1974).

This showing requires proof of a contractual relationship between the owner and the person to whom the materials were furnished, or else no lien is created against the owner's property. D & N Electric, Inc. v. Underground Festival, Inc., 202 Ga. App. 435, 414 S.E.2d 891 (1991); Meco of Atlanta, Inc. v. Super Valu Stores, Inc., 215 Ga. App. 146, 449 S.E.2d 687 (1994).

In F.S. Associates, Ltd. v. McMichael's Construction Company, Inc., 197 Ga. App. 705, 399 S.E.2d 479 (1990), the Georgia Court of Appeals held that for purposes of enforcing a lien, a tenant's building allowance makes the tenant the agent of the landlord and subjects the owner's property to a claim of lien for an amount up to the amount of the allowance, but not beyond that amount. Where the evidence shows that the full amount of the allowance was paid to the tenant and was passed on to the contractor, then the landlord's interest is protected from the contractor's lien.

The owner in this situation is liable up to the amount of the contract with the lessee, which is considered to be the legal equivalent of the "contract price." Otherwise, the owner would be subjected to unlimited liability for its tenants debts. D & N Electric, Inc. v. Underground Festival, Inc., 202 Ga. App. 435, 414 S.E.2d 891 (1991).

The fact that the landlord insists upon receiving lien waivers or affidavits from potential lien claimants before disbursing the construction allowance to the tenant is evidence of the awareness of the landlord that its interest might be affected by the construction. D & N Electric, Inc. v. Underground Festival, Inc., 202 Ga. App. 435, 414 S.E.2d 891 (1991).

Also, where the services of the lien claimant were rendered with the authority of the landlord prior to creation of the lease, the landlord's interest is not protected. Neel v. Hicks, 129 Ga. App. 206, 199 S.E.2d 393 (1973).

c. Condominiums.

The principal issue relating to the filing of liens against condominiums is whether the lien attaches to the ownership of an individual unit owner or whether it attaches to the interest of the developer or condominium association. The filing of liens against condominiums is controlled by the provisions of the Georgia Condominium Act, O.C.G.A. § 44-3-70. Specifically, the provisions of O.C.G.A. § 44-3-95 govern the effect of liens and lien foreclosure on condominiums.

A related problem is the affixing of liens on the work of the undivided interest in common elements appertaining to condominium units. Where works of improvement are affixed to common elements, the lien claimant is faced with the dilemma of filing a claim against the condominium association or against each of the individual unit owners of the condominium association. The lien claimant must determine whether the common elements are owned by the individual unit owners or by the association.

Many of these issues are addressed by O.C.G.A. § 44-3-95, which sets out the priority and effect of the lien on various interests in the condominium. This statute has been subject only to limited interpretation by the Georgia courts. See Marion G. Davis, Inc. v. Cameron-Brown Company, 177 Ga. App. 646, 340 S.E.2d 216 (1986).

After the creation of the condominium and so long as the condominium continues to comply with the Georgia Condominium Act, no lien can be filed against the condominium property as a whole. With respect to individual units, liens may be filed against those units just like any other individually owned real property interest. O.C.G.A. § 44-3-95(c).

With respect to improvements of common elements of the condominium, the condominium association must authorize the improvements. If it does so, the statute states that all of the individual unit owners are deemed to have given their express consent to the labor or services performed and to the materials furnished to improve the common areas. A lien may be filed against each of the individual units in the condominium for the labor and material used in making improvements to the common elements. O.C.G.A. § 44-3-95(c).

Depending on the time of the filing of the lien, liens may be effective against some or all of the property affected by the condominium instruments. In an exception to the normal rule applicable to priority of mechanic's liens, is not the time of the furnishing of labor and materials which determines the priority of the lien. Instead, it is the time of the filing of the lien which determines the property against which the lien is effective.

The statute protects the integrity of the condominium by subordinating the mechanics liens to the condominium declaration even if labor and materials were furnished before the recording of the condominium declaration.

If the mechanics' lien is filed before the condominium declaration is recorded, then the foreclosure of the mechanic's liens terminates the condominium.

In contrast, if the mechanic's lien is filed after the condominium declaration is filed, even if labor and materials were furnished prior to the filing of the declaration, the foreclosure of the mechanic's lien does not terminate the condominium. In that case, any purchaser of an interest acquired at a foreclosure sale obtains title to all units of the condominium which have not been released prior to the time of purchase at the foreclosure sale.

Recognizing the harshness of this rule, the statute makes an exception for liens for labor and materials used in the original construction of the condominium. In this case, a mechanic's lien may be recorded and foreclosed against the entire property even if the mechanic's lien is filed after the filing of the condominium declaration.

A strict application of this rule would have a harsh affect on bona fide purchasers of condominium unit who acquired their interest without know that mechanic's liens could be filed against the property. According, the statute makes another exception for bona fide purchasers of condominium units who bought their units prior to the recording of the lien. With respect to these bona fide purchasers, the lien is inapplicable and unenforceable. With respect to others, however, the lien is effective against all other property of the condominium, including unconveyed units as well as units bought by bona fide purchasers after the date of the filing of the lien. Bona fide purchasers after the date of the filing of the lien will have record notice of the existence of the lien and can make arrangements to have the lien released from their unit prior to purchase.

With respect to liens which become effective against a condominium unit for the improvement of common elements, the statute provides a method by which the lien may be removed from individual condominium units. The statute provides that liens which become effective against condominium units may be removed by the payment of the amount of the lien which is attributable to that condominium unit. This amount is determined by the method set out in the Georgia Condominium Act for establishing the individual liability for unit owners for common expenses. O.C.G.A. § 44-3-80. After satisfying this proportional amount, the unit owner is entitled to have the lien on his individual condominium unit released. Thereafter, this unit owner has statutory protection from any liability to the condominium association for common expenses incurred in connection with that lien.

Although these provisions are complex, the statute sets a balance between the conflicting interest of the condominium developer, bona fide purchasers of units, and mechanic's lien claimants. There have been no cases interpreting this provision of the Georgia Condominium Act. This may be due to the complexity and expense of pursuing a lien claim in the manner set out in the statute. Issues which remain for determination abound. It will be interesting to observe the evolution of this increasingly important area of mechanic's lien law.

d. Subdivisions.

As a general matter, legal issues relating to liens filed against subdivisions fall into several discreet categories: the adequacy of the description of the property, the problems of providing labor and material to separate parcels of property, problems associated with owner/builders, and the related problem of naming the true owner in the lien.

With respect to a description of the property within a subdivision, the court in Blanton v. Major, 144 Ga. App. 762, 242 S.E.2d 360 (1978), held that a legal description describing the property as the "property of R.L. Blanton and Wanda Blanton, lying and being in Land Lot 355 of the 18th District of DeKalb County, Georgia, being Lot 1, Block C of Andover Heights Subdivision" was sufficient notice. More detailed legal descriptions of the property against which a lien is to be filed are difficult in subdivision cases due to the common absence of a detailed legal description of the property prior to its conveyance from the developers.

Nevertheless, the filing of a claim of lien against an unimproved lot which is contiguous to the adjacent improved lot has been held to be a fatal error. The test for sufficiency of a description in a legal document is whether it makes possible the identification of the real property described, and where it does not, the lien fails. Mull v. Mickey's Lumber & Supply Company, Inc., 218 Ga. App. 343, 461 S.E.2d 270 (1995). However, where the property description in the lien contains an incorrect plat book page number, but is correct in every other respect, the property description is sufficient. Grubb v. Woodglenn Properties, Inc., 220 Ga. App. 902, 470 S.E.2d 455 (1996).

A related problem is encountered when the mechanic's lien claimant seeks to assert a claim of lien against one or more of several parcels owned by one owner. The court in Lyon v. Cedartown Lumber Company, 13 Ga. App. 450(1), 79 S.E. 236 (1913), held that where materials are furnished for the improvement of two separate and distinct pieces of property, with improvements being made at the same time upon both pieces of property, a lien would attach to both pieces of property. If the lien was properly and timely filed within three months from the time the last item was furnished on the contract, it is immaterial as to whether the last item referred to material furnished to the one piece of property or the other.

A similar problem is encountered where a contractor must improve separate parcels owned by the same owner. For example in Love v. Hockenhull, 91 Ga. App. 877, 87 S.E.2d 352 (1955), the lien claimant entered into a contract to install septic tanks on a certain tract of land in DeKalb County containing three separate lots numbers. The claimant did so under a single contract without keeping separate records of the labor and materials used on each of the three lots. A jury returned a verdict granting special liens on the entire property but the court entered judgment granting a lien on only one of the three parcels of land. Although the court suggested that the judgment against the single parcel was improper, this issue was not properly raised on appeal and accordingly the court affirmed the judgment. Although the lien claimant in this case prevailed in this action, the case suggests that the prudent contractor will not attempt to enforce his lien against less than the entire property to which it applies. See Ardex, Ltd. v. Brighton Homes, Inc., 206 Ga. App. 606, 426 S.E.2d 200 (1992). Annot., 15 A.L.R.3d 73 (1961); 68 A.L.R.3d 1300 (1973).

Another problem in subdivision liens is naming the true owner. This is often a problem where multiple parties are involved with the construction, such as is the case with a subdivision property where the property may be owned by one party, developed by another party, and be built by yet a third party. A lien must be claimed against the true owner of the real estate. Valor v. Roxboro Homes, Inc., 98 Ga. App. 829, 107 S.E.2d 285 (1959).

A frequently encountered problem in subdivision liens occurs when a prospective purchaser of the property enters into a contract with a home builder to purchase real estate after the erection of a house by the builder. In this situation, the lien claimant encounters a conveyance of title in a "bona fide sale" prior to the time of the recording of the lien. If a contractor's affidavit is obtained attesting that all bills for labor and materials have been paid, then the lien claimant's lien can be dissolved.

Exactly this situation was encountered in West Lumber Company v. Gignilliat, 77 Ga. App. 336, 48 S.E.2d 688 (1948). In this case, however, the owner had cooperated extensively with the builder, frequently visiting the site, making changes in the plans, and otherwise becoming directly involved in the improvements. The court held in that situation that the purchaser of the property was bound by the mechanic's lien despite the sale of the property even though he obtained a deed to the property and recorded it before the lien was filed.

e. Public Property.

A number of decisions from the Georgia Supreme Court early in this century established the proposition that as a general rule, property belonging to municipal corporations and used for public purposes is not subject to a mechanic's lien. The City of Albany v. Lynch, 119 Ga. 491, 46 S.E. 622 (1903); Neal-Millard Company v. Trustees of Chatham Academy, 121 Ga. 208, 48 S.E. 978 (1904); Aetna Indemnity Company v. Town of Comer, 136 Ga. 24, 70 S.E. 676 (1910).

There is no express statute in Georgia authorizing a lien against public property. Neal-Millard, 121 Ga. at 215. Certain public property is, however, expressly exempted from liens. Specifically, all real property of governmental authorities is exempt from levy and sale and liens against the property are expressly prohibited by O.C.G.A. § 8-3-80.

Although the question of whether the change in use of governmental properties from a public purpose to a private purpose appears to have been foreclosed by these cases, it is interesting to note that the courts in other jurisdictions have permitted the filing of mechanic's liens against municipal property where that property is held in a proprietary capacity. Annot., 51 A.L.R.3d 657 (1973). Before relying on precedent from these jurisdictions, carefully examine the definition of "public work" and "public property" in these jurisdictions. Many states narrowly define these terms, thereby permitting lien filings in those states which would be impermissible under Georgia law.

Furthermore, a public lessee, even if exempt from a lien upon its real property, must in leasing property take the property subject to any lien rights of which it has actual notice. Sasser & Co. v. Griffin, 133 Ga. App. 83, 210 S.E.2d 34 (1974).

Likewise, the interests of private companies who lease space from quasi-public entities or cooperative enterprises with the government, such as Underground Atlanta, have been subjected to mechanics' liens in Georgia. See Bennett Iron Works, Inc. v. Underground Atlanta, Inc., 130 Ga. App. 653, 204 S.E.2d 331 (1974); D & N Electric, Inc. v. Underground Festival, Inc., 202 Ga. App. 435, 414 S.E.2d 891 (1991); Hoffman Electric Company, Inc. v. Chiyoda International Corporation, 203 Ga. App. 731, 417 S.E.2d 371 (1992); Underground Festival, Inc. v. McAfee Engineering Company, 214 Ga. App. 243, 447 S.E.2d 683 (1994).

The property of the United States is not subject to the filing of a mechanic's lien.

Under both Georgia and Federal law, remedial legislation has been adopted requiring contractors on public property to post payment bonds for the benefit of subcontractors and suppliers.

5. Lien Notices.

a. Notice of Commencement.

Effective January 1, 1994, not later than 15 days after the contractor physically commences work on the property either the owner, the agent of the owner, or the contractor must file a Notice of Commencement with the Clerk of the Superior Court in the county where the project is located. O.C.G.A. § 44-14-361.5(b).

The Clerk of each Superior Court must file the Notice of Commencement within the records of that office and maintain an index separate from other real estate records or an index with the filings of the preliminary notices of lien specified in O.C.G.A. § 44-14-361.3(a). Each Notice of Commencement must be indexed under the name of the true owner and the contractor as contained in the Notice of Commencement. O.C.G.A. § 44-14-361.5(e).

In addition, a copy of the notice of commencement must be posted on the project site. O.C.G.A. § 44-14-361.5(b).

In accordance with O.C.G.A. § 44-14-361.5(b), the Notice of Commencement must include the following information:

(1) The name, address, and telephone

number of the contractor;

(2) The name and location of the project being constructed and the legal description of the property upon which the improvements are being made;

(3) The name and address of the true owner of the property;

(4) The name and address of the person other than the owner at whose instance the improvements are being made, if not the true owner of the property;

(5) The name and address of the surety for the performance and payment bonds, if any;

(6) The name and address of the construction lender, if any.

The contractor is required to give a copy of the Notice of Commencement to any subcontractor, materialman, or person who makes a written request. Failure to furnish a copy of the Notice of Commencement within ten calendar days of receipt of the written request renders the provisions of O.C.G.A. § 44-14-361.5 inapplicable to such person. O.C.G.A. § 44-14-361.5(b).

The failure to file a Notice of Commencement renders the provisions of O.C.G.A. § 44-14-361.5 inapplicable. O.C.G.A. § 44-14-361.5(d).

The filing of a Notice of Commencement does not constitute a cloud, lien, or encumbrance upon or defect to the title or the real property described in the Notice of Commencement, nor shall it affect the priority of any loan in which the property is to secure payment of the loan filed before or after the Notice of Commencement, nor does it affect future advances under any such loan. O.C.G.A. § 44-14-361.5(d).

By statute, nothing contained in O.C.G.A. § 44-14-361.5 affects the provisions of O.C.G.A. § 44-14-361.2, relating to the dissolution of a lien. O.C.G.A. § 44-14-361.5(d).

b. Notice to Contractor.

Effective January 1, 1994, on all projects in which a Notice of Commencement has been filed with respect to the improved property, lien claimants not in direct privity of contract with the general contractor must serve a written Notice to Contractor on both the contractor and either the owner or agent of the owner. O.C.G.A. § 44-14-361.5(a) & (c). Note, even though the document is denominated in the statute as a "Notice to Contractor," the statute requires notice to both the owner or agent of the owner and to the contractor.

The Notice to Contractor must be served within 30 days from the filing of the Notice of Commencement or 30 days following the first delivery of labor, services, or materials to the property, whichever is later. O.C.G.A. § 44-14-361.5(a).

Virtually all potential lien claimants who work directly or indirectly for the general contractor on a typical construction project will be affected by this new statute.

The notice requirements of the statute are specifically made applicable to the following categories of potential lien claimants:

(1) Mechanics [O.C.G.A. § 44-14-361(a)(1)];

(2) All contractors, all subcontractors and all materialmen furnishing material to subcontractors, and all laborers furnishing labor to subcontractors, materialmen, and persons furnishing material for the improvement of real estate [O.C.G.A. § 44-14-361(a)(2)];

(3) All contractors, all subcontractors and materialmen furnishing material to subcontractors, and all laborers furnishing labor for subcontractors for building factories, furnishing material for factories, or furnishing machinery for factories [O.C.G.A. § 44-14-361(a)(6)];

(4) All machinists and manufacturers of machinery, including corporations engaged in such business, who may furnish or put up any mill or other machinery in any county or who may repair the same [O.C.G.A. § 44-14-361(a)(7)];

(5) All contractors to build railroads [O.C.G.A. § 44-14-361(a)(8)];

(6) All suppliers furnishing rental tools, appliances, machinery, or equipment for the improvement of real estate [O.C.G.A. § 44-14-361(a)(9)].

Pursuant to O.C.G.A. § 44-14-361.5(c), the Notice to Contractor must contain the following information:

(1) The name, address, and telephone number of the person providing labor, services, or materials;

(2) The name and address of each person at whose instance the labor, services, or materials are being furnished;

(3) The name of the project and location of the project set forth in the Notice of Commencement; and

(4) A description of the labor, services, or materials being provided and, if known, the contract price or anticipated value of the labor, services, or materials to be provided or the amount claimed to be due, if any.

c. Preliminary Notice of Lien.

The preliminary notice of lien is primarily designed to avoid the dissolution of an inchoate lien by a false or erroneous contractor's affidavit attesting that all subcontractors and suppliers have been paid or have waived liens. O.C.G.A. § 44-14-361.2(a)(2). See Southern Concrete Construction Company, Inc. v. Hall, 205 Ga. App. 516, 422 S.E.2d 663 (1992).

The filing of a preliminary notice of lien is not a pre-requisite for the filing of a mechanic's lien. O.C.G.A. § 44-14-361.3(d).

It is common for general contractors to give a final unconditional contractor's affidavit in exchange for final payment on a project. In such situations, if a valid preliminary notice of lien is of record at the time of the transaction, then the affidavit will not dissolve the inchoate lien and a lien claimant may file, perfect, and foreclose a lien claim despite the existence of the false contractor's affidavit.

The procedures necessary to file a preliminary notice of lien are complex. The notice must state the name, address, and telephone number of a potential lien claimant, as well as the name and address of the contractor or other person at whose insistence the labor, services, or materials were furnished. The affected real estate must be described specifically enough to identify the property. A general description of the labor, services or materials furnished or to be furnished also is required.

The notice must be filed with the clerk of the superior court in the county in which the real estate is located within thirty days after the date a party delivered any materials or provided any labor or services from which a lien may be claimed.

The party filing a preliminary notice of lien must send a copy of the preliminary notice by registered or certified mail to the contractor named in the notice or to the owner of the property. The intention of this provision is apparently to assure that the owner and the contractor are aware of the existence of potential lien claimants even if they do not have a contract with these claimants.

The statute provides that the lien claimant may rely upon the building permit issued on the property for the name of the contractor. This provision is presumably intended to protect material suppliers or others who are not in direct contractual privity with the contractor. O.C.G.A. § 44-14-361.3(b).

Effective January 1, 1998, building permits must have prominently displayed thereon a notice to the effect that the real property designated on the permit may be subject to mechanics' and materialmen's liens. The building permit must be posted in a conspicuous place in the vicinity of the property where the improvements are being undertaken. O.C.G.A. § 8-2-26(e)(1) and (2).

Within ten days after receipt of final payment, the preliminary notice of lien must be canceled.

A person who fails to cancel a preliminary notice shall be liable to the owner for all actual damages, costs, and reasonable attorney's fees incurred by the owner in having the preliminary notice canceled. The form of cancellation is set out under O.C.G.A. § 44-14-362. This provision is not applicable to lien filings made pursuant to O.C.G.A. § 44-14-361.1. Hicks v. McLain's Building Materials, Inc., 209 Ga. App. 191, 433 S.E.2d 114 (1993).

A preliminary notice of lien is dissolved if statutory procedure following final payment is followed. If the lien claimant has waived its lien or the time for filing a formal claim of lien has expired, then the preliminary notice of lien also is dissolved.

A demand for filing a claim of lien also may be served on the party filing the preliminary notice of lien. On residential property, such a demand must be sent by registered or certified mail to the potential lien claimant at the address specified in the preliminary notice of lien. If ten days elapse after the date of such mailing without the filing of a claim of lien, then the preliminary notice of lien is dissolved.

The same procedure may be followed on property other than residential property, except the statute prevents the demand for filing of a claim of lien from being sent until the contractor's contract is substantially complete or until the potential lien claimant's contract has been terminated or abandoned. O.C.G.A. § 44-14-361.4(a).

The statute sets out the form of a demand for filing a claim of lien. If this demand is properly mailed and no claim of lien is filed within ten days after the date of mailing, the preliminary notice may be canceled by filing an affidavit attesting that the demand was properly mailed and that ten days have elapsed since the mailing of the notice without the filing of a claim of lien. Upon receipt of this affidavit, the preliminary notice of lien must be canceled by the superior court clerk.

A number of practical problems are presented by this statute. What if the potential lien claimant does not receive the ten-day notice within time to file its claim of lien? What happens if payment is not yet due when the demand for filing a claim of lien is presented? What if a bookkeeping error occurs and the preliminary notice of lien is not canceled?

As a practical matter, the filing of a preliminary notice of lien often can set a negative tone between the parties to a construction contract. With the implementation of required notices to the contractor and owner effective in 1994, preliminary notices of lien may become more widely used.

6. What Items Are Lienable.

a. Labor.

All mechanics of every sort who have taken no personal security for work done and material furnished in building, repairing, or improving any real estate of their employers can file a lien. This lien attaches to the real estate for which the labor or service was furnished if it was furnished at the instance of the owner, contractor, or some person acting for the owner or contractor. O.C.G.A. § 44-14-361.

A "mechanic" is one who engages in a business requiring some particular skill in doing work. Dantel Corporation v. Whidby, 98 Ga. App. 119, 105 S.E.2d 242 (1958). This skill distinguishes a mechanic from a mere laborer who merely performs manual labor. Aronoff v. Woodard, 47 Ga. App. 725, 171 S.E. 404 (1933).

It is important to distinguish mechanics and materialmen's liens from the general liens of laborers, which are separately protected under the provisions of O.C.G.A. § 44-14-380 to 44-14-382. A laborer's lien under these provisions is much simpler to enforce than the more complicated liens set out in § 44-14-361. It may attach both to the property of their employers and the products of their own labor. O.C.G.A. §§ 44-14-380 and 381. "Working foremen" may not claim a laborer's lien, nor may clerks, clerical employees, or other employees who are "paid to perform head work rather than hand work." Cole & Covington v. McNeill, 99 Ga. 250 (Case 2), 25 S.E. 402 (1896); Almand Construction Co., Inc. v. Guye, 123 Ga. App. 630, 181 S.E.2d 907 (1971).

The provisions, restrictions, and limitations set out in the mechanic's lien law are not applicable to the laborer's lien. A mechanic may file either a laborer's lien or a mechanic's lien, at his option. If a labor's lien is filed, the mechanic may not assert the lien either for material furnished or for work done by an employee or a partner. Hilley v. Lunsford, 29 Ga. App. 398, 115 S.E. 667 (1923). A labor's lien may be considered where deadlines under the mechanic's lien statute are a problem.

b. Materials Used.

"Material" originally was not defined in the mechanics' lien statute. The term was construed to mean something that goes into and becomes a part of the finished structure, such as lumber, nails, glass, hardware, and the like. This definition resulted from the intention of the lien statute to secure a lien for that which actually goes into the structure and which is necessary to the completion of the building. D.H. Overmyer Warehouse Co. v. W.C. Caye & Co., Inc., 116 Ga. App. 128, 157 S.E.2d 68 (1967).

A 1978 amendment to the lien statute added an expanded definition of "materials." The term was expanded to include tools, appliances, machinery, or equipment used in making improvements to the real estate, to the extent of the reasonable rental value of such tools, appliances, machinery, or equipment.

Accordingly, while the lien statute grants a lien for materials "furnished," in fact the interpretation of that statute requires that the lien claimant go further and prove that the materials actually were used in the construction. Downtowner of Atlanta v. Dunham-Bush, 120 Ga. App. 342, 170 S.E.2d 590 (1969); Schofield & Son v. Stout, Mills & Temple, 59 Ga. 537 (1877). Invoices or delivery tickets showing that the materials were actually delivered to the site are helpful, although not essential if there is other evidence showing that the material was in fact used in the construction. Bankston v. Smith, 138 Ga. App. 39, 225 S.E.2d 709 (1976); Taverrite v. Lowe's of Franklin, Inc., 166 Ga. App. 346, 304 S.E.2d 78 (1983).

The burden is on the lien claimant to prove that the materials furnished actually were used in the construction and the value of those materials. Bowen v. Collins, 135 Ga. App. 221, 217 S.E.2d 193 (1975); Jackson's Mill & Lumber Co. v. Holliday, 108 Ga. App. 663, 134 S.E.2d 563 (1963); Slappy v. Charles, 7 Ga. App. 796, 68 S.E. 308 (1910).

Evidence showing actual use of the material in the work of improvement satisfies this test. Grigsby v. Fleming, 96 Ga. App. 664, 101 S.E.2d 217 (1957). A problem arises, however, where the supplier fails to show actual use but instead relies upon evidence showing only delivery to a construction site or to persons who pick up the material for use at the site. Bryant v. Ellenberg, 106 Ga. App. 510, 127 S.E.2d 468 (1962). Mere evidence of a sale of the material to a contractor is not sufficient to show that it was delivered to the owner's property or used in improvement of the owner's premises. Chambers v. Williams Bros. Lumber Co., 80 Ga. App. 38, 55 S.E.2d 244 (1949). Where, however, a lien is claimed against several parcels simultaneously built under one operation for material furnished generally to them all and used indiscriminately among them as needed, then it is not necessary to prove what material went into each parcel. Christian v. Bremer, 199 Ga. 285, 34 S.E.2d 40 (1945).

These general rules have been harmonized by a presumption of the use of materials in a building or improvement arising from the fact of this delivery for that purpose, and at that point the burden shifts to the property owner to prove that the material was not so used. Bankston v. Smith, 236 Ga. 92, 222 S.E.2d 375 (1976). The Georgia Supreme Court stated in this case that "it would be too great a burden on the materialman to require him to prove by direct and positive testimony that the materials delivered were actually used in the improvement, and the owner is in a better position to determine whether the materials were used or not." Id. at 93.

Where evidence of delivery to the site is lacking, or evidence to the contrary is introduced, then this presumption does not arise. Burton v. Meinert & Miller, 136 Ga. 420, 71 S.E. 870 (1911). Merely disputing the sufficiency and accuracy of the lien claimant's evidence is not enough to defeat this presumption. Taverrite v. Lowe's of Franklin, 166 Ga. App. 346, 304 S.E.2d 78 (1983).

The same presumption applies when it is proven that materials were shipped to a subcontractor for use in a construction project. Electrical Distributors, Inc. v. Turner Construction Company, 196 Ga. App. 359, 395 S.E.2d 879 (1990). Sanford v. Hodges Builders Supply, Inc., 166 Ga. App. 86, 303 S.E.2d 280 (1983); Horne-Wilson v. Smith, 109 Ga. App. 676, 137 S.E.2d 356 (1964); Maloy v. Planter's Warehouse & Lumber Co., Inc., 142 Ga. App. 69, 234 S.E.2d 807 (1977); Butler v. Garrison, 123 Ga. App. 645, 182 S.E.2d 185 (1971).

Where a material supplier delivers items which are loose, moveable articles that do not become fixtures, then the items do not become part of the realty and they are not lienable. Skandia Draperies Manufacturing Co. v. Augusta Innkeepers, Ltd., 157 Ga. App. 279, 277 S.E.2d 282 (1981). Where such items are large, cumbersome, and are not intended to be moved but rather are intended to be permanently used with the building, then the items are lienable. Such items constitute "part and parcel of the edifice itself" and as such may be considered part of the work of improvement. Waycross Opera House Co. v. Sossman & Landis, 94 Ga. 100, 20 S.E. 252 (1894).

Material suppliers must keep detailed account records in order to preserve their lien rights. Where a supplier furnishes material at the same time to a contractor for improvement of property belonging to different persons, then to preserve lien rights it is incumbent upon the supplier to keep separate accounts for each property. If instead the supplier keeps a general account for the contractor, then the supplier's lien claim may be waived due to the inability to separate the charges properly allocated to the owner's property from the changes which should be allocated to the contractor's other jobs. The owner has the right to expect that all money paid to the supplier on the owner's account will be credited to the owner's account, and not allocated to the general debts of the contractor. Where the contractor does not tell the supplier which account should be credited, the supplier has the obligation to find out from the contractor which account should be credited. If he does not, then the supplier loses its lien claim and is left only with a claim against the contractor. Williams v. Willingham-Tift Lumber Co., 5 Ga. App. 533, 63 S.E. 584 (1909).

Where the supplier keeps separate accounts by individual invoices showing the project where the materials were delivered, requiring designation of payments to particular invoices, and issuing monthly statements of unpaid invoices, the lien claim is not lost merely because the suppliers uses one customer number for all of the materials supplied to a particular contractor. The ability to keep track, by invoice number, of the type and cost of materials furnished to each job preserves the unity of the claim against the particular property liened. Electrical Distributors, Inc. v. Turner Construction Co., 196 Ga. App. 359, 395 S.E.2d 879 (1990).

Where the supplier keeps a general account, but then attempts to break down the general account to have its books in shape to pursue individual liens, then a fact issue as to the accuracy of the accounts is presented for the jury. Grigsby v. Fleming, 96 Ga. App. 664, 101 S.E.2d 217 (1957).

The burden is on the supplier to keep separate accounts and to make a reasonable effort to find out from the contractor or others on which contract the money is paid, and to what account it should be credited. Air Conditioning Specialists, Inc. v. Harper, 131 Ga. App. 575, 206 S.E.2d 594 (1974); Dallas Bldg. Material, Inc. v. Rose, 191 Ga. App. 783, 383 S.E.2d 151 (1989); Atlanta Lighting Fixture Co., Inc. v. Peachtree-Sheridan Corp., 113 Ga. App. 313, 147 S.E.2d 847 (1966); Foster v. Waverty Hall United Development Corp., 159 Ga. App. 710, 285 S.E.2d 35 (1981).

Some courts have gone even further, stating that the failure to keep separate accounts actually waives the lien claim even if invoice numbers permit segregation of the material furnished to each job. Artistic Ornamental Iron Co., Inc. v. Long, 113 Ga. App. 464, 148 S.E.2d 478 (1966); Moore-Handley, Inc. v. Banks, 138 Ga. App. 821, 227 S.E.2d 427 (1976); Foster v. Waverly Hall United Development Corp., 159 Ga. App. 710, 285 S.E.2d 35 (1981).

These cases have been harmonized with the more liberal cases holding that a jury issue is presented. The determining factor is whether the accounts were submitted in a form that necessitated a process of separation by the courts. Where the lien claimant is not guilty of this practice, and rectifies the error by crediting the account of the owner for all amounts which had been credited to the general account, then the supplier avoids the waiver problem. Rickman Brothers Lumber & Supply Co. v. Martin, 144 Ga. App. 39, 240 S.E.2d 308 (1977); Foster v. Waverly Hall United Development Corp., 159 Ga. App. 710, 285 S.E.2d 35 (1981).

The defense of failure to maintain separate accounts may be foreclosed by a pretrial stipulation to the amount of the lien. Federal Deposit Insurance Company v. Gray, 1997 WL 109404 (Ga. App.) (Mar. 12, 1997).

Despite the theoretical obligation of the contractor to inform the supplier of the true ownership of the property being improved, the supplier has the duty to make proper inquiry in order to protect its lien interests. The owner is under no duty to advise suppliers of the true ownership of the property. Building Material Supply Co., Inc. v. North, 116 Ga. App. 348, 157 S.E.2d 497 (1967).

In order to obtain the protection of the "separate accounts" rule, however, the owner must show that the contractor paid the materialman from money he got from the owner a sufficient amount to pay in full for all material purchased from that supplier that went into the owner's building. Dye v. Turner Concrete, Inc., 119 Ga. App. 78, 166 S.E.2d 773 (1969); Southern Concrete Products Co. v. Consolidated Equities Corp., 128 Ga. App. 698, 197 S.E.2d 798 (1973).

Where the owner establishes that a payment by the owner was misappropriated by the materialman to an account owed on another job, then the lien is waived by the amount of that payment due to the failure of the supplier to inquire on what account it was to be applied and then crediting it accordingly. Golsen v. Magbee Lumber Co., Inc., 126 Ga. App. 119, 190 S.E.2d 104 (1972). Payments must be applied as instructed by the party making payment. Resurgens Plaza South Associates v. Consolidated Electric Supply, Inc., 215 Ga. App. 818, 452 S.E.2d 784 (1994).

c. Materials Furnished But Not Used.

As indicated in the preceding section, in Georgia it is necessary to show that specific material of the value alleged in the lien was delivered to the property or was consumed in the construction of the improvement.

Where material is furnished for incorporation into an improvement, but is wasted or spoiled, the supplier still may claim a lien for this material. The material need not actually be incorporated into the finished structure, so long as it was consumed in the construction. This rule arises from the fact that there must by necessity be a certain amount of waste in the erection of any structure. United Bonding Insurance Co. v. Good-Wynn Electrical Supply Co., Inc., 124 Ga. App. 545, 184 S.E.2d 508 (1971); See Annot., 32 A.L.R.4th 1130 (1984).

In contrast, where machinery for a factory is furnished by a supplier but is never affixed to the property, then the value of the machinery does not enhance the value of the realty and a lien for the cost of the machinery will not attach. Schofield & Son v. Stout, Mills & Temple, 59 Ga. 537 (1877); Downtowner of Atlanta, Inc. v. Dunham-Bush, Inc., 120 Ga. App. 342; 170 S.E.2d 590 (1969).

In proving that the material furnished actually was used or consumed in the construction of the work of improvement, the lien claimant may in some circumstances be able to assert the doctrine of estoppel to bar the owner from denying that the materials furnished were not used in the improvement. When at the time the material is furnished the owner represents to the seller that the material contracted for is intended to be used in the improvement of his property, and the supplier, relying upon that statement, furnishes that material in good faith for that purpose, then, as between the owner and the seller the materials were so used. Howell v. Cordray, 22 Ga. App. 195; 95 S.E. 762 (1918).

Where the owner received all the material charged for in the suit, had used the greater portion of it in the improvement of the real estate, had not returned any of it or made any complaint about it to the materialman, and had paid the contractor (or other person at whose insistence the material was furnished) more than the amount sued for by the materialman, then the owner also is estopped from asserting the defense that the materialman had not substantially complied with his contract. Koppe & Steinichen v. Rylander, 33 Ga. App. 686, 128 S.E. 68 aff'd 162 Ga. 300, 133 S.E. 236 (1925).

This decision was affirmed by the Georgia Supreme Court, noting that acceptance and use of such material without objection or complaint, and payment therefor to another instead of the materialman, authorizes the conclusion that the owner waived his right to insist on fuller compliance with the contract and thereby has estopped himself to defend the foreclosure of the lien on that ground. Rylander v. Koppe & Steinichen, 162 Ga. 300, 133 S.E. 236 (1926).

Where there is no such furnishing, delivery, or representation by the owner, then the owner is not estopped from denying that the material was used on his property. Bowen v. Collins, 135 Ga. App. 221, 217 S.E.2d 193 (1975).

d. Landscaping & Sidewalks.

A lien for labor, landscaping, nursery materials (plants, etc.) was considered by the court in Nix v. Luke, 96 Ga. App. 123, 99 S.E.2d 446 (1957)(lien denied on other grounds).

A lien was denied for paving a sidewalk on a public street adjacent to the lot of the owner, apparently due to the fact that the sidewalk formed no part of a building constructed under a contract with the owner. Seeman v. Schultze, 100 Ga. 603, 28 S.E. 378 (1897).

e. Equipment.

Effective July 1, 1991, all suppliers furnishing rental tools, appliances, machinery, or equipment for the improvement of real estate were expressly granted the right to file a mechanics' lien. O.C.G.A. § 44-14-361(a)(9). The definition of "materials" was also amended in 1991 to permit the recovery of the reasonable value or contracted rental price, whichever is greater, for "tools, appliances, machinery and equipment" used in making improvements to the real estate. O.C.G.A. § 44-14-360(3).

A 1978 amendment to the lien statute permitted liens to be filed for "tools, appliances, machinery, or equipment used in making improvements to the real estate, to the extent of the reasonable rental value of such tools, appliances, machinery, or equipment." O.C.G.A. § 44-14-360(3). The legislature evidently believed that there was some confusion generated by the wording of the former statute which permitted recovery only for the "reasonable rental value" of such items.

Prior to the 1978 amendment, liens for equipment were not permitted. Sears, Roebuck & Co. v. Superior Rigging & Erecting Co., 120 Ga. App. 412, 170 S.E.2d 721 (1969); Pacific Southern Mortgage Trust & Melton, 151 Ga. App. 593, 260 S.E.2d 910 (1979), rev'd 241 Ga. 589, 247 S.E.2d 76 (1978). See Annot., 3 A.L.R.3d 573 (1965). These cases would appear to have been mooted by the 1978 and 1992 amendments to the lien statute.

f. Temporary Works.

Prior to 1978, scaffolding and other such temporary works which were not incorporated into the structure were not lienable items. See D.H. Overmyer Warehouse Co. v. W.C. Caye & Co., 116 Ga. App. 128, 157 S.E. 68 (1967).

After the 1978 amendment to O.C.G.A. § 44-14-360(3), it would appear that the reasonable rental value of temporary works are lienable items.

g. Demolition.

There are no Georgia cases. See Annot., 74 A.L.R.3d 386 (1976).

h. Grading.

Grading companies have filed liens in Georgia. Freeman v. Fulton Concrete Company, Inc., 204 Ga. App. 465, 419 S.E.2d 536 (1992); Cribbean Lumber Company, Inc. v. Anderson, 205 Ga. App. 415, 422 S.E.2d 267 (1992). See Annot., 39 A.L.R.2d 866 (1955).

i. Transportation.

There are no Georgia cases.

j. Fringe Benefits.

There are no Georgia cases. See Annot., 20 A.L.R.4th 1260 (1983).

k. Consequential Damages.

Consequential damages such as lost profits, extended overhead, and the like, although they are damages sustained by contractor, are not "labor, services, or materials" subject to a lien attachment to the owner's property under the lien statute. O.C.G.A. § 44-14-361(b).

l. Attorneys' Fees.

Attorneys' fees are not lienable items under the Georgia lien law, and no special provision for collection of attorneys' fees by a successful lien claimant is set out under the Georgia lien statute.

Depending upon the facts and circumstances of the particular case, however, attorneys' fees and the expenses of litigation may be recovered both by lien claimants and owners, notwithstanding that the lien statute does not expressly provide for the award of attorneys' fees. See O.C.G.A. § 13-6-11. See McLain Building Material, Inc. v. Hicks, 215 Ga. App. 1, 449 S.E.2d 369 (1994); Gaster Lumber Company v. Browning, 219 Ga. App. 435, 265 S.E.2d 524 (1996).

m. Interest

Georgia's lien law does not specifically address the issue of interest. Fortunately, several court decisions have addressed and clarified Georgia law on this issue.

O.C.G.A. § 7-4-15 permits the recovery of prejudgment interest on all liquidated demands where "the sum to be paid is fixed and certain." Under the statute, liquidated demands "bear interest from the time the party shall become liable and bound to pay them." This statute has been applied to lien claims. Hendricks v. Blake & Pendleton, Inc., 221 Ga. App. 651, 472 S.E.2d 482 (1996)(finding the damages were sufficiently liquidated when the value of the underlying debt was not disputed, the only issue before the court being the amounts which were to be credited against the debt).

Interest may not be claimed on the amount of the lien where there is no agreement or judgment fixing the principal amount as liquidated. Cowart v. Reeves, 80 Ga. App. 161, 55 S.E.2d 911 (1949).

Where the lien claim is liquidated, however, the claim bears interest from the time the party becomes liable and bound to pay it. Carmichael Tile Co. v. National Surety Co., 166 Ga. 709, 144 S.E. 250 (1928). A debt is liquidated when it is certain how much is due and when it is due. Sunderland v. Vertex Associates, Inc., 199 Ga. App. 278, 404 S.E.2d 574 (1991).

Where an interest rate is not established by written contract, a lien claimant may recover simple interest at the legal rate of 7% per annum. Horkan v. Great American Indemnity Company, 211 Ga. 690, 88 S.E.2d 13 (1955); Pickett v. Chamblee Construction Co., Inc., 124 Ga. App. 769, 186 S.E.2d 123 (1971). See O.C.G.A. § 7-4-2(a)(1)(A).

Interest at the higher rate of 1.5% per month, as set out in O.C.G.A. § 7-4-16, is permitted for unpaid debts on commercial accounts. Where, however, the defendant is not an account debtor of the lien claimant, then interest may be recovered against that defendant only at the legal rate of 7% per annum simple interest, and not at the higher rate set out in O.C.G.A. § 7-4-16. Turner Construction Company v. Electrical Distributors, Inc., 202 Ga. App. 726, 415 S.E.2d 325 (1992); Gaster Lumber Company v. Browning, 219 Ga. App. 435, 265 S.E.2d 524 (1996)(also holding that interest is distinct and separate from and not to be included in the calculation of the "aggregate amount of liens" defense provided by O.C.G.A. § 44-14-361.1(e)).

The Georgia courts have permitted the recovery of interest on lien claims dating from the maturity of the lien claim. David v. Marbut-Williams Lumber Co., 32 Ga. App. 157, 122 S.E. 906 (1924). When a lien bond is substituted for the owner's property, interest runs from the date when demand is made on the lien bond surety. Hendricks v. Blake & Pendleton, Inc., 221 Ga. App. 651, 472 S.E.2d 482 (1996)(finding the filing of a complaint against the lien bond surety constitutes such a demand).

n. Overhead.

There are no Georgia cases.

7. Filing the Lien.

a. Statutory Form.

A statutory form of lien is set out in O.C.G.A. § 44-14-361.1(a)(2). That form is:

A.B., a mechanic, contractor, subcontractor, materialman, machinist, manufacturer, registered architect, registered forester, registered land surveyor, registered professional engineer, or other person (as the case may be) claims a lien in the amount of (specify the amount claimed) on the house, factory, mill, machinery, or railroad (as the case may be) and the premises or real estate on which it is erected or built, of C.D. (describing the houses, premises, real estate, or railroad), for satisfaction of a claim which became due on (specify the date the claim was due) for building, repairing, improving, or furnishing material (or whatever the claim may be).

Substantial compliance with the statutory form is all that is required. Murphy v. Fuller, 96 Ga. App. 403, 100 S.E.2d 137 (1957); Broxton Artificial Stone Works v. Towers, 4 Ga. App. 91, 60 S.E. 1012 (1908); Fowler v. Roxboro Homes, Inc., 98 Ga. App. 829, 107 S.E.2d 285 (1959).

Varying the statutory form of the lien claim to state the last day material was delivered rather than stating the date "the claim was due" is not fatal to the lien claim because what the lien stated amounts to the same thing that is required by the statute. L & W Supply Corporation v. Whaley Construction Company, Inc., 197 Ga. App. 680, 399 S.E.2d 272 (1990).

Although proof of substantial compliance with the claimant's contract is required, this statement need not appear on the face of the lien. Ford v. Wilson & Co., 85 Ga. 109, 11 S.E. 559 (1890). See Annot., 27 A.L.R.2d 1169 (1953).

Effective April 14, 1997, all liens must contain a three-inch margin at the top of the lien to allow space for a clerk's notation of the day they were left to be recorded. O.C.G.A. § 15-6-61.

b. Amount.

One of the things which must necessarily be proved in order for a lien to be perfected, foreclosed, and the judgment enforced is the amount to which the lien claimant is entitled as a lien on the property improved. Jackson's Mill & Lumber Co., Inc. v. Holliday, 108 Ga. App. 663, 134 S.E.2d 563 (1963).

The Georgia courts have held that even where the amount of a debt is undisputed, but where no legitimate basis for calculation of a particular sum appears, then a judgment in favor of the lienor cannot stand. Slappy v. Charles, 7 Ga. App. 796, 68 S.E. 308 (1910).

If lienable and non-lienable items are included in a contract and the amounts chargeable to each category cannot be determined, then the benefit of the lien law is lost. Jackson's Mill, supra; D.H. Overmyer Warehouse Co. v. W.C. Caye, 116 Ga. App. 128, 157 S.E.2d 68 (1967).

Where, however, the inclusion of non-lienable items are easily separable from lienable items, the whole lien is not defeated. Pace v. Shields-Geise Lumber Co., 147 Ga. 36, 92 S.E. 755 (1917); Sears, Roebuck & Co. v. Superior Rigging & Erecting Co., 120 Ga. App. 412, 170 S.E.2d 721 (1969); Taverrite v. Lowe's of Franklin, Inc., 166 Ga. App. 346, 304 S.E.2d 78 (1983); Summit-Top Development, Inc. v. Williamson Construction, Inc., 203 Ga. App. 460, 416 S.E.2d 889 (1992) (owner's instructions contributed to overliening and overliening was corrected prior to posting of lien bond).

A lien foreclosure suit is not a suit on account, and amounts which might be owed and recoverable in a suit on account may not be recoverable in a lien foreclosure suit. Slappy, supra.

The burden is on the lien claimant to prove the fair market value of materials furnished unless that amount is admitted. Southwire Co. v. Metal Equipment Co., 129 Ga. App. 49, 198 S.E.2d 687 (1973).

It is interesting to note, however, that the omission of the amount claimed to be due does not invalidate the lien against the owner, but rather results in the lien claim "not constituting notice for any purpose." O.C.G.A. § 44-14-364(b) [formerly Ga. Code Ann. § 67-2002(3)]; J.H. Morris Building Supplies v. Brown, 245 Ga. 178, 264 S.E.2d 9 (1980). In that event, a subsequent purchaser of the property would not take subject to the lien absent actual notice of the existence of the lien. Picklesimer v. Smith, 164 Ga. 600, 139 S.E. 72 (1927).

The aggregate amount of liens may not exceed the contract price of the improvements made or services performed. O.C.G.A. § 44-14-361(e). Stevens v. Georgia Land Co., 122 Ga. 317, 50 S.E. 100 (1905). Accordingly, to make out a prima facie case for a lien foreclosure, a lien claimant must show that the amount of its lien comes "in whole or in part" within the contract price. Prince v. Neal-Millard Co., 124 Ga. 884, 55 S.E. 761 (1905). There could be no limit upon the owner's liability for liens unless the material was furnished under a contract to which the owner is a party either expressly or by implication. Central of Georgia Railway Co. v. Shiver, 125 Ga. 218, 53 S.E. 610 (1906).

A single lien may be filed covering two contracts, and if the claim under the first of those two contracts is later settled, the suit may proceed if the claimant can prove that amount which was due only on the second contract. Hawkinsville & Western Railroad Co. v. Beckham, 20 Ga. App. 431, 93 S.E. 109 (1917); Crane Co. v. Hirsch, 61 Ga. App. 632, 7 S.E.2d 83 (1940).

The general contractor does not have to pay the supplier's bill in order to pursue a lien claim for the amount of that bill. Murphy v. Fuller, 96 Ga. App. 403, 100 S.E.2d 137 (1957).

c. Name of Lien Claimant.

The name of the lien claimant must be correctly stated in the claim of lien. A lien which incorrectly states the name of the lien claimant is subject to a motion to dismiss. Georgia North Contracting, Inc. v. Haney & Haney Construction & Management Corporation, 204 Ga. App. 366, 419 S.E.2d 348 (1992).

If the lien claimant is a corporation, then the lien claim must reflect that the lien is sought in the name of the corporation and not in the name of an individual. Latham Plumbing & Heating Co. v. Ledbetter Trucks, Inc., 96 Ga. App. 219, 99 S.E.2d 545 (1957); Allen v. Arrow Contracting Co., 110 Ga. App. 369, 138 S.E.2d 600 (1964); Nix v. Luke, 96 Ga. App. 123, 99 S.E.2d 446 (1957).

d. Name of Owner.

The claim of lien must identify the interest of the real person whose legal interest is being subject to lien. Meco of Atlanta, Inc. v. Super Valu Stores, Inc., 215 Ga. App. 146, 449 S.E.2d 687 (1994); Ansley Park Plumbing & Heating, Inc. v. Mikart, Inc., 9 B.R. 144 (N.D. Ga. 1981); Federal Deposit Insurance Company v. Gray, 1997 WL 109404 (Ga. App.) (Mar. 12, 1997).

Normally, the first step in determining the time owner of the property is to check county tax records for the record owner of the property. Note, however, that if the property has recently been sold then county tax records may not accurately reflect the current owner of the property. The record owner as shown in a county's tax records always should be confirmed by checking the deed records. Also, remember that plats filed in the county tax office may be helpful in identifying parcels of property that are not otherwise divided into lot numbers.

When a lien is filed in the name of a person or entity other than the correct owner's name, the lien cannot be enforced. Smith v. Turner, 169 Ga. 641, 151 S.E. 368 (1929); Nix v. Luke, 96 Ga. App. 123, 99 S.E.2d 446 (1957); Fowler v. Roxboro Homes, 98 Ga. App. 829, 107 S.E.2d 285 (1959); A&A Heating & Air Conditioning Co. v. Burgess, 148 Ga. App. 859, 253 S.E.2d 246 (1979); North v. Waffle House, Inc., 177 Ga. App. 162, 338 S.E.2d 750 (1985).

Where there is conflicting evidence of the owner's name, it is for the jury to determine whether the lien is valid and enforceable. Federal Deposit Insurance Company v. Gray, 1997 WL 109404 (Ga. App.) (Mar. 12, 1997).

The claim of lien sufficiently identifies the owner by stating that the claim is filed against the property "of" the owner. Ford v. Wilson, 85 Ga. 109, 11 S.E. 559 (1890); Broxton Artificial Stone Works v. Jowers, 4 Ga. App. 91, 60 S.E. 1012 (1908). Later cases suggest that the owner must be both named and specifically identified as the owner. Fowler v. Roxboro Homes, 98 Ga. App. 829, 107 S.E.2d 285 (1959).

Filing the lien in the name of only one of two or more owners voids the lien. King v. Rutledge, 208 Ga. 172, 655 S.E.2d 801 (1951).

A lien claim naming a corporation as well as its individual subscribers is not invalid. Chicago Building and Manufacturing Co. v. Talbotton Creamery and Manufacturing Co., 106 Ga. 84, 31 S.E. 809 (1898).

For cases in other jurisdictions, see Annot., 48 A.L.R.3d 153 (1973); 76 A.L.R.3d 605 (1977).

e. Description of Property.

In order to properly file a claim of lien, it is necessary to describe the affected real estate with sufficient particularity to identify the property. Failure to do so will result in the loss of lien rights. King v. Rutledge, 208 Ga. 172, 65 S.E.2d 801 (1951); Mull v. Mickey's Lumber & Supply Company, Inc., 218 Ga. App. 343, 461 S.E.2d 270 (1995). A lien cannot be enforced against realty which is not the property of the alleged owner to whom labor and materials were furnished. Smith v. Turner, 169 Ga. 641, 151 S.E. 368 (1929). See, Annot., 52 A.L.R.2d 12 (1957).

Ideally, the lien claimant will attach a legal description of the property, but this is not required by the lien statute. A street address has been held sufficient to describe the property. Love v. Hockenhull, 91 Ga. App. 877, 87 S.E.2d 352 (1955). Even naming the street alone along with the current occupant of the building was held sufficient in Broxton Artificial Stone Works v Jowers, 4 Ga. App. 91, 60 S.E. 1012 (1908).

Where, however, the lien is filed on an erroneous lot number, however, the lien against the property actually improved is lost. Mull v. Mickey's Lumber & Supply Company, Inc., 218 Ga. App. 343, 461 S.E.2d 270 (1995).

For any number of reasons the legal description of the property should be as accurate as possible. As a practical matter in order to convey any interest in the property which is secured by the lien the property must be clearly identified. It will be difficult to secure bids at a foreclosure sale on property described only by a street address.

A legal description of the property is virtually always attached to the owner's deed and a simple title search will usually produce a very serviceable legal description.

Another reason for obtaining an accurate legal description at this time is to facilitate the filing of a lien foreclosure notice referencing a deed or other recorded instrument in the chain of title to the affected property, as required by O.C.G.A. § 44-14-361.1(a)(3).

Description of the real estate by land lot and other legal descriptions are sufficient. Blanton v. Major, 144 Ga. App. 762, 242 S.E.2d 360 (1978); Southwire Co. v. Metal Equipment Co., 129 Ga. App. 49, 198 S.E.2d 687 (1973). Where the property description in the lien contains an incorrect plat book page number, but is correct in every other respect, the property description is sufficient. Grubb v. Woodglenn Properties, Inc., 220 Ga. App. 902, 470 S.E.2d 455 (1996).

A lien describing property that is not owned by the alleged owner to whom labor and materials were furnished does not attach to that property. North v. Waffle House, Inc., 177 Ga. App. 162, 338 S.E.2d 750 (1985). Accordingly, a judgment fixing a lien on such property is "harmless" to the true owner. Porter v. Wilder & Son, 62 Ga. 520 (1879).

A lien filed against the entire property of the owner is proper, even though the work was done on only a portion of that property. Hawkinsville & Western Railroad Co. v. Beckham, 20 Ga. App. 431, 93 S.E. 109 (1917).

A lien claimant who supplied labor or materials for separate buildings of one owner may file a single blanket lien against all of the property improved. Lyon v. Cedartown Lumber Co., 13 Ga. App. 450, 79 S.E. 236 (1913); Athens Lumber Co. v. Burton, 84 Ga. App. 249, 66 S.E.2d 124 (1951). See Annot., 15 A.L.R.3d 73 (1967); 68 A.L.R.3d 1300 (1976).

f. Signature.

The statutory form of lien does not require a signature. O.C.G.A. § 44-14-361.1(a)(2). A signature on the lien is mere "surplusage." Broxton Artificial Stone Works v. Jowers, 4 Ga. App. 91, 60 S.E. 1012 (1908); Southwire Co. v. Metal Equipment Co., 129 Ga. App. 49, 198 S.E.2d 687 (1973); New London Square, Ltd. v. Diamond Electric & Supply Corp., 132 Ga. App. 433, 208 S.E.2d 348 (1974).

g. Attestation or Oath.

A lien claim need not be signed by witnesses or put in "recordable form" in order to be valid. New London Square, Ltd. v. Diamond Electric & Supply Corp., 132 Ga. App. 433, 708 S.E.2d 348 (1974); Hawkinsville & Western Railroad Co. v. Beckham, 20 Ga. App. 431, 93 S.E. 109 (1917).

The claim of lien need not be given under oath. Southwire Co. v. Metal Equipment Co., 129 Ga. App. 49, 198 S.E.2d 687 (1973).

Note, however, that failure to file a lien perfection notice under oath will invalidate the lien, pursuant to O.C.G.A. § 44-14-361.1(a)(3). Allied Electrical Contractors, Inc. v. Kern & Co., 184 Ga. App. 747, 362 S.E.2d 452 (1987).

h. Contract Completion Date.

The Georgia lien law requires that the claim of lien state the date the claim became due. O.C.G.A. § 44-14-361.1(a)(2). Several amendments to this section of the lien law, with a number of cases interpreting the statute as it existed at the time the case was decided, have made the correct interpretation of this section of the statute difficult.

Effective March 23, 1977, Georgia's lien law was amended to add the requirement that the claim of lien specify the date the claim became due. Several cases decided after the effective date of this amendment held that the failure to specify the date the claim became due was fatal to the claim of lien. Lowe's of Savannah v. Jarrell, 150 Ga. App. 220, 257 S.E.2d 341 (1979); Cherokee Culvert Co., Inc. v. Gurin, 153 Ga. App. 296, 265 S.E.2d 106 (1980); J.H. Morris Building Supplies v. Brown, 151 Ga. App. 522, 260 S.E.2d 358 (1979), rev'd 245 Ga. 178, 264 S.E.2d 9 (1980).

The Georgia Supreme Court eventually held that the failure to state the date that the claim became due does not invalidate the lien, but it does mean that the lien will not provide constructive notice to one acquiring an interest in the property who therefore would not take the property subject to the lien (absent some other form of special notice). The lien still may be enforced against the original owner of the property. J.H. Morris Building Supplies v. Brown, 245 Ga. 178, 264 S.E.2d 9 (1980); L & W Supply Corporation v. Whaley Construction Company, Inc., 197 Ga. App. 680, 399 S.E.2d 272 (1990); Georgia North Contracting, Inc. v. Haney & Haney Construction & Management Corporation, 204 Ga. App. 366, 419 S.E.2d 348 (1992).

The continued viability of Morris has been called into question due to the amendment of O.C.G.A. § 44-14-361.1 in 1983. See L & W Supply Corporation v. Whaley Construction Company, Inc., 197 Ga. App. 680, 399 S.E.2d 272 (1990)(Pope, dissenting). This amendment deleted the notice language relied upon in Morris which was contained in former Ga. Code Ann. § 67-2002(2), subsequently codified at O.C.G.A. § 44-14-362(2) to the effect that "the failure to specify both the amount claimed due under the lien and the date said claim was due shall result in such lien not constituting notice for any purpose." Nevertheless, several Court of Appeals cases have followed the holding of Morris.

In any event, it is extremely important in the filing of a lien claim to determine the lien claimant's contract completion date. Regardless of the type of contract involved, the contract completion date will be the date from which most deadlines for the filing of liens claims will run.

The claim of lien must specify the date upon which the claim "became due." O.C.G.A. § 44-14-362(2). Likewise, the lien claimant must file an action for the recovery of the amount of his claim within twelve months from the time it "became due." O.C.G.A. § 44-14-362(3).

When the claim "became due" depends on the type of claim. A materialmen's lien is properly filed within three months of the date the last item was furnished on the account. Hill v. Dealers Supply Co., 103 Ga. App. 846, 120 S.E.2d 879 (1961). The date materials are "furnished" is that date when they are received on the job site and not the date when the supplier places the materials in the hands of a common carrier. Atlanta Jewish Community Center, Inc. v. Tom Barrow Company, 130 Ga. App. 608, 203 S.E.2d 921 (1974). Invoices and delivery tickets may be used to prove those facts. Williamscraft Development, Inc. v. Vulcan Materials Company, 196 Ga. App. 703, 397 S.E.2d 122 (1990).

The last item furnished must be a lienable item. Downtowner of Atlanta, Inc. v. Dunham-Bush, Inc., 120 Ga. App. 342, 170 S.E.2d 590 (1969); Calhoun Brick Co. v. Pattillo Lumber Co., 10 Ga. App. 181, 73 S.E. 23 (1911).

Varying the statutory form of the lien claim to state the last day material was delivered rather than stating the date "the claim was due" is not fatal to the lien claim because what the lien stated amounts to the same thing that is required by the statute. L & W Supply Corporation v. Whaley Construction Company, Inc., 197 Ga. App. 680, 399 S.E.2d 272 (1990).

With respect to service contracts, the contract completion date is the date where the last service for improvement of the realty was performed. Levy v. GEC Corp., 117 Ga. App. 673, 161 S.E.2d 339 (1968).

Does punchlist work extend this time? Where a contractor completes most of its work but then returns to perform some repair work and to perform some minor installation for which an invoice is submitted, at no extra charge, and testimony is received that this work was contemplated under the original contract and that the work under the original contract was not completed until the latter work was completed, then a jury issue is presented as to whether the lien is timely. Cumberland Bridge Associates, Ltd. v. Builders Steel Supply, Inc., 169 Ga. App. 945, 315 S.E.2d 484 (1984).

Billing the owner "100% complete" does not affect the timing of the lien claim if lienable labor or material is furnished after that date. Old Stone Mortgage & Realty Trust v. New Georgia Plumbing, Inc., 140 Ga. App. 686, 231 S.E.2d 785 (1976). Note that such additional work must be an integral part of the original contract. Southwire Co. v. Metal Equipment Co., 129 Ga. App. 49, 198 S.E.2d 687 (1973). See Annot., 51 A.L.R.3d 1087 (1973).

A jury issue is presented where the work was not billed for, but was done to complete a job, including inspection, clean-up, and final adjustments. Sears, Roebuck & Company v. Superior Rigging & Erecting Company, 120 Ga. App. 412, 170 S.E.2d 721 (1969).

Confirming that an electrical switch was not functional, even though the switch was replaced by another contractor, presents sufficient evidence to support a jury's conclusion that a lien was timely filed within three months of the performance of this work. Schwan's Sales Enterprises, Inc. v. Martin Mechanical Contractors, Inc., 202 Ga. App. 510, 414 S.E.2d 727 (1992).

Repair work and minor installation separately invoiced but for which no charge was assessed can constitute the completion of work under the original contract. Such a finding provides a sufficient basis for a jury verdict in favor of the lien claimant. Cumberland Bridge Assoc., Ltd. v. Builders Steel Supply, Inc., 169 Ga. App. 945, 315 S.E.2d 484 (1984); Ingram v. Barfield, 80 Ga. App. 276, 55 S.E.2d 725 (1949).

A directed verdict against the lien claimant is proper where the evidence shows that the lien claimant completed its work more than three months before the date its lien was filed. Returning to the site of the project to verify completion of the work to is not sufficient to extend the three-month deadline for filing the lien. A contractor cannot go back indefinitely and "check" to see if it has completed its work, or do some "repair" or other activity sua sponte, and thus extend the time for a lien filing. Womack Industries Inc. v. B & A Equipment Co., 199 Ga. App. 660, 405 S.E.2d 880 (1991).

The day the contractor dies is considered the completion date for the contract for purposes of filing a materialmen's lien upon improvements made up to that point. Athens Lumber Company v. Burton, 84 Ga. App. 249, 66 S.E.2d 124 (1951).

Even though a project has been certified by the general contractor as being substantially complete on an earlier date, where a subcontractor submits evidence that labor and equipment were furnished after those dates then the certification of completion by the general contractor will not void the subcontractor's lien. Sasser & Company v. Griffin, 133 Ga. App. 83, 210 S.E.2d 34 (1974). Issuance of a certificate of substantial completion, release of retainage, or other activity under the construction contract does not bar the claim of lien. Resurgens Plaza South Associates v. Consolidated Electric Supply Co., 215 Ga. App. 818, 452 S.E.2d 784 (1994).

For running accounts, a lien must be recorded within three months from the delivery of furnishing of the last item of material which constitutes part of the open or running account covered by the contract in order to be timely filed. Calhoun Brick Co. v. Pattillo Lumber Co., 10 Ga. App. 181, 73 S.E. 23 (1911); Pippin v. Owens, 29 Ga. App. 789, 116 S.E. 549 (1922); Vulcan Materials Co. v. D.H. Overmyer Warehouse Co., 115 Ga. App. 792, 156 S.E.2d 213 (1967); Sears, Roebuck & Company v. Superior Rigging & Erecting Company, 120 Ga. App. 412, 170 S.E.2d 721 (1969); Cherokee Culvert Co., Inc. v. Gurin, 153 Ga. App. 296, 265 S.E.2d 106 (1980).

Where two separate contracts are involved, delivery dates under the latter of the two contracts cannot be used to perfect a mechanic's lien under a prior contract. Crane Co. v. Hirsch, 61 Ga. App. 632, 7 S.E.2d 83 (1940); Cherokee Culvert Co., Inc. v. Gurin, 153 Ga. App. 296, 265 S.E.2d 106 (1980).

Where one contract covers improvements on two parcels of property, the last item furnished under the contract would determine the completion date of the contract for both parcels, regardless of whether it was furnished for one panel or the other. Lyon v. Cedartown Lumber Co., 13 Ga. App. 450, 79 S.E. 236 (1913).

i. Time Requirements.

The claim of lien must be recorded within THREE MONTHS (not 90 days) after the completion of the work and the furnishing of materials. O.C.G.A. § 44-14-361.1(a)(2). Sears, Roebuck & Company v. Superior Rigging & Erecting Co., 120 Ga. App. 412, 170 S.E.2d 721 (1969).

The intent of O.C.G.A. § 44-14-361.1 is to establish a time certain beyond which liens cannot be filed, for the protection of the contracting parties and innocent third parties. Womack Industries Inc. v. B&A Equipment Co., 199 Ga. App. 660, 405 S.E.2d 880 (1991).

Filing the lien is not always sufficient to record the lien, and if the lien is recorded outside this three-month period then it is invalid. Ohio Blower Co. v. Savannah Lighting Co., 21 Ga. App. 464, 94 S.E. 583 (1917).

A lien recorded on August 6th when the last lienable item was furnished on May 6th is recorded one day too late. Jones v. Kern, 101 Ga. 309, 28 S.E. 850 (1897).

Liens for either labor or materials furnished must be filed within three months from the date on which the last service was furnished or materials supplied. Spicewood, Inc. v. Ferro Pipeline Company, Inc., 181 Ga. App. 277, 351 S.E.2d 711 (1986). This issue is not always easy to resolve. For example, in one case, the court held that fact issues may arise concerning whether the delivery was made pursuant to a contract with the general contractor, and its subcontractors, or whether the delivery was made under an independent contract with a tenant. Resurgens Plaza South Associates v. Consolidated Electric Supply Co., 215 Ga. App. 818, 452 S.E.2d 784 (1994).

The claim of lien must be filed within three months from the date on which the lien claimant completed delivery of the lienable items. Levy v. GEC Corporation, 117 Ga. App. 673, 161 S.E.2d 339 (1968).

The three-month period runs from the date that the last lienable labor or material was furnished by the lien claimant, and the lien is not lost if some of the labor or material was furnished more than three months prior to the filing of the lien. Pippin v. Owens, 29 Ga. App. 789, 116 S.E. 549 (1922).

Note that this three-month period does not run from the invoice date, which may be either before or after the date of delivery.

If a contractor takes over and completes the work of a subcontractor, then the last day of work on the subcontractor's contract is the date from which the three-month period must run. Southwire Co. v. Metal Equipment Co., 129 Ga. App. 49, 198 S.E.2d 687 (1973).

A lien filed within three months after the furnishing of materials which were refused, returned to the supplier, and not used in the construction is untimely. Downtowner of Atlanta, Inc. v. Dunham-Bush, Inc., 120 Ga. App. 342, 170 S.E.2d 590 (1969).

A lien filed before work was completed rather than within three months after completion of the work is premature and invalid. Gellis v. B.L.I. Construction Company, 148 Ga. App. 527, 251 S.E.2d 800 (1978); Yates Paving & Grading Co., Inc. v. Waters, 181 Ga. App. 537, 352 S.E.2d 791 (1987). A lien claim must be filed within three months after the completion of the work, and for this reason a premature lien is not effective. Tri-City Construction Company, Inc. v. Sandy Plains Partnership, 206 Ga. App. 506, 426 S.E.2d 57 (1992).

The appellate courts of Georgia have not defined or devised a test to ascertain exactly what "completion" or "furnished" means, in terms of the fulfillment of the obligations under a contract. Accordingly, a jury issue is presented concerning whether minor work performed after the filing of the lien would make the lien premature under the foregoing cases and summary judgment on this issue is inappropriate. Troup Enterprises v. Mitchell, Carrington & Rayfield, Inc., 199 Ga. App. 173, 404 S.E.2d 337 (1991).

The three-month period for filing a lien cannot be excused, relaxed, or extended by the parties. Matter of Grubbs, 9 B.R. 499 (M.D. Ga. 1981).

j. Where to File and Record.

The lien claim must be filed and recorded in the office of the clerk of the superior court of the county where the property is located. O.C.G.A. § 44-14-361.1(a)(2). Calhoun Brick Co. v. Pattillo Lumber Co., 10 Ga. App. 181, 73 S.E. 23 (1911).

k. Notice to Owner.

Effective July 1, 1991, at the time of filing for record of the claim of lien, the lien claimant must send a copy of the claim of lien by registered or certified mail to the owner of the property or the contractor, as the agent of the owner. O.C.G.A. § 44-14-361.1(a)(2).

Personal service of the lien on the owner as an attachment to the general contractor's lien perfection complaint is sufficient to meet this requirement. Grubb v. Woodglenn Properties, Inc., 220 Ga. App. 902, 470 S.E.2d 455 (1996).

Before the 1991 amendment, there was no requirement to give notice or make other demand on the owner prior to seeking enforcement of a lien. Chandler v. Pennington, 89 Ga. App. 676, 80 S.E.2d 843 (1954); Hill v. Dealers Supply Co., Inc., 103 Ga. App. 846, 120 S.E.2d 879 (1961).

Even after the amendment, there is no necessity to file a lis pendens notice against the liened property. Grand Atlanta Corporation v. Chenggis, 142 Ga. App. 375, 235 S.E.2d 779 (1977).

l. Filing of Bankruptcy.

The filing of bankruptcy by the owner or general contractor does not bar a claimant from filing a claim of lien. 11 U.S.C. § 362(b)(3); Matter of Marietta Baptist Tabernacle, Inc., 576 F.2d 1237 (5th Cir. 1978).

8. Amendment of Liens.

A lien may be amended within the three-month period after the last date labor or materials were furnished, but not beyond that time. Shirah Contracting Co., Inc. v. Waite, 143 Ga. App. 355, 238 S.E.2d 728 (1977); Tri-City Construction Company, Inc. v. Sandy Plains Partnership, 206 Ga. App. 426 S.E.2d 57 (1992). See Annot. 81 A.L.R.2d 681 (1962).

Amendment of a lien is to be distinguished from the amendment of a complaint to perfect a lien, which may be freely amended in accordance with O.C.G.A. § 9-11-15(c). Coe & Payne Co. v. Foster & Kleiser, 258 Ga. 161, 366 S.E.2d 292 (1988).

The priority of a second or amended lien, or a partially satisfied lien, filed on the same property by the same claimant dates from the time work commenced under the claimant's contract. Gellis v. B.L.I. Construction Co., Inc., 148 Ga. App. 527, 251 S.E.2d 800 (1978).

The filing of amended pleadings in a lien perfection action with allegations which are at variance with statements made in the claim of lien does not constitute an amendment of the claim of lien. Linco Construction Company, Inc. v. Tri-City Concete, Inc., 161 Ga. App. 174, 288 S.E.2d 125 (1982).

9. Priority of Lien.

a. Attachment.

A lien created under the Georgia Mechanic's Lien Statute "attaches" to the real estate for which the labor, services, or materials were furnished. As indicated in section four of this outline, the lien does not attach to the real estate unless the labor, services, or materials were provided at the "instance" (that is to say, at the request) of either: (1) the owner of the real estate; (2) a contractor having privity of contract with the owner of the real estate; or (3) some person acting for the owner or contractor. O.C.G.A. § 44-14-361(b).

When does the lien attach? The lien statute itself is silent on this issue, but the statute has been interpreted to mean that the lien attaches from the time the work under the contract commences, provided that the lien claimant fully "complies with the requirements of the lien statute." Oglethorpe Savings and Trust Co. v. Morgan, 149 Ga. 787, 102 S.E. 528 (1919). According to that court, the performance of work or furnishing of materials creates an "inchoate" lien or right to acquire a lien which must then be perfected by following the steps set out in the statute.

Likewise, the earliest date that the lien of a material supplier attaches to the property is the date that the material supplier actually commences, under the contract, to deliver material. Picklesimer v. Smith, 164 Ga. 600, 139 S.E. 72 (1927); Gamble v. Pilcher, 242 Ga. 556, 250 S.E.2d 416 (1978). The lien does not attach from the date the material supplier entered into a contract with the owner to supply the material. Marbut-Williams Lumber Co. v. Dixie Electric Co., 166 Ga. 42, 142 S.E. 270 (1927).

Without explanation, one court has added the additional proviso that the lien attaches when "the material becomes part of the realty," which may or may not be the same date the material is delivered to the project. Home Mart Building Centers, Inc. v. Wallace, 144 Ga. App. 19, 240 S.E.2d 582 (1977).

After the lien attaches to property owned by a bank, the attachment of the lien is not divested by virtue of the fact that the bank is subsequently placed in liquidation. Davis v. Stone, 48 Ga. App. 532, 173 S.E. 454 (1933).

Likewise, a lien filed after a debtor declares bankruptcy nevertheless attaches to the debtor's property and relates back to the time work under the contract commenced, provided that the lien is then properly perfected. Marietta Baptist Tabernacle, 576 F.2d 1237 (N.D. Ga. 1978).

The failure to obtain a building permit prior to starting work on a construction project will not preclude the lien from attaching from the beginning of the work under the contract. Gellis v. B.L.I. Construction Co., 148 Ga. App. 527, 251 S.E.2d 800 (1978).

Conduct such as flagging, clearing, grading, and leveling operations, erection of batter boards, excavation of footings, and pouring concrete are sufficient to evidence the commencement of work and to authorize the attachment of the lien. Gellis v. B.L.I. Construction Company, 148 Ga. App. 527, 251 S.E.2d 800 (1978). See Annot., 1 A.L.R.3d 822 (1965).

An exception to the foregoing rules applies where the lien claimant starts work for an owner prior to the date that the owner acquires an interest in the property. In that case, the lien attaches only from the date that the owner acquires title or interest to the property and not from the time the lien claimant commences work under the contract. Murray v. Chulak, 250 Ga. 765, 300 S.E.2d 493 (1983).

k. Bona Fide Purchaser.

A lien is not valid against a bona fide purchaser until notice of the claim of lien has been recorded. A bona fide purchaser of title to real estate who buys without notice of an inchoate lien (that is, a lien which had not yet been filed of record or foreclosed) takes the property free and clear of the lien. Ashmore v. Whatley, 99 Ga. 150, 24 S.E. 941 (1896). See Annot., 33 A.L.R.4th 1017 (1984); 76 A.L.R.2d 1163 (1961).

The mere fact that the bona fide purchaser was on notice that materials and supplies were being delivered to the building site is not enough to bind the purchaser with the lien. Dwight v. Acme Lumber & Supply Co., 183 Ga. 139, 187 S.E. 668 (1936). The mere fact that delivery and installation of materials occurred three or four weeks prior to the recordation of the deed does not demand a finding that the purchasers should have known of unpaid bills which could give rise to a lien. Glover Linoleum & Carpet Co., Inc. v. Tutterow, 160 Ga. App. 410, 287 S.E.2d 348 (1981). Mere knowledge that improvements are being made will not bind the interest of the bona fide purchaser absent express or implied consent or some action which would lead to an estoppel. Bryant v. Ellenburg, 106 Ga. App. 510, 127 S.E.2d 468 (1962).

Where, however, the purchaser of the real estate consents to and cooperates in the improving of property which is subject to an executory contract of sale, then the purchaser of the property takes the property subject to the lien even though the lien is filed after the warranty deed is recorded. West Lumber Company v. Gignilliat, 77 Ga. App. 336, 48 S.E.2d 688 (1948). See Annot., 50 A.L.R.2d 944 (1973). This exception is intended to benefit lien claimants who are supplying labor or materials to a builder who at the time already has entered into a contract to sell the improved property. A common example is the sale of custom-built residential real estate. See Williams v. Brewton, 170 Ga. 164, 152 S.E. 441 (1929); Georgia State Savings Association v. Wilson, 189 Ga. 21, 5 S.E.2d 14 (1939).

Likewise, where a developer conveys a deed to a purchaser and takes back a security deed containing an agreement by the purchaser to improve the lots, the lien for labor and materials to improve the lots is superior to the developer's security deed, although it is inferior to the deed of a secured lender who provided the construction funds for the improvements. Mitchell v. West End Park Company, 171 Ga. 878, 156 S.E. 888 (1930).

l. Competing Liens.

In contrast to the priority established as to third parties, as between themselves, liens rank according to the date filed except that liens for repairs, building or furnishing materials or services upon the same property are treated together as a class assuming that they are properly and timely filed. O.C.G.A. § 44-14-361.1(b).

A lien which is recorded and reduced to judgment before the liens of other claimants is, for this reason, not entitled to priority over other liens filed on the same property. All liens for labor or materials furnished to improve the same property which are properly recorded and perfected have equal dignity. Picklesimer v. Smith, 164 Ga. 600, 139 S.E. 72 (1927).

m. Security Deeds.

The priority of a lien versus the priority of a security deed often is the critical component in determining whether a lien claimant will be paid. Lenders are very concerned that the security deed on the affected property have first priority so that the deed may be foreclosed if the owner of the property defaults. If there is any question about the relative priority of a lien versus the lender's security deed, the lender normally will insist that the lien be removed or bonded off of the property.

The date of attachment of the lien thus is crucial in determining the priority of claims against the improved property. Foreclosure of a superior lien divests the lien claimant of any rights against the property. Bryant v. Ellenburg, 106 Ga. App. 510, 127 S.E.2d 468 (1962). Englehart-Hitchcock Co. v Central Investment Co., 136 Ga. 564, 71 S.E. 787 (1911).

If, however, there are excess proceeds from the sale of the property by a senior lienholder, the junior lienholder will have a claim against the surplus proceeds. East Atlanta Bank v. Limbert, 191 Ga. 486, 12 S.E.2d 865 (1941).

Although a lien claimant is entitled to obtain a judgment foreclosing its lien, it cannot enforce a lien by levy and sale until any prior security deed is satisfied. O.C.G.A. § 39-13-60. Bowen v. Kicklighter, 124 Ga. App. 82, 183 S.E.2d 10 (1971).

When does a security deed attach to real estate? What is its priority compared to that of a mechanic's lien? The answer to these questions depends upon how and under what circumstances the lender acquired the security deed. The answer also depends upon when and under what circumstances the lien claim arises and is filed.

If the lender obtains a security deed from a bona fide purchaser for value, without notice of the inchoate lien, and records the security deed prior to the filing of the lien, then the priority of the secured lender is superior to the lien claim. Ashmore v. Whatley, 99 Ga. 150, 24 S.E. 941 (1896); Bennett Lumber Company v. Martin, 132 Ga. 491, 64 S.E. 484 (1909); Willingham-Tift Lumber Co. v. Barnes, 147 Ga. 209, 93 S.E. 201 (1917); Dwight v. Acme Lumber and Supply Company, 186 Ga. 825, 199 S.E. 178 (1938); Georgia State Savings Association v. Wilson, 189 Ga. 21, 5 S.E.2d 14 (1939); Rutland Contracting Co. v. Sallie E. Gay Estate, 193 Ga. 468, 18 S.E.2d 835 (1942); Bryant v. Ellenburg, 106 Ga. App. 510, 127 S.E.2d 468 (1962); Builders Supply Company, Inc. v. Pilgrim, 115 Ga. App. 85, 153 S.E.2d 657 (1967). See 80 A.L.R.2d 179 (1962).

Where it affirmatively appears that the security deed was taken for valuable consideration, and there is nothing to show actual knowledge to the grantee, or knowledge of any fact sufficient to put him upon inquiry as to the existence of the materialman's lien, a presumption arises that the secured lender has no notice of the inchoate lien claim. Milner v. Wellhouse, 148 Ga. 275, 96 S.E. 566 (1918); Georgia State Savings Association v. Wilson, 189 Ga. 21, 5 S.E.2d 14 (1939).

The lender does not waive its secured position by placing language in the security deed indicating that the lender is aware that improvements are to be made on the property. Harris v. Parham, 213 Ga. 725, 101 S.E.2d 722 (1958). Compare West Lumber Company v. Gignilliat, 77 Ga. App. 336, 48 S.E.2d 688 (1948).

Likewise, the lender does not lose its secured position by failing to disburse the loan proceeds in a single lump sum. Picklesimer v. Smith, 164 Ga. 600, 139 S.E. 72 (1927); Caldwell v. Northwest Atlanta Bank, 194 Ga. 370, 21 S.E.2d 619 (1942).

What if the security deed is unrecorded? O.C.G.A. § 44-2-2 requires security deeds to be recorded and states that the security deed takes effect only from the time it is recorded. Accordingly, where the lender does not properly record its security deed before receiving actual or constructive notice of the lien claim, then the lender takes the property subject to the lien claims. Palmer v. Forrest, Mackey & Associates, Inc., 251 Ga. 304, 304 S.E.2d 704 (1983). See Caldwell v. Northwest Atlanta Bank, 194 Ga. 370, 21 S.E.2d 619 (1942).

If the secured lender does, however, have actual notice of the claim of lien at the time before executing the security deed, then the priority of the secured lender is lost, even if the lien is filed and perfected after the security deed is filed. Under these circumstances, the actual notice of the lien claim prevents the lender from occupying the preferred position of a "bona fide purchaser without knowledge." Oglethorpe Savings and Trust Company v. Morgan, 149 Ga. 787, 102 S.E. 528 (1919); Wager v. Carrollton Bank, 156 Ga. 783, 120 S.E. 116 (1923); Old Stone Mortgage & Realty Trust v. New Georgia Plumbing, Inc., 140 Ga. App. 686, 231 S.E.2d 785 (1976).

What constitutes "actual notice"? Actual notice is such notice as is positively proved to have been given directly and personally, or such as is presumed to have been received personally because the knowledge was sufficient to put the lender on inquiry. Picklesimer v. Smith, 164 Ga. 600, 139 S.E. 72 (1927).

The mere fact that the lender knows that construction is underway on the project and that the owner is procuring material for this construction is not enough to prove that the lender was on actual notice that these purchases were made on credit and thus could give rise to a lien. Picklesimer v. Smith, 164 Ga. 600, 139 S.E. 72 (1927); Georgia State Savings Association v. Wilson, 189 Ga. 21, 5 S.E.2d 14 (1939). Because the mere furnishing of materials does not rise to the level of notice to the lender of the lienable nature of the materials, on a trial of such matters it is not error to exclude evidence of the custom and practice of lenders with respect to the ascertainment of whether materials used in the improvement of realty had been paid for before releasing the security by quitclaim deed. West Lumber Co. v. McPherson, 173 Ga. 53, 159 S.E. 868 (1931).

Testimony that clearing, grading and leveling operations were in progress, batter boards had been erected, lumber delivered, and the property had been flagged does, however, raise a jury issue concerning whether the lender has received actual notice of the contractor's inchoate lien. Gellis v. B.L.I. Construction Co., 148 Ga. App. 527, 251 S.E.2d 800 (1978).

Knowledge obtained by corporate officers acting in their individual or private capacities is not necessarily imputable to the corporation. Guaranty Investment and Loan Company v. Athens Engineering Co., 152 Ga. 596, 110 S.E. 873 (1921).

An officer's knowledge of delivery of material to the site does not constitute implied actual notice to the lender of the claimant's lien rights. Caldwell v. Northwest Atlanta Bank, 194 Ga. 370, 21 S.E.2d 619 (1942).

A lender has "constructive notice" of a lien claim which has been filed of record. Oglethorpe Savings and Trust Company v. Morgan, 149 Ga. 787, 102 S.E. 528 (1919).

Likewise, a lien claimant has constructive notice of the superior claim of a secured lender if that security deed is recorded prior to the commencement of the lien claimant's contract. Picklesimer v. Smith, 164 Ga. 600, 139 S.E. 72 (1927).

The lender also may be bound where the lender consents to the making of the improvements, either expressly or impliedly. Williams v. Brewton, 170 Ga. 164, 152 S.E. 441 (1929); West Lumber Co. v. Gignilliat, 77 Ga. App. 336, 48 S.E.2d 688 (1948); Old Stone Mortgage & Realty Trust v. New Georgia Plumbing, Inc., 140 Ga. App. 686, 231 S.E.2d 785 (1976).

The lender also may lose its priority by conduct misleading the lien claimants as to ownership of the property, or otherwise, thus giving rise to an estoppel. Elmore v. Southern Bank & Trust Co., 28 Ga. App. 72, 110 S.E. 334 (1921). See Rice v. Warren, 91 Ga. 759, 17 S.E. 1032 (1983); Mitchell v. West End Park Co., 171 Ga. 878, 156 S.E. 888 (1930).

O.C.G.A. § 44-14-361.1(c) makes a mechanic's lien "superior to all other liens not excepted by this subsection." This has been held to mean that mortgage liens are inferior liens to mechanic's liens. Tanner v. Bell, 61 Ga. 585 (1878). It should be noted that virtually all modern secured loans made in Georgia are secured by a deed to secure debt and not a mortgage.

n. Tax Liens.

The mechanic's lien is inferior to liens for taxes, laborer's liens, and certain other specialized liens. O.C.G.A. § 44-14-361.1(c). The relative priority of a federal tax lien is addressed in Aquilino v. United States, 363 U.S. 509, 4 L.Ed.2d 1365, 80 S.Ct. 1277 (1960). See Treas. Reg. § 301.7425-4 (1976).

10. Perfecting a Lien.

a. Time Requirements.

Suit must be filed against the person primarily liable to the lien claimant to perfect a mechanic's lien within twelve months from the time the claim became due. O.C.G.A. § 44-14-361.1(a)(3). Chandler v. Pennington, 89 Ga. App. 676, 80 S.E.2d 843 (1954); The Jordan Company v. Adkins, 105 Ga. App. 157, 123 S.E.2d 731 (1961).

If this expiration date falls on a Saturday, Sunday, or a holiday this period is not extended until the next business day. Newton Lumber & Supply, Inc. v. Crumbley, 61 Ga. App. 741, 290 S.E.2d 114 (1982).

The bankruptcy of the lien claimant does not stay the obligation to file suit within 12 months from the date the claim of lien became due. This requirement is a condition precedent to the enforcement of the substantive right to claim the lien, and is not tolled by the provisions of § 11(e) of the federal Bankruptcy Code, 11 U.S.C. § 29(e). Lee v. Stokes, 135 Ga. App. 642, 218 S.E.2d 654 (1975).

b. Jurisdiction & Venue.

A suit to perfect a lien should be brought in the county where the defendant resides. Builders Supply Company v. Hobbs, 169 Ga. 777, 151 S.E. 485 (1930).

United States district courts also have subject matter jurisdiction over lien perfection actions. Lenox Hotel Company v. Charter Builders, Inc., 717 F. Supp. 1558 (N.D. Ga. 1989); Consulting Engineers Group, Inc. v. Pace Construction, 613 F.Supp. 1192 (N.D. Ga. 1985). United States district courts also have jurisdiction over lien enforcement actions removed from state court. O'Callaghan Company v. Schmincke, 376 F.Supp. 1361 (N.D. Ga. 1974).

o. Proper Parties.

The lien perfection suit must be filed against a person with whom the debt was contracted, specifically, the party "primarily liable" to the lien claimant. Bryant v. Jones, 90 Ga. App. 314, 83 S.E.2d 46 (1954); The Jordan Company v. Adkins, 105 Ga. App. 157, 123 S.E.2d 731 (1961).

Failure to name the correct defendant may void the lien. Tri-State Culvert Manufacturing, Inc. v. Crum, 139 Ga. App. 448, 228 S.E.2d 403 (1976); D. H. Overmeyer Warehouse Company v. W. C. Caye Company, 116 Ga. App. 128, 157 S.E.2d 68 (1967).

This showing requires proof of a contractual relationship between the owner and the person to whom the materials were furnished, or else no enforceable lien is created against the owner's property. Liggett v. Harper, 151 Ga. App. 616, 260 S.E.2d 735 (1979); D & N Electric, Inc. v. Underground Festival, Inc., 202 Ga. App. 435, 414 S.E.2d 891 (1991).

Prior to filing the lien perfection suit, it is good practice to determine whether a lien bond has been posted by the owner which "bonds off" the lien. If a lien bond has been posted, then the surety on the bond can and should be named as a party in the suit. The special issues raised by lien bonds are addressed more fully elsewhere.

p. Sworn Notice of Commencement.

In order for a lien to be effective and enforceable, a notice of commencement must be filed in the manner set out in O.C.G.A. § 44-14-361.1(a).

Within 14 days after filing an action for the recovery of the amount of the lien claim, the claimant must file a sworn notice of commencement with the Clerk of the Superior Court of the county where the lien was filed. O.C.G.A. §§ 44-14-361.1(a)(3) and 44-14-361.1(a)(4). This 14-day notice requirement was added to the lien statute effective July 1, 1991. [Cases permitting a longer time to file the notice of commencement obviously have been mooted by the amended statute. See, e.g., American Hospital Supply Company v. Starline Manufacturing Company, 171 Ga. App. 790, 320 S.E.2d 857 (1984); Abacus, Inc. v. Hebron Baptist Church, Inc., 201 Ga. App. 376, 411 S.E.2d 113 (1991).]

The notice must contain a caption referring to the owner of the property against which the lien was filed and referring to a deed or other recorded instrument in the chain of title of the affected property. The notice must identify the court in which the action is brought, the style and number of the action, the names of the parties to the action, the date of the filing of the action, and the book and page number of the records in the county where the lien was recorded. O.C.G.A. § 44-14-361.1(a)(3) and 44-14-361.1(a)(4).

Filing the notice is a prerequisite to enforcement of a lien, and the failure to file the statutory notice renders the lien unenforceable and permits summary judgment to be taken against the lien claimant. Frank Woods Construction Co., Inc. v. Randi, 177 Ga. App. 438, 339 S.E.2d 406 (1986); Eurostyle, Inc. v. Jones, 197 Ga. App. 188, 397 S.E.2d 620 (1990); Consolidated Systems, Inc. v. AMISUB, 261 Ga. 590, 408 S.E.2d 109 (1991); Metromont Materials Corporation v. Cargill, Inc., 221 Ga. App. 853, 473 S.E.2d 498 (1996).

Failure to file the notice of commencement at the time the lien claimant originally files suit to perfect the lien causes the lien claimant to lose all right to a lien from that point forward, even if the contractor subsequently absconds or declares bankruptcy. Palmer v. Duncan Wholesale, Inc., 262 Ga. 28, 413 S.E.2d 437 (1992). Normally in that situation the lien claimant could take advantage of the provisions of O.C.G.A. § 44-14-361.1(a)(4) which permits the lien claimant to proceed directly against property of the owner. Compare Noland Co. v. Ford Motor Co., 258 Ga. 469, 369 S.E.2d 742 (1988)(where lien claimant had not yet filed suit to perfect its lien when the general contractor declares bankruptcy, then lien claimant may proceed directly against property pursuant to O.C.G.A. § 44-14-361.1(a)(4)).

Failure to timely file the notice of commencement at the time of the filing of the original lien perfection action causes the lien to be lost forever. The lien claimant is not permitted to voluntarily dismiss its original action without prejudice, then re-file the action accompanied by a notice of commencement. Metromont Materials Corporation v. Cargill, Inc., 221 Ga. App. 853, 473 S.E.2d 498 (1996).

Failure to file a notice of commencement in the county where the property is located also is a fatal defect. Bettis v. McClure, 160 Ga. App. 412, 287 S.E.2d 291 (1981); Statham Machinery & Equipment Co., Inc. v. Howard Construction Co., Inc., 160 Ga. App. 466, 287 S.E.2d 249 (1981); Hancor, Inc. v. Fleming Farms, 155 Ga. App. 579, 271 S.E.2d 712 (1980). [The exception to the requirement to file a notice of commencement for actions which were filed in the same county where the property is located was eliminated from the lien statute in 1983, and the cases decided before that amendment was adopted are no longer good law. Eurostyle, Inc. v. Jones, 197 Ga. App. 188, 397 S.E.2d 620 (1990)(Pope, concurring). See, e.g,, Statham Machinery & Equipment Company, Inc. v. Howard Construction Company, 160 Ga. App. 466, 287 S.E.2d 249 (1981).]

In addition, the failure to execute the notice of commencement under oath is a fatal defect. Allied Electric Contractors, Inc. v. Kern & Company, Inc., 184 Ga. App. 747, 362 S.E.2d 452 (1987).

Under a former statute, there was no requirement to file a notice of commencement for actions commenced under O.C.G.A. § 44-14-361.1(a)(4). See Noland Company v. Ford Motor Company, 258 Ga. 469, 369 S.E.2d 910 (1988). A 1989 amendment to the lien statute eliminated this exception and required that the notice be filed for all actions, even those filed under O.C.G.A. § 44-14-361.1(a)(4).

Under current law, a sworn notice of commencement for actions filed under this section must be filed with the Clerk of the Superior Court in the county where the property is located within 14 days after the filing of the action, in the same manner as required for any other type of lien perfection suit.

Where the owner's property has been released from the lien by the filing of a lien bond, there is no necessity for filing the notice of commencement required by O.C.G.A. § 44-14-361.1(a)(3). Where a lien bond is filed, the property is released from the lien and the filing of the sworn notice of commencement serves no purpose. Accordingly, the failure to file the notice is not a bar to recovery against the lien bond surety. Burgess v. Travelers Indemnity Company, 185 Ga. App. 82, 363 S.E.2d 308 (1987); All Phase Electric Supply Company v. Foster & Cooper, Inc., 193 Ga. App. 232, 387 S.E.2d 429 (1989); Hardee v. Spivey, 193 Ga. App. 234, 387 S.E.2d 430 (1989).

q. Arbitration.

Where an arbitration clause exists in the lien claimant's contract, the filing of a demand for arbitration should not be considered sufficient to satisfy the requirements of the mechanic's lien law.

The better practice is to follow the filing of a demand for arbitration with the filing of a lien perfection suit, while noting in the complaint that the dispute is subject to an arbitration agreement and that a demand for arbitration has been filed in accordance with that clause. The lien claimant then may seek to stay the litigation pending the outcome of the arbitration.

Where a stay is granted in a joint suit against the owner and the general contractor, the judgment is not final until the arbitration award is confirmed as the judgment of the court and all other matters before the court, such as the liability of the owner on the claim of lien, are fully adjudicated. Marthame Sanders & Company v. Buckhead Electric Company, Inc., 198 Ga. App. 359, 401 S.E.2d 359 (1991).

r. Abandonment.

In the event the contractor or subcontractor to whom the lien claimant has supplied lienable items has absconded, died, or left the state so that personal jurisdiction cannot be obtained, then the lien claimant is relieved of the necessity of filing action or obtaining judgment against the contractor or subcontractor as a prerequisite to a direct enforcement of the lien against the improved property. O.C.G.A. § 44-14-361.1(a)(4).

In that event, the lien claimant may enforce the lien directly against the improved property in an action against the owner if it is filed within twelve months from the time that the lien becomes due. Id.

The lien claimant must establish that the contractor or subcontractor has in fact absconded or died, and this issue is ordinarily a question of fact for the jury. Weathers v. Modern Masonry Materials, Inc., 105 Ga. App. 736, 125 S.E.2d 532 (1962).

It is not necessary to show that the contractor is insolvent or has insufficient assets within the jurisdiction of the court in order to obtain a lien. Levin v. O'Neill Manufacturing Company, 96 Ga. App. 43, 99 S.E.2d 343 (1957).

s. Termination.

Where the contractor abandons his contract or is properly terminated by the owner for default, the cost of completing the work by the owner is ordinarily deducted from the contract price in order to ascertain the amount left against which contractors may claim liens. If these deductions, together with payments previously made to the contractor, equal or exceed the entire contract price, then the subcontractors and materialmen have no lien on the grounds that there is nothing due from the owner under the contract. Hunnicutt v. Bellingrath Company v. Van Hoose, 111 Ga. 518, 36 S.E. 669 (1900); Rowell v. Harris, 121 Ga. 239, 48 S.E. 948 (1904); Prince v. Neal-Mallard Company, 124 Ga. 884, 53 S.E. 761 (1906); Young v. Harley-Mitchell Hardware Company, 173 Ga. 35, 159 S.E. 567 (1931); E. Smith Heating & Air Conditioning, Inc. v. Biggers, 139 Ga. App. 216, 228 S.E.2d 203 (1976).

h. The Contractor Who Dies, Bankrupts, Absconds, or Departs from State and Pay-When-Paid Clauses.

What happens if the contractor or subcontractor procuring labor, services or materials dies, bankrupts, absconds, or departs from the State of Georgia, so that personal jurisdiction may not be obtained against the procuring contractor? What happens if there is a pay-when-paid clause which prevents suit against the upstream contractor or subcontractor? In that event the lien claimant may proceed to perfect its lien directly against the property of the owner pursuant to O.C.G.A. § 44-14-361.1(a)(4).

An excellent history of this statute is contained in Melton v. Pacific Southern Mortgage Trust, 241 Ga. 589, 247 S.E.2d 76 (1978). The first version of this statute appeared as § 1975(3) of the Code of 1863. This Code provision required that a judgment be obtained by the lien claimant against the contractor and if one could not be obtained due to the contractor's bankruptcy, then the lien was defeated. See Pike Brothers Lumber Co. v. Mitchell, 132 Ga. 675, 64 S.E. 998 (1909).

This harsh statute was amended by the General Assembly in 1941 (Ga. L. 1941, pp. 345, 346-7) to provide that where the bankruptcy of the contractor intervened, then the lien claimant was relieved of the necessity of obtaining judgment against the contractor. This amendment did not, however, relieve the lien claimant of the obligation to commence an action against the contractor. Where the contractor was not sued prior to the filing of the bankruptcy petition, the lien claimant was still deprived of a remedy. See Victory Lumber Company v. Ellison, 95 Ga. App. 105, 97 S.E.2d 334 (1957).

The statute was amended again in 1960 (Ga. L. 1960, p. 103) to eliminate the requirement that the lien claimant file suit against the debtor before the debtor's adjudication in bankruptcy. See Taylor v. Mateer & Co., Inc., 117 Ga. App. 565, 161 S.E.2d 394 (1968).

In 1968, the statute was again amended (Ga. L. 1968, pp. 317, 318-319) to eliminate the necessity of filing suit against the bankrupt contractor and to require that suit be filed against the property within 12 months from the time the claim became due.

The leading case interpreting this section of the lien law is Cowart v. Reeves, 80 Ga. App. 161, 55 S.E.2d 911 (1949). That case held that where the contractor removes himself from the jurisdiction of the court, the lien claimant may immediately proceed against the owner's property, regardless of whether the contractor subsequently returns to the State of Georgia. Otherwise, the court observed, a lien claimant would have to wait until near the end of the 12-month period allowed for filing suit to perfect the lien in order to determine whether or not the contractor would return to the jurisdiction of the court. The court also noted that the owner has the responsibility of doing business with reliable contractors, and if he does not, then he runs the risk of subjecting his property to mechanics' liens.

The statute permits only an action in rem against the owner's property, and does not permit an action in personam against the owner individually. In other words, the lien claimant must look solely to the owner's property to satisfy any lien judgment obtained pursuant to this provision of the lien law, and may not proceed to collect the judgment from other assets or property of the owner.

Under the current statute, the contractor is expressly relieved of the necessity of filing an action against the contractor or subcontractor as a prerequisite to enforcing a lien against the improved property. O.C.G.A. § 44-14-361.1(a)(4).

Filing a proof of claim in the debtor's bankruptcy proceeding within 12 months of the time the claim became due satisfies the requirement that the lien claimant "commence an action for the recovery of the amount of his claim" under O.C.G.A. § 44-14-361.1(a)(4). Melton v. Pacific Southern Mortgage Trust, 241 Ga. 589, 247 S.E.2d 76 (1978); Newton Lumber & Supply, Inc. v. Crumbley, 116 Ga. App. 741, 290 S.E.2d 114 (1982); Galbreath v, Vondenkamp, 197 Ga. App. 284, 398 S.E.2d 278 (1990); In re Village Centers, 80 B.R. 574 (N.D. Ga. 1987). The statute permits the lien claimant to file a claim in bankruptcy and also to proceed directly against the property of the owner, provided that filings are made within the 12-month statutory period. Underground Festival, Inc. v. McAfee Engineering Company, 214 Ga. App. 243, 447 S.E.2d 683 (1994).

In a proceeding filed directly against the property of the owner due to the bankruptcy of the general contractor pursuant to O.C.G.A. § 44-14-361.1(a)(4), the suit against the property of the owner is not barred if the action is instituted more than one year after the date of the contractor's last work on the project, provided that the contractor has filed suit against the contractor or subcontractor within the 12-month period, or has filed a proof of claim in the bankruptcy proceeding within the 12-month period. Galbreath v. Vondenkamp, 197 Ga. App. 284, 398 S.E.2d 278 (1990).

Note, however, that the mere filing of the bankruptcy claim does not satisfy the statutory requirement of filing of a notice of commencement of an action to perfect the claim of lien. Where such a notice is not properly filed, the claimant's lien is lost. Newton Lumber & Supply, Inc. v. Crumbley, 116 Ga. App. 741, 290 S.E.2d 114 (1982); Galbreath, supra.

The failure to file a notice of commencement at the time the lien claimant originally files suit to perfect the lien causes the lien claimant to lose all right to a lien from that point forward, even if the contractor subsequently declares bankruptcy. Palmer v. Duncan Wholesale, Inc., 262 Ga. 28, 413 S.E.2d 437 (1992).

Where lien claimant had not yet filed suit to perfect its lien when the general contractor declares bankruptcy, then the lien claimant may proceed directly against property pursuant to O.C.G.A. § 44-14-361.1(a)(4) without complying with the notice provisions of O.C.G.A. § 44-14-361.1(a)(3). Noland Co. v. Ford Motor Co., 258 Ga. 469, 369 S.E.2d 742 (1988).

Note that after Noland was decided, the lien statute was amended to add a provision requiring the lien claimant file a notice of commencement even for all lien perfection actions, including those filed under O.C.G.A. §44-14-361.1(a)(4).

An action commenced under this section may be amended to change the party or correct a misnomer of the original party against whom the complaint was filed, pursuant to O.C.G.A. § 9-11-15, provided that the party to be brought in has received notice of the institution of the action such that he will not be prejudice in maintaining a defense on the merits, and knew or should have known that but for a mistake concerning the identity of the proper party the action would have been brought against him. Coe & Payne Company v. Foster & Kleiser, Inc., 258 Ga. 161, 366 S.E.2d 292 (1988); Sam Finley, Inc. v. Interstate Fire Insurance Company, 135 Ga. App. 14, 217 S.E.2d 358 (1975).

Effective July 1, 1997, an amendment to O.C.G.A. § 44-14-361.1(a)(4) permits the lien claimant to forego a lien perfection suit when the contract between the party claiming the lien and contractor or subcontractor includes a provision preventing payment by the claimant until after the contractor or subcontractor has received payment.

Although there apparently are no reported decision in which a lien claimant has been denied a recovery based on a "pay-when-paid" clause, such clauses can be used to defeat a lien perfection suit based on the fact that no payment is due to the lien claimant unless and until the contractor or subcontractor has received payment. Pay when-paid-clauses are routinely enforced in Georgia. See Peacock Construction Company v. A.M. West, 111 Ga. App. 604, 142 S.E.2d 332 (1965); Sasser & Company v. Griffin, 133 Ga. App. 83, 210 S.E.2d 34 (1974).

t. Substantial Compliance.

Under Georgia law, substantial compliance by the party claiming the lien with his contract is necessary in order to perfect a lien. O.C.G.A. § 44-14-361.1(a)(1). Jones v. Ely, 95 Ga. App. 4, 96 S.E.2d 536 (1957); MacLeod v. Belvedale, Inc., 115 Ga. App. 444, 154 S.E.2d 756 (1966); Spicewood, Inc. v. Ferro Pipeline Company, Inc., 181 Ga. App. 277, 351 S.E.2d 711 (1987); Kelly v. Pierce Roofing Company, Inc., 220 Ga. App. 391, 469 S.E.2d 469 (1996).

A supplier's default judgment against the prime contractor in a lien perfection suit is prima facie evidence of substantial compliance with its contract, and if the owner does not come forward with affirmative evidence giving rise to a triable issue, then the supplier is entitled to summary judgment. Kelly v. Pierce Roofing Company, Inc., 220 Ga. App. 391, 469 S.E.2d 469 (1996)

Where part of the lien claimant's work is faulty or defective, the owner is nevertheless liable to the lien claimant to the extent of the reasonable value of the improvement to the owner and a lien may be filed against the property for this amount. McCrary v. Barberi, 100 Ga. App. 167, 110 S.E.2d 426 (1959).

Where conflicting evidence is produced by the general contractor and a subcontractor concerning whether the work of the subcontractor has been substantially completed in a workmanlike manner, or whether it was completed in a faulty or defective manner, then a jury issue is presented and the case is not appropriate for summary judgment. Troup Enterprises v. Mitchell, Carrington & Rayfield, Inc., 199 Ga. App. 173, 404 S.E.2d 337 (1991).

Where there is no substantial compliance by the party claiming the lien with his contract, then the lien claim is rendered ineffective against the property owner. J. H. Morris Building Supplies v. Brown, 245 Ga. 178, 264 S.E.2d 9 (1980).

A contractor is not entitled to claim a lien where he stops work on the grounds of mere apprehension or fear that he would not be paid. Rome Hotel Company v. Warlick, Wingate & Mell, 87 Ga. 34, 13 S.E. 116 (1891)(holding that the contractor may still recover a judgment in quantum meruit for the value of the labor and materials provided to the owner).

Where the failure to substantially comply with the contract is due to the fault of or wrongful termination by the owner, this is considered as being equivalent to the completion of the contract, and the contractor is permitted to claim a lien. Allen v. Moore, 77 Ga. App. 426, 49 S.E.2d 121 (1948); MacLeod v. Belvedale, Inc., 115 Ga. App. 444, 154 S.E.2d 756 (1966); Marathon Oil Company v. Hollis, 167 Ga. App. 48, 305 S.E.2d 864 (1983)(wrongful termination). Under these circumstances, the lien claimant also may be entitled to an equitable lien for the improvements made. Shubert v. Speir, 201 Ga. 20, 38 S.E.2d 835 (1946); Jones v. Ely, 95 Ga. App. 4, 96 S.E.2d 536 (1957); Gellis v. B.L.I. Construction Company, Inc., 148 Ga. App. 527, 251 S.E.2d 800 (1978).

Where the architect certified that 100% of the contract work was accomplished, but did not issue a certificate of final completion as required by the contract, substantial compliance with the contract requirement was sufficient. Pickett v. Chamblee Construction Co., Inc., 124 Ga. App. 769, 186 S.E.2d 123 (1971).

u. Practice & Procedure.

In addition to a prayer for a lien in the complaint filed by the lien claimant, the claimant also must request a jury instruction as well as a proper form of verdict and judgment in order to avoid waiving the claimant's right to a lien. Von Hoff v. Carmichael, 204 Ga. App. 760, 420 S.E.2d 643 (1992).

In an interesting case for lien claimants, the court in Kruzel v. Leeds Building Products, Inc., 266 Ga. 765, 470 S.E.2d 882 (1996), approved the appointment of a receiver by the trial court under circumstances where the liened property was uncompleted, was being vandalized, repairs were not being made and there were threats of further damage to the unoccupied house. The court disapproved, however, the trial court's order that the receiver conduct a pretrial sale of the property after the completion of the improvements.

11. Foreclosing a Lien.

a. Time Requirements.

After the lien claimant's lien has been perfected, there is no time requirement for bringing a foreclosure action against the owner which is set by Georgia law. Southern Railway Co. v. Crawford & Slaten Co., 178 Ga. 450, 173 S.E. 378 (1933).

The reference to "commencement of an action for the recovery of the amount of his claim within 12 months from the time the same become due" in O.C.G.A. § 44-14-361.1(a)(3) relates to the action against the contractor and not to the action against the owner of the real estate. Chandler v. Pennington, 89 Ga. App. 676, 80 S.E.2d 843 (1954).

This 12-month limitation does apply to the owner in those cases set out in O.C.G.A. § 44-14-361(a)(4). In those situations set out in that statute (i.e., where the contractor absconds, dies, leaves the state, or declares bankruptcy) judgment need not first be obtained against the contractor. In such cases, the in rem action filed against the owner's property in effect substitutes for the lien perfection suit which was precluded by the inability to obtain personal jurisdiction over the general contractor. Adair Mortgage Company v. Allied Concrete Enterprises, Inc., 241 Ga. 121, 243 S.E.2d 888 (1978).

b. Suing the Owner.

Before filing suit to foreclose a lien, a lien perfection action must first be brought against the contractor or subcontractor to whom the labor and material was furnished. In the absence of the showing of a contractual relationship between the property owner and the person to whom materials were furnished, no enforceable lien may be foreclosed against the owner's property until the lien is perfected. Ben Hill Ready Mix Concrete Company v. Prather, 160 Ga. App. 149, 286 S.E.2d 481 (1981); Frank Woods Construction Co. v. Randi, 177 Ga. App. 438, 339 S.E.2d 406 (1986).

There is an exception to this rule where such contractor or subcontractor and the owner can be sued concurrently. Baldwin v. Shields, 134 Ga. 221, 67 S.E. 798 (1910); Melton v. Pacific Southern Mortgage Trust, 241 Ga. 589, 247 S.E.2d 76 (1978).

The proper party in a lien foreclosure suit is the owner of the real estate to whom labor, services or materials were furnished. Subsequent purchasers of the real estate purchasing with notice of the lien are not necessary parties to the action. Trust Company of New Jersey v. Atlanta Aluminum Company, 149 Ga. App. 605, 255 S.E.2d 82 (1979); Gambell v. Pepilcher, 242 Ga. 556, 250 S.E.2d 416 (1978).

Under such circumstances, the better practice is to sue the subsequent purchaser along with the original owner in order to establish that the subsequent purchaser acquired the property with notice of the lien. Subsequent purchasers of the property who acquire the property with notice of the lien take subject to the lien. See Gamble v. Pilcher, 242 Ga. 556, 250 S.E.2d 416 (1978). A bona fide purchaser of title to real estate who buys without notice of an inchoate lien (that is, a lien which had not yet been filed of record or foreclosed) takes the property free and clear of the lien. Ashmore v. Whatley, 99 Ga. 150, 24 S.E. 941 (1896). See Annot., 33 A.L.R.4th 1017 (1984); 76 A.L.R.2d 1163 (1961).

Where, however, the contractor or subcontractor absconds or files bankruptcy, or where there is a "pay-when-paid" clause in the contract with the general contractor or supplier, the lien claimant is relieved from the obligation to sue the contractor or subcontractor to whom labor or material was furnished to perfect the lien and may proceed directly against the owner's property or lien bond. O.C.G.A. § 44-14-361.1(a)(3). Hendricks v. Blake & Pendleton, Inc., 221 Ga. App. 651, 472 S.E.2d 482 (1996).

v. Attestation or Oath.

The notice of commencement of an action to perfect a mechanics' lien must be made under oath. O.C.G.A. § 44-14-361.1(a)(3). No other affidavit is required to foreclose a lien against real estate under the Georgia's Mechanic's lien law. Southwire Co. v. Metal Equipment Company, 129 Ga. App. 49, 198 S.E.2d 687 (1973).

w. Concurrent Suits.

Where the general contractor and the owner reside in the same county, both may be sued to perfect and foreclose the lien concurrently in the same action. Royal v. McPhail, 97 Ga. 457, 25 S.E. 512 (1895); Baldwin v. Shields, 134 Ga. 221, 67 S.E. 798 (1910); Melton v. Pacific Southern Mortgage Trust, 241 Ga. 589, 247 S.E.2d 76 (1978); Buck v. Tifton Mfg. Co., 4 Ga. App. 695, 62 S.E. 107 (1908); Taylor v. Mateer & Company, 117 Ga. App. 565, 161 S.E.2d 394 (1968).

In such a concurrent suit, the lien claimant must first perfect its lien claim against the contractor, since such a lien perfection is a condition precedent to foreclosure of the lien against the owner. Baldwin v. Shields, 134 Ga. 221, 67 S.E. 798 (1910); West Lumber Company v. Aderhold, 90 Ga. App. 255, 82 S.E.2d 670 (1954).

x. Senior Encumbrances.

Under the requirements of Georgia law, all senior indebtedness must be satisfied before execution. O.C.G.A. § 9-13-60.

Where a lien claimant has perfected its lien against the property, the plaintiff may obtain a judgment foreclosing its lien but cannot enforce it by levy and sale until any prior security deed is satisfied. Bowen v. Kicklighter, 124 Ga. App. 82, 183 S.E.2d 10 (1971).

If the lien claimant tenders the amount due on the security deed to the holder of the deed, the holder is bound to accept it, cancel the security deed, and allow the materialmen to proceed under the foreclosure. Id.

y. Bankruptcy of Owner.

Generally, the holder of a perfected mechanic's lien will be treated as a secured creditor under the Bankruptcy Code.

The lien claimant will naturally avoid violating the automatic stay of the bankruptcy code but ordinarily will proceed with an adversary proceeding against the debtor in bankruptcy court to foreclose against the real estate serving as security for the lien claimant.

If necessary, the claimant should file a proof of claim.

In many cases, the validity of the lien claimant's interest is not contested by the debtor. Even if the claim is contested, it is usually in the best interest of the lien claimant to actively pursue the lien claimant in adversary proceeding since this is likely to generate a greater recovery than simply allowing the claim to remain idle.

z. Foreclosure Procedure.

Foreclosure of a perfected mechanics' lien is obtained through the use of the procedure set out in O.C.G.A. § 44-14-530.

Once a lien is secured against the owner's property, the property may be sold at a sheriff's sale pursuant to O.C.G.A. § 9-13-161. The statute sets out very detailed requirements for notice of the sale, which normally will occur on the first Tuesday of each month at the county courthouse. O.C.G.A. § 9-13-140.

12. Lien Waivers and Releases.

In general, the purpose of lien waivers or releases is to avoid paying twice for the same labor on material. Partial lien releases usually are required from potential lien claimants in exchange for payment of the claimant's last application for payment. Depending upon how the lien waiver was written, the lien may be waived either for the sum of money advanced or it may be a lien waiver for all labor, services and material supplied through a certain date. Obviously, the effect of the two types of lien waivers is significantly different.

A mechanics' lien may be dissolved if it has been waived in writing by the lien claimant. O.C.G.A. § 44-14-361.2(a)(1). Oral lien waivers are not enforceable. Roberts v. Georgia Southern Supply Company, 92 Ga. App. 303, 88 S.E.2d 554 (1955).

Effective January 1, 1992, however, the manner in which a lien may be waived has been severely restricted. Under the new law, the right to claim a lien or to make a claim upon a bond may not be waived in advance of the furnishing of labor, services, or materials. Any purported waiver or release of lien or bond claims made in violation of the statute, or any attempt to waive the protection of the new statute, is null and void. O.C.G.A. § 44-14-366(a).

Under the former law, a lien claimant could expressly waive the right to claim a lien in writing and that lien waiver could be used to cancel a claim of lien filed in violation of the terms of that agreement. AAA Plastering Company, Inc. v. TPM Constructors, Inc., 247 Ga. 601, 277 S.E.2d 910 (1981).

Such waiver or release language is normally contained in monthly pay applications. The language of the lien waiver is important. Clear and unambiguous waiver or release language contained in monthly pay applications, even if the release language is very broad, is enforced in Georgia. Citadel Corp. v. Sun Chemical Corp., Ga. Ct. App. Case No. A94A0643 (March 17, 1994).

Such general release language must be distinguished from language that merely waives or releases claims against the owner's property. For example, once the owner's property has been discharged from a lien by the posting of a lien bond, the lien claimant's subsequent execution of a lien waiver releasing claims against the property does not release the lien claim which was discharged by the posting of the lien bond. Benning Construction Company v. All-Phase Electric Supply Company, 206 Ga. App. 279, 424 S.E.2d 830 (1992).

Receipt of lien waivers relating to progress payments made previously do not waive claims related to subsequent unpaid invoices. Southern Development Company v. Shepco Paving, Inc., 206 Ga. App. 535, 426 S.E.2d 234 (1992).

Likewise, under the former law, a lien waiver contained in a contract between an owner and a general contractor, the terms of which are incorporated by reference through a "flow down" clause into the lien claimant's contract, was a valid and enforceable waiver of the subcontractors right to claim a lien. MCC Powers v. Ford Motor Company, 184 Ga. App. 487, 361 S.E.2d 716 (1987). Where, however, there was no such "flow down" clause, then the contractor's own lien waiver was not binding upon the contractor's subcontractors and was not evidence that the subcontractors had waived their right to claim a lien. Certified Electric, Inc. v. Jerome, 161 Ga. App. 456, 288 S.E.2d 359 (1982). To the extent that these cases permitted a lien waiver in advance of supplying labor, services, or material for a project, they would appear to have been mooted by the amended statute.

Under the new law, O.C.G.A. § 44-14-366, no lien waiver purporting to waive, release, impair, or otherwise adversely affect a lien or bond claim is enforceable unless it is executed by the claimant in the new waiver and release forms prescribed in the new statute. Even then, the lien waiver and release is effective only if the lien claimant receives payment for the claim, as set forth in O.C.G.A. § 44-14-366(f).

The statute sets out forms for both an interim and a final waiver and release of lien. The statute seems to have been drafted with the subcontractor and material supplier in mind, since the wording of the forms is awkward when used in connection with a general contractor's lien claim.

Pursuant to O.C.G.A. § 44-14-366(f)(4), nothing in new statute is intended to shorten the time within which a claim of lien may be filed. Likewise, pursuant to O.C.G.A. § 44-14-366(e), the enforceability of lien subordination agreements, settlements of bona fide disputes concerning the amount due the lien claimant, and the validity of a cancellation or release of a recorded claim of lien are not affected by the provisions of O.C.G.A. § 44-14-366.

Under the new statute, when a claimant is requested to execute a waiver and release of lien in exchange for or in order to induce payment other than final payment, the "Interim Waiver and Release Upon Payment" form (the "Interim Waiver" form) should be used.

After signing the Interim Waiver form, the priority of the claimant's lien rights, except as to retention, runs from the day after the date specified in the Interim Waiver form.

The Interim Waiver form must follow substantially the following statutory form, as set out in O.C.G.A. § 44-14-366(c):

INTERIM WAIVER AND RELEASE

UPON PAYMENT

STATE OF GEORGIA

COUNTY OF _____________

The undersigned mechanic and/or materialman has been employed by ______________ (name of contractor) to furnish _____________________ (describe materials and/or labor) for the construction of improvements known as ___________________ (title of the project or building) which is located in the City of _____________, County of _______________, and is owned by _________________ (name of owner) and more particularly described as follows:

(DESCRIBE THE PROPERTY UPON WHICH THE IMPROVEMENTS WERE MADE BY USING EITHER A METES AND BOUNDS DESCRIPTION, THE LAND LOT DISTRICT, BLOCK AND LOT NUMBER, OR STREET ADDRESS OF THE PROJECT.)

Upon the receipt of the sum of $______________, the mechanic and/or materialman waives and releases any and all liens or claims of liens it has upon the foregoing described property through the date of _____________ (date) and excepting those rights and liens that the mechanic and/or materialman might have in any retained amounts, on account of labor or materials, or both, furnished by the undersigned to or on account of said contractor for said building or premises.

Given under hand and seal this _____ day of __________, 19___.

__________________(Seal)

__________________

____________________

(Witness)

____________________

(Address)

Note that the interim lien waiver requires the waiver of lien for all labor, material or equipment furnished through the date indicated on the lien waiver. The language of the statute places the burden of monitoring material deliveries to the project site onto the lien claimant. Carelessness in monitoring deliveries could result in an inadvertent waiver of the supplier's lien. For example, a California court has held that such language extinguishes lien rights for all materials furnished to the project site through the date of the lien waiver, even if the cost of the materials has not yet been billed and even if the materials have not yet been incorporated into the work of improvement. Halbert's Lumber, Inc. v. Lucky Stores, Inc., 8 Cal. Rptr. 298 (Cal. App. 1992).

Another court found ambiguity in the meaning of such a lien waiver, and ruled that execution of the lien waiver does not result in the release of the unbilled material. The court reasoned that the release of a right must be voluntary and intentional, with ambiguities resolved against the party receiving the benefit of the lien waiver. P & C Construction Co. v. American Diversified/Wells Park II, 789 P.2d 688 (Or. App. 1990).

Likewise, when a lien claimant is requested to execute a final waiver and release in exchange for or in order to induce payment of final payment on a project, the "Unconditional Waiver and Release Upon Final Payment" form (the "Final Lien Waiver and Release" form) should be used.

The Final Waiver and Release form must follow substantially the following statutory form, as set out in O.C.G.A. § 44-14-366(d):

UNCONDITIONAL WAIVER AND RELEASE

UPON FINAL PAYMENT

STATE OF GEORGIA

COUNTY OF _________

The undersigned mechanic and/or materialman has been employed by ________________ (name of contractor) to furnish __________________ (describe materials and/or labor) for the construction of improvements known as ___________________ (title of the project or building) which is located in the City of ____________, County of ____________, and is owned by ____________________ (name of owner) and more particularly described as follows:

(DESCRIBE THE PROPERTY UPON WHICH THE IMPROVEMENTS WERE MADE BY USING EITHER A METES AND BOUNDS DESCRIPTION, THE LAND LOT DISTRICT, BLOCK AND LOT NUMBER, OR STREET ADDRESS OF THE PROJECT.)

Upon the receipt of the sum of $______________, the mechanic and/or materialman waives and releases any and all liens or claims of liens it has upon the foregoing described property.

Given under hand and seal this _____ day of __________, 19___. _________________(Seal)

_________________

______________________

(Witness)

______________________

(Address)

NOTICE: THIS DOCUMENT WAIVES RIGHTS UNCONDITIONALLY AND STATES THAT YOU HAVE BEEN PAID FOR GIVING UP THOSE RIGHTS. THIS DOCUMENT IS ENFORCEABLE AGAINST YOU IF YOU SIGN IT, EVEN IF YOU HAVE NOT BEEN PAID. IF YOU HAVE NOT YET BEEN PAID, USE A CONDITIONAL RELEASE FORM.

For both the interim and Final Waiver and Release forms, the failure to correctly complete any of the blank spaces in the form does not invalidate the form, so long as the subject matter of release document may be reasonably determined. O.C.G.A. § 44-14-366(c) & (d).

When either of these statutory waiver and release forms is signed by the lien claimant, it is binding against the claimant for all purposes, subject only to payment in full of the amount set forth in the waiver and release form. O.C.G.A. § 44-14-366(f)(1).

Payment of the amounts set forth in the waiver and release form shall conclusively be deemed paid in full upon the earliest to occur of actual receipt of funds, execution by the claimant of a separate written acknowledgment of payment in full, or 30 days after the date of the execution of the waiver and release. The statute thus contemplates that payment will be made within a 30-day period after the lien claimant submits its application for payment and Interim Lien Waiver and Release. If the lien claimant does not receive payment within that 30-day period, and does not follow the saving provisions of the new statute, then the claim of lien stands dissolved, even if the lien claimant has not received payment.

The 30-day provision previously cited obviously raises an important issue: what happens if the payment is not received within 30 days after execution of the waiver and release form? In that event, the statute has a savings provision which requires the lien claimant to prepare and file yet another form, an "Affidavit of Nonpayment Under O.C.G.A. Section 44-14-366" (the "Nonpayment Affidavit").

The Nonpayment Affidavit must follow substantially the following statutory form, as set out in O.C.G.A. § 44-14-366(f)(C):

AFFIDAVIT OF NONPAYMENT UNDER

O.C.G.A. SECTION 44-14-366

STATE OF GEORGIA

COUNTY OF __________

The undersigned mechanic and/or materialman has been employed by ______________ (name of contractor) to furnish (describe materials and/or labor) for the construction of improvements known as _______________ (title of the project or building) which is located in the City of ____________, County of ____________, and is owned by ________________ (name of owner) and more particularly described as follows:

(DESCRIBE THE PROPERTY UPON WHICH THE IMPROVEMENTS WERE MADE BY USING EITHER A METES AND BOUNDS DESCRIPTION, THE LAND LOT DISTRICT, BLOCK AND LOT NUMBER, OR STREET ADDRESS OF THE PROJECT.)

Pursuant to O.C.G.A. Section 44-14-366 the undersigned executed a lien waiver and release with respect to this property dated ____________, 19_____. The amount set forth in said waiver and release ($__________) has not been paid, and the undersigned hereby gives notice of such nonpayment.

The above facts are sworn true and correct by the undersigned, this ______ day of __________, 19_____.

___________________(Seal)

Claimant's Signature

Sworn to and executed in the presence of:

_______________________

Witness _______________________

Notary Public

Note that neither the Interim nor the Final Waiver and Release forms are required to be recorded in order to be effective. The subcontractor or supplier, however, must file an Affidavit of Nonpayment in the county where the project is located in order for the Affidavit of Nonpayment to be effective. O.C.G.A. § 44-14-366(f)(2)(C).

In filing an Affidavit of Nonpayment or a claim of lien, the claimant may rely upon the information contained in the waiver and release form. O.C.G.A. § 44-14-366(f)(6).

Upon the filing of an Affidavit of Nonpayment, the waiver and release provided in O.C.G.A. § 44-14-366 is suspended until payment in full has been received by the lien claimant. O.C.G.A. § 44-14-366(f)(5).

The potential lien claimant must file the Affidavit of Nonpayment within the 30-day period following the execution of an Interim Waiver and Release form. For example, it appears that under the statute, if a subcontractor or supplier waits a full 30 days before filing the Affidavit of Nonpayment, then the affidavit may be untimely under the new statute. Thus, contractors who have longer payment turnaround periods may find that it is difficult to obtain lien waivers from their subcontractors and suppliers. Even more likely is that subcontractors and suppliers may end up inadvertently waiving their liens.

Likewise, subcontractors and suppliers who execute Interim Waiver and Release forms would be well advised to calendar the 30-day due date for the anticipated payment and to carefully monitor whether payment is timely received. The prudent potential lien claimant certainly should be prepared to file an Affidavit of Nonpayment prior to the expiration of the 30-day grace period provided by the statute.

If a lien claimant who has filed an Affidavit of Nonpayment is later paid, the statute requires the lien claimant to execute upon request and in recordable form an affidavit swearing that payment in full has been received. When that affidavit is recorded in the county where the Affidavit of Nonpayment was recorded, the Affidavit of Nonpayment shall be deemed void. O.C.G.A. § 44-14-366(f)(3).

13. Lien Bonds.

Pursuant to O.C.G.A. § 44-14-364(a), the owner of the property or the contractor employed to improve the property may file a bond to discharge the lien. The bond may be filed at any time, either before or after foreclosure proceedings are instituted against the property. The bond must be issued with the condition that it pay the holder of the lien the sum that may be found to be due to the lien claimant upon the trial of any timely action filed to perfect the lien. The bond must be in double the amount claimed under the lien, except for residential property, in which event it shall be in the amount claimed under the lien.

Upon the filing of the lien bond, the real estate is discharged from the lien, pursuant to O.C.G.A. § 44-14-364(a). Thereafter, the surety on the bond substitutes for the lien on the realty. United Bonding Insurance Company v. Good-Wynn Electric Supply Company, 124 Ga. App. 545, 184 S.E.2d 508 (1971); Pickett v. Chamblee Construction Company, 124 Ga. App. 769, 186 S.E.2d 123 (1971); Houston General Insurance Company v. Stein Steel & Supply Company, 134 Ga. App. 624, 215 S.E.2d 511 (1975); M. Shapiro & Sons, Inc. v. Yates Construction Company, 140 Ga. App. 675, 231 S.E.2d 497 (1976); North v. Waffle House, Inc., 177 Ga. App. 162, 338 S.E.2d 750 (1985); Stonepecker v. Shepherd Construction Company, 188 Ga. App. 513, 373 S.E.2d 295 (1988); Roberts v. Porter, Davis, Saunders & Churchill, 193 Ga. App. 898, 389 S.E.2d 361 (1989); Hendricks v. Blake & Pendleton, Inc., 221 Ga. App. 651, 472 S.E.2d 482 (1996).

In order to effectively release the realty from lien, the lien bond must correctly reference the lien which is to be bonded off, state the name of the owner of the property, and give an accurate description of the property. North v. Waffle House, Inc., 177 Ga. App. 162, 338 S.E.2d 750 (1985).

A lien claimant suing on the bond must establish his entitlement to the underlying lien. M. Shapiro & Sons, Inc. v. Yates Construction Company, 140 Ga. App. 675, 231 S.E.2d 497 (1976); North v. Waffle House, Inc., 177 Ga. App. 162, 338 S.E.2d 750 (1985).

In defending a suit on the bond, the bonding company may assert all defenses which would have been available in the lien foreclosure action for which the bond was substituted. M. Shapiro & Sons, Inc. v. Yates Construction Company, 140 Ga. App. 675, 231 S.E.2d 497 (1976); Linco Construction Company, Inc. v. Tri-City Concrete, Inc., 161 Ga. App. 174, 288 S.E.2d 125 (1982); North v. Waffle House, Inc., 177 Ga. App. 162, 338 S.E.2d 750 (1985); Hoffman Electric Company, Inc. v. Chiyoda International Corporation, 203 Ga. App. 731, 417 S.E.2d 371 (1992).

Failure to file suit within 12 months of the time the claim became due, for example, is a condition precedent to the creation of the substantive right to a lien. Accordingly, the failure to file suit to perfect the lien within the statutory period may be fatal to the claim against the surety. Stonepecker v. Shepherd Construction Company, 188 Ga. App. 513, 373 S.E.2d 295 (1988); Hardee v. Spivey, 193 Ga. App. 234, 387 S.E.2d 430 (1989).

Suits which attempt to add the surety by amendment to a timely-filed suit against a contractor after the expiration of the 12-month limitation period raise special procedural questions which must be carefully considered. Such amendments adding a party "relate back" to the original filing date, provided that the lien claimant can prove that the surety received such notice of the institution of the action that the surety would not be prejudiced in maintaining its defense on the merits, and knew or should have known that but for a mistake concerning the identity of the proper party, that the action would have been brought against the surety. Sam Finley, Inc. v. Interstate Fire Insurance Company, 135 Ga. App. 14, 217 S.E.2d 358 (1975).

Certain other lien defenses no longer apply after the lien is bonded off of the property. For example, where the owner's property has been released from the lien by the filing of a lien bond there is no necessity for filing the notice of commencement required by O.C.G.A. § 44-14-361.1(a)(3), and the failure to file the notice will not bar the action against the surety. Burgess v. Travelers Indemnity Company, 185 Ga. App. 82, 363 S.E.2d 308 (1987); All Phase Electric Supply Company v. Foster & Cooper, Inc., 193 Ga. App. 232, 387 S.E.2d 429 (1989); Hardee v. Spivey, 193 Ga. App. 234, 387 S.E.2d 430 (1989).

Likewise, once the owner's property has been discharged from a lien by the posting of a lien bond, the lien claimant's subsequent execution of a lien waiver releasing claims against the property does not release the lien claim which was discharged by the posting of the lien bond. Benning Construction Company v. All-Phase Electric Supply Company, 206 Ga. App. 279, 424 S.E.2d 830 (1992).

Where the issue of the owner's liability on the bond is clearly established by litigation of the owner's defenses in a suit to perfect the claim of lien, the results of that litigation is res judicata as to the lien bond surety's liability, and the lien claimant is entitled to judgment on the bond as a matter of law. Spicewood, Inc. v. Dykes Paving & Construction Company, Inc., 190 Ga. App. 165, 404 S.E.2d 165 (1991).

Note that where the owner obtains a lien bond and is named as a principal on the bond, then owner may be exposed to personal liability on the bonded obligation if the lien claimant sues both the principal and the surety on the bond. Bonds showing a principal other than the owner or general contractor permit the owners of the property to be dismissed from the action, since no claim remains against them. Such lien bonds may not be valid under the statute, however. Davis v. Hoover-Morris Development Co., Inc., 136 Ga. App. 446, 221 S.E.2d 656 (1975).

Where a bond to discharge lien has been posted, a judgment against the principal in an action to foreclose the lien is conclusive against the surety and it is proper to include the surety on the bond in entering judgment. Pickett v. Chamblee Construction Company, 140 Ga. App. 675, 231 S.E.2d 497 (1976).

Absent a valid bond limitation, the surety may be added to a timely filed suit against the party contractually responsible for the debt, even if the surety is added outside of the twelve-month period during which the lien claimant must file suit to perfect the lien. Logan Paving Company v. Liles Construction Company, Inc., 141 Ga. App. 81, 232 S.E.2d 575 (1977).

14. Lien Affidavits.

An owner, purchaser from the owner, or lender providing construction or purchase money or any other loan secured by real estate may dissolve a lien by showing a sworn written statement by the contractor or person other than the owner at whose instance the labor, services or materials were furnished, or by the owner, when conveying title in a bona fide sale or loan transaction, stating that the agreed price or reasonable value of the labor, services or materials have been paid or waived in writing by the lien claimant, and the sworn written statement was obtained or given as a part of a transaction involving a conveyance of title in a bona fide sale, a loan in which the real estate is to secure repayment of the loan, or where final disbursement of the contract price is made by the owner to the contractor, and there is not of record, at the time of the settlement of the transaction, a valid preliminary notice or claim of lien which had not been previously canceled, dissolved, or expired. O.C.G.A. § 44-14-361.2(a).

The statutes relates to the dissolution of an "inchoate" lien, that is, a lien which arises as a result of a lien claimant supplying labor, materials or equipment to improved property of the owner, but which has not yet been perfected by the filing of a claim of lien, and which has not been protected from dissolution by the filing of a preliminary notice of lien. See O.C.G.A. § 44-14-361.3.

The current version of this statute was substantially altered from the language of its predecessor statute, O.C.G.A. § 44-14-361(b), in the 1983 amendments to the lien law. One court noted that an important distinction between the statutes is that O.C.G.A. § 44-14-361.2 speaks in terms of dissolution of an existing lien by production of a contractor's sworn written statement. The predecessor statutes, O.C.G.A. § 44-14-361(b) and Ga. Code Ann. § 67-2001.2, provided that the lien attaches unless the owner produces the contractor's sworn statement. Thus, the earlier statutes contemplated that the contractor's sworn statement would be procured in time to prevent the lien from attaching, while O.C.G.A. § 44-14-361.2 on its face addresses only the subsequent dissolution of a special lien.

On the basis of this analysis, the court in Star Manufacturing, Inc. v. Edenfield, 191 Ga. App. 665, 382 S.E.2d 706 (1989), held that under the current version of the statute the contractor's affidavit does not have to be given before final disbursement of the contract price is made by the owner, provided that it is obtained or given within such a reasonable time as to constitute a part of the final disbursement transaction.

The purpose of this statute is to enable owners, purchasers, and lenders to clear property titles in order to complete closings of the transactions indicated in O.C.G.A. § 44-14-361(a)(2)(B), involving conveyance of title in a bona fide sale, a loan secured by the real estate, or where final disbursement of the contract price is being made. In these transactions, the court held, the contractor's affidavit will dissolve a lien only if a properly drafted affidavit is secured from the general contractor and the lien is not yet filed of record. Balest v. Simmons, 201 Ga. App. 605, 411 S.E.2d 576 (1991); Freeman v. Fulton Concrete Company, Inc., 204 Ga. App. 465, 419 S.E.2d 536 (1992).

A contractor's affidavit issued in substantial compliance with O.C.G.A. § 44-14-361.2(a)(2) which is given in connection with the final payment of the contract price permits summary judgment to be taken against the lien claimant, even if the lien claim is otherwise proper. United Electric Company, Inc. v. Underground Festival, Inc., 202 Ga. App. 589, 415 S.E.2d 197 (1992). The affidavit will be construed against the party giving the affidavit should he later attempt to contradict it. Balest v. Simmons, 201 Ga. App. 605, 411 S.E.2d 576 (1991).

Periodic affidavits taken during the course of construction prior to its completion which show that some of the labor, services, and materials employed on the on-going project have been paid are not sufficient to satisfy the requirement of the statute. CC & B Industries, Inc. v. Stroud, 198 Ga. App. 658, 402 S.E.2d 527 (1991).

Even a false affidavit dissolves an inchoate liens (i.e., a lien which has not been perfected by recording the claim of lien). Lowe's of Georgia v. Merwin, 156 Ga. App. 876, 275 S.E.2d 812 (1981)(false contractor's affidavit dissolves inchoate lien); Steimer v. Northside Building Supply Company, 202 Ga. App. 843, 415 S.E.2d 688 (1992)(false owner's affidavit dissolves inchoate lien). Recognizing that this holding created a hardship for the lien claimant, the court in Lowe's pointed out that to hold otherwise would equally effect a hardship against the owner, who would then be forced to pay twice for improvements to his property. See C.E. Self & Son v. Jerome, 161 Ga. App. 456, 288 S.E.2d 359 (1982).

Giving a false contractor's affidavit subjects the contractor who gave it to potential civil liability for fraud, although proving the lien claimant's reliance interest can be difficult. See Steimer v. Northside Building Supply Company, 202 Ga. App. 843, 415 S.E.2d 688 (1992)(holding contractor made false representation to lender, not to lien claimant).

A false affidavit also subjects the contractor to potential criminal liability for the violation of O.C.G.A. §§ 16-8-15(b) and 16-10-71(a). Carl E. Jones Development, Inc. v. Wilson, 149 Ga. App. 679, 255 S.E.2d 135 (1979).

The lien claimant also may make out a civil tort claim for false swearing based upon the issuance of a false affidavit. For the tort of false swearing to occur, however, there must be proof both of the falsity of the swearing, and the intent to swear falsely. Where the lien claimant cannot show that the affiant knowingly swore falsely, such a suit fails. Peters v. Imperial Cabinet Company, Inc., 189 Ga. App. 337, 375 S.E.2d 635 (1989).

Lien claimants may consider a fraud suit. In order to prove fraud, however, it is not enough merely to show that the affidavit is false. The lien claimant must go on to show that the misrepresentation was made with the intent to deceive the lien claimant, and that some action or forebearance by the lien claimant was taken in reliance upon such misrepresentation. In the normal case, the false affidavit is not tendered to deceive the lien claimant, but rather is tendered to deceive the lender or prospective purchaser. In the absence of such proof a fraud claim fails, although a suit on account may be properly stated. See Steimer v. Northside Building Supply Company, 202 Ga. App. 843, 415 S.E.2d 688 (1992).

An affidavit regular on its face cannot be challenged on the ground that it was not properly sworn to or notarized. The affidavit is still legally sufficient as a matter of law if there is no evidence indicating that the owner was aware of the irregularity, or any allegation or proof of fraud and collusion. Walk Softly, Inc. v. Hyzer, 188 Ga. App. 230, 372 S.E.2d 500 (1988), overruling Chambers Lumber Co. v. Hagan, 118 Ga. App. 392, 163 S.E.2d 847 (1968); Grubb v. Woodglenn Properties, Inc., 220 Ga. App. 902, 470 S.E.2d 455 (1996)(noting where the relevancy or competency of evidence is doubtful, it should be admitted and its weight left to the jury).

An affidavit stating that the general contractor "has paid in full or has otherwise satisfied all obligations" is substantially if not completely in compliance with the statute and is sufficient to permit summary judgment to be taken on the lien claimant's action. Dixie Concrete Services, Inc. v. Life Insurance Company of Georgia, 174 Ga. App. 866, 331 S.E.2d 889 (1985).

An affidavit which is qualified by stating that "as far as I know" all bills for labor and materials have been paid has been held to be insufficient to dissolve a lien on the grounds that it attempts to qualify the absolute nature of the affidavit required by the statute. Saye v. Athens Lumber Company, 94 Ga. App. 118, 93 S.E.2d 806 (1956).

Likewise, the statement in an affidavit that all amounts paid to the general contractor "were appropriated to the payment of the valid and just claims of materialmen prior to the date of filing or recording of any liens" is not sufficient, since the affidavit does not state that all outstanding bills for labor and materials used have been paid. Short & Paulk Supply Co., Inc. v. Dykes, 120 Ga. App. 639, 171 S.E.2d 782 (1969).

Language which merely "certified" that there were no outstanding bills or liens against the job is not an affidavit and is not sufficient to meet the requirements of O.C.G.A. § 44-14-361.2(a)(2)(A) and thus is not sufficient to dissolve a subsequently filed lien. Southern Concrete Construction Company, Inc. v. Hall, 205 Ga. App. 516, 422 S.E.2d 663 (1992).

15. Lien Defenses.

a. Timeliness.

The timeliness of lien filings is one of the major lien defenses. The lien must be filed within three month after the last labor, services, or materials were furnished to the project. O.C.G.A. § 44-14-361(a)(2).

The lien also must be perfected within twelve months of the date the debt became due. O.C.G.A. § 44-14-361(a)(3).

The claim of lien and the lien perfection suit against the contractor both are properly received in evidence in a suit against the owner to establish the timeliness of a lien filing against the owner's property. Spicewood, Inc. v. Ferro Pipeline Co., Inc., 181 Ga. App. 277, 351 S.E.2d 711 (1986).

b. Payment of the Contract Price.

Georgia law prohibits the aggregate amount of liens set up by the lien law to exceed the contract price of the improvements made or services performed. O.C.G.A. § 44-14-361.1(e).

Where an owner has paid the full contract price to the contractor, and the contractor has applied the whole amount received by him to the payment of valid claims for material and labor employed in constructing the improvements, the owner will be protected against claims of lien. Jones Brick Company v. Seagler Bros., 146 Ga. 19, 90 S.E. 473 (1916).

So long as no lien has been filed, any payment that is made to a materialman as a potential lien claimant is a payment which is "properly appropriated" toward full payment of the contract price and may be set up as a defense to any subsequently filed lien. Jones Brick Co. v. Seagler Bros., 146 Ga. 19, 90 S.E. 473 (1916).

For purposes of liens against an estate for years, the amount of a construction allowance is considered the legal equivalent of the "contract price." D & N Electric, Inc. v. Underground Festival, Inc., 202 Ga. App. 435, 414 S.E.2d 891 (1991); Underground Festival, Inc. v. McAfee Engineering, Inc., 214 Ga. App. 243, 447 S.E.2d 683 (1994).

Note, however, that an owner's mere payment of the full contract price to the contractor, standing alone, is not and has never been a complete defense to foreclosure of a lien. Therefore, it is entirely possible that an owner who has paid the full contract price to the contractor may nevertheless still have his property subjected to enforceable liens to the maximum extent of the full contract price. Mayer Electric Supply Company, Inc. v. Federal Insurance Company, 195 Ga. App. 191, 393 S.E.2d 270 (1990); Freeman v. Fulton Concrete Company, Inc., 204 Ga. App. 465, 419 S.E.2d 536 (1992).

Payments by the owner which are not applied to the payment of claims for labor and material used on the job will not affect the liens of subcontractors and suppliers who have furnished labor and material to the project. Massachusetts Bonding & Insurance Company v. Realty Trust Company, 142 Ga. 499, 83 S.E.2d 210 (1914).

Likewise, the fact that there are other liens outstanding on the project which total in excess of the contract price is no defense to the owner unless and until the liens are paid. Tuck v. Moss Manfacturing Company, 127 Ga. 729, 56 S.E. 1001 (1906).

Similarly, the owner cannot use estimates of what it may cost to finish an incomplete contract to defeat the lien. Roberts v. Georgia Southern Supply Co., Inc., 92 Ga. App. 303, 88 S.E.2d 554 (1955).

Payments made to other subcontractors and suppliers in preference to a validly filed lien claim are made at the owner's peril and are no defense to the lien claim because they have not been "properly appropriated" by the owner. Mayer Electric Supply Company, Inc. v. Federal Insurance Company, 195 Ga. App. 191, 393 S.E.2d 270 (1990); Green v. Farrar Lumber Company, 119 Ga. 30, 46 S.E. 62 (1903); Whatley v. Alto Corporation, 211 Ga. 718, 88 S.E.2d 398 (1955). If no claim of lien has been filed, then the subcontractors and suppliers may be paid in such order as the general contractor deems proper. Green v. Farrar Lumber Company, 119 Ga. 30, 46 S.E. 62 (1903).

Under circumstances where the contractor has abandoned this contract, the cost of completing the work may be deducted from the contract price in order to ascertain the amount up to which the subcontractors may claim liens. Roberts v. Georgia Southern Supply Co., Inc., 92 Ga. App. 303, 88 S.E.2d 554 (1955). If such deductions, taken together with payments previously made to the contractor, equal or exceed the contract price, then there is no lien, provided that the owner can (1) show that the sums paid to the contractor were properly allocated or (2) that the owner has obtained a contractor's affidavit confirming the valid allocation of such indebtedness. Jones Mercantile Company v. Lyn-Har, Inc., 245 Ga. 812, 267 S.E.2d 251 (1980). This decision has been criticized by the Court of Appeals because it places too great a burden on an owner. Bishop v. Forsyth Paving Contractors, Inc., 181 Ga. App. 345, 352 S.E.2d 198 (1986)(disapproved in Dallas Building Material, Inc. v. Smith, 193 Ga. App. 512, 388 S.E.2d 359 (1990).

The validity of a supplier or subcontractor lien does not depend upon whether the owner remains liable in some amount to the general contractor. Roberts v. Georgia Southern Supply Co., Inc., 92 Ga. App. 303, 88 S.E.2d 554 (1955).

Accordingly, if a general contractor or a subcontractor abandons the project before completion this will not prevent valid liens from being filed against the project by the general contractor's subcontractors and suppliers who have fulfilled their contracts. Mayer Electric Supply Company, Inc. v. Federal Insurance Company, 195 Ga. App. 191, 393 S.E.2d 270 (1990).

There also is no protection of the owner where the owner improperly terminates the original contractor and thereafter the cost of completion exceeds the original contract price. The "payment of the contract price" defense is intended to protect an innocent owner from potential lienholders when a contractor abandons an unprofitable contract and leaves the owner with no choice but to exceed the contract price in order to complete the construction. This is to be distinguished from the situation where the owner loses the benefit of his contract with the original contractor through his own wrongful termination of the contract. The owner is not permitted to exploit the rule and improve his position through the use of a wrongful termination. Marathon Oil Company v. Hollis, 167 Ga. App. 48, 305 S.E.2d 864 (1983).

Where the owner cannot show that the sums paid to the contractor were properly appropriated to materialmen and laborers and has failed to obtain a contractor's affidavit, the owner still may take advantage of the protections provided by O.C.G.A. § 44-14-361.1(e), but as a practical matter it seldom will be the case that the lien set up against the owner will exceed the entire contract price for the improvements made to the property. See Dallas Building Material, Inc. v. Smith, 193 Ga. App. 512, 338 S.E.2d 359 (1989).

A number of cases have denied summary judgment or other remedy to the owner on this issue because of the great difficulty of proving that the funds advanced, even if properly expended by the general contractor for the expenses of the job, were properly applied first to satisfy the valid claims of materialmen and laborers. See Short & Paulk Supply Co., Inc. v. Dykes, 120 Ga. App. 639, 171 S.E.2d 782 (1969); Shuman-Mann Supply Co., Inc. v. Weaver, 162 Ga. App. 422, 291 S.E.2d 562 (1982); Dallas Building Material, Inc. v. Rose, 191 Ga. App. 783, 383 S.E.2d 151 (1989); Mayer Electric Supply Company, Inc. v. Federal Insurance Company, 195 Ga. App. 191, 393 S.E.2d 270 (1990); Corporation of the Presiding Bishop of the Church of Jesus Christ of Latter Day Saints v. Allied Ready Mix, Inc., 201 Ga. App. 873, 412 S.E.2d 622 (1991); Freeman v. Fulton Concrete Company, Inc., 204 Ga. App. 465, 419 S.E.2d 536 (1992).

These rules arise from the owner's responsibility to see to it that the payments made to the general contractor are properly disbursed by the general contractor to those having valid claims for labor and materials. Green v. Farrar Lumber Co., 119 Ga. 30, 46 S.E. 62 (1903).

The owner has a defense to an action to foreclose a mechanic's lien only by showing that the contractor has disbursed sums received for the project at a time when no materialmen or laborer had filed for record any claim of lien. Browning v. Gaster Lumber Company, 267 Ga. 72, 475 S.E.2d 576 (1996)(finding that O.C.G.A. § 44-14-361.1(a)(4) addresses when payments are "applied," and thereby focuses not on the initial making of the payments but upon the final receipt of those payments by the parties entitled to receive them).

It is no defense to foreclosure of a mechanic's lien that other materialmen may claim liens which, if added to the amount claimed in the foreclosure suit and the payments made to the contractor and properly applied by him, would exceed the contract price. Tuck v. Moss Manufacturing Co., 127 Ga. 729, 56 S.E. 1001 (1906).

Likewise, prejudgment interest is distinct from and not to be included in the calculation of the "aggregate amount of liens" within the meaning of O.C.G.A. § 44-14-361.1(e). Gaster Lumber Company v. Browning, 219 Ga. App. 435, 265 S.E.2d 524 (1996).

The payment by the owner of some portion of the contract price, when not properly applied, does not relieve the owner for the balance of amount of the lien which remains unpaid. Henderson v. Mitchell Engineering Co., 158 Ga. App. 306, 280 S.E.2d 438 (1981).

aa. Overlapping Liens.

The owner may have to consider the impact of overlapping liens where both the general contractor and subcontractors and suppliers file liens against the property. This situation is not clearly addressed in the lien statute, but appears to have been considered by the legislature when it prohibited liens aggregating in excess of the contract price of the improvements made or services performed. O.C.G.A. § 44-14-361.1(e).

In this situation, it may be possible for the owner to set up the overlapping nature of the liens as a defense.

Provided that the proper foundation is laid, one court has held that the existence of such overlapping liens could be considered as evidence of an owner's alleged pattern of refusing to pay rightful wages to persons constructing the project. Gary v. E. Frank Miller Construction Company, Inc., 208 Ga. App. 73, 430 S.E.2d 182 (1993).

bb. Setoffs and Credits.

The owner's remedy for defective performance by a subcontractor or material supplier with whom the owner does not have a contract is against the general contractor. It is not proper to set off the owner's claims against the lien claim of the subcontractor or supplier with whom the owner has not contract. Hill v. Dealer's Supply Company, Inc., 103 Ga. App. 846, 120 S.E.2d 879 (1961).

Where the lien claimant has obtained partial collection of the original amount of the lien either from additional payments received after the lien was filed or from partial collection of a breach of contract judgment against an upstream contractor, then the owner is entitled to a credit against the amount of the lien for all such payments. Freeman v. Fulton Concrete Company, Inc., 204 Ga. App. 465, 419 S.E.2d 536 (1992).

cc. Bona Fide Sale.

An owner, a purchaser from an owner, or a lender providing construction or purchase money or any other loans secured by real estate may set up as a defense to a lien that the owner, when conveying title in a bona fide sale or loan transaction, issued an owner's affidavit stating that the agreed price or reasonable value of the labor, services, or materials had been paid or was waived in writing by the lien claimant.

Such an owner's affidavit taken in connection with a bona fide sale conveying title, a loan on the real estate, or final disbursement of the contract price made from the owner to the contractor will serve to dissolve a lien if there is no preliminary notice or claim of lien of record at the time of settlement of this transaction. O.C.G.A. § 44-14-361.2(a).

dd. Defective Performance.

The owner may set up as a defense that there was no substantial compliance by the party claiming the lien with its contract. O.C.G.A. § 44-14-361.1(a)(1).

Although an improvement installed by the lien claimant may be faulty or defective, the subcontractor may still assert a lien against the property, but only to the extent of the reasonable value of the improvement to the owner. McCrary v. Barberi, 100 Ga. App. 167, 110 S.E.2d 426 (1959).

The contractor's performance also may be defective if the contractor has failed to obtain a certificate of completion from the architect or engineer. Southern Manufacturing Company v. R.L. Moss Manufacturing Company, 13 Ga. App. 847, 81 S.E. 263 (1909).

Where, however, the failure to issue the architect's certificate is not in good faith, then the owner may be estopped to claim the issuance of a certificate as a defense. Gellis v. B.L.I. Construction Company, Inc., 148 Ga. App. 527, 251 S.E.2d 800 (1978).

ee. Taking Personal Security.

Mechanics who take personal security do not file a lien against the real estate of their employers. O.C.G.A. § 44-14-361(a)(1).

This is a prohibition against the taking of personal security for property by a mechanic. It has often been held that the making of such an arrangement by a material supplier does not constitute a waiver of a valid lien. See Henderson v. Mitchell Engineering Company, 158 Ga. App. 306, 279 S.E.2d 306 (1981).

ff. Non-Resident Contractors Act.

Georgia law requires every construction contractor who is a non-resident of the state of Georgia to register pursuant to the Georgia Non-Resident Contractors Statute, O.C.G.A. § 48-13-30, et seq.

Non-resident contractors who fail to register in accordance with the Act are barred from maintaining an action to recover payment for performance on the contract in the courts of the state of Georgia. O.C.G.A. § 48-13-37. See Lenox Hotel Company v. Charter Builders, Inc., 717 F. Supp. 1558 (N.D. Ga. 1989); Mayor & Aldermen of the City of Savannah v. Norman J. Bass Construction Co., 264 Ga. 16, 441 S.E.2d 63 (1994)(Little Miller Act).

Substantial compliance with the statute is sufficient. D.O.T. v. Moseman Construction Company, 260 Ga. 369, 393 S.E.2d 258 (1990).

If suit is dismissed under the statute, it is dismissed without prejudice. Clover Cable of Ohio, Inc. v. Heywood, 260 Ga. 341, 392 S.E.2d 855 (1990).

Noncompliance with the statute is an affirmative defense which must be proven by the defendant. Absent some proof that the lien claimant has not paid all taxes due, the defense fails. Underground Festival, Inc. v. McAfee Engineering, Inc., 214 Ga. App. 243, 447 S.E.2d 683 (1994).

gg. Claims for Attorneys' Fees.

As might be expected, owners and lien claimants have on numerous occasions sought to collect attorneys' fees from the opposite party. For the most part, these efforts have failed. See Builders Supply Company, Inc. v. Pilgrim, 115 Ga. App. 85, 153 S.E.2d 657 (1967); Pickett v. Chamblee Construction Co., Inc., 124 Ga. App. 769, 186 S.E.2d 123 (1971); Ronfra Development Corporation v. Pennington, 131 Ga. App. 195, 205 S.E.2d 448 (1974); Benning Construction Co. v. Dykes Paving & Construction Co., Inc., 204 Ga. App. 73, 418 S.E.2d 620 (1992), overruled on other grounds, Benning Construction Co. v. Dykes Paving & Construction Co., Inc., 263 Ga. 16, 426 S.E.2d 564 (1993); McLain Building Material, Inc. v. Hicks, 215 Ga. App. 1, 449 S.E.2d 369 (1994).

A recovery under O.C.G.A. § 13-6-11 may be made where no defense exists, forcing the plaintiff to resort to the courts. In such a case, the conduct must cause "unnecessary trouble and expense" as required by the statute. Clements v. Barnes, 197 Ga. App. 120, 397 S.E.2d 560 (1990).

If the recovery of attorneys' fees is sought under O.C.G.A. § 9-15-14, the claim must be made in a timely manner, within 45 days after final disposition of the matter. Marshall v. Ricmar, Inc., 215 Ga. App. 470, 451 S.E.2d 515 (1994).

16. Tactical and Other Considerations.

a. Slander of Title.

Georgia recognizes that the wrongful filing of a mechanic's lien may give rise to an action for slander of title.

In order to prove such a cause of action, the plaintiff must establish the elements stated in O.C.G.A. § 51-9-11, which provides that an owner of an estate in land may maintain an action for libelous or slanderous words falsely and maliciously impugning his title if any damage shall have accrued to him therefrom. The owner must allege and prove the publication of slanderous words (for example, the wrongful filing of a lien), their falsity, maliciousness, and special damages. Anderson v. Golden, 569 F. Supp. 122 (S.D. Ga. 1982); Schoen v. Md. Cas. Co., 147 Ga. 151, 93 S.E. 82 (1917); Lincoln Log Homes Marketing, Inc. v. Holbrook, 163 Ga. App. 592, 295 S.E.2d 567 (1982); Carl E. Jones Development, Inc. v. Wilson, 149 Ga. App. 679, 255 S.E.2d 135 (1979).

In addition, the party bringing suit must have an estate in the property slandered. Schoen v. Md. Cas. Co., 147 Ga. 151, 93 S.E. 82 (1917). Only the owner of the property has standing to bring a claim for slander of title, and where the general contractor who is not the owner of the property affected brings such an action the lien claimant is entitled to a directed verdict in its favor. Bishop Contracting Co., Inc. v. North Georgia Equipment Co., Inc., 203 Ga. App. 655, 417 S.E.2d 400 (1992).

There is no tort action for the filing of fraudulent liens, and a court is correct in treating such an action as one for slander or defamation concerning title to land. Hicks v. McLain's Building Materials, Inc., 209 Ga. App. 191, 433 S.E.2d 114 (1993).

Filing a claim of lien against property for materials furnished to the owner's tenant in an amount exceeding that which the owner agreed to be liable may be actionable, according to the court in F.S. Associates, Ltd. v. McMichael's Construction Company, Inc., 197 Ga. App. 705, 399 S.E.2d 479 (1990). But the mere filing of an excessive lien is not the standard one uses prove defamation of title. Harmon v. Cunard, 190 Ga. App. 19, 378 S.E.2d 351 (1989).

Various defenses to a slander of title action may be asserted by the lien claimant. For example, pursuant to O.C.G.A. § 51-5-8, the filing of a lien and a suit to foreclose the lien are privileged. Eurostyle, Inc. v. Jones, 197 Ga. App. 188, 397 S.E.2d 620 (1990). Privilege also may be claimed where statements are made in good faith to protect the speaker's interests. O.C.G.A. § 51-5-7(3). Matters never before directly addressed by an appellate court also may create a privilege from slander of title suits. See F.S. Associates, Ltd. v. McMichael's Construction Company, Inc., 197 Ga. App. 705, 399 S.E.2d 479 (1990).

To recover for slander of title, special damages must be proven. Generalized allegations that the plaintiff might have been hindered in obtaining credit as a result of the lien filing are insufficient to establish special damages. Hicks v. McLain's Building Materials, Inc., 209 Ga. App. 191, 433 S.E.2d 114 (1993). Likewise, the denial of "full enjoyment" of a home, or allegations that the lien prevented the owner from obtaining funds necessary to complete construction and prevented the sale of the property, without offering specific figures for the damage allegedly suffered, is insufficient to prove special damages. Harmon v. Cunard, 190 Ga. App. 19, 378 S.E.2d 351 (1989). Merely stating a figure ("we are asking $5,000 for that") without stating the basis for that figure is insufficient to prove special damages. Daniels v. Johnson, 191 Ga. App. 70, 381 S.E.2d 87 (1989).

hh. Abuse or Malicious Use of Process.

A lien is not civil process, and the filing of a false lien does not constitute abuse of process. Likewise, malicious use of process requires the plaintiff to prove that the action has been terminated in his favor, and absent such proof, an action for malicious use of process will not lie. Carl E. Jones Development, Inc. v. Wilson, 149 Ga. App. 679, 255 S.E.2d 135 (1979); Ronfra Development Corp. v. Pennington, 131 Ga. App. 195, 205 S.E.2d 448 (1974) (also denying claim for attorney's fees).

ii. Owner Direction or Control.

Where the owner exercises substantial direction or control over the work of construction, then the interest of the owner may be bound, notwithstanding the absence of a direct contractual relationship with the owner. U.S. Lumber Company v. Gignilliat, 77 Ga. App. 336, 48 S.E.2d 688 (1948).

In addition, if the contractor was acting as agent of an undisclosed principal (the owner), then it is possible for the lien claimant to file a lien directly against the owner's interest, notwithstanding any payment to the general contractor. See Robinson v. Reese, 175 Ga. 574, 165 S.E.2d 744 (1932); Shuman-Mann Supply Co., Inc. v. Weaver, 162 Ga. App. 422, 291 S.E.2d 562 (1982).

jj. Direct Suit Against Owner.

Subcontractors, suppliers, and others who supply labor and material to improve the owners property are entitled to lien claims which can result in in rem judgments against the owner's property, but they are not normally permitted to obtain in personam judgments against the owner's personal assets unless they have a direct contract with the owner. Buck v. Tifton Mfg. Co., 4 Ga. App. 695, 62 S.E. 107 (1908); The Vector Co., Inc. v. Star Enterprises, Inc., 131 Ga. App. 569, 206 S.E.2d 636 (1974). Without a direct contract with the owner of the property, the lien claimant cannot obtain a personal judgment against the owner. Davis v. Hoover-Morris Development Co., Inc., 136 Ga. App. 446, 221 S.E.2d 656 (1975).

Direct contracts with the owner are often difficult to prove because the lien claimant usually deals only with agents of the owner and not with the owner directly. The usual issue is whether the agent has authority to enter into contracts on behalf of the owner. This issue often defeats direct actions against the owner. See Hussey, Gay & Bell v. Georgia Ports Authority, 204 Ga. App. 504, 420 S.E.2d 50 (1992).

"Implied contract" or "unjust enrichment" claims have been unsuccessfully asserted by subcontractors and suppliers on many occasions. See P.P.G. Industries, Inc. v. Hayes Construction Company, 162 Ga. App. 151, 290 S.E.2d 347 (1982)(denying relief and citing seven previous cases with the same result). In a particularly severe case, the court in Reidling v. Holcomb, 1997 WL 91323 (Ga. App.) (March 5, 1997), denied an unjust enrichment claim by a contractor against the owner of property on which a contractor had erroneously constructed a house, finding that where the owner was not aware of the mistake and did not stand by while the house was being constructed, that the contractor and not the owner should bear the loss.

Where the lien claimant can establish a direct contract with the owner, it is possible to obtain a judgment against the owner personally, even in the absence of the ability to place lien on the owner's property. See Vulcan Materials Company v. D.H. Overmyer Warehouse Co., 115 Ga. App. 792, 156 S.E.2d 213 (1967).

kk. Lender Liability.

Under a variety of circumstances, lenders have been alleged to be liable to lien claimants and even owners. See Malloy v. Planters Warehouse & Lumber Company, Inc., 142 Ga. App. 69, 234 S.E.2d 807 (1977); Williams v. Chatham Real Estate Company, 13 Ga. App. 42, 78 S.E. 869 (1913); Gillis v. B.L.I. Construction Company, Inc., 148 Ga. App. 527, 251 S.E.2d 800 (1978); First Florida Building Corporation v. Smith, 530 F. Supp. 496 (N.D. Ga. 1982); Peterson v. First Clayton Bank & Trust Company, 214 Ga. App. 94, 447 S.E.2d 63 (1994). For the most part, these action have failed. But see Jordan v. Atlanta Neighborhood Housing Svc., 171 Ga. App. 467, 320 S.E.2d 215 (1984). In the typical case, there is no evidence to indicate that the bank assumed any obligation to obtain lien waivers or payment affidavits or to otherwise ensure that lien claimants were paid before disbursing funds to the builder.

Cases in other jurisdictions raise the issue of whether the lender has a duty, in disbursing funds, to protect the mortgagor against outstanding or potential liens against the mortgaged property. See Annot., 30 A.L.R.4th 134 (1989). Georgia courts are reluctant to infer such an obligation, typically holding that it is the owner, not the lender, who responsible for ensuring that payments made to the contractor are properly disbursed to those having valid claims for labor and material supplied to the project. Peterson v. First Clayton Bank & Trust Company, 214 Ga. App. 94, 447 S.E.2d 63 (1994).

Lien claimants should consider the possibility of requiring lenders to "marshall assets." See Annot., 76 A.L.R.3d 326 (1977).

ll. Criminal Liability.

Any person who with intent to defraud shall use the proceeds of any payment made to him on account of improving real property other than to pay for labor or service performed while any amount for which he may become liable remains unpaid, commits a felony. O.C.G.A. § 16-8-15(a). The failure to pay for material or labor furnished for such property improvements is prima facie evidence of intent to defraud. O.C.G.A. § 16-8-15(b). Numerous prosecutions have been made under this statute.

In addition, any contractor or owner who, after a lawful oath or affirmation has been administered executes a false affidavit, commits the felony of false swearing when this false statement is knowing and willfully made. O.C.G.A. § 16-10-71(a).

mm. Joint Checks.

Suppliers frequently encounter situations in which joint checks (sometimes called "two-party" checks) are issued payable to both the supplier and a subcontractor. Joint checks also may be used where a contractor is faced with a thinly capitalized subcontractor, and the sub's bank insists on the issuance of a check made payable jointly to the sub and the bank. Occasionally, a surety may require that checks be made payable both to the surety and its principal, or may itself issue joint checks to third parties making claim on a payment bond. Although the use of joint checks is common, surprising results may occur if care is not used to properly handle a joint check.

What is a joint check? A joint check is considered to be any check made payable to two or more parties (called "payees"). The effect of a joint check differs depending upon how the check is made out. A check payable to "John Doe and John Smith" is a check made payable to joint payees and must be endorsed by both of them before being cashed. A check made payable to "John Doe and/or John Smith" is made payable to alternative payees, and may be cashed by either of them without the signature of the other. Most contractors will be surprised to know that a check made payable to "John Doe/John Smith" also is made payable to alternative payees and may be cashed by either one of them. Ryland Group, Inc. v. Gwinnett County Bank, 151 Ga. App. 148, 259 S.E.2d 152 (1979).

Joint checks normally are issued pursuant to a formal joint check agreement. The joint check agreement may be made by a contract (Williams v. McCoy Lumber Industries, Inc., 146 Ga. App. 380, 246 S.E.2d 410 (1978)); by letter agreement (Century Engineering and Construction, Inc. v. American Olean Tile Co., 172 Ga. App. 769, 324 S.E.2d 591 (1984)); or by an oral agreement (All-Phase Electric Supply Company v. Transamerican Insurance Company, 162 Ga. App. 104, 290 S.E.2d 208 (1982)).

It is important to remember that a joint check agreement must have consideration in order to be valid. A mere "naked promise" to include a party on a joint check does not create a valid obligation to comply with the promise. Trust Company of Columbus v. Rhodes, 144 Ga. App. 816, 242 S.E.2d 738 (1978). Forbearance from rescinding a contract or forbearance from suing for a breach of contract does, however, constitute sufficient consideration for a joint check agreement. Mann Electric Co. v. Webco Southern Corp., 194 Ga. App. 541, 390 S.E.2d 905 (1990).

A joint check agreement does not automatically make the party agreeing to issue the joint check a surety or guarantor of payment for labor and materials delivered to a job. Century Engineering & Construction, Inc. v. American Olean Tile Company, 172 Ga. App. 769, 324 S.E.2d 591 (1984); All-Phase Electric Supply Company v. Transamerican Insurance Company, 162 Ga. App. 104, 290 S.E.2d 208 (1982); Williams v. McCoy Lumber Industries, Inc., 146 Ga. App. 380, 246 S.E.2d 410 (1978).

What should be considered before a joint check agreement is signed? First, the prudent contractor or supplier should remember to preserve all lien rights. A joint check agreement should be carefully reviewed to determine whether it contains a lien waiver, lien release, or lien subordination limiting the right to file a lien. Certainly consider filing a lien unless adequate assurance of payment is received from the co-payee or suitable arrangements are made for direct payment by the owner before your lien rights expire.

Second, be sure to check every joint check agreement for time limits, notice requirements, or any dollar limit on the total amount of joint checks which will be issued.

Third, from the contractor or supplier's standpoint, it is beneficial if the joint check agreement contains a guaranty arrangement assuring the joint payee of payment in the event of a default by the co-payee. Owners usually will object to such an arrangement on the grounds that they have no effective control over the co-payee. Despite that objection, a guaranty agreement may be negotiated where the owner has need of specially fabricated equipment, material, or labor, or where timely delivery is possible only from a particular contractor or supplier. Negotiating leverage is much stronger before delivery than after.

Another frequently encountered problem is the endorsement of joint checks. There are numerous endorsement problems, including forged endorsements, missing endorsement of a joint payee, or obliteration of the joint payee's name from the check.

A forged endorsement occurs when the joint payee's name is fraudulently signed by the co-payee of a joint check. Falsely endorsing a joint check in this fashion constitutes the criminal act of forgery. Oldham v. State, 179 Ga. App. 730, 347 S.E.2d 698 (1986).

A more common problem is the attempt to cash a check without the endorsement of one of the joint payees. A check payable to joint payees must be endorsed by all of them. O.C.G.A. § 11-3-116(b). A bank which is presented with a joint check endorsed by only one of the payees normally will refuse payment of the check. Where, however, a bank cashes a check endorsed by only one of two joint payees, then the bank, the payor, and the payor's surety (if any) all are liable to the non-signing payee. Insurance Company of North America v. Atlas Supply Company, 121 Ga. App. 1, 172 S.E.2d 632 (1970); Refrigeration Supplies, Inc. v. Bartley, 144 Ga. App. 141, 240 S.E.2d 566 (1977); Citizens and Southern National Bank v. Sun Belt Electrical Constructors, Inc. (In re Sun Belt Electrical Constructors, Inc.), 64 B.R. 377 (N.D. Ga. 1986). See Annot., 47 A.L.R.3d 537 (1973). A bank does, however, have the limited right to add an endorsement of its own depositor where the check is being deposited to that depositor's account. See O.C.G.A. § 11-4-205.

What happens if the names of joint payees are scratched off by the depositor? Again, if all of the payees on a joint check have not endorsed the check, then the bank should refuse to pay the check. It makes no difference that one of the names on a joint check has been scratched off by the depositor. Where a bank accepts a check where the name of a joint payee is obliterated from the check, then the bank accepting the check will be liable for its failure to dishonor the check. First National Bank of St. Paul v. Trust Company of Cobb County, 510 F.Supp. 651 (N.D. Ga. 1981).

What if you are the issuer of a check that is improperly cashed without proper endorsement? The issuer of a joint check has a duty to examine the joint check when it is returned by the bank in order to verify that it is properly endorsed. In most states, there is a one-year limitation period on reporting improper payment due to a missing endorsement. Claims made against the bank after that one-year period are untimely. Trust Company Bank v. Atlanta IBM Employees Federal Credit Union, 245 Ga. 262, 264 S.E.2d 202 (1980).

The issuer of a joint check also should issue remittance instructions indicating how the funds paid by the joint check are to be allocated. Without such instructions, the payee may apply the funds received to any debt of the payor. Piedmont Engineering & Construction Corp. v. Hanna Paint Company, 95 Ga. App. 605, 98 S.E.2d 137 (1955). This could mean that the payment could be directed to a debt other than the one for which the check was intended. This leaves open the possibility of double payments due to mechanic's liens or claims against a payment bond.

Similarly, if the joint payee does not object, the co-payee may allocate funds (as between the two) in any manner he wishes. Lewis v. Sherwin Williams Company, 141 Ga. App. 53, 232 S.E.2d 392 (1977). Thus, the payment could be directed to old invoices, interest, or to debt on unrelated projects. This could expose the joint payee to liability to the issuer of the joint check, particularly where the co-payee asserts valid lien or bond rights against the issuer of the joint check.

As a result of these problems, many jurisdictions follow the "Joint Check Rule." Under the Joint Check Rule, a supplier endorsing a joint check without collecting the proceeds of the check is barred from asserting a lien or bond claim based on that debt. This rule is based on the understanding that a joint check arrangement is designed to protect the issuer of the joint check from the supplier's claim, to protect the supplier by ensuring payment, and to protect the owner from potential lien claims. The reasoning behind the rule varies from jurisdiction to jurisdiction, but usually is based upon the legal defenses of payment, release, waiver, or estoppel.

In contrast, a refusal to accept a joint check usually does not bar the subcontractor from filing a lien or asserting a claim against a payment bond. This is because the mere issuance of the check does not constitute payment. Without both endorsements, a joint check is for all practical purposes a non-negotiable instrument. Piedmont Engineering & Construction Corp. v. Amps Electric Co., Inc., 162 Ga. App. 564, 292 S.E.2d 411 (1982).

What is the effect of the bankruptcy of one of the joint payees? Difficulties frequently encountered in this are include possible preference problems for payments received within ninety days of the filing of the bankruptcy petition, the problems of handling checks which the bankrupt joint-payee has not yet signed, and the problems associated with a two-party check issued in satisfaction of pre-petition shipments.

With respect to preference problems, a debtor filing for bankruptcy is presumed to be insolvent during the ninety-day period preceding the bankruptcy filing. Joint checks cashed during this period may be challenged as preferential payments, and a joint payee may be asked to return money received from joint checks to the debtor's bankruptcy estate.

In jurisdictions with construction trust fund statutes, or in jurisdictions where courts recognize the construction trust fund theory on equitable grounds, the joint payee usually will prevail against the trustee.

The Georgia Code does not contain a trust fund statute. Doyle Dickerson Company v. Durden, 218 Ga. App. 426, 218 S.E.2d 426 (1995)(rejecting contention that O.C.G.A. § 16-8-15 creates a "constructive trust" by implication). Nevertheless, as a matter of common law federal bankruptcy cases starting with Bethlehem Steel Corporation v. Tidwell, 66 B.R. 932 (M.D. Ga. 1986), have applied a trust fund theory in cases arising under Georgia law. See In re American Building Consultants, Inc., 138 B.R. 1015 (N.D. Ga. 1992); In re Amarlite Architectural Products, Inc., 178 B.R. 904 (N.D. Ga. 1995).

In states without the protection of an express or implied construction trust fund doctrine, this result is much less certain. In those states, the joint payee must establish an exception to the preference or else return the funds to the bankruptcy estate. Accordingly, in these states a party receiving a joint check should always be mindful of the fact that funds received by way of a joint check may be lost as an avoidable preference at a later date.

A related problem occurs where a joint check has been issued but where it has not been signed by the debtor. The courts in trust fund jurisdictions have treated the obligation to sign a joint check as an "executory contract" which the debtor must either accept or reject. In this situation the debtor usually will be encouraged or even directed to sign the joint check, particularly where payment of the check will result in the satisfaction of a claim against the bankruptcy estate. In re Sun Belt Electrical Constructors, Inc., 56 B.R. 686 (N.D. Ga. 1986). Jordan Company v. Bethlehem Steel Corporation, 309 F. Supp. 148 (S.D. Ga. 1970).

With respect to the problem of post-petition payments made by a joint check, the bankruptcy court normally will have to deal with the tension between the cash collateral security interest of the debtor's bank as opposed to the claims against the bankruptcy estate by the co-payee. The debtor's bank normally secures loans to the debtor through a security interest taken on the debtor's inventory. Joint checks issued by an owner thus will be considered by the debtor's bank as "cash collateral" arising from the sale of inventory on which it has a security interest. In this situation, most courts find that the bank cannot claim a cash collateral security interest in these proceeds because the funds never become part of the debtor's bankruptcy estate. First Bulloch Bank & Trust Company v. Inca Materials, Inc. (Inca Materials, Inc.), 880 F.2d 1307 (11th Cir. 1989).

Problems associated with joint checks can be avoided if they are anticipated and handled properly when they arise. Joint checks are a useful device to assure payment is received by the proper parties and is not diverted for improper purposes. Proper preparation, endorsement, and the use of allocation instructions will avoid most joint check problems.

nn. Equitable Liens.

An equitable lien has been recognized in Georgia. Shubert v. Spier, 301 Ga. 20, 38 S.E.2d 835 (1946). The court in that case said that "upon proof by the plaintiff of his allegations that he had complied with his own contract insofar as he was permitted by the defendant, and that his failure to complete the same was due to the failure of the defendant to comply with his obligations under the contract, the plaintiff would be entitled to an equitable lien on the improvements made, and for the amount of his recovery on quantum meruit, just as though he had fully performed the contract as contemplated by the statute setting out the lien in his favor."

Equitable liens can only be set out by reason of their analogy to a lien allowed under the same or similar condition by the rules of law. Savannah Steam Rice Mill Company v. Hull, 103 Ga. 831, 30 S.E. 952 (1898).

Where a statute creates a specific lien and gives a specific lien and a specific remedy, a court of equity has no jurisdiction to enforce the lien unless there is some impediment which renders that statute unavailable. Williams v. Jay, 173 Ga. 372, 160 S.E. 426 (1931).

A special lien on specific property may be decreed whenever under the rules of equity the circumstances require this remedy. Chapple v. Hight, 161 Ga. 629, 131 S.E. 505 (1925).

Equitable liens also lie where the contractor is prevented from complying with the strict requirements of the lien statute by actions of the owner. Shubert v. Speir, 201 Ga. 20, 38 S.E.2d 835 (1946); Jones v. Ely, 95 Ga. App. 4, 96 S.E.2d 536 (1957); Gellis v. B.L.I. Construction Company, Inc., 148 Ga. App. 527, 251 S.E.2d 800 (1978). The basis for this claim is quantum meruit.

An equitable lien will not be granted where ordinary diligence could have prevented the error invalidating the mechanics' lien. King v. Rutledge, 208 Ga. 172, 65 S.E. 801 (1951).

An equitable lien against funds of the contractor held by the county may be asserted by unpaid subcontractors and suppliers on public works projects. Such a lien cannot be asserted against funds of the county (which funds are public property not subject to liens), but only against funds which have been earned by the contractor but which are being held by the county and have not yet been disbursed to the contractor. Presumably this would include contract retention earned but not yet disbursed. DeKalb County, Georgia v. J&A Pipeline Company, Inc., 263 Ga. 645, 437 S.E.2d 645 (1993).

oo. Declaratory Proceedings.

Parties opposing a lien claim may seek relief under Georgia's declaratory judgment procedures. See O.C.G.A. § 9-4-1, et seq.. Injunctions and other equitable relief also may be available to prevent enforcement of the lien, to determine priority of the completing lien of the construction lender or other lien claimants, or for other purposes.

Using the declaratory judgment procedure permits a prompt determination of whether the lien is valid through the use of a "show cause" hearing. At the show cause hearing or in subsequent motions the court may order the lien to be dissolved if its invalidity can be proven as a matter of law, thereby accelerating the process of adjudicating the propriety of the lien.

Using this procedure can avoid the sometimes substantial cost of bonding off a large lien. A general contractor or owner seeking to bond off a large lien usually will be asked by the lien bond surety to post a cash bond or other security, and to fully indemnify the surety. The financial impact of posting a large bond is compounded by the prospect of tying up the security for years during the pendency of the lien perfection suit. Using the declaratory judgment procedure seeks to avoid such problems.

Another advantage of this proceeding is that the owner or general contractor can initiate action on pending liens for which lien perfection suits have not yet been filed. The lien claimant has up to one year from the date that the last labor and materials were supplied to the project to file suit to perfect the lien. Once the lien is perfected, the holder of the lien can wait indefinitely to foreclose the lien.

If the owner or the general contractor do not want to wait that long, either can file suit seeking to prove that the lien is invalid. Doing so may conclude the case before there is a need to protect the owner from foreclosure of the lien by withholding disbursement of retainage or creating an escrow account to hold a portion of the contract balance sufficient to pay off the lien.

Filing a declaratory judgment suit also gives the owner or general contractor the advantage of being the plaintiff in the action to set aside the lien, as opposed to waiting and being named as a defendant in a lien perfection action.

Such procedures have been used in a number of Georgia cases. See Hilton v. Institutional Investors Trust, 133 Ga. App. 364, 211 S.E.2d 169 (1974)(lien claimant seeking determination of priority of lien vs. bank's security deed); Murray v. Chulak, 250 Ga. 765, 300 S.E.2d 493 (1983)(validity and priority of lien); Hoffman Electric Company, Inc. v. Chiyoda International Corporation, 203 Ga. App. 731, 417 S.E.2d 371 (1992)(validity of lien against leasehold interest in public property).

j. Fraud.

The failure to remove a lien after payment or the filing of a lien in excess of the amount properly charged to the job may be alleged to constitute fraud.

In order to prevail in such suits, the owner must establish that the misrepresentation made by the lien claimant was either known at the time to be false or was recklessly made with the intention of deceiving the opposite party. Proof of sloppy business practices is not enough to infer knowledge of falsity or intent to deceive. Hicks v. McLain's Building Materials, Inc., 209 Ga. App. 191, 433 S.E.2d 114 (1993).

Actions by the owner which acknowledge that a debt is owed to a lien claimant may estopp the owner from later asserting that the lien was wrongfully filed. Southern Development Company v. Shepco Paving, Inc., 206 Ga. App. 535, 426 S.E.2d 234 (1992).

At least one reported decision has stated that there is no tort action for the filing of a "fraudulent lien," and that a trial court is correct in treating such an action as one for slander or defamation concerning title to land. Hicks v. McLain's Building Materials, Inc., 209 Ga. App. 191, 433 S.E.2d 114 (1993).

17. Suretyship.

a. Suretyship Defined.

Suretyship is a contract by which one person (the surety) becomes liable to perform the obligations of another (the principal) which is owed to a third party (the obligee).

As with any contract, the liability of the surety on a bond is governed by the intention of the parties as expressed in the agreement. Hendricks v. Blake & Pendleton, Inc., 221 Ga. App. 651, 472 S.E.2d 482 (1996). See Barge & Company, Inc. v. Oakwood Steel Company, 128 Ga. App. 597, 197 S.E.2d 405 (1973).

For many years fine distinctions were made between contracts of suretyship and guaranty, but soon the exception swallowed the rule. Under Georgia law, all distinctions between contracts of guaranty and contracts of suretyship have been eliminated. O.C.G.A. § 10-7-1. The abolition of this distinction is not, however, to be applied retroactively. Ford Motor Credit Co. v. Sullivan, 17 Ga. App. 718, 318 S.E.2d 188 (1984).

b. Distinguished from Insurance.

A surety is not an insurer. It is helpful to consider a surety relationship as one where the surety substitutes its credit for the credit of the principal.

In contrast, in a contract of insurance the insurer agrees to indemnify the insured for any losses covered by the contract.

Insurance is based upon actuarial principles which permit the prediction of the frequency and amount of closely defined losses. Given a large pool of insureds, these actuarial principles permit an insurance company to set a premium sufficient to cover anticipated losses.

In contrast, the surety enters into its contract with the expectation that it will not sustain a loss. When a loss is sustained, the surety expects to be indemnified for the loss. Ordinarily, the surety obtains a general agreement of indemnity from the principal, as well as individual corporate officers, wives, and family members.

pp. Compensation/Uncompensated Surety.

The law of suretyship initially arose from a class of persons who gratuitously provided suretyship for the principal's obligation. These "uncompensated" sureties were a favorite of the law due to their perceived generosity in standing as surety for the obligations of the principal. Accordingly, the rule of strictissimi juris arose in the common law of this country. This rule gave the surety the benefit of favorable judicial treatment in a large variety of situations. For example, any increase in the risk of a contract or creation of a new contract expanding the surety's obligation resulted in the total discharge of the surety. Bethune v. Dozier, 10 Ga. 235 (1851).

In the twentieth century, corporate suretyship became common. Large insurance companies entered the field of suretyship and began offering commercial surety bonds. These corporate sureties received a fee for such bonds and were accordingly characterized by the Georgia courts as "compensated" sureties.

In Georgia, a compensated surety is not a favorite of the law. Peachtree Roxboro Corporation v. United States Casualty Company, 101 Ga. App. 340, 114 S.E.2d 49 (1960). Accordingly, the courts in Georgia began to relax the rule of "strict law" and began to find that prejudice to a compensated surety must appear before the surety can be discharged.

Subsequently, in an extremely important case for Georgia sureties, the Georgia Supreme Court in Houston General Insurance Company v. Brock Construction Company, 241 Ga. 460, 246 S.E.2d 316 (1978), held that statutory provisions granting extraordinary protection to the interest of the surety were intended only for the benefit of gratuitous sureties and did not apply to compensated sureties. The court held that the rule of "strict law" does not apply to compensated sureties and that the surety law for compensated sureties must be found in the common law of the state of Georgia.

Application of various protective rules favoring sureties may, however, still be applicable to compensated sureties. Application of these rules must be determined on a case-by-case basis. Morrison Assurance Company v. Preston Carroll Company, Inc., 254 Ga. 608, 331 S.E.2d 520 (1985).

qq. Statute of Frauds.

Contracts of suretyship must ordinarily be in writing. A surety's alleged oral contract to assume obligations under an equipment lease originally executed by a contractor was subject to the statute of frauds and thus was held unenforceable. Forest Services, Inc. v. Fidelity & Casualty Company of New York, 120 Ga. App. 600, 171 S.E.2d 743 (1969). Whether an ambiguous writing creates a bond or a suretyship contract is a question for the jury. Wright v. Trippe, 83 Ga. App. 412, 63 S.E.2d 710 (1951); Yancey Brothers v. Sure Quality Flaming Contractors, 135 Ga. App. 465, 218 S.E.2d 142 (1975).

rr. General Agreement of Indemnity.

The surety ordinarily will require a general agreement of indemnity ("GAI") signed by the principal, any corporate officers, their wives and families. This is to assure that the surety will be compensated in the event of a loss under the bond.

ss. Joint and Several Liability.

The liability under a performance and payment bond is joint and several as to the principal and the surety and the obligee may elect to sue either individually. Aetna Casualty & Surety Company v. Aluminum Company of America, 122 Ga. App. 324, 176 S.E.2d 654 (1970); Hendricks v. Blake & Pendleton, Inc., 221 Ga. App. 651, 472 S.E.2d 482 (1996).

As a result of this joint and several liability, the principal on the bond is not an indispensable party and the claimant on the bond may sue the principal and the surety jointly, or may sue either the principal or the surety alone. Hendricks v. Blake & Pendleton, Inc., 221 Ga. App. 651, 472 S.E.2d 482 (1996).

Venue obtained against the surety will permit venue against the principal. Logan Paving Company v. Lyles Construction, Inc., 141 Ga. App. 81, 232 S.E.2d 575 (1977).

A judgment against the principal is prima facie binding upon the surety. Seaboard Surety Company v. Westwood Lake, Inc., 277 F.2d 397 (5th Cir. 1960).

Where a claimant under the Little Miller Act obtains an arbitration award against only the principal on the bond, but subsequently files suit against both the principal and the surety seeking to modify the arbitration award to add the surety and enter judgment against both the principal and the surety, the surety must be properly served with suit papers before the court has jurisdiction to determine whether the surety is liable on the bonded obligation. ABE Engineering, Inc. v. Travelers Indemnity Company, 210 Ga. App. 551, 436 S.E.2d 754 (1993).

tt. Default.

Normally the surety will seek to obtain some evidence of default from the principal. Usually, this admission of default is in the form of a letter requesting the surety to perform under its bond and admitting default by the principal.

Even without such an admission of default, the failure of the principal to discharge its obligations constitutes default authorizing the surety to protect its interest by making "good faith payments to the obligee." Resolute Insurance Company v. Norbo Trading Company, 118 Ga. App. 737, 165 S.E.2d 441 (1968). See Cotton States v. C&S, 168 Ga. App. 83, 308 S.E.2d 199 (1983).

18. Bid Bonds.

A bid bond is normally given by a bidder on a public or private project in order to guarantee that the bidder will enter into the contract and post the required performance and payment bonds in the event that the bidder is awarded the contract. Both public and private owners who engage in competitive bidding may wish to protect the integrity of the bidding process by insisting on the posting of a bid bond.

If the principal on a bid bond defaults, the liability of the principal and the surety will ordinarily be limited to the difference between the amount of the principal's bid and the amount of the next lowest responsible, responsive bidder. A bid bond is frequently taken as a percentage of the total contract price, but sometimes is required in a stated amount by the owner. One common form of bid bond protect the obligee for up to five percent of the total bid price. See Amwest Surety Insurance Company v. RA-LIN & Associates, Inc., 216 Ga. App. 526, 455 S.E.2d 106 (1995).

A bid bond protects the owner in the event that the general contractor defaults on its obligation to sign a contract with the owner in the amount of the bid. The remedy provided by the bid bond is not the performance of the contract but is instead the payment of a sum of money to compensate the owner for the failure to secure a binding contract.

The consent of the parties being essential to a contract, until each has assented to all the terms, there is no binding contract; until assented to, each party may withdraw his bid or proposition. O.C.G.A. § 13-3-2.

Accordingly, where the bid documents contain an acceptance period which is not supported by any consideration, the bid is revocable at will before acceptance. Amwest Surety Insurance Company v. RA-LIN & Associates, Inc., 216 Ga. App. 526, 455 S.E.2d 106 (1995).

In a bid to a surety for a completion contract, no binding contract is formed where there is no mutual agreement or meeting of the minds between the bidder and the surety as to the identity of the contracting parties. Amwest Surety Insurance Company v. RA-LIN & Associates, Inc., 216 Ga. App. 526, 455 S.E.2d 106 (1995).

19. Performance Bonds.

a. Obligations of Owner.

This bond ordinarily protects the interest of the owner of a public or private construction project. The owner must itself, however, comply with the terms of the contract.

b. Obligations of Principal.

A performance bond guarantees that the principal will perform in accordance with the terms of the contract between the principal and the obligee.

c. Obligations of Surety.

The performance bond is the principal and the surety's guarantee to the obligee that the surety will be liable up to the penal sum of the bond for the performance of the bonded contract.

d. Dual Obligee Rider.

The dual obligee rider is an agreement which gives the lender a direct right of action against the principal and surety to enforce the obligation to pay labor and material claims. It is an attempt to provide additional security to the construction lender. From the perspective of the contractor, the key factor to consider is to assure that the contractor will be paid for all work performed for or on behalf of the lender. In particular, the contractor should be sure to consider the effect of any past-due obligations the owner may have to the contractor, and whether the lender must cure these past-due obligations before the contractor is required to perform under the dual obligee rider.

20. Private Payment Bonds.

A payment bond guarantees that the principal will pay for all labor and material used in the performance of the contract with the obligee. This is the bond that ordinarily protects subcontractors, suppliers, and others who supply labor and material to the general contractor.

In addition to bonds which are required by Georgia and Federal law, so-called "private" bonds may be required by owners for purposes of assuring performance of a private contract and to assure that suppliers of labor and material or properly paid.

The private owner may wish assure itself that a solvent defendant will remain if the general contractor breaches its contract obligation to perform. Indeed, the mere fact that a general contractor or subcontractor is able to post a bond provides the owner with a certain assurance of the solvency and financial strength of the enterprise with which he is dealing. This is one of the most important functions of private performance and payment bonds.

Where a general contractor has bonded obligation to an owner, the general may seek to obtain bonds from his subcontractors.

Letters of credit also are becoming important sources of security for private construction contracts.

Private performance and payment bonds may provide for payment protection which is broader than that which normally is available to contractors under the mechanic's lien law. Ingles Iron Works v. Standard Accident Insurance Company, 107 Ga. App. 454, 130 S.E.2d 606 (1963).

21. Miller Act Payment Bonds.

a. Nature and Purpose.

Statutory performance and payment bonds are mandated by the federal government in order to protect contractors who work on government projects. Without the protection of performance and payment bonds, subcontractors and suppliers would have no security for payment. If legitimate bills go unpaid, subcontractors and suppliers would be unable to file lien against government property, and thus would be relegated to a breach of contract suit against a possibly insolvent general contractor. Recognizing this inequity, the federal government adopted statutory provisions requiring that general contractors performing work for the government be required to post performance and payment bonds protecting the government and subcontractors and suppliers.

This legislation, called the Miller Act, 40 U.S.C. § 270(a)-270(d), requires the posting of a performance bond protected the United States and a payment bond protecting persons supplying labor and material for any contract exceeding $25,000 in amount.

The Miller Act was designed to protect those who furnish material or labor and prosecution of work upon public projects of the United States and to ensure that they will be paid. U.S. ex. rel. Delta Metals, Inc. v. R.M. Wells Company, Inc., 497 F. Supp. 541 (S.D. Ga. 1980); U.S. ex. rel. General Electric Supply Company v. Wiring, Inc., 646 F.2d 1037 (5th Cir. 1981).

Under the provisions of the Miller Act, government contractors must post bond for most construction contracts. The performance bond protects the federal government by giving assurance to the government that if the general contractor defaults on its contractual requirements, that the government will have the opportunity to proceed against a contract bond surety to require performance of the contract.

Likewise, subcontractors and suppliers dealing with government contractors know that they have the protection of a Miller Act payment bond in the event of a default by the general contractor. This labor and material payment bond provides subcontractors with a mechanism for obtaining payment in the event of the insolvency of the general contract.

The primary test of whether a project is one covered by the Miller Act is whether the United States has a direct or indirect interest in the project, including such matters as loans and contributions. U.S. ex rel. Hutto Concrete Co., Inc. v. Magna Building Corp., 305 F. Supp. 1244 (S.D. Ga. 1969).

In contrast, a low-rent housing project which was owned and administered by local housing authority was determined not to be a "federal project" within the meaning of the Miller Act. U. S. ex. rel. Nobles Insulation Company v. Magna Building Corp., 305 F. Supp. 1246 (S.D. Ga. 1969).

uu. Who is Protected.

It is well established that the purpose of the Miller Act is to provide security for those who furnish labor and material in the performance of government contracts, and a liberal construction of the Miller Act is given to accomplish this purpose. Warrior Constructors, Inc. v. Harders, Inc., 387 F.2d 727, 729 (5th Cir. 1967).

The Miller Act extends the protection of the contractor's payment bond "to every person who has furnished labor or material" on a federal construction project. 40 U.S.C. § 270b(a).

A supplier may look to the Miller Act payment bond for recovery of cost and material supplied to a subcontractor and used in a government job. U.S. ex. rel. Brothers Builders Supply Co. v. Old World Artizens, Inc., 702 F. Supp. 1561 (N.D. Ga. 1988).

The Miller Act gives a right of action against the bond for any person having a direct contractual relationship with the subcontractor but no contractual relationship express or implied with the contractor. 40 U.S.C. § 270b(a).

The so-called "first tier" of claimants are those persons who are direct suppliers of labor and material to the prime contractor.

"Second tier" claimants are those who supply labor and material to subcontractors. Unfortunately, the Miller Act does not define the term "subcontractor." As a general rule, parties who are direct subcontractors of the prime contractor, as well as that subcontractor's own subcontractors and suppliers, are protected by the payment bond.

Suppliers of the prime contractor are protected by the provisions of the payment bond, but suppliers of suppliers are not covered by the bond.

Persons in tiers lower than the first and second tier cannot claim under the Miller Act bond.

The obvious importance of securing a position within the protected tiers of the Miller Act places great importance on the characterization of a party as a "subcontractor" instead of a "supplier." If the party has taken responsibility for a large and definable part of the construction project, he is usually considered to be a subcontractor. Aetna Casualty & Surety Company v. United States, 382 F.2d 615 (5th Cir. 1967). See MacEvoy v. United States, 322 U.S. 102 (1944); Brown & Root, Inc. v. Gifford-Hill & Co., 319 F.2d 65 (5th Cir. 1963).

The court's may disregard intermediate entities where the two concerns may be considered a single operation. National Surety Corporation v. United States, 378 F.2d 294 (5th Cir. 1967); Continental Casualty Company v. United States, 308 F.2d 846 (5th Cir. 1962).

vv. What Items Are Covered.

The words "labor and materials in the prosecution of the work" which are used to define the coverage of a Miller Act bond are given liberal construction by the courts. Under this liberal construction, hauling services, transportation, temporary works, labor and materials not incorporated into the work, replacement parts for trucks, and truck rental all have been held to be properly claimed under a Miller Act bond. Massachusetts Bonding & Insurance Company v. United States, 88 F.2d 388 (5th Cir. 1937).

This broad construction is consistent with the remedial effect of the Miller Act and the evident intention of the legislature to protect those whose labor and materials go into public projects. Clifford F. MacEvoy Company v. United States ex rel. Calvin Tomkins Company, 322 U.S. 102, 107 (1944).

While the cost of material provided for construction work is recoverable under a Miller Act payment bond, the cost of tools may not be claimed because they are equipment which the subcontractor may continue to use and are not actually consumed in the public project. This is distinguished from the cost of machinery, which is covered by the Miller Act payment bond. The cost of capital equipment is not covered by the provisions of such a bond. U.S. ex. rel. Brothers Builders Supply Company v. Old World Artisans, Inc., 702 F. Supp. 1561 (N.D. Ga. 1988); U.S. ex. rel. Mississippi Road Supply Company v. H.R. Morgan, Inc., 542 F.2d 262 (5th Cir. 1976).

Generally, attorney's fees are not recoverable from the surety on the general contractor's payment bond. U.S. ex. rel. Carter Equipment Company, Inc. v. H.R. Morgan, Inc., 554 F.2d 164 (5th Cir. 1977).

Pre-judgment interest may be recoverable. Whether pre-judgment interest is recoverable in a Miller Act case is determined by the law of the state in which the work was performed. Under Georgia law, pre-judgment interest may be allowed where the damages are liquidated. Interest may be allowed in certain other cases as well. U.S. ex. rel. Delta Metals, Inc. v. R.M. Wells Company, Inc., 497 F. Supp. 541 (S.D. Ga. 1980); Clow Corp. v. Metro Pipeline Co., Inc., 442 F. Supp. 583 (N.D. Ga. 1977).

A supplier to a contractor need only show items were sold based upon the reasonable belief that they would be included in the project. The materials need not necessarily be incorporated into the construction or need not necessarily be "used in the prosecution of the work." Glassell-Taylor Company v. Magnolia Petroleum Company, 153 F.2d, 527 (5th Cir. 1946); Carlson v. Continental Gas Company, 414 F.2d 431 (5th Cir. 1969).

Rentals for equipment use in the prosecution of the work are generally recoverable under the bond even though such equipment is not incorporated into the building or the project. U. S. ex. rel. Llewellyn Machinery Corp. v. National Surety Corp., 268 F.2d 610 (5th Cir. 1959).

Idle equipment cost contemplated by the contract is not considered "material" within the meaning of the statute and is not covered a Miller Act bond. U.S. ex. rel. Edward E. Morgan Company v. Maryland Casualty Company, 147 F.2d 423 (5th Cir. 1945).

Likewise, those extending credit to subcontractors and suppliers are not ordinarily covered under the Miller Act. Bill Murphy Company v. Elliott, 207 F.2d 103 (5th Cir. 1953). See Annot., 79 A.L.R.2d 843 (1961).

A claim for a subcontractor's increased expenditures for extra labor and equipment costs (as opposed to lost profits) caused by a prime contractor's delays are recoverable under the Miller Act and are not delay damages precluded by a "no damage for delay" clause in the claimant's subcontract. United States ex rel Pertun Construction Company v. Harvesters Group, Inc., 918 F.2d 915 (11th Cir. 1990).

ww. Notice Required.

There is no requirement for a party having a direct contractual relationship with a prime contractor to give notice of its claim under the Miller Act. 40 U.S.C.A. § 270b(a).

Any person having a direct contractual relationship with the subcontractor but no contractual relationship (express or implied) with the contractor furnishing the bond must give written notice to the contractor within ninety days from the date on which such person performed the labor or furnished the last of the material for which the claim is made, stating with substantial accuracy the amount claimed and the name of the party to whom the material was furnished or labor was performed. This notice must be served by registered mail, postage prepaid, in an envelope addressed to the contractor at any place he maintains an office or conducts his business, his residence, or in any manner in which service of process may be obtained. 40 U.S.C. § 270b(a).

Failure to comply with this 90-day notice requirement will bar claim on the payment bond. U.S. ex. rel. Georgia Electric Supply Company, Inc. v. United States Fidelity & Guaranty Company, 656 F.2d 993, 66 A.L.R. Fed 892 (5th Cir. 1981); United States ex rel. Light & Power Utilities Corp. v. Lyles Construction Co., 440 F.2d 474 (5th Cir. 1971); General Insurance Company v. United States ex rel. Audley Moore & Son, 406 F.2d 442 10 A.L.R. Fed. 548 (5th Cir. 1969).

The United States Supreme Court has held that specific requirements that notice be given by registered mail are not necessary when required notice given within the specified time actually has been given and received. Fleisher Company v. United States, 311 U.S. 15, 18-19 (1940).

Where written letters from the general contractor demonstrate that it has received the information required to be provided by the supplier, the notice requirements of the act have been satisfied in that the general contractor has been alerted that payment will be expected directly from him rather from the subcontractor with whom the materialman dealt directly. U. S. ex. rel. Jinks Lumber Company v. Federal Insurance Company, 452 F.2d 485, 487-88 (5th Cir. 1971).

It is not necessary that the writing relied on be signed by the supplier. It is sufficient that there exists a writing from which, in connection with oral testimony, it plainly appears that the nature and state of the indebtedness was brought home to the general contractor. Houston Fire & Casualty Company v. U.S. ex. rel. The Train Company, 217 F.2d 727 (5th Cir. 1954); Coffee v. Gordon, 157 F.2d 968, 970 (5th Cir. 1946).

Some writing that evidences the provision of this information still is necessary in order to assert a claim under the Miller Act. U.S. ex. rel. Brothers Builders Supply Company v. Old World Artisans, Inc., 702 F. Supp. 1561, 1567 (N.D. Ga. 1988).

The statute is not satisfied by sending the contractor copies of monthly statements and summary sheets showing for each job the amount that the subcontractor owed the supplier, the amount paid to date, and the balance. This information was inadequate because there was no demand either oral or written by this procedure, and thus the contractor was given no indication that the supplier was looking to him for payment. United States v. Great American Insurance Company, 537 F.2d 222, 223-24 (5th Cir. 1976).

Likewise, notice or demand also is ineffective if it is premature. National Union Indemnity Company v. R.O. Davis, Inc., 393 F.2d 897, 900 (5th Cir. 1968).

When the materials were furnished merely for repairs or the correction of defects, the notification period under the Miller Act is not extended. United States ex rel. Light & Power Utilities Corp. v. Lyles Construction Co., 440 F.2d 474 (5th Cir. 1971).

On the other hand, where the materials were supplied as a part of the original contract and were necessary to fulfill the original job specifications, this supplying of materials tolls the notice period. Johnson Service Co. v. Trans American Insurance Company, 485 F.2d 164 (5th Cir. 1973).

The line drawn between these two principles is rather hazy. Each case must be judged on its own facts and sweeping rules about "repairs" offer little help in the necessary analysis. Johnson Service Company v. Trans America Insurance Company, 485 F.2d 164, 173 (5th Cir. 1973). The factors to be considered include the value of the materials, the original contract specifications, the unexpected nature of the work, and the importance of the materials to the operation of the system in which they are used.

The fact that no separate charge is made for the material does not preclude a tolling of the notice period. U.S. ex. rel. Georgia Electric Supply Company, Inc. v. United States Fidelity & Guaranty Company, 656 F.2d 993, 996 (5th Cir. 1981).

xx. Filing Suit.

Every suit brought under the Miller Act must be commenced no earlier than ninety days after the last labor was performed or material was furnished or supplied and no later than one year after that date. 40 U.S.C. § 270b.

This one-year limitation of actions is an integral part of the Miller Act, and compliance with the limitation is a condition precedent to maintaining an action. United States v. Maryland Casualty Company, 173 F.2d 245, 247 (5th Cir. 1978); U.S. ex. rel. Brothers Builders Supply Company v. Old World Artisans, Inc., 702 F. Supp. 1561, 1569 (N.D. Ga. 1988).

A suit is timely if it filed within one year of the last furnishing of materials and labor for the project even if it is not filed within one year of the last furnishing of material or labor at issue in the suit. U.S. ex. rel. Aetna Drywall Contractors, Inc. v. Aetna Casualty & Surety Company, 725 F.2d 650 (11th Cir. 1984); General Electric Company v. Southern Construction Company, 383 F.2d 135 (5th Cir. 1967).

A subcontractor taking a promissory note from the general contractor does not release the surety of its liability to the subcontractor under a Miller Act payment bond. United States ex rel. Construction Products Corp. v. Bruce Construction Corp., 272 F.2d 62, 66 (5th Cir. 1959).

Nor is the Miller Act claimant estopped or held to waive its right to sue on the payment bond because it took personal guaranties executed by a subcontractor's officers. U.S. ex. rel. Georgia Electric Supply Company, Inc. v. United States Fidelity & Guaranty Company, 656 F.2d 993, 998 (5th Cir. 1981).

What if the subcontractor's contract contains an arbitration clause? A party may avail itself of its Miller Act remedy only by way of a Miller Act suit in Federal court. United States Fidelity & Guaranty Company v. Hendry Corp., 391 F.2d 13 (5th Cir. 1968).

Nevertheless, a procedure is available to satisfy the requirements of the contract as well as protecting the claimant's rights against the Miller Act bond. Approved procedure is to file a demand for arbitration in accordance with the contract between the parties. Thereafter, within the one-year limitation period of the Miller Act, a federal action must be instituted under the Miller Act against the general contractor and its surety. In this situation, the claimant should seek to stay the federal court litigation pending the outcome of the arbitration, then move to confirm the arbitration aware in the federal court litigation. U.S. ex. rel. Courtland Construction Company v. Weiss Pollution Control Corporation, 532 F.2d 1009 (5th Cir. 1976).

The Miller Act requires that suit be instituted in the district in which the contract was to be performed and executed and not elsewhere, irrespective of the amount in controversy in the suit. 40 U.S.C. § 270b(b). Texas Construction Co. v. U.S. ex. rel. Caldwell Foundry & Machinery Co., 236 F.2d 138 (5th Cir. 1956); United States Fidelity & Guaranty Company v. Alexander, 463 F. Supp. 687 (S.D. Ga. 1979).

yy. Copy of Bond.

The Miller Act provides that the department secretary agency head of the contracting agency is authorized and directed to furnish to any person making application therefor who submits an affidavit that he has supplied labor and materials for such work and payment therefor has not been made or that he is being sued on any such bond, a certified copy of such bond and the contract for which it is given, which copy shall be prima facie evidence of the contents, execution and delivery of the originals. A fee must be paid for these copies. 40 U.S.C. § 270c.

zz. Insolvent Surety

A subcontractor cannot sue the federal government under the Tort Claims Act for the negligence of the contracting officer in failing to properly investigate the financial condition of a surety or the government's failure to insist upon the posting of a bond with adequate surety to protect a subcontractor. Hardaway Co. v. United States Army Corps of Engineers, 980 F.2d 1415 (11th Cir. 1993).

22. Georgia's "Little Miller Act" Payment Bonds.

a. Nature and Purpose.

Georgia has enacted a series of statutes similar to the federal Miller Act which protect parties supplying labor and material for public work's projects in Georgia. These statutes are often collectively referred to as Georgia's "Little Miller Act," even though the statutes are scattered throughout the Official Code of Georgia Annotated. O.C.G.A. §§36-82-100 to 36-82-105; O.C.G.A. § 36-10-4; O.C.G.A. § 13-10-1.

These statutes set out the performance and payment bond requirements on all public contracts where the total contract price exceeds $40,000. On smaller contracts, a public body may in its discretion require performance and payment bonds as well as bid bonds. In addition, where the amount of any bond does not exceed $300,000, the public body is entitled in its sole discretion to accept an irrevocable letter of credit in lieu of the bond otherwise required by the code section. Irrevocable letters of credit to be substituted as an alternative to a bond.

O.C.G.A. § 13-10-1 requires a bid bond in an amount not less than 5% of the total amount payable by the terms of the contract. It is also permissible for cashier's check, a certified check, or cash to be substituted for the bid bond.

Under Georgia law, contractors who are awarded public contracts are required to give a bond for the total amount of the bid for faithful performance of the contract and payment to all persons supplying labor, materials, machinery and equipment in prosecution of the work. O.C.G.A. § 13-10-1(a).

O.C.G.A. § 13-10-1(e) also restricts certain collusive bidding practices among affiliated corporations and provides for the revocation of the bid bond of an affiliated corporation which withdraws its bid in favor of another affiliated corporation with a higher bid which is awarded the contract.

The purpose of Georgia's Little Miller Act is to protect those who furnish labor and materials in the execution of public works contracts due to the fact that the mechanics' lien law of Georgia does not apply to such contracts. Whitley v. Bryant, 59 Ga. App. 58, 200 S.E. 317 (1938); Play Systems, Inc. v. American Druggists Insurance Company, 176 Ga. App. 372, 336 S.E.2d 308 (1985); Colonial Oil Company v. United States Guaranty Company, 56 F. Supp. 545 (S.D. Ga. 1944), Aff'd, 145 F.2d 496 (5th Cir. 1944).

Georgia's Little Miller Act was derived from the federal Miller Act. Play Systems, Inc. v. American Druggists Insurance Company, 176 Ga. App. 372, 336 S.E.2d 308 (1985). Due to its similarity to the Miller Act, Georgia courts often look to decisions of the federal courts in construing this statute. Porter-Lite Corporation v. Warren Scott Contracting Company, Inc., 126 Ga. App. 436, 191 S.E.2d 95 (1972); Amcon, Inc. v. The Southern Pipe & Supply Company, 134 Ga. App. 655, 215 S.E.2d 712 (1975). Decisions interpreting the Miller Act have been recognized by Georgia courts as "persuasive authority." TDS Construction, Inc. v. Burke Company, 206 Ga. App. 223, 425 S.E.2d 359 (1992); Devore & Johnson, Inc. v. Bowen & Watson, Inc., 216 Ga. App. 63, 453 S.E.2d 67 (1995).

The wording of the Georgia Little Miller Act is more liberal than its federal equivalent, and accordingly cases limiting recoveries under the more restrictive Miller Act have been held to be "no authority at all" with respect to cases decided under the Georgia statute. Home Indemnity Company v. Battey Machinery Company, 109 Ga. App. 322, 136 S.E.2d 193 (1964).

aaa. Projects Covered.

Georgia's Little Miller Act applies where the total contract price exceeds $40,000. O.C.G.A. § 13-10-1(c). The statute permits the state, county, or municipal corporation or other public body to require performance and payment bonds or bid bonds or other security for public works even if the amount of the contract is less than $40,000.

In addition to a bond, the Georgia Little Miller Act permits the public body, in its sole discretion, to accept a irrevocable letter of credit issued by a bank or savings and loan association for certain contracts not exceeding $300,000 in lieu of the bond otherwise required.

Only public works projects of public boards within the meaning of O.C.G.A. § 36-82-101 are covered by the Little Miller Act. See Lance Roofing Co. v. Board of Education, 235 Ga. 590, 221 S.E.2d 23 (1975)(Board of Education); Lance Roofing Co. v. Board of Education, 138 Ga. App. 364, 226 S.E.2d 161 (1976)(Board of Education); Housing Authority of Douglas v. Marbut Co., 127 Ga. App. 379, 193 S.E.2d 574 (1972)(City Housing Authority); USF&G Co. v. Rome Concrete Pipe Co., 256 Ga. 661, 353 S.E.2d 15 (1987)(Georgia Department of Transportation).

The provisions of the Little Miller Act, including the limitation period for suits under the Act, are not intended to be applied to any project which may incidentally be the recipient of some public funding. Consolidated Electric Supply, Inc. v. Bishop Contracting Company, Inc., 205 Ga. App. 674, 423 S.E.2d 415 (1992).

bbb. Who is Protected.

By its terms, the payment bond posted under the Georgia Little Miller Act must protect "the state, county, municipal corporation, or public board or body thereof for which the work is to be done" as well as "all subcontractors and all persons supplying labor, materials, machinery, and equipment in the prosecution of the work provided for in the contract." O.C.G.A. §13-10-1.

The Little Miller Act gives every person entitled to the protection of the payment bond who has not been paid in full for labor or material furnished in the prosecution of the work the right to bring an action on the bond. O.C.G.A. § 36-82-104(b). Play Systems, Inc. v. American Druggists Insurance Company, 176 Ga. App. 372, 336 S.E.2d 308 (1985)(holding, inter alia, that the "three month rule" set out in O.C.G.A. § 10-7-24 does not apply to bonds issued under the Little Miller Act).

The statutory bond is afforded a liberal interpretation for the protection of persons who supply labor and materials used in the prosecution of the general contract. Adams & Company v. General Electric Supply Corp., 62 Ga. App. 287, 8 S.E.2d 135 (1940). The statute is remedial in nature and therefore should be liberally construed to accomplish the objectives of the statute. Devore & Johnson, Inc. v. Bowen & Watson, Inc., 216 Ga. App. 63, 453 S.E.2d 67 (1995).

Subcontractors and their employees are protected by the payment bonds required by the Little Miller Act. Western Casualty & Surety Company v. Fulton Supply Company, 60 Ga. App. 710, 4 S.E.2d 690 (1939).

The Georgia statute is not limited to those having a direct contractual relationship with the prime contractor or subcontractor, and instead has been interpreted as protecting even a third-tier subcontractor. Home Indemnity Company v. Battey Machinery Company, 109 Ga. App. 322, 136 S.E.2d 193 (1964); Sunderland v. Vertex Associates, Inc., 199 Ga. App. 278, 404 S.E.2d 574 (1991).

One furnishing material to a subcontractor also is protected. Fireman's Fund Insurance Company v. Fischer and Porter Company, 143 Ga. App. 533, 239 S.E.2d 174 (1977); Sunderland v. Vertex Associates, Inc., 199 Ga. App. 278, 404 S.E.2d 574 (1991).

A supplier to a second tier subcontractor also is protected by Georgia's Little Miller Act. Tom Barrow Company v. St. Paul Fire & Marine Insurance Company, 205 Ga. App. 10, 421 S.E.2d 85 (1992); Bates & Associates, Inc. v. Romei, 207 Ga. App. 81, 426 S.E.2d 919 (1993); Barton Malow Co. v. Metro Manufacturing, Inc., 214 Ga. App. 56, 446 S.E.2d 785 (1994).

Even a supplier of a supplier also is protected by Georgia's Little Miller Act. Home Indemnity Company v. Battey Machinery Company, 109 Ga. App. 322, 136 S.E.2d 193 (1964).

This liberal interpretation differs from the lien statute in that the lien is created and imposed by operation of law, while the bond is a matter of contract and thus is given a broader and more liberal interpretation. Ingalls Iron Works Company v. Standard Accident Insurance Company, 107 Ga. App. 454, 130 S.E.2d 606 (1963).

But even this liberal interpretation will not be sufficient to convert a mere performance bond into a payment bond. B&B Electrical Supply Company v. H.J. Russell Construction Company, 166 Ga. App. 499, 304 S.E.2d 544 (1983).

ccc. What items are covered.

All labor, materials, machinery, and equipment used in the prosecution of the work provided for in the contract may provide the basis for claim against a Little Miller Act bond. O.C.G.A. § 13-10-1(b)(2)(A).

This statute has been construed broadly to include repairs which were "consumed" in the prosecution of work covered by the bond. Sims Crane Service, Inc. v. Reliance Insurance Company, 514 F. Supp. 1033 (S.D. Ga. 1981) aff'd 667 F.2d 30 (11th Cir. 1982).

The Georgia courts generally look to the Miller Act in order to interpret what is covered under the Georgia Little Miller Act. Fireman's Fund Insurance Company v. Fischer & Porter Company, 143 Ga. App. 533, 239 S.E.2d 174 (1977).

The presumption applied to materials delivered to a state project is that they were used on the project, and the burden is on the government to prove that the materials were not so used. TDS Construction, Inc. v. Burke Company, 206 Ga. App. 223, 425 S.E.2d 359 (1992).

Indeed, even if the materials were diverted to another project, the supplier would still be entitled to recover under the Little Miller Act so long as the supplier had a reasonable, good faith belief that the materials were ultimately intended for the state project. TDS Construction, Inc. v. Burke Company, 206 Ga. App. 223, 425 S.E.2d 359 (1992).

Even under the liberal interpretation of the Georgia Little Miller Act the bond does not provide third-party liability insurance coverage. Long v. City of Midway, 169 Ga. App. 72, 311 S.E.2d 508 (1983).

ddd. Notices required.

The notice requirements under the Georgia Little Miller Act are contained in O.C.G.A. § 36-82-104. Effective January 1, 1994, significant new notice requirements have been adopted for both contractors and claimants under the Little Miller Act.

Not later than 15 days after the contractor physically commences work on a public project, the contractor furnishing the payment bond or security deposit required by the Little Miller Act must post on the public work site and file with the Clerk of the Superior Court in the county where the public work is located a Notice of Commencement. O.C.G.A. § 36-82-104(f).

The Clerk of each Superior Court must file the Notice of Commencement within the records of that office and maintain an index separate from other real estate records or an index with the preliminary notices of lien specified in O.C.G.A. § 44-14-361.3. Each such Notice of Commencement must be indexed under both the names of the state, county, municipal corporation, or other public board or body and the contractor as contained in the Notice of Commencement. O.C.G.A. § 36-82-104(h).

Pursuant to O.C.G.A. § 36-82-104(f), the Notice of Commencement must include the following:

(1) The name, address, and telephone number of the contractor;

(2) The name and location of the public work being constructed or a general description of the improvement;

(3) The name and address of the state, county, municipal corporation, or any public board or body thereof which is doing the public work;

(4) The name and address of the surety for the performance and payment bonds, if any; and

(5) The name and address of the holder of the security deposit provided, if any, pursuant to O.C.G.A. § 13-10-1(b)(2)(B).

Failure to give a copy of the Notice of Commencement within ten calendar days of receipt of the written request from a "subcontractor, materialman, or person" relieves such party of the obligation to comply with the Notice to Contractor provisions of O.C.G.A. § 36-82-104(b)(2).

Any person having a direct contractual relationship with the subcontractor, but no contractual relationship express or implied with the contractor on a public work where the contractor has complied with the Notice of Commencement requirements of O.C.G.A. § 36-82-104(f) has a right of action on the payment bond or security deposit posted by the contractor, provided that such person has, within 30 days from the filing of the Notice of Commencement or 30 days following the first delivery of labor, material, machinery, or equipment, whichever is later, has given the contractor a written Notice to Contractor. O.C.G.A. § 36-82-104(b)(2).

The Notice to Contractor must contain the following information, pursuant to O.C.G.A. § 36-82-104(b)(2):

(1) The name, address, and telephone number of the person providing labor, material, machinery or equipment;

(2) The name and address of each person at whose instance the labor, material, machinery or equipment is being provided;

(3) The name and location of the public work;

(4) A description of the labor, material, machinery, or equipment being provided and, if known, the contract price or anticipated value of the labor, material, machinery, or equipment to be provided or the amount claimed to be due, if any.

Under the new statutory scheme, any person having a direct contractual relationship with the subcontractor, but no contractual relationship express or implied with the contractor on a public work where the contractor has not complied with the Notice of Commencement requirements of O.C.G.A. § 36-82-104(f) must give written notice to the contractor of the claim within 90 days from the last date on which labor, material, machinery, or equipment were furnished, stating with substantial accuracy the amount claimed and the name of the party to whom performance was supplied.

The notice to contractors who have not posted a Notice of Commencement is sufficient if it is served by registered or certified mail, postage prepaid, duly addressed to the contractor, at any place at which he maintains an office or conducts his business. Notice is also proper if it is given at his residence or in any post office or branch post office or any letter box under the control of the United States Postal Service. Notice also may be served in any manner in which sheriffs may serve summons or process. O.C.G.A. § 36-82-104(c).

The giving of the written notice specified by the statute is a condition precedent to the right to sue on the payment bond. The writing must be sent or presented to the prime contractor by or on the authority of the supplier. The writing must inform the prime contractor, expressly or by implication, that the supplier is looking to the contractor for payment of the bill. Devore & Johnson, Inc. v. Bowen & Watson, Inc., 216 Ga. App. 63, 453 S.E.2d 67 (1995).

This notice requirement has been very liberally interpreted in Georgia. Even though the tenor of the letters could have been more explicit, where a copy of a notice was sent to the general contractor, no claim was made that it was not sent during the statutory period, it stated the name of the party to whom materials were furnished or supplied, and all discrepancies in the amounts sought by the supplier were corrected five months prior to suit being filed, the notice was deemed sufficient to inform the prime contractor that the supplier was looking to him for payment. Amcon, Inc. v. Southern Pipe & Supply Company, Inc., 134 Ga. App. 655, 215 S.E.2d 712 (1975); Devore & Johnson, Inc. v. Bowen & Watson, Inc., 216 Ga. App. 63, 453 S.E.2d 67 (1995)(sending certified letter considered "some indication" that notice under the statute was intended).

Similarly, the courts have held that where assurances received from an agent of the general contractor are deemed sufficient to give the contractor a "means of knowing" the particular liability of a subcontractor to a materialman, this obviates the necessity for written notice of the materialman's claim. Huddleston Concrete Company v. Safeco Insurance Company of America, 186 Ga. App. 531, 368 S.E.2d 117 (1988); Devore & Johnson, Inc. v. Bowen & Watson, Inc., 216 Ga. App. 63, 453 S.E.2d 67 (1995).

The failure of the bond to recite the statutory requirement for a ninety-day notice does not relieve a claimant of the obligation to supply the notice. Denny & Associates v. Southern Aggregates Company, 184 Ga. App. 832, 363 S.E.2d 50 (1987).

This notice must be received by the contractor within the ninety-day period in order to be sufficient under the statute. F.L. Saino Manufacturing Company v. Fireman's Fund Insurance Company, 173 Ga. App. 753, 328 S.E.2d 387 (1985). In that case, the court noted that notice sent on the last day of the statutory period by regular mail was effective when received, but that notice sent by registered mail was effective when properly addressed, registered and mailed.

Notice sent by regular mail is sufficient provided that it is received within the ninety-day period. Amcom, Inc. v. Southern Pipe & Supply Company, 134 Ga. App. 655, 215 S.E.2d 712 (1975).

In view of the remedial nature of the statute, and the goal of the statute to provide notice of a claim sufficient to place the general contractor and surety in a position to protect themselves, the fact that notice was received indirectly through receipt of a copy of a letter sent to the owner is not fatal to the claim. Amcon, Inc. v. Southern Pipe & Supply Company, 134 Ga. App. 655, 215 S.E.2d 712 (1975).

Even a delay of one day after the 90-day notice period is fatal to the claim, however. York-Shipley, Inc. v. Air Conditioning Contractors, Inc., 470 F. Supp. 56 (N.D. Ga. 1979).

Generally, repairs do not toll the time for giving notice to the general contractor. The issue turns on whether the work was original contract performance which would render the notice timely. Where fact issues as to this issue exist, then it is not appropriate to grant summary judgment against the claimant. Southern Steel Company, Inc. v. United Pacific Insurance Company, 935 F.2d 1201 (N.D. Ga. 1991).

eee. Suit Deadlines.

Georgia's Little Miller Act bars a suit on a payment bond before ninety days from the date of the last furnishing of items under the contract. No action may be instituted on the bond after one year from the completion of the contract and the acceptance of the public building or public work by the public authorities. O.C.G.A. § 36-82-105.

The action must be instituted in the name of the claimant and may not name the state, county, municipality corporation or public board or body for which the work was done or was to be done. O.C.G.A. § 36-82-104(d).

The one-year period for filing suit commences upon completion of the job performance required of the general contractor and acceptance of the project by the public authority. The internal policies and procedures of the public body (for example, an internal audit) does not extend this limitation period. United States Fidelity & Guaranty Company v. Rome Concrete Pipe Company, Inc., 256 Ga. 661, 353 S.E.2d 15 (1987).

Acceptance of the public building may be indicated by the approval of a final pay estimate by the public body. Safeco Insurance Company of America v. Clay-Ric, Inc., 191 Ga. App. 592, 383 S.E.2d 138 (1989).

Where a claimant under the Little Miller Act obtains an arbitration award against only the principal on the bond, but subsequently files suit against both the principal and the surety seeking to modify the arbitration award to add the surety and enter judgment against both the principal and the surety, the surety must be properly served with suit papers before the court has jurisdiction to determine whether the surety is liable on the bonded obligation. ABE Engineering, Inc. v. Travelers Indemnity Company, 210 Ga. App. 551, 436 S.E.2d 754 (1993).

fff. Copy of Bond.

At the beginning of any construction project it is preferable for potential lien claimants to obtain copies of any labor and material payment bonds posted by the general contractor. It is much easier to obtain copies of the bonds before a dispute arises.

It is not necessary to obtain a certified copy in order to sue on the bond. Southern Surety Company v. Dawes, 161 Ga. 207, 130 S.E. 577 (1925).

A certified copy of the bond obtained under this section is prima facie evidence of the existence and terms of the bond. Western Casualty & Surety Company v. Fulton Supply Company, 60 Ga. App. 710, 4 S.E.2d 690 (1939).

The statute provides that a copy of the bond may be secured from the officer who has custody of the bond. To obtain the bond, an applicant must submit an affidavit. The affidavit must state that the claimant (1) has supplied labor or materials for which work and that payment therefore has not been made; or (2) that he is being sued on any such bond or security deposit. Upon receipt of such an affidavit, the officer having custody of the bond must give a copy of the bond and the contract for which it is given, certified by an that official.

ggg. Liability for Failure to Insist on Bond.

No contract with the state of Georgia or with any county, municipal corporation, or any other public board or body for the doing of any public work is valid for any person unless a performance and payment bond or letter of credit is obtained by the contractor. O.C.G.A. § 36-82-101.

The purpose of this statutory bond requirement is to protect persons doing work for the contractor, including subcontractors and employees of subcontractors furnishing labor or materials for the purpose of completing the public contract. Sims' Crane Service, Inc. v. Reliance Insurance Company, 514 F. Supp. 1033 (S.D. Ga. 1981), aff'd, 667 F.2d 30 (11th Cir. 1982).

Effective February 19, 1992, any bid bond, performance bond or payment bond required by the Little Miller Act must be approved as to form and as to solvency of the surety by the officer of the state, county, municipal corporation, or public body or board who negotiates the contract on behalf of the public entity. This approval must be obtained "prior to the bid's being accepted." O.C.G.A. § 13-10-1(f).

Where a municipal corporation or county fails to take the statutory bond required, the claimant has a direct right of action against the city or county pursuant to O.C.G.A. § 36-82-102, and is liable to any person furnishing material to the contractor for purposes of the contract or any loss resulting to such person from the failure of the county to take the required bond. Woodward Lumber Company v. Town of Grantville, 13 Ga. App. 405, 79 S.E. 221 (1913); Ty Ty Consolidated School District v. Colquitt Lumber Company, 153 Ga. 426, 112 S.E. 561 (1922); Hanna v. Lovelace-Young Lumber Company, 159 Ga. 856, 127 S.E. 225 (1925); Decatur County v. Southern Clay Manufacturing Company, 34 Ga. App. 305, 129 S.E. 290 (1925); Kelly Energy Systems v. Board of Commissioners, 196 Ga. App. 519, 396 S.E.2d 408 (1990); Housing Authority of Douglas v. Marbut Co., 127 Ga. App. 379, 193 S.E.2d 574 (1972); City of Atlanta v. United Electric Company, 202 Ga. App. 239, 414 S.E.2d 251 (1991).

In an action to recover from a county for work or labor furnished to a contractor while engaged in doing public work for the county, the petition must show that the loss sued for resulted from the failure of the county to take from the contractor the bond required by law. Hackman v. Fulton County, 77 Ga. App. 410, 48 S.E.2d 706 (1948); Bremen Products Company v. Ledbetter-Johnson Company, 109 Ga. App. 573, 136 S.E.2d 404 (1964); Electrical Equipment Company v. Daniel, 109 Ga. App. 463, 136 S.E.2d 491 (1964).

In late 1993, an important new case on this issue was handed down by the Georgia Supreme Court. In DeKalb County, Georgia v. J & A Pipeline Company, Inc., 263 Ga. 645, 437 S.E.2d 327 (1993), the Georgia Supreme Court reversed the Georgia Court of Appeals decision J & A Pipeline Company, Inc. v. DeKalb County, 208 Ga. App. 123, 430 S.E.2d 13 (1993), and held that if a county takes a payment bond from the general contractor which comports with the statutory requirements and is regular on its face, there is no direct liability to subcontractors and suppliers against the county, notwithstanding the subsequent inefficacy of the bond or the subsequent discovery of the falsity of the affidavit. The county has no affirmative duty to inquire into the sufficiency of the bond. Several Court of Appeals decisions were reconsidered and modified by this ruling. See Atlanta Mechanical, Inc. v. DeKalb County, 209 Ga. App. 307, 434 S.E.2d 494 (1993), reconsidered on remand, Atlanta Mechanical, Inc. v. DeKalb County, 213 Ga. App. 19, 443 S.E.2d 856 (1994); Mayer Electric Supply Company, Inc. v. DeKalb County, 210 Ga. App. 24, 435 S.E.2d 220 (1993), reconsidered on remand, Mayer Electric Supply Company, Inc. v. DeKalb County, 211 Ga. App. 689, 440 S.E.2d 84 (1994); Leisure Lines, Inc. v. DeKalb County, 213 Ga. App. 428, 447 S.E.2d 343 (1994).

The court reserved for decision the issue of whether O.C.G.A. § 13-10-1(f) authorizes a statutory cause of action against a county for failure to verify the solvency of the surety.

The court also permitted the assertion of an equitable lien against funds of the contractor held by the county. Such lien cannot be asserted against funds of the county (which funds are public property not subject to liens), but only against funds which have been earned by the contractor but which are being held by the county and have not yet been disbursed to the contractor. Presumably this would include contract retention earned but not yet disbursed.

hhh. Practice & Procedure.

The surety may waive the protection of terms of its bond limiting the bonded obligation to labor and materials used in the work of improvement by failing to properly assert this defense in its pleadings or at trial. Excavators and Erectors, Inc. v. Bullard Engineers, Inc., 489 F.2d 318 (5th Cir. 1973).

Defenses under the Georgia Nonresident Contractors Act, O.C.G.A. § 48-13-37, are available to the public entity. Mayor & Aldermen of the City of Savannah v. Norman J. Bass Construction Co., 264 Ga. 16, 441 S.E.2d 63 (1994); Underground Festival, Inc. v. McAfee Engineering, Inc., 214 Ga. App. 243, 447 S.E.2d 683 (1994).

23. Surety's Options After Default.

a. Financing the Principal.

The surety may make direct payment of the principal's obligations to others. Under such circumstances, the penal sum of the bond is not normally reduced.

The surety may in the alternative set up a bank account in the name of the principal through which payments may be made in the name of the principal. In addition, a surety may be willing to guarantee a bank loan in the name of the principal.

The surety normally will seek to obtain various forms of agreement protecting the interests of the surety.

One of the principal advantages of financing the principal is that it enables the principal's subcontracts to remain intact. If this does occur, and the work is re-let, then the cost of completion of the contracts may be substantially increased due to the inherent uncertainties attendant to the completion of a partially finished project by others.

The surety often finances the principal when the work is so close to completion that financing is more economical than re-letting the entire project. In any event, the surety usually will carefully prepare a form of agreement outlining the remaining scope of work.

It is extremely important that the surety avoid exerting too much control over the principal. Sureties in some states have been sued for domination of the principal. The flip side of this problem is a suit by the obligee alleging that the surety is acting merely as an alter ego for the principal. Such an allegation could expose the surety to tort claims.

iii. Taking Over and Completing Work.

Another option available to the surety is to take over and complete the work either with the original principal on the bond or with another contractor. The surety's right to take over and complete the contract stem from the existence of a default by its principal. For this reason, it is necessary for the principal either to admit to the obligee and the surety that it is in default and to permit the surety to take over the contract, or for the principal to be terminated by the obligee involuntarily.

Undertaking completion risks some of the same problems as financing the principal. The funds advanced by the surety do not reduce its bonded obligation. As a result, the surety undertaking to complete the contract may expend more than would have been the case had it simply paid out the penal sum of its bond. Although the surety may save money by completing the contract, it is often difficult to determine whether the completion option is more cost effective than other options available to the surety.

If the principal cause of the principal's default is a lack of solvency, taking over and completing may be even more desirable than financing the principal. This is particularly the case where construction has advanced to the point where there is not a substantial unknown risk in completing the remaining construction.

The surety avoids some of the risks of financing a principal who then may declare bankruptcy prior to completion, and there is less risk of diversion of funds. The surety also may be in a superior bargaining position with the owner and may be able to secure more favorable terms than could be obtained by the principal. For example, it might be possible for the surety to obtain a waiver of liquidated damages in exchange for assuming the obligation to complete the project.

When the surety takes over and completes the work, it will attempt to secure existing subcontracts and protect its claim to the contract balance and retainage. Where the surety enters into specific agreements with the contractor with respect to completion of existing contracts, the surety may become liable to the contractor to pay bills incurred by the contractor in performance of the construction, and the failure to advance the money for such purpose in reasonable amounts and at reasonable time may constitute a breach of the contract by the surety. W.C. Shepard Company, Inc. v. Royal Indemnity Company, 192 F.2d 710 (5th Cir. 1951).

jjj. Taking Over and Re-Letting Work.

The surety may elect to take over the work and tender a new contractor to the obligee. This option requires that the surety locate another contractor acceptable to the owner to finish the construction. In this situation, the surety will attempt to remove itself entirely from any additional obligation or perhaps may go so far as to insist that the replacement contractor tender its own bond. The obligee may require the surety to keep its own bond in force as additional security for completion of the project.

In pursuing this option, the surety normally will investigate the nature of the default claimed against the principal and will determine whether the obligee is willing to make a new contract with another party. Additional problems are associated with public owners, who often must consider whether a new contract would require public bidding. If the principal cooperates with the surety and agrees to admit default, the process of replacing the contractor is considerably facilitated and the principal's ultimate liability to the surety may well be reduced.

kkk. Buying Back the Bond.

An agreement by the surety to tender a sum in satisfaction of its obligation under the bond is a simple and expedient method of resolving disputes arising under the contract. Under this scenario, the surety would investigate the amount of its exposure on the bonded obligation and would negotiate with the obligee to reach a mutually acceptable figure for terminating the surety's liability. From the standpoint of the surety, this has the advantage of terminating any additional exposure on the bond.

If the project is sufficiently advanced so that the obligee can determine the nature of its own exposure, then a buy back of the bond may also be desirable to the obligee since it permits a quick resolution of the dispute and permits the obligee to control completion.

lll. Doing Nothing (Owner Completes Work).

The surety may completely deny any responsibility to complete the bonded obligation. Such a decision may arise when the surety believes that the principal has a valid defense under its contract with the obligee or where the surety's investigation determines that the obligee has defaulted or otherwise discharged the surety.

In Georgia, the surety may also elect to do nothing where it has given notice under the "Three Month Rule" of O.C.G.A. § 10-7-24 and the obligee has elected not to pursue the principal.

Where the surety elects to do nothing or to deny responsibility under the bond, then the surety runs the risk of being held in bad faith for its refusal to honor the bonded obligation. Accordingly, a decision to deny responsibility under the bond will be made only after a very careful investigation by the surety.

24. Surety's Liabilities.

a. Cost of Completion.

Under Georgia law, the amounts necessary to complete the bonded obligation and to free them from liens are proper elements of damage in a claim on a performance bond against a surety. New Amsterdam Casualty Company v. Mitchell, 325 F.2d 474 (5th Cir. 1963); Massachusetts Bonding & Insurance Company v. Realty Trust Company, 142 Ga. 499, 83 S.E.2d 210 (1914); Peachtree Roxboro Corporation v. United States Casualty Company, 101 Ga. App. 340, 114 S.E.2d 49 (1960).

b. Liquidated Damages.

The liability of a contractor surety is joint and several with the principal. American Surety Company v. Stoddard, 27 Ga. App. 45 (Case 2), 108 S.E. 622 (1921). Liquidated damages for delay in completion of a project are recoverable in Georgia. Mayor and Council of Washington v. Potomac Engineering and Construction Company, 132 Ga. 849, 65 S.E. 80 (1909). Accordingly, it would appear that the surety should be liable for liquidated damages if such liability can be established against the principal.

c. Incidental and Consequential Damages.

Sureties have been held liable for various forms of indirect damages in Georgia. For example, a surety may be liable for interest on unliquidated sums. Norair Engineering Corporation v. Erickson's, Inc., 152 Ga. App. 489, 263 S.E. 165 (1979).

A surety company also has been held liable for the unpaid rental value of cranes leased to a subcontractor. Sims' Crane Service, Inc. v. Reliance Insurance Company, 514 F. Supp. 1033 (S.D. Ga. 1981) aff'd 667 F.2d 30 (11th Cir. 1982).

Sureties generally are not liable for punitive damages awarded against the principal. See Annot., 2 A.L.R.4th 1254 (1980).

mmm. Attorneys' Fees.

Under the Miller Act, Federal law and not state law governs recovery of attorney's fees. U.S. ex. rel. General Electric Supply Company v. Minority Electric Company, 537 F. Supp. 1018 (S.D. Ga. 1982). Minority Electric held that the Miller Act permits an award of attorney fees to a successful litigant when the opposing party is acting in bad faith, vexatiously, wantonly, or for oppressive reasons. The Georgia statute providing for recovery of attorney's fees and a penalty of 25% of the amount of the loss where a surety is found to have refused to pay in bad faith is not applicable in the Miller Act payment bond suit.

Georgia's bad faith statute does apply to other compensated sureties. A 25% penalty plus reasonable attorney's fees can be awarded against any surety refusing in bad faith to pay within 60 days of demand. O.C.G.A. § 10-7-30.

In Traveler's Indemnity Company v. Sasser & Company, 138 Ga. App. 361, 226 S.E.2d 121 (1976), the Georgia Court of Appeals held that damages and attorney's fees for default by a corporate surety under this code section were in derogation of the common law and must be strictly construed to apply only to the failure to pay the obligee and not to the failure to pay other claimants.

Other authority suggests that "obligee" as used in the statute should be defined to include any obligee or beneficiary pursuant to the terms of the contract of suretyship. Cobb & Eldridge, Georgia Law of Damages, § 24-6, Bad Faith Refusal of Surety to Pay, p. 467 (1989).

The surety may waive the protection of terms of its bond limiting the bonded obligation to labor and materials used in the work of improvement by failing to properly assert this defense in its pleadings or at trial. Excavators and Erectors, Inc. v. Bullard Engineers, Inc., 489 F.2d 318 (5th Cir. 1973).

The claimant's failure to wait at least 60 days between making demand for payment and filing suit constitutes an absolute bar to its statutory claim for the bad faith penalty and attorney fees. Columbus Fire & Safety Equipment Company v. American Druggists Insurance Company, 166 Ga. App. 509, 304 S.E.2d 471 (1983).

A surety's refusal to pay based upon good faith defense raising a reasonable question of law or reasonable issue of fact precludes recovery of bad faith penalties against the surety. Augusta Iron & Steel Works, Inc. v. Employers Insurance of Wausau, 835 F.2d 855 (11th Cir. 1988).

Sureties also have been held liable for attorney fees and expenses of litigation for stubbornly litigious conduct. See Ballenger Corporation v. Dresco Mechanical Contractors, Inc., 156 Ga. App. 425, 274 S.E.2d 786 (1980).

In an action on an indemnity agreement, a surety was held not to be liable to its indemnitor for the attorney fees paid by the indemnitor in resisting indemnity action. Great American Indemnity Company v. Beverly, 150 F. Supp. 134 (N.D. Ga. 1956).

Numerous cases in other jurisdictions have construed attorney fee provisions. See Annot., 69 A.L.R.2d 1046 (1958); 8 A.L.R.3d 1438 (1963).

nnn. Latent Defects.

A surety may be liable for latent defects appearing after the completion and acceptance of a construction project. Sureties may be liable for latent defects where a bond guarantees performance of an underlying contract in accordance with specific plans and specifications. Where those plans and specifications are breached, the surety may be liable. Limitations placed in the bond may restrict or eliminate this liability.

ooo. Bad Faith.

One of the most common failing of the surety is its failure to investigate all of the facts and circumstances surrounding the alleged default by the principal. Where there is an allegation that the principal has defaulted, the surety should exercise reasonable diligence in investigating the facts and circumstances of the default, and should make an independent determination of the liability of its principal. Often, the surety relies upon the efforts of the principal to investigate the claim. Such a delegation of the surety's duty to investigate could raise questions about this efficiency of the surety's investigation, particularly where it is in the principal's interest to convince the surety that the principal is not in default.

Georgia has a bad faith statute applicable to compensated sureties. Under the provisions of O.C.G.A. § 10-7-30, the refusal of the corporate surety to commence the remedy of a default covered by its bond and to make payment to an obligee under the terms of the bond within 60 days after receive of a notice of default, can subject the surety to liability for a 25% penalty and reasonable attorney's fees for the prosecution of the case against the surety. The application of this section is in derogation of the common law and must be strictly construed. Traveler's Indemnity Company v. Sasser & Company, 138 Ga. App. 361, 226 S.E.2d 121 (1976).

Failure to wait at least 60 days after making demand for payment before filing suit constitutes an absolute bar to the statutory claim for a bad-faith penalty and attorneys fees. Columbus Fire & Safety Equipment Co. v. American Druggist Insurance Co., Inc., 166 Ga. App. 509, 304 S.E.2d 471 (1983).

The provisions of this penalty statute have been held applicable to compensated sureties. Houston General Insurance Company v. Brock Construction Company, Inc., 241 Ga. 460, 246 S.E.2d 316 (1978).

25. Surety's Rights.

a. Defense by Principal.

Although the liability of the principal and the surety is joint and several, the principal owes the surety a duty to indemnify and hold the surety harmless from any liability to the obligee.

This common law duty is usually reinforced by an explicit general agreement of indemnity requiring the principal to defend the surety in the event of any claimed default. Accordingly, the surety usually will tender its defense to the principal in the event that the surety is sued on the bonded obligation. The surety may elect to undertake its own defense where the principal is insolvent or where the surety believes that its interests are better served by an independent defense. Under such circumstances, the surety will usually look to the principal for reimbursement of any expenses sustained in defending the surety on the bonded obligation.

b. Exoneration.

Exoneration is the equitable right of the surety to compel the principal to honor the bonded obligation at maturity. Usually, in order to claim the right to exoneration in equity, the surety must show that there has been a default by the principal, that a current obligation is due, and that if the surety paid the obligation that the surety would be entitled to reimbursement from the principal. The surety may seek exoneration from the principal before payment. Cooper v. National Fertilizer Company, 132 Ga. 529, 64 S.E. 650 (1909).

Exoneration is an equitable right of the surety. In essence, the right consist of the power to compel the principal to honor the bonded obligation at maturity without calling on the surety.

The surety may seek exoneration from the principal in an equitable action before making payment. Cooper v. National Fertilizer Company, 132 Ga. 529, 64 S.E. 650 (1909). The right of exoneration is controlled by the terms of the agreement with the principal. Jones v. Norton, 9 Ga. App. 333, 71 S.E. 687 (1911).

Exoneration is based upon the principle of surety law that the burden of default should fall upon the principal obligor and not upon the surety. Bethume v. Dozier, 10 Ga. 235 (1851).

ppp. Subrogation.

Subrogation is the substitution of one person in the place of another with respect to claims or rights, and the succession to the rights of another with respect to rights, remedies, or security. Subrogation is one of the surety's most valuable rights because it permits the surety to obtain access to the construction funds, accounts receivable, retainage, and bank accounts of the principal. It also permits the surety to step into the shoes of a creditor of the principal by payment of the principal's obligation to that creditor.

The surety has subrogation rights with respect to any funds earned and paid to the contractor and still in the contractor's hands. Pearlman v. Reliance Insurance Company, 371 U.S. 132 (1962); Argonaut Insurance Company v. C&S Bank, 140 Ga. App. 807, 232 S.E.2d 135 (1976).

This is true regardless of whether the surety is made in Article 9 filing under the Uniform Commercial Code. Pembroke State Bank v. Balboa Insurance Company, 144 Ga. App. 609, 241 S.E.2d 483 (1978).

The surety has no right to subrogation until it is called upon to perform its obligation under the payment or performance bond. Cotton States Mutual Insurance Company v. Citizens & Southern Bank, 168 Ga. App. 83, 308 S.E.2d 199 (1983).

A surety who has paid the debt of his principal is subrogated both in law and in equity to all of the rights of the creditor and, in a controversy with other creditors, shall rank in dignity the same as the creditor whose claim he paid. O.C.G.A. § 10-7-56.

A surety who pays the debt of his principal also is entitled to be substituted in place of the creditor as to all security held by the creditor for the payment of the debt. O.C.G.A. § 10-7-57.

Accordingly, under both legal and equitable principles, the surety may succeed to either the rights of his principal or the owner as to accounts receivable and retainage. See Fidelity & Deposit Co. of Maryland v. Scott Brothers Construction Co., 461 F.2d 640 (5th Cir. 1972); Travelers Indemnity Company v. West Georgia National Bank, 387 F. Supp. 1090 (N.D. Ga. 1974).

qqq. Indemnity.

The principal owes the surety the right of indemnity for any sums paid out by the surety as a result of the principal's breach of the bonded obligation. United Rentals Systems, Inc. v. Safeco Insurance Company, 156 Ga. App. 63, 273 S.E.2d 868 (1980).

Another valuable right of the surety is to seek contribution in indemnity from the principal for any sums paid out as a result of the principal's breach of the bonded obligation.

At common law, mere legal liability without payment or judgment was not sufficient to authorize the surety to demand indemnity before the surety pays. Harvey v. Daniel, 36 Ga. 562 (1867).

Where, however, a contract of indemnity is the basis on which the surety demands indemnity, then the rule is different. In that event, the terms of the indemnity contract controls and the surety is entitled to enforce the terms of the indemnity contract requiring indemnity before payment.

Under its indemnity agreement, the surety usually is entitled to recover all of its expenses, including attorneys' fees incurred in managing claims under the surety bonds and other expenses incurred in resolving its bonded obligation. Rhodes v. Amwest Surety Insurance Co., Ga. Ct. App. (Case No. A92A1776, Feb. 10, 1993).

Georgia has long recognized that the duty to indemnify may arise from an express or implied indemnity agreement, or by operation of law. Central of Georgia Railway Company v. Macon Railway & Light Company, 9 Ga. App. 628, 71 S.E. 1076 (1911); Southern Nitrogen Company v. Stevens Shipping Company, 114 Ga. App. 581, 151 S.E.2d 916 (1966).

The surety usually will call upon the indemnity agreement immediately upon being notified of the principal's default. Under the indemnity agreement, the surety will seek to obtain whatever funds are available from the indemnitors of the principal. Usually these indemnitors will consist of the officers of the corporation, their wives, and possibly members of their family. Where the principal is a substantial corporation, the surety may not require an indemnity agreement from the officers of the corporation and instead may rely upon the assets of the corporation.

A surety's indemnity agreement with the principal and indemnitors is unenforceable due to a lack of consideration when it is taken after the bonds were already issued by the surety. USF&G v. Blankenship Plumbing Company, 153 Ga. App. 335, 265 S.E.2d 66 (1980).

Likewise, a surety may not recover its losses or expenses under an indemnity agreement if it takes over a project and finances or completes the project when the contractor is not in default. In that event, the surety acts as a volunteer. Seaboard Surety Company v. St. Paul Fire & Marine Insurance Company, 341 F.2d 351 (5th Cir. 1965).

Although an indemnity agreement can be canceled, an oral attempt to withdraw from a written contract of indemnification is ineffective where the contract clearly calls for a written notice of withdrawal. Rambo v. Cobb Bank & Trust Company, 146 Ga. App. 204, 245 S.E.2d 888 (1978).

As surety acting in good faith may protect his interests by settling with the claimant or obligee and still may seek indemnity from the principal. Resolute Insurance Company v. Norbo Trading Corporation, 118 Ga. App. 737, 165 S.E.2d 441 (1968); Ranger Construction Company v. Robertshaw Controls Company, 158 Ga. App. 179, 279 S.E.2d 477 (1981). A judgment against the surety is conclusive against the principal where the principal is placed on notice of the suit. Whipple v. American Surety Company of New York, 92 F.2d 673 (5th Cir. 1937).

rrr. Receivership.

The surety has the right in equity to seek appointment of a receiver to collect the assets of the principal. Sanford v. U.S. Fidelity Company, 116 Ga. 689, 43 S.E. 61 (1902).

sss. Specific performance.

Under Georgia law, the surety has the right to require specific performance of the indemnity agreement, which usually will permit the surety to direct payments by the principal and enforce clauses requiring the indemnitors to post reserves. Storey v. Weaver, 66 Ga. 296 (1881); Shockley v. Davis, 17 Ga. 177 (1855).

26. Defenses Available to the Surety.

a. The Principal's Defenses.

Generally, a surety or guarantor may assert all defenses to a contract which would be available to his principal, with the exception of personal defenses (for example, bankruptcy, incapacity, or infancy). Thomasson v. Pineco, Inc., 173 Ga. App. 794, 328 S.E.2d 410 (1985).

The execution of a release by the principal does not deprive the surety of the right to continue to assert the principal's defenses to reduce the surety's liability on the bond. The Hardaway Co. v. Amwest Surety Insurance Company, 263 Ga. 698, 436 S.E.2d 642 (1993).

b. No Interest in Bond.

The starting point in determining a surety's liability to a claimant is the bonded obligation. If the claimant is a party who is not legally entitled to be protected by the terms of the bond, then the claimant has no interest in the bond and the surety is discharged.

A common example occurs where a claimant seeks protection under a payment bond issued to the owner. Where the bond makes clear that no right of action shall accrue for the use of benefit of any person other than the owner, then a third party may not make a valid claim against the bond. Sentry Indemnity Company v. Central Electric Company, Inc., 136 Ga. App. 557, 222 S.E.2d 40 (1975).

c. Lack of Notice.

Construction bonds often contain terms requiring that notice be given to the surety of any claims asserted against the bond.

In addition, if the bond is issued in compliance with a statute such as Georgia's Little Miller Act, then the notice requirements of the Little Miller Act apply to such bonds. Similar restrictions apply under the Federal Miller Act. See United States For the Use of Brothers Building Supply Company v. Old World Artisans, Inc., 702 F. Supp. 1561 (N.D. Ga. 1988).

d. Contract Modifications.

Under common law, a surety can be discharged from its obligations under a bond if its risk is increased by any act of the principal. Armstrong Transfer & Storage Company, Inc. v. Mann Construction, Inc., 217 Ga. App. 538, 458 S.E.2d 481 (1995). A material change in the nature or terms of the underlying contract which impose additional obligations on the principal or decreases the obligations of the obligee may discharge the surety. Paulle v. Williams, 28 Ga. App. 183, 110 S.E. 632 (1921); Taylor v. Johnson, 17 Ga. 521 (1855).

To be discharged, a compensated surety must show that the material alteration of the contract was prejudicial to the surety. Peachtree Roxboro Corp. v. U.S. Casualty Co., 101 Ga. App. 340, 114 S.E.2d 49 (1960). The surety will not be discharged where there is no change in the actual relationship of the parties, as where an agent is made responsible for day-to-day decisions, nor will the surety be discharged by fraud where there were no material misrepresentations made in the initial contract submitted to the surety agent and its underwriter. Armstrong Transfer & Storage Company, Inc. v. Mann Construction, Inc., 217 Ga. App. 538, 458 S.E.2d 481 (1995).

The liability of the surety cannot be extended by implication or interpretation. Houston General Insurance Company v. Brock Construction Company, 241 Ga. 460, 246 S.E.2d 316 (1978). Accordingly, where the surety contract expressly excludes a right of action on the bond except to obligee, successors, or heirs of the obligee, a right of action on the bond may not be obtained by an assignee of the principal. Southern Patrician Associates v. International Fidelity Insurance Company, 191 Ga. App. 106, 381 S.E.2d 98 (1989); TRST Atlanta, Inc. v. 1815 The Exchange, Inc., 220 Ga. App. 184, 469 S.E.2d 238 (1996).

The prudent course of action is to seek the consent of the surety to such contract modifications unless by the terms of the bond the necessity for such consent is waived. See Bobbitt v. Firestone Tire & Rubber Co., 158 Ga. App. 580, 281 S.E.2d 324 (1981). Many bond forms waive notice of at least some types of alterations. See AIA Form A311.

e. Overpayment by Owner.

One of the most common surety defenses is overpayment by the owner. The surety may claim that it is discharged to the extent of such overpayment on the grounds that the surety ordinarily would be entitled to the use of the funds which were improperly paid to the principal. Where such payments are made in violation of the terms of the bond, then the surety may be discharged. Hartford Accident & Indemnity Company v. Mauney, 66 Ga. App. 403, 17 S.E.2d 885 (1942); Mauney v. Hartford Accident & Indemnity Company, 68 Ga. App. 515, 23 S.E.2d 490 (1943).

Where the payments are made after certification by an architect, engineer, or other person designated in the contract the owner is not responsible to the surety for the mistake and certification and the surety is not discharged from liability to the owner by virtue of the erroneous payments made in good faith in accordance with the approved certificates. Balboa Insurance Company v. Fulton County, 148 Ga. App. 328, 251 S.E.2d 123 (1978).

f. Defense of Discharge.

The obligations of the surety may be discharged where there has been some form of payment or satisfaction of the underlying debt. In addition, the surety may be discharged by cancellation of the debt, impairment of the right of recourse to collateral, fraudulent or material alteration, or other such discharge of the underlying obligation.

For example, a claimant who releases the principal on a payment bond without the consent of the surety discharges the surety unless the claimant reserves his rights against the surety in the release. Even if the claim against the surety is reserved, the release does not preclude the surety from continuing to use the underlying facts, including alleged breaches of contract by the claimant, to reduce the amount of the surety's liability on the bond claim. The Hardaway Company v. Amwest Surety Insurance Company, 263 Ga. 698, 436 S.E.2d 642 (1993)(overruling Hendricks v. Davis, 196 Ga. App. 286, 395 S.E.2d 632 (1990)).

g. Untimely Claim.

The surety is entitled to assert the defense that the underlying claim has not been brought within the limitation period set by the statute. The principal application of this rule is to bonded obligations under the Miller Act and Little Miller Act relating to the timely filing of suit under the terms of these statutes. See Dixie Roof Decks, Inc. v. Borggren/Dickson Construction, Inc., 195 Ga. App. 881, 395 S.E.2d 19 (1990).

h. Liability in Excess of the Penal Sum.

Ordinarily a surety cannot be held liable on a bond for a sum greater than the penal sum of the bond. Restbrook v. Moore, 59 Ga. 204 (1977); Long v. City of Midway, 169 Ga. App. 72, 311 S.E.2d 508 (1983).

Where the surety undertakes to finance the principal, the surety may incur liabilities in excess of the penal sum due to the fact that under the terms of most bonds such loans or payments to the principal do not serve to reduce the penal sum of the bond.

i. Disputed Default.

The principal may dispute its default under the bonded obligation. Under such circumstances, the surety is placed in the position of determining the validity of the disputed claim. A surety acting in good faith may insist upon judicial determination of such questions where the evidence demonstrates that the principal presents a reasonable, albeit unsuccessful, defense. U.S. ex. rel. Georgia Electric Supply Company, Inc. v. United States Fidelity & Guaranty Company, 656 F.2d 993 66 A.L.R. Fed. 892 (5th Cir. 1981).

j. "Three-Month" Rule.

Georgia law gives a surety the right to give written notice to the claimant to proceed to collect the debt from the principal. If the claimant refuses or fails to commence such an action within three months after the notice, then the surety is discharged. A. J. Kellos Construction Company v. Balboa Insurance Company, 661 F.2d 402 (5th Cir. 1981). The notice must state the county in which the principal resides and that county must be within the jurisdiction of the state of Georgia. O.C.G.A. § 10-7-24. This provision applies both to compensated and uncompensated sureties. Balboa Insurance Company v. A.J. Kellos Construction Company, 247 Ga. 393, 276 S.E.2d 599 (1981).

Under this defense, the claimant under the bond must sue the principal within three months after notice from the surety, notwithstanding the fact that the claimant may have other contractual remedies against the principal. Failure to sue the principal within this period bars the claim against the surety. Johnson Controls, Inc. v. Safeco Insurance Company, 261 Ga. 364, 404 S.E.2d 556 (1991).

In 1994, § 10-7-24 was amended to add a requirement that the notice must specifically state that the claimant on the bond loses the right to sue the surety if such action is not instituted within three months after receiving the notice.

This provision is not applicable to a bond furnished pursuant to Georgia's "Little Miller Act." In such cases, Georgia law gives a direct right of action against the surety without the necessity of first proceeding against the principal. Play Systems, Inc. v. American Druggists Insurance Company, 176 Ga. App. 372, 336 S.E.2d 308 (1985).

k. Forum Selection Clauses.

On occasion, actions are brought in Georgia for projects which were constructed in other states. An action on a surety bond is normally considered to be a "transitory" action which can be brought in any court with jurisdiction over the defendant surety. While there can be a variety of legitimate reasons for suing in Georgia, one very important reason for bringing suits against sureties in this state is that Georgia has a bad faith statute which expressly applies to sureties. Many other states do not have such statutory provisions.

In order to protect the surety from such strategic maneuvers, some bonds contain a "forum selection clause" which require that actions on the bond be brought in a particular state or in a particular court. Such a forum selection clause was enforced in Harry S. Peterson Company, Inc. v. National Union Fire Insurance Company, 209 Ga. App. 585, 434 S.E.2d 778 (1993), requiring the dismissal of a Georgia action brought on a project constructed in Virginia. Following United State Supreme Court precedent, the Georgia Supreme Court found such interstate forum selection clauses are prima facie valid and should be enforced unless it is unreasonable to do so.

24. Dispute Resolution.

a. Architect's Decision.

Under most construction contracts, the initial dispute resolution mechanism is to refer disputes to the architect or engineer of record. Accordingly, and under most circumstances, the initial method for resolving disputes will be to submit such disputes to the architect or engineer of record. If the principal or surety fails to comply with this initial stage of the dispute resolution procedure, then future handling of the dispute may be prejudiced.

Challenges to such initial methods of dispute resolution have been made on the grounds that such contract provisions attempt to divest the courts of jurisdiction and accordingly are against public policy. The modern tendency is to reject such challenges on the grounds that the procedure is not an attempt to oust the courts of jurisdiction but instead is intended only only to provide an initial dispute resolution mechanism to solve the daily problems encountered on the job. Caribbean Lumber Company, Inc. v. Anderson, 205 Ga. App. 415, 422 S.E.2d 267 (1992).

b. Arbitration.

Most construction contracts contain arbitration provisions requiring the parties to submit all disputes arising under the contract to binding arbitration. Occasionally, sureties argue that such clauses do not apply to them, primarily on the grounds that they are not signatories to the arbitration agreement.

When faced with this issue, the modern trend is to hold that if the surety bond incorporates the subcontract by reference, then the arbitration provision of the contract also is incorporated by reference into the bonded obligation. Accordingly, if such incorporation clauses exist, the surety usually is required to arbitrate. J.S.& H. Construction Company v. Richmond County Hospital Authority, 473 F.2d 212 (5th Cir. 1973); United Fidelity & Guaranty Company v. Westpoint Construction Company, Inc., 837 F.2d 1507 (11th Cir. 1988); Transamerica Premier Insurance Company v. Collins & Company, General Contractors, Inc., 735 F.Supp. 1050 (N.D. Ga. 1990); Transamerica Premier Insurance Company v. Collins & Company, General Contractors, Inc., 735 F.Supp. 1050 (N.D. Ga. 1990).

Language in the bond stating that "any suit" must be brought within two years is not inconsistent with an agreement to arbitrate. Transamerica Premier Insurance Company v. Collins & Company, General Contractors, Inc., 735 F. Supp. 1050 (N.D. Ga. 1990).

The arbitration award should be confirmed by the prompt filing of a suit between the parties to the arbitration agreement. Summary judgment confirming the award is usually readily available. Failure to promptly confirm the award may prejudice the ability to enforce the arbitration award.

Where a claimant under the Little Miller Act obtains an arbitration award against only the principal on the bond, but subsequently files suit against both the principal and the surety seeking to modify the arbitration award to add the surety and enter judgment against both the principal and the surety, the surety must be properly served with suit papers before the court has jurisdiction to determine whether the surety is liable on the bonded obligation. ABE Engineering, Inc. v. Travelers Indemnity Company, 210 Ga. App. 551, 436 S.E.2d 754 (1993).

c. Litigation.

Litigation against the surety is required to perfect rights under the Miller Act and Georgia's Little Miller Act.

Where an arbitration agreement exists between the parties, the appropriate procedure would be to avoid prejudicing the arbitration remedy by filing an arbitration demand followed by the filing of a suit to perfect the claimant's rights under the Miller Act or the Little Miller Act. Note that the filing of an arbitration proceeding does not satisfy the requirement in both acts to file a lawsuit.

The suit filing should indicate that it is being made to satisfy the requirements of the law and that the parties are subject to an arbitration agreement. After filing suit, litigants subject to an arbitration agreement should immediately move to stay the litigation pending the outcome of the arbitration proceeding.

Now comes [the owner, agent of the owner, or the contractor], not later than 15 days after the day the contractor named herein has physically commenced work on the referenced property, and files this Notice of Commencement with the Clerk of the Superior Court of [county where project is located] and posts a copy of this Notice of Commencement on the project site, as follows:

1. NAME, ADDRESS AND TELEPHONE NUMBER OF THE CONTRACTOR:

[give name, address, and telephone number of contractor]

2. NAME AND LOCATION OF THE PROJECT BEING CONSTRUCTED:

[give name and location of project, including the legal description

of the property upon which the improvements are being made]

3. NAME AND ADDRESS OF THE TRUE OWNER OF THE PROPERTY:

[give name and address of true owner of property]

4. NAME AND ADDRESS OF THE PERSON OTHER THAN THE OWNER AT

WHOSE INSTANCE THE IMPROVEMENTS ARE BEING MADE, IF NOT THE

TRUE OWNER OF THE PROPERTY:

[give the name of such person, if any, or state "Not Applicable"]

5. NAME AND ADDRESS OF THE SURETY FOR THE PERFORMANCE AND

PAYMENT BONDS, IF ANY:

[give the name and address of the surety, if any]

6. NAME AND ADDRESS OF THE CONSTRUCTION LENDER, IF ANY:

[give the name of the construction lender]

This ______ day of ______________, 19____.

[Owner, Agent of the Owner, or Contractor]

By:_________________________________

Title:________________________________

[Name of claimant], gives notice of providing labor, services, or materials, specifically [give a description of the labor, service or materials being provided] with a contract price or anticipated value of [state contract price, anticipated value of the labor, services or materials to be provided or the amount claimed to be due], with respect to that certain project named [name of project as stated in the Notice of Commencement], located at [location of project as stated in the Notice of Commencement] which have been provided at the instance of [name of each person at whose instance the labor, services or materials are being furnished] whose address is [address of each person at whose instance the labor, services or materials are being furnished].

And now, within 30 days from the filing of the Notice of Commencement or 30 days following the first delivery of labor, services or materials to the property, whichever is later, [name of claimant] gives this Notice to Contractor to the Owner or agent of Owner, and to the Contractor for the project as set out in the Notice of Commencement, pursuant to the provisions of O.C.G.A. § 44-14-361.5.

This ______ day of ___________, 19___.

[Name of Claimant]

By: _______________________________

Title:______________________________

[Name of Claimant]

[Address of Claimant]

[Telephone Number of Claimant]

cc: Owner or Agent of Owner [as shown on Notice of Commencement]

Contractor [as shown on Notice of Commencement]

[Name of Claimant] files this Preliminary Notice of Lien pursuant to O.C.G.A. § 44-14-361.3 upon the property owned by [Name of Owner], commonly known as [street address of property], [city where property is located], [name of county where property is located], and which is more specifically described as:

PLEASE SEE EXHIBIT "A" ATTACHED HERETO

AND INCORPORATED HEREIN BY REFERENCE

for providing labor, services, or materials, specifically [include a general description of the labor, service or materials furnished or to be furnished] at the instance of [Name of Contractor] whose address is [Address of Contractor].

This ______ day of ___________, 19___.

[Name of Claimant]

By: _______________________________

Title:______________________________

[Name of Claimant]

[Address of Claimant]

[Telephone Number of Claimant]

Clerk, Superior Court

of ____________ County

You are authorized and directed to cancel of record the preliminary notice of lien rights which we filed on the property owned by [state name of owner] on [give date] and recorded by you in Book ______, Page ______, of preliminary notices kept by you.

This ______ day of __________, 19___.

_________________________________

[Lien Claimant or Attorney]

[Name of Contractor] files this Demand for Filing of Claim of Lien upon the property owned by [Name of Owner], commonly known as [street address of property], [city where property is located], [name of county where property is located], and which is more specifically described as:

PLEASE SEE EXHIBIT "A" ATTACHED HERETO

AND INCORPORATED HEREIN BY REFERENCE

for providing labor, services, or materials, specifically [include a general description of the labor, service or materials furnished or to be furnished] at the instance of [Name of Contractor] whose address is [Address of Contractor].

This demand was mailed to you on [date of mailing] pursuant to O.C.G.A. § 44-14-361.4. You are notified that unless you file a claim of lien with respect to this claim on or before the tenth day after said date of mailing your right to claim a lien will be dissolved.

This ______ day of ___________, 19___.

[Name of Contractor]

By: _______________________________

Title:______________________________

[Name of Contractor]

[Address of Contractor]

[Telephone Number of Contractor]

STATE OF GEORGIA

COUNTY OF _____________

The undersigned mechanic and/or materialman has been employed by [name of contractor] to furnish [describe materials and/or labor] for the construction of improvements known as [title of the project or building] which is located in the City of [name city], County of [name county], and is owned by [name of owner] and more particularly described as follows:

[DESCRIBE THE PROPERTY UPON WHICH THE IMPROVEMENTS WERE MADE BY USING EITHER A METES AND BOUNDS DESCRIPTION, THE LAND LOT DISTRICT, BLOCK AND LOT NUMBER, OR STREET ADDRESS OF THE PROJECT.]

Upon the receipt of the sum of $______________, the mechanic and/or materialman waives and releases any and all liens or claims of liens it has upon the foregoing described property through the date of [date] and excepting those rights and liens that the mechanic and/or materialman might have in any retained amounts, on account of labor or materials, or both, furnished by the undersigned to or on account of said contractor for said building or premises.

Given under hand and seal this _____ day of ________, 19___.

___________________(Seal)

________________________

__________________________

[Witness]

_________________________

[Address]

STATE OF GEORGIA

COUNTY OF _________

The undersigned mechanic and/or materialman has been employed by [name of contractor] to furnish [describe materials and/or labor] for the construction of improvements known as [title of the project or building] which is located in the City of [name city], County of [name county], and is owned by [name of owner] and more particularly described as follows:

[DESCRIBE THE PROPERTY UPON WHICH THE IMPROVEMENTS WERE MADE BY USING EITHER A METES AND BOUNDS DESCRIPTION, THE LAND LOT DISTRICT, BLOCK AND LOT NUMBER, OR STREET ADDRESS OF THE PROJECT.]

Upon the receipt of the sum of $______________, the mechanic and/or materialman waives and releases any and all liens or claims of liens it has upon the foregoing described property.

Given under hand and seal this _____ day of __________, 19___.

______________________(Seal)

___________________________

_____________________

[Witness]

_____________________

[Address]

NOTICE: THIS DOCUMENT WAIVES RIGHTS UNCONDITIONALLY AND STATES THAT YOU HAVE BEEN PAID FOR GIVING UP THOSE RIGHTS. THIS DOCUMENT IS ENFORCEABLE AGAINST YOU IF YOU SIGN IT, EVEN IF YOU HAVE NOT BEEN PAID. IF YOU HAVE NOT YET BEEN PAID, USE A CONDITIONAL RELEASE FORM.

STATE OF GEORGIA

COUNTY OF __________

The undersigned mechanic and/or materialman has been employed by [name of contractor] to furnish [describe materials and/or labor] for the construction of improvements known as [title of the project or building] which is located in the City of [name city], County of [name county], and is owned by [name of owner] and more particularly described as follows:

[DESCRIBE THE PROPERTY UPON WHICH THE IMPROVEMENTS WERE MADE BY USING EITHER A METES AND BOUNDS DESCRIPTION, THE LAND LOT DISTRICT, BLOCK AND LOT NUMBER, OR STREET ADDRESS OF THE PROJECT.]

Pursuant to O.C.G.A. § 44-14-366 the undersigned executed a lien waiver and release with respect to this property dated ____________, 19_____. The amount set forth in said waiver and release ($__________) has not been paid, and the undersigned hereby gives notice of such nonpayment.

The above facts are sworn true and correct by the undersigned, this ______ day of _________, 19 _.

_______________________(SEAL) Claimant's Signature

Sworn to and executed

in the presence of:

______________________

Witness

______________________

Notary Public

CLAIM OF LIEN

[Name of claimant], a [category of claimant] claims a lien in the amount of [amount of lien claim], plus interest at the rate of 1-1/2% per month from [date claim became due], upon that certain building or structure and the premises or real estate upon which it is erected or built, which is owned by [name of owner], which property is commonly known as [street address of property], [city where property is located], [name of county where property is located], Georgia, and which is more specifically described as:

for satisfaction of a claim which became due on [date claim became due] for building, repairing, improving, and furnishing material and labor.

And now, within three (3) months after the completion of the work and the furnishing of labor and materials, the undersigned records this claim of lien in the office of the Clerk of the Superior Court of [county where property is located], Georgia, the county where the property is located, and certifies that the [Owner and/or Contractor] has been sent a copy of this claim of lien by registered or certified mail, pursuant to the provisions of O.C.G.A. § 44-14-361.1.

This _____ day of __________, 19___.

[Name of Lien Claimant]

By:___________________________

Title:__________________________

[Name of Lien Claimant]

[Address of Lien Claimant]

[Telephone Number of Lien Claimant]

cc: [Name of Owner and/or Contractor]

The debt which this instrument was given to secure having been paid in full, this instrument is hereby cancelled and Clerk of the Superior Court of _______________ County, Georgia, is hereby authorized and directed to mark it satisfied of record.

This _____ day of ______________, 19____.

By:_____________________________________________

Title:____________________________________________

In person before the undersigned officer authorized to administer oaths came [Name of Deponent], [Title], of [Name of Contractor], who, after being duly sworn, deposes and states on behalf of [Name of Contractor], ("Contractor") that Contractor was the general contractor in charge of the building and construction on certain property owned by [Name of Owner] ("Owner"), which property is commonly known as [street address of property], [city where property is located], [name of county where property is located], Georgia, and which is more specifically described as:

PLEASE SEE EXHIBIT "A" ATTACHED HERETO

AND INCORPORATED HEREIN BY REFERENCE

Deponent says that he is an officer of Contractor and that he has the authority to issue this affidavit on behalf of Contractor. Deponent further says that Contractor has been in direct charge of the construction and completion of the improvements, additions and renovations placed on the above property, and deponent states that said improvements have now been fully completed and are within the boundary lines.

Deponent further says that Contractor has paid in full all amounts and bills due for all labor, materials and equipment used in making said improvements, and that all contractors, suppliers, and laborers have been paid in full. Deponent says that there are no contracts pending and not yet terminated and that no disputes exist regarding contracts made in the improvement of said property, and that the contract price has been paid in full.

Deponent further says that there are no unpaid bills of any nature, either for labor, material or services for any improvements made on said property, either in the construction or repair of any of the improvements thereon, and that there are no fixtures now installed in said buildings that have not been paid for in full, and that there are no retention of title contracts, bills of sale or other encumbrances of record affecting title to any personal property installed on said premises, the installation for which Contractor was responsible.

Deponent further agrees on behalf of Contractor that if any contractor, subcontractor, laborer, supplier or materialman places a lien on the property resulting from work performed for or supplies and materials furnished to the property for the improvements and renovations for which Contractor was responsible, upon request of the Owner, Contractor will pay, make arrangements for paying, and if necessary, purchase a payment bond to bond off and extinguish the lien or liens.

Deponent on behalf of Contractor states that he hereby acknowledges receipt of payment in full for all amounts due and owing to Contractor for making all of the improvements on said property aforementioned and Contractor hereby relinquishes and releases any and all rights to any lien on said property for labor or material furnished.

[NAME OF CONTRACTOR]

Sworn to and subscribed By: __________________________(Seal)

before me this _____ day Title: _________________________

of _______________, 19_____.

________________________

Notary Public

[CLAIMANT],

Plaintiff,

v.

[OWNER/CONTRACTOR],

Defendant.

NOW COMES the Plaintiff, [Name of Lien Claimant] ("Claimant") and files its Complaint as follows:

Defendant [Owner/Contractor]("Defendant") is a __________ corporation which may be served by serving its registered agent for service of process at [address]. Defendant subject to the jurisdiction of this Court.

On or about February 17, 1989, Defendant entered into a contract with Plaintiff (the "Contract") for the supply of labor and material for the construction of a _______________(the "Project"). A true and correct copy of the Contract is attached hereto as Exhibit 1 and incorporated herein by reference.

The Project was constructed in [County where project was constructed] County on property owned by [Name of Owner] and commonly know as [Street Address] (the "Property"), which is more particularly described in the legal description attached hereto as Exhibit 2 and incorporated herein by reference.

[Name of Owner] is and at all times material to this action has been the Owner of the Property.

All conditions precedent to the bringing of this action have been performed, waived, or excused.

Plaintiff incorporates by reference Paragraphs 1 through 5 of this Complaint as if fully set forth herein.

The total contract price for the construction of the Project was [contract price].

[Owner/Contractor] has paid Plaintiff a total of [amount paid] for its work on the Project.

[Owner/Contractor] has, in breach of contract, failed to pay Plaintiff the remaining balance owing under the Contract of [amount of contract claim].

Plaintiff claims interest on the remaining balance of [amount of contract claim] at the rate of 1.5% per month from [date claim became due] in accordance with O.C.G.A. § 7-4-16.

Plaintiff incorporates by reference Paragraphs 1 through 10 of this Complaint as if fully set forth herein.

Plaintiff has substantially complied with the Contract, in accordance with the requirements of O.C.G.A. § 44-14-361.1.

Plaintiff's claim for labor and materials furnished pursuant to the Contract for construction of the Project became due on [date claim became due].

On [date of lien filing] Plaintiff timely filed a claim of lien (the "Lien") against the Property, in accordance with O.C.G.A. §44-14-361.1. A true and correct copy of the Lien is attached hereto as Exhibit 3 and incorporated herein by reference.

Plaintiff has timely commenced this action against [Owner/Contractor] to [perfect/foreclose] the Lien by filing suit against [Owner/Contractor] within one year from the time its claim became due, as required by O.C.G.A. §44-14-361.1.

Plaintiff is entitled to a judgment perfecting the Lien [and/or permitting foreclosure of the Lien against the Property].

WHEREFORE, Plaintiff prays for the following relief:

(a) Judgment in the amount of [amount of contract claim] against [Owner/Contractor] under Count I, plus interest at the rate of 1.5% per month from [date claim became due];

(b) Judgment granting Plaintiff a lien on the Property for [amount of lien claim], plus interest at the rate of 1.5% per month from [date claim became due];

(c) All costs of this action;

(d) Such other and further relief as this Court deems just and proper.

[Name of Law Firm]

By:______________________________

[Name of Attorney]

Georgia Bar No. ___________________

Attorneys for Plaintiff

[Address of Law Firm]

[Telephone Number of Law Firm]

RE: Property of [name of owner], as evidenced by a deed or other recorded instrument in the chain of title recorded with the office of the Clerk of the Superior Court of [County where property is located] County at Book ____, Page ____.

Personally appeared before the undersigned officer authorized to administer oaths came [Name of Attorney] who states under oath that he is the attorney for [Name of Lien Claimant] and that [Name of Lien Claimant] filed an action for the recovery of the amount of its claim of lien in the [Court where action is brought] in a case styled [case style, including the names of all parties], Case No. [case number], filed on [date suit was filed]. [Name of Lien Claimant] filed a claim of lien recorded at Deed Book ____, Page ____, Superior Court of [County where property is located] County Records on [lien filing date].

This ____ day of ___________, 19___.

Respectfully submitted,

[Name of Law Firm]

____________________________________

[Attorney's Name]

Attorney for [Name of Lien Claimant]

[Address of Law Firm]

[Telephone Number of Law Firm]

Sworn to and subscribed

before me this ____ day

of ______________, 19___.

__________________________

Notary Public