Craft v. STEVENSON LUMBER YARD.

• Decision Date: 23 March 2004
• Citation: 179 N.J. 56,843 A.2d 1076
• Parties: Emory A. CRAFT, Jr., Plaintiff-Appellant, v. STEVENSON LUMBER YARD, INC., Defendant and Third Party Plaintiff-Respondent, v. Michael A. Aladich and Anthony Ditommao, t/a Aladich Homes, Third Party Defendants. DuBell Lumber Company, a Corporation of the State of New Jersey, Plaintiff-Respondent, v. Aladich Builders, Inc., a New Jersey Corporation; Michael Aladich, Individually; Joseph Dimaio and Carla Dimaio; Emory A. Craft, Jr. and Kenneth Theil, Defendants.
• Court: New Jersey Supreme Court

843 A.2d 1076

179 N.J. 56

Emory A. CRAFT, Jr., Plaintiff-Appellant, v. STEVENSON LUMBER YARD, INC., Defendant and Third Party Plaintiff-Respondent, v. Michael A. Aladich and Anthony Ditommao, t/a Aladich Homes, Third Party Defendants.

DuBell Lumber Company, a Corporation of the State of New Jersey, Plaintiff-Respondent, v. Aladich Builders, Inc., a New Jersey Corporation; Michael Aladich, Individually; Joseph Dimaio and Carla Dimaio; Emory A. Craft, Jr. and Kenneth Theil, Defendants.

Supreme Court of New Jersey.

Argued December 1, 2003.

Decided March 23, 2004.

Jonas Singer, Mount Holly, argued the cause for appellant (Wells, Singer, Rubin & Musulin, attorneys; Mr. Singer and Colleen A. McGuigan, on the brief).

Peter C. Lange, Jr., argued the cause for respondent Stevenson Lumber Yard, Inc.

Charles F. Kenny, River Edge, argued the cause for amicus curiae Building Contractors Association of New Jersey (Peckar & Abramson, attorneys; Mr. Kenny and Craig H. Parker, on the briefs).

Edward M. Callahan, Jr., Roseland, argued the cause for amicus curiae Northern New Jersey Chapter, Inc., National Electrical Contractors Association (Clancy, Callahan & Smith, attorneys; Mr. Callahan and Joseph A. Rizzo, on the brief).

Donald V. Feeley, Westmont, submitted a letter in lieu of brief on behalf of respondent DuBell Lumber Company (Rudd, McDonough and Feeley, attorneys). The opinion of the Court was delivered by LONG, Justice.

This appeal presents us with an opportunity to revisit the Construction Lien Law, (CLL or Act), N.J.S.A. 2A:44A-1 to -38, a statute that was enacted primarily to secure payment for contractors, subcontractors, and suppliers who furnish labor or materials used to enhance the value of the property of others. The case involves a "lien claim" (N.J.S.A. 2A:44A-9), which constitutes the value of the labor or materials provided, and a "lien fund" (N.J.S.A. 2A:44A-10, 23), which is the measure of what is recoverable pursuant to a lien.

With respect to the lien claim, the question is whether an innocent property owner is liable to a supplier when the owner has paid his general contractor for supplies, which payments were transferred to the supplier without being earmarked, and were not recognized by the supplier as satisfying that property owner's account balance. We hold that a supplier has a duty to determine which of a contractor's projects is the source of its payment and to allocate the payment accordingly. Having failed in that duty, the supplier here was unable to verify the existence of a debt as required under the CLL and thus, no lien claim against the owner's property can be advanced.

Regarding the lien fund, at issue is the measure of the amount that is available to a subcontractor or supplier with a lien claim when the contractor has abandoned the job at a point at which the property owner has made all of the progress payments to date. We hold that the measure of the amount available to the lien claimant in such circumstances is determined in accordance with N.J.S.A. 2A:44A-10 and -23 by subtracting the payments made to date from the "total contract price" agreed upon in writing by the parties.

I

Because the case comes to us on appeal from the grant of summary judgment in favor of the lien claimants, we view the facts in a light most favorable to the nonmoving party, the property owner. R. 4:46-2. So viewed, the facts are as follows: On March 18, 1998, plaintiff, Emory Craft, Jr. retained Aladich Builders, Inc. (Aladich) to construct a residence for him at a total cost of $220,000.00. In preparation for and during the job, Aladich purchased supplies from Stevenson Lumber Yard, Inc. (Stevenson), among others.¹ As the job progressed, Craft paid Aladich for labor and materials when payments became due. During the same period, Aladich had several construction projects ongoing and purchased building materials from Stevenson to supply all of its different jobs.

When Aladich made a payment to Stevenson and, more particularly, when it paid Stevenson the money it had received from Craft, Aladich did not specify for which construction project the payment was intended and Stevenson simply applied the payments to the oldest outstanding Aladich invoice.

Aladich eventually ceased working on the Craft job after Craft had paid $166,980.00. At that point, according to Craft, he owed Aladich nothing for the work that had been performed. Michael Aladich, the principal of Aladich, then filed for personal bankruptcy. Although the corporation did not file for bankruptcy, it was nonetheless insolvent by late summer of 1999 according to Michael Aladich.

On June 16, 1999, Stevenson filed a Construction Lien Claim against the real property owned by Craft in the amount of $53,019.59.² When Stevenson's lien claim was filed, Aladich owed it approximately $75,000 for all of the projects for which Stevenson had provided supplies.

In August 1999, Craft filed a Complaint against Stevenson demanding a judgment dismissing the Construction Lien Claim. Stevenson answered and counterclaimed, requesting that Craft's Complaint be dismissed and claiming the right to file the lien against Craft's property. In addition, in a Third Party Complaint, Stevenson sought judgment against Aladich for approximately $75,000. Craft answered Stevenson's Counterclaim, demanding dismissal. An arbitrator determined that Craft was not liable to Stevenson on the construction lien, and Stevenson requested a trial de novo pursuant to Rule 4:21A-6.

As the trial approached, Craft, Stevenson, and DuBell filed cross-motions for summary judgment—Craft to discharge the lien and Stevenson and DuBell to enforce it. The trial court ruled in favor of Stevenson and DuBell on the motions.

Craft appealed, challenging the legitimacy of Stevenson's lien claim and the existence of a lien fund in connection with the claims of both Stevenson and DuBell. The Appellate Division affirmed the grant of summary judgment in favor of Stevenson and DuBell. In so doing, the court recognized an inequity in the scheme, but held that, under the statute, the innocent homeowner must bear the financial burden caused by a defaulting contractor, despite paying for his supplies in full and despite having no knowledge that the contractor had outstanding accounts with its supplier.

We granted Craft's petition for certification. 177 N.J. 221, 827 A.2d 289 (2003). We also accorded amicus curiae status to the Building Contractors Association of New Jersey (BCA/NJ) and to the Northern New Jersey Chapter, Inc., National Electrical Contractors Association (NECA). We now reverse.

II

Craft raises two fundamental arguments. First, there is no construction lien fund when a homeowner already has paid for all the work that has been completed, has not made advance payments for unperformed work, and the contractor has walked off the job over the homeowner's objection. Second, there is no construction lien claim when a supplier pyramids construction monies from one project to finance another.

Stevenson counters that, under the CLL, the lien fund in this case was the amount of the outstanding balance on the contract between Craft and Aladich at the time Stevenson's lien claim was filed (approximately $53,000), and that Aladich's later walk-off did not affect that calculation. DuBell joins in that argument. Stevenson also contends that, as a creditor, it was entitled to apply Aladich's payments to its account in any manner it chose so long as the payments were made without specific direction to the contrary.

BCA/NJ argues that a property owner who has paid its contractor in full for the work that has been completed cannot be subjected to the lien claims of suppliers under the CLL. In that respect, BCA/NJ contends that the contract amount between Craft and Aladich, for purposes of calculating the fund, should reflect valid adjustments. Specifically, because Aladich walked off the job after performing $l66,980 worth of work, for which Craft had paid in full, that figure and not $220,000 is the "contract" amount. According to BCA/NJ, because Craft "owed" no money, no lien fund exists. Finally, BCA/NJ contends that in order to invoke the beneficial and extraordinary remedial provisions of the CLL, creditors have a duty and obligation to allocate funds that are received to the projects from which they are derived.

NECA argues that the lien fund in this case is simply the total contract price between Craft and Aladich ($220,000) less any amounts that have been paid and that any other interpretation would misread the statute and pave the way for evisceration of the remedial lien fund concept. However, it agrees that a specific allocation requirement applicable to potential construction lien claimants should be imposed because the spirit of the CLL is violated when a lien claimant arbitrarily allocates payments received from one project to another.

III

A.

The CLL creates lien rights in real property designed to guarantee effective security to those who furnish labor or materials used to enhance the value of the property of others...." Thomas Group, Inc. v. Wharton Senior Citizen Hous., Inc., 163 N.J. 507, 517, 750 A.2d 743 (2000). Because that remedy was unknown at common law and because it is exclusively statutory in origin, it has been held that the act must be strictly construed. Baldyga Constr. Co. v. Hurff, 174 N.J.Super. 616, 618, 417 A.2d 110 (App. Div.1980) (disagreeing with trial court's assumption that strict construction of mechanic's lien statutes may be "softened by the facts of a particular case"); Apex Roofing Supply Co. v. Howell, 59 N.J.Super. 462, 467, 158 A.2d 49 (App.Div.1960). That notion is something of an overstatement. Indeed, over 40 years ago, interpreting the predecessor Mechanics Lien Law, N.J.S.A. 2A:44-64 to 2A:44-104, 2A:44-106 to 2A:44-124.1, this Court parsed the statutory interpretation issue in a more nuanced way, reflecting the goals underpinning the...