Graybar Elec. Co. v. Manufacturers Cas. Co.

• Decision Date: 30 September 1955
• Docket Number: No. L--760,L--760
• Citation: 37 N.J.Super. 284,117 A.2d 196
• Parties: GRAYBAR ELECTRIC CO., Inc., a corporation, Plaintiff, v. MANUFACTURERS CASUALTY CO., a corporation, Defendant and Third-PartyPlaintiff, BOARD OF EDUCATION OF THE CITY OF PLAINFIELD, a municipal corporation,Third-Party Defendant. . Law Division
• Court: New Jersey Superior Court

Page 284

37 N.J.Super. 284

117 A.2d 196

GRAYBAR ELECTRIC CO., Inc., a corporation, Plaintiff, v. MANUFACTURERS CASUALTY CO., a corporation, Defendant and Third-PartyPlaintiff BOARD OF EDUCATION OF THE CITY OF PLAINFIELD, a municipal corporation,Third-Party Defendant.

No. L--760.

Superior Court of New Jersey Law Division.

Sept. 30, 1955.

Furst, Furst & Feldman, Newark, for plaintiff (Louis Kraemer, Newark, appearing).

Mead, Gleeson, Hansen & Pantages, Newark, for third-party plaintiff.

Frank H. Blatz, Plainfield, for defendant.

WAUGH, J.C.C.

On May 21, 1953 Nathan R. Epstein, trading as N. R. Epstein Electric Company, hereinafter called Epstein, and the defendant Board of Education of the City of Plainfield, hereinafter called the board of education, entered into a contract by which Epstein was to do certain work on the electrical system of a certain school (Evergreen) in the City of Plainfield for the sum of $43,940.

The contract, Exhibit A, provides in Article 3 thereof, that the specifications, also Exhibit A, shall form a part of the contract between the parties.

The specifications provide, among other things, as follows:

'Payments

'The Owner will make monthly payments to the contractor based on ninety percent (90%) of the estimated contract cost of completed work at the end of each month, as certified by the Engineer.

'Payment of retained percentage will be made sixty (60) days after final date of acceptance.'

'Liens, Stop-Payment Notices, and Claims

'Neither the final payment or any part of the retained percentage shall become due until the contractor, if required, shall deliver to the Owner a complete release of all liens or stop-payment notices for claims arising out of this contract, or receipts in full in lieu thereof or if requested a complete release from all parties who furnished labor or material or both under this contract, and if required in either case, an affidavit that so far as he has knowledge or information, the release of receipts include all the labor and material, for which a lien or stop-notice could be filed but if any sub-contractor refuses to furnish a release or receipt in full, the contractor may if agreeable to the Owner, furnish a satisfactory bond to the Owner to indemnify him against any claims by lien or otherwise. All costs to the Owner in connection with liens, stop payment notices, claims of subcontractors, material dealers, etc., shall be paid by the Contractor or his bond, including any reasonable legal expenses in connection with such liens, claims, stop notices, or legal proceedings arising therefrom, should such be required.

'The Owner reserves the right to withhold on account of subsequently discovered evidence, the whole or part of any monthly payment to such extent as may be necessary to protect against loss on account of defective work not remedied or any form of payment claims against the contractor that may subsequently have accrued.'

'Final Acceptance

'The final acceptance shall not be binding or conclusive upon the Owner should it subsequently develop that the contractor has supplied inferior material or workmanship or has departed from the terms of his contract. Should such a condition appear the Owner shall have the right, notwithstanding, final acceptance and payment to cause the work to be properly done in accordance with the drawings and specifications at the cost and expense of the contractor or his bond.'

The plaintiff herein, Manufacturers Casualty Insurance Company, hereinafter called Manufacturers, issued its bond No. 501349 in the amount of $43,940 to defendant board of education. The bond is issued in accordance with the Municipal Mechanics Lien Law, N.J.S. 2A:44--125 et seq., N.J.S.A., and especially section 2A:44--143. The bond, which has Epstein as principal, is in the statutory form required by section 2A:44--147.

Epstein completed its work on the job and submitted its invoice (Exhibit B) No. 2906, dated October 7, 1953, to the board, bearing the notation, 'All work completed as per plans and specifications.' The bill was a final one in amount $6,225.50. The invoice was approved by Vogelbach and Bowman, consulting engineers for the project.

The board of education, at its November 17, 1953 meeting, approved the payment to Epstein (Exhibit C). Thereupon voucher No. 1136, dated November 5, 1953, was delivered. The minutes are silent as to whether or not the board accepted the job or approved the payment as a final one.

On April 7, 1954 the board received a letter from the attorneys for Graybar Electric Co., Inc., a subcontractor of Epstein, making inquiry as to acceptance of the work.

On May 4, 1954 Epstein filed a voluntary petition and was adjudicated a bankrupt. The board passed the following resolution on June 7, 1954 'Upon motion of Messrs. Sandford and Kinsey, the following resolution made necessary by the bankruptcy of the contractor, was approved:

'Whereas, the N. R. Epstein Electric Company substantially completed a contract for electrical work in the Evergreen School in October, 1953, and

'Whereas, final payment of the contract price was approved by the Board of Education on November 17, 1953, now therefore, be it

'Resolved, that the work covered by the said contract dated May 21, 1953, be and hereby is accepted as completed by the Board of Education.'

Graybar thereupon sued the Manufacturers Casualty Insurance Company for $14,273.32 on the surety bond. Manufacturers Casualty Insurance Company joined the board of education as third-party defendant. The suit between Graybar and Manufacturers was settled by payment to Graybar, and the action between Manufacturers, as plaintiff, and the board of education, as defendant, was by agreement submitted for decision on stipulation of fact.

The plaintiff (Manufacturers) claims that by reason of the failure of defendant (board of education) to retain 10% Of the contract price for 60 days after final date of acceptance, plaintiff was deprived of the use of the sum of $4,394 which could have been applied to the reduction of the Graybar claim.

Plaintiff argues that prepayment of the 10% Was a violation of the contract between Epstein and the board of education, and that, under the following cases, the provision for the retention of 10% Is as much for the benefit of plaintiff surety as for the protection of the board of education. Ft. Worth Independent School District v. Aetna Casualty & Surety Co., 48 F.2d 1, 77 A.L.R. 222 (5 Cir.1931); Jersey City Water Supply Co. v. Metropolitan Construction Co., 76 N.J.L. 419, 69 A. 1088 (Sup.Ct.1908). It argues further that the moneys held by the board of education constituted a trust, and that plaintiff had an equitable interest in the fund, citing National Surety Corporation v. Barth, 11 N.J. 506, 95 A.2d 145 (1953) and Bankers Title & Abstract Co. v. Ferber Co., 15 N.J. 433, 105 A.2d 408 (1954). It urges the right of exoneration or indemnification by the board.

Plaintiff argues further that the actual date of acceptance as required by N.J.S. 2A:44--145, N.J.S.A., before action may be brought against the surety, is immaterial in this case since the money was disbursed within a few days after November 17, 1953, the earliest possible date of acceptance, and the disbursement was in violation of the contract which required that the 10% Be held for 60 days.

Defendant urges that the acceptance required by N.J.S. 2A:44--145, N.J.S.A., was made on November 17, 1953 and since no claim was made against plaintiff within 80 days, as required by that section, plaintiff had a perfect defense to Graybar's claim.

The legislative purpose of N.J.S. 2A:44--145, N.J.S.A., was to protect the rights of the public body 'by requiring that no steps shall be taken by materialmen or laborers, looking to the enforcement against the surety of their claims * * * until after the building or improvement has been accepted by such public agency.' Thus the claims of materialmen and laborers are not paid by the surety without regard to the rights of the public body. Franklin Lumber Co. v. Globe Indemnity Co., 102 N.J.L. 9, at pages 12, 13, 130 A. 608, 610 (Sup.Ct.1925), affirmed 102 N.J.L. 715, 133 A. 919 (E. & A.1926).

Without doubt, the 'acceptance' used in the contract and specifications here under consideration means the date of acceptance used in the statute, N.J.S. 2A:44--145, N.J.S.A., and were that date material, it would have to be determined in accordance with the statute and the cases construing it. Paul H. Jachnig, Inc., v. Standard Accident Insurance Co., 18 N.J.Super. 536, at page 540, 87 A.2d 558 (Cty.Ct.1952), cases collected.

This court concludes that the defendant is not liable to the plaintiff, whatever the date of final acceptance, and it therefore becomes unnecessary to determine the date of final acceptance.

Plaintiff would be entitled to exoneration if any funds were left in the hands of the defendant board of education. Unfortunately, there are no funds left. In the case of Stulz-Sickles Co. v. Fredburn Construction Corporation 114 N.J.Eq. 475, at page 477, 169 A. 27, at page 28 (Ch.1933), Vice Chancellor Berry stated:

'The right of exoneration is merely a right to have The fund applied to the payment of the guaranteed claims. (Citing cases.) Admittedly the surety is entitled to exoneration and the fund is clearly charged with an equity in favor of the surety to the extent that it be applied to the payment of the laborers, materialmen, and subcontractors.' (Italics by this court.)

The Stulz-Sickles case is authority for the proposition that unpaid funds 'in the hands of a municipality, representing the balance of the contract price of a public improvement, where the contractor was in default, constituted a trust fund for the benefit of all parties.'

Unpaid portions of public funds for a housing project were held to be trust funds in National Surety Corporation v. Barth, supra, and unpaid portions of the price of a contract for...