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National Surety Corp. v. Barth

November 5, 1951

NATIONAL SURETY CORPORATION, PLAINTIFF-RESPONDENT,
v.
ARTHUR F. BARTH, INDIVIDUALLY, AND TRADING AS BARTH CONTRACTING COMPANY ET ALS., DEFENDANTS-APPELLANTS, AND CHARLES MARTINI AND FRANK MARTINI, PLAINTIFFS-RESPONDENTS, V. ARTHUR F. BARTH, DEFENDANT



For affirmance -- Chief Justice Vanderbilt, and Justices Case, Oliphant, Wachenfeld, Burling and Ackerson. For reversal -- None. The opinion of the court was delivered by Burling, J.

Burling

The appeal in this civil action presents one primary question: whether the State of New Jersey may be sued for money due under a contract entered into between a contractor and the Administrator of the Public Housing and Development Authority of the State of New Jersey (hereinafter called the Administrator) under L. 1946, c. 323 (N.J.S.A. 55:14 G -1 et seq).

PROCEDURE

The proceedings have a complicated appearance and it is necessary to dissect them in order to cut through to clarity. One proceeding was initially instituted in the Law Division and the other in the Chancery Division of the Superior Court. These actions were consolidated on December 19, 1950, and thenceforth the consolidated action was continued as one suit within the Chancery Division. After consolidation, the defendants-appellants moved for judgment of dismissal of the complaint of National Surety Corporation, the plaintiff in the Chancery action (hereinafter called the plaintiff). This motion was denied by order of the Chancery Division on March 30, 1951, and the defendants-appellants addressed this appeal from that interlocutory order to the Appellate Division of the Superior Court. Prior to hearing there, certification was granted by us upon our own motion.

One Arthur F. Barth (hereinafter called Barth), a building contractor, in 1947 and 1948 entered into two contracts with the Administrator for alteration, rehabilitation and repair of certain public housing accommodations in the City of Jersey City. In connection therewith, and under the requirements of said contracts, Barth as principal and the [8 NJ Page 126] plaintiff as surety executed and delivered to the Administrator two performance bonds, to secure inter alia, payment of said principal or by said surety all the lawful claims of subcontractor, materialmen, laborers, persons, firms or corporations incurred in connection with the performance of Barth's two above-mentioned contracts with the Administrator. Barth defaulted in performance in failing to comply with the terms of these contracts by failing to pay for the work, labor and materials performed or furnished thereunder. Thereafter, various subcontractors, materialmen and laborers made claim on the plaintiff under its liability as surety on the performance bonds. On or about March 25, 1949, the Administrator is alleged to have accepted the projects covered by the two contracts. Plaintiffs-respondents Charles Martini and Frank Martini (hereinafter called the Martinis) obtained a judgment against Barth in January, 1950, and attempted to reach the balance of the contract price held by the Administrator through the medium of a levy under a writ of execution issuing from the Superior Court. Thereafter the Martinis obtained in the Law Division of the Superior Court an order directed to Barth and to the Administrator (designated therein as Veterans Housing Administration of the Department of Economic Development of the State of New Jersey) to show cause why the court should not order the Administrator as garnishee to pay the Martini judgment under the levy aforesaid (the proceedings on, and stemming from, this order to show cause are hereinafter referred to as the law action). On May 4, 1950, the plaintiff filed its complaint in the Chancery Division of the Superior Court in which the foregoing matters are substantially alleged (this complaint instituted what is hereinafter referred to as the Chancery action). The defendants to this Chancery action included Barth, the Administrator, the Director of the Division of Budget and Accounting (impleaded as State Commissioner of Taxation, hereinafter called the Director), the Martinis and other creditors of Barth. In its complaint, the plaintiff sought, inter alia, the following relief: that it be

exonerated to the extent that the funds held by the Administrator be applied to the unpaid demands of the several defendants; that it be subrogated to the extent that it had paid claims of certain of Barth's creditors; that the Administrator pay the funds due Barth under the contracts into court; that the several defendants interplead their rights to such fund; that the unpaid defendants prove the validity of their claims; that the plaintiff be discharged of all liability to the unpaid defendants; that the Martinis be restrained from further proceedings in the law action; that the funds be marshalled in court to provide payment to those lawfully entitled thereto.

On February 2, 1950, the Division of Employment Security had filed a certificate of debt with the Clerk of the Superior Court showing Barth's liability accrued under the unemployment compensation law for the period of February 17, 1946, to May 1, 1947 (contributions, interest to January 30, 1950, and penalties). This certificate was docketed in the judgment record in the Superior Court pursuant to the provisions of R.S. 43:21-14 (e) as amended by L. 1938, c. 59; L. 1939, c. 309; L. 1940, c. 97; L. 1944, c. 80; L. 1945, c. 307 and L. 1948, c. 79. Similar certificates were docketed as judgments against Barth on June 6, 1950, and June 8, 1950.

The order to show cause directed to the Administrator as garnishee in the law action was dismissed by order of the Law Division of the Superior Court, for the reason that the Administrator as garnishee did not admit the debt, R.S. 2:26-180, and on December 19, 1950, the Law Division of the Superior Court entered an order in the law action correcting the record in those proceedings to show Barth's debt to the State (the Division of Employment Security) and permitting the Division of Employment Security to intervene. On the same date an order was entered permitting the plaintiff to intervene in the law action, transferring the law action to the Chancery Division, consolidating that action with the Chancery action and requiring the Division of Employment Security to answer, or move to dismiss, the plaintiff's complaint.

The next step taken after consolidation was that which resulted in this appeal. The Administrator, the Director and the Division of Employment Security moved for judgment of dismissal of the plaintiff's complaint, as to them, on two grounds, namely that the action constituted a suit against the State of New Jersey to which the State had not consented, and that the complaint failed to state a claim against the State upon which relief could be granted because the funds in the hands of the Administrator constituted a fund in control of the State against which the State could exercise a right of setoff (viz., the unemployment compensation judgment claims above mentioned). The Chancery Division of the Superior Court by order filed March 30, 1951, denied the motion to dismiss but therein granted leave to the Administrator, the Director and the Division of Employment Security (sometimes collectively referred to herein as the State Agencies) to answer. On April 11, 1951, the court entered an order denying a motion made by the plaintiff to require the State to pay the balance of the contract price into court. The plaintiff has not appealed from this order. The State Agencies, on April 27, 1951, filed notice of appeal from the order denying their motion to dismiss to the Appellate Division of the Superior Court. This was an interlocutory appeal under Rule 4:2-2 (a) (3) since jurisdiction of the person was in question. The appeal prior to hearing before the Appellate Division was certified by this court on its own motion as hereinbefore stated.

SUBSTANTIVE QUESTIONS

The question to be determined here is whether the State may be sued for contractual balances under a contract ...


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