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National Surety Corp. v. Barth

Decided: May 28, 1952.

NATIONAL SURETY CORPORATION, PLAINTIFF,
v.
ARTHUR F. BARTH, INDIVIDUALLY, &C., ET AL., DEFENDANTS, AND CHARLES MARTINI, ET AL., PLAINTIFFS, V. ARTHUR F. BARTH, DEFENDANT



Stanton, J.s.c.

Stanton

[20 NJSuper Page 103] Arthur F. Barth, one of the defendants, entered into two contracts with the Administrator of the Public Housing and Development Authority of the State of New Jersey, hereinafter called the Administrator, for the rehabilitation of certain dwelling houses. He defaulted and National Surety Corporation, the surety on his performance bonds, and hereinafter called the plaintiff, arranged for the completion of the work. It seeks exoneration to the extent that the funds, due on the contracts and held by the Administrator, be applied to the unpaid claims of certain of the

defendants, for labor performed and materials furnished in the completion of the contracts, and subrogation to the extent that it has paid the similar claims of certain creditors of Barth.

The State seeks to set-off against the amount due on the contracts the amount of Barth's indebtedness to it, through the Division of Employment Security of the Department of Labor and Industry, hereinafter called the Division, under the Unemployment Compensation Law. The United States of America makes claim against the fund under its liens for taxes due from Barth; the defendants Alfred Marciano and Moser Kueng Lumber Co. for labor performed and materials furnished in connection with the contracts; and Charles Martini and Frank Martini, judgment creditors of Barth, on a levy made on the balance due on the contracts in the possession of the Administrator. The judgment of the Martinis was entered on a claim which was unrelated to the Barth contracts with the Administrator.

The right of the plaintiff to bring this action against the State of New Jersey was affirmed by the Supreme Court in an opinion by Mr. Justice Burling reported in 8 N.J. 121 (1951).

The first contract dated October 31, 1947, provided for the rehabilitation of a dwelling house at 72 Lake Street, Jersey City, for the sum of $16,290. Article 5 (b) of the contract provides as follows:

"That within 7 days after written notice to proceed it will procure and deliver to the Administrator a surety bond as provided for by law with good and sufficient surety, satisfactory to the Administrator, guaranteeing that the Contractor shall well and faithfully do and perform the things required under this contract and in accordance with the terms thereof and an additional obligation for the payment by the Contractor and by all sub-contractors for all labor performed or materials, provisions, provender or other supplies, teams, fuels, oils, implements or machinery used or consumed in, upon, for, or about the construction, erection and other work in connection with said premises. Said bond to be in the form required by 2:60-207 Revised Statutes of New Jersey, and all amendments and supplements thereto, and same to be in a sum equivalent to one hundred

percent (100%) of the accepted bid price hereunder. This contract will not become effective until said bond has been procured and delivered as aforesaid. In the event the Contractor fails to deliver said bond as provided herein the contract will be null and void."

The plaintiff is surety in the bond dated October 31, 1947, in the sum of $16,290 given by Barth and conditioned in accordance with the provisions of the contract. There was a final inspection of the work on October 19, 1948, and thereafter tenants went into possession of the premises. There were payments made on account to Barth and there is an admitted balance due from the Administrator of $4,496.40. The plaintiff has paid to claimants for labor performed and material furnished on this building the sum of $2,318.90; Moser Kueng Lumber Co., one of the defendants, has established a claim in the sum of $1,489.60, and Alfred Marciano, another defendant, in the sum of $817.85, making a total of $4,625.54, which total is in excess of the amount due from the Administrator. In addition to the foregoing, there remains to be considered the claim of the United States.

The second contract is dated March 12, 1948, and provides for the rehabilitation of a dwelling house at 63 Laidlaw Avenue, Jersey City, for the sum of $27,620. The contract was in the same form as the other. The plaintiff is surety on the bond of Barth dated April 9, 1948, in the amount of the contract, and which is in form identical with the one mentioned above. There was a final inspection of the premises on March 28, 1949, and shortly thereafter tenants moved into possession of the same. Certain payments were made to Barth under the contract and there is a balance due from the Administrator of $6,190.63. There was paid by the plaintiff to claimants who performed labor and furnished materials the sum of $4,740.75. There is due to Moser Kueng Lumber Co. $6,812.85, and to Alfred Marciano $1,052.47 upon like claims.

The total unpaid by the Administrator on the two contracts is $10,687.03, less a set-off of $94.40 which is conceded by all parties, leaving a total net balance of $10,592.63. In the

concession this set-off was not specifically related to either contract.

The claim of the Division for unemployment compensation taxes covers a period antedating the contracts in question and continuing throughout the time of their performance and after the completion thereof. The total amount claimed with interest as of December 15, 1951, is $10,530.81. The Division waives any preferential claim for that part of the tax which accrued in connection with the wages paid by Barth in the performance of the contracts in question. It takes the position that it is entitled to set-off all or none of the indebtedness of Barth against the balance due from the Administrator under the contracts.

The Martini judgment was entered against Barth in the Hudson County Court on January 10, 1950, and docketed in the Superior Court on January 19, 1950; execution was issued thereon and a levy was made on January 31, 1950, on moneys in possession of the Administrator belonging to Barth to satisfy the amount then due on the judgment, $2,894.14.

Notice of levy for federal taxes was filed with the Administrator on February 7, 1949, for $3,118.79; only a part of this liability arose out of Barth's operations in the performance of the contracts in question.

The primary question is whether the sum of $10,592.63 remaining due on the contracts between Barth and the Administrator is a trust fund for the payment for all labor performed or materials used or consumed in the carrying out of the contracts in question. It is the contention of the State and the Martinis that this balance is a trust fund only after it comes into the hands of the contractor ...


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