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Key Agency v. Continental Casualty Co.

Decided: November 9, 1959.

THE KEY AGENCY, A CORPORATION, PLAINTIFF-APPELLANT,
v.
CONTINENTAL CASUALTY COMPANY, A CORPORATION, DEFENDANT-RESPONDENT



On appeal from Superior Court, Chancery Division, whose opinion is reported in 55 N.J. Super. 58.

For affirmance -- Chief Justice Weintraub, and Justices Burling, Jacobs, Francis, Proctor, Hall and Schettino. For reversal -- None. The opinion of the court was delivered by Burling, J.

Burling

[31 NJ Page 100] Plaintiff instituted this action in the Superior Court, Chancery Division, to compel the defendant to hold in trust for plaintiff money received or to be received by the defendant as an assignee of General Builders Incorporated (hereinafter called the contractor) from the Board of Education of Franklin Township, New Jersey, and the Board of Education of Kinnelon Township, New Jersey. Plaintiff

moved for summary judgment and defendant filed a cross-motion for judgment on the pleadings, each party submitting affidavits to support its motion. The trial court granted defendant's motion, 55 N.J. Super. 58, and thereafter plaintiff prosecuted an appeal to the Superior Court, Appellate Division. While the cause was pending there and prior to argument, we certified it on our own motion.

Plaintiff provided the contractor with workmen's compensation and public liability insurance policies in connection with the performance of three contracts, two between the contractor and the Board of Education of Franklin Township and one between the contractor and the Board of Education of Kinnelon Township. The premiums on these policies, variously disclosed in the record to be between $2,847.15 and $2,848.85, remain unpaid. The contractor defaulted in performance of the contracts and in payment of those having unpaid claims because of the work. The defendant, surety on the payment and performance bonds obtained by the contractor in connection with the three contracts pursuant to N.J.S. 2 A:44-143 et seq., secured an assignment of funds in the hands of the school boards due or to become due to the contractor on the contracts. To date, the defendant has received $28,258.90 from the Kinnelon school board as a result of these assignments and has paid out $60,207 on its bond to persons having claims because of the Kinnelon school board contract. Although the record is not lucid as to whether the $60,207 was paid for existing unpaid claims or for those necessarily paid in the completion of the contract assumed by the bonding company, it is not necessary for this to be determined, by virtue of the manner of the disposition of this case. Defendant has received nothing from the Franklin Township school board and has paid out $112,850 on its bond on claims arising from the work on the two Franklin Township schools. Likewise in this instance, although it is not clear from the record whether the $112,850 was paid for existing unpaid claims or for those necessarily paid in the completion of

the contract assumed by the bonding company, it is not necessary for this to be determined, by virtue of the manner of the disposition of this case.

Plaintiff's theory of recovery is that money paid to the contractor on account of a contract with a public body, as defined in the act, is a trust fund for the payment of all claims for labor, materials and other charges incurred in connection with the performance of the contract, relying on N.J.S. 2 A:44-147 (apparently erroneously designated as such in the Revision, it should be 2 A:44-148). Plaintiff argues that "other charges" as used in the statute includes within the protection of the trust the type of claim it is making and that since defendant is an assignee of the contractor with notice of the nature of the funds received from the school board, the money which defendant has or will have because of the assignment from the contractor is subject to the trust. Plaintiff also contends that all other persons having claims arising in connection with the performance of the contract were paid because of the defendant's obligation to them arising under the payment bond and that the trust fund remains as yet untouched and available for plaintiff. Defendant attacks this argument on several grounds, but we find it necessary to consider only one of them, namely, whether the type of claim asserted in this matter is included within the purview of the statute.

N.J.S. 2 A:44-147(148), hereinafter referred to as the Trust Fund Act, provides:

"All money paid by the state of New Jersey or by any agency, commission or department thereof, or by any county, municipality or school district in the state, to any person pursuant to the provisions of any contract for any public improvement made between any such person and the state or any agency, commission or department thereof, or any county, municipality or school district in the state, shall constitute a trust fund in the hands of such person as such contractor, until all claims for labor, materials and other charges incurred in connection with the performance of such contract shall have been fully paid." (Emphasis supplied)

N.J.S. 2 A:102-12, an act approved the same day as the Trust Fund Act and obviously intended to implement it, provides:

"All moneys paid by the state, or an agency, commission or department thereof, or by a county, municipality or school district, or by a public authority, to any person pursuant to the provisions of a contract for the making of any public improvement, shall constitute a trust fund in the hands of such contractor. Any such person who shall use any of the money so received for a purpose other than the payment of claims for labor or materials and such ...


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