Broadway National Bank of Bayonne (Broadway) loaned money to defendant contractor Fred Kolman, t/a Colorama, who subsequently defaulted on his contract with the Board of Education of the City of Bayonne for certain repair work at several schools. The purpose of the loan was to enable Kolman to pay his laborers and acquire supplies.
International Fidelity Insurance Company (International), the surety of the contractor, refuses to pay Broadway, denying Broadway has any status under the Municipal Mechanics Lien Act or the Bond Act. Broadway, at the time of the advance to Kolman, perfected a security interest in the contractor's accounts receivable.
Initially, Broadway states that on August 25, 1967, and pursuant to N.J.S. 2A:44-135, the board of education served all parties with an order to show cause why certain lien claims, including that of the bank, should not be paid, returnable before said board on September 1, 1967; that defendants International and Kolman defaulted on that occasion, made no appearance, nor in any other way contested
the claim of Broadway at that time. Thereafter, on September 14, 1967 the board, by resolution, declared Kolman to be in breach of his contracts. The board, however, did not pay any of the liens and in April 1969 instituted this interpleader action. It is the position of Broadway that International is estopped and legally barred from challenging the validity of its lien claim.
N.J.S.A. 2A:44-128 provides for a lien against funds held by a public agency on a public improvement contract, in favor of a "laborer, mechanic, materialman, merchant or trader, or sub-contractor," who "performs any labor or furnishes any materials, including the furnishing of oil, gasoline or lubricants and vehicle use, toward the performance or completion of any such contract." The mechanics for establishing such lien claim are provided for in N.J.S.A. 2A:44-132 to 134.
Pursuant to N.J.S.A. 2A:44-135 the public agency involved may serve notice, upon the contractor and upon any person who may appear to have an interest in the fund in the possession of the public agency, that the claim is filed, and requiring the contractor or such persons in interest to show cause before the governing board of the public agency, within five days from the service of notice, why the claim should not be paid. N.J.S.A. 2A:44-136 authorizes the public agency to pay any such lien claim without the order of any court, out of the funds in its possession upon which the claimant has a lien, unless the contractor or person in interest files a statement, duly verified, that the lien claim is unfounded and untrue, specifying in what respects the same is unfounded and untrue.
It would appear, however, that this section of the statute is merely discretionary and not mandatory. Here, despite the failure of the contractor or the bonding company to appear, the board of education nevertheless chose not to pay any of the claims presented. Since no payment of any claims was made by the board, it follows that the failure of the contractor and his bonding company to appear
did not in any way prejudice the position of Broadway or any other claimant. Hence no estoppel arises against defendant International.
The enforceability of Broadway's lien claim was thereby left to this court, in accordance with N.J.S.A. 2A:44-137. The basic issue for this court's determination, simply stated, is whether one who advances money to a contractor to enable him to pay laborers or to acquire materials is entitled to a mechanics lien, or is entitled to be subrogated to the position of the laborers paid off with said funds or to the position of the supplying materialman. It is my opinion that such third person is not entitled to a mechanics lien nor is he entitled to be so subrogated, in the absence of an assignment of the mechanics lien or of an agreement for such a lien, or of an obligation to make the loan or advancement, or a necessity to discharge such claim in order to protect his rights or interests. 36 Am. Jur., Mechanics Liens , § 79 (1941).
Support for this conclusion is found in In re North River Construction Co. , 38 N.J. Eq. 433 (Ch. 1884), affirmed 40 N.J. Eq. 340 (E. & A. 1885), where a superintendent of a construction project advanced some $6,000 to the company to pay laborers on the job. He expected to be reimbursed by the company, but the company subsequently was adjudged insolvent and he never received the $6,000. It was held plaintiff was not entitled to a mechanics lien for the $6,000 he had advanced, nor was he entitled to be subrogated to the position of the workmen paid off.
The court rejected the creation of any direct mechanics lien, stating (at 435), "it is entirely clear that if he has any claim to such lien it must be on the principle of subrogation in equity." Then, in denying subrogation to the position of the workers paid off, the court said that "[it] has never been held that one who lends or advances money to a corporation to enable it to pay laborers, who, if their wages had ...