Plaintiff Brown Strober Building Corp., a New York corporation (Brown), instituted this action to enforce its alleged lien claim under the Municipal Mechanics' Lien Law, N.J.S.A. 2A:44-125 et seq. (Municipal Law) against Newark Redevelopment and Housing Authority (Authority) and to collect amounts allegedly due on a book account against Fannew Realty, Inc. (Fannew), for materials sold to and used in buildings built by Fannew under a turnkey project contract with the Authority.
Default was entered against Fannew for failure to answer. The Authority has filed an answer denying that Brown has a lien under the Municipal Law on the ground that the statute is not applicable. The Authority admitted that it held: (i) $95,428.00, representing 2 1/2% of the purchase price for land and certain completed low-income housing units under terms of the contract which permitted withholding that percentage to guaranty full performance by Fannew; (ii) $18,920.00, representing monies withheld at final closing to cover punch list items, and (iii) $13,975.00, representing the amount deducted at closing for items allegedly not furnished by, or for work not completed by, Fannew. The Authority filed a third-party complaint to interplead numerous other entities allegedly asserting claims against it. Some of these third-party defendants have filed Municipal Law notices. Others have filed notices of intention under the Mechanics' Lien Law, N.J.S.A. 2A:44-64 et seq. (Mechanics' Lien Law), against the real estate in question prior to conveyance by Fannew to the Authority. Still others have made oral demands
for payment on the Authority. Finally, two have obtained judgments against Fannew and are represented by the Authority to be seeking execution on said judgments against the monies held by the Authority. Seven claimants have filed answers disputing the Authority's contentions that the Municipal Law does not apply. No party disputed the Authority's effort to proceed by interpleader.
The parties indicated that there were no disputed issues of fact. The court requested supplemental briefs on the applicability of the Municipal Law since there was no reported decision in New Jersey on that question.
The court directed that the Authority hold the funds in question until the court decided the applicability of the Municipal Law to avoid the question of unnecessary payment of legal fees and costs, if interpleader was not the proper remedy. See Gazdayka v. Gernat , 128 N.J. Eq. 432, 436 (Ch.1940).
The court will set forth the facts which are undisputed, determine whether the Municipal Law is applicable, and determine whether interpleader is appropriate.
In September 1977 the Authority entered into a written contract with Fannew under which it sold certain lands to Fannew. It further agreed to purchase 104 units of low-cost housing and the same lands from Fannew when the units were "suitable for occupancy." The Authority entered into the agreement pursuant to the Federal Government's turnkey program. See 24 C.F.R. 841.20; Lehigh Constr. Co. v. Orange Housing Auth. , 56 N.J. 447 (1970). In that case the Supreme Court outlined the general background of the turnkey program and held that the New Jersey statutes for competitive bidding did not apply to the awarding of a contract for the acquisition of a completed project under such a program.
In summary, the agreement between the Authority and Fannew provided:
(1) in Article I, the improvements to be made were to comply with applicable laws and codes; the seller (Fannew) was responsible for curing all defects which appeared within one year and the purchaser (Authority) had the right to retain 2 1/2% of the purchase price for one year without interest as a guarantee that such
defects would be cured, or the funds were to be used to effect the repairs within that time, and either the funds, or the remaining ...