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Unadilla Silo Co. v. Hess Brothers Inc.

Decided: February 28, 1991.

UNADILLA SILO CO., INC., A NEW YORK CORPORATION, IN ITS OWN NAME AND AS ASSIGNEE OF ECO BRIDGE, INC., AND/OR B & W CONTRACTORS, INC., PLAINTIFF-APPELLANT,
v.
HESS BROTHERS, INC., NORTH AMERICAN REINSURANCE COMPANY, A NEW YORK CORPORATION, FIDELITY AND DEPOSIT COMPANY OF MARYLAND, A MARYLAND CORPORATION, AND SKANDIA AMERICA REINSURANCE COMPANY, A DELAWARE CORPORATION, DEFENDANTS-RESPONDENTS, AND STATE OF NEW JERSEY, DEFENDANT



On certification to the Superior Court, Appellate Division.

For reversal and remandment -- Chief Justice Wilentz, and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. Opposed -- None. The opinion of the Court was delivered by Stein, J.

Stein

[123 NJ Page 270] The sole issue before us is whether a supplier of specially-fabricated goods is a "subcontractor" on a public-works project pursuant to the New Jersey Bond Act (the Bond Act), N.J.S.A.

2A:44-143 to -147, thereby entitling those who supply labor or materials to that supplier to recover under the bond for sums not received.

Hess Brothers, Inc. (Hess), the general contractor on a public construction project, contracted with Eco Bridge, Inc. (Eco) for Eco to supply noise-barrier panels. Unadilla Co., Inc. (Unadilla) fabricated the noise-barrier panels and supplied them to Eco. Hess paid Eco, but Eco failed to pay Unadilla. Unadilla sought recovery under the payment bond, contending that Eco was a "subcontractor" under the Bond Act, entitling Unadilla to payment under the bond as a supplier to a subcontractor. In granting defendants' motion for summary judgment, the trial court concluded that Eco was merely a materialman and not a subcontractor, because it did not perform work at the job site. Consequently, the trial court held that Unadilla, as a supplier of materials to a materialman, could not recover under the payment bond. The Appellate Division affirmed in an unpublished opinion.

We granted Unadilla's petition for certification, 118 N.J. 180, 570 A.2d 950 (1989).

I.

The material facts in this case are undisputed. In February 1983, the State of New Jersey, Department of Transportation (the "State" or "DOT"), entered into an agreement with Hess concerning the construction of an interstate roadway.

Pursuant to the provisions of the Bond Act, N.J.S.A. 2A:44-143 to -147, Hess secured a payment bond from Fidelity and Deposit Company of Maryland, North American Reinsurance Corporation, and Skandia America Reinsurance Corporation (the sureties), for the respective amounts of $8,577,800, $3,509,159, and $3,509,159. The Bond Act requires that the bond obligate the sureties to pay all unpaid claims for labor and materials incurred by the contractor, and all subcontractors, in connection with the work. N.J.S.A. 2A:44-143. The language

of the bond was substantially similar to the form set forth in N.J.S.A. 2A:44-147, providing that it was "for the benefit of any subcontractor, materialman, laborer, person, firm, or corporation having a just claim." The sureties' liability would not be triggered unless Hess failed to

pay all lawful claims of subcontractors, materialmen, laborers, persons, firms or corporations, for labor performed or materials, provisions, provender or other supplies, or teams, fuels, oils, implements or machinery furnished, used or consumed in the carrying forward, performing or completing of the agreement.

Pursuant to the terms of the bond, Hess and the sureties were obligated to indemnify the State fully for "all suits and actions of any kind or character."

In February 1984, Hess entered into an agreement to purchase from Eco 81,060 noise-barrier panels and accompanying materials for the price of $580,505. The agreement stated that the materials were to be made in strict accordance with the specifications for the project and other specifications promulgated by DOT. In turn, Eco contracted to purchase the noise-barrier panels from Unadilla. Hess subsequently hired B & W Contractors, Inc. (B & W) to install the noise barriers along the side of the roadway.

DOT's normal practice was to inspect the fabrication and treatment of noise-barrier panels. Because of Unadilla's qualifications and membership in the American Institute of Timber Construction (AITC), DOT agreed to waive the inspection requirement if Unadilla filed a certificate of compliance with DOT specifications.

Moreover, DOT's regulations then provided that when a general contractor sought to "sublet" work with a contract value of $25,000 or more, that "proposed subcontractor" had to be "properly classified" in accordance with N.J.A.C. 16:44-1.1 to -1.7. See N.J.A.C. 16:33-1.1(c) (repealed by R. 1989, d. 505). Specifically, the general contractor must furnish a statement to DOT concerning the subcontractor's "financial ability, adequacy of plant and equipment, organization and prior experience, and such other pertinent and material facts as may be desirable."

N.J.A.C. 16:44-1.2(a). DOT did not require Hess to furnish such a statement regarding either Unadilla or Eco.

Pursuant to its agreement with Eco and the project specifications, Unadilla fabricated glue-laminated panels for the sound wall. The panels were custom made to fit the contours of the ground along the highway, each panel consisting of at least three layers of one- or two-inch random-width lumber. Unadilla glued the individual layers into panels approximately twenty-two to twenty-three inches wide. The layers were staggered so that the exterior layers overlapped the interior layers. In addition, reinforcing boards had to be glued horizontally at the ends of all three-ply panels. Cross bands were added to panels over fifteen feet high. Because the work required a substantial amount of routing and planing on the panels, Unadilla purchased a machine at a cost of $35,000 for that purpose, which it allegedly used for work only on that job. After the panels had been glued, Unadilla shipped them to Sherburne, New York, for preservative treatment.

The treated panels were then either delivered to or picked up by Eco, who assembled the twenty-two to twenty-three-inch panels into sections eight-feet wide by mechanically attaching the panels to each other and adding laminated wooden posts to each end of the sections. Eco then delivered the panels to the job site in New Jersey. At no time did either Eco or Unadilla perform work on the job site.

In February 1984, Eco and Hess executed a Release of Liens, in which Eco released Hess from liens associated with the materials provided. Under its contract with Hess, DOT required the release of liens before it would pay Hess for the materials. Eco sent Hess a letter dated April 9, 1984, acknowledging Eco's indebtedness to Unadilla for the noise-barrier panels. The letter further specified that Eco was solely responsible for satisfying that indebtedness and that Hess was not contractually obligated to Unadilla.

On April 10, 1984, without verifying that Unadilla had been paid, Hess paid a total of $492,872 for the noise-barrier panels, paying $315,478 to Eco and $177,392 to Lincoln First Bank, Eco's assignee. The remainder of the $580,505 purchase price was never paid. Eco subsequently became insolvent and failed to pay Unadilla.

The noise-barrier panels had been stored at the job site awaiting installation, but B & W never installed them. In June 1984, the noise-barrier panels were destroyed by fire; thereafter, Hess secured new noise-barrier panels elsewhere.

In May 1985, B & W and Eco assigned to Unadilla any claims they had against Hess, in the ...


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