Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Legge Industries v. Kushner

July 27, 2000


Before Judges Baime, Eichen and Wecker.

The opinion of the court was delivered by: Wecker, J.A.D.


Argued October 27, 1999

On appeal from the Superior Court of New Jersey, Law Division, Essex County.

This appeal concerns the interpretation and application of the Construction Lien Law, N.J.S.A. 2A:44A-1 to -38 (the Lien Law) *fn2 to lien claims filed against a property owner by several suppliers to a defaulting contractor. We conclude that summary judgment was erroneously granted in favor of defendants, and we reverse.


In 1995, defendant Joseph Kushner Hebrew Academy ("JKHA") undertook to build a new day school on its property in Livingston Township. JKHA entered into a written contract with defendant Palent, Inc. to oversee the project as the construction manager. JKHA also entered into a written agreement with Pond, Inc. to perform the necessary masonry work on the new building. Three of Pond's suppliers, plaintiffs Legge Industries, Colonial Concrete Co., and Premco Construction (collectively "plaintiffs"), delivered concrete and other building materials to Pond at the building site between October 1, 1995 and January 16, 1996, all to be used in the construction of the new school. *fn3

Palent and JKHA became dissatisfied with Pond's work on the project, and on January 2, 1996 Palent issued a notice of default to Pond, allowing Pond three days (as permitted by its contract) in which to cure the default. On January 5, 1996, JKHA terminated Pond's contract in writing for failure to cure the default. With Palent's knowledge and consent, Pond apparently continued work on the project until early March, when Palent officially assumed responsibility for completing the masonry work, as permitted by JKHA's contracts with both Pond and Palent. Palent completed the work left unfinished by Pond, however, despite Palent's promise to complete the work for no more than Pond's contract price, JKHA paid Palent significantly more than the unpaid balance of the Pond contract. Pond has since ceased doing business and apparently is insolvent.

Plaintiffs, who share common corporate management and ownership, collectively claim $80,619 in unpaid invoices for materials supplied to the JKHA construction project. After attempting unsuccessfully to obtain payment from Pond, on January 23, 1996 each of the plaintiffs filed a construction lien claim against JKHA's interest in the property. N.J.S.A. 2A:44A-6. Legge filed a claim for $59,764.63. Colonial filed a claim for $17,611.70 and Premco filed a claim for $3,243.76. Each plaintiff filed a timely complaint to enforce its lien claim. N.J.S.A. 2A:44A-14a. JKHA filed a bond pursuant to N.J.S.A. 2A:44A-31 to secure the liens and to satisfy its construction lender. Plaintiffs' complaints were consolidated, and JKHA and Palent filed answers, affirmative defenses and cross-claims for indemnification against each other. Default was entered against Pond for failure to respond to interrogatories or requests for production of documents.

After completion of discovery, Palent and JKHA filed a joint motion for summary judgment, alleging that plaintiffs' lien claims were not based upon a mutually binding, written agreement as required by N.J.S.A. 2A:44A-3; that the claims were willfully overstated and should be forfeited pursuant to N.J.S.A. 2A:44A-15; that JKHA incurred costs greater than the original contract price with Pond in order to complete the project, thereby using up the retainage withheld under the Pond contract; and that because no money was due and owing to Pond, no lien fund existed pursuant to N.J.S.A. 2A:44A-10 from which plaintiffs' lien claims could be satisfied. With regard to the claimed exhaustion of the lien fund, defendants argued that the Pond contract called for total payment of $551,049; that as of January 10, 1996 (five days after terminating Pond) JKHA had paid Pond a total of $385,000; and that in order to complete Pond's work, JKHA was required to pay Palent not only the remaining $156,817 that would have been due Pond for completion, but an additional $38,446.

Plaintiffs filed a cross-motion for summary judgment. In support of their motion and in opposition to defendants' motion, plaintiffs alleged with respect to the lien fund that two separate payments by JKHA to Pond were wrongfully or negligently paid, that plaintiffs had a priority right to the Pond retainage and that the sums represented by the improper payments and the retainage, amounts totaling $78,993.76, should be deemed available for the benefit of Pond's unpaid suppliers including plaintiffs. Plaintiffs also argued that their deliveries to Pond were evidenced by signed delivery slips, invoices and/or statements of account, that Pond made partial payment on their respective accounts, and that these writings satisfied the contract requirement of the Lien Law with respect to each plaintiff's lien claim. Plaintiffs further argued that their lien claims included only the amounts of their unpaid invoices and therefore cannot be deemed "wilfully overstated."

With respect to the three challenged payments, the first improper payment alleged by plaintiff concerns a $13,928 overpayment to Pond by JKHA in December 1995. Plaintiffs characterize this payment as an unwarranted "advance payment," for which JKHA is not entitled to a credit to reduce the lien fund. Defendants admit the $13,928 overpayment in December, but contend that it was an innocent mistake, not an improper advance, *fn4 and that Pond subsequently completed sufficient work to have earned the payment before plaintiffs filed their lien claims on January 23, 1996. JKHA therefore argues that that $13,928 is not available to satisfy plaintiffs' claims.

Second, plaintiffs cite JKHA's $22,154.36 payment to Pond, on or about January 10, 1996, against Pond's December 30, 1995 requisition. Plaintiffs claim that because relations between Palent, JKHA and Pond had deteriorated to the point that Pond had been given a notice of default on January 2, 1996, and a termination notice on January 5, and because the JKHA/Pond contract provided that upon Pond's termination it "shall not be entitled to receive any further payment" until the project's completion, Palent had no right on January 4, 1996 to authorize payment and JKHA had no right on January 10 to issue a check to Pond for $22,154.36.

Further, plaintiffs claim that Palent and JKHA had actual knowledge, at least as of January 3, 1996, that Pond had not paid Legge, Colonial or Premco. In support of that claim, plaintiffs cite a letter dated January 3, 1996 from Murray Palent, a principal of Palent, to Joseph Belott, a principal of Pond, listing various unpaid invoices upon which Pond owed payment, including plaintiffs'. In that letter, Palent stated that as JKHA's agent, it would authorize JKHA to issue joint checks to Pond and its suppliers in order to insure payment to those suppliers. Plaintiffs' outstanding invoices were listed in that letter in the following amounts:

Legge $47,181.04

Colonial $15,199.10

Premco $4,848.76

Total $67,228.90

On January 4, Palent instructed JKHA to pay Pond's payment request of $92,428.60 by writing joint checks totaling $70,274.24 to several union funds and to one contractor, with the balance of $22,154.36 to Pond directly. *fn5 No checks were authorized to plaintiffs.

Plaintiffs contend that the $22,154.36 payment was collusive based upon the close business relationship between Pond and Palent. JKHA does not dispute plaintiffs' allegation that Pond actually continued at the job site with Palent's knowledge and approval until March 1996, long after Pond's purported termination and up until the time Palent officially replaced Pond on the job. According to plaintiffs, whether this last $22,154 was properly paid to Pond was a material issue of fact requiring the judge to deny summary judgment.

Finally, plaintiffs argue that JKHA cannot deprive Pond's suppliers of the benefit of a lien fund by using the retainage to pay Palent. Under the retainage provision of the JKHA/Pond contract, JKHA was to pay Pond ninety percent of the "value of the work performed and materials incorporated into the job" as the work progressed, with the remaining ten percent, the retainage, to be paid "thirty (30) days after the completion of the building and acceptance by [JKHA] and upon submission of the evidence by [Pond] ... that all bills and claims against [Pond] for labor and for materials furnished in connection with this order have been paid."

The parties agree that Pond's work as of January 1996 was "significantly behind schedule"; that defendants were entitled to terminate Pond as it did on January 5; and that as of January 5, JKHA held retainages against the total Pond contract totaling $42,911.40. Palent officially took over Pond's work on the school construction on March 1, 1996. Sometime after March 1, 1996, and well after plaintiffs had filed their lien claims, JKHA paid Palent the full $42,911.40 retained from Pond, plus an additional sum in excess of $38,000, allegedly to finish Pond's work on the project. Defendants claim that those payments were properly paid in order to complete the project.

The trial judge heard argument on May 1, 1998 and granted summary judgment to defendants on the ground that the "lien fund" had been exhausted, and based upon § 10 of the Lien Law, plaintiffs' liens therefore could not attach to JKHA's property. The court found no evidence of collusive payments between JKHA, Palent and Pond. The court expressly concluded that because two of JKHA's challenged payments to Pond (the $13,928 and $22,154 payments) were made prior to the filing of plaintiffs' liens, those payments were immune to plaintiffs' challenge. The court also found that under the JKHA/Palent contract, Palent had the right to use the Pond retainage funds to complete the project. Finally, the court found that apart from the exhaustion of the lien fund out of which plaintiffs theoretically could be paid, plaintiffs' lien claims were "grossly exaggerated" in violation of the Lien Law, N.J.S.A. 2A:44A-15, and therefore should be forfeited. Pursuant to the fee- shifting provisions of the Lien Law, N.J.S.A. 2A:44-15(a), the trial court awarded $6,840.97 in counsel fees to Palent. *fn6

On appeal, JKHA and Palent defend the motion judge's conclusions that no lien rights attach to the extent of JKHA's payments to Pond before January 23, 1996; no lien rights attach to the retainage later paid over to Palent to complete the job; plaintiffs' liens are invalid and should be forfeited under section 15 of the Lien Law; and summary judgment therefore was properly granted to defendants.

Defendants have also raised an argument on appeal that was raised in the Law Division but not addressed by the Law Division Judge. Defendants argue that by filing lien claims alleging an October 1, 1995 contract that its principal later admitted was a "mistake," plaintiffs' lien claims must be forfeited under § 15 of the Lien Law in that they are "not filed in substantially the form" required by the Law. As we shall explain below, that issue cannot be resolved on this record and requires a remand for fact-finding. We therefore must address the other grounds upon which summary judgment was granted.


We are informed on this appeal by the Supreme Court's recent decision in The Thomas Group, Inc. v. Wharton Senior Citizen Housing, Inc., 163 N.J. 507 (2000). However, this appeal raises several issues of first impression under the Lien Law, including:

• Is the "lien fund" that is available to satisfy suppliers, and thus the property owner's maximum liability to those claimants, reduced by premature or otherwise unearned payments to the prime contractor, as long as they were made before the suppliers' liens were filed?

• After a prime contractor's default, *fn7 is the owner's contractual right to use the retainage to complete the job superior to a lien claimant's right against the retainage?

• Are signed delivery receipts and/or statements of account sufficient writings under the Lien Law to establish ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.