Searching over 5,500,000 cases.


searching
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.

Craft v. Stevenson Lumber Yard

March 23, 2004

EMORY A. CRAFT, JR., PLAINTIFF-APPELLANT,
v.
STEVENSON LUMBER YARD, INC., DEFENDANT AND THIRD PARTY PLAINTIFF-RESPONDENT,
v.
MICHAEL A. ALADICH AND ANTHONY DITOMMAO, T/A ALADICH HOMES, THIRD PARTY DEFENDANTS.
DUBELL LUMBER COMPANY, A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF-RESPONDENT,
v.
ALADICH BUILDERS, INC., A NEW JERSEY CORPORATION; MICHAEL ALADICH, INDIVIDUALLY; JOSEPH DIMAIO AND CARLA DIMAIO; EMORY A. CRAFT, JR. AND KENNETH THEIL, DEFENDANTS.



On certification to the Superior Court, Appellate Division.

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

LONG, J., writing for a unanimous Court.

This appeal presents two issues under the Construction Lien Law (CLL), N.J.S.A. 2A: 44A-1, et seq..

First, there is the lien claim issue: Whether an innocent property owner is liable to a supplier where the owner has paid his general contractor for supplies, which payments were transferred to the supplier without being earmarked, and were not recognized by the supplier as satisfying that property owner's account balance. The second issue pertains to the lien fund: What is the measure of the amount that is available to a subcontractor or supplier with a lien claim where the contractor has abandoned the job at a point at which the property owner has made all of the progress payments to date?

On March 18, 1998, plaintiff retained Aladich Builders, Inc. ("Aladich") to construct a residence for him at a total cost of $220,000.00. Aladich purchased construction supplies from Stevenson Lumber Yard, Inc., and plaintiff paid Aladich for labor and materials when payments became due. When making payments to Stevenson, including payments for supplies used in the Craft construction, Aladich never specified for which of his many projects the payments were intended and Stevenson applied the payments to the oldest outstanding Aladich invoice. Aladich stopped working on the Craft project after Craft had paid $166,980.00. Michael Aladich, the principal of Aladich, filed for personal bankruptcy and the corporation became insolvent by late summer of 1999.

On June 16, 1999, Stevenson filed a Construction Lien Claim against the real property owned by Craft in the amount of $53,019.59. Dubell Lumber Company, a second supplier, also filed a construction lien claim against Craft in the amount of $7,649.35. That matter was consolidated with Stevenson's. Craft filed a Complaint demanding a judgment dismissing the Construction Lien Claim. Stevenson filed a Third Party Complaint against Aladich for $75,000, the amount owed Stevenson for all of the projects for which Stevenson had provided supplies. Following arbitration, in which the arbitrator determined that Craft was not liable, Stevenson moved for a trial de novo. The parties filed cross-motions for summary judgment and the trial court ruled in favor of Stevenson and Dubell.

Craft appealed, challenging the legitimacy of Stevenson's lien claim and the existence of a lien fund in connection with the claims of both Stevenson and Dubell. The Appellate Division affirmed the grant of summary judgment in favor of Stevenson and Dubell, holding that the innocent homeowner must bear the financial burden caused by a defaulting contractor, despite paying for his supplies in full and despite having no knowledge that the contractor had outstanding accounts with its supplier.

The Supreme Court granted Craft's Petition for Certification. In addition, the Court granted amicus curiae

status to the Building Contractors Association of New Jersey ("BCA/NJ") and to the Northern New Jersey Chapter, Inc., National Electrical Contractors Association ("NECA").

HELD: With respect to the lien claim, a supplier has a duty to determine which of a contractor's projects is the source of its payment and to allocate the payment accordingly. Having failed in that duty, the supplier here was unable to verify the existence of a debt as required under the CLL and thus, no lien claim against the owner's property can be advanced. Regarding the lien fund, the measure of the amount available to the lien claimant under the circumstances is determined in accordance with N.J.S.A. 2A: 44A-10 and 23 by subtracting the payments made to date from the "total contract price" agreed upon in writing by the parties. In the case where a contractor walks off a job at a point at which he has been paid to date and is owed no money by the owner, there is no lien fund.

1. The main purpose of the CLL - to help secure payment to contractors, subcontractors and suppliers who provide work, services, material or equipment pursuant to a written contract - is achieved by empowering them to file lien claims and thus protect the value of the work and materials they have provided. A second goal of the Act is to ensure the rights of property owners who have met their financial obligations and to preclude imposing upon them the burden of double payment for work and materials. An individual lien claim by a subcontractor or supplier can never be greater than the amount the claimant is owed and the measure of the lien fund can never exceed the difference between the "total contract price in the owner's contract with the contractor" and the amount the owner has paid to the contractor as of the filing of the lien claim. Only legitimate payments in accordance with the written contract and commensurate with performed work are considered as deductions from the total contract price. All other payments must be recaptured in determining the limit of the lien fund. (Pp. 9-15)

2. As a general proposition, a creditor who is owed more than one debt by a debtor may apply the payments to the debtor's account in any manner it chooses so long as the debtor has not issued specific directions to the contrary. That is known as the payment application rule. That rule, however, is not absolute. Where, as here, the creditor knows or should know that a debtor is under an obligation to a third party to devote a relevant payment to discharge a duty the debtor owes to the third party, the payment must be applied accordingly regardless of the debtor's instruction or lack thereof. Within the terms of the Restatement (Second) of Contracts § 258, Stevenson knew or had reason to know that it was not free to apply Aladich's payments at will. Aladich could not have directed the application of Craft's payment to any but Craft's obligations without breaching its duty to Craft, and Stevenson was likewise obligated to ascertain the source of Aladich's payments and to apply them accordingly. Moreover, Stevenson had a statutory duty to allocate Aladich's payments to the accounts from which they were derived if it wished to file a lien claim. (Pp. 16-24)

3. The contract price is the beginning point for a determination of the measure of a lien fund because it is within the four corners of that contract that the contractor, the subcontractors, and suppliers provide services or materials to enhance the value of the owner's property. Likewise, the amount remaining unpaid on that contract is the measure of the fund. When a contractor has performed and the owner has failed to pay him, the entire contract price is the limit of the lien fund. When, on the other hand, the owner has paid the contractor a portion of the contract price, the owner's property is protected to the extent of the progress payments. Once the contract costs are fully paid by the owner, there is no fund against which to measure an unpaid lien claimant's entitlement because nothing is owed. Whether the owner has paid a small amount, a large amount, or all of the contract price, he will receive full credit. That is what is meant by the notion of avoiding double payment - the lien fund will never include what the owner has already legitimately paid. In the case where a contractor walks off a job at a point at which he has been paid to date and is owed no money by the owner, there is no lien fund. (Pp. 24-30)

The judgment of the Appellate Division is REVERSED and the matter is REMANDED for the entry of judgment in favor of Craft declaring that no lien fund exists in this case.

CHIEF JUSTICE PORITZ and JUSTICES VERNIERO, LaVECCHIA, ZAZZALI, and ALBIN join in JUSTICE LONG's opinion. JUSTICE WALLACE did not participate.

The opinion of the court was delivered by: Justice Long

Argued December 1, 2003

This appeal presents us with an opportunity to revisit the Construction Lien Law, (CLL or Act), N.J.S.A. 2A:44A-1 to -38, a statute that was enacted primarily to secure payment for contractors, subcontractors, and suppliers who furnish labor or materials used to enhance the value of the property of others. The case involves a "lien claim" (N.J.S.A. 2A:44A-9), which constitutes the value of the labor or materials provided, and a "lien fund" (N.J.S.A. 2A:44A-10, 23), which is the measure of what is recoverable pursuant to a lien.

With respect to the lien claim, the question is whether an innocent property owner is liable to a supplier when the owner has paid his general contractor for supplies, which payments were transferred to the supplier without being earmarked, and were not recognized by the supplier as satisfying that property owner's account balance. We hold that a supplier has a duty to determine which of a contractor's projects is the source of its payment and to allocate the payment accordingly. Having failed in that duty, the supplier here was unable to verify the existence of a debt as required under the CLL and thus, no lien claim against the owner's property can be advanced.

Regarding the lien fund, at issue is the measure of the amount that is available to a subcontractor or supplier with a lien claim when the contractor has abandoned the job at a point at which the property owner has made all of the progress payments to date. We hold that the measure of the amount available to the lien claimant in such circumstances is determined in accordance with N.J.S.A. 2A:44A-10 and -23 by subtracting the payments made to date from the "total contract price" agreed upon in writing by the parties.

I.

Because the case comes to us on appeal from the grant of summary judgment in favor of the lien claimants, we view the facts in a light most favorable to the nonmoving party, the property owner. R. 4:46-2. So viewed, the facts are as follows: On March 18, 1998, plaintiff, Emory Craft, Jr. retained Aladich Builders, Inc. (Aladich) to construct a residence for him at a total cost of $220,000.00. In preparation for and during the job, Aladich purchased supplies from Stevenson Lumber Yard, Inc. (Stevenson), among others.*fn1 As the job progressed, Craft paid Aladich for labor and materials when payments became due. During the same period, Aladich had several construction projects ongoing and purchased building materials from Stevenson to supply all of its different jobs.

When Aladich made a payment to Stevenson and, more particularly, when it paid Stevenson the money it had received from Craft, Aladich did not specify for which construction project the payment was intended and Stevenson simply applied the payments to the oldest outstanding Aladich invoice.

Aladich eventually ceased working on the Craft job after Craft had paid $166,980.00. At that point, according to Craft, he owed Aladich nothing for the work that had been performed. Michael Aladich, the principal of Aladich, then filed for personal bankruptcy. Although the corporation did not file for bankruptcy, it was nonetheless insolvent by late summer of 1999 according to Michael Aladich.

On June 16, 1999, Stevenson filed a Construction Lien Claim against the real property owned by Craft in the amount of $53,019.59.*fn2 When Stevenson's lien claim was filed, Aladich owed it approximately $75,000 for all of the projects for which Stevenson had provided supplies.

In August 1999, Craft filed a Complaint against Stevenson demanding a judgment dismissing the Construction Lien Claim. Stevenson answered and counterclaimed, requesting that Craft's Complaint be dismissed and claiming the right to file the lien against Craft's property. In addition, in a Third Party Complaint, Stevenson sought judgment against Aladich for approximately $75,000. Craft answered Stevenson's Counterclaim, demanding dismissal. An arbitrator determined that Craft was not liable to Stevenson on the construction lien, and Stevenson requested a trial de novo pursuant to Rules 4:21A-6(b) and 4:12A-6(e).

As the trial approached, Craft, Stevenson, and DuBell filed cross-motions for summary judgment - Craft to discharge the lien and Stevenson and DuBell to enforce it. The trial court ruled in favor of Stevenson and DuBell on the motions.

Craft appealed, challenging the legitimacy of Stevenson's lien claim and the existence of a lien fund in connection with the claims of both Stevenson and DuBell. The Appellate Division affirmed the grant of summary judgment in favor of Stevenson and DuBell. In so doing, the court recognized an inequity in the scheme, but held that, under the statute, the innocent homeowner must bear the financial burden caused by a defaulting contractor, despite paying for his supplies in full and despite having no knowledge that the contractor had outstanding accounts with its supplier.

We granted Craft's petition for certification. 177 N.J. 221 (2003). We also accorded amicus curiae status to the Building Contractors Association of New Jersey (BCA/NJ) and to the Northern New Jersey Chapter, Inc., National Electrical Contractors Association (NECA). We now reverse.

II.

Craft raises two fundamental arguments. First, there is no construction lien fund when a homeowner already has paid for all the work that has been completed, has not made advance payments for unperformed work, and the contractor has walked off the job over the homeowner's objection. Second, there is no construction lien claim when a supplier pyramids construction monies from one project to finance another.

Stevenson counters that, under the CLL, the lien fund in this case was the amount of the outstanding balance on the contract between Craft and Aladich at the time Stevenson's lien claim was filed (approximately $53,000), and that Aladich's later walk-off did not affect that calculation. DuBell joins in that argument. Stevenson also contends that, as a creditor, it was entitled to apply Aladich's payments to its ...


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.