SIL-KEMP CONCRETE, INC., et al. v. CONTE & RICCI CONSTRUCTION COMPANY, et al.

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-4324-03T34324-03T3

SIL-KEMP CONCRETE, INC., t/a

SILVI CONCRETE OF ENGLISHTOWN,

INC., SILVI CONCRETE OF BRICK,

INC., and SIL-CRETE, INC.,

Plaintiffs-Respondents,

v.

CONTE & RICCI CONSTRUCTION COMPANY,

OLD BRIDGE PROPERTIES, LLC, and

THE PHILLIPS COMPANIES,

Defendants,

and

E.P. GUIDI, INC., and LIBERTY

MUTUAL INSURANCE COMPANY,

Defendants-Appellants.

_______________________________________

 

Argued November 15, 2005 - Decided February 8, 2006

Before Judges Skillman, Payne and Miniman.

On appeal from the Superior Court of New Jersey, Law Division, Middlesex County, L-10685-01.

George E. Pallas argued the cause for appellants (Cohen, Seglias, Pallas, Greenhall & Furman, attorneys; Rene David Quinlan, pro hac vice, of counsel; Mr. Pallas, on the brief).

Thomas J. Fellig argued the cause for respondents (Fellig, Feingold, Edelblum & Schwartz, attorneys; Mr. Fellig and Jennifer E. Temchine, on the brief).

PER CURIAM

Defendants E.P. Guidi, Inc., and Liberty Mutual Insurance Company appeal from a judgment in favor of plaintiffs Sil-Kemp Concrete, Inc., t/a Silvi Concrete of Englishtown, Inc. (Silvi-Englishtown), Silvi Concrete of Brick, Inc. (Silvi-Brick), and Sil-Crete, Inc., under New Jersey's Construction Lien Law, N.J.S.A. 2A:44A-1. Because the trial court erred in deciding that proper notice was given under the surety bonds and erred in calculating the lien fund under N.J.S.A. 2A:44A-10, we reverse.

On December 18, 2000, Lowe's and Guidi entered into a $4,793,000 contract for the construction of the Old Bridge Home Center. The contract included specifications for the concrete to be used in construction. It provided that there were to be no admixtures to the concrete except that Guidi was to use 4%-6% air-entrained concrete for all exterior slabs and walls. Concrete strength was to be no less than 4,000 pounds per square inch, and the mix design was to be prepared by an independent testing laboratory. Interior slab concrete was to be cured with one coat of liquid densifier/sealer and was to have a steel-trowel finish. On January 19, 2001, Guidi executed a $663,414 subcontract with Conte & Ricci for the concrete work at the Lowe's project.

As required by the Lowe's contract, on December 29, 2000, Guidi obtained a $4,793,000 Labor and Material Payment Bond from Liberty Mutual whereby Liberty and Guidi bound themselves to Lowe's for the benefit of claimants. Claimants were those who had a direct contract with Guidi or a subcontractor of Guidi for the provision of labor or materials required for use in performance of the Lowe's contract. Claimants could sue on the bond, but Lowe's would not be liable for any costs or expenses of suit. Before suit could be filed, the claimant was required to give notice to two of the three parties to the bond: Liberty Mutual, Lowe's and Guidi. The notice had to be given within ninety days of the cessation of work by the claimant. The notice had to state with substantial accuracy the amount claimed and the party to whom the materials were furnished. The notice also had to be served by registered or certified mail.

The plaintiffs are part of a group of eleven business entities (collectively the Silvi companies) sharing common ownership. The plaintiffs are in the ready-mix concrete business. All of the companies have individual employer identification numbers, report individually to their respective owners, and file individual tax returns. However, they provide their primary lender with consolidated financial statements to secure credit and operating-capital lines. Serving the Silvi companies is a consolidated administrative operation at corporate headquarters including: an accounting/finance group responsible for credit management, accounts payable and accounts receivable; a human resources group; an information management systems group; and a sales department, which is split by territory rather than by individual company.

On January 6, 2001, Silvi-Englishtown quoted various prices to Conte & Ricci for concrete mix designs and delivery charges. The quote was on the letterhead of Silvi-Englishtown, which contained a Pennsylvania address and telephone number. In a January 8, 2001 letter to Conte & Ricci, Bharat Dhandhukia, Silvi's Technical Service Manager, enclosed concrete mix designs for the Lowe's project. He stated that "[i]n order to provide you with better service, please use the Mix Number when ordering concrete." An "approved" stamp appears on the face of the letter. Next to the approval is a stamp that says "Received Jan 10 2001 E.P. Guidi, Inc."

Conte & Ricci applied for credit, not wanting a C.O.D. arrangement. The same credit application is used for all of the Silvi companies. The application is entitled "The Silvi Companies, 356 Newbold Rd, Fairless Hills, Pa 19030, (215) 295-0777, Fax (215) 295-0630." The credit application provided that all payments were to be made to "Silvi Companies, 355 Newbold Rd, Fairless Hills, PA 19030."

Initially, Noreen Moyer, the Credit Manager for all eleven Silvi companies, rejected Conte & Ricci's application because a reference check revealed that it was a slow payer. After speaking with Toby Rich, Vice President of Sales for the Silvi companies, it was decided that Conte & Ricci would be given a discount to induce it to pay within thirty days, and an account was opened. After Conte & Ricci's credit was approved, Conte & Ricci signed a new Silvi-Englishtown proposal on January 24, 2001.

Orders for concrete deliveries were placed through a centralized computer dispatch operation located in Morrisville, Pennsylvania. While the Silvi companies generally attempt to service a customer from one of their closest regional plants, when a large "pour" is involved, central dispatch can order additional truckloads from a more distant facility. Although plaintiffs' quality control engineer and his assistants are stationed at corporate headquarters, they are "on call for every one of the companies in the group."

When delivering concrete for any of the Silvi companies, a driver leaving a particular concrete manufacturing plant takes a four-part ticket, bearing the designation of a particular plant, to the job site. Two parts of the ticket remain at the site and two are returned to the plant. The plant manager will then assemble a package of the tickets for each day and forward it to the main office.

Invoices bearing the name of a particular plant and backed up by delivery tickets are mailed to the customer between three and four days after delivery of the concrete. Invoices issued under the names of Silvi-Englishtown or Silvi-Brick both bore the address of 355 Newbold Road, Fairless Hills, Pennsylvania and the 215 area code phone and fax numbers. If a customer received concrete deliveries from two different Silvi plants, they would receive separate invoices. A combined monthly statement, however, would reflect all purchases from the different companies.

Customers usually remitted one monthly check to "Silvi Concrete" at 355 Newbold Road, Fairless Hills, Pennsylvania. Silvi applied the check to the appropriate companies. Checks received from Conte & Ricci made payable to the "Silvi Group Companies" were apportioned to the three plaintiffs in accordance with Conte & Ricci's directions. During the first few months of the business relationship, Conte paid the various invoices.

The interior floor slab at the Lowe's project was poured on June 25, 28 and 29, 2001. When the interior pour was ordered, Francisco Soto, Conte & Ricci's foreman, called the dispatcher on June 20, 2001, stating that they were going to start the floor slab next week and ordered 700 yards. When asked by the dispatcher if he knew the mix, Soto replied that it was the same, even though they had ordered air-entrained concrete when the last order was placed. Soto knew that air-entrained concrete should not be used for an interior floor with a hard finish.

On June 22, 2001, Rich, Silvi's Vice President of Sales, called Silvi dispatch to inform them that the pour was scheduled to start at five o'clock on June 25, 2001. He, too, ordered air-entrained concrete for the interior slab. Timothy Ford, a Silvi salesman, was at the site during the pouring of the interior slab and on June 26, 2001, he also told Silvi dispatch that the concrete should be air-entrained. Ford admitted that he knew they were pouring the interior slab and that air-entrained concrete was not used on interior floors.

Adriano Ricci, Conte & Ricci's president, was present at the Lowe's site June 25, 28 and 29, 2001. Soto was also present every day. Approximately seventy truckloads of concrete were delivered on June 25, 2001, and slips were delivered for each truckload. Ricci signed one or two tickets, and other tickets were signed by "anybody who can get [a] signature on them." The tickets were not reviewed and were kept in a bucket and collected at the end of the day. Ricci acknowledged that the June 25, 2001 delivery tickets each described the delivered product as "4,000 AE." Soto, too, did not review the delivery tickets or instruct anyone else to review them. Seventeen delivery tickets representing $12,155 in sales were not even signed.

A day or two after the pour, Ford visited the site after being advised by Soto that there were air pockets in the floor. Upon hearing a hollow sound after hitting the floor with a hammer, Ford contacted Rich. Rich also visited the site and heard a popping or hollow sound as he walked the floor. Rich also observed flaking or scaling on the floor. Upon returning to the Silvi headquarters, Rich obtained the delivery tickets and ascertained that the concrete was air-entrained and that many of the trucks had excessive amounts of water added to the concrete mix. Rich advised Ricci of his findings.

Conte & Ricci executed a Contractor's Application for Payment on June 25, 2001, in the sum of $381,897 for the interior slab and submitted it to Guidi. Moyer, the Silvi Credit Manager, became concerned in July 2001 because her collection calls to Conte & Ricci were not being returned. By August 2, 2001, Guidi paid Conte the requested sum less the retainage despite the problems with the pour. Even though Moyer was concerned before this payment, plaintiffs took no action in July to protect the amount due them.

Sometime in August 2001, Rich appeared at the site with Soto, Ricci, and one representative from Lowe's. Although Conte & Ricci had made some repairs at a cost to it of $59,683.97, the Lowe's representative expressed consternation at the condition of the floor since the store was to open in September. Ricci promised to perform further repairs and then decided not to have Conte & Ricci pay plaintiffs because Lowe's demanded that the floor be replaced. Rich asked a representative of Guidi to hold Conte's money, but Guidi's representative told Rich that Guidi had already paid Conte for the floor. Rich contacted Moyer, who told him that plaintiffs had not been paid by Conte. Conte & Ricci did not perform any further repairs.

Moyer then filed construction lien claims with the Middlesex County Clerk on August 10, 2001, on behalf of Silvi-Englishtown in the sum of $214,568.55; Silvi-Brick in the sum of $7,406.09; and Sil-Crete, Inc., in the sum of $10,016.28. She filed amended liens on August 17, 2001, on behalf of Silvi-Englishtown in the sum of $207,885.17 and Silvi-Brick in the sum of $6,802.33. Thus, the total claims were $224,703.78. By certified letters on August 16, 2001, Moyer served copies of the liens and amended liens upon Old Bridge Properties, Conte & Ricci and Guidi. Thus, only one of the parties to the surety bond (Guidi) received notice of the liens.

As of August 23, 2001, when the liens were received by Old Bridge Properties, $4,280,982.98 had been paid by Lowe's to Guidi with respect to their $4,934,933 contract, leaving a balance of $653,950.02. Some time later Joe Gambill of Lowe's provided Moyer with the number of the labor and material payment bond and the name of the bonding company. By letter dated October 2, 2001, to Liberty Mutual on Silvi-Englishtown letterhead, Moyer wrote:

Silvi Concrete supplied concrete and materials to Conti & Ricci, a subcontractor of E.P. Guidi Inc. on the Lowe's project. At this time an unpaid balance remains on the project in the amount of $231,890.87.

I am hereby notifying you of Silvi Concrete's filing of a claim against the bond for the project.

Three Release of Construction Lien Claim Bonds were then issued by Liberty Mutual on behalf of Guidi on October 4, 2001, with respect to the construction lien claims filed by plaintiffs.

Since Conte & Ricci refused to make further repairs, Guidi had to hire other contractors to complete them. By letter dated February 18, 2002, Guidi informed Conte & Ricci that Guidi had ground the floor in a test area to repair cracking and lifting, and that Guidi was "going to proceed with this method and all costs associated with this work . . . [would] be back charged against . . . [Conte's] contract."

Plaintiffs brought this action to recover monies due them for the concrete deliveries. The first four causes of action in the complaint were against Conte & Ricci only. The fifth cause of action was only against Liberty Mutual and sought recovery under the three Release of Construction Lien Claim Bonds. The sixth cause of action was also against Liberty Mutual and alleged breach of contract and third-party beneficiary claims. The seventh and last cause of action was grounded on quantum meruit and sought recovery from all defendants for the reasonable value of the goods and services sold relating to the Lowe's project. Guidi made claims against Conte & Ricci and plaintiffs for damages Guidi sustained in effecting repairs, which included Guidi's payments to new contractors, Lowe's charge to Guidi for cleaning dust resulting from Conte's repairs, legal fees and premiums for the release of lien bonds, all of which totaled $107,280.35.

Prior to trial, Conte & Ricci entered into a settlement agreement with Guidi, Liberty Mutual and plaintiffs. Conte & Ricci paid plaintiffs $70,000. It also assigned all of its rights, claims, causes of action, and defenses against plaintiffs to Guidi and Liberty Mutual. Plaintiffs and Guidi agreed to forebear from pursuing their claims against Conte & Ricci. Conte & Ricci released all of its claims against plaintiffs, Guidi and Liberty Mutual. The agreement was to have no effect upon the claims between plaintiffs and Guidi. Immediately after this settlement, trial of the claims between plaintiffs and Guidi began on August 18, 2003, and were tried to a conclusion before the court on September 5, 2003.

After the trial was concluded, the trial judge noted in his written opinion that the Silvi credit application executed by Conte provided "that the information contained therein was 'for the purpose of inducing Silvi Group Companies to make periodic sales of goods and materials to it on credit.'" The judge concluded that "[t]here can be no doubt that Conte . . . entered into a contract for Ready Mix Concrete with the Silvi companies which included Silvi of Englishtown, Inc., Silvi Concrete of Brick, Inc. and Sil-Crete, Inc."

With respect to plaintiffs' claim under the construction lien law, the judge found that plaintiffs were suppliers within the intendment of N.J.S.A. 2A:44A-2. He found that the plaintiffs' proposal, the credit application, the delivery tickets, and the invoices established a contract between plaintiffs and Conte & Ricci, which failed to make payment to plaintiffs. He also found that each construction lien claim was properly executed, acknowledged, verified by oath of an authorized officer, and filed with the Clerk of Middlesex County where the property was located. The court concluded that the construction liens satisfied the requirements of N.J.S.A. 2A:44A-6 and -8. In addition, he determined that the liens were served on the proper parties in accordance with N.J.S.A. 2A:44A-7, and the lawsuit was commenced within the statutory limits established by N.J.S.A. 2A:44A-14.

The judge further found that as of August 23, 2003, the date the property owner received notice of the construction lien claim, Lowe's owed Guidi $653,950.02. He concluded that this sum constituted a lien fund in accordance with N.J.S.A. 2A:44A-10. The total due to Silvi from Conte & Ricci on that date was $224,253.29. Taking into account the $70,000 that Silvi was to receive from Conte by way of settlement, the judge found that "the outstanding balance claimed by Silvi Companies is now $154,253.29 plus attorney fees and interest." He concluded that the plaintiffs were entitled to satisfy their liens from the $653,950.02 lien fund. He found that the obligation to pay in accordance with the terms of the bonds was transferred to Liberty Mutual when it filed the Release of Construction Lien Claim Bonds with the Middlesex County Clerk. The judge further found that the plaintiffs "properly notified the owner and the general contractor in writing as required by Paragraph 3 of that bond when they were served with the written construction lien claim[s]," and that Liberty Mutual was notified by the October 2, 2001 letter from Silvi.

The judge dismissed the portion of Guidi's claim that was predicated on the plaintiffs' negligence, reasoning that the matter was essentially a breach of contract or breach of warranty claim. He found that plaintiffs breached implied warranties by ordering and delivering the wrong material for the installation of the interior floor slab. The judge, however, also attributed fault to Conte & Ricci because the plaintiffs' delivery tickets clearly identified the mix as air-entrained. He found that both Ricci and Soto had fifty years of experience as masons and should have known to check the delivery tickets. He also found that Conte & Ricci troweled the concrete without allowing sufficient time for it to bleed, thereby trapping water under the hard surface and causing the ultimate problems with the floor in terms of delamination, spalling, and cracking.

Finding that plaintiffs breached the "implied warranty of fitness for a particular purpose in the sale and delivery of ready mix concrete," the judge assessed against plaintiffs 50% of the liability for the consequential damages proven in the claim by Guidi. Thus, the judge entered judgment in favor of plaintiffs in the sum of $154,253.29. He entered judgment in favor of Guidi and against plaintiffs in the amount of $53,640.18, which was 50% of the actual sum expended by Guidi to complete floor repairs to the interior floor slabs.

The judge did not award Guidi anything for an "estimated $101,400 in additional repairs before the expiration of the [extended] warranty in July 2004" because this was "purely speculative." In addition, the judge allowed Guidi to keep the "retainage from Conte and Ricci as per their settlement [$68,154.03]" even though it "exceeds the responsibility of Conte and Ricci under . . . [the] decision." Finally, no counsel fees were awarded.

On a motion for reconsideration, Guidi and Liberty challenged the final judgment because the judge "failed to consider the . . . $59,683.97 of the Conte & Ricci damages that were assigned to E.P. Guidi and Liberty Mutual" by the settlement. They also argued that Guidi could not be held responsible for the negligence of Conte & Ricci.

With respect to that assignment, the judge ruled that he would abide by his determination not to give Guidi and Liberty Mutual the benefit of the cost of repairs ($59,683.97) made by Conte & Ricci because he found that a general contractor and subcontractor may not at any time affect the rights established by the Construction Lien Law, N.J.S.A. 2A:44A-1. This was so because the statute was remedial in nature for the protection of those people who supply materials to contractors and subcontractors. He could not see why Guidi should be the beneficiary of Conte & Ricci's repairs and concluded that he

considered this matter in terms of that statute and only in terms of that statute. And I considered what would be an adequate, what would be a reasonable, what would be an equitable remedy in this situation under that statute and that's why my decision is what it is and that is why I am not going to reconsider nor change any aspect of my written opinion that was issued in this matter.

On appeal Guidi and Liberty Mutual contend that the trial court erred in several respects. First, Liberty Mutual urges that the court incorrectly found that the notice required under Liberty Mutual's bonds was given. Second, they argue that the court did not properly interpret New Jersey's Construction Lien Law. Third, Guidi contends that the court failed to include the damages assigned to Guidi by Conte & Ricci in the settlement agreement as a deduction from plaintiffs' claims. In addition, Guidi argues that the court should not have attributed Conte & Ricci's negligence to it, reduced Guidi's damages for breach of warranties, or dismissed Guidi's negligence claims.

We conclude that the trial court erred in finding that proper notice was given under the Release of Construction Lien Claim Bonds, and also erred in calculating the amount of the lien fund. Guidi's other claims of error lack merit.

I

Guidi and Liberty Mutual contend that the trial court erred in concluding that the notice required under the Liberty Mutual bonds was given. They urge that Silvi-Englishtown failed to provide the notice required by the bond and that Silvi-Brick and Sil-Crete did not provide any notice.

Contrary to the requirement of the bond, the October 2, 2001 notice by Silvi-Englishtown was sent only to Liberty Mutual, which received the notice on October 22, 2001. Moyer testified that the last delivery by Silvi Concrete of Englishtown was made on July 20, 2001, and thus the notice was given beyond the ninety-day limitation of the bond. Furthermore, there is no indication on the letter that it was sent by registered or certified mail, and Moyer testified that she could not remember how she sent the letter. In addition, the notice had to state with substantial accuracy the amount claimed, but it overstated the total amount claimed by all three plaintiffs.

The trial court concluded that Liberty Mutual "was notified by the October 2, 2001 letter from the Silvi Companies" and that the owner and general contractor were properly notified "in writing as required by paragraph 3 of that bond when they were served with the written construction lien claim."

Strict compliance with a surety's undertaking is required. The Supreme Court in Eagle Fire Prot. Corp. v. First Indem. of Am. Ins. Co., 145 N.J. 345 (1996), stated:

It has long been settled law that a surety is chargeable only according to the strict terms of its undertaking and its obligations cannot and should not be extended either by implication or by construction beyond the confines of its contract.

[Id. at 356.]

That rule is only modified if the language in the bond is ambiguous. Ibid. In V. Petrillo & Son, Inc. v. American Constr. Co., 148 N.J. Super. 1, 4-5 (App. Div.), certif. denied, 75 N.J. 4 (1977), we recognized "the principles concerning the construction of surety bonds and the policy of the law to favor materialmen and laborers in cases of doubtful or uncertain construction of the language contained in the surety bonds." However, we also cautioned that "[t]he language of the bond should be given a common sense meaning and not tortured to reach a particular result." Id. at 5.

Initially, the liability of the surety on the contractor's bond is determined by the provisions of the bond, and cannot be extended beyond such provisions. Although the surety bond is to be interpreted according to its provisions, as against a paid surety company, any ambiguity in a contractor's bond should be liberally construed in favor of laborers and materialmen, for whose benefit it was ostensibly executed.

[13 George J. Couch, Couch on Insurance 47:183 (2d ed. rev. vol. 1982).]

Relying on Petrillo, the Third Circuit held that under New Jersey law the notice requirements, just like every other provision, are to be strictly construed. Dravo Corp. v. Robert B. Kerris, Inc., 655 F.2d 503, 509 (3d Cir. 1981) (holding that premature notice under the surety bond was ineffective).

Here it is clear that the notice to Liberty Mutual failed to comply with the terms of the bond. The notice was untimely because it was received by Liberty Mutual on the ninety-fourth day after the last delivery. There is no proof that it was sent by certified or registered mail, as the notice provision required. Because the notice of claim was defective, the claims against Liberty Mutual under the bonds must be dismissed. This leaves the quantum meruit claim by plaintiffs against Guidi and Guidi's counterclaim for breach of warranty.

II

Guidi and Liberty Mutual contend that the trial court erred in finding that Silvi-Brick and Sil-Crete were "suppliers" under the Construction Lien Law, that Silvi-Englishtown could recover for unsigned delivery tickets, and that the construction lien fund amounted to $653,950.02.

Guidi argues that neither Silvi-Brick nor Sil-Crete had a contract with Conte & Ricci. Consequently, Guidi urges that these plaintiffs cannot be considered to be "suppliers" under the Construction Lien Law. This argument is based upon the fact that the quotations for concrete were provided only by Silvi-Englishtown, the mix design for the concrete was provided by Silvi-Englishtown, and the Contractor's Qualification Statement was supplied by Conte & Ricci only to Silvi-Englishtown. Under N.J.S.A. 2A:44A-2 a contract is an agreement "in writing evidencing the respective responsibilities of the contracting parties . . . ." In the case of a supplier, the writing "shall include a delivery or order slip signed by the owner, contractor, or subcontractor having a direct contractual relation" with the supplier, or an authorized agent of any of them. N.J.S.A. 2A:44A-2 also provides that a "supplier" is a person or entity "having a direct privity of contract with [a] . . . subcontractor in direct privity of contract with a contractor."

With only one exception, the record contains delivery slips issued by Silvi-Brick and Sil-Crete reflecting deliveries of concrete to the Lowe's project that were ostensibly signed on behalf of Conte & Ricci. Silvi-Brick made three deliveries on June 25, 2001, and Sil-Crete made two deliveries on that day. Thus, Silvi-Brick and Sil-Crete were "suppliers" in their own right because they were in privity of contract with Conte & Ricci (the subcontractor), which was in privity of contract with Guidi (the contractor). The trial court was correct in concluding that the signed delivery receipts were sufficient to create supplier status under the Construction Lien Law for both Silvi-Brick and Sil-Crete.

Guidi argues that under N.J.S.A. 2A:44A-2 Silvi-Englishtown and Sil-Crete are not entitled to recover for any of the seventeen unsigned delivery tickets in the total amount of $12,155, one of which was an unsigned ticket from Sil-Crete.

Guidi misconstrues this provision of the Construction Lien Law as it applies to Silvi-Englishtown, because signed delivery tickets are not the only writings that meet the requirements of N.J.S.A. 2A:44A-2. In Legge Indus. v. Joseph Kushner Hebrew Acad., 333 N.J. Super. 537 (App. Div. 2000), we held that:

The phrase "any agreement . . . in writing" is modified by the phrase "evidencing the respective responsibilities of the contracting parties." In the case of a materials supplier, the statute expressly provides that the required writing can be satisfied by a signed delivery slip. The parties dispute whether the agreement itself must be spelled out in a separate written contract document or whether other written evidence of an agreement with the prime contractor is sufficient. The language of the statute supports the more flexible interpretation urged by plaintiffs; we hold that a writing evidencing the agreement satisfies the Lien Law. Moreover, the words "shall include" are words of inclusion, not exclusion. . . . Thus we conclude that 2 does not necessarily limit to delivery slips the writings allowable as evidence of a supplier's contract.

[Id. at 559 (citations omitted).]

Silvi-Englishtown had other writings that established the respective responsibilities of the contracting parties: its written proposal to Conte & Ricci, the credit application, the very detailed delivery tickets, and the invoices. Considering the detail contained on the delivery tickets and on the corresponding invoices, and the very limited number of unsigned tickets sequentially batched with significantly greater numbers of signed tickets on the invoices, the contractual requirements of N.J.S.A. 2A:44A-2 and N.J.S.A. 2A:44A-3 were satisfied and the lien of Silvi-Englishtown had a "reasonable basis in fact." Legge, supra, 333 N.J. Super. at 559.

A different result must obtain with Sil-Crete because its status as a supplier depended exclusively on the existence of signed delivery receipts. As noted previously, N.J.S.A. 2A:44A-2 requires a writing evidencing the respective responsibilities of the contracting parties. If that writing is only a delivery slip, it must be signed by the subcontractor who was in privity of contract with the supplier. Thus, as to one delivery, Sil-Crete was not entitled to claim the amount due in its lien, and its lien must be reduced by $746.88.

Guidi contends that the trial court overstated the amount of the lien fund. The judge found that, as of the date the liens were served on the owner, $653,950.02 was due from Lowe's to Guidi. He concluded that this sum constituted the lien fund. Guidi contends that the lien fund is limited to the amount due from it to Conte & Ricci at the time the lien was served on the owner.

As of August 23, 2001, Lowe's owed Guidi $653,950.02; Guidi owed Conte $68,154.03; and Conte & Ricci owed plaintiffs $224,703.78. The issue presented is whether the amount of the lien fund is based on the amount due the general contractor, the amount due the subcontractor, or the amount due the supplier.

The Construction Lien Law explains how the lien fund is to be calculated:

[T]he maximum amount for which an owner will be liable or an interest in real property subject to a lien under this act for one or more lien claims filed pursuant to this act shall not be greater than:

 
a. In the case of a lien claim filed by a contractor, the total amount of the contract price of the contract between the owner and the contractor less the amount of payments made, if any, prior to receipt of a copy of the lien claim . . . by the owner to the contractor or any other claimant who has filed a lien claim . . . pursuant either to a contract with the contractor and any subcontractor or supplier, or a contract between a subcontractor of the contractor and any supplier or other subcontractor; or
 
b. In the case of a lien claim filed by a subcontractor or supplier, the amount provided in subsection a. of this section, or the contract price of the contract between the contractor or subcontractor and the subcontractor or supplier, as applicable, pursuant to which the work, services, materials or equipment is provided by the subcontractor or supplier, less the amount of payments made, if any, prior to receipt of a copy of the lien claim . . . to the contractor or supplier or any other claimant who has filed a lien claim . . . pursuant to a contract with such subcontractor or supplier, whichever is less.
 
[N.J.S.A. 2A:44A-10.]

N.J.S.A. 2A:44-10 is not a model of clarity. However, its operation is explained in 41 Robert S. Peckar, New Jersey Practice, Construction Law, 12.58 (1998):

The CLL is premised upon an essential principle that an owner, contractor or subcontractor should not be compelled to pay twice for the same work or service by reason of the liabilities or business pressures which occur when a valid lien is filed. This principle is accomplished by the CLL's adoption of the lien fund concept. The concept, which is not identified by the name "lien fund" in the statute, is as follows:

1. An owner's property is never subject to liens in an amount greater than the amount unpaid by the owner to its prime contractor as of the time a lien is filed by one claiming a lien under that prime contractor.

2. Upon the filing of a lien by a subcontractor or supplier (second tier), an owner's property is never subject to a lien or liens in an amount greater than (1), above, or the balance owed by the contractor to the liening subcontractor whichever is less.

3. Upon the filing of a lien by a sub-subcontractor, or supplier to a subcontractor (third tier), an owner's property is never subject to a lien or liens in an amount greater than (1), or (2) (with respect to the subcontractor with whom the third tier party has contracted) or the amount due to the lienor from the contracting party, whichever is less.

[Id. at 342-43.]

An example provided in the Treatise is applicable here:

Example (B)
Owner owes Contractor $30,000.00
Contractor owes Subcontractor $25,000.00
Subcontractor owes Supplier $40,000.00

In this case, the supplier's lien fund is $25,000. This is the maximum amount which has not been paid in the construction chain. The subcontractor's lien fund in this case is also $25,000. All payments made by the contractor to a particular subcontractor reduce the lien fund available to the subcontractor and those claiming under or through that subcontractor.

[Ibid.]

The Supreme Court has opined that the main purpose of the Construction Lien Law is to secure payment to contractors, subcontractors, and suppliers by empowering them to file liens. Craft v. Stevenson Lumber Yard, Inc., 179 N.J. 56, 68 (2004). A secondary goal "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." Ibid. In Craft subcontractors filed a lien against the owner; the general contractor had walked off the job and failed to pay its subcontractors. The Court held that the focus of the Construction Lien Law "is not simply on securing payment for subcontractors and suppliers." Id. at 80.

If that were the case, the lien fund would not be limited. Rather, the CLL remedy strikes a balance between the interests of owners, subcontractors and suppliers by securing payment from the moneys owed by the owner to the contractor. N.J.S.A. 2A:44A-12. That is pivotal because it allows a lien encumbrance only to the extent that the owner is indebted to the contractor and provides the owner with the right to use that money to pay the unpaid subcontractors and suppliers directly. N.J.S.A. 2A:44A-12. Once those limits on the CLL remedy are taken into account, it seems clear that in any case in which no money is owed by an owner to a contractor, no lien fund exists.

[Ibid. (emphasis in original).]

Other jurisdictions have held that the general contractor is entitled to the same protection as the owner. Under New York law, "contractors had the same right as owners with respect to the limitation of their liability for work performed under subcontracts." Dempsey v. Mt. Sinai Hosp., 174 N.Y.S. 386, 389 (App. Div. 1919), aff'd, 227 N.Y. 661 (N.Y. 1920); see also C.S. Behler, Inc. v. Daly & Zilch, Inc., 716 N.Y.S.2d 506, 508 (App. Div. 2000); Philan Dep't. of Borden Co. v. Foster-Lipkins Corp., 331 N.Y.S.2d 138, 139 (App. Div. 1972) ("With respect to material furnished a subcontractor by materialmen, liens filed by such materialmen can only be enforced to the extent of money owed by the contractor to the subcontractor."), aff'd, 304 N.E.2d 372 (N.Y. 1973). In North Carolina, too, the materialman's lien is limited to the amount due from the contractor to the subcontractor. Elec. Sup. Co. v. Swain Elec. Co., Inc., 389 S.E.2d 128, 129 (N.C. Ct. App. 1990), aff'd, 403 S.E.2d 291 (N.C. 1991).

As of August 23, 2001 (the date the liens were served) Lowe's (the owner) owed Guidi (the contractor) $653,950.02; Guidi (the contractor) owed Conte (the subcontractor) $68,154.03; Conte (the subcontractor) owed Silvi (the supplier) $224,703.78. Because the Supreme Court in Craft recognized that the Construction Lien Law sought to preclude the burden of double payment for work and materials, we find that subsection (b) of N.J.S.A. 2A:44A-10 should be construed to require a comparison of the amount due the subcontractor with the amount due the supplier. The lesser of those two sums should then be compared to the amount due the general contractor as calculated under N.J.S.A. 2A:44A-10(a). Whichever sum is less is then the amount of the lien fund under N.J.S.A. 2A:44A-10(b). Accordingly, $68,154.03 was the proper amount of the lien fund, and the trial court's contrary conclusion in this regard was error.

III

Guidi contends that the trial court erred when it failed to include in its damages the $59,683.97 in damages sustained by Conte & Ricci and assigned to Guidi. Certainly such a claim may be assigned, and the type of damages Conte & Ricci suffered is recoverable in a breach of contract or breach of warranty claim. Any error, however, is harmless for the reasons stated hereafter.

At the time of the settlement, Conte & Ricci had a claim against the plaintiffs for repair work done by Conte & Ricci that resulted in part from the plaintiffs' failure to supply the proper concrete. Conte & Ricci also owed the plaintiffs $224,253.29. When Conte & Ricci paid $70,000 to the plaintiffs, it retained $154,253.29 of the plaintiffs' money. This retention satisfied the entirety of Conte & Ricci's damages. As a consequence, the damage claim that was assigned to Guidi had no value because it had been discharged by the release. Thus, the trial court did not err in excluding that claim from the damages Guidi was entitled to recover from the plaintiffs.

IV

Guidi also claims a variety of errors that revolve around the award of damages in this case. The trial court concluded that Guidi was only entitled to recover 50% of its damages from the plaintiffs. There was substantial credible evidence in the record to support the trial court's conclusion that the plaintiffs and Conte & Ricci were equally to blame for the damages Guidi incurred. The trial court's conclusion will not be disturbed on appeal.

The trial court concluded that Guidi was entitled to retain all of the monies withheld from Conte & Ricci. We affirm that result, but for different reasons. First, we are mindful of the admonition of the Craft Court that one of the goals of the Construction Lien Law "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." Craft, supra, 179 N.J. at 68. Were the plaintiffs permitted to recover any sums from Guidi, such a recovery would impose a double burden upon Guidi. Guidi paid the sums due under its contract with Conte & Ricci save the 10% retainage. It did not get what it paid to acquire and had to expend sums in excess of the retainage in order to affect repairs. These considerations would most likely not obtain where the lien holder was a blameless supplier, as in Labov Mech., Inc. v. East Coast Power, L.L.C., 377 N.J. Super. 240 (App. Div. 2005), but here the plaintiffs were far from blameless.

Turning to Guidi's right to recover damages, Guidi was essentially a stakeholder of the retainage due Conte & Ricci and could not use those funds to reduce Guidi's damages absent consent of plaintiffs or a court order. Guidi released Conte & Ricci without securing an agreement from plaintiffs that Guidi could keep the retainage as recompense for damages caused by Conte & Ricci. As a result, Guidi must first deduct from that retainage the portion of damages attributable to the plaintiffs. It may then apply the balance of the retainage to the damages caused by Conte & Ricci. This is consistent with the parties' agreement that the settlement was to have no effect upon the claims between plaintiffs and Guidi.

Guidi's remaining claims of error do not merit further discussion. R. 2:11-3(e)(1)(E).

 
Reversed and remanded for entry of a judgment in conformance with this opinion.

While the letter bears the name Silvi of Englishtown, Inc., it sets forth the Fairless Hills, Pennsylvania, address and area code 215 telephone number on the top of the page. The Englishtown, New Jersey, address and New Jersey telephone number of the plant appear at the bottom of the page.

Air entrainment is a process whereby a chemical is added to concrete that produces "millions of little bubbles" to make the concrete resistant to freezing and thawing. The American Concrete Institute recommends that air-entrained concrete be used in an outdoor environment where the concrete is susceptible to freezing and thawing. The Institute also recommends against using air-entrained concrete for interior slabs that are to receive a hard-trowel finish. This is so because air entrainment reduces the rate at which excess water rises and escapes or "bleeds" through the concrete. A hard or steel-trowel finish prevents the bleed water from escaping to the surface and evaporating. Trapped bleed water below the hard surface causes "delamination" or an "air void . . . [that] usually runs just under the surface and parallel to the surface." Spalling, or the scaling of concrete off the top surface, occurs above the air void.

Conte & Ricci applied the funds received from Guidi to other debts.

Defendants claim a balance of $532,031.02, but the court found the $653,950.02 figure.

The claims by and against defendants Old Bridge Properties, L.L.C., and The Phillips Companies were also resolved prior to trial.

The judge miscalculated the total due as of this date. The correct amount is $224,703.78.

The last delivery by Silvi-Brick was on July 19 and the last date of delivery for Sil-Crete was July 10.

We do not decide the issue of whether the mere service of construction liens satisfies the requirements of notice under the bonds because the liens were served on only one party to the bond, Guidi, and the notice to the second party, Liberty Mutual, was untimely and not sent by certified or registered mail.

Of course, the amount of the lien fund does not limit the supplier's other remedies. In Groesbeck v. Linden, 321 N.J. Super. 349, 353 (App. Div. 1999), the court recognized that the Construction Lien Law was not designed or intended to be an exclusive remedy. Here, however, plaintiffs released Conte & Ricci from those other remedies.

(continued)

(continued)

32

A-4324-03T3

February 8, 2006