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Craft v. Stevenson Lumber Yard, Inc.

A-3126-01T3 (N.J. Super. App. Div. 2003) (Unpublished)

CONSTRUCTION LIENS—A property owner’s lien obligation to a subcontractor is the difference between the contract price and the amount already paid to the general contractor even if the property owner still needs to spend more to complete what its general contractor left undone.

A buyer contracted for the construction of a residence. The contractor purchased supplies from two different lumber yards. At the time the purchases were made, the contractor had several construction projects ongoing. No separate accounts were established at the suppliers to reflect the various projects. At least one of the lumber yards applied the payments to the oldest outstanding invoices. When about seventy-five percent of the buyer’s project was paid for, the contractor walked off the job. At that time, the amount unpaid to the contractor was $53,020, but the amount owed by the contractor to the two suppliers was about $80,000. Construction liens were filed and suits were instituted. The homeowner contended that no lien fund existed because he had paid the contractor all that was owed at the time the liens were filed. That contention was “premised on the belief that if an owner pays a prime contractor for work completed to date, there is no balance remaining to support a lien fund even though the owner has not paid out the full contract price agreed upon with the prime contractor.” Even though this belief may have been appropriate under a prior law, it is not accurate under the law as it now exists. The Appellate Division stated that a “property owner’s lien obligation to a subcontractor [is] the difference between the contract price and the amount already paid to the general contractor, even though” it may result in the owner having to pay more for the finished job than the original contract price. The proposition that a property owner is protected against double payment only means that the money already paid by an owner to a contractor need not be paid a second time.

The owner also complained about one lumber yard’s policy of applying payments to the oldest invoices. Here, there were no discrete project accounts. Even though it was true that when the lumber yard applied payments to the oldest outstanding invoices, the property owners with the most recent invoices were left vulnerable to lien claims, the Court pointed out that the lumber yard’s method of applying payments was permitted under “present” law. If a debtor does not direct specific application of payments and a creditor does not know the original source of the payments or their intended purpose, the creditor’s choice of payment application will stand. The Court recognized that the law, as applied to the facts, resulted in a detriment to the owner even thought the owner did nothing wrong except to place too much trust in its contractor. The Court pointed out, however, that the lumber yard also did nothing wrong.

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