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Crain Construction Company, Inc. v. DiNatale

A-0764-03T1 (N.J. Super. App. Div. 2004) (Unpublished)

LIENS; MUNICIPAL; CONTRACTORS—Because a contractor is obligated to make reasonable efforts to ascertain the true amount owed, a municipal construction lien based on an overstated claim may be vacated even if it was filed in good faith.

A subcontractor filed municipal construction liens for work performed and materials furnished on various projects. A few weeks later, the general contractor for those projects filed and served an order to show cause seeking to vacate and void the subcontractor’s liens. It alleged that the liens were inflated and unjustifiably interfered with the general contractor’s ability to obtain bonding needed for other projects. In response, the subcontractor filed a breach of contract and a quantum meruit counterclaim.

The lower court vacated the liens, concluding that the lien amounts were unreasonable and had been inappropriately inflated. It found that the subcontractor had ignored payments made directly to the subcontractor’s suppliers and that the subcontractor had received the benefit of what was paid by the general contractor.

On appeal, the subcontractor claimed that the contractor failed to meet its burden of showing the subcontractor’s knowledge and bad faith. The Appellate Division disagreed, holding that actual knowledge and bad faith were not material in an action to terminate a municipal construction lien. A notice of claim for a municipal construction lien must include the amount, “as near as may be,” of the demand after deducting all just credits. The statutory phrase, “as near as may be,” requires a lien claimant to make reasonable efforts to obtain the true facts for the amount of the demand. Proof of actual knowledge, bad faith, or willful and fraudulent intent is not required. A lien is properly vacated even if an overstatement results from a failure to make a reasonable effort to ascertain the facts. For that reason, the Court affirmed the lower court’s decision to vacate the liens.

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