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Eastern Concrete Materials, Inc. v. Raritan Town Center, LLC

A-5337-08T2 (N.J. Super. App. Div. 2011) (Unpublished)

CONSTRUCTIONS LIENS; CONTRACTORS — Where a lien bond has been substituted for a construction lien against a property, the lien claimant cannot get a personal judgment against the property owner, but must seek collection from the lien bond alone and will not be entitled to the payment of pre-judgment interest.

A concrete supplier sought to enforce a non-residential construction lien pursuant to the New Jersey Construction Lien Law (CLL) against the owner of a tract of property, the general contractor, and a third-party surety. The surety had issued a lien discharge bond. The owner of the property hired the general contractor for the project. The general contractor engaged another company to perform concrete work on the project and it, in turn, hired another subcontractor to provide rebars for the project. The concrete supplier failed to pay the rebar supplier. The rebar supplier unsuccessfully attempted to collect what it was owed.

Finally the rebar supplier filed a construction lien claim. Its claim asserted that there was a written contract between it and the concrete supplier. The general contractor filed a lien claim bond designating the rebar supplier as the beneficiary. Under the bond, the surety agreed to make payment if the general contractor failed to pay any judgment rendered in the rebar supplier’s favor.

The lower court entered a judgment in favor of the rebar supplier on its construction lien claim and awarded prejudgment interest from the filing date of the complaint.

The defendants appealed. The only two points the Appellate Division addressed were: (1) whether the lower court erred in entering personal judgments against the property owner and the general contractor; and (2) whether the lower court erroneously included, and computed, pre-judgment interest. As to the first point, the appellants argued that the CLL only provides a right to enforce the construction lien claim against an owner’s interest in the real property. Accordingly, after the general contractor posted the lien discharge bond, security for the lien claim transferred from the real property to the bond and therefore the only claim the rebar supplier could maintain was its third party claim against the insurance company.

The Appellate Division agreed, finding that following the rebar supplier ‘s filing of its lien claim, the general contractor filed a lien claim bond. The bond designated the general contractor as principal, the third party insurance company as surety, and the rebar supplier as beneficiary. Thus, the rebar supplier’s lien on the real property and improvements was released and discharged. The court had previously dismissed the rebar supplier’s unjust enrichment and breach of contract claims against the property owner and the general contractor. Consequently, the lower court erred in entering a monetary judgment against those two parties. So, the lower court’s order had to be corrected by deleting the monetary judgment against the two defendants and by including a determination that the rebar supplier proved its construction lien and was entitled to a judgment thereon limited by the amount of the lien claim. On the other hand, the lower court did not err in entering judgment against the surety for the general contractor’s failure to pay the rebar supplier the monies adjudged due and owing under the CLL on its lien claim.

The Court next addressed the prejudgment interest award. The primary purpose in awarding prejudgment interest is to compensate a claimant where the owner or contractor had the use of the money, and the claimant had not. The interest factor covers the value of the sum awarded for the prejudgment period when the obligated party had the benefit of monies to which the unpaid supplier was found to have been entitled. Here, the Court held that the lower court erred in awarding prejudgment interest. The party who wrongfully withheld payment from the rebar supplier was the concrete supplier, and therefore the lower court should not have awarded prejudgment interest based on the rebar supplier only receiving the amount of the lien claim fund. The rebar supplier was only entitled to receive that amount of money under the CLL. The property owner had paid the general contractor in full for the materials, and the general contractor substantially paid the concrete supplier what was owed under its contract, save the lien claim amount. The lower court’s award of prejudgment interest to the rebar supplier was reversed and the matter was remanded for reconsideration.

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