Skip to main content

P.E.M. Construction and Development Co., Inc. v. EnCap Golf Holdings, LLC

A-4302-09T4 (N.J. Super. App. Div. 2011) (Unpublished)

CONTRACTORS — Even though a statute may require a regional authority to approve plans and obtain performance bonds for its own benefit, if the contracted work is not for the benefit of that authority, then a contractor has no right to demand that the developer for a public project be required to obtain a performance bond.

A contractor, working on two projects in the Hackensack Meadowlands District (Meadowlands), sought payment from an escrow account established by the developer. The account was held by the New Jersey Meadowlands Commission. As part of the developer’s project, the contractor and developer entered into an agreement to renovate an abandoned bus service station and convert it into a recreational center. The Commission was not a party to the contract, but had the statutory obligation to review the plans since they involved the alteration of an existing structure within the Meadowlands. The Commission approved the plans, the municipality issued building permits, and the work commenced.

When the developer experienced financial difficulties, the Commission terminated its agreement with the developer but agreed not to exercise its remedies under the agreement in exchange for the creation of an escrow account. The developer then entered into another agreement with a second developer who agreed to assume some of its responsibilities. The contractor then submitted a bid to do some work for the second developer. The second developer and the contractor entered into a contract rider under which the contractor would perform certain additional work. The contractor received partial payment, but then the developer filed for bankruptcy protection and the second developer refused to perform its obligations under the rider. The contractor sued.

Regarding the renovation of the bus station, the contractor argued that the Hackensack Meadowlands Reclamation and Development Act imposes a duty on the Commission to obtain a performance guaranty. The lower court rejected that argument, finding that the statute had been enacted for the Commission’s benefit and not for the contractor’s benefit. It also found that the Bond Act did not apply to the contractor’s renovations of the bus station because the work to be done was not under a contract at the expense of the State or of an agent contracting on its behalf. In this case, the renovation contract was between the developer and a municipality that would own the renovated bus service station. It was not a contract with the State. The lower court also rejected the developer’s claim that there was a principal/agent relationship between the Commission and the developer. It found that the Commission’s only involvement in the renovations was its statutory duty to review the plans to make sure they complied with regulations and with the master plan for the Meadowlands.

The lower court also found that the contractor had no right to payment from the escrow account because the escrow account was designated solely for approved costs to complete necessary environmental work and for the work required to complete certain recreational facilities. The contractor was not a party to the escrow agreement and the escrow agreement specifically stated that there were no intended third-party beneficiaries. In addition, the work done by the contractor, in converting the abandoned bus station into a recreational center, was not included within the work covered by the escrow agreement.

The contractor appealed, but the Appellate Division affirmed, agreeing with the lower court’s finding that there was no principal/agency relationship between the Commission and the developer. The agreements between the Commission and the developer detailed the tasks to be undertaken by the developer in redeveloping the area, but did not show that the Commission controlled the developer as a principal would control an agent. Further, the Commission had no involvement other than its statutory duty to review the plans to make sure they complied with the development requirements for the Meadowlands.

The Court also found that the Bond Act did not obligate the Commission to require the developer to secure a bond for the contractor’s protection because the redevelopment and conversion of the abandoned bus station was not for a public building constructed under contract, at the expense of the State.

66 Park Street • Montclair, New Jersey 07042
tel: 973-783-3000 • fax: 973-744-5757 •