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Safway Steel Products, Inc. v. Carolina Casualty Insurance Company

A-4246-00T2 (N.J. Super. App. Div. 2002) (Unpublished)

CONTRACTORS; BONDS— The provisions of the New Jersey Bond Act are to applied broadly to protect providers of construction services and materials, all being considered as having done “work” under the Act.

A board of education entered into a substantial construction project agreement with a general contractor. The general contractor provided a payment bond. One of the general contractor’s subcontractors leased scaffolding for the project, but when the subcontractor fell behind on payments under the lease, the scaffolding company advised the general contractor and then sued the bonding company for the past due payments, claiming to be a beneficiary under the bond. The supplier, however, did not provide written notice to the general contractor before delivering the scaffolding to the construction site. The lower court concluded that the notice requirements of the Bond Act were inapplicable to material suppliers and also held that the particular bond “contained more liberal notice provisions under which the notice is actually given would be sufficient.” The Appellate Division first reviewed the provisions of the bond itself. In doing so, it found that the lower court overlooked a provision of the bond which stated that when the bond “has been furnished to comply with a statutory ... requirement ..., any provision in this Bond conflicting with said statutory or legal requirement shall be deemed deleted herefrom and ... [t]he intent is that this Bond shall be construed as a statutory bond and not as a common law bond.” Under New Jersey law, the general principle is that “when a surety bond is issued to satisfy the requirements of a statute, the bond will be construed in conformity with the legislative mandate.” Under case law cited from other jurisdictions, “when a statute requires a bond to be given, the statutory terms and conditions will be read into the bond and conditions not required by statute will be stricken from the bond as surplusage.” The scaffolding supplier did not dispute the correctness of that principle. Instead, it argued that the principle only applies “to provisions of a bond that curtail statutory protections.” In support of its argument, it cited numerous out-of-state cases as allegedly directly on point. The Court did not doubt “that a surety bond for a public project may be conditioned more broadly than the minimum requirements of the statute.” However, none of the cases cited by the scaffolding company involved bonds that contained the limiting provision that was present in this particular bond. In fact, an earlier reported case dealt with the effect of similar language and led the Court to conclude that “the subject bond is even clearer with respect to its intent to provide no more than a statutory bond.” The Court then turned its attention to the question of “whether the notice provisions of the Bond Act are inapplicable to material suppliers.” Under the Act, the beneficiary of a payment bond are those that provide labor or material for the construction, erection, alteration or repair of school buildings whether directly to a general contractor or to subcontractors. “Obviously, [the cited] section draws no distinction between those who physically work on the job and those who supply materials.” As a result, the Court agreed that the scaffolding supplier was a beneficiary of the bond. The Bond Act also contains provisions imposing specific notice obligations on anyone who may be a beneficiary of the payment bond. That provision requires any beneficiary “who does not have a direct contract with the contractor furnishing the bond” to provide written notice to the contractor by certified mail or otherwise “prior to commencing any work.” Here, the lower court focused on the word “work,” as distinguished from “supplying materials.” The Appellate Division did not agree that such a distinction was appropriate. To the Court, the Bond Act did “not suggest that suppliers should be treated differently from those who work at the project site, but by listing them together implies that they should be treated alike.” Moreover, the notice provision “begins by stating that it is applicable to” any beneficiary of the payment bond. The Court also took note of the general proposition that the Bond Act and the municipal lien law “are in pari materia and are to be construed together.” The municipal lien law draws no distinction between workers on a construction site and those who supply material. Consequently, according to the Court, “it would follow that no such distinction was intended under the Bond Act.” Essentially, the Appellate Division rejected the lower court’s perception that “work” is limited to activity performed at the construction site. According to the Court, even if the phrase was ambiguous, it could not treated as ambiguous when read in the context of the entire statute. Consequently, as a beneficiary of the Bond Act, the scaffolding supplier was entitled to collect sums earned subsequent to when it actually did give notice to the general contractor.

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