Case ID: nj-eq_101/html/0045-01.html
Source: Caselaw Access Project
Author: {"author": "Leaking, Y. C.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Harry Pinsky & Son Company, complainant, v. Edgar L. Wike, trustee, &c., et al., defendants.
    [Decided April 4th, 1927.]
    1. Under the provisions of a building contract duly filed pursuant to the second section of the Mechanics’ Lien act, laborers and materialmen are privileged under the third section of the act to rely upon a clause in the contract which requires twenty per cent, of the amount earned by the contractor under the contract to be retained .by the owner for sixty days after the building shall have been finished pursuant to the contract, and are entitled to impound the amount that has been or should have been retained by stop-notices served pursuant to that section of the act before the expiration of that .sixty-day period, or thereafter except as against any superior rights that may have intervened after the end of the sixty days and prior to the service of the stop-notices.
    2. Stop-notices served by labors and materialmen, pursuant to the third section of the Mechanics’ Lien act prior to the expiration of the sixty-day period referred to in the preceding head note, enjoy a lien on that fund in the order of the dates of service of the respec-" tive notices, as against an assignment of money due or to grow due under the contract made by the contractor at a prior time, and also .against an attachment levied prior to the service of the stop-notices. But as between stop-notice claimants labor claims take precedence over claims of materialmen.
    3. As between an attachment of the fund referred to in the preceding head notes and an assignment of that fund of a prior date, the equitable lien of the assignment takes precedence, since section G of the Mechanics’ Lien act, as amended in 1917, subordinates assignments only as against stop-notice liens of laborers and material-men.
    4. One who has supplied insurance on the building and also a bond to the contractor, both pursuant to the terms of the contract, is not entitled under the third section of the Mechanics’ Lien act to a lien ■on the fund referred to in the preceding head notes.
    5. A subcontractor is entitled to a stop-notice lien under the third, ■section of the Mechanics’ Lien act, as amended by the act of 1917 (at p. 821).
    
    6. Acceptance of a note is not operative to destroy the lien of a ■stop-notice claimant conferred by section 3 of the Mechanics’ Lien act unless the note should have been received in payment.
    7. The lien of a stop-notice claimant conferred by section 3 of the Mechanics’ Lien act is not waived or destroyed by such claimant filing a claim, either as a general or a secured claim, with the trustee in bankruptcy of the contractor.
    8. An honest error in the amount of a stop-notice claim served pursuant to section 3 of the Mechanics’ Lien act will not destroy the validity of the claim, especially where the error has in no way contributed to the circumstance of non-payment.
    9. The circumstance that the final amount against which stop-notice liens are perfected under the third section of the Mechanics’ Lien act includes money due for extra work, will not defeat such liens when the filed contract includes extra work as specified rates.
    On bill, &c. On final hearing between claimants under bill of interpleader.
    . The issues in this case call for the ascertainment of the priorities of the several liens of the parties hereto on money which represents the final amount due from the owner of a building to his contractor. The money due from.the owner to the contractor has been paid into court, pursuant to the prayer of a bill of interpleader, and complainant has been discharged. The several defendants have filed statements of their respective claims against the fund, and at final hearing the facts touching the respective claims have been fully ascertained.
    The contract for the erection of the building was duly filed and the classes of claims, in the order of dates, are— first, an assignment of money due or to grow due from the-owner to the contractor, which assignment was accepted by the owner; second, stop-notices served pursuant to the third section of our Mechanics’ Lien act; third, a writ of attachment issued against the contractor and served on the owner; fourth, applying creditors in the attachment suit; fifth, additional stop-notices served on the owner. Some of the-claims under stop-notices are for labor and some for materials supplied to the building; one stop-notice was served by a subcontractor, another by a person who supplied the contractor’s bond and insurance on the building.
    
      Mr. JD. Trueman Stackhouse, for the complainant.
    
      Mr. Wilfred B. Wolcott, for Wike, trustee, &c.
    
      
      Mr. Joseph Beck Tyler, for C. B. Coles & Sons Company.
    
      Mr. Albert 8. Woodruff, for Parkside Title and Trust Company.
    
      Messrs. Bleakly, Stockwell & Burling, for Smith-Austermuhl Company.
    
      Messrs. Riggins & Davis, for Lou A. Leibig.
    
      Mr. David R. Rose, for Edwin A. Peterson.
   Leaking, Y. C.

The contract price of the building which occasions this controversy was $100,000, plus the cost of extra work at rates specified in the contract.

The contract also provided that estimates of completed work were to be furnished by the contractor to the architect on the first day of each month, and when approved by the latter, eighty per cent, of such estimates were to be paid by the ,owner on or before the tenth of the same month; “the remaining twenty per cent, of such estimates” was to be paid at the time of final payment; final payment was to be made sixty days after completion of the work; all payments were to be made on certificates. These provisions touching payments are embodied in section 7 of the contract as filed. These provisions are plain and are not susceptible of misunderstanding. Under these provisions of the filed contract laborers and materialmen were entitled to rely upon twenty per cent, of the amount earned by the contractor remaining in the hands of the owner for sixty clays after the building should have been completed in accordance with the contract; that fund, whatever its amount, they were entitled to impound by stop-notices served before the expiration of that sixty-day period, or thereafter, except as against any superior rights that may have intervened after the end of the sixty days and prior to the service of the stop-notices. Before the expiration of that period the owner could not, as against them, lawfully discharge that obligation to the contractor either by payment to the contractor or by acceptance of an order or assignment of the contractor. The owner is entitled to allowances for defective work; but the amount finally due was necessarily subject to stop-notice liens for sixty days after the final completion of the building pursuant to the contract. In a suit between the trustee in bankruptcy of the contractor and the owner that amount has been ascertained to be $1,500. That determination is to be understood as admittedly correct in the present cause, since the bill of interpleader filed herein has not been contested and that amount of money has been paid into court and the owner has been discharged.

It necessarily follows that all stop-notices served by laborers and materialmen prior to the expiration of the period referred to enjoy a lien on that fund in the order of the dates of service of the respective notices — labor claims taking precedence of claims of materialmen — as 'against an assignment of money due or to grow due under the contract made by the contractor at a prior time. That is the plain language of section 6 of the Mechanics’ Lien act, as contained in the 1898 revision of the act. Comp. Slat. p. 3299.

It is my recollection of the testimony that construction work on the building had not been concluded within sixty days prior to the service of the last stop-notice here in question. But in any event it must be said that the building was not finished by the contractor pursuant to the contract until after the last stop-notice had been served, since the deductions allowed the owner were for defective work. With the building unfinished, pursuant to the contract, more than sixty days prior to April 24th, 1924, the date of the last notice served, it is my determination that all the stop-notices otherwise valid are entitled to priority over the assignment.

It seems also clear that liens under such notices must be held to be entitled to priority over an attachment of prior date, since the statute clearly gives to the stop-notice claimants an inchoate lien on the final fund here involved, and with those inchoate liens perfected by notice before the money became payable the consummate liens necessarily relate to the earliest instant that the contractor became entitled to the payment. The whole plan and purpose of the statute would be defeated if a judgment or attachment could intervene to defeat the statutory liens thus perfected.

Nor can an attachment take precedence over a prior accepted assignment. Assignments are lawful and create an equitable lien; but that lien is by section 6 of the act subordinated to the stop-notice liens of laborers and material-men; the act does not further subordinate the assignments.

It follows that the order of distribution of the final fund now in court must be — first, to the several stop-notice claimants, whose claims are found to be valid, in the order of the dates of the several notices — preference being given to labor claims; next to the assignment; next to the attaching creditors.

The claim of Smith-Austermuhl Company is for insurance on the building and for supplying to the contractor a bond; both the insurance and the bond being contemplated by the contract.

The statutory right of liens given by the first section of our Mechanics’ Lien act is “for labor performed or materials furnished for the erection and construction” of the building. The statutory right of stop-notice liens, in the language of the third section of the act, arises from the refusal of any master workman, contractor or subcontractor to pay any person who may have furnished him “materials used in the erection of any such house or other building” or to pay any “laborer” employed by him “in erecting or constructing any building the money or wages due him.” Amendment, P. L. 1917 p. 821. It has been held that an architect who has drawn the plans for a building, and who has also supervised construction of the building, is entitled to a lien under the first section of the act (Turck v. Allard, 87 N. J. Law 721), and that a lien may be acquired under that section of the act for transportation and delivery of materials used in the building, since the cost of transportation necessarily enters into the price of materials supplied, either inclusive or exclusive. Davis v. Mial, 86 N. J. Law 167. But, however liberally the statute may be construed because of its remedial nature, it seems to me impossible to regard this claimant as either a “laborer” or one who has furnished “material used in the erection” of the building. The statute is for the protection of laborers and materialmen; in my judgment, this complainant is neither a laborer or a materialman. The attorney who drew the original contract performed a necessary service, but, obviously, not as a laborer or materialman within the contemplation of our act.

Objection has been made that the claim of a subcontractor is not contemplated by the statute. Adams v. Wells, 64 N. J. Eq. 211, is cited. Our present act, as amended, includes subcontractors. P. L. 1917 p. 821.

The acceptance of a note is not operative to destroy the right of lien of a laborer or materialman unless the note is received as payment.

Nor can the claims filed by stop-notice claimants with the trustee in bankruptcy, either as general or secured claims, be regarded as destructive of the liens under their stop-notices. The two classes of claims have nothing in common — one seeks the preservation of a lien, the other is in personam. Shoemaker v. Maloney (Court of Errors and Appeals), 132 Atl. Rep. 606.

Nor does an honest error in amount destroy the validity of a claim, especially where the error has in no way contributed to the circumstance of non-payment.

The stop-notice liens also embrace any part of the. $7,500 which may be for extra work, since the contract includes extra work.