Protecting Supplier Lien Rights in New Jersey - Follow the Money

Protecting Supplier Lien Rights in New Jersey - Follow the Money Posted by Daniella Gordon on January 02, 2013 By: Tony Byler and Daniella Gordon Suppliers frequently provide supplies on lines of credit to contractor customers who are involved in multiple construction projects. In an ideal world, both the customer and the supplier would maintain accounting records keeping each construction project and the payments attributable to those construction projects separate and accurate. Out of practical convenience, however, contractors and the suppliers sometimes lump projects and payments into a single account, making it difficult, if not impossible, for the supplier to determine which payments apply to each ongoing project, i.e., a task that is necessary for a supplier seeking to assert a mechanics’ lien claim against a particular project when its customer fails to timely pay. Several weeks ago the Appellate Division of the New Jersey Superior Court, in L&W Supply Corporation v. Joe Desilva, described the affirmative duty suppliers have to determine the source of its customers’ payments for materials, by requiring suppliers to ask. According to the Court, a supplier who fails to do so “sacrifices its rights under the Construction Lien Law.” A brief review of the evolving mechanics’ lien laws relating to suppliers helps explain the Court’s potentially severe ruling. New Jersey’s Construction Lien Law The New Jersey Construction Lien Law (“Lien Law”) allows contractors and suppliers who are owed payment for work or materials on privately procured projects to file a lien against the property where the improvements (labor and supplies) were constructed. The lien encumbers the property, which prevents the owner from selling or transferring the property without first dealing with the contractor’s or supplier’s payment claim. The purpose of the Lien Law is twofold: first, to secure payment of money due to contractors and suppliers; and second, to protect owners from paying more than once for the same work or materials. In order to protect owners from being forced to pay twice for the same work or materials, the Lien Law provides that the value of a lien cannot exceed the value of the “lien fund,” which, in the simplest terms, is the amount of money that remains unpaid on the job. CONTINUE READING ARTICLE