The Appellate Division published an opinion last week in the case of L&W Supply Corporation d/b/a Building Specialties v. Joe DeSilva, d/b/a DeSilva Contractors, et al, A-2960-1072 (2012), which has interpreted the New Jersey Construction Lien Law more favorably to owners and developers.  Material suppliers are required to make an inquiry of the paying subcontractor or contractor; and, attempt to ascertain the source of the payment funds so that the Supplier can allocate the funds to the correct project/job account.  Such an allocation will prevent Suppliers from asserting lien claims on an owner’s project and real property if the Supplier does not allocate payments received.  A Supplier to a subcontractor that is working on multiple projects cannot simply take payments to pay down a revolving credit account.  The Appellate Division in this L&W Supply decision gave a strict reading to the New Jersey Supreme Court’s holding in Craft v. Stevenson Lumber Yard, Inc., 179 NJ 56 (2004), and explained that: a Supplier has a statutory duty to determine which of a contractor’s projects is the source of its payment, and to allocate the payment accordingly.  Craft, supra, 179 N.J. at 63.  A Supplier’s breach of this duty will give owners and general contractors additional leverage in clearing liens asserted Suppliers who may, even through no fault of their own, do not get paid.

Practice Tip for Owner’s and General Contractor:  have subcontractors obtain lien waivers from their Suppliers each time you issue a check; and, use an AIA type continuation sheet for progress payments.