Construction Materials Suppliers Beware: Ability to Enforce Construction Lien Against Property Owner Requires Inquiry as to Source of Customer's Payments, Says NJ Appeals Court
When a construction supplier sells materials on credit to a contractor with multiple open accounts, receives only partial payments without instructions from the contractor as to whose jobs/accounts the payments should be applied to, and later seeks to enforce a construction lien claim against a single property owner for the unpaid balance, the supplier must make inquiry as to the source of the funds obtained by the contractor to pay the supplier. The suppliers duty in this regard extends to circumstances where a reasonable supplier should suspect the contractor has not used an owner's funds to pay for materials supplied for that owner. The purpose in requiring a supplier to ascertain the source of its customer's funds is to ensure that the supplier has properly allocated its customer's payments to the correct jobs/accounts. A supplier that fails to fulfill this duty sacrifices its rights under the Construction Lien Law, a NJ appeals court ...