National Surety Corp. v. Barth

Citations: 8 N.J. 121; 84 A.2d 1; 1951 N.J. LEXIS 167

Court: Supreme Court of New Jersey; November 5, 1951; New Jersey; State Supreme Court

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The court opinion, delivered by Burling, J., addresses the appeal concerning whether the State of New Jersey can be sued for contract payments owed to a contractor by the Administrator of the Public Housing and Development Authority. The case, initially filed in both the Law and Chancery Divisions, was consolidated into one Chancery action in December 1950. The defendants-appellants sought dismissal of the National Surety Corporation's complaint but were denied that motion on March 30, 1951, prompting the appeal. The background involves contractor Arthur E. Barth, who entered into contracts with the Administrator for public housing work in Jersey City. Barth failed to fulfill payment obligations to subcontractors and laborers, leading to claims against the surety, National Surety Corporation. Although the Administrator accepted the projects around March 25, 1949, the Martinis obtained a judgment against Barth in January 1950 and sought payment from the Administrator through garnishment. Subsequently, the plaintiff filed a complaint in Chancery, naming Barth, the Administrator, the Director of the Division of Budget and Accounting, the Martinis, and other creditors as defendants.

The plaintiff's complaint sought multiple forms of relief, including exoneration regarding funds held by the Administrator for unpaid claims of various defendants, subrogation for payments made to certain creditors of Barth, and a request for the Administrator to deposit funds owed to Barth into court. Additionally, the complaint called for the defendants to interplead their rights to these funds, validation of claims by unpaid defendants, discharge of the plaintiff from liability to these defendants, and a restraining order against the Martinis from proceeding with a related legal action. The Division of Employment Security had filed a certificate of debt against Barth for unemployment compensation liabilities, which was subsequently docketed as a judgment. Attempts to garnish funds from the Administrator were dismissed due to the Administrator not admitting the debt. The Law Division later corrected the record to note Barth's debt to the state and allowed the Division of Employment Security to intervene. The complaint was transferred to the Chancery Division for consolidation with a related action. The Administrator and other state agencies sought dismissal of the complaint, arguing it constituted a suit against the State without consent and failed to state a valid claim, as the funds were subject to state-setoff rights. The Chancery Division denied the motion to dismiss but granted the state agencies leave to respond. An appeal was filed by the state agencies regarding the dismissal denial, classified as an interlocutory appeal due to jurisdictional issues, and this appeal was later certified for hearing.

The primary issue is whether the State can be sued for contractual balances under a contract established by L. 1946, c. 323. Both the State Agencies and the plaintiff agree that the State cannot be sued without its consent. However, the plaintiff argues that the State has consented to such suits through contracts made by the Administrator under L. 1946, c. 323, interpreting this act in conjunction with L. 1944, c. 85, which allegedly provides specific consent for legal action. 

L. 1944, c. 85 established the Department of Economic Development and created a public housing and development authority with the capacity to sue and be sued, overseen by the commissioner. L. 1946, c. 323 was enacted as emergency legislation to address a housing shortage for veterans and vested implementation powers in the same public housing authority. The term "administrator" refers to the Commissioner of the Department of Economic Development, who was granted extensive powers, including eminent domain.

The State Agencies contend that the consent to sue found in L. 1944, c. 85 does not apply to actions taken under the 1946 legislation due to the latter creating a special fund for specific purposes, which requires discretionary disbursement by the Director of the Division of Budget and Accounting. Additionally, L. 1946, c. 323 appropriated $6 million from the Post-War Reserve Account and outlined the establishment of an emergency housing fund for various costs associated with housing, including acquisition, construction, and administrative expenses, further emphasizing the limited nature of the fund's use.

Payment from the fund requires a warrant from the State Commissioner of Taxation and Finance, approved by the Administrator. The State's interpretation of the 1946 act, which limits the Administrator's powers, is rejected as it contradicts the intent of the 1944 act, which expanded the Administrator's authority. The three statutes, including L. 1946, c. 324, clarify that the State is responsible for funding emergency public housing projects through general obligations and that the Administrator acts as an agent for these projects. The argument that the court cannot compel the Director to fulfill his statutory duty does not affect the State's consent to suit. A claimant must prove the amount owed and the issuance of performance certificates. The trial court's denial of the State Agencies' motion to dismiss was a decision within its discretion, as it found no substantial controversy in the facts presented. Consequently, the court affirmed the lower court’s order and remanded the case for further proceedings.