Construction Law

• Jurisdiction: Georgia,United States
• Publication year: 2015
• Citation: Vol. 67 No. 1

Construction Law

Frank O. Brown Jr.

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Construction Law

by Frank O. Brown, Jr.^*

I. Introduction

This Article focuses on noteworthy opinions by Georgia appellate courts between June 1, 2014 and May 31, 2015 relevant to the practice of construction law.¹

II. Mechanics' and Materialmen's Liens and Slander to Title

The Georgia Court of Appeals in Seaboard Construction Co. v. Kent Realty Brunswick, LLC² addressed section 44-14-361.1(e) of the Official Code of Georgia Annotated (O.C.G.A.),³ part of the mechanics' and materialmen's lien law. That subsection provides, "In no event shall the aggregate amount of liens set up by Code Section 44-14-361 exceed the contract price of the improvements made or services performed."⁴

Harbor Development, LP (Harbor) was developing a 135-acre parcel for residential lots and condominiums. Harbor entered into a contract with Seaboard Construction Co. (Seaboard) to perform site preparation work on Phase I of that parcel. Seaboard received $6,261,192.52. A dispute arose concerning the remaining $326,661.50 under the contract. Seaboard then filed five mechanics' and materialmen's liens, each in the amount of the remaining $326,661.50. Two of the liens were filed against property in the development owned by Kent Realty Brunswick, LLC (Kent). One of the Kent properties was in Phase I, the other in

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Phase II. Thus, the aggregate amount of the liens against the Kent properties was $727,919.62, and the aggregate amount of liens against all five properties was $1,819,799.05.⁵

Kent filed suit against Seaboard for slander to title, and Seaboard counterclaimed to foreclose the liens. The trial court granted Kent's motion for summary judgment on the lien foreclosure claims after concluding the liens were excessive under O.C.G.A. § 44-14-361.1(e), which is quoted above. The trial court denied Seaboard's motion for summary judgment on Kent's slander to title claim because it found there were jury issues about it.⁶

The Georgia Court of Appeals affirmed the grant of summary judgment to Kent on the lien foreclosure claims, reasoning that they were invalid under O.C.G.A. § 44-14-361.1(e).⁷ In doing so, the court effectively interpreted "the contract price" in O.C.G.A. § 44-14-361.1(e) as meaning the remaining unpaid amount of the contract price owed for work on Kent's properties.⁸ The court of appeals reversed the trial court's denial of summary judgment to Seaboard on Kent's slander to title claim, reasoning that Kent failed to prove any special damages required for such a claim.⁹ The court rejected Kent's contention that the attorney fees it incurred in defending Seaboard's lien foreclosure claims were special damages.¹⁰

In Hill v. VNS Corp.,¹¹ a contractor failed to pay a supplier for materials purchased for a home. The supplier filed a mechanics' and materialmen's lien against the home and then filed a suit against the contractor and its personal guarantor (contractor defendants) on the debt and against the homeowner to enforce its lien. The trial court granted a default judgment against the contractor defendants because they did not answer the suit. In addition to the principal debt, the judgment included attorney fees and pre-judgment interest.¹²

Thereafter, the contractor defendants paid about two-thirds of the judgment amount. In response, the supplier reduced its lien claim against the home, but not by the full payment. The supplier contended that part of that payment was appropriately allocated to attorney fees and pre-judgment interest owed by the personal guarantor, and,

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therefore, that part did not reduce the amount of the lien. The trial court granted the supplier's motion for summary judgment against the homeowner on the reduced amount of the lien, plus pre-judgment interest on that amount. The homeowner appealed.¹³

The court of appeals stated that the supplier had the burden of proving the lien amount by producing evidence of lienable items included in the default judgment against the contractor defendants.¹⁴ The court reversed the grant of summary judgment, holding that there was an issue of fact about the amount of the lien because of conflicting affidavits.¹⁵ Additionally, the court held the homeowner was entitled to credit against the lien for the full post-default judgment amount paid by the contractor defendants to the supplier, and that the supplier could not reduce that credit for either attorney fees, since they were not a lienable item, or re-judgment interest owed by the contractor, because it was not lienable as a result of not being liquidated.¹⁶ Finally, the court held the supplier was not entitled to pre-judgment interest for the amount of the actual lien because it also was not liquidated.¹⁷

III. Representative's Personal Contract Liability

In Progressive Electric Services, Inc. v. Task Force Construction, Inc.,¹⁸ the general contractor, Task Force Construction, Inc. (TFC), sued a subcontractor, Progressive Electrical Services, Inc. (Progressive), and the subcontractor's president for breach of contract and indemnification for payments made by TFC to its surety for reimbursements the surety paid to settle a claim by Progressive's supplier. The trial court entered summary judgment in favor of TFC against Progressive and its president.¹⁹

The key issue on appeal was whether the president was individually liable for the debt.²⁰ In affirming the trial court, the court of appeals stated that, although the president had "ostensibly" signed its contract with TFC in a representative, rather than individual, capacity, the contract contained a provision stating that:

Signing Individual . . . . Each and every individual signing on behalf of [Progressive] also further agrees that, notwithstanding anything

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contained herein or on any signature line to the contrary, each such individual signing on behalf of [Progressive], in addition to signing in a representative capacity, is also signing [the Agreement] in his or her personal and individual capacity and each such individual signing on behalf of [Progressive], by signing below, hereby individually and personally agrees to be bound by all of the obligations of [Progressive] in [the Agreement] (including, but not limited to, the Attachments hereto).²¹

The court held that this language bound the president individually.²² Additionally, the court rejected the president's argument that this language merely created a guaranty and was unenforceable for other reasons.²³ The "Signing Individual" provision of the contract is a good provision to consider including in a contract if your client might benefit from it, but it is also a very bad provision to agree to if your client's representative will be obligated by it.

IV. Third Party Beneficiary and Negligent Construction

Jai Ganesh Lodging, Inc. v. David M. Smith, Inc.²⁴ arose from settlement-related structural damage to a newly constructed hotel. The franchisee of the hotel and the owner of the land on which the hotel is located sued the grading contractor, grading subcontractor, and two individuals associated with the grading subcontractor. Their claims included breach of contract and negligent construction. After withdrawing its earlier order...