Construction Law - Brian J. Morrissey

• Publication year: 1996

Construction Law

Brian J. Morrissey^*

I. Introduction

Last year's survey period focused on efforts to expand the passive concealment doctrine in construction cases and the parameters of arbitration under the Georgia Arbitration Code.

Substantively, with respect to expanding doctrines of fraud as they pertain to construction projects, the courts rejected attempts to impose liability for passive concealment in commercial settings. Historically, the doctrine of passive concealment has been applied to residential building relationships, but never in a commercial transaction. Part of the impetus behind this move is the fact that in a typical construction dispute involving economic damages, statutes of limitations begin to run upon performance, rather than discovery. This antagonism to discovery of concealed defects for purposes of limitations of actions carries over to discovery of concealed frauds as well. An exception has been carved out for residential home buyers who may not be in as good a position to make the type of inspection that a commercial owner can.

In the arbitration field, there were a number of cases during the survey period construing various portions of Georgia's recently adopted arbitration code, fleshing out the respective rights of the parties as governed by that code.

II. Lender Duties and Liabilities

During the survey period, there were surprisingly no new developments or re-affirmations of existing doctrines concerning lender involvement in construction projects.

III. Contract Formation, Construction, and Breach

A. Contract Formation

1. Form Contract Terms and Conditions. In Pioneer Concrete Pumping Service v. T & B Scottdale Contractors, Inc.,¹ the plaintiff subcontractor (Pioneer) provided concrete pumping services to T & B Scottdale which performed as general contractor.² During the performance of this work, one of the braces supporting Pioneeer's truck gave way, killing an employee of T & B Scottdale.³

Upon completion of the concrete pumping, Pioneer presented a form "job ticket" to T & B Scottdale's site supervisor.⁴ On the reverse side of the form were preprinted terms and conditions relating to responsibilities of lessees, delays, notice, waiver, and terms of payment. The terms and conditions also included a provision stating that T & B Scottdale would indemnify Pioneer "for any claim 'resulting from the performance of this agreement,' unless the claim was the result of [Pioneer's] 'sole negligence.'"⁵ No reference was made on the front side of the "job ticket" to the terms and conditions on the back.⁶ Other identical "job tickets" had been used on the project, signed by the same site supervisor and others on behalf of T & B Scottdale, without any protest concerning the terms on the back side. All of these "job tickets" were paid by T & B Scottdale.⁷

Pioneer entered into negotiations with the decedent's family, eventually settling for a payment of $700,000.⁸ During the course of these negotiations, Pioneer notified T & B Scottdale that negotiations were occurring, but T & B Scottdale chose not to participate.⁹

Pioneer sued T & B Scottdale on a claim for indemnity, and both parties moved for summary judgment.¹⁰ T & B Scottdale's motion was granted, and Pioneer appealed.¹¹

The court of appeals reversed, holding that the "job ticket" was sufficient to bind the signer to the terms and conditions on the reverse side.¹² In so holding, the court found that the site supervisor had an obligation to read the terms and was bound by the terms he did not read.¹³ The court also rejected the argument that the terms and conditions printed on the reverse side of a document rendered them unenforceable.¹⁴

Likewise, the court found that T & B Scottdale's actions in paying previous "job tickets" signed by this same site supervisor ratified the supervisor's authority in signing this particular "job ticket."¹⁵ Moreover, T & B Scottdale's project manager contacted the site supervisor after the accident, indicating that the site supervisor's signature might expose T & B Scottdale to liability.¹⁶ The project manager "then sent [Pioneer] a letter stating T & B Scottdale would withhold certain funds reflecting costs calculated to be attributable to the accident."¹⁷ At no time did the project manager disclaim the site supervisor's authority to sign the "job ticket," nor did he indicate that T & B Scottdale did not consider itself bound by the indemnity provision.¹⁸

2. Acceptance of Dedication. On a completely different issue of contract formation, in Johnson & Harber Construction Co. v. Bing,¹⁹ a plaintiff property owner sued both the construction company that built a drainage system on adjoining property, and Henry County, which had taken steps to dedicate the system, alleging surface water runoff damage.²⁰ Summary judgment was granted in favor of Henry County from which the construction company appealed.²¹ Henry County moved to dismiss the appeal.²²

In reversing the grant of summary judgment in favor of Henry County, the court found fact issues relating to acceptance of the dedication.²³ The evidence adduced at the trial court level consisted of a letter issued by the county requiring the contractor to establish a two-year maintenance bond on construction of all streets, curbs, gutters, and storm drainage structures in the particular subdivision in question. The letter went on to state that Henry County would accept all future maintenance of the subdivision.²⁴ This expression of intent to take control by Henry County was held to establish a fact question on acceptance of the dedication.²⁵

B. Contract Construction

1. Duty to Disclose Errors or Omissions Contained in Contract Documents. In Armstrong Transfer & Storage Co. v. Mann Construction, Inc.,²⁶ Armstrong operated a moving and storage business at a location owned by Property Leasing IV, Inc., a related business.²⁷ Armstrong entered into an agreement to purchase certain real property located in a Gwinnett County business park from Sam Leveto and Clay Futch.²⁸ Property Leasing, the holding company, entered into a contract with Mann Construction for the construction of an office warehouse facility on the property. Under the contract, Mann Construction procured a performance bond with Fireman's Fund Insurance Company as the surety.²⁹

"In late August or early September 1990, during the initial development of the property, [the] grading subcontractor discovered debris" buried within the intended building area.³⁰ Leveto agreed that he and Futch would pay $10,000 to remove the waste, but that this offer was subject to approval by Futch.³¹ No document was ever signed by Leveto or Futch, but Leveto tendered to Armstrong and Property Leasing two checks totalling $14,000, plus a release in final settlement, which tender was rejected.³²

An excavation company removed the debris and the facility was completed in the spring of 1991. By the fall of 1991, cracks appeared in the club level of the building and substantial movement of walls occurred on the backside of the warehouse as a result of movement in the adjacent sloped ground.³³ The roof of the facility began to leak, a problem that Mann Construction was unsuccessful in eliminating.³⁴ Fireman's Fund, the surety, denied the property owner's repeated demands to correct the structural defects.³⁵

Armstrong and Property Leasing sued Leveto, Futch, and their development company for negligence, breach of contract, and fraud. They also sued Mann Construction and Fireman's Fund for fraud, negligence, and breach of warranty.³⁶ The jury returned a verdict in favor of Property Leasing against Mann Construction and Fireman's Fund in the amount of $180,000 for breach of contract in connection with the roof, but against Property Leasing in connection with the structural damage to the facility.³⁷ Mann Construction was awarded $42,510 on a counterclaim made against Property Leasing for construction of a parking lot at the facility.³⁸ Post-trial motions were denied and Armstrong, Property Leasing, Mann Construction, and Fireman's Fund all appealed.³⁹

In one aspect of these appeals, Armstrong and Property Leasing contended that Mann Construction had an obligation to ensure that the soil surrounding the construction site would support the constructed facility and meet minimum load-bearing requirements.⁴⁰ The court held that while Mann Construction had an obligation to disclose errors and omissions contained in the contract documents, such an obligation did not include any failure to disclose to the project inspector the existence of a burial pit. Such duty was limited to errors found in the contract itself, and not to external conditions found at the site.⁴¹

2. Conditions Precedent for Final Payment. In Grubb v. Woodglenn Properties, Inc.,⁴² the court, in a case primarily concerning materialmen's liens, addressed the failure of the contractor to provide fully executed affidavits as to liens and encumbrances as required by the construction agreement's rider, and whether that failure precluded final payment.⁴³ The court held that because the contractor had signed the form provided to him by the construction lender, but did not have the opportunity to execute that document properly before a notary public, enforcement of the contract provisions requiring an affidavit would not be justified.⁴⁴

C. Breach and Remedies

1. Excuse for Nonperformance. For the most part, nonperformance or breach by one party to a contract excuses the failure of the other party to perform. In CRS Sirrine, Inc. v. Dravo Corp.,⁴⁵ Dravo Corporation and Weyher/Livsey Constructors, Inc., (plaintiffs) were joint-venture partners with defendant CRS Sirrine, Inc., in the construction of a power plant for the United States Navy.⁴⁶ CRS was a design expert and had produced the technical proposal from which a bid on the part of the joint venture was prepared.⁴⁷ Plaintiffs prepared a bid based upon these documents and were to be responsible for the actual...