Construction Law - Dennis J. Webb, Jr., Justin S. Scott, Henry L. Balkcom Iv, and Dana R. Grantham

• Publication year: 2003

Construction Lawby Dennis J. Webb, Jr.*

Justin S. Scott**

Henry L. Balkcom IV***and

Dana R. Grantham****

This Article surveys construction law decisions handed down by Georgia appellate courts between June 1, 2002, and May 31, 2003. The cases discussed primarily fall within five categories: (1) contract; (2) tort; (3) mechanic's and materialman's liens; (4) workers' compensation; and (5) arbitration. The Article also includes a miscellaneous section covering noteworthy cases that do not fit neatly into the sections enumerated above.

I. Contracts

The Georgia Court of Appeals decided several cases concerning claims for breach of contract during the survey period. This section includes a few cases that are not directly related to construction but nevertheless deal with general principles of law that contractors, subcontractors, and material suppliers typically encounter on construction projects.

A. Government Contracts and Ultra Vires Acts

In Howard v. Brantley County,¹ the court of appeals affirmed the trial court's grant of summary judgment in favor of the plaintiff County in its action against the defendant contractor for money had and received because the County's arrangement with the contractor did not comply with Georgia's competitive bidding requirements² or the requirement that "all contracts entered into by the county . . . shall be in writing and entered on its minutes."³

The Chairman of the County Board of Commissioners negotiated with the defendant contractor to perform road striping work on certain county roads. The contractor performed the work and submitted six invoices to the County in the cumulative sum of $190,600, which the County paid.⁴ The court of appeals held that the County was entitled to the return of its payments because the work performed by the contractor should have been competitively bid upon in accordance with the Official Code of Georgia Annotated ("O.C.G.A.") section 32-4-64.⁵ Contractor argued that it was excused from the competitive bid requirement because "road striping is a specialized service under [O.C.G.A. section] 32-4-63(5), allowing the instant negotiation for its road striping services."⁶ However, O.C.G.A. section 32-1-3(6) specifically includes road striping as a form of road construction and, therefore, road striping is not a "special service within the meaning of [O.C.G.A. section] 32-4-63(5)."⁷ The court of appeals also found that the voluntary payment doctrine did not apply "to circumstances in which public funds were illegally paid in that the contract in issue, had it been written, was ultra vires as beyond the legal authority of the county to enter."⁸

B. Environmental Remediation Contract

In Barranco v. Welcome Years, Inc. ,⁹ the court of appeals reversed the trial court's grant of summary judgment to defendant-seller of contami- nated real property because the contract's terms, as interpreted in light of the parties' conduct, required seller to obtain a "no further action letter" with respect to the Georgia Hazardous Site Response Act¹⁰ from the Environmental Protection Division ("EPD") prior to closing the sale.¹¹ Plaintiff-buyer entered into a contract with seller for the purchase of certain real estate that contained underground storage tanks. The contract, as amended by the parties, contained two provisions: one dealing with EPD approval under the Georgia Underground Storage Tank Act,¹² the other dealing with EPD approval under the Georgia Hazardous Site Response Act.¹³ Each separate provision referenced a "no further action letter (or its equivalent) authored by the EPD."¹⁴

Seller argued it was only required to obtain one "no further action letter" from the EPD, which it did.¹⁵ However, the court of appeals found seller's argument to be without merit because after obtaining an EPD letter stating that no further action was required for underground storage tanks, seller continued to engage in communications with the EPD and the buyer. This evidence showed that seller believed its requirements for "no further action" letters were not fulfilled.¹⁶ "It is well settled that 'the construction placed upon a contract by the parties thereto, as shown by their acts and conduct, is entitled to much weight and may be conclusive upon them.'"¹⁷

C. Setoff and Counterclaim

In Long v. Reeves Southeastern Corp.,¹⁸ the court of appeals affirmed the trial court's grant of summary judgment in favor of plaintiff, who supplied materials to defendant builder.¹⁹ Builder signed a credit application and guaranteed payment of any invoices for materials purchased from supplier. It was undisputed that the materials were delivered, and the invoices remained unpaid. Builder argued on appeal that he was entitled to recoup damages from an injury he suffered when supplier's employee dropped a steel pipe on his foot during a delivery.

Furthermore, the builder argued that the supplier breached its duty to deliver the pipe with care and that there were issues of material fact regarding the builder's recoupment.²⁰

The court of appeals held that the builder was not entitled to recoupment because the damages for personal injury were incidental to the contract but did not arise out of the contract.²¹ "Recoupment is a right of the defendant to have a deduction from the amount of the plaintiff's damages because the plaintiff has not complied with the cross-obligations or independent covenants arising under the contract upon which suit is brought."²²

While damages resulting from the plaintiff's breach of a contract sued on may be set off by plea of recoupment, still this right of set-off is not broad enough to include damages alleged to have arisen from the plaintiff's wrongful act in connection with a transaction legally distinct from the contract sued on, even though closely connected with it in point of time.²³

The court reasoned that the builder's recoupment defense was more properly characterized as a negligence claim and, barring equitable considerations, could not be asserted as a defense to a breach of contract claim.²⁴

D. Home Remodeling and Insurance

In C & F Services, Inc. v. First Southern Bank,²⁵ the court of appeals reversed the trial court's denial of a home remodeling contractor's motion for a new trial, holding that the trial court made several erroneous evidentiary rulings.²⁶ Homeowner engaged the contractor to repair a fire-damaged home for $125,000. Contractor had completed almost all of the work on the home when the parties first disagreed. Homeowner was funding the home repairs with a joint check from homeowner's insurance company made payable to the homeowner and his mortgage company. However, the homeowner forged the mortgage company's endorsement and deposited the check in his personal account.²⁷

Soon thereafter, the mortgage company threatened homeowner's bank for negligently depositing a forged check. As a result, the bank agreed to fund the completion of the home repairs in exchange for the mortgage company's promise to release the bank from liability resulting from the bank's negligence in depositing the forged check. Subsequently, the bank persuaded the contractor to complete the repairs under a new contract with the bank, assuring the contractor that the bank would freeze the homeowner's accounts and ensure that the contractor would get paid. The bank and contractor agreed that the remaining repairs would be completed for $23,000. The bank made a partial payment of $13,600, and the contractor submitted its final request for payment after obtaining a certificate of occupancy. However, upon submission of its final bill, the contractor learned that the homeowner was allowed to withdraw the remaining $9400 from the bank, which would have been used to pay the contractor. The bank refused to pay the contractor and insisted that it would have to get the money directly from the homeowner. The homeowner refused to pay the contract balance, alleging that the work was unsatisfactory.²⁸

Contractor's first lawsuit was voluntarily dismissed after the court granted partial summary judgment to the bank on the contractor's claim of conversion and its claims for punitive damages and attorney fees. After a mistrial in 1998, a new judge presided over the second trial in 2000, during which the bank moved to exclude any evidence of events that transpired before the contractor and the homeowner signed the second contract for $23,000. The court overruled the contractor's objections and, in direct conflict with the pretrial order, precluded evidence of the forgery of the insurance check, the bank's negligence in handling the check, the mortgage company's threats against the bank, and any other communications prior to the second contract. Furthermore, the court refused to allow the contractor's president to explain why he entered into the second contract. The court also excluded evidence that the homeowner and the bank failed to provide a "punch list" of repairs to be performed upon receipt of the certificate of occupancy. The trial court directed a verdict in favor of the bank on contractor's fraud, punitive damages, and attorney fees claims. In addition, the trial court refused to charge the jury on any tort theories and sua sponte directed a verdict for defendant's bank and homeowner on the negligence claims.²⁹

The court of appeals found that the trial court abused its discretion in refusing to admit evidence of events prior to the second contract.³⁰ In addition, the court found that the trial court erred in refusing to admit evidence supporting contractor's claims of fraud, negligence, and punitive damages.³¹

E. Residential Construction and Contractor's Affidavit

In Vintson v. Lichtenberg,³² the court of appeals affirmed the trial court's grant of partial summary judgment to homeowners on the contractor's claims for extra work.³³ Contractor agreed to build a house for $686,200, but that price did not include the cost of the swimming pool, tennis court, and fencing. The...