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

• Publication year: 2001

Construction Lawby Dennis J. Webb, Jr.^*

Justin S. Scott^** and

Henry L. Balkcom IV^***

This Article surveys construction law decisions handed down by Georgia appellate courts between June 1, 2000 and May 31, 2001. The cases discussed fall primarily within seven categories: (1) contract; (2) tort; (3) mechanic's and materialman's liens; (4) payment bonds; (5) insurance; (6) workers' compensation; and (7) arbitration. The Article also includes a miscellaneous section covering noteworthy cases that do not fit neatly into the sections enumerated above.

I. Contracts

During the survey period, the court of appeals decided many cases involving claims for breach of contract. Most did not address novel issues. The court of appeals did consider, however, several cases questioning the applicable limitations period for a homeowner's breach of contract action against a builder-seller for damages resulting from the use of defective synthetic stucco.

A. Statutes of Limitation-—Breach of Contract and Synthetic Stucco: Four Years or Six Years

As mentioned above, the court of appeals considered several cases questioning the applicable limitations period for a homeowner's breach of contract action against a builder-seller for damages caused by the use of synthetic stucco. In the seminal case of Mitchell v. Jones,¹ the court of appeals reversed the trial court's determination that the plaintiff homeowner's various causes of action against defendant builder-seller were time-barred by the applicable four-year limitation period for damage to property. Instead, the court of appeals held that the six year statute of limitation, set forth in the Official Code of Georgia Annotated ("O.C.G.A.") section 9-3-24,² governed this type of action. To reach this conclusion, the court concluded that the foundation of plaintiff's contract claims was the failure of the defendant builder-seller "to fulfill the contract with a home suitable for its intended purpose and use and constructed with quality workmanship and materials."³ Hence, the court reasoned that plaintiff may have sustained consequential damages that might aptly be characterized as "damage to property," but this did not transform plaintiff's breach of contract claim into a tort claim.⁴

B. Formation

The court of appeals in Cochran v. Ogletree⁵ held that the parties did not create a binding contract because the purported agreement lacked a definitive subject matter—namely the drawings and plans that were to form the basis of the construction project.⁶ In that case, plaintiff brought an action against defendants in connection with the nonperformance of two purported construction contracts. Plaintiff sought to recover $55,000 deposited on the first contract and $20,000 deposited on the second. Defendants counterclaimed, seeking to recover losses allegedly sustained in connection with the first contract. After a bench trial, the trial court concluded that (1) plaintiff breached the first contract; (2) defendants sustained damages in the amount of $18,003.07 in connection with performance of the first contract; (3) plaintiff was entitled to a refund of $31,996.63 of the unearned portion of the deposit on the first contract; and (4) plaintiff was entitled to a refund of $15,300 of the unearned portion of the deposit on the second contract. Defendants appealed the trial court's decision, maintaining that plaintiff was not entitled to any refund under the first contract.⁷

In affirming, the court of appeals held that the first contract was void for vagueness because the purported contract lacked a "definite contract subject, i.e., the drawings and design of the day-care center."⁸ Accordingly, the court determined that neither party was bound by an enforceable contract, and plaintiff was entitled to recover the unearned portions of the respective deposits under the theory of money had and received or unjust enrichment.⁹

C. Interpretation

In Choate Construction Co. v. Ideal Electrical Contractors, Inc.¹⁰ , the court of appeals reiterated the longstanding rule that a party may not recover in quantum meruit when an express contract governs the rights and responsibilities of the parties in toto.¹¹ In addition, citing rudimentary principles of contract interpretation, the court enforced the arbitration provision in the parties' contract.¹² Choate Construction Company ("Choate") was the general contractor for the construction of a medical facility in LaGrange, Georgia. Pursuant to that endeavor, Choate entered into a subcontract agreement with Ideal Electrical Contractors ("Ideal"). Subsequently, a dispute arose between the parties concerning the amount due Ideal under the subcontract. As a result, Ideal brought actions against Choate for breach of contract and quantum meruit for extra work allegedly performed.¹³

At trial, Choate filed the following motions: a motion to dismiss or, in the alternative, to compel arbitration; a motion for directed verdict; a motion for judgment notwithstanding the verdict; and a motion for a new trial. The trial court denied each motion and permitted Ideal to recover in both contract and quantum meruit. Choate appealed the denial of its motions and the trial court's failure to require Ideal to elect a remedy.¹⁴

The court of appeals reversed, determining that the trial court erred in denying Choate's motions.¹⁵

Regarding the trial court's denial of Choate's motion to dismiss or to compel arbitration, the court of appeals held that the trial court erred because the "subcontract in issue reflects clearly the intention of the parties to resolve all disputes by arbitration. It [wa]s apparent both in the 'flow down' provision in Section A and in the mandatory language regarding arbitration used in Section C."¹⁶ Similarly, the court determined that the trial court erred in permitting Ideal to recover in both contract and quantum meruit, holding that "[i]t has long been the law in Georgia that although a party may plead in alternative counts, no recovery may be had in quantum meruit when a contract governs all claimed rights and responsibilities of the parties."¹⁷ The court concluded that Ideal could not recover under the theory of quantum meruit, finding it plain from the language of the subcontract that the parties contemplated changes and modifications to the original subcontract and that the subcontract provided a method for carrying out such changes and modifications.¹⁸

D. Damages for Breach of a Construction Contract INegligent Construction

In Magnus Homes, LLC v. DeRosa,¹⁹ the DeRosa's (the "homebuyers") brought an action against Magnus Homes, LLC (the "builder") to recover damages allegedly resulting from various construction defects and deficiencies in their recently constructed residence. Specifically, the homebuyers alleged a variety of tort and contract claims, including claims for breach of contract, breach of warranty, and negligent construction.²⁰ After a bench trial, the trial court determined that "many items were deficient and were in breach of warranty standards, and were in breach of contract, and were the result of negligent construction."²¹ The trial court further determined that the builder committed gross negligence and fraud with respect to a few items and awarded the homebuyers nearly $38,000.²² On appeal, the builder maintained that the trial court erred by failing to grant its motion for a directed verdict because the homebuyers failed to "adduce evidence of the proper measure of damages."²³

Specifically, the builder contended that the homebuyers failed to provide proper evidence of their damages because they "proved only the costs to repair and failed to adduce any evidence of the diminution in the value of the residence as constructed."²⁴ In denying the builder's allegation of error in this regard, the court of appeals stated that while the

true measure of damages [for breach of a construction contract or negligent construction] is the difference between the value of the work as actually done and the value which it would have had if it had been done properly [under] the contract!,] • . • this difference in value can be shown by evidence of the reasonable cost of correcting the defect.²⁵

II. Torts

Georgia appellate courts decided a variety of tort related construction cases during the survey period, including those addressing issues of fraud, negligent construction, owner/developer liability, personal injury liability, and engineering malpractice. The cases tended to follow existing rules of law. Notably, the court of appeals decided four cases on the issue of an owner/developer's liability for personal injury, affirming that an owner/developer is not liable for personal injuries after relinquishing control of the property to another party.

A. Fraud in the Inducement, Recision and Attorney Fees

In Buckley v. Turner Heritage Homes, Inc.,²⁶ the court of appeals decided whether oral and written statements made by a builder's agent before or at the time of sale constituted fraud in the inducement.²⁷ The residential sales contract contained an integration clause and provided that "representations or inducements made by salespersons or others, which are not contained in this Purchase Agreement shall not be binding upon [Builder]."²⁸ The contract also provided that any "[s]pecial provisions . . . shall only be binding upon the parties if set out in writing and signed by both [Builder and Purchaser]. ORAL REPRESENTATIONS MAY NOT BE RELIED UPON."²⁹

Purchaser deposed that at the closing of the sale of the home, the builder's agent represented in writing that the new sod would blend in with the old sod if purchaser maintained it properly, and the builder would adjust a faulty master-bedroom pocket door within six months. The builder's agent also made other oral representations regarding a variety of repairs. After two months of living in the residence, purchaser notified builder of additional problems with the home and requested that builder make...