Construction Law - Frank O. Brown Jr.

• Publication year: 2009

Construction Lawby Frank O. Brown Jr.^*

I. Introduction

This Article focuses on noteworthy construction law decisions by Georgia appellate courts between June 1, 2008 and May 31, 2009, and significant construction-related Georgia legislation and regulations during the same period.¹

II. Mechanics' and Materialmen's Liens

A. Notice to Contractor

As a condition to pursuing lien rights, section 44-14-361.5(a) of the Official Code of Georgia Annotated (O.C.G.A.)² requires any mechanic or materialman not in privity with the contractor (such as a second-tier subcontractor or supplier to a subcontractor) to notify the contractor and the property owner or its agent that the mechanic or materialman is providing services or materials to the property.³ That notice, called a "Notice to Contractor," must be in writing, contain specified information, and be given within thirty days from the later of the first delivery of services or materials or the filing of a Notice of Commencement by the contractor, the property owner, or an agent.⁴

Significantly, under the express terms of O.C.G.A. Sec. 44-14-361.5(a), the obligation to give a Notice to Contractor applies when a Notice of Commencement has been filed.⁵ At issue in Rey Coliman Contractors, Inc. v. PCL Construction Services, Inc.⁶ was whether that obligation existed if the Notice of Commencement, although filed, was not posted on the project as also required by O.C.G.A. Sec. 44-14-361.5(a).⁷ The Georgia Court of Appeals said that the obligation to give the Notice to Contractor still existed because O.C.G.A. Sec. 44-14-361.5(a) did not expressly limit the Notice to Contractor obligation to projects on which a Notice of Commencement had been posted.⁸

Rey Coliman is also an important reminder of two other points. First, mechanics' and materialmen's lien laws are strictly construed in favor of property owners and against lien claimants.⁹ Thus, the blanket assertion, frequently seen in motions and even opinions on the subject, that mechanics' and materialmen's lien laws are strictly construed is overly broad. Second, as was the case in Rey Coliman, the validity of mechanics and materialmen's liens may be affirmatively challenged by a suit for declaratory judgment.¹⁰

Under O.C.G.A. Sec. 44-14-361.5(b),¹¹ a Notice of Commencement must include the "name and address of the true owner of the property" and a "legal description of the property."¹² The Notice of Commencement under review in Harris Ventures, Inc. v. Mallory & Evans, Inc.¹³ misidentified the true property owner as "EHCA John's Creek, LLC," rather than "EHCA Dunwoody, LLC," and did not include a legal description.¹⁴ The court of appeals held that these errors rendered the Notice of Commencement legally deficient, thereby excusing the subcontractor from giving a Notice to Contractor as a condition to its pursuit of lien rights.¹⁵

In Beacon Medical Products, LLC v. Travelers Casualty & Surety Co. of America,¹⁶ the question was whether a supplier to a subcontractor had to give a Notice to Contractor even though the Notice of Commence- ment had not been filed within the fifteen-day filing period provided by O.C.G.A. Sec. 44-14-361.5(b).¹⁷ In relevant part, this section states that "[n]ot later than [fifteen] days after the contractor physically commences work on the property, a Notice of Commencement shall be filed."¹⁸ The court of appeals held that the supplier was still required to give a Notice to Contractor¹⁹ because O.C.G.A. Sec. 44-14-361.5(a) does not expressly excuse that notice when the Notice of Commencement is filed after the fifteen-day period²⁰ and because, in this case, the Notice of Commencement was filed almost four months before the supplier began providing materials for the project.²¹

B. Claim of Lien

D.C. Ecker Construction, Inc. v. Ponce Investment, LLC²² shows that there are limits to the construction of mechanics' and materialmen's liens against the lien claimant. The plaintiff contractor in D.C. Ecker sued the property owner to foreclose a mechanics' and materialmen's lien. The owner filed a motion to dismiss (not a motion for summary judgment) because the lien stated that the contractor's claim became due on a date more than three months before the lien was filed, and the lien was filed within three months of the date when the contractor provided services to the owner.²³

On appeal, the contractor argued that "the trial court should not have construed the lien against it at the motion to dismiss stage."²⁴ The court of appeals agreed.²⁵ The court's opinion reflects two principal reasons for its decision. First, "[t]he crucial date in determining the validity of a lien is the date the material or labor is last provided, not the date the claim is due."²⁶ Second, because of the first reason, there was a set of facts that the plaintiff could prove in support of its claim.²⁷ Consequently, the court held that granting the motion to dismiss was error.²⁸

The frequent use of "due date" language on mechanics' and materialmen's liens arises from the instruction to "specify the date the claim was due" that is part of the statutory lien form in O.C.G.A. Sec. 44-14-361.1 (a)(2).²⁹ Because D.C. Ecker and other Georgia appellate decisions state that the last day of labor or material controls over the due date,³⁰ it is unfortunate that the statute does not simply use the former terminology. A recent amendment to that code section, which became effective March 31, 2009, provides the following clarifying instruction: "specify the date the claim was due, which is the same as the last date the labor, services, or materials were supplied to the premises."³¹

III. Collateral Agreements

The Georgia Court of Appeals decision in Bollers v. Noir Enterprises, Inc.³² is a reminder that an ordinary merger clause may be insufficient to eliminate a previously existing collateral agreement and that additional language may be required to accomplish that purpose. The parties, a homebuilder and homeowners, first entered into a written construction management contract relating to the construction of a house. Later, they entered into a written construction contract relating to the same house.³³ The latter construction contract included a standard merger clause stating that it "supersedes any and all previous agreements, either oral or in writing, between the parties with respect to the subject matter of the agreement."³⁴ It also stated that all changes had to be in writing and signed by the parties to be valid.³⁵ The builder contended that, in between the written management contract and the written construction contract, the parties had entered into an oral management contract for additional compensation.³⁶

On appeal, the court of appeals stated that, although the builder was bound by the merger clause in the written construction contract, an oral agreement between the parties that did not vary the terms of the written construction contract was not necessarily defeated by the merger clause and might be enforceable as a collateral agreement.³⁷ The court held that there were jury questions about the existence and terms of the alleged oral management agreement, and therefore, summary judgment on that claim was inappropriate.³⁸

IV. Damages Limitations

In Precision Planning, Inc. v. Richmark Communities, Inc.,³⁹ the Georgia Court of Appeals addressed the enforceability of a provision in a contract between a residential developer and an architect that limited the architect's liability to the developer for the architect's errors or professional negligence to the greater of $50,000 or the architect's fee. The developer had hired the architect to design a retaining wall, which thereafter failed. The architect moved for partial summary judgment to limit its liability to the $50,000 or fee cap. The trial court denied the motion, finding the damages limitation void as against public policy under former O.C.G.A. Sec. 13-8-2,⁴⁰ which was in effect when the contract was signed in 2001.⁴¹

The court of appeals reversed.⁴² The court reasoned that "[n]o statute prohibits a professional architect from contracting with a developer to limit the architect's liability to that developer."⁴³ It rejected the developer's contention that former O.C.G.A. Sec. 13-8-2(b) applied to the damages limitation and stated that the statute applied only to "'an indemnification or hold harmless provision.'"⁴⁴

V. Indemnities

In Lanier at McEver, L.P. v. Planners & Engineers Collaborative, Inc.,⁴⁵ the developer (Lanier) claimed that an engineering firm (PEC) negligently designed a storm-water drainage system for an apartment complex.⁴⁶ The engineering firm moved for partial summary judgment on the claims of the developer based on a damages limitation clause that stated:

In recognition of the relative risks and benefits of the project both to [Lanier] and [PEC], the risks have been allocated such that [Lanier]

agrees, to the fullest extent permitted by law, to limit the liability of [PEC] and its sub-consultants to [Lanier] and to all construction contractors and subcontractors on the project or any third parties for any and all claims, losses, costs, damages of any nature whatsoever[,] or claims expenses from any cause or causes, including attorneys' fees and costs and expert witness fees and costs, so that the total aggregate liability of PEC and its subconsultants to all those named shall not exceed PEC's total fee for services rendered on this project. It is intended that this limitation apply to any and all liability or cause of action however alleged or arising, unless otherwise prohibited by law.⁴⁷

The developer contended that the damages limitation was unenforceable because it violated the prohibition in former O.C.G.A. Sec. 13-8-2(b)⁴⁸ against provisions indemnifying a party to a construction contract from liability for its sole negligence.⁴⁹

On appeal, the Georgia Supreme Court agreed with the developer, reasoning that the clause impermissibly...