Opinion
No. COA02-267
Filed 4 March 2003 This case not for publication.
Appeal by plaintiffs from judgment entered 13 November 2001 by Judge Catherine C. Eagles in Guilford County Superior Court. Heard in the Court of Appeals 27 January 2002.
Carruthers Roth, P.A., by Jack B. Bayliss, Jr., for plaintiff appellants. Dean Gibson, L.L.P., by Christopher J. Culp, for James A. Booe, Jr., defendant appellee.
Guilford County No. 00 CvS 6363.
This case arises out of a construction agreement between plaintiffs Robert and Emily Nudelman and defendants J.A. Booe Building Contractor, Inc., and its President, Mr. James A. Booe, Jr. The pertinent facts are as follows: In 1992, plaintiffs contracted with architect Milton Grenfell to design and oversee the construction of a custom built residence for them in Greensboro, North Carolina. J.A. Booe Building Contractor, Inc. (Booe Building) successfully bid for the construction job and entered into a construction contract with plaintiffs on 26 October 1992. Booe Building's President, Mr. James A. Booe, Jr. (Booe), executed the construction contract on behalf of Booe Building. Throughout the construction contract, the contractor was defined as Booe Building, rather than Booe individually.
As the qualifying agent for Booe Building, Booe completed and signed a permit application for construction of the house and submitted it to the City of Greensboro. Booe Building was listed as both the applicant and the contractor, and Booe Building's contractor license number also appeared on the permit application. The City of Greensboro issued a building permit card allowing the proposed construction, and the permit card was posted on the building site. However, because the City's computers were not working when the permit was issued, the permit card was handwritten. The contractor signature line on the permit card was never signed; instead, it bore a notation from the City that read "computer down."
After the litigation commenced, Booe realized the permit card had been issued to him in his individual capacity and in his personal contractor code. Booe never signed the permit card and had no explanation for why the permit was in his name, other than the fact that the city's computers were not working and perhaps a clerical error had been made. Despite the confusion in the issuance of the permit, the construction contract itself clearly identified Booe Building as the contractor for plaintiffs' house. When deposed, Mr. Nudelman admitted he never entered into a contract with Booe individually. All payments required under the construction contract were made payable to Booe Building, rather than to Booe individually.
After construction was completed, plaintiffs discovered problems with the EIFS (exterior insulation and finishing system), a synthetic stucco product applied and installed on the outside of the house. Over time, plaintiffs learned their home had elevated moisture readings, which indicated that the synthetic stucco had not been properly installed. On 27 April 2000, plaintiffs sued both Booe Building and Booe individually, as well as their architect, Mr. Grenfell, for what they believed was a defective installation of the EIFS. Plaintiffs' complaint asserted that Booe, in his individual capacity, breached his duty to plaintiffs and was "careless and negligent . . . in conducting and supervising the construction of plaintiffs' house." On 6 June 2000, Booe Building and Booe answered plaintiffs' complaint and included a number of affirmative defenses and a cross-claim against Mr. Grenfell alleging breach of contract and negligence.
Plaintiffs' case was set for trial at the 5 November 2001 Civil Session of Guilford County Superior Court. On 25 October 2001, defendants Booe Building and Booe filed separate motions for summary judgment. On 29 October 2001, plaintiffs filed a cross-motion for partial summary judgment on liability as to both defendants. Before calling the case for trial, the trial court heard arguments and considered the documents and discovery submitted on the motions for summary judgment. On 5 November 2001, the trial court informed the parties that it would grant summary judgment for Booe. Thereafter, on 13 November 2001, the trial court entered a written judgment granting Booe's motion for summary judgment and specifically stated that its judgment was final under N.C. Gen. Stat. § 1A-1, Rule 54(b) (2001), thus rendering it subject to appeal and review by this Court. The trial court denied Booe Building's motion for summary judgment on 21 November 2001. On the same date, plaintiffs filed a voluntary dismissal without prejudice as to Booe Building, pursuant to N.C. Gen. Stat. § 1A-1, Rule 41(a)(1) (2001). Thereafter, on 3 December 2001, plaintiffs appealed from the trial court's grant of summary judgment for defendant Booe.
On appeal, plaintiffs argue the trial court erred by (I) granting summary judgment for Booe in his individual capacity; and (II) failing to grant their motion for partial summary judgment on liability as to Booe in his individual capacity. For the reasons stated herein, we disagree with plaintiffs' arguments and affirm the judgment of the trial court.
Summary judgment is appropriate if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law." N.C. Gen. Stat. § 1A-1, Rule 56(c) (2001). "[T]he standard of review on appeal from summary judgment is whether there is any genuine issue of material fact and whether the moving party is entitled to a judgment as a matter of law. Further, the evidence presented by the parties must be viewed in the light most favorable to the non-movant." Bruce-Terminix Co. v. Zurich Ins. Co., 130 N.C. App. 729, 733, 504 S.E.2d 574, 577 (1998) (citation omitted).
Plaintiffs contend summary judgment for defendant Booe was improper because he did not fulfill his duty to exercise his best efforts and comply with the North Carolina State Building Code, N.C. Gen. Stat. § 143-138 (2001). Though they acknowledge that they entered into a contract with Booe Building (rather than defendant individually), plaintiffs nonetheless argue defendant was actively involved in the day-to-day construction of their house and was therefore responsible for the defective installation of the EIFS. They further contend the EIFS defects constituted Building Code violations and note that "the [Building] Code imposes liability on any person who constructs, supervises construction, or designs a building or alteration thereto, and violates the Code such that the violation proximately causes injury or damage." Olympic Products Co. v. Roof Systems, Inc., 88 N.C. App. 315, 329, 363 S.E.2d 367, 375, disc. reviews denied, 321 N.C. 744, 366 S.E.2d 862, 863 (1988). Plaintiffs argue a duty of care arose out of the contract agreement between themselves and Booe Building (and with defendant, based upon his position with respect to Booe Building), "the theory being that accompanying every contract is a common-law duty to perform with ordinary care the thing agreed to be done, and that a negligent performance constitutes a tort as well as a breach of contract." Pinnix v. Toomey, 242 N.C. 358, 362, 87 S.E.2d 893, 898 (1955). Plaintiffs seek to pierce Booe Building's corporate veil and hold defendant personally liable for the alleged defects in their home, and believe their tort claim should have proceeded to trial.
North Carolina courts "will disregard the corporate form or `pierce the corporate veil,' and extend liability for corporate obligations beyond the confines of a corporation's separate entity, whenever necessary to prevent fraud or to achieve equity." Glenn v. Wagner, 313 N.C. 450, 454, 329 S.E.2d 326, 330 (1985). The "instrumentality rule" operates in the following situation:
[When a] corporation is so operated that it is a mere instrumentality or alter ego of the sole or dominant shareholder and a shield for his activities in violation of declared public policy or statute of the State, the corporate entity will be disregarded and the corporation and the shareholder treated as one and the same person, it being immaterial whether the sole or dominant shareholder is an individual or another corporation.
Henderson v. Finance Co., 273 N.C. 253, 260, 160 S.E.2d 39, 44 (1968).
In Statesville Stained Glass v. T.E. Lane Construction Supply, 110 N.C. App. 592, 430 S.E.2d 437 (1993), the plaintiff furnished stained glass to defendant Lane Construction Company, which used the glass in a number of structures it built. Id. at 593, 430 S.E.2d at 438. Upon receiving only a partial payment, the plaintiff sued Lane Construction Company, Terrence Lane, and Lane's other construction company for money it was owed and sought to hold Terrence Lane personally liable for the debt of his corporation because he was the chief executive officer, sole shareholder, and controller of the corporation. Id. at 593-94, 430 S.E.2d at 438. At trial, the plaintiff presented evidence that Lane Construction Company owed it over $15,000.00 and that while still indebted to plaintiff, defendant Terrence Lane dissolved Lane Construction Company and organized another construction company. Id. at 594-95, 430 S.E.2d at 438-39. The Statesville Court made the following observations about the propriety of piercing the corporate veil:
"[I]n a close corporation, the principal or sole stockholder [is] permitted by law to play an active role in management, [and] may deal with third parties without incurring personal liability, as long as the separate corporate identity is maintained." 18 Am.Jur.2d Corporations § 45 (1985). In cases arising out of contracts with a close corporation, where another party has voluntarily dealt with the corporation, corporate separateness is usually respected. 1 F. Hodge O'Neal and Robert B. Thompson, O'Neal's Close Corporations § 1.10, at 49 (3d ed. 1992). This is so because "[i]f the other contracting party has agreed to look to the corporation, and thus only to the assets that have been contributed to it, courts understandably are reluctant to remake the bargain by permitting the other party to pierce the corporate veil and pursue the shareholders' noncorporate assets." Id.
Id. at 597, 430 S.E.2d at 440. In ruling that defendant Terrence Lane was not individually liable to plaintiff, the Statesville Court stated:
[P]laintiff presented no evidence that Lane used Lane Construction to conduct personal business or for personal benefit. Furthermore, plaintiff's bare assertion that Lane used Lane Construction to defraud plaintiff, without supporting evidence, does not support the court's conclusion that "Lane exercised excessive control on [Lane Construction], at least partially, in order to escape liability in violation of plaintiff's rights." To the contrary, the evidence presented by plaintiff shows only that Lane and the other members of the board of directors agreed to dissolve Lane Construction due to the financial condition of the corporation, and that its assets were liquidated to help pay off company debts. Our review of the evidence reveals that the trial court erred in concluding that the corporate entity of Lane Construction should be disregarded.
Id. at 598, 430 S.E.2d at 441 (citation omitted).
In the present case, plaintiffs seek to hold defendant individually liable for the alleged construction defects in their home, even though defendant, individually, was not a party to the construction contract. The contract itself imposed no obligations on defendant Booe individually. Throughout construction, defendant served as an officer, employee, and agent of Booe Building and acted within the scope and course of his employment. The fact that defendant had an ownership interest in Booe Building and exercised control over the corporation does not, without more, subject him to personal liability for the liabilities incurred by Booe Building. Under Statesville, plaintiffs could maintain a negligence action against defendant in his individual capacity only if they showed (1) that defendant acted outside the course and scope of his employment; or (2) that the corporation was a sham (thereby justifying the piercing of the corporate veil). Upon review, we discern no such showing by plaintiffs.
In affirming the trial court's judgment, we also note that plaintiffs could not maintain an action against defendant in tort even if he was the contractor. Plaintiffs were the original owners of the house in question and were the promisees in the construction contract. Our Supreme Court has stated that "[o]rdinarily, a breach of contract does not give rise to a tort action by the promisee against the promisor." Ports Authority v. Roofing Co., 294 N.C. 73, 81, 240 S.E.2d 345, 350 (1978), rejected on other grounds by Trustees of Rowan Tech. v. Hammond Assoc., 313 N.C. 230, 328 S.E.2d 274 (1985). Although exceptions to the general rule exist, none of the exceptions are applicable to the case before us. See Ports Authority, 294 N.C. at 82, 240 S.E.2d at 350.
In Spillman v. American Homes, 108 N.C. App. 63, 422 S.E.2d 740 (1992), this Court applied the reasoning of Ports Authority to construction cases. The plaintiffs in Spillman asserted a tort claim based upon their allegation that the defendant failed to perform the terms of their contract and improperly constructed and installed the plaintiffs' mobile home. Id. at 64, 422 S.E.2d at 741. In reversing the denial of the defendant's motion for a directed verdict, the Spillman Court stated:
Absent the existence of a public policy exception, as in the case of contracts involving a common carrier, innkeeper or other bailee, see Ports Authority v. Roofing Co., 294 N.C. 73, 82, 240 S.E.2d 345, 350-51 (1978), a tort action does not lie against a party to a contract who simply fails to properly perform the terms of the contract, even if that failure to properly perform was due to the negligent or intentional conduct of that party, when the injury resulting from the breach is damage to the subject matter of the contract. It is the law of contract and not the law of negligence which defines the obligations and remedies of the parties in such a situation.
Id. at 65, 422 S.E.2d at 741-42. See also Mason v. Yontz, 102 N.C. App. 817, 403 S.E.2d 536 (1991) (Plaintiffs could not recover damages based on a negligence method of recovery against the builder for the alleged improper construction of their swimming pool.).
Plaintiffs argue that defendant's work resulted in Building Code violations which constituted violations of a duty imposed as a matter of public policy and were, therefore, sufficient to impose tort liability. However, we do not believe this argument is persuasive. See Ports Authority, 294 N.C. at 82-83, 240 S.E.2d at 350-51; and Warfield v. Hicks, 91 N.C. App. 1, 9-10, 370 S.E.2d 689, 694, disc. review denied, 323 N.C. 629, 374 S.E.2d 602 (1988). Prior cases from this Court limit the remedy for original owners to contractual theories rather than tort. Finally, we note that the economic loss doctrine precludes recovery for plaintiffs on their tort claim. "North Carolina has adopted the economic loss rule, which prohibits recovery for economic loss in tort. Instead, such claims are governed by contract law[.] The courts have construed the term `economic losses' to include damages to the product itself." Moore v. Coachmen Industries, Inc., 129 N.C. App. 389, 401, 499 S.E.2d 772, 780 (1998). See also Ports Authority, 294 N.C. 73, 240 S.E.2d 345. As such, plaintiffs' sole remedy, if one is deemed proper, is for breach of contract and breach of warranty against Booe Building.
In light of the foregoing, we hold that plaintiffs cannot assert a negligence claim against defendant Booe in his individual capacity, and that summary judgment in favor of Booe was therefore proper. Accordingly, plaintiffs' first assignment of error is overruled.
Plaintiffs also argue that the trial court erred by denying their motion for partial summary judgment against defendant Booe in his individual capacity. Although the trial court did not enter a written order as to plaintiffs' motion for partial summary judgment, the trial court's 13 November 2001 judgment granting summary judgment in favor of defendant rendered plaintiffs' motion moot. It is clear that the trial court did not find plaintiffs' motion persuasive, and for the same reasons it granted defendant's motion for summary judgment, the trial court implicitly denied plaintiffs' motion for partial summary judgment. Plaintiffs' second assignment of error is meritless and is therefore overruled.
Upon careful review of the record and the arguments presented by the parties, we conclude the trial court acted properly in all respects. The trial court's judgment in favor of defendant Booe is hereby
Affirmed.
Chief Judge EAGLES and Judge ELMORE concur.
Report per Rule 30(e).