holding that the economic loss rule did not apply to a negligent construction claim seeking recovery for a collapsed parking lotSummary of this case from Thomaston Acquisition, LLC v. Piedmont Constr. Grp.
DECIDED: NOVEMBER 10, 1999.
Action for damages. DeKalb State Court. Before Judge McLaughlin.
Richelo, Morrissey Toler, Brian J. Morrissey, for appellants.
Misner, Scott Grate, Neal C. Scott, Allison B. Lawler, for appellees.
Plaintiffs Rowe Development Corporation (RDC) and its sole shareholder, David C. Rowe, Jr. (Rowe), brought this action for damages against the corporate defendants Akin Flanders, Inc. (AF) and Flanders Construction, Inc., (FCI) alleging first that plaintiffs' predecessor in interest, the partnership Akin, Flanders Rowe (the partnership), entered into a contract with defendant AF, and, through AF, with defendant FCI, to prepare and pave the parking area at the Butler Creek Shopping Center in Kennesaw, Georgia (the Butler Creek property); but that defendants failed to perform to the contract's specifications in a workmanlike manner such that a portion of the parking area has deteriorated and collapsed. For this breach of contract, plaintiffs sought the costs to cure. Count II alleged that defendants negligently performed paving and associated work on real property owned by plaintiff Rowe and managed by plaintiff RDC. Plaintiffs also unsuccessfully sought permission to amend the complaint to add a third count, alleging fraud. Defendant FCI denied all material allegations. Defendant AF admitted only that it entered into a contract to prepare and pave the parking lot at the Butler Creek property but contended that plaintiffs had no standing to pursue this action because they are not the real parties in interest. After discovery, defendants filed separate motions for summary judgment. Viewed in the light most favorable to plaintiffs as nonmovants, the largely undisputed evidence authorizes the following facts:
In 1979, plaintiff Rowe, along with L. Judson Akin and Frank B. Flanders, Jr., formed the partnership primarily to develop supermarket-anchored neighborhood shopping centers. Rowe would work full-time to find locations and negotiate land deals, and Akin Flanders were the developing contractors. Each partner had a "one-third interest in each shopping center." In June of 1988, the partners agreed that Rowe could represent himself, but that each partner retained the option to develop as Akin, Flanders Rowe, in which event AF would receive a construction fee and Rowe would receive a development fee. In April, 1990, the partnership as owner contracted with AF as general contractor to develop the Butler Creek property. FDC subcontracted to do the grading and paving. In May of 1990, the partnership formally became the record owner of the Butler Creek property. In January, 1991, Rowe, Akin, and Flanders formally agreed between themselves upon a distribution of partnership assets upon Rowe's withdrawal from the partnership, whereby Rowe would be granted the Butler Creek property, plus some other assets. But throughout the entire development, from bids on the subcontract to change orders, it was clearly understood that "we [AF and FCI] were the contractors, he [Rowe] was the developer, he was taking all of the chances on this deal, renting and all, and once it was completed it would be given totally to him."
The parties recognized that, at the time the construction contract was executed by the partnership and AF, the record owner of the Butler Creek property was Ronald S. Leventhal, who authorized and consented to the work.
FCI moved for summary judgment on the ground that the "economic loss rule" foreclosed a separate tort action and there was no privity of contract between FCI as subcontractor and plaintiffs to support the claimed breach. In a one-sentence order, this motion was granted. The trial court subsequently granted AF's motion for summary judgment as to plaintiffs' negligence claim and the contractual claim that plaintiffs were third-party beneficiaries but denied summary judgment for plaintiffs' breach of contract claim against AF. Plaintiffs' request to amend the complaint (after entry of the pre-trial order) to allege fraud against AF based on supplemental events was also denied. In Case Number A99A2380, plaintiffs contend they are third-party beneficiaries to the paving contract; the economic loss rule does not apply to a negligent construction claim; and the trial court abused its discretion in refusing permission to amend the complaint. In Case Number A99A2381, defendant AF cross-appeals, enumerating the denial of its motion for summary judgment as to plaintiffs' breach of contract claim. Held:
Case Number A99A2380
1. Privity of Contract with FCI: We agree with the trial court that neither Rowe nor RDC had privity of contract with defendant FCI. Yet Rowe, as the intended (and ultimate) owner of the real property at issue, clearly is a real party in interest under the theory that he was a third-party beneficiary of the paving subcontract.
"The beneficiary of a contract made between other parties for his benefit may maintain an action against the promisor on the contract." OCGA § 9-2-20 (b).
In order for a third party to have standing to enforce a contract under [OCGA § 9-2-20 (b)] it must clearly appear from the contract that it was intended for his benefit. The mere fact that he would benefit [incidentally] from performance of the agreement is not alone sufficient. [Cits.]
Backus v. Chilivis, 236 Ga. 500, 501 (II), 502 ( 224 S.E.2d 370). "There must be a promise by the promisor to the promisee to render some performance to a third person and it must appear that both the promisor and the promisee intended that the third person should be the beneficiary. [Cits.]" Southeast Grading v. City of Atlanta, 172 Ga. App. 798, 800 (1) ( 324 S.E.2d 776). Without doubt, the promisor subcontractor in this case promised to perform a valuable service to the owner of the Butler Creek property. Although the general development contract indicated the partnership was then the owner, the uncontradicted deposition testimony of Frank B. Flanders, Jr., is that the contracting parties, AF and FCI, treated plaintiff Rowe as the owner, because the individual partners had already agreed Rowe would take the Butler Creek property to dissolve the partnership and would incur all the risks of development. This intention was ratified when plaintiff Rowe took the property and all its appurtenances, as grantee under a limited warranty deed executed under seal from the partnership of Akin, Flanders Rowe, of which Rowe was then an equal partner. Thus, summary judgment in favor of FCI cannot be sustained on the ground that no plaintiff has standing to enforce the paving subcontract.
2. Negligent Construction: The trial court erred in granting summary judgment to either defendant as to plaintiffs' negligent construction claim on the basis of the so-called "economic loss" rule.
[A] negligent construction claim arises not from a breach of contract claim but from breach of a duty implied by law to perform the work in accordance with industry standards. [Cits.] This cause of action arises in tort and exists independently of any claim for breach of contract. [Cit.] Thus, [plaintiffs were] entitled to pursue these . . . remedies [arising out of] the same transaction until [they obtain complete] satisfaction. See OCGA § 9-2-4 [.] [cit.]
The "economic loss" versus "physical damage" dichotomy that is used in products liability cases can find no application in this [negligent construction] case. . . . "(I)ndependently of any duty under the [paving] contract, the law imposed upon [both the general contractor, defendant AF, and its subcontractor, defendant FCI] the duty not to negligently and wrongfully injure and damage the property of [the owner, Rowe]." [Cits].
3. Almost four years after commencement of this action, present counsel for plaintiffs was substituted for original counsel. Unbeknownst to new counsel, a consolidated pre-trial order had been entered by the trial court some six weeks before. The third enumeration contends the trial court abused its discretion in refusing plaintiffs permission to amend the complaint to add a count alleging fraud, after the entry of the pretrial order, based upon fact uncovered during plaintiffs' efforts to cure the damages to the parking lot. Defendants do not address this enumeration in their responsive brief.
"Amendment is a resource against waste." Ellison v. Ga. R. Co., 87 Ga. 691, 696 (2), 697 ( 13 S.E. 809). After the entry of the pretrial order, a party may amend his pleading "only by leave of court or by written consent of the adverse party. Leave [to amend] shall be freely given when justice so requires." OCGA § 9-11-15 (a). Thus, "[u]nder the Civil Practice Act, amendments [even] after the pre-trial order are to be liberally granted by the court as justice requires." Midtown Properties v. George F. Richardson, Inc., 139 Ga. App. 182, 186 (6), 187 ( 228 S.E.2d 303). In exercising its discretion, the trial court must balance possible unfair prejudice to the nonmoving party with the movant's reasons for delay. Leslie, Inc. v. Solomon, 141 Ga. App. 673, 674 (1) ( 234 S.E.2d 104). But mere delay in seeking leave to amend is not a sufficient reason for its denial. MCG Dev. Corp. v. Bick Realty Co., 140 Ga. App. 41, 43 (2) ( 230 S.E.2d 26). Accord Patterson v. Duron Paints of Ga., 144 Ga. App. 123 (1, a), 125 ( 240 S.E.2d 603).
In this case, the trial court considered plaintiffs' delay, but erroneously put the onus on movants to show an amendment was necessary to prevent a manifest injustice. This is an incomplete exercise of judicial discretion, based on an erroneous theory of law. Accordingly, the "right for any reason" rule cannot ratify the result. Childs v. Catlin, 134 Ga. App. 778, 782 ( 216 S.E.2d 360); Lowance v. Dempsey, 99 Ga. App. 592 (2) ( 109 S.E.2d 318), cited with approval in Watson v. Elberton-Elbert County Hosp. Auth., 229 Ga. 26 (1), 27 ( 189 S.E.2d 66). Therefore, we vacate the denial of plaintifs' motion to amend the complaint, and remand to the trial court with direction to reconsider that motion, under the proper balancing test noted above.
Case Number A99A2381
4. For the reasons discussed in Division 1, supra, the trial court correctly denied cross-appellant AF's motion for summary judgment as to plaintiffs' contract claim against it. Rowe is a third-party beneficiary under the general development contract because the parties intended for him to be the owner, and so the ultimate beneficiary of the improvements to the realty. Therefore, Rowe has standing to enforce the development contract against AF, the promisor general contractor.
Judgment reversed in part and vacated in part in the main appeal, Case Number A99A2380. Judgment affirmed in the cross-appeal, Case Number A99A2381. Johnson, C. J., and Phipps, J., concur.