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Recent Georgia Court of Appeals Decision a Cautionary Tale for Subcontractors

Posted on: July 28th, 2014

By: Gautam Y. Reddy

The Georgia Court of Appeals recently issued an opinion dismissing a paving subcontractor’s claims for payment. The case, First Bank of Georgia v. Robertson Grading, Inc., (Case No. A14A0701), represents a rather harsh result for the subcontractor, Robertson Grading. In doing so, it serves as a reminder for subcontractors in Georgia to follow certain prudent business practices.

The facts are as follows: Robertson contracted with general contractor R & B Construction to perform paving work at a project for around $400,000. To ensure that R & B had sufficient funds to pay for this work, Robertson asked for and received a list of credit references from R & B. This list included First Bank of Georgia (“the Bank”), the eventual defendant in this action. Before beginning work but after signing the contract, Robertson met with the Bank. During this meeting, the Bank reassured Robertson that it “would get paid for the paving” and that it would notify Robertson if any problems arose.

Satisfied with this assurance, Robertson began paving and subsequently submitted its first invoice to R & B for around $124,000. However, R & B did not pay this invoice, thus prompting Robertson to meet with the Bank. During this meeting, the Bank stated that it wanted to issue one check at the end of the work and promised that Robertson would get paid. Robertson then told the Bank that it expected the paving work to be finished in two to three weeks. However, Robertson’s work was delayed because R & B requested extra work. Due to this request and increased material prices, Robertson’s final invoice totaled nearly $450,000. Robertson was not paid for this invoice either so it again contacted the Bank. This time, the Bank informed Robertson that because R & B had missed its last payment on its construction loan, the Bank was no longer disbursing funds on the account.

In response, Robertson filed a lien on the property while R & B simultaneously filed for bankruptcy. Unfortunately for Robertson, the bankruptcy court found that the lien was not properly perfected. Thus, Robertson’s only option was to seek payment as an unsecured creditor. The Bank then foreclosed on the property and managed to sell it all for a profit of over $1 million. It later admitted that these sales would not have been possible if the streets were not paved.

Upon reading these facts, one would assume that Robertson should have some sort of legal recourse against the Bank. Indeed, Robertson brought claims of promissory estoppel, unjust enrichment, negligent misrepresentation, and fraud. At the trial court, the jury found in favor of Robertson on the first three claims and awarded it $448,600.65 in damages and $149,500 in attorney’s fees. However, the Georgia Court of Appeals reversed this ruling, holding that the trial court erred in not dismissing each of these claims.

For the promissory estoppel claim, the court stated that Robertson had to show that it reasonably and exclusively relied on the Bank’s promises.  Here, Robertson had already contracted with R & B before talking to the Bank. Thus, the court held that Robertson could not have relied on the Bank’s promises in entering the contract.

Robertson also asserted a promissory estoppel claim for the Bank’s promise that it would issue one final check after completion of the work. The court held that the Bank’s promise was conditioned on Robertson completing the work in two to three weeks, as it represented to the Bank. Although Robertson was not responsible for the delay, the court noted that Robertson did not communicate this to the Bank. Thus, the court held that Robertson “unilaterally changed the terms on which the promise was made” and could not sustain a claim for promissory estoppel.

Next, the court held that Robertson’s negligent misrepresentation claim must fail because there was no evidence of proximate damage from the Bank’s negligent misrepresentation. In layman’s terms, this means that Robertson could not show that the Bank’s misrepresentation was the cause of any economic damage it suffered. Again, the court’s reasoning was that Robertson contracted with R & B prior to meeting with the Bank. Thus, any misrepresentation the Bank made regarding its ability to pay had no effect on Robertson’s decision to contract with R & B. The court held that R & B’s default on the loan was the proximate cause of the damages. R & B’s default was unrelated to any misrepresentations made by the Bank.

Finally, the court addressed Robertson’s unjust enrichment claim. Here, the court simply stated that under Georgia case law, Robertson’s sole remedy was filing a lien and that any enrichment by the Bank was not unjust because it resulted via foreclosure. The Bank’s enrichment did not result from any contract it had with Robertson because Robertson’s only contract was with R & B.

This case serves as a valuable lesson for subcontractors operating in Georgia. First, if you have any doubts about the general contractor’s ability to pay, confer with its creditors before signing the contract. Second, do not take a creditor’s promise to pay at face value without some sort of written agreement. Here, even though Robertson was not paid on its first invoice, it did not file a lien or take any other such measure. Instead, it relied on the Bank’s assurances and ultimately paid the price for this. Finally, make absolutely sure to perfect any liens you file. Robertson could have avoided much of this predicament by simply perfecting its lien.

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