DocketNumber: S19Q0249
Citation Numbers: 829 S.E.2d 68, 306 Ga. 102
Judges: Nahmias
Filed Date: 6/3/2019
Status: Precedential
Modified Date: 7/29/2022
*70**102This case is before our Court on certified questions from the United States District Court for the Middle District of Georgia regarding the scope of the "acceptance doctrine" in negligent construction tort cases. At issue is whether and how the acceptance doctrine applies as a defense against a claim brought by a subsequent purchaser of allegedly negligently constructed buildings.
1. In 2011, Thomaston Crossing, LLC (the "original owner") entered into a construction contract with appellee Piedmont Construction Group, Inc. to build an apartment complex in Macon. Piedmont then retained two subcontractors - appellees Alan Frank Roofing Company and Triad Mechanical Company, Inc. - to construct the roof and the HVAC system, respectively. In 2014, the complex was completed, turned over to, and accepted by the original owner. In 2016, the original owner sold the apartment complex to appellant Thomaston Acquisition, LLC ("Thomaston") pursuant to an "as is" agreement.
Shortly after the sale, Thomaston allegedly discovered evidence that the roof and HVAC system had been negligently constructed. Thomaston filed suit against Piedmont, asserting a claim for negligent construction of the roof and HVAC system and a claim for breach of contract/implied warranty. Piedmont then filed a third-party complaint against Alan Frank Roofing and Triad Mechanical because both companies had allegedly agreed to indemnify Piedmont for loses arising out of their work.
Each of the appellees later moved for summary judgment based in part on the defense that Thomaston's negligent construction claim **103is barred by the acceptance doctrine. On September 27, 2018, the district court certified the following two questions to our Court:
1. After construction of real property is completed, and the property is sold by the original owner to a subsequent bona fide purchaser, does the acceptance doctrine apply to a negligent construction claim brought by a subsequent purchaser who is the current owner-operator of the property at issue?
2. If the acceptance doctrine does apply, to whose inspection does the analysis of whether the defect(s) was "readily observable on reasonable inspection" relate: the original owner's inspection, or a subsequent owner's inspection?
As explained below, we conclude that the acceptance doctrine does apply to Thomaston's claim and that "readily observable upon reasonable inspection" refers to the original owner's inspection.
*71**1042. (a) This Court long ago explained the acceptance doctrine as follows:
[A]n independent contractor is not liable for injuries to a third person, occurring after the contractor has completed the work and turned it over to the owner or employer and the same has been accepted by him, though the injury result from the contractor's failure to properly carry out his contract.
Young v. Smith & Kelly Co. ,
The acceptance doctrine shields contractors from liability for injuries to third parties resulting from their work at the moment the work is turned over to and accepted by the owner.
The owner-employer can reject work which does not comply with the agreement and which may be defective or create either a latent or patent hazard. The owner is best situated to foresee and to guard against dangers to users of the premises, because he alone may know how he expects the premises to be utilized.
Frank M. Eldridge, Personal Injury and Property Damage: Causation & Parties, The Law in Georgia § 5-9, at 108 (1978). By accepting the completed work, presumably after a reasonably careful inspection to identify any defects, the owner adopts the work as his own, "deprives the contractor of all opportunity to rectify his wrong," bears "the immediate duty to make the premises safe," and is therefore accountable for future injuries. Emmanuel S. Tipon, Modern Status of Rules Regarding Tort Liability of Building or Construction Contractor for Injury or Damage to Third Person After Completion and Acceptance of Work; "Completed and Accepted" Rule ,
**105Over time, many courts began to recognize a variety of exceptions to the general rule barring liability without privity. In the products-liability context, the exceptions swallowed the rule, and the privity requirement was widely abandoned in the early 20th century. See Bragg v. Oxford Constr. Co. ,
In the context of building contractors, Georgia courts have recognized a handful of exceptions to the acceptance doctrine. Most significantly, the doctrine does not bar a third party's claim for injuries suffered as a result of a defect hidden from reasonable inspection. See Smith v. Dabbs-Williams Gen. Contractors, LLC ,
Thomaston points out that most of our sister states have abandoned the acceptance doctrine in favor of the "foreseeability doctrine," which has no privity requirement.
(b) The appellees argue that Thomaston is such a third party because it was neither a party to nor in privity with a party to the contract for construction of the apartment complex. We agree. As discussed previously, this Court explained more than a century ago that the acceptance doctrine applies to completed work that has been "turned [ ] over to the owner or employer and ... has been accepted by him." Young ,
Without any real claim of privity, Thomaston nevertheless contends that it should be treated like the original owner because it is the current owner-occupier of the property. But doing so would undermine the acceptance doctrine's foundational purpose of shielding contractors from liability for injuries occurring after the owner has accepted the completed work, thereby assuming **107responsibility for future injuries. There is no "current owner-occupier" or "subsequent purchaser" exception to the acceptance doctrine, *73and the facts of this case do not compel us to recognize one here. See Bragg ,
After the work has been accepted, a contractor generally has no authority to inspect or make changes to the property, and it may not be authorized even to enter the premises. As our Court of Appeals has explained many times in the context of road contractors, with the exceptions noted earlier, a " 'contractor cannot be held responsible for completed work over which it no longer exercises any control.' " Ogles v. E.A. Mann & Co. ,
Contrary to Thomaston's ominous warnings, our decision today does not leave subsequent purchasers of real property unprotected. Subsequent purchasers can protect themselves from injuries caused **108by readily observable defects by adequately inspecting and refusing to purchase defective property or demanding repairs by the seller before closing. Subsequent purchasers also need not purchase property with an "as is" contract (as Thomaston did), which could potentially cut off any contract claims against the seller. Nor does our decision eradicate the negligent construction tort claim, as Thomaston contends. The claim remains a viable cause of action for third parties (including Thomaston) if one of the exceptions to the acceptance doctrine applies.
3. The district court also asked us whether, under the hidden-defect exception, the phrase "readily observable on reasonable inspection" (which is used in acceptance doctrine cases including *74Smith ,
As explained above, the acceptance doctrine shifts liability for injuries caused by readily observable defects away from the contractor and onto the owner at the moment the owner accepts the defective work. At that point, the contractor no longer has control over the condition of the property; a contractor does not become liable for a defect that was readily observable when the original owner accepted the work but is no longer readily observable days, months, or years later when the original owner sells the property. See, e.g., Smith ,
Certified questions answered.
All the Justices concur.
We note at the outset that the acceptance doctrine is typically asserted when a plaintiff seeks recovery for personal injury or damage to other property caused by defective construction work, rather than recovery based on the defective work itself. See, e.g., Powell v. Ledbetter Bros., Inc. ,
The typical context of acceptance doctrine cases is perhaps due to the "economic loss rule." As one treatise explains: "In its most widely accepted form, the doctrine of economic loss bars the use of negligence or strict liability theories for recovery of economic losses arising out of commercial transactions where the loss is not a consequence of an event causing personal injury or damage to other property." 6 Phillip L. Bruner & Patrick J. O'Connor, Jr., Bruner & O'Connor on Construction Law § 19:10 (June 2018 update).
In the context of construction, "economic loss" includes the cost to repair or replace defective materials, damage to a structure, diminution in value of a damaged structure not repaired, loss of use or delay in utilizing property for its intended purposes, and related lost profits, lost revenue, and costs. ... Third parties lacking contractual rights have no legal basis for recovery of economic loss on theories of tortious conduct that cause neither personal injury nor damage to property beyond the defective property itself. Notwithstanding such straightforward distinctions, third party recovery in tort for economic loss caused by breaches of contract or warranty duties owed between others has been for decades a subject of heated controversy. There has been a definite lack of uniform treatment.
The appellees raised the economic loss rule in their motions for summary judgment. But the district court has not yet ruled on that issue and did not pose a question to us about it, so we do not opine on its application in this case except to note that this Court appears never to have squarely considered whether or how the rule would apply in a negligent construction case, although the Court of Appeals has. See Rowe v. Akin & Flanders, Inc. ,
The acceptance doctrine is also referred to as the completed-work doctrine, the completed and accepted rule, and similar formulations.
Under the foreseeability doctrine,
"a building or construction contractor is liable for injury or damage to a third person even after completion of the work and its acceptance by the owner where it was reasonably foreseeable that a third person would be injured by such work on account of the contractor's negligence or failure to disclose a dangerous condition known to such contractor."
Bragg ,
Even if we were inclined to treat Thomaston like the original owner, we question whether an owner who was a party to the construction contract would have a viable negligent construction claim on these facts. (In posing its first question, the district court cited Jai Ganesh Lodging, Inc. v. David M. Smith, Inc. ,
The appellees contend that once construction work has been accepted and the original owner sells the property to someone else, any negligent construction claim is "dead and cannot be brought back to life" by one of the exceptions. We disagree. The acceptance doctrine does not shield contractors from liability for claims by third parties for personal injuries or damage to other property caused by defects that are hidden, that constitute nuisances per se, that are inherently dangerous, or that come under any other recognized exception. See, e.g., Smith ,