Gellis v. B. L. I. Const. Co., Inc.

• Decision Date: 20 December 1978
• Docket Number: No. 56074,56074
• Citation: 148 Ga.App. 527,251 S.E.2d 800
• Parties: GELLIS et al. v. B. L. I. CONSTRUCTION COMPANY, INC.
• Court: Georgia Court of Appeals

Page 800

251 S.E.2d 800

148 Ga.App. 527

GELLIS et al. v. B. L. I. CONSTRUCTION COMPANY, INC.

No. 56074.

Court of Appeals of Georgia.

Argued June 26, 1978.

Decided Dec. 1, 1978.

Rehearings Denied Dec. 20, 1978.

Smith, Cohen, Ringel, Kohler & Martin, John A. Howard, David K. Whatley, Atlanta, Burnside, Dye, Miller & Bowen, A. Montague Miller, Thomas W. Tucker, Augusta, for appellants.

Harland, Cashin, Chambers, Davis & Doster, Harry L. Cashin, Jr., Simuel F. Doster, Jr., Thomas J. Venker, Henry M. Hatcher, Jr., Atlanta, for appellee.

SHULMAN, Judge.

B.L.I. Construction Company (appellee-general contractor) brought suit against Institutional Investors Trust (appellant-construction lender/grantee in security deed) to recover $360,782.50, which amount represented the balance due, including retainage for services rendered and materials furnished, for the erection of an apartment complex. In addition to a general (in personam) judgment, appellee sought to have its contractor's lien declared superior to the lender's title and also prayed for actual and punitive damages for certain allegedly fraudulent actions by the lender. In an earlier appeal involving IIT's cross claim for the balance due on a promissory note, this court affirmed the grant of summary judgment in favor of the construction lender against the owner/borrower (Hinton). See Claude A. Hinton, Jr., Inc. v. Institutional Investors Trust, 133 Ga.App. 364, 211 S.E.2d 169.

The instant suit was predicated on the following legal theories ¹ raised in appellee's amended and consolidated complaint:

I. BLI's commencement of work under the contract (with notice to IIT) prior to the granting of IIT's deed to secure debt established a lien superior to the title of IIT. See, e. g., Oglethorpe Sav. etc. Co. v. Morgan, 149 Ga. 787, 793, 102 S.E. 528.

II. IIT's participation in the negotiation of the terms of the construction contract between BLI and the owner/developer (Hinton), including requirements by appellant concerning the withholding of construction loan retainage, and IIT's approval of the contract waived any priority of appellant's deed to secure debt over the appellee's contractor's lien. See, e. g., Williams v. Brewton, 170 Ga. 164, 152 S.E. 441 as limited by Ga. State Sav. Assn. v. Wilson, 189 Ga. 21, 26-29, 5 S.E.2d 14.

III. IIT's conduct, contrary to assurances to BLI that funds would be available to pay construction costs, in depleting undisbursed construction loan proceeds by directly debiting the loan account and crediting IIT for monthly interest installments due on the construction loan, without notice to BLI and with knowledge of BLI's detrimental reliance on the loan account for payment, resulted in an equitable estoppel against the assertion by IIT of any alleged priority of its security deed over appellee's lien.

IV. IIT's conduct in accepting and receiving the benefit of BLI's work without payment rendered IIT liable for the reasonable value of the services and also resulted in an equitable lien on the property superior to appellant's security interest. (The quantum meruit theory was not submitted to the jury.)

V. IIT perpetrated a fraud by silence in concealing from BLI that IIT and the owner/borrower/developer had agreed to apply construction loan funds toward the payment of interest due on the construction loan, thereby dissipating the loan proceeds and retainage on which BLI had relied for payment of construction work costs.

This appeal is from a judgment entered on a jury verdict against the construction lender, Institutional Investors Trust (IIT), in favor of a contractor's lien in the amount of $350,000, which lien was declared superior in priority to IIT's security deed to the property (but for the fact that bond had been posted), and awarding $10,782 as general and $100 as punitive damages. We reverse the judgment.

1. In two enumerations of error which are argued jointly, appellant asserts that the trial court erred in entering a verdict in favor of BLI because a verdict in favor of IIT was required by the law and the evidence.

A. Appellant argues that a verdict was demanded in its favor on the ground that appellee failed to establish any notice of a claim of lien, which notice was essential to authorize a finding that IIT took subject to a contractor's lien. See, e. g., Marbut-Williams Lumber Co. v. Dixie Elec. Co., 166 Ga. 42, 142 S.E. 270. We disagree.

The owner/developer testified that he had called the corporate offices of IIT in New York and informed the president of appellant by telephone (prior to the closing of the loan and IIT's taking of a security deed on the property) that BLI had started work: clearing, grading and leveling operations were in progress, batter boards had been erected, lumber delivered, and the property had been flagged. The president of appellant acknowledged the telephone conversation, but denied that any discussion of work in progress had taken place. This testimony was properly admitted (see Division 3, infra) and raised a jury question as to whether IIT had notice of a valid claim of lien, i. e., " 'such notice as is positively proved to have been given to (the grantee of the security deed) directly and personally, or such as (the grantee) is presumed to have received personally because the evidence within (its) knowledge was sufficient to put (it) upon inquiry (i. e., that labor and materials were being furnished under contract).' (Cit.)" Caldwell v. Northwest Atlanta Bank, 194 Ga. 370, 375, 21 S.E.2d 619, 623. If the jury chose to believe the owner's testimony that the president of appellant had actual notice that work under the contract was in progress, then a verdict that IIT took its title subject to BLI's lien was proper. Oglethorpe Sav. etc. Co. v. Morgan, supra; Picklesimer v. Smith, 164 Ga. 600(1), 139 S.E. 72; Wager v. Carrollton Bank, 156 Ga. 783, 120 S.E. 116.

Contrary to appellant's assertions, the owner's testimony was not without probative value on the ground that the owner had executed an affidavit at closing to the effect that no improvements or repairs had been made on the property within 90 days prior to the execution thereof, or if improvements or repairs had been made within that time, the improvements or repairs were completed and paid for in full. See generally Wooster v. Boles, 130 Ga.App 542, 203 S.E.2d 745. Cf. Benn v. McBride, 140 Ga.App. 698(3), 231 S.E.2d 438, allowing testimony to contradict a written statement under oath made in connection with a judicial proceeding.

Nor was the owner estopped by the above-mentioned affidavit from asserting that the facts were otherwise. While a lending institution may in good faith rely on a contractor's affidavit that there were no unpaid bills for labor or materials outstanding at the time of the loan and defeat a claim of lien asserted by one who has supplied materials under a contract with that contractor (Builders Supply Co. v. Pilgrim, 115 Ga.App. 85(2), 153 S.E.2d 657), the self-serving affidavit involved herein (executed by the owner Hinton) will not, by itself, defeat a claim of lien asserted by the contractor against the lending institution. Old Stone Mtg. etc. Trust v. New Ga. Plumbing, Inc., 140 Ga.App. 686(3), 231 S.E.2d 785. See also Reynolds v. Magbee Bros. Lumber etc. Co., 117 Ga.App. 252(3), 160 S.E.2d 531, revd. on other grounds 224 Ga. 379, 162 S.E.2d 327. See also 20 EGL 92, Liens, § 106.

B. IIT submits that there was no evidence to authorize the establishment of a special lien superior to IIT's security deed based on the theory that IIT (grantee/lending institution) expressly or impliedly consented to improvements on its secured property by some definite and affirmative act on IIT's part communicated to, and subsequently relied on by, BLI. See Williams v. Brewton, supra, as limited by Ga. State Sav. Assn. v. Wilson, supra. See also White v. Rome Bank etc. Co., 140 Ga.App. 431, 231 S.E.2d 448, for recognition of the limitation placed on Williams. We agree.

BLI urges that the lien is authorized by evidence of IIT's notice to BLI of approval of the loan and evidence that, at IIT's instance, a provision in the contract between BLI and the owner/developer pertaining to retainage had been modified. This evidence is not sufficient. Whatever the obligations flowing by reason of the lending agreement from IIT to the borrower (see Mutual Fed. Sav. etc. v. Johnson, 124 Ga.App. 68, 183 S.E.2d 50), under the evidence as developed no obligations flowed from IIT to BLI by reason of a contract consent theory. Lummus Supply Co. v. Fidelity Fed. Sav. etc. Assn., 141 Ga.App. 831, 234 S.E.2d 671. See also Reid v. Saul, 146 Ga.App. 264, 246 S.E.2d 121; Stewart Bros. v. General Improvement Corp., 143 Ga.App. 258, 238 S.E.2d 259, where, upon owner/borrower's default in interest payments, construction lender refused to pay contractor for improvements.

We agree with IIT's contention in a related enumeration (No. 27) that the charge authorizing the award of a lien on this legal theory was not supported by the evidence and was, accordingly, erroneous.

C. Appellee submits that the work performed prior to the date of the recordation of IIT's security deed was not such work as would constitute lienable items under the Georgia lien laws.

Under Code Ch. 67-20, as against a third person with actual notice, the lien of a contractor on real estate improved under a contract with the owner thereof, if and when properly created and declared, attaches from the time the work under contract is commenced. Oglethorpe Sav. etc. Co. v. Morgan, supra. See also Guaranty Invest. etc. Co. v. Athens Engineering Co., 152 Ga. 596, 110 S.E. 873. Evidence was presented that the following work was in progress under the contract between the owner (Hinton) and the contractor (BLI) prior to the taking and recordation of IIT's security deed: flagging, clearing, grading and leveling operations, erection of batter boards, excavation of...