Menchio v. Rymer

• Decision Date: 24 June 1986
• Docket Number: No. 72182,72182
• Citation: 179 Ga.App. 852,348 S.E.2d 76
• Parties: MENCHIO et al. v. RYMER et al.
• Court: Georgia Court of Appeals

Page 76

348 S.E.2d 76

179 Ga.App. 852

MENCHIO et al. v. RYMER et al.

No. 72182.

Court of Appeals of Georgia.

June 24, 1986.

Rehearing Denied July 24, 1986.

Certiorari Denied Sept. 4, 1986.

Joel E. Dodson, Douglasville, for appellants.

Seaton D. Purdom, Robert D. Feagin, Atlanta, for appellees.

DEEN, Presiding Judge.

In October 1980, the appellees, Gary and Deborah Rymer, purchased a residential lot from Louis Menchio and contracted with Lou Menchio, Inc., for the construction of a home on the property for $68,820. The appellee moved into the house upon its completion in March 1981. The septic tank system for the house failed in February 1982, and the appellees subsequently commenced this action against Menchio and Lou Menchio, Inc., alleging breach of contract, negligence, and fraud, and seeking both actual and punitive damages. The trial court directed a verdict for the defendants on the fraud claim, but the jury awarded the Rymers $23,000 on the breach of contract claim and $25,000 as punitive damages; the jury also indicated that it found for the plaintiffs on the negligence claim but awarded no damages. This appeal followed.

Because of a small creek and underground streams on the property, the lot in question originally was classified as a "plot plan lot," which meant that before the county would issue any building permit, the property would have to be modified to lower the ground water table. Menchio dredged the creek and installed a driveway culvert for that purpose before he sold the property to the Rymers, and during the construction of the house other ground work was done in preparation for the installation of a septic tank system, which eventually was inspected and approved by an official with the county health department. In June 1981, dissatisfied with the mosquitoes and snakes attracted to the slow-running surface streams in their frontyard, the Rymers had extensive landscaping done on the property, including installing drain tile and covering over the creek with soil.

In February 1981, the Rymers first became aware of sewage surfacing on the ground. It is undisputed that the septic tank system thus failed because the ground water table had become higher than the septic tank's drainage plain. The Rymers claimed at trial that following Menchio's failure even to try to correct the problem after they contacted him, they spent over $7,000 in an unsuccessful attempt to render the system operational. Eventually, the Rymers' home was adjudicated to be a public nuisance. Evidence adduced at trial supported both the Rymers' contention that their own landscaping in June 1981 had not affected the ground water table, and the defendants' claim otherwise. Held :

1. Menchio contends that there was insufficient evidence to sustain a verdict against him individually. The corporate veil may be pierced where it appears that " 'the stockholders' disregard of the corporate entity made it a mere instrumentality for the transaction of their own affairs; that there is such unity of interest and ownership that the separate personalities of the corporation and the owners no longer exist; and to adhere to the doctrine of corporate entity would promote injustice or protect fraud.' " Farmers Warehouse v. Collins, 220 Ga. 141, 150, 137 S.E.2d 619 (1964). In the instant case, we agree with Menchio that there was no evidence to sustain his individual liability with regard to any breach of contract claim.

The Rymers purchased the residential lot from Menchio individually, but that fact alone does not pierce any corporate veil. The proposed construction contract submitted to the Rymers (although apparently never signed by them) was signed by Menchio as president of the corporation. Deborah Rymer herself, when specifically asked at trial whether she had dealt with Mr. Menchio or a corporation, stated that she had been "dealing with his company." With regard to the actual construction of the house, all construction funds were handled through the corporate account, and all necessary permits were issued to the corporation. In short, there was no evidence that Menchio acted in any capacity other than corporate president. Accordingly, the judgment against Menchio individually for damages for a breach of contract must be stricken.

2. There was no dispute that under the contract to build the Rymers' house, Lou Menchio, Inc., was obligated to install a properly functioning septic tank system. The contractor contended that the installed septic tank system actually had been functional, but that it failed only because, through no fault of the contractor, the ground water table became too high. There was evidence, however, that the water table eventually became too high because of the contractor's failure to modify the lot adequately, and construction of a house in a fit and workmanlike manner certainly must include proper preparation of the residential lot to render the house habitable. Although there also was credible evidence that the rise in the ground water table resulted from the Rymers' own landscaping of the frontyard, the jury was entitled to resolve this conflict in favor of the Rymers. In short, contrary to the appellants' contention, there was evidence to support the jury's award against Lou Menchio, Inc., for a breach of contract, and we must affirm that portion of the judgment. Fiske v. Ramey, 171 Ga.App. 210(1), 319 S.E.2d 26 (1984).

3. The appellants also contend that the award for punitive damages was neither authorized by the evidence nor allowable since the Rymers' recovery was under the contract. "Generally, punitive damages are not recoverable for breach of contract, even though the breach may be in bad faith. OCGA § 13-6-10; Nestle Co. v. J.H. Ewing & Sons, 153 Ga.App. 328 (265 S.E.2d 61) (1980)." Parsells v. Orkin Exterminating Co., 172 Ga.App. 74, 76, 322 S.E.2d 91 (1984). The Rymers emphasize that the jury specifically found for them on their negligence claim as well, although no damages were awarded, apparently because of the trial court's instruction that the jury could find both a breach of contract and negligence to have occurred, but actual damages could be awarded for one theory of recovery only, and that punitive damages could be awarded if it found for the plaintiffs on the negligence claim. Notwithstanding this cogent argument, the fact remains that the jury chose to award the Rymers actual damages on the breach of contract claim rather than the negligence claim. The jury verdict for zero damages on the negligence claim was a judgment for the defendants. Meadows v. Douglas County Fed. etc. Assn., 169 Ga.App. 150, 312 S.E.2d 169 (1983). Because punitive damages would have been authorized only if actual damages had been awarded for the negligence claim in this case, the award for punitive damages must be stricken. See Kelley v. Austell Bldg. Supply, 164 Ga.App. 322, 297 S.E.2d 292 (1982); Chrysler Corp. v. Marinari, 177 Ga.App. 304, 339 S.E.2d 343 (1985); Preferred Risk Ins. Co. v. Boykin, 174 Ga.App. 269 (10), 329 S.E.2d 900 (1985).

Contrary to the assertions of the dissent, no procedural impediment prevents addressing this issue, and setting aside the verdict for $25,000 in exemplary damages does not defy logic. While attacking an illegal verdict via a motion for judgment notwithstanding the verdict may be unusual as a practical matter, it is clear that that device was appropriate in this case. In moving for directed verdict, with regard to the claim for exemplary damages, the appellants raised the point of law that an award for a breach of contract would not authorize an award for exemplary damages. As things turned out, the jury awarded exemplary damages based on the breach of contract recovery. In subsequently moving for judgment notwithstanding the verdict, the appellants properly reasserted this issue, and the trial court erred in not striking the illegal award for exemplary damages. Since such a verdict is improper as a matter of law, there is nothing illogical about its eradication.

Judgment affirmed in part and reversed in part.

BANKE, C.J., McMURRAY and BIRDSONG, P.JJ., and SOGNIER and BENHAM, JJ., concur.

BIRDSONG, P.J., also concurs specially.

BEASLEY, J., dissents.

CARLEY and POPE, JJ., concur in the judgment of the dissent only.

BIRDSONG, Presiding Judge, concurring specially.

I concur with the majority opinion; however, recent decisions rendered in a number of jurisdictions justify the conclusion that legal barriers to the award of punitive damages in contracts are being lowered. It has been noted that some recent decisions sanctioning the award in punitive damages in contracts do not manifest much concern as to whether the plaintiff's claim falls on the tort or contract side of the borderline (see 61 Mercer Law Rev. 207 (1977)).

The legal barrier OCGA § 13-6-10 remains in place in Georgia.

BEASLEY, Judge, dissenting.

1. As to Division 1, I agree that the damages against Menchio individually "for a breach of contract" must be stricken, but for the same reasons I would require the striking of all damages against him. That is, the verdict against him for negligence, which was the basis for the aggravated damages, would also fall.

The reason is that no acts of negligence were alleged against him other than as agent of the corporation and arising out of the construction contract. Although appellees rely on Coursey Bldgs. Assoc. v. Baker, 165 Ga.App. 521, 301 S.E.2d 688 (1983), as authority for holding the corporate president individually liable as well, the issue was not there raised. Moreover, it is not clear that Coursey Building Associates was a corporation and thus a separate entity, as in the present case.

Although appellees argue that the lot was purchased from the individual and that the ground water table was not adequately lowered by him before he sold the lot to them, they did not sue on the contract of sale of the land but only on the construction...