Norair Engineering Corp. v. Saint Joseph's Hospital, Inc.

• Decision Date: 18 October 1978
• Docket Number: No. 56575,56575
• Citation: Norair Engineering Corp. v. Saint Joseph's Hospital, Inc., 249 S.E.2d 642, 147 Ga.App. 595 (Ga. App. 1978)
• Parties: NORAIR ENGINEERING CORPORATION et al. v. SAINT JOSEPH'S HOSPITAL, INC.
• Court: Georgia Court of Appeals

Page 642

249 S.E.2d 642

147 Ga.App. 595

NORAIR ENGINEERING CORPORATION et al. v. SAINT JOSEPH'S HOSPITAL, INC.

No. 56575.

Court of Appeals of Georgia.

Argued Sept. 7, 1978.

Decided Oct. 2, 1978.

Rehearing Denied Oct. 18, 1978.

Friedman, Haslam & Weiner, Bruce A. Howe, Edwin A. Friedman, Savannah, for appellants.

Hunter, Houlihan, Maclean, Exley, Dunn & Connerat, E. Ormonde Hunter, Arnold C. Young, John B. Miller, Adams, Adams, Brennan & Gardner, Edward T. Brennan, Richard J. Harris, Bouhan, Williams & Levy, Walter C. Hartridge, Hendrix & Shea, John W. Hendrix, John Wright Jones, Pierce, Ranitz, Berry & Mahoney, Dennis Pierce, John F. M. Ranitz, Jr., Galin & Friedman, Calhoun & Associates, John R. Calhoun, Charles E. Moore, Aaron L. Buchsbaum, Lawton, Sipple & Chamlee, George H. Chamlee, Fendig, Dickey, Fendig & Whelchel, Albert Fendig, Jr., Brunswick, Smith, Currie & Hancock, Edward H. Wasson, Jr., Atlanta, for appellees.

WEBB, Judge.

St. Joseph's action against Norair, instituted in January, 1971, and ultimately involving some twenty-two separate parties, claims a series of alleged defects which occurred in a number of specific areas during construction of a hospital in Savannah. Damages were sought based on the cost of remedial work by others, for delay and loss of use, and various miscellaneous items.

A general statement of facts in this prolonged multi-party and multi-issue litigation appears in Frank B. Wilder & Assoc. v. St. Joseph's Hosp., 132 Ga.App. 373, 208 S.E.2d 145 (1974). Prior to that decision the auditor had completed evidentiary hearings (3732 pages of testimony and 294 separate exhibits), but his final report was not made until June 1, 1976. He awarded to St. Joseph damages against Norair of $437,454.65, plus interest thereon of $50,318.52, and also $195,505.48 representing outstanding unbonded liens filed against the hospital by various subcontractors and materialmen.

Both Norair and St. Joseph filed exceptions. The superior court sustained the auditor's findings, making some mathematical adjustments agreed to by both parties, and entered its "Opinion, Order and Judgment" on October 12, 1977. Thereafter on January 4, 1978, upon motion by Norair the judgment was revised by deleting any recovery on the unbonded claims, such amounts to be determined finally as the auditor made his reports on each satellite claim. On the same date, pursuant to motion by St. Joseph, the trial court entered a further order confirming its earlier judgment of October 12, 1977, as revised, and expressly declaring it to be a final judgment between Norair and St. Joseph in accordance with the provisions of Code Ann. § 81A-154(b).

From this judgment Norair appeals, asserting six alleged errors succinctly set forth in questions hereinafter considered as the issues of the case.

Briefly repeating some of the facts as found in Wilder, supra, in February, 1967, St. Joseph contracted with Mike Bradford & Company for the construction of a new hospital in Savannah. Approximately one year after construction began Bradford defaulted and abandoned the project. Continental Casualty Company, Bradford's surety, became obligated to provide for completion of the hospital building. Continental obtained three bids, the successful bidder being Norair.

To accomplish the objective of continuity of work begun by Bradford, Continental sought to have the completion contractor use as many of Bradford's subcontractors and suppliers as possible. Accordingly, Continental prepared as a part of the completion contract bid documents, and subsequently as a part of the completion contract itself, a special addendum (Special Addendum No. 2) expressly reserving to Continental the right to designate which subcontractors and suppliers the completion contractor would use in completing the project. The language of that addendum applicable to this issue of subcontractor selection reads:

"2. Whenever in this, or other addenda allowances are given by virtue of either a Subcontract or Purchase Order having been executed by the Original Contractor, Mike Bradford and Company, Inc., that Subcontractor or supplier will be made available to the Completion Contractor under the same terms and conditions contained in the Subcontract or Purchase Order. Adjustments to the allowances will be made after the selection of a Contractor. All adjustments will be subject to a 10% Increase if the adjustment is upward or an additional 10% Decrease if the adjustment is downward. In the event any Subcontractor or supplier, as presented herein, cannot be presented to the Completion Contractor, Continental Casualty Company reserves the right to secure a replacement Subcontractor or supplier, or at Continental Casualty Company's sole option to permit the Completion Contractor to secure its own Subcontractor or supplier subject to Continental Casualty Company's approval of the cost therefor."

Norair and the other completion contract bidders were not given the names of the subcontractors they would be required to use when they submitted their bids. The contract, although negotiated by Continental, was executed between Norair and St. Joseph, and the latter acknowledged that Continental's work had been as agent for St. Joseph.

The completion contract with Norair, executed on June 14, 1968, provided for completion by August 14, 1969. Subsequently by amendment two more floors were added, and the completion date was extended 60 days. Additional time extensions postponed the completion date to June 15, 1970, and the hospital actually occupied the building on June 27, 1970. Norair was terminated by St. Joseph on September 3, 1970, and after that date was denied access to the project and the right to do any further work, including any corrective work which later became items for which damages were claimed.

1. We thus come to the first issue presented. Who is liable between the owner and the general contractor for defective construction performed by subcontractors who were selected by the owner under a special clause in its contract with the general contractor which reserved to the owner the exclusive right to designate specific subcontractors to perform portions of the work covered under the general contract?

The auditor noted the significance of this issue in finding that "much of the work about which the hospital complains was performed by these subcontractors which Norair inherited from Bradford. If Norair is correct that it cannot be liable to the hospital for the work of subcontractors selected by an agent of the hospital, then much of the case against Norair crumbles." On the contrary, we conclude that Norair was well apprised of its liabilities, which were set forth in the general conditions of the contract negotiated and agreed to by both parties in 1968.

General Conditions No. 21(b) states that "The Contractor shall be as fully responsible to the Owner for the acts and omissions of subcontractors, and of persons employed by them, as he is for the acts and omissions of persons directly employed by him." In addition, Norair had actual knowledge that it was to employ to the extent requested all major subcontractors and suppliers to the original contractor when it bid on the contract. In fact, a contractor with a lower bid was rejected because it was unwilling to agree to this proposal. Further, the invitation to bid contained a provision made a part of the final contract allowing Norair to terminate the employment of any subcontractor at any time who "failed to prosecute the work with promptness, diligence and efficiency or to perform any of the requirements hereof . . .," and Norair incorporated the same provision in its agreements with the subcontractors. None of the inherited subcontractors was objected to by Norair, and at least three of the subcontractors whose work was deficient were not chosen by St. Joseph, but by Norair.

Norair relies primarily on Peabody Mfg. Co. v. Smith, 94 Ga.App. 240, 94 S.E.2d 156 (1956) to support its contention that the contract by reserving the right to require Norair to employ Bradford's subcontractors in effect substituted St. Joseph as the employer. That suit was in tort, however, and involved the issue of whether the relationship of employer and contractor within the purview of Code § 105-502 existed between the contractor and subcontractor. We agree with the finding of the auditor that the Peabody case is not controlling in any context except that of tort law.

The evidence is convincing that Norair was content to use the original subcontractors, that it was not without remedies for its liabilities, and that it would never have been awarded the completion contract unless it had agreed to the provisions relating to selection and approval of subcontractors. Thus Norair is hoisted on its own petard and cannot now contend that this condition modified, superseded or otherwise diluted the effect of Paragraph 21 of the General Provisions so as to reduce its responsibilities thereunder.

2. Can a general contractor assert as a partial defense against a claim by the owner for defective construction the fact that the owner's architect increased the owner's damages by negligent performance of his responsibility to supervise construction?

Norair insists that the architect, pursuant to his agreement with St. Joseph, ¹ undertook to supply a full-time project inspector, and that certain problems were at least partially attributable to the architect's failure to give proper supervision to the job; and that the architect and his principal, St. Joseph, are chargeable by law with knowledge of any defects and St. Joseph's failure to act on this constructive knowledge represents a failure to mitigate damages.

However, General Condition 52(a) of the completion contract recites that "Except as otherwise specified all work shall be guaranteed by the contractor against defects resulting from use of inferior materials, equipment or workmanship...