In This Issue

• Subcontractor Lien Rights Vindicated
• Economic Loss Rule Generally Bars Recovery Absent Privity of Contract
• Equitable & Promissory Estoppel Do Not Apply to Public Entities Involved in Construction

Subcontractor Lien Rights Vindicated

Donald W. Gregory,
Construction Law
Chair

A trial court in eastern Ohio ruled a mechanic's lien of a mechanical contractor on a bumper painting factory invalid, apparently adopting the argument that the 1992 changes to the mechanic's lien law eliminated lien rights on manufacturing facilities. However, the Fifth Appellate District reversed and expressly held that the subcontractor's mechanic's lien was valid because its work and materials were "improvements to a building, fixture, appurtenance or other structure." Mid-Ohio Mechanical, Inc. v. Carden Metal Fabricators, Inc., Case No. 2006-CA-13, October 6, 2006.

The Court of Appeals noted that while "the paint line could be detached from the factory, this is probably true of any structure, temporary or permanent, given enough time and money."

While the 1992 lien changes eliminated some antiquated words like "mill" and "manufactory" when it adopted a new more modern definition of "materials", it was never intended to reduce the lien rights of subcontractors and suppliers against construction improvements.

The case will now return to the trial court to determine the "amount due and owing" the subcontractor on its mechanic's lien. Our firm successfully argued the appeal on behalf of the unpaid subcontractor.

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Economic Loss Rule Generally Bars Recovery Absent Privity of Contract

Since the Floorcraft decision in 1990, Ohio law generally requires "privity of contract" before one party on a construction project can successfully sue another for economic loss. For example, as one prime contractor would not have a contract with another prime, they could not sue the other for economic loss, like delay damages. Similarly, a contractor could not sue an architect or engineer directly for defective plans.

There is a narrow Clevecon exception to this general rule where there is a "sufficient nexus" to substitute for privity of contract, such as when an architect directs and controls the work.

In the case of Mosser Construction, Inc. v. Western Waterproofing Co., Inc., 2006 WL 1944934 (Ohio App. 6th Dist. July 14, 2006), the Court of Appeals ruled that the contractor's claim against the architect, for negligent design of a trench drain he had to rebuild, failed without privity. While the architect's representative was present several days a week to inspect the work and answer questions, he was primarily to act as an intermediary between the contractor and the state, and therefore did possess not the same degree of power and oversight necessary to satisfy the Clevecon exception.

This case shows how difficult it is to assert claims for economic loss against one with whom one does not have a contract.

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Equitable & Promissory Estoppel Do Not Apply to Public Entities Involved in Construction

Equitable estoppel applies when a defendant makes a misrepresentation of fact upon which plaintiff detrimentally relies. Promissory estoppel is a legal doctrine where a defendant makes a representation as to his intention to take certain future action upon which plaintiff detrimentally relies.

In the case of Hortman v. Miamisburg, 110 Ohio St.3d 194 (2006), the Ohio Supreme Court ruled that the doctrines of equitable and promissory estoppel do not apply to the state or its political subdivisions when the governmental body is engaged in a governmental function like road building.

This case means that even if governmental entities make certain misrepresentations in connection with public works projects these "promises" may not be enforceable by contractors or other interested parties, particularly when they do not come in the context of an express written contract.

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Credits

Kegler, Brown, Hill & Ritter's Construction Law Newsletter is prepared by Donald W. Gregory for the Construction Law practice group.

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