Contractor Owes Duty to Lender

Kegler Brown Construction Newsletter

In a remarkable decision adverse to the entire construction industry, the Court of Appeals for Pike County has ruled that a contractor owes a construction lender a duty to complete construction in a workmanlike manner to avoid impairing the value of the lender's collateral. Ohio Valley Bank v. Copley (1997), 121 Ohio App. 3d 197. The Court defied the recent trend in this state to limit construction claims to parties who have "privity of contract" with each other and held that the lender could sue the builder directly for supposedly constructing a defective foundation that adversely affected the value of the home, and therefore the lender's security.

This decision opens up a can of worms for anyone working on a project involving a construction loan because now these contractors, subcontractors and suppliers will be open to claims from dissatisfied lenders that they have had no contact with, let alone a contract.