Ohio Court of Appeals Rules That Architect’s Authority Does Not Extend to Advancing Payments to Subcontractors, and Architect’s Liability Does Not Extend to Guaranteeing Subcontractors’ Work

Manley Architecture Grp., LLC, v. Santanello, 2018 Ohio App. LEXIS 2372 (June 7, 2018)

Dr. Steven A. Santanello (“Santanello”) contracted with Manley Architecture Group, LLC (“MAG”) to design and manage the construction of a large home, riding barn, pond, tennis court and outdoor pool.  Santanello acted as his own general contractor.

During construction, problems arose with the barn roof, and Santanello stopped paying MAG’s and his subcontractors’ invoices.   MAG advanced $55,557.68 to Santanello’s subcontractors to induce them to complete the project.  MAG later filed a breach of contract action against Santanello seeking to recover these advances.

Santanello filed a counterclaim for breach of contract, alleging that MAG breached its obligation to properly manage the construction of the barn, ultimately necessitating the replacement of the roof.  After a bench trial, the trial court found that both parties had breached the contract.  The parties cross-appealed.

Santanello contended that the trial court erred when it ruled that the contract obligated him to reimburse MAG for MAG’s $55,557.68 advance to his subcontractors.  The appeals court noted that it was undisputed that that privity of contract ran only between Santanello and the individual subcontractors.  Reviewing Santanello’s and MAG’s contract de novo, the court found no provision that authorized MAG to make advances to Santanello’s subcontractors or that obligated Santanello to reimburse MAG for such advances.  The contract’s description of “reimbursable expenses,” which included “[b]lueprints, mileage, faxes, etc. estimated at: $2,000.00” could not be read to reflect an intent to include advances to subcontractors totaling tens of thousands of dollars.

The court also noted that MAG’s owner testified that when making the advances, he was not operating under the contract.  His testimony demonstrated that he was motivated by his desire to complete the project and to preserve his relationship with the subcontractors.  The court held that by entering a contract that allowed Santanello to function as his own general contractor, MAG ran the risk that he might decide to withhold payment to subcontractors.  In return, MAG was able to offer its contract at a reduced rate as a selling point.  The court refused to rewrite the contract.  It concluded that the trial court erred when it construed the contract to allow MAG to advance monies to the subcontractors and subsequently recover those advances from Santanello.

In its cross-appeal, MAG contended that the trial court erred by allowing Santanello a set-off in an amount representing the cost of a new barn roof based on its determination that MAG breached its construction management responsibilities.  MAG argued that its assurance in the cover letter accompanying the contract that it would “make sure the construction is performed properly” was not a warranty or guarantee covering the subcontractors’ work.  The court agreed that this assurance did not make MAG an “insurer” of Santanello’s subcontractors’ work, including the work of the subcontractor who erected the barn roof.

The parties’ contract, in which they agreed that MAG would perform “the overarching role of ‘construction manager,’” similarly did not make MAG an insurer of the subcontractor’s work.  The definition of “construction manager” expressly stated that that MAG was not a guarantor for the work of the subcontractors.

The contract obligated MAG only to “actively monitor ongoing work” and “alert Dr. Santanello in a timely manner” when problems arose during construction, “so that the doctor could pursue appropriate remedial action with the contractor in question.”  The court found that Santanello’s own testimony demonstrated that MAG had met this obligation with respect to the barn roof, even though MAG’s owner admitted that “getting up on a high roof like this one was not one of his favorite things to do.”  The court ultimately concluded that the trial court erred when it ruled that MAG was liable to Santanello for the entire cost of replacing the barn roof because this ruling imposed a more stringent set of responsibilities on MAG than the contract required.

The court sustained both parties’ cross-assignments of error, reversed the trial court’s judgment on these points, and adjusted the award accordingly.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

Jane Fox Lehman

 

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