August 21, 2018
Author: Douglas L. Tabeling
Organization: Smith, Currie & Hancock LLP
I. GENERAL PRINCIPLES
Georgia, like virtually every other state, has adopted the general principles of contracts from the English common law. Legal rules of contract creation, interpretation, enforcement and remedies have developed over the centuries. These rules support the fundamental principle that a contracting party is obligated to perform his contract in good faith and should be able to rely on the other party doing the same.
Courts apply various rules to resolve disputes over the interpretation of contracts. Underlying all these rules is the general precept that a contract should be enforced in accordance with the terms that were negotiated and agreed to by the parties at the time the contract was formed. Courts will not typically question the wisdom of a contract so long as the terms are clear.
Many contracts need not be in writing to be enforceable. With certain exceptions, an oral contract is just as binding as a written contract in the eyes of the law. But see Walthal v. Rusk, 172 F.3d 481, 482 (7th Cir. 1999) (“A oral contract isn’t worth the paper it’s written on.” citing Yogi Berra in dicta). However, there are obvious practical problems with any oral contract. Parties will frequently disagree about the terms of the oral contract after disputes have arisen.
Courts will look to the objective manifestation of the parties to determine the terms of the contract. The most common manifestation of a contract is the execution of a written agreement. To the extent that a written, signed contract exists, the courts will enforce it according to its reasonable and logical meaning. Once the parties execute a written contract, the writing will be the best evidence of the agreement. The rule demanding that a written contract be interpreted in a reasonable and logical manner overrides all other rules of contract interpretation.
Once a party has executed a written contract, it will be bound by its terms. Generally, courts will not accept the excuse that a party did not read the document before signing it. Barring fraud or excusable mistake, parties are bound by what they sign. Pioneer Concrete Pumping Service, Inc. v. T&B Scottdale Contractors, Inc., 218 Ga. App. 596 (1995).
Construction contracts typically are in writing, and most are long and complicated. Construction contracts not only describe the work to be performed and the materials to be used, but they also allocate among the parties the risks inherent in construction. Construction contracts typically address:
- Changes in work scope
- Weather conditions
- Differing site conditions
- The adequacy or completeness of the plans and specifications
- The overall cost of the work
- Acceptance of the work, warranties, defects, etc.
Inconsistencies, gaps, ambiguities, and contradictory contract terms and documents are common sources of disagreements, disputes and claims on a construction project. It goes without saying that a carefully drafted construction contract will go a long way toward avoiding disputes.
A court obviously cannot crawl into the minds of the parties at the time of contracting. As a result, courts apply various rules of interpretation to resolve arguments over the meaning of written contracts. These rules have been developed to resolve interpretation issues that seem to arise over and over again. These rules attempt to ascertain the reasonable and logical meaning of the contract language based on the common and logical expectations of the parties as may be gleaned from the surrounding circumstances.
All of these rules are based on one major premise – that the contract should be enforced consistent with the actual agreement between the parties, as set forth in the written contract documents.
B. CONTRACT DOCUMENTS / INCORPORATION
A typical construction project is surrounded by thousands of pieces of paper, not all of which constitute “Contract Documents” which define and govern rights and responsibilities of the parties. Many participants in the construction process do not approach a new construction project with a clear appreciation of which documents are actually part of the contract, itself. It is customary on many construction projects for contracts to incorporate by reference many other documents—some of which may never have been seen by the contracting parties.
Parties often presume that certain documents (e.g., soils reports, contractor’s proposals, lender documents, etc.) are part of the Contract Documents, only to later discover that they are not. The opposite also occurs, and courts will examine referenced documents to determine the meaning of a contract. See, e.g., Colonial Pipeline Co. v. Robert W. Hunt Co., 164 Ga. App. 91 (1982) (from letter attached and “integrated” to quotation, court determined the proposal was not pure “unit price” quote, but “was inherently based [also] on scheduled production hours”).
C. FORMATION OF A CONTRACT
1. Does A Contract Exist?
Generally, a contract consists of an offer, a communicated acceptance consistent with the offer (i.e., a “meeting of the minds”), and consideration given. Gainesville Glass Co. v. Don Hammond, Inc., 157 Ga. App. 640 (1981). Consideration in this sense is a bargained-for benefit or detriment exchanged for a promise or performance.
In the construction setting, some contracts are more easily “formed” than others because courts apply different rules of contract formation depending on whether or not the contract is predominantly one for “services” or “goods.” D. N. Garner Co. v. Georgia Palm Beach Alum. Window Corp., 233 Ga. App. 252 (1998).
Typically, construction contracts are mixed contracts for both goods and services. If a contract is predominantly a contract for goods, it is deemed to be a “contract for sale” and is governed under the Uniform Commercial Code. As such, “[a] contract for sale of goods may be made in any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of a contract. O.C.G.A. § 11-2-204.” D. N. Garner, supra.
Under the UCC:
An agreement sufficient to constitute a contract for sale may be found even though the moment of its making is undetermined.
These (and other) provisions make it clear that the UCC expands [the] concept of contract. It makes contracts easier to form, and it imposes a wider range of obligations than [common law contracts]. Contract formation is easier in several ways. Parties may form a contract through conduct rather than merely through the exchange of communications constituting ‘offer and acceptance.’ Further, [the UCC] reduces the formalities required for contract formation.
The statute of frauds (section 2-201) requires only a writing that ‘indicates’ a contract was made, and 2-206 and 2-207(1) abandon the requirement that an acceptance must coincide precisely with all the terms of the offer…. A contract for sale does not fail for indefiniteness if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy. D. N. Garner, supra (paragraphing supplied).
In determining whether a contract is a “contract for sale,” thereby invoking the UCC contract formation rules, courts will consider (a) what proportion of the total contract costs are allocated to “goods” and (b) whether the price of the goods is segregated from the price of services. “A smaller proportion of the total price assignable to services, or a failure to state a separate price for services rendered, suggests a contract for the sale of goods with services merely incidental.” D.N. Garner, supra.
Without true agreement, a valid contract does not exist Therefore, the first objective in contract interpretation is to determine if a true agreement existed between the parties at the time they ostensibly entered the contract. On most occasions, the question of whether a contract exists can easily be determined, especially where a written contract exists. However, it is not unusual for construction activity to begin before a single document is ever signed. While the parties may act as though a contract exists, there may be no actual meeting of the minds and there is no clear evidence of what the terms of the purported contract are.
Sometimes documents are exchanged, and they may even “pass in the mail.” Also, contractors often issue purchase orders for materials and equipment. Written acknowledgments are returned by the vendor. The two documents are usually conflicting and neither document may be signed by both parties. In these types of situations, the first question that must be ascertained is whether or not a contract even exists. The consent of both parties to the essential and material terms of the contract must be obtained before a contract comes into existence. If parties know that they have different understandings with respect to the terms of the contract, there can be no meeting of the minds and no contract. Amwest Surety Ins. Co. v. Ra-Lin & Assoc., 216 Ga. App. 526 (1995); O.C.G.A §13-3-2; but see, Bemco Mattress Co. v. Southeast Bedding Co., 196 Ga. App. 509 (1990) (where meaning placed on contract term by one party is known to the other, that meaning will be applied by the court where such construction effectuates the intent of the parties and does not defeat the underlying purpose of the agreement); O.C.G.A. § 13-2-4.
In Amwest Surety, a performance bond surety issued a request for bids for a completion contract when the original contractor defaulted. Under the terms of the bid documents, the successful bidder would enter a contract with the surety to complete the project for a local housing authority. However, the low bidder included in his bid a statement that he would only contract with the housing authority and not the surety. Despite this exception, the surety attempted to award a contract to the low bidder based on a provision in the bid documents that all bids would be available for acceptance for sixty days from the date of bid opening. A dispute arose when the bidder refused to sign a contract with the surety and continued to demand that any contract be with the housing authority. The surety sued for breach.
The court ruled that no contract ever came into existence. Amwest Surety, supra. A fundamental contract term, the identity of the contracting parties, was never agreed to. Moreover, the provision in the bid documents stating that all bids were available for acceptance was without consideration and therefore did not constitute a valid option contract. Id.
Georgia follows the mirror image rule regarding offer and acceptance. Acceptance of an offer must be unconditional and mirror the terms of the original offer. A qualified acceptance constitutes only a counteroffer. Morrison v. Trust Co. Bank, 229 Ga. App. 145 (1997). As seen in the D. N. Garner case above, this “mirror image rule” has a statutory exception in the Uniform Commercial Code regarding the sale of “goods.”
However, in certain cases, a contract may be formed even though actual agreement is not reached on all terms. For example, a homeowner sued a contractor when the homeowner became dissatisfied with the contractor’s performance. One of the homeowner’s allegations was that the contractor had not installed a door to the garage. The written contract agreement did not show or describe a door, and there was no written change to the contract adding a door.
The court determined that the parties had never actually reached agreement on a door and therefore the parties’ contract did not cover this item. Cocozzelli v. Andrews Homes, Inc., 223 Ga. App. 550 (1996) (builder could not breach a contract term which did not exist).
Agreements to agree are generally unenforceable, unless all the terms and conditions are agreed upon and nothing is left to future negotiations. Southern Bell Telephone & Telegraph Co. v. John Hancock Mutual Life Ins. Co., 579 F. Supp. 1065 (N.D. Ga. 1982); Morrison v. Trust Company Bank, 229 Ga. App. 145 (1997).
II. IMPLIED CONTRACT TERMS
The law implies in every contract certain obligations consistent with widely accepted principles of fairness and common sense. However, in the typically fact-intensive context of construction disputes, these commonly implied terms take on added importance. Moreover, there are many terms implied in law to construction contracts which are unique to them. This section will examine some of these implied terms in the context of construction.
A. GOOD FAITH AND FAIR DEALING
In every contract, the parties are charged with the obligation to fairly deal with each other and others in good faith. Dept. of Transp. v. APAC-Georgia, Inc., 217 Ga. App. 103 (1995). This implied duty requires contracting parties to make a good faith effort to timely and completely perform their contractual obligations. Evidence of bad faith in the performance of a contract not only is a breach of implied covenant, it also could be the basis for the recovery of attorneys’ fees in a breach action. O.C.G.A § 13-6-11. As will be seen in the chapter on A/E liability, where a party acts as the representative or agent of another, as is often the case with the owner-architect relationship, those duties can be heightened to the level of those of a fiduciary.
B. DUTY TO MITIGATE DAMAGES
Parties have a duty to mitigate (i.e., to take steps to minimize) their own damages even when those damages were caused by another party. See generally, McDaniel v. Hensons’, Inc., 229 Ga. App. 213 (1997); Holloway Constr. Co. v. Dept. of Transp., 218 Ga. App. 243 (1995); Ramco Roofing & Supply Co. v. Kaminsky, 156 Ga. App. 708 (1980).
C. DUTY TO EXERCISE SKILL AND CARE
In Georgia, a duty to perform the contract “skillfully, carefully, diligently, and in a workmanlike manner” is imposed in every construction contract. Flintkote Co. v. Dravo Crop., 678 F.2d 942, 949 (11th Cir. 1982). Similarly, a house builder has an implied obligation to exercise a reasonable degree of care, skill and ability which, under similar conditions and like surrounding circumstances, is ordinarily employed by others in the same profession. Seely v. Lloyd H. Johnson Constr. Co., Inc., 220 Ga. App. 719 (1996); Williams v. Runion, 173 Ga. App. 54 (1984).
Even on a “cost-plus” contract, if a contractor breaches an implied duty to perform services in a reasonable and skillful manner and its failure results in cost overruns in excess of a jury’s determination of “reasonable value,” the contractor may be liable for the overrun to the extent it would not have occurred, but for the contractor’s negligence. Martin v. McKenney, 207 Ga. App. 820 (1993).
D. DUTY TO COOPERATE
Parties to a construction contract have an implied affirmative duty to cooperate with each other. Each party is charged with cooperating so as not to impede or hinder the performance by the other. Active interference or failure to cooperate with the other party can give rise to an action for breach of an implied covenant to the contract. See, e.g., Kent v. Hunt & Assoc. Inc., 165 Ga. App. 169 (1983) (where a party prevents the performance of another party, it is estopped from setting up non-performance of the other party as a basis for its injury); Holloway Constr., supra (even when owner on construction project successfully shifts the risk of loss through an effective “no damage for delay” clause, the owner still retains an implied obligation to act in good faith and cooperate; therefore, question of fact existed and summary judgment was precluded as to whether GDOT breached that implied obligation by refusing to grant contractor’s request for detours).
A party may breach an implied duty to cooperate by refusing to address legitimate change order requests. Rome Housing Auth. v. Allied Bldg. Materials, Inc., 182 Ga. App. 233 (1987) (eight-month delay in issuing change order and issuance of stop-work order after written change order was issued was material breach of contract).
E. DUTY TO COORDINATE
The duty to cooperate not only requires an owner not to hinder or delay a contractor’s performance, but may also impose upon the owner an affirmative duty to actively coordinate the activities of other parties the owner has engaged on the project. Most states require an owner to coordinate the activities of parallel prime contractors. However, in Georgia the owner’s duty to coordinate may be somewhat different as a result of various Georgia Department of Transportation cases that appear to limit this responsibility. See, e.g., APAC-Georgia, Inc. v. Dept. of Transp., 221 Ga. App. 604 (1996); Dept. of Transp. v. Fru-Con Const. Corp., 206 Ga. App. 821 (1992); see generally, Goldberg, The Owner’s Duty To Coordinate Multi-Prime Construction Contractors, A Condition of Cooperation, 28 Emory L.J. 377 (1979); but see, Holloway, supra (GDOT contract provision to establish prime contractors’ rights “to secure completion of the various parts of [the project] in general harmony” did not impose on GDOT an affirmative duty to coordinate and sequence the work of its various prime contractors).
F. IMPLIED WARRANTY OF ADEQUACY OF THE PLANS
Owners have an implied duty in construction contracts to provide plans and specifications reasonably free of defects and errors. This duty has also been described as an owner’s implied warranty of constructability, and it is commonly referred to as the Spearin Doctrine, (after the landmark U.S. Supreme Court case, United States v. Spearin. 248 U.S. 132 (1918)).
The Spearin Doctrine will be discussed in greater detail in the chapter on A/E liability. In summary, however, modern application of the Spearin Doctrine has two aspects: (1) that a contractor is not responsible for unsatisfactory results so long as the contractor properly performed its contract in accordance with the plans and specifications; and (2) that the plans and specifications are adequate for the purpose intended. Georgia decisions have not been inconsistent with these principles, although many decisions have an ostensibly contrary outcome, generally because certain express contract language in those cases essentially forecloses the implied application of Spearin.
G. DUTY TO PAY FOR EXTRA WORK
Under Georgia law, where the documents are ambiguous as to obligations of the party, there is an implied obligation to pay for “extra work” where the logic in doing so is compelling and such payment is the usual custom of the trade. Colonial Pipeline, 164 Ga. App. 91 (1982); Cf., State Hwy. Dept. v. W. L. Cobb Constr. Co., 111 Ga. App. 822 (1965) (no error for court to instruct jury that “with respect to any claimed item of damages which you should find to be extra work under the terms of the contract, the [state] cannot defend against extra work on the ground there was no written agreement because the [state] was under a duty to obtain a written agreement for extra work”).
H. DUTY TO DISCLOSE MATERIAL FACTS
A duty to disclose material information may arise either from a confidential relationship or from the “particular circumstances” of the case, and concealment of a material fact may constitute fraud when one party has a right to expect full communication of a fact from another, and that communication is withheld. See, Pinkerton & Laws Co. v. Roadway Express, Inc., 650 F. Supp. 1138, 1147 (N.D. Ga. 1986) (holding that summary judgment inappropriate where factual dispute exists as to whether contractor justifiably relied on the specifications as presenting a complete picture of the soil conditions on the site where owner did not disclose results of soil report indicating adverse soil conditions on site); Am. Demolition v. Hapeville Hotel Ltd. Partnership, 202 Ga. App. 107 (1991) (where a party agrees by contract that no extra compensation would be paid for work necessary for demolition of building, and parties struck equitable compensation for “concealed conditions,” there was no duty to disclose the results of a soil report).
III. INTERPRETING WRITTEN CONTRACTS
The cardinal rule of [contract] construction is to ascertain the intention of the parties. If that intention is clear and it contravenes no rule of law and sufficient words are used to arrive at the intention, it shall be enforced irrespective of all technical or arbitrary rules of construction. O.C.G.A. § 13-2-3.
Loyal v. Norfolk Southern Corp., 234 Ga. App. 698 (1998). The interpretation of a contract is initially a question of law for the court to determine rather than for a jury. A contract may be likened to a private law created by two parties to govern their transaction. Courts will not “construe” a contract where the terms are plain and unambiguous. When ambiguity exists, the court will apply rules of “construction” to determine the intent of the parties (i.e., the terms of the contract). Only when the ambiguities remain after the court applies applicable rules of contract construction will a jury be asked to resolve the ambiguities by considering the facts surrounding the dispute. See, Gibson v. Decatur Fed. Savings & Loan Assoc., 235 Ga. App. 160 (1998); Travelers Ins. Co. v. Blakely, 255 Ga. 699 (1986). Ambiguity in contract may be defined as duplicity, indistinctness, and uncertainty of meaning or expression. Taylor v. Estes, 85 Ga. App. 716 (1952); Burden v. Thomas, 104 Ga. App. 300 (1961) (a word or phrase is ambiguous only when it is of uncertain meaning, and may be fairly understood in more ways than one).
The jury may consider whatever parol evidence may influence its decision, including the question of whether or not the contractor really had a differing interpretation of the provision or is merely trying to take advantage of a poorly worded contract that the other party prepared. Altama Delta Corp. v. Howell, 225 Ga. App. 78 (1997).
A. THE PLAIN MEANING RULE
The court will first apply the plain meaning rule (i.e., if there is only one logical and reasonable meaning of the contract language, that meaning will control. R. S. Helms, Inc. v. GST Development Co., 135 Ga. App. 845 (1975). Words generally are given their usual and common meanings. O.C.G.A. § 13-2- 2(2). Courts may refer to a dictionary to confirm that a word has only a single logical and reasonable meaning in the context used in the contract. Henderson v. Henderson, 152 Ga. App. 846 (1979).
However, technical words, words of art, or words commonly used in a particular trade or business will be given their technical meaning or the meaning consistent with the applicable trade or business. O.C.G.A § 13-2-2(3). Technical meanings will typically override generally accepted meanings when circumstances indicate that the parties intended to use the technical meaning. See, e.g., Biltmore Constr. Co. v. Tri-State Elec. Contractors, Inc., 137 Ga. App. 504 (1976) (contract language did not overcome, as a matter of law, the testimony as to custom regarding whether telephone connections were typically charged as an extra cost).
Where ambiguity exists, trade usage and industry custom may be examined to clarify or confirm the apparent meaning of a contractual provision. Bemco Mattress, supra (court’s consideration of affidavit of officer of international trade association of mattress manufacturers as to whether the word “unit” applied to individual box spring or mattress was permissible).
The customs or standards of any business or trade, however, will be considered only when facts and circumstances establish that the custom or standard is generally known and the parties reasonably could have been expected to be influenced by those customs.
Customs or trade usage within the construction industry may not be binding on an owner unless the contractor proves that that custom was generally known not only in the construction industry but to any reasonably informed owner. O.C.G.A. § 13-2-2(3). Trade customs or industry practice will not be admitted to render ambiguous what are otherwise unambiguous contract terms. Wood v. All Am. Assurance Co., 172 Ga. App. 655 (1984).
B. THE WRITTEN CONTRACT SHOULD BE VIEWED IN ITS ENTIRETY
Courts will review the entire agreement before making a decision on the interpretation of a single provision. See Bemco Mattress, supra (contract clauses must not be viewed in isolation, but in the context of the entire contract). The courts always favor an interpretation that will give a reasonable and logical meaning to all provisions of the contract. R. S. Helms, supra; O.C.G.A. § 13-2- 2(4). An interpretation giving meaning to each and every part of the written contract will be preferred over an interpretation that leaves some contract provisions meaningless. Altama Delta Corp. v. Howell, supra.
C. GAP FILLERS
Courts may add consistent terms to fill in apparent gaps in a written contract. O.C.G.A. § 13-2-2(6). Once a court is satisfied that agreement has been reached on the material terms, the court may supply some reasonable details to explain the terms agreed upon and to provide the necessary means for the parties to actually implement their agreement. Sanders v. Commercial Casualty Ins. Co., 226 Ga. App. 119 (1997). Thus, if the contract does not contain any information on the manner and method of payment, the court will add commercially reasonable terms. For example, where a contract does not specify a time for performance, the law implies that the parties contemplated that performance would be initiated within a reasonable time. Jeff Goolsby Homes Corp. v. Smith, 168 Ga. App. 218 (1983); O.C.G.A. § 13-4-20.
D. ORDER OF PRECEDENCE OF CONTRACT TERMS
There is generally an order of precedence or importance in a written construction contract. To the extent that there is an inconsistency in contract terms, courts will attempt to determine the order of precedence and enforce a clause of greater importance over one of lesser importance. See, e.g., State Highway Dept. v. Hall Paving Co., 127 Ga. App. 625 (1972) (order of precedence clause cited by the court in reasoning that GDOT intended notice provisions in contract to be of importance). Even without an Order of Precedence clause, the courts will typically apply one.
Georgia recognizes that between written and pre-printed provisions of a contract, the written provisions would control. O.C.G.A. § 13-2-2(6). Also, Georgia recognizes that words generally control over inconsistent numbers. Bryant v. Georgia Fertilizer & Oil Co., 13 Ga. App. 448, 449 (1913). Georgia also occasionally applies a fairly unique rule to determine which of two conflicting provisions should control. There are old cases in Georgia that state that the provision that is earlier in a contract should control over later provisions. Thus, a provision on page 2 of a contract would control over a conflicting provision found on page 7. Crook v. West, 196 Ga. App. 4, 395 S.E.2d 260, 261 (1990); Jos. Camacho Assoc., Inc. v. Millard, 169 Ga. App. 937 (1984); Barge & Co., Inc. v. City of Atlanta, 161 Ga. App. 675 (1982).
E. THE CONTRACT WILL BE CONSTRUED MOST STRONGLY AGAINST THE DRAFTER
Many inconsistencies and ambiguities are resolved by simply construing the document against the party that drafted it. Amwest Surety, supra; O.C.G.A. § 13-2-2(5). To the extent that the non-drafting party adopted a reasonable interpretation of the confusing language, that interpretation will control over what the drafting party intended but failed to clearly draft. Cf., Bemco, supra (“[while it is] generally true that ambiguous terms of a contract are to be construed against the party drafting them, [the] fundamental rule, the rule which swallows up all others in construing a paper, is to give it that meaning which will best carry into effect the intent of the parties”).
The rule that a contract will be interpreted against the drafter has a very significant history in federal government contracting. Countless Board cases have ultimately resolved disputes arising from ambiguous and misleading language by adopting the interpretation placed upon it by the non-drafting party. Since the government is usually responsible for drafting the contract, it must generally face the consequences of its errors.
IV. PAROLE EVIDENCE
The cardinal rule of contract interpretation is that courts will attempt to give effect to the parties’ intention at the time they entered the contract. O.C.G.A. § 13-2-3. Whenever possible, courts will attempt to discern that intent solely from the written terms of a contract. When the terms of a contract are unambiguous, courts will not usually consider evidence other than the written contract to determine the obligations of the parties.
Frequently, one of the parties to a contract will argue that various agreements reached during negotiations leading up to the written contract were not actually included in the contract. These parties will seek to introduce evidence of these oral agreements. Courts prefer to determine the terms of the agreement within the confines of the “four corners” of the written document. The “four corners” rule generally will prevent a party from introducing any evidence of alleged terms that vary or change the written terms of the contract.
Generally, parties cannot seek to add new and different terms to a contract that are not set forth in the writing. So long as there are no allegations of fraud, courts will presume that parties included all terms in the writing and will not listen to allegations of additional, different or inconsistent terms that never make it into the written contract. O.C.G.A. § 13-2-2(1).
Many, if not most, written construction and design contracts contain “integration” or “merger” clauses. These clauses have the effect of merging all prior negotiations, discussions, promises, and understandings into the contract. Therefore, a party should resist signing a contract in which the written terms do not fully or accurately describe the bargained-for agreement; nor should a party sign such an agreement on the presumption that a court will take into account any negotiations, promises, etc. which preceded the contract.
Courts will look to parol evidence under limited circumstances in an effort to properly interpret a contract. Parol evidence is testimony or evidence outside the four corners of the written contract that a party seeks to introduce to affect or influence the meaning of the contract. While parol evidence is inadmissible to change the terms of the written contract, it is admissible to help explain the background and surrounding circumstances leading to the written document. For example, a court will consider parol evidence to help define technical terms or common industry practice. Stinchcomb v. Clayton County Water Auth., 177 Ga. App. 558 (1986) (court will look to exclusive evidence to determine whether an instrument grants an easement or conveys title in land). Beasley, J., specially concurring.
The courts will also allow parol evidence to explain an ongoing business relationship between the parties. If there have been similar dealings in the past between the same parties, the courts will look at those prior dealings in an effort to interpret and better understand the written contract. However, evidence of an established pattern of prior dealings may be introduced to aid a court in the interpretation of some contract language, again it cannot be used to vary or modify what otherwise are clear contract terms.
Even if a writing is intended to be a complete integration of prior negotiations and agreements, parol evidence is always relevant to show fraud, mistake or illegality. The parol evidence rule never prevents the introduction of evidence that would show that no valid or enforceable contract was created.
There are circumstances in which none of the rules of interpretation will resolve an ambiguity. Travelers Ins., 255 Ga. 699 (1986). In this event, the question of the proper interpretation of the contract becomes a fact question for the jury. The jury may consider any parol evidence to resolve the question, including the negotiations and circumstances surrounding the negotiations between the parties, the practical construction given to the parties during performance, industry customs, or any other parol evidence that arguably is relevant to the question of what the parties agreed to. Southern Fed. Sav. & Loan Ass’n of Atlanta v. Lyle, 249 Ga. 284 (1982); Interstate Fire Ins. Co. v. Nat. Indem. Co., 157 Ga. App. 516 (1981); O.C.G.A § 13-2-1.
V. TRENDS IN INTERPRETING CONSTRUCTION CONTRACTS
Georgia courts have been called upon to discuss or decide the enforceability of many of the most commonly used clauses in construction contracts, many of which are exculpatory in nature.
A. NO DAMAGE FOR DELAY CLAUSES
Over the last 15 years, Georgia courts have construed numerous exculpatory clauses found in construction contracts. An exculpatory clause has been defined as any clause that attempts to exculpate one of the contracting parties from responsibility for an obligation that it normally would have under standard contract arrangements. Such exculpatory clauses include: “No Damage for Delay” clauses and “Limitation of Liability” clauses. Generally, exculpatory clauses such as “no damage for delay” clauses will be enforced to the extent that the clauses are clear, unambiguous, narrowly drafted and specific in what they purport to cover. Dept. of Transp. v. Arapaho Const., Inc., 257 Ga. 269 (1987) (termination provisions of GDOT contract not enforceable due to non-specific language purportedly applying termination clause to failure of state to obtain rights-of-way).
This strict standard for enforcing exculpatory clauses has also been applied to contract language in which the owner seeks to bar recovery of any prejudgment interest in the event that a lawsuit is brought by the contractor. In the case of prejudgment interest, a court refused to enforce a “no interest” clause since the clause did not purport to specifically cover interest on damages claims arising out of delays on a construction project. Dept. of Transp. v. APACGeorgia, supra.
B. PAY WHEN PAID CLAUSES
A “Pay when Paid” clause in a subcontract is enforceable in Georgia. This type of clause is not considered to be an exculpatory clause and the strict standards discussed above are not applied. Generally speaking, if a subcontract contains language that the sub is not to be paid until after payment by the owner, Georgia courts will construe this to be a condition precedent. No magic language need be used. For example, the following contract language has been found to be sufficient to create a condition of payment:
No payment shall be due Subcontractor for such changed or extra work until Contractor has received payment from the Owner for said changed or extra work performed by Subcontractor. St. Paul Fire & Marine Ins. Co. v. Georgia Interstate Elec. Co., 187 Ga. App. 579 (1988); see also, Jerome Distributors, Inc. v. B.L.I. Constr. Co., 142 Ga. App. 776 (1977) (plain and unambiguous language created condition precedent to payment).
C. NOTICE PROVISIONS
Construction contracts often require written notice be provided in the event that a party decides to seek a contractual remedy. For example, notice provisions are typically required if a contractor believes it has been delayed and intends on seeking a time extension. Written notice is also commonly required when a contractor believes it has been given an order that is outside the scope of its contract and would constitute an extra or change to the contract. Still other contract clauses require written notice of any claims or intent to assert a claim under the contract. Frequently these provisions place a time limit in which the notice must be given. Although Georgia courts will generally enforce notice requirements, they are reluctant to enforce any provision that would work as a forfeiture of any rights a contractor might otherwise have. Courts do not favor forfeitures and will attempt to avoid such a drastic result.
As an initial matter, courts will look for substantial compliance with the notice requirements of the contract. According to the decided cases, the key is whether or not the other party received actual notice of the party’s intent to file a claim or seek a time extension. See, APAC-Georgia, supra; Hall Paving, supra; Batson-Cook Co. v. Loden & Co., Inc., 129 Ga. App. 376 (1973).
In a recent, well-reasoned decision of the Georgia Court of Appeals, the Court addressed squarely the issue of notice in the construction setting. Metropolitan Atlanta Rapid Transit Auth. v. Green Int’l, Inc., 235 Ga. App. 419 (1998). In that case, MARTA appealed a trial court verdict in favor of a contractor, Green, contending, in part, that Green allegedly failed to literally comply with the contractual notice provisions and that that alleged failure was fatal to Green’s causes of action for damages. The court disagreed, stating: “Ordinarily, the question of reasonable notice is for the jury.” Id. at 423. However, the contract at issue in the MARTA v. Green case was no model of clarity, and the presence of ambiguity may have moved the court to affirm the jury determination of compliance with the notice provisions. Therefore, although the court’s reasoning in MARTA v. Green may reduce the chance of a contractor’s forfeiture of a claim as a matter of law for failure to strictly comply with the contractual notice provision, to the degree possible and whenever possible, strict compliance with all contractual notice provisions is recommended.