Discrepancy in Subcontractor’s Name on Contracts Prevents Summary Judgment in Favor of Lien Claimant.

By: Chadd L. Reynolds

The recent case Georgia Court of Appeals case of Optum Construction Group, LLC v. City Electric Supply Company,[1] underscores the importance of properly naming the parties when entering into contracts. In this case, a material supplier’s attempt to collect on a lien-discharge bond was complicated by the inconsistent use of the subcontractor’s name on contract documents.

City Electric Supply Company (“City Electric”) entered into a commercial-credit account with Palmetto Power Services, LLC (“Palmetto Services”), which represented itself as a subcontractor for a hotel-construction project (the “Project”) on which Optum Construction Group, LLC (“Optum”) was the general contractor. Palmetto Services failed to pay City Electric for the materials provided on the Project, causing City Electric to file a lien. Optum and its surety, Fidelity and Deposit Company of Maryland (“Fidelity”), discharged the lien by filing a bond.

City Electric filed suit against Palmetto Services and obtained a confession of judgment. City Electric then filed suit against Optum and Fidelity to collect on the lien-discharge bond. The trial court granted City Electric’s motion for summary judgment and denied the summary judgment motion filed by Optum and Fidelity. Optum and Fidelity appealed.

Optum entered into a subcontract with “Palmetto Power Services Palmetto Power Unlimited, Inc.” (“Palmetto Unlimited”) for the performance of electrical work on the Property. When the Project began, City Electric provided notice to Optum, stating that it was providing materials on the Project at the instance of “Palmetto Power.” Pay applications paid by Optum were from “Palmetto Power Services.”

On appeal, Optum and Fidelity argued that City Electric’s motion should have been denied because City Electric did not comply with the lien statute. Under O.C.G.A. § 44-14-361(b), a lien may attach to the real estate of an owner if labor, services, or materials are furnished on the real estate at the instance of the owner, contractor, or some other person acting for the owner or contractor. A lien will not attach to the real estate without proof of a contractual relationship between the property owner and the person to whom the materials were furnished.

Specifically, Optum argued that City Electric was not in direct privity of contract with Optum as required by O.C.G.A. § 44-14-361(b). Optum points to its subcontract with “Palmetto Power Services Palmetto Power Unlimited, Inc.” as an absence of a contractual relationship with Palmetto Power Services, LLC.

City Electric argued that the discrepancies in the subcontractor’s name can be resolved through parole evidence. Court’s will not allow an error in the corporate name to frustrate the parties’ intent if the intent of the parties can be proved through parole evidence.[2] City Electric points to the subcontract where “Palmetto Power Unlimited Inc.” was written in smaller font to the side of the subcontract to argue that it was an “extraneous mark” not initialed by the parties, signaling the subcontract was with Palmetto Services.  On the other hand, Optum’s CEO testified that he believed “Palmetto Power Services” to be a d/b/a for Palmetto Unlimited. Plus, Optum also conceded that Palmetto Power Unlimited was ultimately organized as an LLC instead of a corporation, suggesting that the named subcontractor never existed.

But despite this evidence, the Court found that the contract was not clear as to the identity of the subcontractor and the record contained conflicting evidence and testimony. As a result, the Court reversed the trial court, holding that a genuine issue of material fact existed as to whether contractual privity exited with Palmetto Services.

This case should be a helpful reminder to use the correct legal corporate name for each contracting party. Although the contracting parties may believe there is an understanding if the correct corporate name is not used, such an understanding may not exist, and a lengthy dispute may ensue.

Chadd Reynolds is an associate with WCZ’s construction-law and commercial-and-civil-litigation practice groups. If you have questions or would like more information, please contact him at creynolds@wczlaw.com.

[1] 2020 WL 5792581, Case No. A20A1010, September 29, 2020.

[2] Courtland Hotel, LLC v. Salzer, 330 Ga. App. 264, 266 (2014).