Construction Warranties and the Statute of Repose:
Southern States Chemical, Inc v. Tampa Tank & Welding Inc.
By David R. Cook and Jason M. Gropper
Autry, Hall & Cook
In a recent holding by the Georgia Court of Appeals, the court held that Georgia’s eight-year statute of repose applied to bar the project owner’s warranty claims. The renovation work by the contractor on the owner’s chemical tank constituted an improvement of real property, and thus, the statute of repose bared any claims eight years after substantial completion thereof. In addition, the court rejected the project owner’s claim that it qualified as a third-party beneficiary of an extended warranty contained in a report given by a subcontractor to the contractor.
In 2000, Southern States Phosphate and Fertilizer Company (“Southern States”) hired Tampa Tank & Welding, Inc (“Tampa Tank”) to renovate a tank to hold sulfuric acid. The parties’ written contract contained an express one-year warranty for material and workmanship from the date of completion. Two years later, in January 2002, the tank renovation was completed. Tampa Tank contracted with Corrosion Control Inc. (“CCI”) to design, assist with, and test the cathodic corrosion system. CCI provided only consultation and did not provide any onsite installation. Upon completion of installation, CCI supplied a report to Tampa Tank that the system was properly installed and fully functioning. Additionally, a post–installation report from CCI to Tampa Tank calculated an estimated life expectancy of forty-three to forty-five years.
On July 3, 2011, Southern States found that there was a leak of sulfuric acid and believed that the hole in the tank came from improper installation and a defective or otherwise unsuitable cathodic corrosion protection system. As a result, it filed suit against Tampa Tank and CCI.
Legal Issues on Appeal
The court considered whether the statue of repose applied to the facts of the case. First, Southern States argued that the statute of repose did not apply because the renovation to the tank was not an “improvement to real property.” The Supreme Court in Mullis v. Southern Co. Svcs., Inc., 250 Ga. 90, 93-4 (1982), identified the following factors to determine work was an improvement to real property: “(1) is the improvement permanent in nature; (2) does it add value to the realty, for the purposes for which it was intended to be used; (3) was it intended by the contracting parties that the “improvement” in question be an improvement to real property.” Finding in favor of Tampa Tank, the Court of Appeals upheld the trial court’s finding that the project was an improvement to real property. The project was not a simple repair, permanent modifications were made, additional components were added, there was retooling of the tank, and it materially enhanced the value of the realty.
Southern States also argued that the statute of repose did not apply to claims for breach of express promise to renovate the storage tank, as opposed to negligence or construction deficiencies. The Court of Appeals did not accept the distinction in claims as a basis to exclude the statute of repose. It reasoned that when the statute’s text is clear and unambiguous, the court will apply the plain meaning. The statute does not contain exceptions based on the type of claim asserted and, instead, precludes any action to recover damages outside of the eight-year period. Since the tank was completed in June 2002 and the action was brought in January 2012, the claim was barred by the statute of repose. Consequently, the Court of Appeals upheld the trial court’s ruling in favor of Tampa Tank.
A second issue raised on appeal was whether Southern States qualified as a third-party beneficiary under an alleged warranty from CCI to Tampa Tank. Southern States argued that a post–installation report estimating the tank’s life expectancy should be construed as an express warranty, and that Southern States qualified as a third-party beneficiary of that warranty. Additionally, Southern States argued it provided consideration for the warranty when it paid Tampa Tank’s invoice, which itemized an amount for the report.
To qualify as a third-party beneficiary, the contract or warranty must indicate it was intended to benefit Southern States. The court found that the facts did not support Southern States’s status as a third-party beneficiary because no promises were made to or from Southern States, nor was it incorporated as part of its bargain with Tampa Tank. Additionally, the court determined Southern States provided no consideration for the warranty. The court disagreed that payments made by a contractor to a subcontractor could be co-opted by an owner as consideration, and therefore, the warranty of at least 43 years was not supported by consideration. Since from the standpoint of Southern States, the warranty was not supported by consideration, and since Southern States was not a third-party beneficiary, it had no right to enforce the warranty.
Click below for further reading in the Fulton Daily Report regarding the issues stemming from this recent decision.