South Carolina Construction Law - Discussion of mechanic's liens, delay claims, coverage, and constr

Not Incorporated? Consider Forming a Limited Liaility Company

Ryan McCabe — Sun, 29 Jun 2008 20:44:25 GMT

    S.C. law permits the creation of a Limited Liability Company (LLC). LLCs allow member(s) to be taxed like a sole proprietorship or partnership. LLCs provide limited liability as corporations do - members or managers of a LLC are generally not liable for the obligations of the LLC.

    LLCs allow for flexibility in governance. A LLC can be operated like a corporation or it can be managed like a partnership.

    In order to form (organize) a LLC, simply file Articles of Organization with the S.C. Secretary of State. The Articles of Organization must provide:

a name (not in use and that complies with the requirements posted on the Secretary of State's website);
address of the initial designated office;
name and street address of the initial agent for service of process;
name and address of each organizer;
whether the LLC is to be a term company (to exist for a specified period of time) an if so designate the term;
whether to member-managed (owner managed LLC) or manager-managed (LLC not managed by the owners but by specified managers); and
whether any of the members will be responsible for the LLC's debts and obligations

S.C. law no longer requires annual reports to the S.C. Secretary of State making LLCs an attractive option over corporations.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Homeowner's Refusal to Make One Payment in a Construction Installment Contract Constitutes a Substantial Breach of the Contract

Ryan McCabe — Thu, 03 Jul 2008 18:52:19 GMT

    The South Carolina Court of Appeals recently decided that a homeowner's refusal to make an installment under construction contract constituted a substantial breach of the contract. See Silver v. Aabstract Pools, 376 S.C. 585, 658 S.E.2d 539 (Ct. App. 2008).

    A homeowner and contractor contracted for the construction and installation of an in-ground swimming pool. The contract called for five payments upon the completion of five scheduled tasks. The homeowner made three of the payments according to the schedule, however, the homeowner refused to make the fourth payment because he opined that the job was only approximately 20% complete and the payment schedule did not correlate with the progress of the job. The case was heard by the Master-in-Equity who determined the contractor had breached the contract when the contractor ceased work on the project and removed his equipment because the plaintiff refused to make the required payment. The contractor appealed the decision and the Appellate Court found in his favor. The court held that the contract was clear and unambiguous. Furthermore, the court refused to look beyond the four corners of the contract to determine its meaning. The homeowner could not change the agreed upon terms in midstream because he was unhappy with them. The court found no evidence that the contractor had breached the contract, and since the homeowner’s refusal to pay was a substantial breach of the contract, the contractor had the right to cease work and recover the value of work already performed. As the first party to breach, the homeowner must bear the liability of his nonperformance. The court awarded the contractor damages for the nonperformance, attorneys’ fees, and court costs.

    This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

“Opt-out” Class Action and Notification Procedure is the Exclusive Method of Class Action Litigation in South Carolina

Ryan McCabe — Sun, 29 Jun 2008 20:38:45 GMT

In a recent decision, the S.C. Supreme Courtheld that the“Opt-out” class action and notification procedure is the exclusive method of lass action litigation in South Carolina. See Salmonsen v. CGD, Inc., 377 S.C. 442, 661 S.E.2d 81 (2008).

Several homeowners instituted a class action suit seeking damages arising from the application of defective synthetic stucco Exterior Insulation and Finish System ("EIFS") to residential homes in the Charleston area. On appeal the South Carolina Supreme Court addressed procedural questions concerning the certification of the class and whether certification orders were immediately appealable.

The trial court originally established an "opt-in" notification procedure, requiring potential members of the class to "opt-in" to the suit in order to be certified as a member of the class. The Court concluded this procedure improperly excluded individuals who should be members of the class. The court adopted an "opt-out" procedure which included all potential members except those who specifically "opt-out." The Court established the "opt-out" method for all future class actions suits in South Carolina.

The Court further held that because the certification orders affected the mode of trial, specifically limiting the availability of a jury trial, the certification orders were immediately appealable.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Proper Measure of Damages For a Claim Against Title Insurance for Newly Discovered Encumbrance is the Difference Between the Value of the Entire Tract While Encumbered and the Value of the Entire Tract Without Encumbrances.

Ryan McCabe — Tue, 01 Jul 2008 21:31:22 GMT

In a recent case before the S.C. Supreme Court, Stanley v. Atlantic Title Ins. Co., 377 S.C. 405, 661 S.E.2d 62 (2008) a landowner purchased lakefront property, a portion of which, unbeknownst to the purchaser and title insurance company, served as a drain field for a neighboring tract of land. The purchaser sued the title insurance company and the case came before the South Carolina Supreme Court on the issue of measure of damages. The landowner valued the damages as the per-acre value multiplied by the number of acres affected. In contrast, the insurance company offered an appraiser’s analysis. The appraiser valued the damage by the difference between the value of a portion of the property without the drain field and the value of the same portion with the drain field. Because the purpose of title insurance is to place the insured in the position that he thought he occupied when the policy was issued, the measure of damages is the difference between the encumbered tract and the same tract without encumbrances.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Arbitration Clause Stricken for Unconscionability

Ryan McCabe — Mon, 30 Jun 2008 15:06:32 GMT

In the case of Simpson v. MSA of Myrtle Beach, Inc., 644 S.E.2d 663 (S.C. 2007), an issue over the validity of the arbitration clause arose. The additional terms and agreements section of a consumer automobile purchase contract contained a broad arbitration clause. After suit was filed by the consumer, the dealer filed a motion to stay and to compel arbitration, with the consumer arguing that the arbitration was unconscionable and therefore unenforceable.

The trial court denied the dealer’s motion to compel arbitration and then on appeal the Court found that the consumer had no meaningful choice as to whether to agree to the arbitration agreement. Next, the Court reviewed the terms of the arbitration clause, finding a prohibition of the awarding of statutory damages. The Court concluded that terms such as these were oppressive and one-sided and that the waiver of statutorily provided remedies by a weaker party was contrary to public policy.

After finding two additional provisions in the arbitration clause unenforceable, the Court next examined whether these clauses could be severed from the arbitration agreement. The Court stated that although there are policies favoring arbitration, in some cases the clause cannot be saved because it will not give effect to the intent of the parties. Therefore, the Court held that because of the number of unconscionable and unenforceable terms in the arbitration agreement, that the agreement should completely be stricken from the contract and the ruling of the trial court should be affirmed.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Award of Statutory Attorney’s Fees Disallowed in the Absence of a Formal Fee Agreement

Ryan McCabe — Tue, 01 Jul 2008 21:31:02 GMT

In the case of Williamson v. Middleton, an employee and employer came to an agreement that the employer owed the employee $906.62 in back commission at the time of the employee’s departure from the employer’s business. After starting a new job, the employee continued seeking the commission and enlisted the service of a close friend and lawyer that had previously assisted the employee in an unrelated matter free of charge. The employee and lawyer decided they would agree on a fee at the conclusion of the case.

The employer sued the employee alleging fraud, constructive fraud, breach of fiduciary duty, and violation of the South Carolina Unfair Trade Practices Act. The employee answered by denying all allegations and counterclaiming for the $906.62 in commissions and sanctions under the South Carolina Frivolous Proceedings Act. The employer’s breach of fiduciary duty claim was the only one that made it past summary judgment, but the jury ultimately decided in favor of the employee, awarding the $906.62 in commissions and since the award was under a statutory provision, it allowed the employee to recover treble damages, costs, and actual and reasonable attorney’s fees. The trial court upheld this ruling, including $35,000 in attorney’s fees despite a lack of a fee agreement because of their personal and long-standing relationship.

    However, the Court of Appeals reversed holding that in South Carolina attorney’s fee are only awardable by contract or by statute. Even though the statute involved in this dispute allowed attorney’s fee, the court found that since there was no fee agreement, there were no attorney’s fees. In conclusion, the Court of Appeals ruled that in order for there to be an award of attorney’s fees, there must be a fee agreement in place between the attorney and his client.

    This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

What is Float Time, and Who Owns It?

Ryan McCabe — Sat, 28 Jun 2008 22:22:55 GMT

Float Time is the period in Critical Path Method scheduling that allows the contractor to an excusable delay when the original contract schedule allows more than enough time to perform the work. In other words, the float is the maximum delay allowed before a delay will cause a slow-down in completion of the whole project.

Ownership of the float is important when the project becomes delayed and a determination must be made as to who is responsible for the delay. The owner must also be known to calculate the length of the delay and whether the contractor should be given extra time to complete the work.

If the site owner owns the float, then it can require the contractor to perform additional work outside of the critical path, without extending the original contract deadline and without paying additional money to the contractor. If the contractor owns the float then any additional work assigned that is not on the critical path could result in an extension to the completion date. If the contractor is considered owner of the float it could be considered the property of all contractors and therefore open to be used by any contractor on the job.

The majority view is that the first party to use the float is considered the owner of the float, but some insiders suggest that if the contract doesn’t specify the owner of the float, that it should belong to the contractor because it should have the authority to control its own work and schedule.

Private Sector Contracts

A dispute arose in Construction Enterprises & Contractors, Inc. v. Orting School Dist. No. 344, 2004 Wash. App. Lexis 681 (2004), when CE&C encountered in the water, sewer, and storm plans and the road grading and paving plans while working on elementary school. Even though CE&C completed the job on time, they sued the school district for losses resulting from inadequate design and failure to provide timely fixes for the design deficiencies. CE&C also sued Warner Engineering, the designer of the paving, grading, water, sewer, and storm plans. Warner used the float as a defense and claimed that the contract between the district and CE&C stated the float was owned by the district and therefore CE&C was not entitled to any additional payment by reason of loss or use of any float time because they still finished the job before the completion date. However, this decision was reversed because the contract did not provide a definition for float time. Therefore, the appeals court ruled the term was ambiguous and was not properly understood. In conclusion float time should be properly defined concerning damages regarding disruption as opposed to delay.

Public Sector Contracts

Some states specifically state which party owns the float in state contracts. For example, California’s Department of Transportation explicitly stated that the float belonged to the contractor. This successful implementation gave contractors an incentive finish the job quickly. Federal contracts however state the float is not for exclusive use by either party. However, the contracts state the government will allow an extension for performance required under certain clauses, but only to the extent that these time adjustments do not exceed total float on the paths involved. If a contractor wants an adjustment based on government changes then they must show the change affected completion of the overall project and the extent to which the project was delayed (Maron Construction Co., Inc. GSBCA No. 13625 (April 7, 1998.)) In Maron, the contract stated that the government was not responsible for any delay or overhead increases incurred by Maron if the time could be absorbed by the total float time. The Board ruled that the government can preclude its liability for delay damages, but they must specifically and expressly exempt themselves from liability, which this contract did not. In conclusion, there should be no assumptions about float time and contracts should specifically define the float, the owner of the float, and explain the intent regarding the calculation of damages for delays arising out of a dispute.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

“Or Equal” or Not

Ryan McCabe — Fri, 27 Jun 2008 22:29:42 GMT

This article was contributed by R. Bryan Barnes of my law firm.

Bid specifications frequently contain the identification of a product to be provided by the bidder but, then allow an "or equal". Bidders who receive the contract may find themselves in the position of being unable to provide the product specified because the product manufacturer has discontinued the line, gone out of business or only provided a limited supply. The contractor’s remedy in these circumstances may differ based upon the procurement policy or procurement code of the governmental entity with whom he has a contract. However, the general rule is "references in specifications to [products] shall be regarded as establishing a standard of quality and shall not be construed as limiting competition. The contractor may, at its option, use any equipment, material, article or process that . . . is equal to that named in the specifications . . ." FAR 52.236-5.

It has been held that under these circumstances, the contractor has the right to submit an "equal" even though the specification omitted the words "or equal." The Court noted that the government must omit or change the standard-of-quality language where it wants to require the use of only one product. The point here is that specifying only one product can be limiting upon competition and can drive the price up.

Sometimes a specification is written around a proprietary product. For example, a specification may be written with such descriptive words that only one product can be used, even though it has not been identified by brand name. In such a circumstance, a Federal Appeals Court held that a proprietary specification should be treated as though the product that was identified by its brand name, giving the contract to the right to submit an "equal" product even though no "brand name" was used in the specification. To hold otherwise would allow the government to subvert the competitive bidding process by writing specifications "around brand-name products." Construction Law Handbook section 7.02 [C][7][a][iii].

Once in a while, a contractor may encounter a brand name or equal specification, but later find that the specified brand name product is unavailable. The resolution of these cases involves a consideration of the contractor’s knowledge of availability at the time of bidding and the balancing of fault between the government and the contractor. Therefore,

when a project is bid where the time between the bid opening and the date the product is used is lengthy and

the manufacturer of the product goes out of business,

and the contractor would have had no way of predicting this turn of events,
the subcontractor should be allowed to submit an "or equal" product.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Basis for Liens and Assessments Under the S.C. Horizontal Property Act

Ryan McCabe — Fri, 27 Jun 2008 22:09:28 GMT

Liens for non-payment of assessments to a community association can arise under two different situations. First, the S.C. Horizontal Property Act provides a statutory basis for the creation of liens in the case of condominiums only. Second, liens may arise by contract through the Covenants, Conditions, and Restrictions.

S.C. Code Ann. Section 27-31-190 of the S.C. Horizontal Property Act provides as follows:

"The co-owners of the apartments are bound to contribute pro rata in the percentages computed according to Section 27-31-60 toward the expenses of administration and of maintenance and repair of the general common elements and, in the proper case, of the limited common elements of the property and toward any other expense lawfully agreed upon.

No co-owner may exempt himself from contributing toward such expenses by waiver of the use or enjoyment of the common elements or by abandonment of the apartment belonging to him."

In addition to this code section, the master deed likely creates additional bases for liens and assessments. When dealing with condominiums, always refer to the Covenants, Conditions, and Restrictions of the Master Deed in addition to the S.C. Horizontal Property Act. Both will need to be considered to determine the bases, procedure, and limitations for imposition of assessments.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Owner Who Builds His Own Home Offers No Implied Warranty of Workmalike Service nor Owes Duty of Care to Future Purchaser

Ryan McCabe — Thu, 26 Jun 2008 21:58:40 GMT

In the recent case of Smith v. Breedlove, 377 S.C. 415, 661 S.E.2d 67, the SC Supreme Court held that a private individual who built a home as his personal residence, acting as his own general contractor, was not considered the builder or general contractor when a subsequent buyer sued for breach of implied warranty of workmanlike service. The implied warranty of workmanlike service applies to professional builders and contractors whose expertise is relied upon by home purchasers. Because the respondent never held himself out as a licensed contractor or made any misrepresentations to the buyer the implied warranty did not apply.

The appellants’ claim for negligence was also denied. The Court held that since the respondent built the home for himself he did not owe a duty to any future purchaser when no such sale was reasonably expected.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

SC Supreme Court Allows Low Bidder on Government Project to Increase Bid after Bid Opening

Ryan McCabe — Wed, 16 Apr 2008 21:00:07 GMT

This article was contributed by R. Bryan Barnes of my law firm.

The State of South Carolina launched into uncharted territory when it disallowed the bid protest of the second low bidder in the case of Martin Engineering, Inc. v. Lexington School District One, 365 S.C. 1, 615 S.E.2d 110 (2005). The school district put a school renovation project out for bid. Sharpe Construction was the low bidder and Martin Engineering was second. When the bids were opened, Sharpe Construction asked to add $613,000 to it $16,000,000 bid saying that it had forgotten to include the built-up roofing.

Martin Engineering protested saying that the school district procurement policy only allowed bid correction when the mistake was clearly evident from the face of the bid, the correction does not cause the bidder to have the low bid, and it would not be prejudicial to fair competition.

The South Carolina Supreme Court found that the mistake was not apparent from the face of the bid but said, "the mistake is clear and the amount Sharpe Construction intended to bid for the roof is evident, by examing the roofing sub's sub-bid...." Furthermore, the Supreme Court found that allowing the upward correction was not prejudicial to fair competition.

The contrary view is that allowing the after the fact upward correction encourages unscrupulous contractors to play games with the bidding process. A contractor can deliberately leave out 10% of his price, as was the case in Martin Engineering, become the low bidder and then ask to correct saying that it is obvious he made a mistake. Then he can have his cake and eat it too. Such gamesmanship is almost impossible to prevent in the bid protest arena where there is no discovery and the case must usually be made in ten days or less.

Click here to read the case.

FCC Issues Order Banning Exclusivity Contract with Cable Providers

Ryan McCabe — Wed, 02 Apr 2008 23:23:01 GMT

    On March 19, 2008 the Federal Communications Commission (FCC) voted unanimously to issue an order banning exclusivity contracts between cable operators (and other multi-channel video programming distributors) and multiple dwelling unit developments. The definition of multiple dwelling units developments includes condominiums, cooperatives, and single-family residential communities. This action by the FCC is consistent with its position that communication providers (internet, wireless and cable) should be subject to the greatest possible competition in providing their services, and that consumers generally benefit from that competition.

    If your HOA, POA, condominium association, or cooperative  has an exclusivity clause in your cable or video programming distribution contract, this ban will not necessarily terminate the contract, but it may make certain the exclusivity provisions of that agreement unenforceable. The benefit of an exclusivity provision in the contract is that it generally permitted a community association to obtain a better rate for the cable/video programming services, installation of fiber optics, cabling, etc. Without an exclusivity clause, however, most cable operators will probably eliminate discounts extended to community associations unless they employ creative incentives such as providing the discount if a minimum number of residents of a community enter into contracts with the provider.

    Click here to view a copy of the media release published by the FCC.

    Links on the FCC order:

    Benton Foundation article
    National Multi Housing Council article

    This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

SC Courts Will Not Enforce Arbitration of Unforseen and Outrageous Torts

Ryan McCabe — Tue, 01 Apr 2008 21:12:59 GMT

In Chassereau v. Global-Sun Pools, 644 S.E.2d 718 (S.C. 2007),a buyer and seller entered into a contract for the purchase of a swimming pool. The contract contained an agreement to arbitrate any disputes arising out of the contract. The buyer encountered some problems with the pool which the seller refused to correct. Upon this refusal to correct, the buyer simply stopped making the payments on the pool as set out in the contract. After the buyer refused to make payments on the pool, the seller began harassing the buyer by making false defamatory statements about the buyer and also disclosing the buyer’s personal information.

    The buyer subsequently sued the seller for intentional infliction of emotional distress, defamation, and violation of S.C. Code Ann. §16-17-430 (unlawful communication). The seller moved to compel arbitration as was stated in the contract. Both the trial court and the South Carolina Court of Appeals ruled that the motion to compel arbitration be denied. The South Carolina Supreme Court affirmed the lower courts’ decision based on the buyer’s inability to foresee the seller’s actions associated with the tort of outrage. This reasoning along with the similar very recent South Carolina Supreme Court ruling in Aiken v. World Fin. Corp. of S.C., 644 S.E.2d 705 (S.C. 2007), led the court rule in favor of the buyer by rejecting the motion to compel arbitration. The court wrote that when "...uncivilized acts ... arise in the course of performance of contracts containing arbitration clauses, South Carolina courts will not interpret arbitration clauses to apply to such acts which are outrageous and unforeseen."

    The court quoted the following language from its opinion in the Aiken case which summarizes the rule applied in this case: "Because even the most broadly-worded arbitration agreements still have limits founded in general principles of contract law, this Court will refuse to interpret any arbitration agreement as applying to outrageous torts that are unforeseeable to a reasonable consumer in the context of normal business dealings.

    This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Social Security Administration: No "No -Match Letters" in 2007

Ryan McCabe — Sat, 24 Nov 2007 15:12:53 GMT

The SSA announced that it will not issue any "no-match letters" in 2007 as a result of a court challenge to the rule. The SSA has indicated that it will resume issuing "no-match letters" in 2008.

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

New Final Rule from OSHA Requires Employer to Pay for All Safety Equipment Costs

Ryan McCabe — Sat, 24 Nov 2007 14:57:09 GMT

    On November 15, 2007, OSHA issued a new final rule requiring employers to pay for all safety equipment costs. The new rule goes into effect February 13, 2008 and full compliance is required by May 18, 2008.

    Click here to read the final rule.

    This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Developers Have a Fiduciary Duty to Property Owners Associations

Ryan McCabe — Sat, 24 Nov 2007 17:10:44 GMT

In Concerned Dunes West Residents, Inc. v. Georgia-Pacific Corporation, 349 S.C. 251, 562 S.E.2d 633 (2002),the South Carolina Supreme Court held that a developer has a duty to ensure that the roads and other common areas are in good repair at the time ownership of the common areas are transferred to a property owner’s association or to provide the association with sufficient funds to bring those common areas up to standard as of the date of the transfer. The court also held that the developer was responsible for making up all shortfalls in the POA’s operating budget up to an amount tqual to the assessments which would have been generated by property owned by the developer during the period that the developer exerted de facto control over the POA.

The basis for the decision in Dunes West derives from a Court of Appeals decision from 1993. In Goddard v. Fairways Dev. Gen. Partnership, 310 S.C. 408, 426 S.E.2d 828 (Ct. App. 1993), the court held "that the developer of a planned unit development owes a fiduciary duty to the property owners association and its members, much like that owed by promoters of a corporation to investors." The Supreme Court in Dunes West found that both developers and promoters "are entrusted by interested investors to bring about a viable organization to serve a specific function." Dunes West, at 257, 562 S.E.2d at 636. The court also found that "[b]oth should be expected to use good judgment and act in utmost good faith to complete the formation of their organizations."

In conclusion, these decisions from South Carolina’s court show that a developer has a fiduciary duty to the property owners association and its members. The developer will be responsible for transferring roads and common areas in good condition or to provide the association with sufficient funds to bring them up to standards by the date of transfer. A developer who breaches this duty will be liable to the association "for all damages proximately flowing from the breach, including damages for the continued deterioration of these areas."

This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

New Construction Contract Documents, ConsensusDOCS, to be Released on September 28, 2007

Ryan McCabe — Thu, 27 Sep 2007 21:34:47 GMT

20 construction associations collaborated to create a new series of form construction contract documents. The Associated General Contractors (AGC) and Construction Owners Association of America (COAA) are folding their form contract documents into the new ConsensusDOCS form contract documents. All participating associations, representing various segments of the construction industry, were allowed to participate in the drafting and all parties had a "full vote in deciding final contract terms."

It will be interesting to see if these documents will be accepted in the construction industry. I surmise that it will take some time for these documents to be widely accepted and used in an industry as conservative as the construction industry. Click here to visit the ConsensusDOCS website.

Do You Know What the Statute of Limitations is for Your Subcontract?

Ryan McCabe — Thu, 13 Sep 2007 15:23:39 GMT

The statute of limitations for a breach of a subcontract is three years. See S.C. Code Ann. § 15-3-530. However, subcontracts—contracts executed usually between general contractors and subcontractors—can become subject to a six year statute of limitations under the Uniform Commercial Code (UCC) if a court deems the subcontract to be for a sale of goods as opposed to a service contract. SeeS.C. Code Ann. § 36-2-725.

It is not always easy to establish a clear distinction between a subcontract for the sale of goods and a subcontract to perform a service. In a typical situation, a subcontractor will execute a "mixed contract" with a general contractor for both the sale of goods and the performance of services. For example, a mixed contract may exist when there is a subcontract to furnish all labor, material, and equipment necessary to install a floor. The subcontractor is performing a "service" by installing the floor but he is also, arguably, selling the materials used to install the floor, which, under the UCC, are considered "goods." See S.C. Code Ann. § 36-2-105(defines "goods").

In considering whether a mixed contract is for the sale of goods under the UCC or, simply, a contract for the performance of a service, courts generally employ the "predominant thrust" or "predominant factor" test. Under this test, the court considers "whether [the subcontract’s] predominant factor, [its] thrust, [its] purpose, reasonably stated, is the rendition of service, with goods incidentally involved . . . or is a transaction of sale, with labor incidentally involved." Ranger Construction Co. v. Dixie Floor Company, Inc., 433 F.Supp. 442, 444 (D.S.C. 1977).

Some basic factors that a court may find persuasive in determining a service subcontract exists, as opposed to a sales subcontract, include:

(1) whether the contract was a construction contract or a contract for the purchase and sale of goods;

(2) whether the party is referred to in the subcontract as a subcontractor or as a supplier or materialman;

(3) whether the party was not contracting for materials alone but rather was contracting for performance of an entire segment of the prime contract;

(4) whether the party was a "service corporation" engaged in providing a particular service, like installing and constructing a floor;

(5) whether the party planned to purchase the materials used in performing the service completely from an independent dealer; and,

(6) whether the party, at any time relevant to the lawsuit, operated as a supplier or maintained a supply house for materials.

Subcontractors should bear in mind these factors and whether they are performing a service under the contract or simply supplying materials. The difference could result in an extra three year time period in which another party can bring a lawsuit against the subcontractor.

The following are suggestions for subcontractors to help ensure your subcontracts are subject to a 3 year, as opposed to a 6 year, statute of limitation:

(1) Be sure to identify all subcontracts as Construction Contracts;

(2) Be sure you are identified in all subcontracts as a Subcontractor and not as a Materialman or Supplier; and,

(3) Make sure the subcontract does not reference a "sales" or "purchase" but, instead, references the services to be performed; for example, "to furnish all labor, materials, and equipment for the installation of flooring."

S.C. Supreme Court Rules that a Mechanic’s Lien Does Not Attach to Land When the only Work Done was Work to Prepare the Land for Landscaping

Ryan McCabe — Tue, 04 Sep 2007 19:58:43 GMT

In order to file a mechanic’s lien, the party seeking the lien must have performed work in the "erection, alteration, or repair of a building or structure." S.C. Code Ann. §29-5-10(a). Section 29-5-10(a) further provides that "labor performed or furnished in the erection, alteration, or repair of any building or structure upon real estate includes the . . . work of making the real estate suitable as a site for the building or structure." In Raymond Skiba, d/b/a Skiba Landscaping and Construction v. Majorie Sue Gessner and Terral Monty Matlock, (July 23, 2007), the South Carolina Supreme Court ruled that Skiba completed work for the purpose of preparing the land for landscaping and not in connection with the erection, alteration, or repair of a building or structure; therefore, a mechanic’s lien could not attached to the property and the trial court erred in enforcing Skiba’s mechanic’s lien against the Appellants.

Appellants hired Skiba to clear and remove trees, roots, and ground debris from their lot. Skiba never received payment for his completed work but, instead, received a complaint letter, which stated that the scope of Skiba’s work to be completed included root-raking and cleaning of the lot to prepare it for landscaping. At the conclusion of the trial on the matter, the court granted Appellants’ Motion to Dismiss based on Skiba’s lack of a contractor’s license, which was in violation of South Carolina law. See S.C. Code Ann. §§ 40-11-20(8), -30. The court found that since he lacked the requisite contractor’s license, South Carolina law prevented Skiba from bringing a lawsuit to enforce his contract with Appellants. See S.C. Code Ann. § 40-11-370 ("[a]n entity which does not have a valid license as required by this chapter may not bring an action … to enforce the provisions of a contract").

Skiba filed a Motion for Reconsideration, and the court re-opened the case so both parties could, among other actions, conduct more depositions. Subsequently, the administrator of South Carolina’s Contractor’s Licensing Board was deposed and testified that Skiba’s contract with Appellants did not involve work in preparation for a building site, which meant (1) no contractor’s license was required and (2) Skiba could bring an action to enforce the mechanic’s lien since he was not in violation of South Carolina law. The trial court ruled in favor of Skiba’s mechanic’s lien and awarded him over $8,000.00.

The Supreme Court reversed the trial court’s decision and held that, based on the current facts of the case, Skiba’s work was completed for the purpose of preparing the land for landscaping and, therefore, a mechanic’s lien could not attach to the land. In support of its decision, the Court cited Clo-Car Trucking Co., Inc. v. Clifflure Estates of South Carolina, Inc., 282 S.C. 573 (Ct. App. 1984), which held that land cleared and graded for the purpose of a road is not a building or a structure as defined by S.C. Code Ann. § 29-5-10(a), and, therefore, the court could not allow the attachment of a lien to the land since the work performed was unconnected to the erection, alteration, or repair of a building or structure.

Although Skiba won the battle over whether the work he performed required him to obtain a contractor’s license, Skiba lost his lawsuit because the position he staked out in regards to the need for a contractor’s license prevented him from enforcing a mechanic’s lien claim against the Appellants.

SC Supreme Court Rules that Posting a Bond Does Not Affect the Time Deadline in which a Party Must Commence a Suit to Enforce a Mechanic’s Lien

Ryan McCabe — Tue, 21 Aug 2007 04:33:39 GMT

After filing a mechanic’s lien, a party has six months to commence a suit to enforce the lien. See S.C. Code Ann. § 29-5-120. Failure to enforce a lien within the six month statutory period deprives the party of the remedies available under the mechanic’s lien statutes. When faced with a mechanic’s lien, the property owner can post a bond, which discharges the lien and allows the owner to convey the property free and clear of the lien despite the existence of an enforcement action against the property. See See S.C. Code Ann. § 29-5-110.

In Cohen’s Drywall Co. Inc. v. Sea Spray Homes, LLC et al., (July 23, 2007), the South Carolina Supreme Court addressed the question of whether Cohen timely filed an action to enforce a mechanic’s lien. The company filed the lien, timely commenced an action for enforcement, and identified the home as the subject of the enforcement action; however, subsequent to filing the lien, the company discovered that the property owners had posted a bond. In response, the company amended its Complaint to identify the bond, instead of the lien, as the subject of the enforcement action. The trial court granted the property owners’ Motion to Dismiss, reasoning that Cohen’s Drywall failed to commence an action for enforcement within the six month statutory time period since it did not file its Amended Complaint identifying the bond as the subject of the enforcement action until after six months from the date the company filed the lien.

The Supreme Court disagreed and ruled that the mechanic’s lien statutes do not require a party to bring an enforcement action against a bond. Since there is no such requirement, Cohen’s Drywall did not have to amend its Complaint to identify the bond as the subject of the enforcement action. The Supreme Court’s ruling was based on the simple fact that none of the mechanic’s lien statutes require a party to substitute a bond as the subject of an enforcement action. An enforcement action naming the property as the subject of the action is sufficient to secure foreclosure on any subsequent bond.

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