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City Express Inc. v. Express Partners6/19/1998
presented by this appeal have concluded that, in the context of construction litigation regarding the alleged negligence of design professionals, a tort action for negligent misrepresentation alleging damages based purely on economic loss is not available to a party in privity of contract with a design professional. We agree. In this case, involving a design professional who acts under contract with the owner, we hold that recovery is properly limited to contract remedies and that a tort action under section 552 is not available.
In the context of construction litigation involving design professionals, sound policy reasons counsel against providing open-ended tort recovery to parties who have negotiated a contractual relationship.
If tort and contract remedies were allowed to overlap, certainty and predictability in allocating risk would decrease and impede future business activity. The construction industry in particular would suffer, for it is in this industry that we see most clearly the importance of the precise allocation of risk as secured by contract. The fees charged by architects, engineers, contractors, developers, vendors, and so on are founded on their expected liability exposure as bargained and provided for in the contract.
Berschauer/Phillips, 881 P.2d at 992 (emphasis added). Academic commentary recognizes that "there is a growing trend of cases which bar recovery in negligence between parties to a contract, where the damages constitute what is known as 'economic loss.'" Steven Stein, Construction Law § 11.04 (1997).
Parties have the freedom to contract. "Construction projects are characterized by detailed and comprehensive contracts that form the foundation of the industry's operations. Contracting parties are free to adjust their respective obligations to satisfy their mutual expectations." American Towers Owners Ass'n v. CCI Mechanical, Inc., 930 P.2d 1182, 1190 (Utah 1996).
When the plaintiff has contracted to protect against economic liability caused by the negligence of the defendant, there is no claim under Restatement of Torts (Second) § 552 for purely economic loss. We believe that this ruling not only encourages the parties to negotiate the limits of liability in a contractual situation, but it holds the parties to the terms of their agreement.
Rissler & McMurry Co. v. Sheridan Area Water Supply Joint Powers Board, 929 P.2d 1228, 1235 (Wyo. 1996). Our holding preserves the right of design professionals to limit their exposure to liability through contract.
Express Partners admits that it was in privity of contract with Architects 2, stating in its opening brief that "privity of contract between [Express Partners] and Architects 2 was both alleged and established." However, the contract was not presented in evidence and Express Partners proceeded to trial solely on a negligence theory. Because the purely economic damages sought by Express Partners are not recoverable in negligence, the circuit court correctly granted a directed verdict in favor of Architects 2.
III. CONCLUSION
For the foregoing reasons we reverse and order depublished the opinion of the ICA and affirm the judgment of the circuit court in favor of Architects 2.
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