The Pennsylvania Supreme Court's opinion acknowledged that prior case law
had held that a contractor cannot prevail against an architect for economic
damages suffered as a result of negligence in drafting specification, absent
privity of contract between the contractor and the architect. The court noted
that tort law, unlike contract law, was not generally intended to compensate
parties for losses suffered as a result of a breach of duties, which are assumed
only by agreement. To recover in tort there must be a breach of duty of care
imposed by law and a resulting injury.
The court found two viable exceptions to the economic loss rule recognized
previously, and both were in negligent misrepresentation cases. One was where
the defendant intentionally makes a false misrepresentation, which had no application
under the facts of the case at issue, and two was where the defendant is in
the business of supplying information for the guidance of others and makes a
negligent misrepresentation. The court concluded the second theory allowed recovery.
This case was before the court as a matter of first impression. The court
identified the issue before it as whether a building contractor may maintain
a negligent misrepresentation claim against an architect for alleged misrepresentations
in the architect's plan for a public construction contract where there is no
privity of contract between the architect and the contractor, but the contractor
reasonably relied on the misrepresentations in submitting its winning bid, and
consequently suffered purely economic damages, as a result of that reliance.
The Facts and Arguments of the Bilt-Rite Claim
East Penn School District entered into a contract with The Architectural
Studio (TAS), pursuant to which TAS provided architectural services for the
design and construction of a new school. The services included the preparation
of plans, drawings, and specifications to be submitted to contractors for the
purpose of bidding or preparing bids for the construction of the new school.
In February of 1997, the School District solicited bids from contractors
for all aspects of the project, including TAS's plans, drawings, and specifications
and the bid documents supplied to the contractors. Appellant Bilt-Rite Contractors,
Inc., submitted its bid for general construction work on the project, and on
May 6, 1997, the School District awarded the general construction contract to
Bilt-Rite, who was the lowest responsible bidder.
On June 6, 1997, the School District and Bilt-Rite entered into a contract
for the project in the base amount of $16,238,900. The contract specifically
referred and incorporated by reference TAS's plans, drawings, and specifications.
TAS's plans provided for the installation of an aluminum curtain wall system,
sloping glazing system, and metal support systems, all of which TAS expressly
represented could be installed and constructed through the use of normal and
reasonable construction means and methods, using standard construction design
Once construction commenced, however, Bilt-Rite discovered that the work,
including the aluminum curtain wall, sloped glazing, and metal support systems
could not be constructed using normal and reasonable construction methods. Bilt-Rite
was required instead to employ special construction means, methods, and design
tables resulting in substantially increased construction costs.
On November 19, 1999, Bilt-Rite sued TAS on the theory of negligent misrepresentation,
under § 552 of the Restatement of Torts, claiming that TAS's specifications
were false and/or misleading, seeking damages for its increased construction
costs. TAS took the position that even if everything that Bilt-Rite claimed
in the lawsuit were factually true, Bilt-Rite could not recover from TAS due
to the economic loss doctrine. TAS argued that the economic loss doctrine holds
that a tort plaintiff cannot recover for purely economic losses. TAS contended
it owed no duty to Bilt-Rite, since the parties had no contractual relationship.
Bilt-Rite argued it could recover since its claim came with the Negligent
Misrepresentation exception. Bilt-Rite made this argument even though Pennsylvania
had not specifically decided that the doctrine was applicable to claims by disgruntled
contractors against design professionals.
The Negligent Misrepresentation tort theory comes from the Restatement of
Law, Torts, 2d. The applicable section, § 552, of the Restatement reads as follows:
- Information Negligently Supplied for the Guidance of Others provides:
- One who, in the course of his business, profession, or employment
or in any other transaction in which he has a pecuniary interest, supplies
false information for the guidance of others in their business transaction
is subject to liability for the pecuniary loss caused by them by their
justifiable reliance upon the information, if he fails to exercise reasonable
care or competence in obtaining or communicating the information.
- Except as stated in subsection 3, the liability stated in subsection
1 is limited to loss suffered
- By the person or one of a limited group of persons for whose
benefit and guidance he intends to supply the information or knows
that the recipient intends to supply it; and
- Through reliance upon it in a transaction he intends the information
to influence or knows that the recipient so intends, or in a substantially
- The liability of one who is under a public duty to give information
extends to loss suffered by any of the class of person for whose benefit
the duty is created and any of the transactions in which it is intended
to protect them.
Prior Pennsylvania case law had held that a contractor could not prevail,
and, as a result, the trial court had ruled on TAS's motion and held that though
Pennsylvania courts have cited § 552 of the Restatement with approval, no court
had held that it permitted a cause of action against a design professional.
The trial court found that Bilt-Rite's action did not fall into either of the
exceptions outlined and, therefore, Bilt-Rite had failed to set forth a viable
cause of action against TAS under § 552.
After the trial court's ruling was affirmed at the Court of Appeals, the
Pennsylvania State Supreme Court granted further review because the question
of the viability of a negligent representation tort action in the architect/contractor/no
privity scenario is one of first impression.
The Supreme Court of Pennsylvania considered Bilt-Rite's argument that the
school district had hired TAS to prepare plans, drawings, and specifications
with the intention of conveying those documents to contractors for purposes
of bidding. In fact, Bilt-Rite argued that the sole purpose of the design documents
was for the use by the contractors in the bidding process, and the court apparently
accepted that argument. Bilt-Rite argued that TAS knew that contractors would
rely on the designs and specifications in submitting bids and yet failed to
exercise reasonable care in preparing those documents. Since Bilt-Rite's reliance
on the designs was both justifiable and foreseeable, Bilt-Rite argued that its
Complaint fell squarely within § 552.
Bilt-Rite also referred the court to the comments in the Restatement under
§ 552, which Bilt-Rite felt "exactly" described the case at hand. The comment
explains that the law does not require that the maker of the alleged negligent
misrepresentation need have any particular person in mind as the intended, or
even the probable, recipient of the information. In other words, the Restatement
does not require that the person who becomes the eventual plaintiff need not
be identified to, or known to, the eventual defendant. If the maker of the representation
intends the information should reach and influence either a particular person
or group of persons known to him, or a group or class or persons distinct from
the much larger class who might reasonably be expected sooner or later to have
access to the information, and if that person or group of persons will foreseeably
take some action in reliance on the information, then the requirements of the
Restatement are met. If the maker of the representation knows that his recipient
intends to transmit the information to similar person, persons, or group that
meets the requirements of the section.
TAS responded to Bilt-Rite's arguments by reliance on the more traditional
view of tort law. TAS responded that the economic loss doctrine precludes causes
of action based on negligence or negligent misrepresentation where the plaintiff
claims only economic loss and the parties are not in privity of contract. TAS
argued that the doctrine applies to services rendered by design professionals,
and that Pennsylvania courts and federal courts in Pennsylvania have held that
design professionals cannot be held liable for purely economic losses to a party
with whom they share no contractual relationship.
As to § 552, TAS argued that it should be construed as inapplicable to the
case at hand involving a design professional and citing cases from state and
federal courts that have declined to apply the Section to design professionals,
The Supreme Court's Analysis and Conclusion
The Supreme Court of Pennsylvania concluded that though it had in the past
cited with approval § 552 on multiple occasions, the court never explicitly
adopted § 552 as the law in Pennsylvania, much less the specific comments and
illustrations relied on by the contractor. The Pennsylvania Supreme Court reasoned
that a cause of action in negligence requires allegations that established a
breach of a legally recognized duty or obligation that is causally connected
to the damages suffered by the complainant. The primary element of any negligence
cause of action, the court reasoned, is that the defendant owes a duty of care
to the plaintiff.
The court reasoned that the concept of duty amounts to no more than the sum
total of those considerations of policy that led the law to say that the particular
plaintiff is entitled to protection from the harm suffered. The court held that
to give duty any greater mystique would unduly hamper the system of jurisprudence
in adjusting to the changing times. The Pennsylvania Supreme Court noted that
it has recognized that a tort duty can arise absent privity of contract in other
With that in mind, the court next turned to an examination of the persuasiveness
of the cases relied on by the courts below in support of the holding that Bilt-Rite's
negligent misrepresentation claim fails as a matter of law. The Pennsylvania
Supreme Court was persuaded that the adoption of § 552 would simply subject
the design professions to the same sort of professional responsibility other
professions face. The PennsylvaniaSupreme Court then held:
This Court should formally adopt § 552, which it had cited with approval
in the past as applied by other jurisdictions in the architect/contractor
There is no requirement of privity in order to recover under § 552; and
The economic loss rule does not bar recovery in such a case.
The Pennsylvania Supreme Court said it believed that the tort was sufficiently
narrowly tailored, since it applies only to those businesses that provide services
and/or information that they know will be relied on by third parties in their
business endeavor, and the requirements included a foreseeability requirement.
The court believed this reasonably restricted the class of potential plaintiffs.
The Pennsylvania Supreme Court said that it saw no reason why § 552 should
not apply to architects and other design professionals. The Supreme Court quoted,
with approval, the Court of Appeals of North Carolina, where the Court said:
- An architect in the performance of his contract with his employer is
required to exercise the ability, skill, and care customarily used by architects
upon such products …. Where breach of such contract results in foreseeable
injury, economic or otherwise, to persons so situated by their economic
relationships, the community of interest has to impose a duty of due care,
we know of no reason why an architect cannot be held liable for such injury.
Liability arises from the negligent breach of a common law duty of care
flowing from the parties working relationship. Accordingly, we hold that
an architect in absence of privity of contract may be sued by a general
contractor or the subcontractors working on a construction project for economic
loss foreseeably resulting from breach of an architect's common law duty
of due care in the performance of his contract with the owner.
The Supreme Court said that it recognizes that a design professional's liability
for economic damages to a third party cannot be without limits, but it was satisfied
that § 552 is sufficiently narrowly tailored so as to assure the appropriate
Putting aside whether the plans and specifications are information provided
to the contractor "for guidance" of its "business transaction," throughout the
opinion, the court talks about the negligent misrepresentation exception, while
really talking in terms that rings with traditional "standard of care" jargon.
The opinion does not really talk about the required "misrepresentation." The
conclusion you could draw is that any error in the design is now a "misrepresentation"
upon which a bid could rely to make a claim, similar to Bilt-Rite's claim in
A reasonable reading of this opinion is that now any deviation from the standard
of care in the design documents prepared by a design professional is sufficient
to meet the requirements of the negligent misrepresentation criteria adopted
by this Pennsylvania court. The court could have as easily abandoned the economic
loss doctrine as it relates to the design professions. It could have simply
concluded the "duty" it found flows from the traditional tort principals. However,
this court opted for the route of applying the negligent misrepresentation exception
to the economic loss doctrine for the stated reason that a more limited class
of potential plaintiff will now have a viable cause of action against the practicing
For design professionals providing services in Pennsylvania, this may be
distinction without a difference.