Where a condominium association filed suit asserting negligence claims against the general contractor that built the complex, alleging defective workmanship including deficient masonry work and use of unauthorized black building paper in place of specified “Tyvek or equal.” The trial court dismissed the negligence claims, fmding that they were barred by the Economic Loss Doctrine, and this was affirmed on appeal. Saratoga at Toms River Condominium Association v. Menk Corporation, et al., 2014 WL 3510872 (N.J. Super. A.D., 2014). The plaintiff asserted causes of action based on negligent construction, negligent design” and negligent misrepresentation. All of these claims were deemed by the court to be “essentially breach of contract claims.”

The trial court and appellate court plainly stated they were not impressed by the merits of the plaintiff’s factual arguments (and the fact and expert witnesses) concerning the alleged defects – noting that the expert testimony was not adequate to prove that the black construction paper contractor used, (which met the building code requirements) was not equal to Tyvek. Nor was the evidence persuasive concerning the alleged defects on masonry work and use of “damp proofing” as opposed to waterproofing in foundations, crawl spaces and basements.

Economic Loss Doctrine

The appellate court began its analysis by citing a New Jersey Supreme Court decision, Spring Motors Distributors, Inc., for the proposition that the Economic Loss Doctrine is based on the principle that economic expectations between parties to a contract are not entitled to supplemental protection by negligence principles, and that when addressing economic losses in commercial transactions, contract theories were better suited than were tort-based principles.

The court stated:

“This case similarly involves commercial transactions between Menk and the unit owners. Their contracts required, among other things, construction of the units in accordance with applicable building codes and the seller’s plans. The contracts also required that the units be fit for their intended use, and free of defects in materials and workmanship for a period of two years.

Plaintiff claimed that defendants performed the contract negligently, that is, that they did not complete the work in a workmanlike fashion, and/or in accordance with industry standards or accepted practices. Thus, if proven, defendants’ alleged negligence would constitute a breach of the express and implied promise to complete the construction in a workmanlike manner. Ibid.

We are therefore convinced that plaintiffs allegations essentially sound in contract, not tort. Notwithstanding plaintiffs arguments to the contrary, the Economic Loss Doctrine applies. We conclude that the trial court correctly determined that Menk was entitled to summary judgment on the negligence claims.”

Comment

This is an excellent reiteration of the legal reasoning for barring economic loss claims in the context of negligence causes of action that have historically been reserved to bodily injury and property damage. In the context of commercial parties who are in privity of contract, the decision enforces the point that the parties have ample opportunity to negotiate the terms and conditions of their contract and must be bound and limited by their agreement rather than expanding basic breach of contract claims into distinct negligence causes of action. What the court is saying is that negligent performance may cause a breach of contract to occur, but the remedy for the plaintiff is to sue to breach of contract based on the negligent performance, and not sue for a separate negligence cause of action.

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 17, No. 1 (January 2015).

Economic Loss Doctrine Bars Negligence Claim Arising out of Breach of Contract