Title: Corporex Dev. & Constr. Mgt., Inc. v. Shook

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as Corporex Dev. & Constr. Mgt., Inc. v. Shook, 106 Ohio St.3d 412, 2005-Ohio-5409.] 
 
 
 
CORPOREX DEVELOPMENT & CONSTRUCTION MANAGEMENT, INC., F.K.A. 
CORPOREX CONSTRUCTORS, INC.; DUBLIN SUITES, INC., APPELLEE, v. SHOOK, 
INC., APPELLANT. 
[Cite as Corporex Dev. & Constr. Mgt., Inc. v. Shook, Inc., 
 106 Ohio St.3d 412, 2005-Ohio-5409.] 
Contracts — Damages — Measure of damages — Economic-loss rule requires 
privity — Subcontractor’s mere knowledge of identity of owner does not 
create a nexus sufficient to establish a substitute for privity — Even with 
privity, economic-loss rule imposes liability only for breach of those duties 
agreed to by the parties to the contract. 
(No. 2004-0752 — Submitted March 8, 2005 — Decided October 26, 2005.) 
APPEAL from the Court of Appeals for Franklin County,  
No. 03AP-269, 2004-Ohio-1408. 
__________________ 
SYLLABUS OF THE COURT 
1. 
Under the economic-loss rule, privity or a sufficient nexus that could serve 
as a substitute for privity may impose only those contractual duties and 
liability for breach of those duties agreed to by the parties to the contract, 
and no more. 
2. 
Mere knowledge by the subcontractor of the identity of the project owner, 
without more, does not create a nexus sufficient to establish privity or its 
substitute. 
__________________ 
 
O’CONNOR, J. 
{¶ 1} Today we are called upon to decide whether the economic-loss rule 
bars a building project owner from recovery of purely economic damages in tort 
SUPREME COURT OF OHIO 
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against a subcontractor, based upon breach of contractually created duties.  We 
find that it does. 
{¶ 2} In reviewing this case, we are mindful of the fact that appellant 
Shook’s judgment in the trial court was entered as a judgment on the pleadings 
under Civ.R. 12(C).  Thus, we are required to accept as true all the material 
allegations of the complaint of appellee Dublin Suites, Inc. (“DSI”), with all the 
inferences to be drawn therefrom to be construed in DSI’s favor.  Whaley v. 
Franklin Cty. Bd. of Commrs. (2001), 92 Ohio St.3d 574, 581, 752 N.E.2d 267, 
citing Peterson v. Teodosio (1973), 34 Ohio St.2d 161, 165-166, 63 O.O.2d 262, 
297 N.E.2d 113. 
{¶ 3} In July 1998, plaintiff-appellee, DSI contracted with Corporex 
Constructors, Inc., n.k.a. Corporex Development & Construction Management, 
Inc., for the construction of a hotel.  Corporex, in turn, subcontracted with 
defendant-appellant, Shook, Inc., for all concrete work related to the hotel.  DSI 
had no direct contract or interaction with Shook, but the subcontract between 
Corporex and Shook identified DSI as the project owner. 
{¶ 4} Following completion of the hotel, DSI and Corporex filed suit 
against Shook, alleging breach of contract, breach of express warranty, breach of 
implied warranty, negligence, and failure to perform in a workmanlike manner.  
DSI and Corporex sought purely economic damages allegedly occasioned by 
Shook’s failure to perform under the subcontract.  The trial court eventually 
granted Shook judgment on the pleadings on all of DSI’s claims, based upon the 
economic-loss rule, which generally bars a tort action for purely economic 
damages.  Due to the existence of multiple remaining claims, the trial court 
granted DSI’s request that it add Civ.R. 54(B) language to the judgment entry.  
DSI appealed. 
{¶ 5} The Tenth District Court of Appeals reinstated DSI’s negligence 
and implied-warranty claims against Shook, finding that there was a sufficient 
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3 
nexus between DSI and Shook to satisfy the exception to the economic-loss rule 
outlined in Haddon View Invest. Co. v. Coopers & Lybrand (1982), 70 Ohio St.2d 
154, 24 O.O.3d 268, 436 N.E.2d 212.  Shook appealed that judgment, and we 
accepted jurisdiction to address the scope of the economic-loss rule.1 
{¶ 6} The economic-loss rule generally prevents recovery in tort of 
damages for purely economic loss.  See Chemtrol Adhesives, Inc. v. Am. Mfrs. 
Mut. Ins. Co. (1989), 42 Ohio St.3d 40, 45, 537 N.E.2d 624; Floor Craft Floor 
Covering, Inc. v. Parma Community Gen. Hosp. Assn. (1990), 54 Ohio St.3d 1, 3, 
560 N.E.2d 206.  “ ‘[T]he well-established general rule is that a plaintiff who has 
suffered only economic loss due to another’s negligence has not been injured in a 
manner which is legally cognizable or compensable.’ ”  Chemtrol, 42 Ohio St.3d 
at 44, 537 N.E.2d 624, quoting Nebraska Innkeepers, Inc. v. Pittsburgh-Des 
Moines Corp. (Iowa 1984), 345 N.W.2d 124, 126.  See, also, Floor Craft, 54 
Ohio St.3d at 3, 560 N.E.2d 206.  This rule stems from the recognition of a 
balance between tort law, designed to redress losses suffered by breach of a duty 
imposed by law to protect societal interests, and contract law, which holds that 
“parties to a commercial transaction should remain free to govern their own 
affairs.”  Chemtrol, 42 Ohio St.3d at 42, 537 N.E.2d 624.  See, also, Floor Craft, 
54 Ohio St.3d at 7, 560 N.E.2d 206, quoting Sensenbrenner v. Rust, Orling & 
Neale Architects, Inc. (1988), 236 Va. 419, 425, 374 S.E.2d 55.  “ ‘Tort law is not 
designed * * * to compensate parties for losses suffered as a result of a breach of 
duties assumed only by agreement.  That type of compensation necessitates an 
analysis of the damages which were within the contemplation of the parties when 
framing their agreement.  It remains the particular province of the law of 
                                          
 
1. 
Shook’s brief in this case also raises the issue of whether the appellate court erred by 
reinstating DSI’s implied-product-warranty claim.  Shook, however, failed to raise that issue in its 
jurisdictional memorandum.  As we did not accept jurisdiction based upon that issue, we refrain 
from addressing it. 
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contracts.’ ” Floor Craft, 54 Ohio St.3d at 7, 560 N.E.2d 206, quoting 
Sensenbrenner, 236 Va. at 425, 374 S.E.2d 55. 
{¶ 7} DSI argues that the facts of this case fall squarely within an 
exception to the economic-loss rule outlined in Haddon View, 70 Ohio St.2d 154, 
24 O.O.3d 268, 436 N.E.2d 212.  In Haddon View, we found that an accountant 
may be liable for purely economic damages based upon negligent 
misrepresentation to third parties “when that third party is a member of a limited 
class whose reliance on the accountant’s representation is specifically foreseen.”  
Id. at syllabus.  Because Shook knew the identity of DSI as the project owner, 
DSI argues, DSI was a third party whose reliance was specifically foreseeable by 
Shook, and Shook is therefore liable for purely economic damages in tort. 
{¶ 8} Following the reasoning of DSI, any subcontractor could be held 
liable in tort for purely economic damages to a project owner simply because the 
subcontractor knew the project owner’s identity.  The appellate court was stricter 
and required, at a minimum, some facts implying a sufficient nexus serving as a 
substitute for privity between the parties.  Yet under the rationale of either DSI or 
the appellate court, any contract limitations upon purely economic damages 
would be lost.  Even if the subcontractor negated liability for those damages by 
negotiating a clause expressly barring their recovery, the owner could still 
circumvent the contract and recover those damages in tort. 
{¶ 9} DSI misconstrues our holding in Haddon View.  In Haddon View, 
this court discussed the liability of an accountant for professional negligence in 
accord with 3 Restatement of the Law 2d, Torts (1979), Section 552.  Haddon 
View, 70 Ohio St.2d at 156, 24 O.O.3d 268, 436 N.E.2d 212.  That section 
recognizes professional liability, and thus a duty in tort, only in those limited 
circumstances in which a person, in the course of business, negligently supplies 
false information, knowing that the recipient either intends to rely on it in 
business, or knowing that the recipient intends to pass the information on to a 
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foreseen third party or limited class of third persons who intend to rely on it in 
business.  Restatement of Torts 2d, 126-127, Section 552.  Liability in Haddon 
View was based exclusively upon this discrete, preexisting duty in tort and not 
upon any terms of a contract or rights accompanying privity.  Haddon View, 70 
Ohio St.2d at 156-157, 24 O.O.3d 268, 436 N.E.2d 212.  DSI fails to identify any 
duty in tort analogous to the duty identified in Haddon View.  Its reliance on 
Haddon View, therefore, is misplaced. 
{¶ 10} Like DSI’s, the appellate court’s privity analysis misconstrues our 
prior holdings.  The assertions of both the appellate court and DSI ignore the 
reality underlying liability for purely economic loss.  In addition to generally 
recognized duties in tort, such as the one in Haddon View, privity or a sufficient 
nexus that could serve as a substitute for privity may impose only those 
contractual duties and liability for breach of those duties agreed to by the parties 
to the contract, and no more.  When a duty in tort exists, a party may recover in 
tort.  When a duty is premised entirely upon the terms of a contract, a party may 
recover based upon breach of contract.  “ ‘Protection against economic losses 
caused by another’s failure properly to perform is but one provision the contractor 
may require in striking his bargain.  Any duty * * * in this regard is purely a 
creature of contract’ ” and can only be enforced by a party to that contract.  Floor 
Craft, 54 Ohio St.3d at 4, 560 N.E.2d 206, quoting Blake Constr. Co., Inc. v. Alley 
(1987), 233 Va. 31, 35, 353 S.E.2d 724. 
{¶ 11} Because the underlying duties are created by a contract to which 
DSI is not a party, no tort action lies in DSI’s favor.  Instead, DSI, the project 
owner, retains its right to file a breach-of-contract claim against Corporex, the 
contractor, for damages permitted under its contract, and Corporex may, in turn, 
recover any damages against Shook, the subcontractor, permitted by the 
subcontract.  DSI may not, however, recover in tort when Shook has no duty in 
tort to protect DSI from purely economic damages.  See Chemtrol, 42 Ohio St.3d 
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at 45, 537 N.E.2d 624; Floor Craft, 54 Ohio St.3d at 3, 560 N.E.2d 206.  We will 
not adopt a rule that ignores basic tort law and thwarts the intentions of parties to 
a contract, who must be allowed to bargain freely to allocate the risks attendant to 
their undertaking, including the possibility of purely economic damages. 
{¶ 12} Further, DSI may not sue Shook directly in contract based upon the 
economic-loss rule.  Even construing the facts of this case in a light most 
favorable to DSI, DSI has failed to allege any facts establishing privity or a 
sufficient substitute for privity as required by Floor Craft.  Contrary to DSI’s 
assertion, mere knowledge by the subcontractor of the identity of the project 
owner, without more, does not create a nexus sufficient to establish privity or its 
substitute.  Given the general availability of the identity of the project owner in all 
building projects, as attested to by both parties, we refuse to allow parties to 
abrogate the substance of Floor Craft’s privity requirement by allowing such 
readily available information by itself to serve as a substitute for privity. 
{¶ 13} Both parties often refer throughout their arguments to terms within 
the subcontract.  We find that the language of the subcontract, however, does not 
change our analysis under the economic-loss rule.  Whether the underlying 
contract prohibits or permits recovery for purely economic damages, recovery of 
those damages in this case is limited by contract principles.  Only when a duty in 
tort exists may a party recover in tort.  See Haddon View, 70 Ohio St.2d 154, 24 
O.O.3d 268, 436 N.E.2d 212. 
{¶ 14} DSI fails to claim a breach of any duty imposed by law that would 
justify recovery of purely economic damages in tort.  Instead, DSI merely alleges 
breach of contractually created duties owed by Shook to Corporex.  As DSI has 
asserted no viable tort action, we reverse the judgment of the Tenth District Court 
of Appeals reinstating DSI’s claims of negligence and implied warranty against 
Shook and remand this cause to the trial court for proceedings consistent with this 
opinion. 
January Term, 2005 
7 
Judgment reversed 
and cause remanded. 
 
MOYER, C.J., LUNDBERG STRATTON, O’DONNELL and LANZINGER, JJ., 
concur. 
 
RESNICK and PFEIFER, JJ., dissent. 
__________________ 
 
PFEIFER, J., dissenting. 
{¶ 15} The majority states, “Even construing the facts of this case in a 
light most favorable to DSI, DSI has failed to allege any facts establishing privity 
or a sufficient substitute for privity as required by Floor Craft.  Contrary to DSI’s 
assertion, mere knowledge by the subcontractor of the identity of the project 
owner, without more, does not create a nexus sufficient to establish privity or its 
substitute.”  I disagree.  DSI alleged several facts that, if believed, would establish 
privity.   
 
{¶ 16} DSI and Corporex have common ownership and management, a 
fact that Shook does not dispute and that the majority opinion does not mention.  
That fact alone is likely sufficient to establish privity when construed, as we must, 
in DSI’s favor.  The contract between Corporex and Shook contains several 
provisions that refer to the owner of the construction project, including a 
provision that Shook would not be paid until it furnished a signed statement 
acceptable to the owner, which Shook knew to be DSI.  Further, in its brief, 
Shook refers to DSI and Corporex as the left and right pockets of Bill Butler, the 
owner of both companies.  This tacit acknowledgement that Shook knew it was 
dealing with both companies and that DSI and Corporex are interconnected 
indicates that Shook was in privity with both companies.  To suggest that Shook’s 
“mere knowledge” of DSI’s identity does not establish privity is misleading.  To 
suggest that DSI has not alleged “any facts establishing privity” is contrary to the 
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record.  At the very least, DSI’s claims ought to survive judgment on the 
pleadings. 
{¶ 17} The majority opinion suggests that DSI should sue Corporex, that 
the left hand should sue the right hand, according to Shook, and then Corporex 
could sue Shook to recover damages.  This approach might make sense if DSI and 
Corporex did not have common ownership and management.  But they do, and it 
strains credulity to think that Corporex would vigorously defend itself.  This court 
ought not to require a party to institute a sham action or defense. 
{¶ 18} According to Shook, the original subcontract, which formed the 
basis of the agreement between it and Corporex, contained a provision holding 
Shook liable for delay damages that might be claimed by DSI.  According to 
Shook, Corporex agreed to delete that provision from the contract it ultimately 
signed with Shook.  If these contentions were proven to a jury, DSI would have 
grave difficulty prevailing on the merits, but it should not be foreclosed from 
seeking a remedy based on the pleadings before us. 
{¶ 19} I would remand the cause and instruct the trial court to determine 
whether there was privity between Shook and DSI.  I dissent. 
 
RESNICK, J., concurs in the foregoing dissenting opinion. 
__________________ 
 
Thompson Hine, L.L.P., Michael W. Currie, O. Judson Scheaf III, and 
Paul Giorgianni, for appellant. 
 
Maguire & Schneider, L.L.P., Karl H. Schneider, and William C. 
Donahue, for appellee. 
 
Kegler, Brown, Hill & Ritter Co., L.P.A., Donald W. Gregory, and Robert 
G. Cohen, urging reversal for amicus curiae American Subcontractors 
Association. 
 
Schottenstein, Zox & Dunn and Roger L. Sabo, urging reversal for amicus 
curiae Ohio Contractors Association. 
January Term, 2005 
9 
 
Murray & Murray Co., L.P.A., Dennis E. Murray Jr., and James S. 
Timmerberg, for amicus curiae Murray & Murray Co., L.P.A. 
_______________________