FILED

December 4,

2000

Cecil Crowson, Jr.

Appellate Court Clerk

December 18, 1995

FOR PUBLICATION

IN THE SUPREME COURT OF TENNESSEE

AT NASHVILLE

JACK AND NANCY RITTER, (

THOMAS H. AND DEBRA KITTS, ( No. 0lS0l-9408-OT-00092

AND FRED A. AND DONNA J. (

SYKES, ( On Certified Question from

( Sixth Circuit Court of Appeals

Plaintiffs-Appellants, (

( Hon. Harry W. Wellford,

( Senior Circuit Judge

(

v . ( No. 93-6066

(

( 

(

CUSTOM CHEMICIDES, INC., (

(

Defendant-Appellee. (

For Plaintiffs-Appellants : For Defendant-Appellee :

Carl R. Ogle, Jr. D. Michael Swiney

Jefferson City Wynne C. Hall

Paine, Swiney and Tarwater

Knoxville

O P I N I O N
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REID, J.
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The Court has accepted for decision two questions

of law certified by the Sixth Circuit Court of Appeals,

pursuant to Rule 23, Supreme Court Rules, which questions are

as follows:

(l) Whether the tort of negligent

misrepresentation applies only to professionals and others

who specialize in providing information as a service; and not

to commercial entities or businesses which allegedly supply

misleading information for the guidance of others in their

business transactions; and

(2) Whether a party alleging negligent

misrepresentation, in order to recover "economic losses," 

must be in privity of contract with the defendant.

The decision of the Court is that liability for

the tort of negligent misrepresentation is not limited to

"professionals"; however, the record in this case does not

establish the essentials of that cause of action.

ISSUES

For the purposes of this opinion, the facts are as

alleged by the plaintiffs and as presented in the order of
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the Sixth Circuit certifying the two questions to this Court: 

the plaintiffs grew tomatoes on their farms in Grainger

County; the defendant is a California corporation; the

defendant manufactured and distributed a product known as

"Frostguard"; the defendant represented, in advertisements

directed at the plaintiffs and other commercial tomato

growers and in material delivered to the plaintiffs directly,

that Frostguard would help protect tomatoes from the harmful

effects of frost; the plaintiffs, in reliance upon the

defendant's representations, purchased Frostguard from a

retailer who was not the defendant's agent; the plaintiffs

applied Frostguard to their tomato crops according to the

directions provided by the defendant; and "there was

extensive damage to their crops as a consequence," thereby

causing economic loss to the plaintiffs. 

The plaintiffs' original suit was based on breach

of express and implied warranties, negligence in the

manufacturing, testing, and advertising of Frostguard, and

negligent misrepresentations regarding the product. The

district court granted the defendant's motion for summary

judgment as to all claims. The plaintiffs appealed, but only

the claim of negligent misrepresentation. 

The plaintiffs contend that the facts alleged
1

The distinction between damages for economic loss and

damages for injury to property is not always clear. See Marc

A. Franklin, When Worlds Collide: Liability Theories and

Disclaimers in Defective-Product Cases , 18 Stan. L. Rev. 974,

980-82 (1966). However, that question is not before the

Court in this case since the order certifying the questions

to this Court specifically states that the plaintiffs seek

damages for economic loss only. The terms "economic loss"

and "pecuniary loss" are synonymous for the purposes of this

opinion and include loss of profits.

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constitute the tort of negligent misrepresentation for which

they are entitled to recover damages for pecuniary or

economic losses. 1 They rely upon Bethlehem Steel Corp. v.

Ernst & Whinney , 822 S.W.2d 592 (Tenn. 1991); John Martin Co.

v. Morse/Diesel, Inc. , 819 S.W.2d 428 (Tenn. 1991); and

Restatement (Second) of Torts, § 552 (1977). The defendant

contends that Section 552 is not applicable to this suit for

economic loss. It relies upon Bethlehem Steel , John Martin

Co. , and also First Nat'l Bank of Louisville v. Brooks Farms ,

821 S.W.2d 925 (Tenn. 1991).

ANALYSIS

This Court has recognized three distinct actions

in tort based on misrepresentation: fraud and deceit; strict

liability under Section 402B of the Restatement (Second) of

Torts (1965); and negligent misrepresentation under Section

552 of the Restatement. See Jasper Aviation, Inc. v.

McCollum Aviation, Inc. , 497 S.W.2d 240, 242-43 (Tenn. 1972);
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John Martin Co. v. Morse/Diesel, Inc. , 819 S.W.2d at 433. 

The complaint does not allege fraud or fraudulent

misrepresentation. The distinctions between Section 402B,

"Misrepresentation by Seller of Chattels to Consumer," and

Section 552 of the Restatement, "Information Negligently

Supplied for the Guidance of Others," will be noted; but

resolution of the issues presented must be determined by the

application of the provisions of Section 552 of the

Restatement to the plaintiffs' allegations as reflected in

the order of the Sixth Circuit Court of Appeals. 

The Court stated in John Martin Co. , that Section

552 sets forth the components of an action for pecuniary loss

based on negligent misrepresentation; Section 552 provides as

follows:

§ 552. Information Negligently Supplied

for the Guidance of Others.

(l) 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 transactions, is

subject to liability for pecuniary loss

caused to them by their justifiable

reliance upon the information, if he

fails to exercise reasonable care or

competence in obtaining or communicating

the information.
2

Subsection 3 is not applicable to the issues in this

case. It provides:

(3) The liability of one who is under a public duty

to give the information extends to loss suffered by

any of the class of persons for whose benefit the

duty is created, in any of the transactions in

which it is intended to protect them. 

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(2) Except as stated in Subsection (3), 2

the liability stated in Subsection (1)

is limited to loss suffered

(a) 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 

(b) through reliance upon it in a

transaction that he intends the

information to influence or knows that

the recipient so intends or in a

substantially similar transaction. 

In exposition on Section 552, the Court stated:

 By the use of this standard,

liability in tort would result when,

despite lack of contractual privity

between the plaintiff and the defendant,

(l) the defendant is acting in the

course of his business, profession or

employment, or in a transaction in which

he has a pecuniary (as opposed to

gratuitous) interest; and

(2) the defendant supplies faulty

information meant to guide others in

their business transaction; and

(3) the defendant fails to exercise

reasonable care in obtaining or

communicating the information; and
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(4) the plaintiff justifiably relies

upon the information.

John Martin Co. , 819 S.W.2d at 431. 

The issue in John Martin Co. was whether a

subcontractor could make a claim in tort against a

construction manager employed by the owner, for economic loss

caused by the construction manager's negligence in furnishing

inaccurate information regarding the plans and specifications

for the subcontractor's performance. The defendant insisted

that privity of contract was essential to finding liability. 

The Court allowed the action to be maintained and stated that

a cause of action for negligent misrepresentation could be

asserted against "professionals whose business is to supply

technical information for the guidance of others" and that

"[p]rivity is not a prerequisite." Id. at 433, 435 (citing

Vineyard v. Timmons , 486 S.W.2d 914, 920 (Tenn. App. l972)). 

In Bethlehem Steel Corp. v. Ernst & Whinney , decided a few

months after John Martin Co. , the Court held that Section 552

is the appropriate standard for determining the liability of

accountants as well as "other professionals and business

persons" in actions for negligently supplying false

information brought by parties with whom there is no privity

of contract. Bethlehem Steel Corp. v. Ernst & Whinney , 822

S.W.2d at 595. 
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The defendant's contention that Section 552 is

limited to "professionals" is not supported by the language

of the section nor prior decisions of this Court. Section

552 imposes liability upon "one who, [is acting] in the

course of his business, profession or employment, or in any

other transaction in which he has a pecuniary interest." 

This language obviously includes non-professionals involved

in certain business activities or transactions. In addition

to a construction manager in John Martin Co. and an

accountant in Bethlehem Steel Corp. , prior decisions of this

Court have found the rule applicable to a pest control

company, Pietramale v. Dugay , 7l4 S.W.2d 28l, 283 (Tenn.

1986); and a surveyor, Tartera v. Palumbo , 224 Tenn. 262, 453

S.W.2d 780, 784 (1970). The Court of Appeals has found

Section 552 applicable to the seller of a log home kit, Stamp

v. Honest Abe Log Homes, Inc. , 804 S.W.2d 455, 458 (Tenn. 

App. 1990); a landlord, Keller v. West-Morr Investors, Ltd. ,

770 S.W.2d 543, 547 (Tenn. App. 1988); and a seller of real

estate, Chastain v. Billings , 570 S.W.2d 866, 868 (Tenn. App.

1978). Section 552, therefore, does not limit to

professionals liability for economic loss based on negligence

in supplying false information for the guidance of others. 

However, assuming, arguendo , that the defendant is
3

Bethlehem Steel Corp. v. Ernst & Whinney , 822 S.W.2d

592, 595 (Tenn. 1991).

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within the definition of "business persons" 3 governed by

Section 552(l), resolution of that issue does not compel the

conclusion that the plaintiffs have alleged a cause of action

for economic loss under Section 552.

That section imposes liability upon proof that the

defendant supplied false information and failed to exercise

reasonable care in obtaining or communicating the

information. The recitation of circumstances out of which

the question of law arises, which accompanies the questions

of law submitted by the Sixth Circuit, shows only that the

plaintiffs purchased Frostguard from a retailer; their

decision to purchase and use Frostguard was based upon

"published advertisements" and repeated assurances from

Custom Chemicides as to the "effectiveness" of the product;

and the defendant's representative instructed plaintiffs as

to the proper purposes, uses, and methods of application and

"there was extensive damage to their crop as a consequence." 

There is no identification of the information supplied and no

assertion that information supplied was false. Nor is there

any identification of negligence committed by the defendant

in obtaining or communicating information relied upon by the

plaintiffs. Advertisements and even direct statements that
4

Misrepresentation by Seller of Chattels to Consumer.

One engaged in the business of selling

chattels who, by advertising, labels or

otherwise, makes to the public a

misrepresentation of material fact

concerning the character, or quality of a

chattel sold by him is subject to

liability for physical harm to a consumer

of the chattel caused by justifiable

reliance upon the misrepresentation, even

though

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the product was "effective" does not constitute proof that

the defendant supplied false information for the guidance of

others. The allegation that the product harmed the

plaintiffs' crops is not an allegation that the defendant was

negligent in obtaining or communicating information. On the

alleged facts, there is no basis for finding either of the

essentials of Section 552(1), that the defendant supplied

false information for the guidance of others in a business

transaction, or that the defendant did not exercise

reasonable care or competence in obtaining or communicating

the information. 

The Sixth Circuit noted the essential fallacy of

the plaintiffs' suit with the observation, "The Ritters,

unfortunately, did not maintain an action for property

damage." The circumstances as recited would state a cause of

action for misrepresentation by a seller of chattels to a

consumer under Section 402B. 4

 Section 402B imposes strict
(a) it is not made fraudulently or

negligently, and 

(b) the consumer has not bought the

chattel from or entered into any

contractual relation with the seller.

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liability upon a seller for misrepresentation of material

facts concerning the character or quality of a chattel sold

by it, even in the absence of negligence and privity of

contract. However, liability under Section 402B is limited

to physical harm to a person or property and does not extend

to economic loss. Even the description of the loss reflected

in the Sixth Circuit's order, "there was extensive damage to

their crops," suggests physical damage to property for which

recovery can be had under Section 402B. However, since the

plaintiffs sued for "economic damages resulting from the lost

profits," there can be no recovery under Section 402B. 

In John Martin Co. , the Court emphasized that

Section 552 does not apply to products liability cases and

distinguished the causes of action. The Court stated:

 This is not a products liability

case. In this instance, the theory of

recovery is that the defendant

negligently supplied information

intended for the guidance of others; the

plaintiff relied upon the

misrepresentation in the performance of

his contracted service and experienced
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business losses as a result. Many of

those cases relied upon by the defendant

involve claims of product liability in

respect to design defects; the losses

suffered were caused by defective

products, not misguidance or

misdirection in the performance of

services. The question here is not one

of harm to person or property, but of

economic loss.

John Martin Co. , 819 S.W.2d at 43l (citation omitted). 

The losses suffered by the plaintiffs in this case were

caused by a defective product, not misguidance or

misdirection in the performance of services. 

Prior to the decision in First Nat'l Bank v.

Brooks Farms , 82l S.W.2d at 93l, the complaint in this case

would have stated a cause of action recognized in Tennessee. 

In that case, the Court abolished the action of strict

liability in tort for pecuniary damages. Previously, in

Ford Motor Co. v. Lonon , 217 Tenn. 400, 398 S.W.2d 240

(1966), the Court had adopted proposed Section 552D of the

Restatement (Second) of Torts, which was parallel to Section

402B. Where Section 402B allowed liability for "physical

harm," Section 552D provided liability for "pecuniary loss." 

The decision in Lonon allowed recovery of pecuniary or

economic loss in situations such as that alleged in this

case. However, Brooks Farms overruled Lonon , finding that

damages in products liability actions are limited to personal
5

See also Tenn. Code Ann. § 29-28-102(6). This position

is in accord with the Model Uniform Product Liability Act, 44

Fed. Reg. 62,7l3, which limits recovery of harm resulting

from negligent misrepresentation to the damages recognized by

the courts of the particular state, provided "the term 'harm'

does not include direct or consequential economic loss." 

Academic commentators are in overwhelming accord that a

plaintiff may not use the tort of negligent misrepresentation

to recover pure economic loss resulting from a product's

failure to perform as expected. See , e.g. , William L.

Prosser and W. Page Keeton, The Law of Torts , § 101 at 708

(5th ed. 1984 & Supp. 1988); W. Page Keeton, Rights of

Disappointed Purchasers , 32 Tex. L. Rev. 1 (1953); Comment,

The Vexing Problem of Purely Economic Loss , 4 Seton Hall L.

Rev. 1681 (1966); Note, Manufacturers' Liability to Remote

Purchasers for "Economic Loss" Damages -- Tort or Contract? ,

ll4 U. Pa. L. Rev. 539 (1966). But see , Note, Economic Loss

in Products Liability Jurisprudence , 66 Column. L. Rev. 9l7

(1966).

6

As the Supreme Court of Idaho further explains in Clark

v. International Harvester Co. , 58l P.2d 784, 794 (Idaho

1978),

The law of negligence requires the defendant to

exercise due care to build a tractor that does not

harm person or property. If the defendant fails to

exercise such due care it is of course liable for

the resulting injury to person or property as well

as other losses which naturally follow from that

injury. However, the law of negligence does not

impose on International Harvester a duty to build a

tractor that plows fast enough and breaks down

infrequently enough for [a purchaser] to make a

profit in his custom farming business. This is not

to say that such a duty could not arise by a

warranty -- express or implied -- by agreement of

the parties or by representations of the defendant,

but the law of negligence imposes no such duty.

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injury or property damage. 5 The Court essentially adopted

the proposition that, "a manufacturer does not owe a duty to

avoid causing purely economic damage." Prairie Production,

Inc. v. Agchem Div.-Pennwalt , 5l4 N.E.2d l299, l304 (Ind. Ct.

App. 1987). 6
7

See Public Service Co. v. Westinghouse Electric Corp. ,

685 F. Supp. 1281, 1286 (D. N.H. 1988); Hart Engineering Co.

v. FMC Corp. , 593 F. Supp. 1471, 1483-84 (D. R.I. 1984);

Sanco, Inc. v. Ford Motor Co. , 579 F. Supp. 893, 896-98 (S.D.

Ind. 1984), aff'd , 771 F.2d 1081 (7th Cir. 1985); Argo Welded

Products, Inc. v. J. T. Ryerson Steel & Sons, Inc. , 528 F.

Supp. 583, 586 (E.D. Pa. 1981); Jones & Laughlin Steel Corp.

v. Johns-Manville Sales Corp. , 626 F.2d 280, 286-89 (3rd Cir.

1980); Arrow Leasing Corp. v. Cummins Arizona Diesel, Inc. ,

666 P.2d 544, 549 (Ariz. Ct. App. 1983); Kaiser Steel Corp.

v. Westinghouse Electric Corp. , 127 Cal. Rptr. 838, 844 (Cal.

Ct. App. l976); Cromwell Corp. v. Topkins Construction Co. ,

280 A.2d 730, 732 (Del. Super Ct. l97l); Vulcan Materials Co.

v. Driltech, Inc. , 306 S.E.2d 253, 256 (Ga. l983); Clark v.

International Harvester Co. , 58l P.2d 784, 792-94 (Idaho

1978); Prairie Production, Inc. v. Agchem Div.-Pennwalt

Corp. , 5l4 N.E.2d l299, l304-06 (Ind. Ct. App. l987); A. C.

Hoyle Co. v. Sperry Rand Corp. , 340 N.W.2d 326, 327-29 (Mich.

Ct. App. l983); National Crane Corp. v. Ohio Steel Tube Co. ,

332 N.W.2d 39, 44 (Neb. l983); Local Joint Executive Board of

Las Vegas v. Stern , 65l P.2d 637, 638 (Nev. l982); Inglis v.

American Motors Corp. , 209 N.E.2d 583, 588 (Ohio l965);

Sunnyslope Grading, Inc. v. Miller, Bradford & Risberg, Inc. ,

437 N.W.2d 213, 217-18 (Wis. l989).

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Tennessee has joined those jurisdictions which

hold that product liability claims resulting in pure economic

loss can be better resolved on theories other than

negligence. 7 A typical case is Prairie Production , in which

a seed growing company sustained economic losses when a

pesticide they purchased failed to control corn earworms as

the label promised. The Court of Appeals affirmed the trial

court's grant of summary judgment, holding that Article 2 of

the Uniform Commercial Code "governs the economic relations

between buyer and seller, and the dissatisfied buyer may

avail himself of the remedies fashioned by the legislature." 

Id. at l304-05 (citing Moorman Manufacturing Co. v. National
8

See Sanco, Inc. v. Ford Motor Co. , 579 F. Supp. 893,

897 (S.D. Ind. 1984), aff'd , 771 F.2d 1081 (7th Cir. 1985).

A tort action traditionally presupposes that the

plaintiff has been exposed to an unreasonable risk

of injury to his person or his property. 

Qualitative defects which merely disappoint the

buyer's expectations of the product's performance

do not expose the user or his property to any risk

of physical harm. When a product does not perform

as expected, the buyer's remedy should be governed

by the rules of contract, which traditionally

protect expectation interests.

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Tank Co. , 435 N.E.2d 443 (Ill. 1982)). See , e.g. , Tenn. Code

Ann. §§ 47-2-3l3 (express warranty), 47-2-3l4 (implied

warranty of merchantability), and 47-2-3l5 (warranty for a

particular purpose) (1992). In Tennessee, the consumer does

not have an action in tort for economic damages under strict

liability. 8

CONCLUSION

Accordingly, the record does not support a cause

of action for negligent misrepresentation. 

In response to the first certified question, the

tort of negligent misrepresentation is not limited to

professionals, however, the cause of action requires

compliance with the test set forth in John Martin Co. , 819

S.W.2d at 431.
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In response to the second certified question,

privity of contract is not essential to a tort action of

negligent misrepresentation based on information negligently

supplied for the guidance of others. 

The clerk will transmit this opinion to the Sixth

Circuit Court of Appeals and counsel for the parties in

accordance with Rule 23, Section 8 of the Rules of the 

Supreme Court. The costs in this Court will be taxed to the

plaintiffs.

___________________________ 

Reid, J.

Concur:

Anderson, C.J., Drowota, Birch,

 and White, JJ.