Title: Boren v. Thompson & Associates
Citation: 2000 OK 3, 71OBJ121, 999 P.2d 438
Docket Number: 
State: Oklahoma
Issuer: Oklahoma Supreme Court
Date: January 18, 2000

Boren v. Thompson & Associates Annotate this Case Boren v. Thompson & Associates 2000 OK 3 999 P.2d 438 71 OBJ 121 Case Number: 90437 Decided: 01/18/2000 Mandate Issued: 05/22/2000 Supreme Court of Oklahoma GARY BOREN d/b/a RELIABLE PLUMBING, JIM UTLEY d/b/a JIM'S SERVICE CO., INTERIORS OF NORTHWEST OKLAHOMA, an Oklahoma Corporation, SOUTHWEST GLASS AND DOOR, a Kansas Corporation, J.A.G. CONSTRUCTION, a Kansas Corporation, and SPARKS ELECTRIC, INC., an Oklahoma Corporation, Plaintiffs-Appellees, and JIM SCOTT d/b/a Jim Scott Painting, Plaintiff, v. THOMPSON & ASSOCIATES Defendant-Appellant, and RUSSELL MCBEE d/b/a R.J. Builders, and MCBEE, INC. d/b/a Thurman Wilson Insurance, Defendants. [999 P.2d 439] CERTIORARI TO THE COURT OF CIVIL APPEALS, DIVISION I; Honorable George H. Leach, Trial Judge. [999 P.2d 440] ¶0 The Tyrone school board hired the appellant, Thompson and Associates (architectural firm) to design and oversee construction of a new library building. The construction contract was awarded to Russell McBee (contractor). The contractor contracted with each of the appellees, subcontractors to provide materials and/or labor for construction of the library. Pursuant to 61 O.S. 1991 §§1 and 2, contractors must post a payment bond guaranteeing payment to subcontractors in the event of default. The bond was not secured. As the project proceeded, construction was delayed and subcontractors were not paid by the contractor. The subcontractors filed an action against the architectural firm alleging negligence in certifying payments to the contractor in the absence of the statutorily required payment bond. The architectural firm filed a motion to dismiss, arguing that the subcontractors' failed to state a claim for which relief could be granted. The trial court denied the motion and the cause was tried before a jury. It found in favor of the subcontractors and against the architectural firm. The architectural firm appealed. The Court of Civil Appeals reversed and remanded relying upon Haskell Lemon Const. Co. v. Independent School Dist. No. 12 of Edmond, 1979 OK 5, 589 P.2d 677 , and its predecessors. We hold that the architectural firm's motion to dismiss was properly denied under the facts presented. The subcontractors stated a claim of negligence against the architectural firm. Haskell and its predecessors are not dispositive of the subcontractor's claim against the architectural firm. CERTIORARI PREVIOUSLY GRANTED; COURT OF CIVIL APPEALS OPINION VACATED AND MATTER REMANDED TO COURT OF CIVIL APPEALS FOR PROCEEDINGS CONSISTENT WITH THIS OPINION. Rick Harbison, Larry Field, Guymon, Oklahoma, For Plaintiffs/Appellees, Daniel H. Diepenbrock, Grant C. Shellenberger, Liberal, Kansas, For Defendant/Appellant. ¶1 KAUGER, J.: ¶2 The dispositive issue presented on certiorari is whether an architectural firm may be liable to subcontractors in negligence for damages arising from its architect's certification of payments to a contractor without a required statutory payment bond being secured. Under the facts presented, it may. FACTS ¶3 Pursuant to 61 O.S. 1991 §§1 ¶4 On September 13, 1993, the school board hired the appellant, Thompson and Associates (architectural firm), to design and oversee construction of the library.¶5 The initial bids exceeded the school's budget. Thereafter, modifications were made to the plans and the bids were resubmitted. On June 29, 1994, the school board awarded the contract to Russell McBee (contractor). The contract mandated a substantial completion by December 1, 1994. After the award, the contractor contracted with each of the appellees, subcontractors, to provide materials and/or labor for construction of the library.7 ¶6 Although the contractor supplied the required performance bond, a payment bond was not secured. ¶6 Although the contractor supplied the required performance bond, a payment bond was not secured. ¶7 In December of 1994, a lawyer contacted the architect on behalf of a subcontractor, Page Construction. The lawyer informed the architect of a dispute with the contractor regarding payment and requested a copy of the payment bond. It is at this juncture that the architect insists that he discovered that he did not have a copy of a payment bond in his file.12 Although the architect did withhold certification to the contractor until the dispute with Page Construction was resolved, he resumed certifying payments to the contractor on January 27, 1995, with knowledge that no bond existed. The architect became aware that other subcontractors were not being paid when he started receiving claims from them in May and June of 1995.13 ¶8 On November 29, 1995, the subcontractors filed suit against the architectural firm alleging negligence in certifying payments to the contractor in absence of the statutorily required payment bond.14 The architectural firm filed a motion to dismiss on December [999 P.2d 443] 28, 1995. It argued that the subcontractors' failed to state a claim for which relief could be granted because: 1) it did not owe the subcontractors a duty; 2) no privity of contract existed between the architectural firm and the subcontractors; and 3) the subcontractors had constructive knowledge of the contractor's duty to procure the bonds making the proximate cause of the loss their own negligence. The trial court denied the firm's motion to dismiss. ¶9 A three day jury trial was conducted in September of 1997. During the trial, the architectural firm demurred to the subcontractor's evidence. At the close of all of the evidence, it moved for a directed verdict. The trial court overruled both of the motions and submitted the cause to the jury. The jury found in favor of the subcontractors and against the architectural firm.15 It also returned a special verdict finding that the firm's architect had acted wilfully and with reckless disregard for the rights of the subcontractors. The subcontractors were awarded $38, 525.48 in actual damages. ¶10 When the cause was presented for a determination of punitive damages, the subcontractors complained that the architectural firm had failed to provide the financial information they had requested in discovery. As sanctions, the trial court entered a directed verdict for punitive damages in the amount of actual damages, and the architectural firm appealed. The Court of Civil Appeals reversed and remanded finding that the proximate cause of the subcontractor's loss was their failure to ensure the statutory bond had been obtained before furnishing material or commencing work. We granted certiorari on September 27, 1999. ¶11 THE ARCHITECTURAL FIRM'S MOTION TO DISMISS WAS PROPERLY DENIED UNDER THE FACTS PRESENTED. THE SUBCONTRACTORS STATED A CLAIM OF NEGLIGENCE AGAINST THE ARCHITECTURAL FIRM. HASKELL LEMON CONST. CO. v. INDEPENDENT SCHOOL DIST NO. 12 OF EDMOND AND ITS PREDECESSORS ARE NOT DISPOSITIVE OF THE SUBCONTRACTOR'S CLAIMS AGAINST THE ARCHITECTURAL FIRM. ¶12 The architectural firm asserts that the trial court erred in denying its motion to dismiss and that this cause should not have proceeded to trial. It argues that: 1) pursuant to 12 O.S. 1991 §2012(B)(6),16 the subcontractor's petition failed to state a claim because it owed no duty to the subcontractors; and 2) no privity of contract exists to support a tort action. Alternatively, the architectural firm seeks the same protection afforded a public official under Haskell Lemon Const. Co., v. Independent School Dist. No. 12 of Edmond, 1979 OK 5, 589 P.2d 677 . Haskell holds that public officials are not liable to subcontractors for the failure to secure a statutory payment bond because the proximate cause of loss is their negligence in failing to ascertain the existence of the bonds. ¶13 The subcontractors concede that they are not in privity of contract with the architectural firm. Rather they argue that a contractual relationship is not required under the facts of this case, and that the firm's architect had a duty to avoid foreseeable harm to the subcontractors. To support their assertions they point to the architect's obligation to certify payment's to the contractor, the architect's authority to withhold payment, the statutory requirement of a payment bond, and the architect's actions when he knew or should have known that there was no payment bond. We granted certiorari to revisit Haskell's rationale, and to address its application to a private, for-profit company engaged in the business of [999 P.2d 444] designing and overseeing public construction projects. ¶14 In Haskell Lemon Const. Co. v. Independent School Dist. No. 12 of Edmond, supra, a subcontractor brought an action against a school district and individual school board members for materials furnished to a contractor on a public works project. The school district did not check to see that the contractor had obtained the required statutory payment bond. Consistent with a line of cases beginning in 1916,17 the Haskell Court did not impose liability on the public entity or the individual school board members for any losses caused by the failure of the contractor to obtain the bond. ¶15 The Haskell Court recognized that: 1) the bond statutes were enacted by the Legislature as a matter of public policy to protect laborers and materialmen on public construction projects in the event of default of the contractor; 2) regardless of whether the responsible public official fails to ensure that a bond is secured, unpaid laborers and materialmen may not look to or collect from the public entity; and 3) a subcontractor is charged with knowledge of the statutory duty of the contractor to obtain a bond. The Court also stated that a subcontractor furnishing materials or performing work before a bond is secured cannot recover from a public agency because "the proximate cause of the loss was his own negligence in not ascertaining whether a bond had been given." ¶16 Haskell and its predecessors18 stand for the proposition that regardless of whom bears the burden of ensuring that the statutorily required bond is in place, a public entity or its officers may not be held liable for the failure to secure the bond.19 However, the fundamental objective of the bond statutes is twofold ------ protecting laborers and materialmen on public construction projects who have no lien rights against public land or improvements, and saving the public from all liability for liens for material and labor furnished on public improvements.20 ¶17 The purpose of bonding statues would not be served by protecting a private, for-profit company engaged in the business of designing and overseeing public construction projects from potential liability. The gravamen of the architectural firm's argument is that it had no duty, as a matter of law, to see that the contractor obtained the statutorily required payment bond. We agree that the contractor has a statutory duty to secure a payment bond. However, the architectural firm misconceives the issue. Here, the damages arose from the architect's negligence in failing to ascertain that there was no payment bond and in making unauthorized payments to the contractor after he discovered that no payment bond existed. Damages which would not have arisen had the bond been obtained. ¶18 Had this been a private building project an architect's withholding of payment to a contractor would, in addition to protecting an owner from paying for work not performed and material not delivered, protect an owner from the filing of materialmen liens and would protect subcontractors [999 P.2d 445] by ensuring payment.21 Here, the purpose is the same except where public works projects are concerned, subcontractors are protected by bonds because public property cannot be encumbered by liens. Payment bond statutes which require bonds for public work projects are specifically provided for the benefit of subcontractors.22 Concurrent with a contractor's duty to secure a bond is the public entities' duty to withhold payment to a contractor in the absence of a bond.23 ¶19 We recognize that an architect is not a guarantor, nor may architects ordinarily be responsible for supervising a contractor's disbursements to subcontractors.24 Nevertheless, once a public entity has contracted with a private party to oversee a construction project, subcontractors should be able to assume that the private party responsible for certifying payments has verified the existence of the bonds. To do otherwise, would thwart the purpose and intent of the bond statutes.25 Although we are unaware of any authority previously existing which holds an architectural firm liable to subcontractor's in negligence for damages arising from its architect's certification of payments to a contractor without the required statutory bond being secured,26 the scenario is not unlike those cases which have recognized an architect's liability to a surety or a contractor for losses caused by the architect's negligent performance of a contractual obligation with the owner. ¶20 In Designed Ventures, Inc., v. Housing Authority of the City of Newport, 132 B.R. 677 (Bankr. D.R.I. 1991), the court considered whether an architect hired by an owner to oversee the general contractor's performance could be liable for negligently releasing progress payments to the contractor to the detriment of a third party surety on a performance bond. After the contractor defaulted, the surety alleged that the architect was liable for damages because the architect negligently paid the contractor when the architect knew or should have known that the contractor was behind schedule and in default of payments to subcontractors and suppliers. The court recognized that the basis for the negligence action, notwithstanding the absence of privity, was a common-law duty which existed between the architect and the surety. ¶21 The Ventures court applied the reasoning of Forte Bros., Inc. v. National Amusements, Inc., 525 A.2d 1301 (R.I. 1987), a decision of the Rhode Island Supreme Court. In Forte, the court held that a third party contractor which may have foreseeably been injured or suffered economic losses proximately caused by the negligent [999 P.2d 446] performance of a contractual duty by the architect could maintain a negligence action without direct privity of contract between the parities. The Fortes court stated: "A supervising architect, in the performance of its contract with the owner, is required to exercise the ability, skill and care customarily exercised by architects in similar circumstances. This duty of care extends to contractors who share an economic relationship and community of interest on a construction project. The duty is based on circumstances establishing a direct and reasonable reliance by the contractor on the contractual performance of the architect when the architect knows or should know, of that reliance." (Citations omitted.) ¶22 We find Ventures and Fortes, to be persuasive.27 At common law, privity of contract was required before a tort action could arise from a breach of duty created by contract------ ie. limiting liability to contracting parties.28 However, liability for negligent breach of contract is not necessarily dependent upon a pre-existing privity in legal relationship between the person injured and the person causing the injury.29 As we recognized in Keel v. Titan Const. Corp. 1981 OK 148, 639 P.2d 1228 , an architect's liability is based upon proximate cause and the foreseeability that his conduct could harm third parties.30 Although we do not attempt to, or deem it necessary to exhaustively list them, many jurisdictions recognize that the general rule, rather than the exception, is that privity of contract, under many circumstances, is no longer a bar to a negligence action against an architect.31 ¶23 Architects are required to exercise ordinary professional skill and diligence in rendering their professional services.32 Whenever the circumstances [999 P.2d 447] attending a situation are such that an ordinarily prudent person could reasonably see that, as the natural and probable consequences of the act, another person will be in danger of receiving an injury, a duty to exercise ordinary care to prevent such injury arises.33 Under the facts presented, we have no doubt that the architect ought to labor under a duty to subcontractors to refrain from paying the contractor without the required statutory payment bond being secured. Here, the firm's architect was contractually obligated to certify payments to the contractor; the architect was aware of the statutory payment bond requirement; the architect had the authority to withhold payments when he was aware or should have been aware that the contract was awarded without the bond being secured; and the architect continued to authorize payments after he had acknowledged that no bond was in place. If the architect knew or should have known that the contractor was not paying bills for material and/or labor on work already performed and on which the contractor had already been reimbursed, then the architect had a duty to make inquiry and take steps to correct the situation before making further certification on work performed. ¶24 To the extent that the bond statutes protect public entities and do not expressly impose liability on public entities or their officers, we affirm the teachings of Haskell and its progeny. We reiterate that a subcontractor is charged with knowledge of the statutory duty of the contractor to provide a bond. We agree that a jury may consider the subcontractors neglect in failing to personally verify whether a payment bond has been secured.34 Nevertheless, a subcontractor should not be precluded in all circumstances from asserting a claim against an entity such as the firm solely because it did not request a copy of the bond. To the extent Haskell and its predecessors35 are inconsistent with this opinion, they are overruled. Under the facts presented, the architectural firm's motion to dismiss was properly denied. CONCLUSION ¶25 Dismissal for failure to state a claim upon which relief can be granted involves a de novo consideration of whether the petition is legally sufficient.36 When reviewing a motion to dismiss, all of the challenged pleading's allegations together with reasonable inferences which may be drawn from them are taken in favor of the nonmoving party.37 The appropriate question in testing the sufficiency of the allegations is whether relief is possible under any set of facts that could be established consistent with the allegations.38 Courts may recognize a cause of action where they conclude that a defendant owes a duty of care to the plaintiff.39 Under the facts presented, the architect had a duty to the subcontractors to [ 999 P.2d 448 ] refrain from paying the contractor without the required statutory payment bond being secured. ¶26 We do not affirm the trial court judgment. Instead we remand the cause to the Court of Civil Appeals. Rule 1.80(b) of the Oklahoma Supreme Court Rules, 12 O.S. 1991 Ch. 15, App. 1,40 provides that should we vacate an opinion of the Court of Civil Appeals, we may address the matters not decided or remand for determination of issues left unresolved by the Court of Civil Appeals's decision. The Court of Civil Appeals, held that Haskell Lemon Const. Co., v. Independent School Dist. No. 12 of Edmond, supra, was dispositive of the subcontractor's claim. In doing so, it did not visit the other issues that the firm challenged on appeal. In addition to the dismissal issue, the firm alleges errors relating to the trial court's denial of its demurrer to the subcontractors' evidence and motion for directed verdict, various jury instructions, and the trial court's award of punitive damages. Consequently, we exercise our discretion to remand the cause to the Court of Civil Appeals, to address the firm's assignments of error left unresolved. We express no view as to the merits of the unresolved issues. CERTIORARI PREVIOUSLY GRANTED; COURT OF CIVIL APPEALS OPINION VACATED AND MATTER REMANDED TO COURT OF CIVIL APPEALS FOR PROCEEDINGS CONSISTENT WITH THIS OPINION. SUMMERS, C.J., HARGRAVE, V.C.J., HODGES, LAVENDER, KAUGER, WATT, BOUDREAU, JJ. concur. OPALA, J., concurs in result. FOOT