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A court dismissed a project owner’s suit against the manufacturer of flooring materials that were used in the building because there was no privity of contract between the owner and he manufacturer. The manufacturer was a subcontractor to the flooring contractor who in turn had a contract with the owner.   Since the matter  involved the sale of commercial goods, the court found that the “economic loss doctrine” barred the negligence claim against the manufacturer.  Key to deciding this case was the court’s determination that  the predominant purpose of the underlying transaction with Parker Coatings, Inc. the subcontractor, was the “sale of goods” and not the “provision of services.” Any services provided by Parker were merely incidental to the sale of the goods and thus did not alter the essence of the transaction.

The flooring had to be ripped out a relayed because the epoxy did not hold down the material as was promised.  The contractor, Epoxy Coatings, Inc. did the rework along side its subcontractor, Parker, Inc.  Unfortunately, the flooring material continued to be unsatisfactory even after the re-work.  In response, the owner filed suit against the subcontractor, Parker.  There is no explanation for the apparent failure of the owner to sue its prime flooring contractor.

In granting summary judgment against the owner, the trial court explained that   “without a claim of personal injury or physical harm to property other than the defective product itself, [owner’s] remedy was a breach of warranty claim.” Because the the damages were strictly economic in nature, the court held that there could be no recovery absent a contract between the owner and the manufacturer.

It seems that the owner characterized it claim against Parker as being based on negligence so that it could avoid the harsh results of the economic loss doctrine.   According to the complaint,  Parker “was negligent in providing incorrect and improper instruction, guidance and advice to Epoxy” for the installation of its flooring materials.  The owner argued that this allegation was based upon “negligent provision of services.”  Parker, on the other hand argued that   the predominant purpose of its transaction with the prime contractor involved the sale of goods.  Any services provided by the subcontractor were argued to merely incidental.

“The economic loss doctrine is a judicially created doctrine providing that a commercial purchaser of a product cannot recover from a manufacturer, under the tort theories of negligence or strict products liability, damages that are solely economic in nature.”  In addition to this, the court said that  the economic loss doctrine  bars a remote commercial purchaser such as the owner in this case from recovering solely economic losses from a manufacturer with whom he has no contract.

The “predominant purpose test” was used by the court to determine whether the economic loss doctrine would bar recovery by a remote commercial purchaser under a negligence claim.  Because the court found the predominant purpose to be the sale of flooring materials and not the delivery of services, the court dismissed the negligence action.

Daniel Biese v. Parker Coatings, Inc., 588 N.W. 2d 312, (Wisc App. 1998).

Article Copyright  ã 1999, ConstructionRisk.com, LLC – Virginia.

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. 1, No. 2 (May 1999).