McKINNEY DRILLING v. Nello L. Teer Co.

248 S.E.2d 444 (1978)

38 N.C. App. 472

McKINNEY DRILLING COMPANY v. NELLO L. TEER COMPANY, Duke University, Ezra Meir Associates, Inc., and the Perkins & Will Partnership.

No. 7721SC1014.

Court of Appeals of North Carolina.

November 7, 1978.

*446 Hudson, Petree, Stockton, Stockton, & Robinson by Dudley Humphrey and Jackson N. Steele, Winston-Salem, for plaintiff-appellant.

Joyner & Howison by Edward S. Finely, Jr., Raleigh, for defendant-appellee.

MORRIS, Judge.

The appellant and appellee agree that the crux of the question before this Court is whether McKinney can maintain a cause of action against Meir grounded on negligent performance of its contract with the general contractor, Nello L. Teer, to supervise the excavation caisson shafts. McKinney seeks to recover for the expense of manual excavation in the bell portion of the caisson which he argues exceeded the requirements called for in the plans and specifications of the construction project. For purposes of this appeal we can assume that Meir was negligent in its interpretation of test data.

Plaintiff conceded in his helpful brief and oral argument that he found no North Carolina cases on point. He nevertheless, urges this Court to adopt the position taken by the courts of some other jurisdictions: that a contractor, not in privity with a consulting engineer, may recover against the consulting engineer for negligent inspection. See e. g., United States v. Rogers & Rogers, 161 F. Supp. 132 (S.D.Cal.1958); Normoyle-Berg & Assoc. v. Village of Deer Creek, 39 Ill.App.3d 744, 350 N.E.2d 559 (1976); A. R. Moyer, Inc. v. Graham, 285 So. 2d 397 (Fla.1973); see generally Annot., 65 A.L.R.3d 249 (1975).

The defendant in an equally helpful brief and argument urges this Court to follow the North Carolina precedent established in employment contract cases that tortious interference with the performance of a contract is cognizable only as an intentional tort. Childress v. Abeles, 240 N.C. 667, 84 S.E.2d 176 (1954). In the alternative, defendant argues that the cases supporting plaintiff's cause of action are distinguishable because, unlike in those cases cited, this defendant did not have final authority to determine compliance with the contract. Such authority lay ultimately in the architect in this case.

We do not consider the numerous cases concerning interference with employment contracts as apposite. Though the complaint is couched in terms of interference with contract, the issue is clearly whether, in the absence of contractual privity, McKinney may recover from Meir for negligent performance of its contract with Teer. The question is one of duty. "Whether there is a duty owed by one person to another to use care, and, if so, the degree of care required, depends upon the relationship of the parties one to the other." Insurance Co. v. Sprinkler Co., 266 N.C. 134, 140, 146 S.E.2d 53, 60 (1966). A contract may give rise to such a duty. Id. The requirement of privity, however, has been discarded in products liability cases based on negligence. Corprew v. Geigy Chemical Corp., 271 N.C. 485, 157 S.E.2d 98 (1967). Nevertheless, North Carolina preserves the privity requirement in actions based on breach of warranty. Wyatt v. Equipment Co., 253 N.C. 355, 117 S.E.2d 21 (1960). The privity requirement has been somewhat relaxed in cases where advertising to the ultimate consumer provided a sufficient link with the manufacturer to establish an express warranty running to that ultimate consumer, especially on products for intimate bodily use or human consumption. Tedder v. Bottling Co., 270 N.C. 301, 154 S.E.2d 337 (1967). Nevertheless, the privity requirement remains viable in North Carolina. Williams v. General Motors Corp., 19 N.C.App. 337, 198 S.E.2d 766 (1973), cert. den., 284 N.C. 258, 200 S.E.2d 659 (1973); Gillispie v. Bottling Co., 17 N.C.App. 545, 195 S.E.2d 45 (1973), cert. den., 283 N.C. *447 393, 196 S.E.2d 275 (1973). These cases have held fast to the privity requirement in the face of mounting criticism. Prosser, The Assault Upon the Citadel, 69 Yale L.J. 1009 (1960).

The rejection of the privity requirement in finding liability in an architect or supervising engineer has followed the same course as the abolishment of privity in products liability cases throughout the country. Courts have been much less willing to discard the privity requirement when there is economic loss rather than personal injury. See generally Note, Architect Tort Liability, 55 Cal.L.Rev. 1361 (1967).

The North Carolina cases finding liability for negligent performance of a contractual duty in the absence of privity of contract have been limited to actions for personal injury or property damages. See e. g., Council v. Dickerson's, Inc., 233 N.C. 472, 64 S.E.2d 551 (1951) (automobile damaged because of negligent highway paving); Jones v. Otis Elevator Co., 234 N.C. 512, 67 S.E.2d 492 (1951) (personal injury from fall in elevator shaft); McIntyre v. Monarch Elevator & Machine Co., 230 N.C. 539, 54 S.E.2d 45 (1949) (personal injury from fall in elevator shaft). We note that this action is not brought on the basis of third party beneficiary in contract. See e. g., Potter v. Carolina Water Co., 253 N.C. 112, 116 S.E.2d 374 (1960) (breach of contract with city to maintain sufficient water pressure in fire hydrant). We have been cited to no North Carolina decisions and have found none allowing recovery for loss of profits to a third party injured from the negligent breach of contract.

There is North Carolina precedent which remains controlling in this matter because of our courts' continued adherence to the privity doctrine in cases outside the scope of products liability or in cases not involving personal injury or property damage. Durham v. Engineering Co., 255 N.C. 98, 120 S.E.2d 564 (1961). The Durham case involved an action by the City of Durham against an electrical contractor and his surety. The contractor and surety denied breach of contract and filed a cross-action against the supervising engineers, alleging that if the contract was not properly performed it was due to the negligent supervision of work by the engineers. The contract forming the basis of this action was between the city and the electrical contractor. The supervising engineer's duties were outlined in the contract between the electrical contractor and the city. The contract stated that the supervising engineer ". . . shall decide the meaning and intent of any portion of [the] specifications or of the plans . . ." and ". . . shall have the final decision on all matters of dispute involving the character of the work . . . ." Id., 255 N.C. at 102, 120 S.E.2d at 567. The Court then concluded:

"We hold that, with respect to the interpretation of the meaning and intent of the plans and specifications, as well as to the authorization that additional work not expressly authorized in the contract but which the Engineers may deem necessary to the fulfillment of the terms of the contract and the proper completion of the job, which authority is expressly granted to the Engineers in the contract, together with their decision on all matters of dispute involving the character of the work, compensation for extra work, etc., the Engineers in making such decisions under the terms of the contract would be acting in the capacity of arbitrators and could not be held liable in damages to either party to the contract in the absence of bad faith. [Citations omitted.]" 255 N.C. at 102 and 103, 120 S.E.2d at 567.

Therefore, we hold, on the authority of Durham, that the defendant Meir cannot be held liable for negligence in the absence of privity of contract. Plaintiff's sole right to relief would be based on bad faith conduct of Meir. In so holding, we note that the Durham Court refused to impose a duty of due care on the supervising engineer running to persons not a party to the contract, even though he had authority "tantamount to a power of economic life or death over the contractor." Contra, United States v. Rogers & Rogers, supra, 161 *448 F. Supp. at 135-136. Similarly, the Fourth Circuit, citing Durham, has refused to find liability against a supervising architect in the absence of bad faith. Ballou v. Basic Construction Co., 407 F.2d 1137 (4th Cir. 1969); see also Blecick v. School Dist. No. 18, 2 Ariz.App. 115, 406 P.2d 750 (1965). It is especially appropriate on the facts of this case to impose liability only upon a showing of bad faith. Meir has a contractual obligation to Teer to assure that the caisson excavation complies with the minimum specifications called for in the construction plans. Meir should not be unnecessarily burdened with fear of liability for requiring work exceeding plan specifications. Negligent failure to perform his primary contractual duty with the general contractor could result in a defective foundation and possible extensive liability. Furthermore, McKinney could not have relied on performing its contract by excavating only to the point of drill rig refusal. As quoted above, the plans specify that the caisson contractor could expect manual excavation. In the absence of bad faith, plaintiff is sufficiently protected by submitting the dispute to the architect for resolution. The architect occupies the position of an arbitrator to resolve disputes concerning the requirements of the construction plans. Durham v. Engineering Co., supra.

We note that defendant denominated his motion which was granted in the trial court as one for summary judgment pursuant to G.S. 1A-1, Rule 56. He moved that the court grant judgment in his favor as a matter of law in that "Plaintiff has failed to state a claim for tortious interference with the performance of its contract." Although in the form of a motion for summary judgment, the test is the same as on a motion to dismiss under G.S. 1A-1, Rule 12(b)(6). See 6 J. Moore, Federal Practice, ¶ 56.02[3] (2d ed. 1971); 10 Wright and Miller, Federal Practice and Procedure: Civil § 2713. "The test on a motion to dismiss for failure to state a claim is whether the pleading is legally sufficient" to state a cause of action. 6 J. Moore, Federal Practice at p. 56-28. We find that plaintiff's complaint fails sufficiently to allege bad faith on the part of the defendant Meir. Therefore, the trial court's order dismissing the third cause of action is

Affirmed.

MITCHELL and ERWIN, JJ., concur.