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Housing Dev. Auth. v. M-z Constr. Corp.





Appeal from the Circuit Court of Cook County; the Hon. Paul F. Elward and the Hon. Thomas J. O'Brien, Judges, presiding.


Rehearing denied November 18, 1982.

Plaintiffs, Illinois Housing Development Authority (IHDA or Authority), Schaumburg Green Associates, and Chicago Title and Trust Company, appeal an order of the trial court dismissing counts I, II and III of their fifth amended complaint against defendants, Seymour S. Goldstein, Ltd. (Architect), and Seymour S. Goldstein, an individual (Goldstein). The issues raised for review are (1) whether the 6-month period for submission of disputes under the construction contract between the owner and the general contractor to IHDA for arbitration is a period of limitations for a lawsuit by the owner and IHDA against Architect and Goldstein; (2) whether IHDA is a third-party beneficiary of contracts executed by the owner and Architect; (3) whether IHDA is subrogated to the owner's rights in its contract with Architect; (4) whether Architect and Goldstein owed IHDA a duty of care in the design and construction supervision of the development; and (5) whether Illinois law recognizes a cause of action in negligence to recover economic losses for professional malpractice.

We affirm with respect to IHDA, and we reverse and remand with respect to Schaumburg Green Associates and Chicago Title and Trust Company.

The Illinois Housing Development Act (Ill. Rev. Stat. 1979, ch. 67 1/2, par. 301 et seq.) declares that "there exists within Illinois a serious shortage, of decent, safe, and sanitary housing available at low and moderate rentals to persons and families of low and moderate income." (Ill. Rev. Stat. 1979, ch. 67 1/2, par. 303.) The Illinois Housing Development Authority was created as "a body politic and corporate with power to issue notes and bonds in order to make loans for the construction and rehabilitation of housing and community facilities, acquire and develop land for large-scale planned developments and new communities and, as a means of encouraging home ownership, make loans to and purchase residential mortgages from private lending institutions." Ill. Rev. Stat. 1979, ch. 67 1/2, par. 303.

On March 16, 1972, IHDA agreed to loan to Chicago Title and Trust Company, as trustee, $6,895,000 for the construction of eight buildings containing 367 apartments to be located in Schaumburg, Illinois. Schaumburg Green Associates, an Illinois limited partnership, was the sole beneficiary under the trust. The loan was increased to $7,300,000 on April 11, 1975, and to $7,977,000 on October 18, 1978. Several documents were executed in connection with the loan, among them the construction contract, the owners-architect agreement for preconstruction services, and the owners-architect agreement for construction services. These three documents were executed on April 14, 1972.

The parties to the construction contract were the Chicago Title and Trust Company, the owner, and M-Z Construction Corp., the contractor. The contract itself defined "parties" as the owner and contractor, and "Authority" as the Illinois Housing Development Authority.

The arbitration clause provided as follows:

"5. Arbitration:

(a) Between Parties

Parties agree that all disputes between them concerning matters arising out of the Contract and any other matters directly or indirectly concerning the Development and Work shall be arbitrated and decided by the Authority pursuant to the Uniform Arbitration Act (Chapter 10, Section 101 et seq., Illinois Revised Statutes). Parties, either jointly or individually, shall promptly notify Authority in writing of a dispute setting forth the alleged facts and issues. Parties shall cooperate with Authority to aid its decision making. A reasonable time after receipt of the foregoing writing, Authority shall conduct a hearing and thereafter render a binding written decision. No dispute shall be considered or decided if it is not submitted by a Party within six months after the Completion Date listed in Contract Document 1 or any authorized extension thereof.

(b) Concerning Authority's Rights and Obligations

Parties and Authority agree that any disputes between them concerning Authority's rights including, but not limited to, those under Section 27 hereof and obligations arising out of the Contract shall be decided and arbitrated pursuant to the Uniform Arbitration Act (Chapter 10, Section 101 et seq. Illinois Revised Statutes) in accordance with the Construction Industry Arbitration Rules of the American Arbitration Association, effective March 8, 1966, which are by reference incorporated herein. The arbitration proceedings shall take place in Chicago, Illinois."

The remedies clause of the construction contract provided as follows:

"23. Remedies:

Authority's and Owner's remedies are cumulative and the exercise of one shall not be deemed an election of remedies nor foreclose the exercise of Authority's or Owner's other remedies."

The parties to the owners-architect agreement for preconstruction services were the Chicago Title and Trust Company, as owner, and Seymour S. Goldstein, Ltd., architect. The agreement provided in pertinent part as follows:

"4. Work

(a) Professional Services

The Architect will supply all professional services, including but not limited to architectural, engineering, consulting and, field engineering, necessary for the architectural planning and designing of Development, including but not limited to architectural planning, site planning, structural engineering, mechanical and electrical engineering, civil engineering, landscape architecture, and other services required for the complete performance of this Agreement (hereinafter called `Work'), provided however, that no portion of the Work may be delegated to any person or entity not acceptable to Owner and Authority.

(b) Responsibility

Architect shall be responsible for the Work and payment of any persons or entities performing services which are incorporated in the work hereunder.

(c) Standard of Performance

The Work performed hereunder by Architect shall be of the highest professional standards.

(e) Specific Work Requirements

Without limiting the scope of the Work set forth in (a) above, Architect shall specifically:

(v) order a subsurface soil investigation required for proper planning of Development, including the design of foundations, surface improvements, and underground piping and distribution systems.

(vii) make such changes in the documents due to deficiencies for which he is responsible.

(viii) furnish the following:

outline specifications floor plans (full scale and suitable for advertising reproductions)

architectural planning

elevatio ...

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