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Santucci Const. Co. v. Baxter & Woodman

OPINION FILED DECEMBER 24, 1986.

SANTUCCI CONSTRUCTION COMPANY, THIRD-PARTY PLAINTIFF-APPELLANT,

v.

BAXTER & WOODMAN, INC., THIRD-PARTY DEFENDANT-APPELLEE.



Appeal from the Circuit Court of Lake County; the Hon. Bernard E. Drew, Jr., Judge, presiding.

JUSTICE REINHARD DELIVERED THE OPINION OF THE COURT:

Following the filing of a sixth amended complaint by the plaintiff, the village of Fox Lake, against defendant, Santucci Construction Company (Santucci), and other defendants not parties to this appeal, Santucci filed an amended third-party complaint against Baxter & Woodman, Inc., third-party defendant. Baxter & Woodman's motion to dismiss all six counts of the amended third-party complaint was granted, and Santucci appeals from the dismissal of counts I through IV pursuant to Supreme Court Rule 304(a) (103 Ill.2d R. 304(a)).

Santucci raises three issues on appeal: (1) whether the trial court erred in finding that Santucci could not recover economic damages resulting from Baxter & Woodman's negligence as alleged in count I; (2) whether the dismissal of counts II and III, which were based on negligent and intentional interference with contractual relationships and with prospective advantage, was an erroneous application of the Moorman doctrine (Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill.2d 69, 435 N.E.2d 443); and (3) whether the dismissal of count IV, which was based on a third-party beneficiary theory, was error.

In December 1975, the village of Fox Lake and Santucci entered into a contract for the construction of sewer and water facilities by Santucci as the general contractor. Prior to this contract, the village of Fox Lake entered into a separate contract with Baxter & Woodman, which provides civil and sanitary engineering services, wherein Baxter & Woodman was to provide various professional services for the sewer and water project, including formulation of plans and specifications for the improvements, general supervision of the work of the contractors, and resident inspection of the work of the contractors if requested by the village.

Count I of the amended third-party complaint, a negligence count, alleged that the relationship between Baxter & Woodman, as project administrator, design engineer, and supervising engineer, and Santucci, as general contractor, gave rise to a duty by Baxter & Woodman to exercise that degree of skill and care usually and customarily exercised by professional engineering firms. Santucci alleged that this duty was breached by Baxter & Woodman as they negligently (1) failed to assure the existence of adequate funding prior to commencement of construction, (2) failed to assure that easement agreements had been secured and obtained by the village of Fox Lake from all property owners along the right of way of the construction project, (3) failed to allow Santucci adequate time for completion of the job in addition to the original contract schedule of 730 days after making revisions and changes in the contract plus calling for additional work, (4) failed to avoid causing unnecessary and uncontracted additional expenses following the termination of Santucci by the village thereby causing another company to needlessly undertake work already performed by Santucci, and (5) failed to avoid causing the obstruction, hindrance, and delay of Santucci and its successor in their work. Santucci alleged that Baxter & Woodman's negligence caused delays, caused it to perform its construction work inefficiently and out of sequence due to the unavailability of easements, and caused substantial additional costs. Santucci requested damages for increases in labor costs, increases in material costs, and increases in the cost of utilizing and maintaining equipment on the jobsite, as well as the cost of the otherwise avoidable mobilization and demobilization of equipment while performing the work out of sequence.

Counts II and III alleged negligent and intentional interference with contractual relationships and interference with prospective advantage. Santucci alleged that during the course of its performance of the contract, Baxter & Woodman engaged in a practice of communicating directly with Santucci's suppliers and materialmen for the purported purpose of determining the payment status of the accounts with Santucci and thereafter encouraged Santucci's suppliers to threaten to terminate or actually terminate their delivery of materials and providing of services, causing the filing of suppliers' liens and termination of deliveries and performance by Santucci's suppliers. It was further alleged that Baxter & Woodman abused its responsibility of supervising and administering the project for the village of Fox Lake by encouraging and persuading the village to treat the actions of the suppliers and materialmen as grounds to terminate Santucci's performance of the contract. Santucci alleged that these actions were either done by Baxter & Woodman with malice, to deliberately cause injury to Santucci, or were done negligently and carelessly in violation of Baxter & Woodman's duty to administer and supervise Santucci's work.

Santucci also alleged that this interference prevented Santucci from completing the contract and obtaining the benefits it would have derived from its contractual relationship with the village and prevented it from obtaining the business advantage from the continuing relationship it would otherwise have had with the village. Santucci requested damages from the denial of the full benefits it would have been entitled to under the contract, for the total amount of its payment and performance bond, and for the destruction of its financial condition and business reputation with the consequent loss of its bonding capacity and future business.

Count IV of the amended third-party complaint alleged that Santucci is a third-party beneficiary of the contract between Baxter & Woodman and the village of Fox Lake based on the provisions of the contract, which provided that Baxter & Woodman would furnish general supervision of the work of the contractors, general supervision being defined in the contract as "including all office work for the proper control of payouts to the Contractors, change orders and the review of shop drawings, plus control of the project by visits as deemed necessary by the Engineer or as requested by the Village or its representatives." Santucci alleged that this amounted to an express agreement of the parties that Santucci, the contractor, should derive the direct benefits of Baxter & Woodman's administration of the contract payouts to Santucci, payment to Santucci, and of Baxter & Woodman's issuance of and direction to perform change orders. It further alleged that implied in the agreement was a promise to confer the benefit of other services upon Santucci, including the provision of adequate funding and the availability of all necessary easements. Santucci alleged that Baxter & Woodman breached these contractual duties by (1) failing to secure adequate funding, (2) failing to acquire all easements in a timely fashion, (3) failing to allow in good faith to Santucci the appropriate time extensions when issuing change orders, (4) failing to observe good faith in its administration of payouts to Santucci as it encouraged liens to be filed by Santucci's suppliers, (5) encouraging the village to terminate Santucci, and (6) refusing to recognize the value of material and supplies delivered to Santucci in calculating progress payments to be made to Santucci by the village.

Santucci requested damages for these alleged breaches of its full benefits due under the contract, for the total amount of its payment and performance bond less the amount received by its indemnitee from the village, and for the destruction of its financial condition and business reputation.

Counts V and VI alleged causes of action for indemnity and contribution and are not part of this appeal.

Baxter & Woodman filed a motion to dismiss Santucci's amended third-party complaint stating that counts I, II, III, V, and VI were barred by the economic-loss doctrine, that its conduct was privileged so that counts II and III did not state a cause of action, and that there could be no recovery under a third-party beneficiary theory as the contract between Baxter & Woodman and the village of Fox Lake was intended to benefit only the village and its residents. Following the filing of memoranda of law by the parties, the trial judge, in a memorandum of opinion, dismissed the amended third-party complaint finding, inter alia, that the economic-loss doctrine barred any negligence action, including economic loss alleged to have been incurred by the torts of negligent and intentional interference with a contractual relationship and with a prospective advantage, and that Santucci was not a third-party beneficiary of the agreement between the village and Baxter & Woodman. Santucci's subsequent motion for reconsideration was denied.

• 1 Addressing first whether the negligence action as alleged in count I is barred under the economic-loss doctrine established in Moorman Manufacturing Co. v. National Tank Co. (1982), 91 Ill.2d 69, 435 N.E.2d 443, we note that several arguments are presented in Santucci's brief, which was filed on January 24, 1986. We need not recite and address each of these contentions as the recently filed opinion of our supreme court in Anderson Electric, Inc. v. Ledbetter Erection Corp. (1986), 115 Ill.2d 146, is dispositive of this issue. In Anderson Electric, the court reaffirmed its position that there can be no recovery in tort solely for economic losses — economic losses being defined as damages for inadequate value, costs of repair and replacement of the defective product, or consequential loss of property, without any claim of personal injury or damage to other property. (115 Ill.2d 146, 149.) It also held that a plaintiff seeking to recover purely economic losses due to defeated expectations of a commercial bargain cannot recover in tort, regardless of the plaintiff's inability to recover under an action in contract. (115 Ill.2d 146, 149-50.) In the instant case, the damages sought are for economic losses, and the holdings in Moorman and Anderson Electric require the dismissal of the negligence action pleaded in count I.

• 2 Similarly, the allegations in counts II and III which purport to allege causes of action for the negligent interference with contractual relationships and prospective advantage are negligence actions seeking economic losses and were properly dismissed. We also note that recognition of a cause of action for such tortious interference with contractual relations and business expectations in Illinois has been for an intentional inference and has not been extended to negligent interference. O'Brien v. State Street Bank & Trust Co. (1980), 82 Ill. App.3d 83, 85, 401 N.E.2d 1356; see also Swager v. Couri (1979), 77 Ill.2d 173, 187-89, 395 N.E.2d 921; Meadowmoor Dairies, Inc. v. Milk Wagon Drivers' Union of Chicago No. 753 (1939), 371 Ill. 377, 381-82, 21 N.E.2d 308; Futurevision, Inc. v. Dahl (1985), 139 Ill. App.3d 61, 66-67, 487 N.E.2d 127; Restatement (Second) of Torts sec. 766C (1979); Prosser, Torts sec. 129, at 938-42 (4th ed. 1971).

However, in count II Santucci also alleges an intentional interference with its contractual relationship with the village of Fox Lake by Baxter & Woodman's actions in encouraging Santucci's suppliers to terminate their delivery of materials and providing of services to Santucci which Baxter & Woodman then used as grounds to persuade the village to terminate the contract with Santucci. In count III, Santucci alleges an intentional interference with Santucci's prospective advantage in future business by the same acts of Baxter & Woodman alleged in count II. Santucci alleges that he was prevented from obtaining the business advantage of its plant and equipment, of the continuing goodwill ...


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