St. Joseph Hospital v. Corbetta Construction Co.
21 Ill. App. 3d 925, 316 N.E.2d 51 (1974)
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Rule of Law:
An architect is liable for negligently specifying materials that violate building codes, but a contractor who installs those materials in accordance with the owner's explicit plans is not liable. A material supplier who has knowledge of a material defect that makes its product non-compliant and dangerous, and conceals that fact through misleading half-truths, is liable for fraud.
Facts:
- In 1958, St. Joseph Hospital (Hospital) contracted with architect Belli & Belli (Belli) to design and supervise the construction of a new hospital in Chicago.
- The Hospital subsequently contracted with Corbetta Construction Company (Corbetta) to serve as the general contractor.
- In August 1962, General Electric Company's (General Electric) 'Textolite' wall paneling was tested by Underwriters Laboratories and found to have a flame spread rating of 255; General Electric was aware of this result.
- Shortly thereafter, Belli issued a change order, approved by the Hospital, requiring Corbetta to install General Electric's Textolite paneling.
- General Electric informed Corbetta that its paneling did not 'carry a flame spread rating of any kind' but did not disclose the actual test result showing a rating of 255.
- Corbetta, following the change order, installed the Textolite paneling throughout the hospital between September 1963 and April 1964.
- In April 1965, the City of Chicago refused to issue an operating license to the Hospital because the Textolite paneling's flame spread rating of 255 was 17 times the maximum of 15 permitted under the Chicago Building Code.
- The Hospital was forced to remove and replace all the non-compliant paneling at a significant cost.
Procedural Posture:
- St. Joseph Hospital filed a complaint for declaratory judgment in the circuit court of Cook County against Corbetta, Belli, and General Electric.
- General Electric filed a separate lawsuit against Corbetta for the price of the paneling, which was consolidated with the Hospital's case.
- Corbetta counterclaimed against the Hospital, Belli, and General Electric; Belli also filed cross-claims for indemnity.
- The trial court bifurcated the trial, holding separate jury trials for liability and damages.
- In the liability trial, the jury returned a verdict against all three defendants: Corbetta, Belli, and General Electric.
- The trial court directed a verdict in favor of the Hospital on Corbetta's counterclaim for payment.
- A second jury determined the amount of damages the Hospital was owed for the replacement and for attorneys' fees.
- The trial court denied all cross-claims for indemnity between the defendants.
- The trial court dismissed General Electric's separate suit against Corbetta.
- All three defendants appealed the trial court's judgments to the Appellate Court of Illinois.
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Issue:
Under principles of contract, negligence, and fraud, is a contractor who follows an owner's specifications, an architect who provides those specifications, or a material supplier who knows its product is non-compliant, liable for the costs of replacing material that violates a municipal building code?
Opinions:
Majority - Mr. Justice Hallett
Yes, the architect and the material supplier are liable, but the contractor is not. An architect has a professional duty to specify materials that comply with applicable laws and is liable for negligently failing to do so. A contractor who follows defective plans and specifications furnished by the owner is not liable for resulting damages. However, a material supplier is liable for fraud when it knows its product is dangerously non-compliant but conceals this material fact with misleading half-truths. Reasoning: Belli (the architect) is liable for negligence because it specified the Textolite paneling without investigating its compliance with the Chicago Building Code, thereby breaching its professional duty to the Hospital. Corbetta (the contractor) is not liable because it merely executed a direct change order from the architect and the owner. The long-standing rule is that a contractor is not responsible for defects that result from following the owner's plans and specifications. The indemnity clauses in Corbetta's contract were not clear and explicit enough to require it to indemnify the owner for the owner's own errors. General Electric (the supplier) is liable for fraud and deceit. It knew from tests that its product was highly flammable and violated the code, yet it concealed this crucial information. Its statement that the product was not 'rated' was a misleading half-truth designed to hide the known danger, which constitutes actionable fraud, and privity of contract is not required for such a tort claim. On the issue of damages, the court reduced the award to prevent the Hospital from being unjustly enriched. The proper measure of damages is the cost to put the Hospital in the position it would have been in had the contract been properly performed, meaning it must bear the extra cost it would have originally paid for the more expensive, code-compliant paneling.
Analysis:
This case provides a comprehensive framework for allocating liability in multi-party construction defect litigation. It strongly reaffirms the Spearin doctrine, which protects contractors who diligently follow plans and specifications provided by the owner or architect. The decision's most significant impact lies in its application of fraud principles to a material supplier, establishing that a misleading half-truth about a product's fitness can create tort liability to an end-user, even without direct contractual privity. The ruling also clarifies that indemnity clauses must be exceptionally clear to shift liability for a party's own negligence, and it reinforces the compensatory principle of contract damages, preventing a plaintiff from receiving a windfall.
