National Housing Industries, Inc. v. E. L. Jones Development Co.

• Decision Date: 31 January 1978
• Docket Number: CA-CIV
• Court: Arizona Court of Appeals
• Parties: NATIONAL HOUSING INDUSTRIES, INC., a Delaware Corporation, Appellant, v. E. L. JONES DEVELOPMENT CO., an Arizona Corporation and Collar, Williams& White Engineering, Inc., an Arizona Corporation, Appellees. 13296.

Page 1374

576 P.2d 1374

118 Ariz. 374

NATIONAL HOUSING INDUSTRIES, INC., a Delaware Corporation, Appellant, v. E. L. JONES DEVELOPMENT CO., an Arizona Corporation and Collar, Williams& White Engineering, Inc., an Arizona Corporation, Appellees.

1 CA-CIV 3296.

Court of Appeals of Arizona, Division 1, Department B.

Jan. 31, 1978.

Rehearing Denied March 16, 1978.

Review Denied April 4, 1978.

Snell & Wilmer by Arthur P. Greenfield, Phoenix, for appellant

Jennings, Strouss & Salmon by Stephen A. Myers, John B. Weldon, Jr., Phoenix, for appellees.

OPINION

WREN, Judge.

Plaintiff, National Housing Industries (NHI), seeks recovery of damages from the defendant, Collar, Williams & White Engineering, Inc., for alleged negligence and breach of contract in drafting plans and specifications for the design of a residential subdivision, and for the defendant's alleged fraud, misrepresentation and concealment of material facts with respect to the sale of the subdivision to NHI. ¹ Summary judgment was entered in favor of the defendant in appealable form pursuant to Rule 54(b), Rules of Civil Procedure, 16 A.R.S. It is from this judgment that plaintiff now appeals.

The factual background begins in the spring of 1971 when E. L. Jones Construction Co. (Jones) retained the defendant, which provides professional consulting engineering services, to prepare a subdivision plat and accompanying paving, sewer, water, drainage and grading plans for the development of a parcel of real property in Maricopa County owned by Jones and known as Greenway Estates No. 4. A portion of the parties' oral agreement was later reduced to writing by a letter dated September 27, 1971, in which the defendant confirmed their earlier understanding. The relevant portions of that letter state:

"We wish to confirm to you our original verbal proposal pertaining to the Civil Engineering fees for the subdivision . . . (Greenway Estates) (.)

Our proposal to you, was to provide the necessary Civil Engineering services normally provided by our firm to plat and stake the subdivision in two units. The costs of all filing fees, construction permit fees, construction inspection fees, soil testing and material testing fees shall be paid for by the Developer directly and are not a part of this agreement."

In December of 1971 negotiations were commenced between NHI and Jones for the sale of the Greenway Estates property to NHI. During the negotiations Jones made available to NHI plats and plans provided by the defendant. On February 8, 1972, Jones executed a purchase agreement which had been drafted by NHI. Under the terms of the agreement Jones agreed to sell the Greenway parcel to NHI for a stated sum. The agreement also provided that Jones had caused the defendant to "do certain work on the Real Property as evidenced by that letter dated September 27, 1971, from (the defendant), a copy of said letter being attached hereto as Exhibit 'A'; . . ." The agreement further stated that "Jones shall assign its position under the agreement with Collar, Williams, & White, Exhibit 'A', to National and National shall assume the obligations of Jones thereunder." There is no evidence that NHI ever attempted to ascertain which services were "normally provided" by the defendant. On March 15, 1972, escrow for the purchase of the property was closed and NHI became the owner of the property.

After closing, in May 1972, NHI discovered that 20,000 cubic yards of fill would have to be imported before houses could be built on the subdivision lots if the subdivision was to be developed according to the defendant's plans and specifications. NHI also learned after the close of escrow that Oscar Temple, the owner of the property directly to the south of the Greenway property, was refusing permission to allow excess surface water to flow onto his land from the project and threatened litigation if the project was developed as planned. The defendant concedes that none of the plans and specifications prepared by it and provided to NHI prior to February 8, 1972, made note of any dispute with Mr. Temple or indicated the need for earth fill importation. However, the record shows that the plats and plans provided NHI contained sufficient information from which a cut and fill estimate could be prepared, and that NHI had employees who could and in fact did prepare such an estimate from the plans prepared by the defendant.

NHI contends its decision to purchase the Greenway property was based on representations that the property was "ready to go" as a subdivision upon which the construction of houses could immediately commence. It further alleges that at the time of sale the property was not in a condition for use as a site for immediate construction of residential dwellings as represented because of the undisclosed earth fill requirements, and because of the "hold" on the paving plans induced by Mr. Temple's refusal to permit drainage onto his property and his threats to sue. Due to these undisclosed matters NHI contends it suffered substantial and unanticipated expenses in rendering the property fit for construction of homes and seeks to recover these expenses from the defendant. NHI's theories of recovery, as stated above, are negligence and breach of contract with respect to the defendant's preparation of plans and specifications for the subdivision, and fraud, misrepresentation and concealment of material facts with respect to representations made during negotiations for the sale of property.

As we understand it, NHI takes two basic positions with respect to its contract and negligence claims. Its first contention is that the defendant "breached its agreement with plaintiff in that (it) did not perform as contracted for, i. e., the plans and specifications were not fit for the intended purpose as rendered and the engineering services provided were insufficient to render the subject property in condition for use as a site for the construction of a residential dwelling project, as represented." The plans were unfit, according to NHI, because they failed to include a cut and fill estimate or to note that fill requirements had not been considered in preparing the plans. Second, it argues the defendant failed to possess or exercise the same skill and care in performing its services as normally possessed or exercised by other engineers in the preparation of subdivision plans and specifications by not submitting a fill estimate or by failing to note fill requirements had not been considered; by failing to inform NHI the property was not in a suitable condition for constructing a residential dwelling project, and by failing to disclose the "drainage problems" with respect to the property. These failures, NHI contends, proximately caused NHI to incur additional expenses in preparing the property.

In response, the defendant argues that since NHI's contract and tort claims are based on events occurring prior to March 15, 1972, the date of the close of escrow, NHI is not entitled to recover. It contends that prior to this date there was no privity of contract between itself and NHI and that it owed no duty of due care to NHI and therefore NHI is entitled to no legal relief. NHI counters by arguing that privity of contract arose between the parties on February 8, 1972, the effective date of the purchase agreement; and further, with respect to its negligence claim, that defendant owed a duty of due care in performing its services to anyone who might use its subdivision plans. We find it unnecessary to determine the point in time contractual privity arose between the parties or the time at which defendant owed a duty of due care to NHI, since NHI failed to establish that a genuine issue of material fact existed as to whether the defendant breached its engineering contract or was negligent in performing its engineering services.

We first turn to the controlling legal principles. When seeking summary judgment the moving party has the burden of proving the absence of a genuine issue as to any material fact and that he is entitled to judgment as a matter of law. Elerick v. Rocklin, 102 Ariz. 78, 425 P.2d 103 (1967). Where, however, he makes a prima facie showing that no genuine issue of material fact exists, the burden shifts to the opposing party to produce sufficient competent evidence to show there is an issue, and it must demonstrate that evidence is available to justify trial on the issue. Dobson v. Grand International Brotherhood of Locomotive Engineers, 101 Ariz. 501, 421 P.2d 520 (1966); Robbins Investment Co. v. Green Rose Associates, Inc., 8 Ariz.App. 596, 448 P.2d 440 (1969). The duty of an engineer, whether based in tort or arising from a breach of contract, is to exercise the degree of skill, care, and diligence as engineers ordinarily exercise under like circumstances. See Kostohryz v. McGuire, 298 Minn. 513, 212 N.W.2d 850 (1973). Ordinarily, a determination that this standard has not been met and that damage was incurred as a result of a deviation therefrom must be based on expert testimony establishing the prevailing standard and the consequences of departing from it in the case under consideration. City of Eveleth v. Ruble, 302 Minn. 249, 225 N.W.2d 521 (1974). Cf. Rice v. Tissaw, 57 Ariz. 230, 112 P.2d 866 (1941).

In the case before us defen...