Ritter v. Custom Chemicides, Inc.

• Citation: 912 S.W.2d 128
• Parties: Prod.Liab.Rep. (CCH) P 14,454 Jack and Nancy RITTER, Thomas H. and Debra Kitts, and Fred A. and Donna J. Sykes, Plaintiffs-Appellants, v. CUSTOM CHEMICIDES, INC., Defendant-Appellee.
• Decision Date: 18 December 1995
• Court: Supreme Court of Tennessee

Page 128

912 S.W.2d 128

Prod.Liab.Rep. (CCH) P 14,454

Jack and Nancy RITTER, Thomas H. and Debra Kitts, and Fred A. and Donna J. Sykes, Plaintiffs-Appellants, v. CUSTOM CHEMICIDES, INC., Defendant-Appellee.

Supreme Court of Tennessee at Nashville.

Dec. 18, 1995.

Rehearing Denied Jan. 22, 1996.

Carl R. Ogle, Jr., Jefferson City, for Plaintiffs-Appellants.

D. Michael Swiney, Wynne C. Hall, Paine, Swiney and Tarwater, Knoxville, for Defendant-Appellee.

OPINION

REID, Justice.

The Court has accepted for decision two questions of law certified by the Sixth Circuit Court of Appeals, pursuant to Rule 23, Supreme Court Rules, which questions are as follows:

(1) Whether the tort of negligent misrepresentation applies only to professionals and others who specialize in providing information as a service; and not to commercial entities or businesses which allegedly supply misleading information for the guidance of others in their business transactions; and

(2) Whether a party alleging negligent misrepresentation, in order to recover "economic losses," must be in privity of contract with the defendant.

The decision of the Court is that liability for the tort of negligent misrepresentation is not limited to "professionals"; however, the record in this case does not establish the essentials of that cause of action.

ISSUES

For the purposes of this opinion, the facts are as alleged by the plaintiffs and as presented in the order of the Sixth Circuit certifying the two questions to this Court: the plaintiffs grew tomatoes on their farms in Grainger County; the defendant is a California corporation; the defendant manufactured and distributed a product known as "Frostguard"; the defendant represented, in advertisements directed at the plaintiffs and other commercial tomato growers and in material delivered to the plaintiffs directly, that Frostguard would help protect tomatoes from the harmful effects of frost; the plaintiffs, in reliance upon the defendant's representations, purchased Frostguard from a retailer who was not the defendant's agent; the plaintiffs applied Frostguard to their tomato crops according to the directions provided by the defendant; and "there was extensive damage to their crops as a consequence," thereby causing economic loss to the plaintiffs.

The plaintiffs' original suit was based on breach of express and implied warranties, negligence in the manufacturing, testing, and advertising of Frostguard, and negligent misrepresentations regarding the product. The district court granted the defendant's motion for summary judgment as to all claims. The plaintiffs appealed, but only the claim of negligent misrepresentation.

The plaintiffs contend that the facts alleged constitute the tort of negligent misrepresentation for which they are entitled to recover damages for pecuniary or economic losses. ¹ They rely upon Bethlehem Steel Corp. v. Ernst & Whinney, 822 S.W.2d 592 (Tenn.1991); John Martin Co. v. Morse/Diesel, Inc., 819 S.W.2d 428 (Tenn.1991); and Restatement (Second) of Torts, § 552 (1977). The defendant contends that Section 552 is not applicable to this suit for economic loss. It relies upon Bethlehem Steel, John Martin Co., and also First Nat'l Bank of Louisville v. Brooks Farms, 821 S.W.2d 925 (Tenn.1991).

ANALYSIS

This Court has recognized three distinct actions in tort based on misrepresentation: fraud and deceit; strict liability under Section 402B of the Restatement (Second) of Torts (1965); and negligent misrepresentation under Section 552 of the Restatement. See Jasper Aviation, Inc. v. McCollum Aviation, Inc., 497 S.W.2d 240, 242-43 (Tenn.1972); John Martin Co. v. Morse/Diesel, Inc., 819 S.W.2d at 433. The complaint does not allege fraud or fraudulent misrepresentation. The distinctions between Section 402B, "Misrepresentation by Seller of Chattels to Consumer," and Section 552 of the Restatement, "Information Negligently Supplied for the Guidance of Others," will be noted; but resolution of the issues presented must be determined by the application of the provisions of Section 552 of the Restatement to the plaintiffs' allegations as reflected in the order of the Sixth Circuit Court of Appeals.

The Court stated in John Martin Co., that Section 552 sets forth the components of an action for pecuniary loss based on negligent misrepresentation; Section 552 provides as follows:

§ 552. Information Negligently Supplied for the Guidance of Others.

(1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

(2) Except as stated in Subsection (3), ² the liability stated in Subsection (1) is limited to loss suffered

(a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and

(b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction.

In exposition on Section 552, the Court stated:

By the use of this standard, liability in tort would result when, despite lack of contractual privity between the plaintiff and the defendant,

(1) the defendant is acting in the course of his business, profession or employment, or in a transaction in which he has a pecuniary (as opposed to gratuitous) interest; and

(2) the defendant supplies faulty information meant to guide others in their business transaction; and

(3) the defendant fails to exercise reasonable care in obtaining or communicating the information; and

(4) the plaintiff justifiably relies upon the information.

John Martin Co., 819 S.W.2d at 431.

The issue in John Martin Co. was whether a subcontractor could make a claim in tort against a construction manager employed by the owner, for economic loss caused by the construction manager's negligence in furnishing inaccurate information regarding the plans and specifications for the subcontractor's performance. The defendant insisted that privity of contract was essential to finding liability. The Court allowed the action to be maintained and stated that a cause of action for negligent misrepresentation could be asserted against "professionals whose business is to supply technical information for the guidance of others" and that "[p]rivity is not a prerequisite." Id. at 433, 435 (citing Vineyard v. Timmons, 486 S.W.2d 914, 920 (Tenn.App.1972)). In Bethlehem Steel Corp. v. Ernst & Whinney, decided a few months after John Martin Co., the Court held that Section 552 is the appropriate standard for determining the liability of accountants as well as "other professionals and business persons" in actions for negligently supplying false information brought by parties with whom there is no privity of contract. Bethlehem Steel Corp. v. Ernst & Whinney, 822 S.W.2d at 595.

The defendant's contention that Section 552 is limited to "professionals" is not supported by the language of the section nor prior decisions of this Court. Section 552 imposes liability upon "one who, [is acting] in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest." This language obviously includes non-professionals involved in certain business activities or transactions. In addition to a construction manager in John Martin Co. and an accountant in Bethlehem Steel Corp., prior decisions of this Court have found the rule applicable to a pest control company, Pietramale v. Dugay, 714 S.W.2d 281, 283 (Tenn.1986); and a surveyor, Tartera v. Palumbo, 224 Tenn. 262, 453 S.W.2d 780, 784 (1970). The Court of Appeals has found Section 552 applicable to the seller of a log home kit, Stamp v. Honest Abe Log Homes, Inc., 804 S.W.2d 455, 458 (Tenn.App.1990); a landlord, Keller v. West-Morr Investors, Ltd., 770 S.W.2d 543, 547 (Tenn.App.1988); and a seller of real estate, Chastain v. Billings, 570 S.W.2d 866, 868 (Tenn.App.1978). Section 552, therefore, does not limit to professionals liability for economic loss based on negligence in supplying false information for the guidance of others.

However, assuming, arguendo, that the defendant is within the definition of "business persons" ³ governed by Section 552(1), resolution of that issue does not compel the conclusion that the plaintiffs have alleged a cause of action for economic loss under Section 552.

That section imposes liability upon proof that the defendant supplied false information and failed to exercise reasonable care in obtaining or communicating the information. The recitation of circumstances out of which the question of law arises, which accompanies the questions of law submitted by the Sixth Circuit, shows only that the plaintiffs purchased Frostguard from a retailer; their decision to purchase and use Frostguard was based upon "published advertisements" and repeated assurances from Custom Chemicides as to the "effectiveness" of the product; and the defendant's representative instructed plaintiffs as to the proper purposes, uses, and methods of application and "there was extensive damage to their crop as a consequence." There is no identification of the information supplied and no assertion that information supplied was false. Nor is there any identification of negligence committed by the defendant in obtaining or communicating information relied upon by the plaintiffs. Advertisements and even direct statements that the product was "effective" does not constitute proof that the defendant supplied false information for the guidance of others. The allegation that the product harmed the plaintiffs' crops is not an...