The principal issue presented by this appeal is the extent to which tort liability should be imposed upon builders and architects for damages suffered by parties who enjoy no contractual privity with them. We hold that privity is not an absolute prerequisite to the existence of a tort duty in this type of case, and that the duty of builders and architects to use due care in the design, inspection, and construction of a building extends to those persons foreseeably subjected to the risk of personal injury because of a latent and unreasonably dangerous condition resulting from that negligence. Additionally, we hold that where the dangerous condition is discovered before it results in injury, an action in negligence will lie for the recovery of the reasonable cost of correcting the condition.
The Atlantis Condominium is a twenty-one story building containing 198 separate condominium units and located in Ocean City, Maryland. The council of unit owners as the governing regime of the condominium, and three unit owners who sue in their individual capacity and who seek to be certified as representative members of a class, brought an action in tort against the general contractor, developer, and architects involved in the construction of the building, contending that as a result of their negligence the utility shafts and related electrical work were not constructed and installed in accordance with the plans and specifications and did not comply with the requirements of the applicable building code. They allege that these latent conditions create a fire hazard that "presents a threat to the safety and welfare of the owners and occupants of the Atlantis Condominium and to the personal and real property of [the] owners and occupants."
The specific deficiency alleged is the failure to construct ten vertical utility shafts with materials having a fire resistance rating of two hours. Appellants do not allege negligence in the design of the shafts, but rather a failure to construct the shafts in accordance with the design.
The builder and the certifying architects filed demurrers, contending that the declaration failed to allege facts sufficient to show a duty owing by them to Appellants. They contended that in the absence of privity no duty could arise. Recognizing, however, that the modern trend was toward the recognition of a duty to third parties under some circumstances, they advanced the alternative argument that a duty should not be recognized in this case because Appellants had suffered only economic loss, and not personal injury or property damage. The developer also demurred asserting as its sole challenge to the sufficiency of the count against it that there was no allegation of personal injury or property damage, and that it "cannot be liable in tort to plaintiffs for purely economic loss." We restrict our consideration of the sufficiency of the pleadings to those grounds specifically set forth in the demurrer and therefore properly before the trial judge. Shoreham v. Randolph Hills, 269 Md. 291, 303, 305 A.2d 465 (1973); Maryland Rule 885.
The trial judge sustained the demurrers without leave to amend, concluding that Maryland law would not recognize a tort duty in the absence of privity under these circumstances, and that in any event a duty would not be recognized where only economic loss was claimed.
Following that ruling, the supervising architect, who had initially filed a demurrer but then withdrew it by filing a general issue plea, filed a motion for summary judgment alleging it owed no duty to Appellants for the reasons relied upon by the trial judge in sustaining the demurrers of the other Appellees. The motion was granted and judgment entered. A timely appeal was taken and we granted certiorari prior to consideration of the case by the Court of Special Appeals.
We first consider whether a builder or architect may, under any circumstances, owe a tort duty of reasonable care to a person with whom he has no contractual privity.
In its early development, the law relating to builders and architects generally held that their duty did not extend to those with whom they had no contractual privity. Gradually, however, exceptions to the general rule of nonliability were judicially recognized. Actions in negligence were permitted, for example, where the contractor had practiced fraud or deceit or had deliberately concealed defects in the work; where construction created a condition that was imminently or inherently dangerous; or where the contractor created a nuisance per se.
As the list of exceptions to the rule of nonliability grew, and as the attack upon the citadel of privity progressed in the area of products liability, courts increasingly turned to a reexamination of the underpinnings and continued viability of the general rule. The authors of a recent text offer the following analysis of the results of that reappraisal:
Prosser and Keeton on the Law of Torts § 93, at 667-68 (5th ed. 1984), in analyzing the liability of a contracting party to third parties said:
The authors conclude that the rule of nonliability and its plethora of exceptions has now evolved into a general rule of liability where the result of negligence is the creation of a dangerous condition.
This trend was also reflected by the incorporation of § 385 into the Restatement (Second) of Torts (1965).
Among the courts that have recognized a duty on the part of builders or architects toward third persons after acceptance of work by the owner are: Hanna v. Fletcher, 231 F.2d 469 (D.C. Cir.), 58 A.L.R.2d 847, cert. denied sub nom., Gichner Iron Works, Inc. v. Hanna, 351 U.S. 989, 76 S.Ct. 1051, 100 L.Ed. 1501 (1956) (tenant's action against landlord's contractor for negligent repair of railing); Wright v. Creative Corp., 30 Colo. App. 575, 498 P.2d 1179 (1972) (subsequent purchaser's action against contractor for failure to install safety glass in a sliding door); Drexel Properties, Inc. v. Bay Colony Club Condominium, Inc., 406 So.2d 515 (Fla. Dist. Ct. App. 1981), review denied, 417 So.2d 328 (Fla. 1982) (condominium association's claim against architect and builder for negligence in supervising construction and in making subsequent repairs); Stephens v. Stearns, 106 Idaho 249, 678 P.2d 41 (1984) (tenant's action against architect and builder for failure to provide hand rail); Kristek v. Catron, 7 Kan.App.2d 495, 644 P.2d 480 (1982) (home buyer's action against builder for negligent construction of roof); Marine Insurance Company v. Strecker, 234 La. 522, 100 So.2d 493 (1957) (tenant's action against landlord's contractor for faulty installation of cabinet); Totten v. Gruzen, 52 N.J. 202, 245 A.2d 1 (1968) (purchaser's action against seller's subcontractor); Oates v. Jag, Inc., 314 N.C. 276, 333 S.E.2d 222 (1985) (subsequent purchaser's action against builder); Leigh v. Wadsworth, 361 P.2d 849 (Okla. 1961) (action by tenant of subsequent purchaser against original builder); Strandholm v. General Const. Co., 235 Or. 145, 382 P.2d 843 (1963) (action by longshoremen against installer of boom that collapsed); Terlinde v. Neely, 275 S.C. 395, 271 S.E.2d 768 (1980) (subsequent purchaser's claim against original builder); Moxley v. Laramie Builders, 600 P.2d 733 (Wyo. 1979) (subsequent purchaser's claim against original builder for defective electrical wiring).
In rendering a decision upon the demurrers in this case, Judge Eschenburg acknowledged the trend toward the relaxation of the privity requirement in construction negligence cases but concluded he was bound by our statement in Marlboro Shirt Co. v. Am. Dis. Tel. Co., 196 Md. 565, 571-72, 77 A.2d 776 (1951) that "a contractor owes no duty to the general public for which it may be made responsible in an action in tort for negligence, if it does not perform its contract." Similarly, Appellees rely heavily upon Marlboro Shirt as controlling precedent. Thus, several observations are in order concerning Marlboro Shirt. First, that case involved an action solely for damages resulting from injury to personal property, and the plaintiffs did not allege that the negligence of the contractor created any risk of personal injury.
Additionally, in Otis we quoted the following significant language from MacPherson v. Buick Motor Company, supra, 111 N.E. at 1053:
In Otis Elevator Co. v. Embert, supra, denial of recovery to the injured elevator user was not grounded upon the absence of a duty running from the maintenance company to the injured plaintiff. Rather, we assumed that a duty of due care would extend to foreseeable users, but in the facts of the case found no duty on the part of the elevator company that could be related to the accident. By its contract with the owner of the building, the Otis Elevator Company had undertaken to maintain the elevator equipment, but it had not undertaken by contract or conduct any duties with respect to supervision of or advice regarding the operation of the elevator. Therefore, because the evidence clearly showed that the accident did not result from a breach of the duty to maintain the elevator, but instead arose out of the operation of the elevator, the elevator company was not liable to anyone.
The cases of Krieger v. J.E. Greiner Co. Inc., supra, and Coffey v. Derby Steel Co., 291 Md. 241, 434 A.2d 564 (1981) likewise turned on the existence vel non of any duty that could be related to the injury, rather than upon the determination of whether a particular duty extended to third parties. Nothing that we have said in Otis Elevator Co., Krieger or Coffey is inconsistent with the decision we reach today.
Appellees also rely on Matyas v. Suburban Trust Co., supra, but that case does not stand for the proposition that a tort duty of due care will not be extended in the absence of privity. Rather, Matyas reaffirms the familiar proposition that not every duty assumed by contract will sustain an action sounding in tort. See Heckrotte v. Riddle, 224 Md. 591, 595, 168 A.2d 879 (1961). In Matyas we held that neither the landlord nor the tenant had any obligation imposed by law to clear snow and ice from abutting public sidewalks, and that a provision in the lease requiring the tenant to do so would not create a legal obligation to third parties. While a contract may serve to define the nature of the obligation undertaken, and thus serve to identify the allocation or assumption of duties among various parties, it will not create a legal duty where one does not exist.
In following the modern trend, we hold that privity is not an absolute prerequisite to the existence of a tort duty. The duty of the architects and the builders in this case, to use due care in the design, inspection, and construction of this condominium extended to those persons foreseeably subjected to the risk of personal injury created, as here, by a latent and unreasonably dangerous condition resulting from their negligence. As indicated above, we are not required to, and do not reach the question of whether a risk of property damage alone will support the recognition of a tort duty.
We turn to the question of whether this type of action may be maintained against a builder or architect where the risk of personal injury exists, but personal injury has not in fact resulted. One view, reported in Prosser and Keeton on The Law of Torts, supra, § 92 n. 15 at 659, is that tort liability will not be imposed unless personal injury or property damage has occurred:
In products cases, liability in negligence for economic loss alone, unaccompanied by physical injury, is often denied regardless of privity. 5 F. Harper, F. James and O. Gray, The Law of Torts, supra, § 28.9 n. 21 at 403-04. As Dean Prosser stated:
On the other hand an increasing number of courts have declined to distinguish between a risk of personal injury or property damage on the one hand and a risk of economic loss on the other, finding no rational basis for that distinction. See, e.g., Stewart v. Cox, 55 Cal.2d 857, 13 Cal.Rptr. 521, 362 P.2d 345 (1961); Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041 (Colo. 1983); Drexel Properties, Inc. v. Bay Colony Club Condominium, Inc., 406 So.2d 515 (Fla. Dist. Ct. App. 1981), review denied, 417 So.2d 328 (Fla. 1982); Barnes v. Mac Brown and Company, 264 Ind. 227, 342 N.E.2d 619 (1976); Kristek v. Catron, 7 Kan.App.2d 495, 644 P.2d 480 (1982); Juliano v. Gaston, 187 N.J.Super. 491, 455 A.2d 523 (1982), cert. denied, 93 N.J. 318, 460 A.2d 709 (1983); Quail Hollow East Condominium Association v. Donald I. Scholz, Co., 47 N.C. App. 518, 268 S.E.2d 12, review denied, 301 N.C. 527, 273 S.E.2d 254 (1980); Terlinde v. Neely, 275 S.C. 395, 271 S.E.2d 768 (1980); A.E. Investment Corp. v. Link Builders, Inc., 62 Wis.2d 479, 214 N.W.2d 764 (1974).
In the context of this case, we find particularly persuasive the reasoning of the Indiana Supreme Court in Barnes v. Mac Brown and Company, supra, 342 N.E.2d at 621:
A similar conclusion was reached by the Fourth District Court of Appeal of Florida in Drexel Properties, Inc. v. Bay Colony Club Condominium, Inc. supra, 406 So.2d at 519:
We conclude that the determination of whether a duty will be imposed in this type of case should depend upon the risk generated by the negligent conduct, rather than upon the fortuitous circumstance of the nature of the resultant damage. Where the risk is of death or personal injury
Appellants' claim against the developer requires independent analysis — a process that is complicated somewhat by the state of the pleadings. Appellants alleged that Colonial was a developer of the condominium project and was negligent with respect to the construction of the shafts. They further alleged that Colonial negligently obtained the occupancy permit, and that through its advertising and sale of the units it negligently misrepresented to the unit owners that the building was suitable for occupancy. Colonial's demurrer raised only one issue — that it could not be liable in tort to Appellants for purely economic loss, so that the failure to allege personal injury or property damage constituted a fatal defect. We restrict our consideration of the demurrer to the single ground asserted, Shoreham v. Randolph Hills, supra, but find it necessary to discuss the sources of potential liability of the developer in order to fully answer the question presented.
A developer generally is thought of as one who improves and subdivides land, and builds and sells residential structures. Development and sale of land may be the sole business of the developer or it may be undertaken as a sideline by persons principally engaged in other businesses. The developer is the entrepreneur: he owns the land, determines how it is to be developed, and often selects others to perform some or all of the functions of testing, design, construction, supervision, financing, and marketing. Exclusive authority to control every phase of the project rests initially with the developer. In the case of major developers, that control may be retained in its entirety. See, e.g., Shipper v. Levitt & Sons, Inc., 44 N.J. 70, 207 A.2d 314 (1965). In other cases, the developer may employ independent contractors, and may by contract determine the extent of actual control or supervision that he will retain.
The nature and extent of a tort duty recognized by law depends in part on the status of the party upon whom it is sought to be imposed, and upon his relationship to the party claiming the benefit of it. See, e.g., Rowley v. City of Baltimore, 305 Md. 456, 463, 505 A.2d 494 (1986). Putting aside for the moment Appellants' claim of negligent misrepresentation, we examine the duty of the developer as it may flow from each of the three legal positions the developer occupies: 1) owner and occupier of the land, 2) creator of the improvement, and 3) vendor of the dwelling units.
As the owner and occupier of land, a developer owes a nondelegable duty to those who may come upon the land, and the nature and extent of that duty is fixed by the status of the person claiming it. Rowley v. City of Baltimore, supra, 305 Md. at 464-65, 505 A.2d 494; Sherman v. Suburban Trust Co., 282 Md. 238, 242, 384 A.2d 76 (1978). Where possession of the land is surrendered, that liability may be interrupted. Henley v. Prince George's County, 305 Md. 320, 327-38, 503 A.2d 1333 (1986). Where the surrender of possession is permanent by reason of sale of the property, the allocation of duties between vendor and vendee with respect to bodily harm resulting from dangerous conditions not apparent to a vendee, depends upon a number of factors. Where the dangerous condition arises after transfer of possession, the vendor is generally not liable. Restatement (Second) of Torts § 351 (1965). However, where the condition existed at the time of transfer, the vendor's duty to third parties and to the vendee will survive the sale and transfer if the vendor knew or had reason to know of the condition and of the risk involved, and failed to disclose that information to the vendee. Restatement (Second) of Torts §§ 352 and 353. This duty remains with the vendor only until the vendee has notice of the condition and a reasonable opportunity to take precautions against it.
This principle of law, providing for an extension of the landowner's liability beyond delivery of a deed and possession, applies only where bodily harm is suffered. As to this potential source of liability on the part of the developer, the Appellees were correct in their assertion that a cause of action had not been stated because personal injury had not been alleged.
We next consider the developer's liability as a vendor of residential property. At common law, there were no implied warranties in the sale of improved real property, and the rule of caveat emptor applied. As Judge J. Dudley Digges pointed out for this Court in Loch Hill Constr. Co. v. Fricke, 284 Md. 708, 712-13, 399 A.2d 883 (1979), we declined repeated invitations to create by judicial fiat implied warranties in the sale of new residencies. It was not until 1970 that the Legislature provided for specific implied warranties in such transactions. Chapter 151, § 1, Laws of Maryland, 1970, now codified (with changes) at § 10-203(a) of the Real Property Article, Maryland Code (1974, 1981 Repl.Vol.). Additional implied warranties pertaining to the sale by a developer of newly constructed or converted condominium units were created by the Legislature in 1981 and, as amended, are now codified at § 11-131 of the Real Property Article, Maryland Code (1974, 1981 Repl.Vol., 1986 Cum.Supp.).
The third potential source of a tort duty with respect to the dangerous condition of the building lies in the status of the developer as the creator of the building project. The developer is, in a sense, the builder of the project, even though he may delegate to others the physical acts of construction. Given the current trend of expanding the exceptions to the rule of nonliability of one who has employed an independent contractor, and given the policy considerations favoring the imposition of at least initial liability upon the person who sits at the top of the pyramid of those who create the improvement, a strong argument may be advanced in favor of the recognition of a nondelegable duty on the part of the developer with respect to unreasonably dangerous conditions created as a result of the development. We express no opinion on that issue because the pleadings suggest a narrower ground upon which a nondelegable duty of the developer may be found — the requirement of a statute or ordinance.
Recognition of the nondelegable nature of a duty imposed by certain types of statutes is discussed at 5 F. Harper, F. James and O. Gray, The Law of Torts, supra, § 26.11 at 83-84:
The principle is recognized in § 424 of the Restatement (Second) of Torts:
In Gardenvillage Realty v. Russo, 34 Md.App. 25, 366 A.2d 101 (1976), the Court of Special Appeals applied the principle to affirm a judgment entered in favor of tenants and their invitee against the developer-owner (and against the general contractor) for injuries resulting from the collapse of a defective concrete porch slab. The slab had been constructed and installed by a subcontractor, and the defect resulted from the improper placement of reinforcing bars within the slab, so that the defect defied detection. The Court of Special Appeals held that the Baltimore City Building Code imposed a duty on the owner of the premises at the time the structure was built to erect it in accordance with the Code, and that the duty could not be delegated by employing independent contractors to accomplish the work.
We agree that where, as alleged here, there is a violation of a provision of a building code that was intended as a safety measure, and where that violation has produced death or personal injury, the duty imposed by the Code is nondelegable.
Having found at least one theory of negligence that is embraced by the allegations of the declaration and not subject to the single attack set up by the developer's demurrer, we conclude that the demurrer to this count should have been overruled. For the guidance of counsel and the trial court we comment briefly upon the additional allegations of negligent misrepresentation.
The tort of negligent misrepresentation has been recognized in this State. Flaherty v. Weinberg, 303 Md. 116, 135, 492 A.2d 618 (1985); Martens Chevrolet v. Seney, 292 Md. 328, 439 A.2d 534 (1982). Because the allegations pertaining to this claim are for the most part stated in conclusory fashion, we have no way of knowing precisely what was said or written that Appellants believe constitute actionable misrepresentations. If the evidence discloses express representations made under circumstances that satisfy the elements of this cause of action as set forth in Flaherty, supra, 303 Md. at 135, 492 A.2d 618, the fact that Appellants have suffered only economic loss will not be a bar. However, if Appellants are contending that the warranties implied by law constitute representations that will support a cause of action if negligently made, the claim must fail. Although nonverbal conduct may under certain circumstances constitute a representation, we are not persuaded that an involuntary warranty existing solely by operation of law may constitute a representation that will support a cause of action for negligent misrepresentation.
JUDGMENT OF THE CIRCUIT COURT FOR WORCESTER COUNTY REVERSED AND CASE REMANDED TO THAT COURT FOR FURTHER PROCEEDINGS CONSISTENT WITH THIS OPINION. COSTS TO BE PAID BY APPELLEES.