The Economic Loss Doctrine as an Obstacle to Claims of Contractual Strangers.

Authors

Richard L. Reed
Richard L. Reed Jr.Follow

Abstract

Home owners, contractors, and subcontractors entering a contract to build in accordance with another’s design must be aware of their respective risks under the economic loss doctrine. The economic loss doctrine bars recovery due purely to economic loss by a party that is a contractual stranger. In a typical construction contract, a homeowner may separately contract with a contractor and a design professional. In this situation, the contractor does not have privity with the design professional and the economic loss doctrine bars the contractor from suing the design professional for economic loss. Likewise, if the homeowner hires a contractor and the contractor hires the design professional, the homeowner is barred by the economic loss doctrine from suing the design professional for economic loss. The Texas Supreme Court has recognized some exceptions to the economic loss doctrine. If the plaintiff can prove physical damage beyond the “subject matter of the contract,” the plaintiff can allege an independent negligence claim notwithstanding the existence of a contract because an independent duty exists not to negligently damage property. Nonetheless, it is imperative that each party—owner, contractor, and subcontractor—entering into a contract be familiar with the terms and their respective remedies. This is especially true if the project is to be built in accordance with a design professional’s design. Each respective party must be careful to allocate, limit, insure or otherwise transfer and manage its exposure to economic loss that may result from the insufficiency of a design and the failure of its contractual expectation.

Publisher

St. Mary's University School of Law

Recommended Citation

Richard L. Reed & Richard L. Reed Jr., The Economic Loss Doctrine as an Obstacle to Claims of Contractual Strangers., 46 St. Mary's L.J. (2015).
Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol46/iss3/2