## Facts

- St. Joseph Hospital hired Belli & Belli as architect to design and supervise construction of a new hospital in Chicago and hired Corbetta Construction Co. as general contractor.
- Textolite plastic laminate wall paneling, manufactured and supplied by General Electric Co. (GE), was installed throughout rooms and corridors.
- The Chicago Building Code limited wall paneling to a flame-spread rating of 15; Textolite tested at 255, and a laboratory refused to issue an official rating because the product was considered too hazardous for use.
- When the hospital was substantially complete, the Hospital was denied an operating license due to the paneling’s code noncompliance and was threatened with criminal action for operating without a license.
- The Hospital withheld a large final payment from Corbetta and demanded that Corbetta, Belli, and GE correct the problem; the paneling was ultimately replaced at substantial cost.
- The Hospital filed a declaratory judgment action against Corbetta, Belli, and GE over responsibility for replacement costs and related damages.
- GE separately sued Corbetta for the contract price of the original Textolite paneling; the actions were consolidated.
- Evidence showed GE knew the adverse flame-spread test results but told Corbetta only that the product “did not have a flame-spread rating,” without disclosing the high flammability and code noncompliance.

## Issues

1. Whether the general contractor is liable to the owner for installing noncompliant materials when the contractor followed the owner’s and architect’s plans and specifications.
2. Whether the manufacturer-supplier is liable in fraud/deceit for omitting material test results and communicating a technically true but misleading statement about product ratings.
3. Whether attorney’s fees and related litigation expenses are recoverable when a party’s wrongful conduct forces the plaintiff into litigation and remedial action.
4. Whether any defendant is entitled to indemnity from others for losses tied to the defective, code-violative paneling.
5. Whether the manufacturer can recover the contract price for the noncompliant paneling from the contractor.

## Decision

- The appellate court affirmed in part, reversed in part, and remanded.
- Corbetta was not liable to the Hospital for the noncompliant paneling where it installed the materials in accordance with the plans and specifications and did not assume an independent duty to guarantee code compliance.
- GE was liable to the Hospital for fraud/deceit based on concealment of material safety and code-compliance information.
- The Hospital could recover attorney’s fees and certain related expenses from GE because GE’s wrongful conduct proximately caused the licensing problem, remedial work, and ensuing litigation.
- Indemnity claims among defendants were denied.
- GE’s action against Corbetta for the contract price of the paneling was properly dismissed; GE could not recover the price under the circumstances.

## Legal Principles

- A contractor that faithfully follows an owner’s/architect’s plans and specifications is generally not liable for defects inherent in those specifications absent independent negligence, knowledge, or contractual assumption of responsibility.
- Fraud may be established by concealment or half-truths when a party with material knowledge communicates in a way that misleads others and the omitted facts are necessary to prevent deception.
- When a supplier knows its product is being used in a setting where regulatory compliance and safety are essential, nondisclosure of known, disqualifying test results can support liability for deceit.
- Attorney’s fees may be recovered as damages when the defendant’s wrongful act forces the plaintiff into litigation with others or into legal expense as a proximate result of that wrongful act (an exception to the general rule against fee shifting).
- Indemnity requires a contractual basis or a qualifying common-law relationship; absent such proof, liability is not shifted in full from one defendant to another.
- A party may be denied recovery of the contract price for goods tied to its own fraud and to noncompliance with mandatory safety requirements.

## Conclusion

The court relieved the contractor of liability for installing specified materials, imposed fraud-based liability on the manufacturer for withholding decisive safety and code-compliance test results, permitted recovery of related attorney’s fees as consequential damages caused by that wrongdoing, rejected indemnity shifting among defendants, and barred the manufacturer from collecting the purchase price for the noncompliant paneling.


St. Joseph Hospital v. Corbetta Construction Co., 316 N.E.2d 51 (Ill. App. Ct. 1974)