Legal briefs: the ethics of product substitution.

Standards of professional conduct exist in many professional organizations throughout the United States and Canada. This is true in both voluntary trade and professional associations whose members are licensed by the state. These written principles are often referred to as "Codes of Ethics" or "Standards of Conduct" and typically contain the ethical guidelines that every member of the organization should try to attain.

Because the standards are often in the form of pledges or oaths and do not have the effect of statutory law or contract law, they are viewed as goals for personal and professional development and excellence. These goals may be adopted by an organization's membership and its leaders to promote integrity, the enhancement of the professional skills and the dedication of its members to the industry; however, monitoring and enforcement of ethical principles and goals is fraught with legal and practical problems.

In the United States and most other Western systems of justice, courts tend to enforce only those statutes and contracts that are clear and unambiguous or, stated differently, could be understood by a reasonable person. In short, where words are susceptible of multiple or differing interpretations, enforcement against the person accused of violating a statute or other standard of conduct is difficult, if not impossible.

In this regard, the construction industry is no different than other industries. Through various trade organizations, the industry desires to improve the quality of products and services offered to the public and encourages its practicing professionals to strive to avoid dishonest and questionable practices. Of course, problems do arise in construction projects and part of the challenge is to decide whether the conduct is an ethical issue or something more serious.

What happens when a non-specified product is substituted on a job without the consent of the owner or the design professional? This action surely violates standards of conduct, like:

"We pledge to avoid any dishonest practices and endeavor to engage in fair and honorable dealings."

and:

"We pledge to maintain the highest standards of personal conduct."

But is an unauthorized substitution more than a breach of trust? Probably.

Most states have laws dealing with intentional misrepresentation, which is sometimes referred to as fraud or deceit. Unauthorized product substitution would violate such laws if all of the following five elements are present in a case:

1. misrepresentation by defendant

2. malice 

3. intent to have plaintiff rely on the misrepresentation

4. actual, justified reliance by plaintiff on the misrepresentation

5. damages

In the example of the unauthorized substitution of a nonspecified product, if you assumed that a supplier knowingly furnished an inferior, less expensive product that did not meet the written specification, then all the elements to prove a fraud case would likely be present. This is the analysis:

1. The misrepresentation

The misrepresentation is either the false statement (orally or in writing) that the product supplied met the specification, or the active concealment of the fact that it did not meet the specification. In either case, the product would be misrepresented.

2. Malice

Malice really means knowingly or intentionally making a false statement (misrepresentation). Sometimes, a reckless disregard for whether the statement is false is enough.

3. Intent to have plaintiff rely on misrepresentation

Intent may be difficult to prove, but where the quality of the product substituted varies greatly from the specification, proof is easier. Intent is sometimes presumed, if it is not obviously present in the case. For instance, if a manufacturer or other person purposefully mislabels a product, then this would be sufficient to prove that the defendant intended for the plaintiff to rely on the false statement.

4. Actual, justified reliance by plaintiff on the misrepresentation

If the misrepresentation played a substantial part in causing the plaintiff to take some action (e.g., accept the product, pay for the product), then this part of the test should be satisfied. However, the plaintiff must be justified in his or her reliance. For instance, where the facts are so obviously false that the plaintiff should have been put on notice that they were false, then it is arguable that a plaintiff could not (or at least should not) have relied on the defendant's statement or action. Generally, a plaintiff is not required to investigate the truth or accuracy of the defendant's statements.

5. Damages

There will be no recovery for the plaintiff if he or she cannot prove actual monetary loss as a result of his/her reliance on the false statement or deceptive act. Usually, the measure of damages is the value of the property as represented minus the value of the property as it actually is.

Revisiting the ethical considerations cited above, it seems clear that unauthorized product substitution is a "dishonest practice" and, when engaged in, is evidence of failing to "maintain the highest standards of personal conduct." This is unethical conduct that could lead to some type of action by the organization.whose code of ethics was breached by the misconduct of one of its professional members. A reprimand or loss of membership could result. However, the parties will be left to the court system to resolve their grievances and seek adjustment for economic harm suffered by the owner from the unauthorized product substitution. The reason is that professional organizations, armed with their published standards of conduct, are not parties to contracts where products are being supplied and organizations are becoming increasingly reluctant to conduct "peer review" and take enforcement action where separate legal remedies are available to the parties.

In summary, unauthorized substitution of non-specified products would not only violate applicable codes of professional ethics, but also may rise to the level of fraud. The most complete relief for someone who has been victimized by fraud is resort to civil court, where persons who ignore their ethical obligations to. the industry and the public are required to answer for their actions.