Gaito v. Auman

327 S.E.2d 870, 313 N.C. 243, 1985 N.C. LEXIS 1537

• Court: Supreme Court of North Carolina
• Decided: April 2, 1985
• Docket: 529A84
• Status: Published

Opinion

BRANCH, Chief Justice.

The question posed by this appeal is whether the Court of Appeals erred in affirming the judgment in favor of the plaintiffs on a theory of implied warranty of habitability. The majority concluded that a residential structure could be considered new for purposes of the implied warranty within the maximum applicable statute of limitations period. We reject this reasoning.

Although the majority opinion did not address the procedural posture of the questions before it, we note that the defendant builder’s claim is that the trial court erred in denying his motions for summary judgment, directed verdict and judgment notwithstanding the verdict. Upon a motion for summary judgment the burden is on the moving party to establish that there is no triable issue of fact and that he is entitled to judgment as a matter of law. Page v. Sloan, 281 N.C. 697, 190 S.E. 2d 189 (1972). The test is whether the moving party presents materials that would require a directed verdict in his favor if offered at trial. Coakley v. Ford Motor Co., 11 N.C. App. 636, 182 S.E. 2d 260, cert. denied, 279 N.C. 393, 183 S.E. 2d 244 (1971).

Where a motion for directed verdict is made at the conclusion of the plaintiffs evidence, the trial court must determine whether the evidence, taken in the light most favorable to the plaintiff, was sufficient to submit the case to the jury. Kelly v. International Harvester Co., 278 N.C. 153, 179 S.E. 2d 396 (1971). Like the motion for directed verdict, the motion for judgment notwithstanding the verdict tests the legal sufficiency of the evidence to take the case to the jury and support the verdict for the plaintiff. See Snider v. Dickens, 293 N.C. 356, 237 S.E. 2d 832 (1977).

The essence of defendant’s arguments, however, is that plaintiffs’ claim was not cognizable under an implied warranty theory because of the age of the house and its occupation by tenants prior to its purchase by the plaintiffs. Although we held in Griffin v. Wheeler-Leonard & Co., 290 N.C. 185, 225 S.E. 2d 557 (1976), that the implied warranty of habitability arises by operation of law, we hold that the applicability of the warranty is to be determined on a case by case basis and that under these facts, plaintiffs presented a legally cognizable claim under a theory of implied warranty of habitability.

The trend of recent judicial decisions has been to invoke the doctrine of implied warranty of habitability or fitness in cases involving the sale of a new house by the builder. See Humber v. Morton, 426 S.W. 2d 554 (Tex. 1968); Annot., 25 A.L.R. 3d 372 (1969). The rigid common law rule of caveat emptor in the sale of recently completed dwellings was relaxed in this state by this Court’s opinion in Hartley v. Ballou, 286 N.C. 51, 209 S.E. 2d 776 (1974). In Hartley the plaintiffs purchased a “recently” constructed house from defendants. Although they inspected the house prior to moving in, plaintiffs observed nothing amiss. Shortly after moving in the house showed signs of substantial water leakage and insufficient waterproofing in the basement. This Court, in an opinion authored by Chief Justice Bobbitt, concluded that the defendant builder-vendor had an obligation to perform work in a proper, workmanlike and ordinarily skillful manner. Chief Justice Bobbitt then stated the rule as follows:

[I]n every contract for the sale of a recently completed dwelling, and in every contract for the sale of a dwelling then under construction, the vendor, if he be in the business of building such dwellings, shall be held to impliedly warrant to the initial vendee that, at the time of the passing of the deed or the taking of possession by the initial vendee (whichever first occurs), the dwelling, together with all its fixtures, is sufficiently free from major structural defects, and is constructed in a workmanlike manner, so as to meet the standard of workmanlike quality then prevailing at the time and place of construction; and that this implied warranty in the contract of sale survives the passing of the deed or the taking of possession by the initial vendee.

Id. at 62, 209 S.E. 2d at 783.

The doctrine recited in Hartley is known as an implied warranty of habitability and represents a growing trend in the jurisprudence of our states. An implied warranty of habitability is limited to latent defects — those not visible or apparent to a reasonable person upon inspection of a dwelling. Griffin v. Wheeler-Leonard and Co., 290 N.C. 185, 225 S.E. 2d 557 (1976) (defect was poor waterproofing which caused standing water in crawl space).

The relaxing of the rigid rule of caveat emptor in Hartley is based on a policy which holds builder-vendors accountable beyond the passage of title or the taking of possession by the initial vendee for defects which are not apparent to the purchaser at that time. This policy is justified because the innocent purchaser is often making one of the largest investments of a lifetime from one whose experience and expertise places him in a dominating position in that sale. See Bethlahmy v. Bechtel, 91 Idaho 55, 415 P. 2d 698 (1966); 25 A.L.R. at 391.

Defendant appellant argues that the facts of this case are legally insufficient to support a verdict for the plaintiff because the facts do not fall within the exception to the rule of caveat emptor established by Hartley. Defendant contends that an implied warranty of habitability is inapplicable because both the pretrial pleadings and evidence at trial show that the house was not “recently completed” or under construction at the time of the passing of the deed; the plaintiff claims and the evidence shows instead that the house was built four and one-half years earlier. Defendant also argues that the previous occupancy by tenants invalidated any implied warranty which may have arisen.

We first consider defendant’s argument that he must prevail because the house was built four and one-half years before the plaintiffs received a deed or took possession. Our cases do not address the precise limits of our requirement in Hartley that a house be “recently completed.” We therefore turn to other jurisdictions for instruction on this question.

A number of courts have established a standard of reasonableness in determining how the age of a house affects the application of the warranty. See Sims v. Lewis, 374 So. 2d 298 (Ala. 1979); Barnes v. Mac Brown and Co., 264 Ind. 227, 342 N.E. 2d 619 (1976); Smith v. Old Warson Development Co., 479 S.W. 2d 795 (Mo. 1972); Padula v. J. J. Deb-Cin Homes, Inc., 111 R.I. 29, 298 A. 2d 529 (1973); Waggoner v. Midwestern Development, Inc., 83 S.D. 57, 154 N.W. 2d 803 (1967).

In Barnes the plaintiffs in 1971 purchased a home which had been completed in 1967 and had been sold to an intermediate purchaser. After plaintiffs moved in, a large crack appeared in a wall, and the plaintiffs discovered that the basement leaked. In considering the question of the applicability of an implied warranty of habitability, the Indiana Supreme Court applied a reasonableness standard:

This extension of liability is limited to latent defects not discoverable by a subsequent purchaser’s reasonable inspection, manifesting themselves after the purchase. The standard to be applied in determining whether or not there has been a breach of warranty is one of reasonableness in light of the surrounding circumstances. The age of the home, its maintenance, the use to which it has been put are but a few factors entering into this factual determination at trial.

342 N.E. 2d at 621.

In a subsequent case, the Indiana Court of Appeals considered whether the warranty extended to a defective septic tank in which the defect appeared five years after the completion of the dwelling. Relying on Barnes and the reasonableness standard, the court stated that where a defective septic tank was involved “we cannot say, as a matter of law, that five years is too long a period of time to extend the implied warranty of fitness.” Wagner Construction Co. v. Noonan, 403 N.E. 2d 1144 (Ind. App. 1980).

In a case decided by the Washington Supreme Court, Klos v. Gockel, 87 Wash. 2d 567, 554 P. 2d 1349 (1976), plaintiffs purchased a home in 1973 which had been completed in July 1972. The builder-vendor had lived in the house approximately one year before plaintiffs purchased it. After plaintiffs moved in, a portion of the slope below the rear wall of the house slid, causing the patio to crack and patio slabs to upend. Although the Court in Klos rejected the applicability of the warranty on other grounds, it reasoned that the passage of a year would not necessarily invalidate a warranty of habitability.

It is true that for purposes of warranty liability, the house purchased must be a “new house,” but this is a question of fact. The passage of time can always operate to cancel liability but just how much time need pass varies with each case.

87 Wash. 2d at 571, 554 P. 2d at 1352. See also Tavares v. Horstman, 542 P. 2d 1275 (Wyo. 1975) (warranty applied where septic tank failed after five years because “we appreciate that different parts of construction may have different expected life”).

We are persuaded that the reasoning of these courts is sound and that the standard of reasonableness is the appropriate standard for determining whether a dwelling has been recently completed. Thus, under the facts of this case, it was a question of fact for the fact finder to determine whether the house was “recently completed.” Among some of the factors which may be considered in determining this question are the age of the building, the use to which it has been put, its maintenance, the nature of the defects and the expectations of the parties. This standard allows extension of the warranty to vary in lengths of time, depending on the nature of the defect and whether the warranty should reasonably be expected to apply. See Sims v. Lewis, 374 So. 2d 298 (Ala. 1979).

Even so, defendant argues that the tenancies which intervened between construction and purchase by plaintiffs rendered the warranty inapplicable. We disagree. We note that the purpose of the warranty is to protect homeowners from defects which can only be within the knowledge of vendors. There are many kinds of major structural defects upon which the presence of tenants can have little or no effect. In other cases intervening tenants may contribute to or directly cause major defects in a dwelling’s structure. We hold that the effect of occupation by tenants prior to the passage of the deed to the initial vendee is but one of the factors which a fact finder should consider in determining whether defendant is liable for breach of an implied warranty of habitability. See Casavant v. Campopiano, 114 R.I. 24, 327 A. 2d 831 (1974) (warranty affected by tenants only if tenants causally connected with defects).

At this point we note that Hartley limits the implied warranty of habitability to initial vendees at the time of the taking of possession or the passing of the deed. Here plaintiff was an initial vendee and therefore it is unnecessary for us to discuss the applicability of the implied warranty to subsequent purchasers. For the same reason, we disavow any inferences that may arise from the footnote from the decision of the Court of Appeals relating to this question.

Defendant contends that to extend an implied warranty to this factual situation will be disastrous to home builders who would “for all intents and purposes be prevented from renting homes they were unable to sell” for fear that the builders would be liable for damage to the home caused by the tenants.

However, builders are still accorded substantial protection by the requirement that the defect in a dwelling or its fixtures be latent or not reasonably discoverable at the time of sale or possession. Claimants must also show that structural defects had their origin in the builder-seller and in construction which does not meet the standard of workmanlike quality then prevailing at the time and place of construction. Hartley, 286 N.C. 51, 209 S.E. 2d 776. We have also made it clear that the implied warranty falls short of “an absolute guarantee.” Id. at 61, 209 S.E. 2d at 782. In regard to this argument we wish to make it clear that the test of reasonableness to determine whether a dwelling is “recently com pleted” does not affect the relevant statutes of limitation and repose.

Although defendant did not raise the argument at the Court of Appeals level, he now argues that an implied warranty is inapplicable to an air conditioning unit because it is not “an absolute essential utility to a dwelling house.” In Hartley we held that the builder of a recently completed dwelling impliedly warrants that “the dwelling, together with all its fixtures, is sufficiently free from major structural defects and is constructed in a workmanlike manner, so as to meet the standard of workmanlike quality then prevailing at the time and place of construction.” 286 N.C. at 62, 209 S.E. 2d at 783. (Emphasis added.)

Courts have found a breach of implied warranty for defects arising in many different areas of construction. See, e.g., Sims v. Lewis, 347 So. 2d 298 (Ala. 1979) (defective septic tank); Carpenter v. Donohue, 154 Colo. 78, 388 P. 2d 399 (1964) (cracks in basement wall); Weeks v. Slavick Builders, Inc., 24 Mich. App. 621, 180 N.W. 2d 503, affirmed, 384 Mich. 257, 181 N.W. 2d 271 (1970) (leaky roof); Schipper v. Levitt & Sons, Inc., 44 N.J. 70, 207 A. 2d 314 (1965) (failure to install boiler valve which regulated temperature for water used for domestic purposes); Waggoner v. Midwestern Development, Inc., 83 S.D. 57, 154 N.W. 2d 803 (1967) (water seepage in basement); Humber v. Morton, 426 S.W. 2d 554 (Tex. 1968) (fireplace and chimney defective).

The test of a breach of an implied warranty of habitability in North Carolina is not whether a fixture is an “absolute essential utility to a dwelling house.” The test is whether there is a failure to meet the prevailing standard of workmanlike quality. See Griffin v. Wheeler-Leonard & Co., 290 N.C. 185, 225 S.E. 2d 557 (1976) (breach of standard of workmanlike quality not “liveability” is test of breach of warranty). We hold that under the facts of this case, a jury may properly find a defective air conditioning system in a “recently completed dwelling” to be a major structural defect as between an initial vendee and a builder-vendor.

After a review of the evidence we hold that under a theory of implied warranty of habitability, the plaintiff raised questions of fact and a legally cognizable cause of action sufficient to survive defendant’s motions for summary judgment, directed verdict and judgment notwithstanding the verdict.

Since Judge Hedrick in his dissent took exception to the Court of Appeals majority’s affirmance of the trial court on the issue of damages, we consider the relevant rules of damages. The rule as stated in Hartley is that a vendee can maintain an action against a builder-vender for damages for the breach of implied warranty of habitability “either (1) for the difference between the reasonable market value of the subject property as impliedly warranted and its reasonable market value in its actual condition, or (2) for the amount required to bring the subject property into compliance with the implied warranty.” Hartley v. Ballou, 286 N.C. at 63, 209 S.E. 2d at 783. The Court in Hartley cited Robbins v. C. W. Trading Post, Inc., 251 N.C. 633, 111 S.E. 2d 884 (1960) in which Justice Moore explained the principles behind the two measures of damages in the context of a breach of a construction contract:

“The fundamental principle which underlies the decisions regarding the measure of damages for defect or omissions in the performance of a building or construction contract is that a party is entitled to have what he contracts for or its equivalent. What the equivalent is depends upon the circumstances of the case. In a majority of jurisdictions, where the defects are such that they may be remedied without the destruction of any substantial part of the benefit which the owner’s property has received by reason of the contractor’s work, the equivalent to which the owner is entitled is the cost of making the work conform to the contract. But where, in order to conform the work to the contract requirements, a substantial part of what has been done must be undone, and the contractor has acted in good faith, or the owner has taken possession, the latter is not permitted to recover the cost of making the change, but may recover the difference in value.” 9 Am. Jur., Building and Construction Contracts, sec. 152, p. 89; Twitty v. McGuire, 7 N.C. 501, 504. The difference referred to is the difference between the value of the house contracted for and the value of the house built — the values to be determined as of the date of tender or delivery of possession to the owner.

Id. at 666, 111 S.E. 2d at 887. (Emphasis added.)

The evidence in this case shows that the defect complained of may be remedied without destroying a substantial part of the dwelling. Since the appellant did not bring forward the trial court’s instructions, we must assume they were correctly given. See Mann v. Virginia Dare Transportation Co., 283 N.C. 734, 198 S.E. 2d 558 (1973). It appears that the jury’s verdict correctly represented the cost of making the builder-vendor’s work conform to the implied warranty of habitability — in this case the cost of replacing the original air conditioner. Since plaintiffs do not contest defendant’s assertion that he is entitled to receive the original three and one-half ton unit if a four ton unit is installed, we do not consider defendant’s argument in this regard. We therefore do not disturb the jury’s award of damages.

For the reasons stated, the decision of the Court of Appeals is affirmed.

Affirmed.

Justice VAUGHN did not participate in the consideration or decision of this case.