Gladden v. Boykin

739 S.E.2d 882, 402 S.C. 140, 2013 WL 1223848, 2013 S.C. LEXIS 52

• Court: Supreme Court of South Carolina
• Decided: March 27, 2013
• Docket: Appellate Case No. 2010-160789; No. 27236
• Status: Published

Opinions

Justice PLEICONES.

Appellants Thomas and Vera Gladden appeal the trial court’s order granting summary judgment to Respondent Palmetto Home Inspection Services, alleging the limit of liability provision in a home inspection contract was unenforceable as violative of public policy and as unconscionable under the facts of this case. We affirm.

FACTS

In the course of purchasing a home, Vera H. Gladden (Mrs. Gladden) entered into a contract with Palmetto Home Inspec-. tion Services, LLC (Palmetto), for a home inspection. The contract contained a limit of liability clause, which limited Palmetto’s liability to the home inspection fee paid by the client.¹ After Mrs. Gladden contacted Palmetto about certain conditions in the home that were not included in the home inspection report, Palmetto returned the inspection fee.

Subsequently, the Gladdens brought this action against the seller, real estate agents, and real estate companies involved in the transaction as well as against Palmetto. As to Palmetto, the Gladdens alleged an action for breach of contract for failing to conduct the inspection in a thorough and workmanlike manner and to report defective conditions in the home.

The Gladdens thereafter moved for summary judgment on the legal issue of the enforceability of the limit of liability clause. Palmetto filed a cross motion for summary judgment on the basis that the limit of liability clause was enforceable and that it was entitled to summary judgment because it had already refunded the inspection fee paid by the Gladdens.

The circuit court denied the Gladdens’ motion and granted Palmetto’s motion and entered summary judgment in favor of Palmetto, finding the limit of liability clause enforceable. This appeal followed.

ISSUES

I. Did the circuit court err when it held that the limit of liability provision does not contravene South Carolina public policy?

II. Did the circuit court err when it held that the limit of liability provision is not unconscionable under these circumstances?

DISCUSSION

A. Public Policy

On appeal, the Gladdens contend the circuit court erred when it held that the limit of liability provision does not contravene South Carolina public policy. We disagree.

Our courts must determine public policy by reference to legislative enactments wherever possible. See Citizens’ Bank v. Heyward, 135 S.C. 190, 204, 133 S.E. 709, 713 (1925) (“The primary source of the declaration of the public policy of the state is the General Assembly; the courts assume this prerogative only in the absence of legislative declaration.”); Zerjal v. Daech & Bauer Const., Inc., 405 Ill.App.3d 907, 912, 345 Ill.Dec. 887, 939 N.E.2d 1067, 1072-73 (2010) (“Since the legislature had the opportunity to prohibit or limit exculpatory clauses in home inspection contracts but did not, we decline the opportunity as well”).

The General Assembly has spoken- on the issue of home inspections and liability for undisclosed defects in the sale of residential property. Under the statutory scheme crafted by the General Assembly, purchasers are protected from unqualified home inspectors by licensure requirements. See S.C.Code Ann. § 40-59-500 et seq. (2011). However, the General Assembly did not require home inspectors to carry errors and omissions liability insurance.²

Although the General Assembly declined to require such coverage, it did not leave residential home buyers without remedy. The Residential Property Condition Disclosure Act ensures that buyers are informed of defects of which the seller has knowledge. See S.C.Code Ann. § 27-50-10 et seq. (2007 & Supp.2011). The Act imposes liability on a seller if she knowingly withholds such information. § 27-50-65. Thus, the General Assembly has already provided specific protection for the consumer risks associated with .undisclosed defects, and we must defer to its judgment.

Even without this legislative policy, we would be reluctant to expand our judicially crafted public policy affording heightened protection to home purchasers. It is one thing to impose greater demands on the builder of a new home, who is in a position to know of the home’s defects, and another to impose a similar standard on an inspector who makes only a brief survey of the home with the buyer’s full knowledge of the limited service the inspector is offering. See Sapp v. Ford Motor Co., 386 S.C. 143, 148, 687 S.E.2d 47, 49 (2009) (“[T]he transaction between a builder and a buyer for the sale of a home largely involves inherently unequal bargaining power.... [W]e created this narrow exception to the economic loss rule to apply solely in the residential home context.”) (emphasis added). The General Assembly has imposed liability on the party with greatest access to information about the home’s defects, where it most logically resides.

B. Unconscionability

The Gladdens also contend that the circuit court erred when it found that the limit of liability clause was not unconscionable in this case. We disagree.

“In South Carolina, unconscionability is defined as the absence of meaningful choice on the part of one party due to one-sided contract provisions, together with terms that are so oppressive that no reasonable person would make them and no fair and honest person would accept them.” Simpson v. MSA of Myrtle Beach, Inc., 373 S.C. 14, 24-25, 644 S.E.2d 663, 668 (2007).

Limitation of liability and exculpation clauses are routinely entered into. Moreover, they are commercially reasonable in at least some cases, since they permit the provider to offer the service at a lower price, in turn making the service available to people who otherwise would be unable to afford it. See Head v. U.S. Inspect DFW, Inc., 159 S.W.3d 731, 748-49 (Tex.App.2005) (noting that courts uphold limitations of liability in burglar and fire alarm system contracts and finding limitation of liability clause in home inspection contract commercially legitimate for the same reasons). We cannot say that a limitation of liability clause in a home inspection contract is so oppressive that no reasonable person would make it and no fair and honest person would accept it.

Thus, we need not consider whether the Gladdens lacked meaningful choice due to one-sided contract provisions. Nevertheless, we note our disagreement with the dissent’s analysis.³ Courts should not refuse to enforce a contract on grounds of unconscionability, even when the substance of the terms appear grossly unreasonable, unless the circumstances surrounding its formation present such an extreme inequality of bargaining power, together with factors such as lack of basic reading ability and the drafter’s evident intent to obscure the term, that the party against whom enforcement is sought cannot be said to have consented to the contract. See Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C.Cir.1965).

In this case, a self-employed home inspector operating out of his home had no significantly greater bargaining power or cognizably more sophistication than a trained though not practicing real estate agent, and there is no allegation that Mrs. Gladden lacks the education to understand the terms of a contract or protect her own interests. On the contrary, the record demonstrates that Mrs. Gladden directly engaged in sophisticated negotiations throughout the process of buying the home, even urging the seller to forego the use of a real estate agent. Moreover, we have no record on which to find that home inspection contracts without exculpatory clauses are unavailable in the market. Not only did Roberts testify that he had altered the contract for a customer on another occasion, but Mrs. Gladden had sought out this particular inspector’s services, declining to employ a different home inspector who had been described to her as “harder but best.” See Jordan v. Diamond Equip. & Supply Co., 362 Ark. 142, 207 S.W.3d 525 (Ark.2005) (finding an exculpatory clause enforceable in part because the plaintiff had sought out the services of the defendant). Thus, the evidence in this case fails to support an inference that Mrs. Gladden lacked meaningful choice.

The dissent also places significance on the fact that the limitation of liability clause was not highlighted in comparison to the contract’s other terms. However, the proper test is whether an important clause was particularly inconspicuous, as if the drafter intended to obscure the term. See Simpson, 373 S.C. at 27-28, 644 S.E.2d at 670; Williams, 350 F.2d at 449. In this case, the contract consisted of one page, the heading of the limitation clause was in all capital letters and in bold, and the clause and its heading were in the same print as the contract’s other terms. Thus, the record does not support a conclusion that the Gladdens lacked a meaningful choice whether to accept the terms of the contract.

CONCLUSION

Contractual limitation of a home inspector’s liability does not violate South Carolina public policy as expressed by the General Assembly and, as a matter of law, is not so oppressive that no reasonable person would make it and no fair and honest person would accept it. The circuit court’s order granting summary judgment to Palmetto is

AFFIRMED.

TOAL, C.J., and KITTREDGE, J., concur. BEATTY, J., dissenting in a separate opinion, in which HEARN, J., concurs.

1 . In full, the clause read as follows:

LIMIT OF LIABILITY: []It is understood and agreed that should [Palmetto] and/or its agents or employees be found liable for any loss or damages resulting from a failure to perform any of it’s [sic] obligations, including but not limited to negligence, []breach of contract or otherwise, the the [sic] liability of [Palmetto] and/or it’s [sic] agents or employees shall be limited to a sum equal to the amount of the fee paid by the client for this inspection and report.

2 . This fact alone substantially distinguishes South Cárolina’s public policy from that of New Jersey and this case from Lucier v. Williams, 366 N.J.Super. 485, 841 A.2d 907 (2004), on which the dissent heavily relies. The Lucier court pointed to the requirement under New Jersey statutory law that home inspectors maintain errors and omissions insurance and called this fact "[¡important to [its] analysis[.]” Lucier, 841 A.2d at 914-15. This distinction is highly significant, since enforcement of a liability limit in the home inspection contract would conflict with the clear intent of the New Jersey legislature that purchasers have recourse to insurance coverage in the case of a home inspector’s negligence.

3 . The dissent again relies on Lucier v. Williams, a New Jersey decision that represents a dramatic departure from the narrow traditional use of unconscionability doctrine and markedly different from that of South Carolina law. See Lucier, 841 A.2d at 911 ("There is no hard and fast definition of unconscionability.... [It] is an amorphous concept obviously designed to establish a broad business ethic. The standard of conduct that the term implies is a lack of good faith, honesty in fact and observance of fair dealing.” (internal quotation marks and citations omitted)); cf. Simpson, supra; Williams, infra. As for Pitts v. Watkins, another case on which the dissent relies, we agree with the Pitts dissent that Pitts dramatically departs from contract and unconscionability law, effectively rewriting a contract the court found "unfair” but that fell far short of oppression and completely omitting analysis whether the plaintiffs had a meaningful choice in entering into the contract. See 905 So.2d 553, 559-64 (2005) (Dickinson, J., dissenting).