Carolina Winds Owners' Ass'n, Inc. v. Joe Harden Builder, Inc., 1192

• Decision Date: 15 February 1988
• Docket Number: No. 1192,1192
• Court: South Carolina Court of Appeals
• Parties: CAROLINA WINDS OWNERS' ASSOCIATION, INC., Appellant, v. JOE HARDEN BUILDER, INC., Baker Masonry, Inc., Grayco Steel, Inc., Richard E. Martin, AIA Associates, and United States Fidelity and Guaranty Company, Defendants, Of whom Joe Harden Builder, Inc., Baker Masonry, Inc., and United States Fidelity and Guaranty Company, are Respondents. . Heard

Page 897

374 S.E.2d 897

297 S.C. 74

CAROLINA WINDS OWNERS' ASSOCIATION, INC., Appellant, v. JOE HARDEN BUILDER, INC., Baker Masonry, Inc., Grayco Steel,

Inc., Richard E. Martin, AIA Associates, and

United States Fidelity and Guaranty

Company, Defendants,

Of whom Joe Harden Builder, Inc., Baker Masonry, Inc., and

United States Fidelity and Guaranty Company, are

Respondents.

No. 1192.

Court of Appeals of South Carolina.

Heard Feb. 15, 1988.

Decided July 11, 1988.

John P. Henry and Emma Ruth Brittain, Thompson, Henry & Gwin, P.A., Conway, for appellant.

Michael W. Battle, of Lovelace & Battle, and John B. McCutcheon, Jr., of McCutcheon, McCutcheon & Baxter, Conway, Hubert J. Bell, Jr., of Smith, Currie & Hancock, and J. Alexander Porter and Sidney R. Barrett, Jr., of Porter & Doster, Atlanta, Ga., Thomas E. Pederson, Charleston, and Dewitt T. Black, III, of Black & Beil, Hilton Head Island, for respondents.

BELL, Judge:

This is an action for damages for alleged defects in the construction of a residential building. Carolina Winds Owners' Association, Inc., representing the interests of the owners of the building under a horizontal property regime, sued Joe Harden Builder, Inc., the general contractor, Baker Masonry, Inc., the masonry subcontractor, United States Fidelity and Guaranty Company, the surety on Harden's performance bond, and others not parties to this apppeal, for alleged cracking in the exterior facial brick walls of the building. The complaint alleges causes of action for (1) negligent construction and (2) breach of an implied warranty of fitness for intended use. It seeks general damages for the cost of repairing the building, special damages for alleged lost use of the building and impairment of the condominium operation, and punitive damages. Harden and Fidelity moved to dismiss the action under Rule 12(b)(6), S.C.R.Civ.P., for failure to state facts sufficient to constitute a cause of action. Baker Masonry moved pursuant to Rule 12(c), S.C.R.Civ.P., for judgment on the pleadings for failure to state a cause of action. The circuit court granted the motions and dismissed the action as to these defendants. The Owners appeal. We affirm.

On appeal from the granting of a motion under Rule 12(b)(6) or Rule 12(c), the reviewing court may not consider matters outside the pleadings. JM Mechanical Corp. v. United States, by United States Dept. of Housing and Urban Dev., 716 F.2d 190 (3d Cir.1983) (Fed.R.Civ.P. 12(b)(6)); McDonnell v. Estelle, 666 F.2d 246 (5th Cir.1982) (Fed.R.Civ.P. 12(c)); cf. Carrington v. City of Spartanburg, 283 S.C. 298, 322 S.E.2d 28 (Ct.App.1984) (demurrer), overruled on other grounds, McCall v. Batson, 285 S.C. 243, 329 S.E.2d 741 (1985). A motion under Rule 12(b)(6) or Rule 12(c) admits the well pleaded facts in the complaint, but it does not admit the inferences drawn by the plaintiff from such facts, nor does it admit conclusions of law. Bryan v. Stillwater Bd. of Realtors, 578 F.2d 1319 (10th Cir.1977) (Fed.R.Civ.P. 12(b)(6)); Hargis Canneries v. United States, 60 F.Supp. 729 (W.D.Ark.1945) (Fed.R.Civ.P. 12(c)); cf. Carrington v. City of Spartanburg, supra. The court must take all well pleaded factual allegations in the complaint as true. Bryan v. Stillwater Bd. of Realtors, supra; Austad v. United States, 386 F.2d 147 (9th Cir.1967) (Fed.R.Civ.P. 12(c)); cf. Cook v. Mack's Transfer & Storage, 291 S.C. 84, 352 S.E.2d 296 (Ct.App.1986) (demurrer), cert. denied, 292 S.C. 230, 355 S.E.2d 861 (1987).

The complaint alleges these material facts. Plaza Development Services, a joint venture, developed a twelve story condominium building in Myrtle Beach known as Carolina Winds Condominium. Plaza contracted with Harden to construct the building. Fidelity was the surety on Harden's performance bond. In turn, Harden entered a subcontract with Baker Masonry for the masonry work on the building, including installation of exterior brick facial walls.

When Harden finished the project, Plaza executed a master deed establishing the Carolina Winds Horizontal Property Regime. It then offered for sale and sold residential units in the building to various individual owners. The Carolina Winds Owners' Association, Inc., was incorporated for the purpose of managing the common elements of the regime on behalf of the unit owners.

After the building was completed, the exterior facial brick walls began to crack and buckle. An investigation revealed this condition was caused by latent defects due to negligent construction. This suit followed.

I.

We first address the Owners' contention that Harden and Baker Masonry are liable for repair costs because they breached an implied warranty that the building is fit for its intended use.

The implied warranty of habitability was first recognized in the common law in the decision of Miller v. Cannon Hill Estates, Ltd., (1931) 2 K.B. 113. In that case, the King's Bench held that the builder-vendor of a house who knew his purchaser intended to use it as a dwelling impliedly warranted it would be fit for that purpose.

The same rule was recognized in South Carolina in Rutledge v. Dodenhoff, 254 S.C. 407, 175 S.E.2d 792 (1970), in which the Supreme Court held that a builder-vendor of a new house gives his purchaser an implied warranty that the house is fit for its intended use. Even after conveyance of title, the builder-vendor may be held liable to the purchaser for damages caused by a defective condition which renders the house unfit as a dwelling. ¹

In Lane v. Trenholm Building Co., 267 S.C. 497, 229 S.E.2d 728 (1976), the Court extended this rule to a developer who sold a new dwelling, although he did not build it. The Court held that when a new house is sold, the vendor impliedly warrants the house is free from latent defects which would render it unfit for its intended use as a dwelling. This warranty springs from the sale itself. Id., 267 S.C. at 500, 229 S.E.2d at 729. Liability arises not from fault, but because the vendor, by initial sale, has placed the house in the stream of commerce and has received a fair price for it. Holder v. Haskett, 283 S.C. 247, 321 S.E.2d 192 (Ct.App.1984). In other words, liability is founded on contract, not tort. Id.

Because the sale contemplates the use of the house as a habitable dwelling, an implied warranty does no more than fulfill the reasonable expectations of the parties under the contract. Lane v. Trenholm Building Co., 267 S.C. at 503, 229 S.E.2d at 731. The buyer has paid a fair price for a habitable dwelling. If the house is defective, the buyer's expectancy interest is injured and he has a right to recover his damages as measured by the contract. The cost of repair is one such measure. Damages place the buyer in the position he would have enjoyed had the dwelling been as warranted. Damages give the buyer the benefit of his bargain.

In this case, the Owners, as purchasers of the condominium units, argue that Harden and Baker Masonry are liable to them on the implied warranty arising from the sale of a new dwelling. This contention is foreclosed by the Supreme Court's decision in Arvai v. Shaw, 289 S.C. 161, 345 S.E.2d 715 (1986), and our prior holding in Holder v. Haskett, supra.

In Arvai, a builder named Shaw constructed a house under a contract with the owners of an unimproved lot. Upon completion of the house, the owners moved in. As a result of dissatisfaction with the house, the owners sold it to Shaw, who in turn sold it to Arvai's predecessor in title. Arvai then purchased the house. Soon afterwards, the house was flooded several times. Arvai sued Shaw for breach of an implied warranty of habitability, claiming the house was built so as to make it susceptible to flood damage.

The Supreme Court held that Arvai could not recover against Shaw, because Shaw was not the initial vendor of the house. The Court explained that the implied warranty of habitability has its roots in a contract for sale of the dwelling. The determining factor is not that the defendant builds the defective house, but that he places it, by initial sale, into the stream of commerce. To make the builder liable if he is not involved in the initial sale of the house is incompatible with the theory that the warranty springs from the sale. Thus, Shaw, as the builder of the house, was not liable. ²

In Holder v. Haskett, supra, this Court similarly held that the implied warranty of habitability does not bind those who are not parties to a contract of sale. In Holder, the purchasers of a new house attempted to recover damages for defects in construction from the developer, a realty company, and the owner of the realty company. None of them was a party to the contract of sale. We denied the claim.

The Owners argue that Terlinde v. Neely, 275 S.C. 395, 271 S.E.2d 768 (1980), supports their warranty cause of action against Harden and Baker Masonry. In that case, Neely built a speculative house in a residential subdivision, which he afterwards sold to Johnson. Three years later, the house began settling. Johnson undertook to correct the damage caused by the settling, then sold the house to Terlinde. Within a short time after Terlinde purchased the house, cracks appeared in the walls, the floor began to sink away from interior walls, the doors would not close properly, the brick veneer on the exterior began to crack and separate, and the pillars underneath began sinking away from the supporting beams of the floor. Terlinde discovered the house was settling because Neely built its footings on fill dirt instead of solid ground. In the ensuing legal action, Neely defended the warranty claim by arguing there was no privity of contract between him and Terlinde. The Supreme Court rejected this argument, holding that "lack of privity does not bar a remote purchaser from suing an initial vendor on an implied warranty theory." Arvai v. Shaw, 289 S.C. at 164, 345 S.E.2d at 716.

In Terlinde, the defendant placed the defective house...