Cook v. Salishan Properties, Inc.

• Decision Date: 13 September 1977
• Parties: Ward V. COOK and Lois A. Cook, Appellants, v. SALISHAN PROPERTIES, INC., an Oregon Corporation, John D. Gray and Russell M. Colwell, Respondents.
• Court: Oregon Supreme Court

Page 1033

569 P.2d 1033

279 Or. 333

Ward V. COOK and Lois A. Cook, Appellants, v. SALISHAN PROPERTIES, INC., an Oregon Corporation, John D.

Gray and Russell M. Colwell, Respondents.

Supreme Court of Oregon, In Banc.

Argued and Submitted June 7, 1977.

Decided Sept. 13, 1977.

Ridgway K. Foley, Jr., and Donald Joe Willis of Souther, Spaulding, Kinsey, Williamson & Schwabe, Portland, argued the cause for appellants. With them on the briefs were John L. Schwabe and Roland F. Banks, Jr., Portland.

Barnes H. Ellis, of Davies, Biggs, Strayer, Stoel & Boley, Portland, argued the cause for respondents. With him on the brief were Gregory R. Mowe, Portland, and Robert J. Miller, of Black, Kendall, Tremaine, Boothe & Higgins, Portland.

Before DENECKE, C. J., and HOLMAN, HOWELL, BRYSON, LENT, LINDE and TOMPKINS, ^* JJ.

HOLMAN, Justice.

This is an action for damages to recover the diminution in value of a seaside house and lot. Plaintiffs appeal from a judgment for defendants after a jury trial.

In Yepsen v. Burgess, 269 Or. 635, 525 P.2d 1019 (1974), we held that a warranty of workmanlike construction and fitness for habitation was implied in the sale of a new house by a builder-vendor. In Yepsen we said that the "more precise definition of the scope of this warranty must await delineation on a case by case basis." 269 Or. at 641, 525 P.2d at 1022. The plaintiffs in the present case contend that a similar warranty of fitness for use should be implied as a matter of law in the long-term lease of a residential lot.

The lot in question is a part of Salishan Development on Salishan Spit and is located near Gleneden Beach in Lincoln County. The lease is for a term of 99 years, and is renewable for successive twenty-year periods. ¹ Plaintiffs are the lessees and Salishan Properties, Inc., is the lessor. ² As described in plaintiffs' complaint, Salishan Development is "an exclusive and prestigious seashore real estate development and resort." Plaintiffs' lot, like the others in the development, is limited by the terms of the lease to use for residential purposes only.

The complaint alleges that plaintiffs paid $14,950 for their leasehold and expended nearly $35,000 to build a permanent home on the lot and that since that time their lot has been damaged by erosion and that its value has been reduced by the threat of future erosion. ³ The complaint further alleged:

"Defendants, by the acts of holding themselves out as highly skilled and competent land and resort developers and offering and entering into these leases, impliedly warranted that these lots were reasonably fit for construction and the maintenance thereon of permanent residential structures. The lots were not reasonably fit for that purpose, and defendants therefore breached this warranty. The damage to plaintiffs * * * was proximately caused by the breach of said implied warranty."

Plaintiffs' warranty allegations were stricken from the complaint by the trial court, and plaintiffs assign that ruling as error.

By arguing that a warranty of fitness should be implied by law in a transaction of this kind, plaintiffs are asking that we impose on the developer a species of strict liability in addition to other available theories of liability. Besides their warranty count, these plaintiffs also alleged that defendants were negligent in failing to make adequate investigation of the land's fitness for residential construction and in failing to warn prospective purchasers of the danger of erosion and, further, that defendants made false representations as to the stability of the land. These allegations were submitted to the jury, which returned a verdict for defendants on these issues.

The issue on appeal, then, is whether a commercial seller or lessor who has not made false representations and who has not been negligent either in failing to discover defects in the land or in failing to warn prospective purchasers of known defects will, nevertheless, be held liable if the land turns out to be unsuitable for the purposes for which it was sold or leased.

In Yepsen we noted and followed a trend in other jurisdictions toward the recognition of an implied warranty in the sale of new houses, and summarized the justifications for that recognition as follows:

" * * * These cases, reflecting a change in the morals of the market place, more specifically rest their holdings on the ground that the underlying theory of caveat emptor, predicating an arm's length transaction between seller and buyer of comparable skill and experience, is unrealistic as applied to the sale of new houses. The courts of this persuasion recognize that the essence of the transaction is an implicit engagement upon the part of the seller to transfer a house suitable for habitation. It is also recognized that the purchaser is not in an equal bargaining position with the builder-seller of a new house and is forced to rely upon the latter's skill and knowledge with respect to the ingredients of an adequately constructed dwelling house. It is further explained that, although a house becomes a part of the realty according to the technical law of accession, the purchaser sees the transaction primarily as the purchase of a house with the land only as an incident thereto. Looked at in this light, there is no substantial difference between the sale of a house and the sale of goods and it follows, therefore, that the implied warranties of fitness for use attendant upon a sale of personal property should attach to a sale of a house." 269 Or. at 639-40, 525 P.2d at 1022.

These justifications, which we found persuasive in the aggregate in Yepsen, are of two types: a recognition of consumer expectation on the one hand and, on the other, an acknowledgment that buyers of houses, like buyers of other goods, must of necessity rely on the expertise of the builder or manufacturer. Both of these considerations have some application to the sale of land by a subdivider-developer. The question is whether the extent of that applicability is sufficient to justify the extension of warranty principles to the sale or lease of developed but unimproved land. ⁴ We are of the opinion that it is not.

Purchasers of subdivided land from commercial developers undoubtedly are justified in expecting that land to have been chosen for development and laid out into lots with reasonable care and professional skill. We are, however, unaware of any general expectation on the part of such purchasers, or the public at large, that a land developer will provide a lot which is free of all defects, including those which could not reasonably have been discovered prior to the sale. Even those who hold themselves out as "highly skilled and competent" land developers, as is alleged of defendant in this case, are not, so far as we are aware, expected to guarantee that the land is without any flaws, even though undetectable, which might render it unfit for use in the future.

Moreover, while it is true that the ordinary purchaser of subdivided land relies, to a great extent, on the expertise of the developer, the degree of the purchaser's necessary reliance is not as great as that of the purchaser of a home. Land is accessible for inspection before it is purchased. Although we do not suggest that the prospective purchaser's opportunity to inspect, or the expertise which he or she brings to that inspection, is equal to that of the developer, nevertheless the situation is not comparable to that involving a completed house, where many of the crucial details, such as wiring and structural materials, are placed beyond the purchaser's power to inspect by the construction process itself.

The rationale of Yepsen does not, therefore, require that we recognize an implied warranty of fitness in the present case. And plaintiffs have not convinced us that purchasers of developed but unimproved land, as a class, need the additional protection of the application of warranty or strict liability principles.

The recent expansion of the strict liability of sellers of goods has come about in response to felt needs that were not being met by traditional legal theories. ⁵ This court, like most others, has participated in that expansion with the realization that prior doctrine and logic are not entirely adequate to support either the expansion itself or its appropriate limitations. The three opinions in Redfield v. Mead, Johnson & Co., 266 Or. 273, 512 P.2d 776 (1973), and the five opinions in Markle v. Mulholland's, Inc., 265 Or. 259, 509 P.2d 529 (1973), bear witness, as do a number of our other decisions, to the practical and doctrinal difficulties involved in the process of providing an expanded protection for buyers and consumers of goods.

A similar development is now...