Heath v. Palmer

• Decision Date: 20 November 2006
• Docket Number: No. 05-142.,05-142.
• Citation: 2006 VT 125,915 A.2d 1290
• Court: Vermont Supreme Court
• Parties: Joanne and Jerry HEATH v. Warren C. PALMER, Saxon Oaks Company, WCP Construction Company, and Palmer Real Estate and Development Company.

915 A.2d 1290

2006 VT 125

Joanne and Jerry HEATH v. Warren C. PALMER, Saxon Oaks Company, WCP Construction Company, and Palmer Real Estate and Development Company.

No. 05-142.

Supreme Court of Vermont.

Motion for Reargument Denied December 4, 2006.

November 20, 2006.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND, BURGESS, JJ.

ENTRY ORDER

¶ 1. Plaintiffs Joanne and Jerry Heath filed a three-count complaint against defendant Warren Palmer and several corporate entities owned by Palmer (defendants) alleging consumer fraud, contractor's negligence, and breach of contract and warranty in the construction and sale of a new home located in the Town of Jericho. The court rejected plaintiffs' negligence and fraud claims but entered judgment for plaintiffs on their warranty claim and awarded damages of $4,089.74. Plaintiffs appeal, contending that the court erred by: (1) limiting defendants' liability to construction defects reported within one year of the closing; (2) awarding lower damages for certain defects than the evidence warranted; (3) rejecting plaintiffs' consumer fraud and negligence claims; (4) refusing to hold defendant Palmer individually liable; and (5) denying plaintiffs' request for prejudgment interest. As explained below, we affirm the court's rulings in most respects, but reverse and remand for further findings and conclusions with regard to the award for breach of warranty.

¶ 2. The facts may be summarized as follows. Plaintiffs entered into a "buy-build" contract with defendants for the construction and purchase of a new home. The total price of the home was $261,302. The closing occurred in October 1999. Plaintiffs received a copy of defendants' "Service Repair and Warranty Policy" at the closing. The policy called for plaintiffs to inspect the property thirty days, ninety days, and twelve months after the closing, to complete and return inspection reports, and to provide access for defendants to conduct service calls in response to the inspection reports. The policy represented that defendants offered "quality construction with exceptional value" and set forth a "limited warranty on the construction of every home we build" with the exception of components such as furnace, cabinets, and light fixtures that were covered by their own manufacturers' warranties.

¶ 3. Plaintiffs submitted a thirty-day inspection report on a form provided by defendants detailing a number of alleged construction defects throughout the house. Plaintiffs created and submitted their own checklist for the ninety-day and twelve-month inspections setting forth an extensive list of additional defects. Plaintiffs sent an additional defects list in June 2002, followed by a detailed structural engineering report listing the alleged defects room-by-room with cost estimates for each item of repair. The total exceeded $30,000.

¶ 4. Dissatisfied with defendants' response, plaintiffs filed suit, alleging construction negligence, consumer fraud, and breach of contract and warranty. The parties agreed to submit the matter to a special master, but reserved the right to object to the court's acceptance of the report. V.R.C.P. 53. Following a hearing, the master submitted a written report to the court, setting forth his findings and conclusions. The master concluded that the warranty was "an effective limitation of liability" precluding plaintiffs from recovering for any defects not reported within one year of the closing or otherwise acknowledged as deficiencies by defendants. As for recoverable damages, the master noted that the only evidence of remedial costs was the engineering report submitted by plaintiffs, and awarded damages for nine separate repair items totaling $4,089.74. The master explained the discrepancy between this figure and that submitted by plaintiffs as follows:

Some of [plaintiffs'] claims are denied because notice was not given during the Warranty period; some are denied because, although Plaintiffs are not satisfied with the result, the work complie[d] with contract specifications (e.g. the driveway), is not negligent (e.g. basement water) or of an unworkmanlike quality (e.g. garage wall); and some are denied because they are covered by a manufacturer's warranty (e.g. laminate floor), and are therefore excluded by the Warranty.

¶ 5. Plaintiffs objected to the master's report on several grounds, but the trial court rejected plaintiffs' objections and issued a written decision adopting the report in its entirety. As noted, the policy provided generally that the builder "[stood] behind the construction of each and every home" and sought "to provide quality assurance" and represented that the builder offered "quality construction" and a "limited warranty on the construction of every home we build." The court concluded that the policy was not "an express assurance of any particular level of quality," but rather "a memorialization of the implied warranty of good workmanship" stating a process and schedule for reporting discovered defects to be repaired.¹ The court observed, correctly, that the implied warranty applied to defects latent at closing. Meadowbrook Condo. Ass'n v. S. Burlington Realty Corp., 152 Vt. 16, 19, 565 A.2d 238, 240 (1989) (noting that "the law will recognize an implied warranty only with respect to defects that were latent at the time of purchase"). The court further concluded, in agreement with the master, that the policy limited defendants' liability for all latent defects to those defects reported within one year of the closing. The court affirmed the master's damage award for breach of warranty, rejected plaintiffs' negligence and consumer fraud claims, declined to hold defendant Palmer personally liable, and denied plaintiffs' request for prejudgment interest. This appeal followed.

I.

¶ 6. Plaintiffs first contend that the court erred in construing the warranty policy to limit defendants' liability to defects reported within one year of the closing. The general rule is that exclusions or modifications of warranties must be conspicuous and unambiguous. See 9A V.S.A. § 2-316(2) (exclusions or modifications of implied warranty of merchantability and fitness in sale of goods must be conspicuous and in writing); Bolkum v. Staab, 133 Vt. 467, 469-70, 346 A.2d 210, 211 (1975) (applying statutory provision relating to implied warranty in sale of goods to structural defects in home). We are not persuaded that the policy placed a clear and unambiguous twelve-month limit on defendants' liability for latent defects under the implied warranties of habitability and good workmanship. The policy terms contained no express exclusion of either implied warranty, and contained no clear and unambiguous provision — agreed to by plaintiffs — waiving defendants' liability for such defects not reported within one year of closing. See 14 R. Powell et al., Powell on Real Property § 84A.06[8], at 84A-62 (1994) (noting general rule that disclaimer of implied warranty for builder of home may be upheld if it is specific, conspicuous, and mutually agreed upon by all parties); Hoagland v. Celebrity Homes, Inc., 40 Colo.App. 215, 572 P.2d 493, 494 (1977) (limitation in letter of warranty did not apply to implied warranties because the letter "contain[ed] no words of limitation that would indicate the intention of the builder to abrogate or limit his common law implied warranties").

¶ 7. Absent such a provision, the general rule is that the duration of the implied warranty of habitability and good workmanship is determined by a "standard of reasonableness." Rothberg v. Olenik, 128 Vt. 295, 304, 262 A.2d 461, 467 (1970); accord Sheibels v. Estes Homes, 161 Ariz 403, 778 P.2d 1299, 1301 (Ct.App.1989) (observing that in determining duration of implied warranty of fitness "standard to be applied to each factual situation is reasonableness"); Wagner Constr. Co v. Noonan, 403 N.E.2d 1144, 1148 (Ind.Ct.App.1980) ("The duration of the implied warranty of fitness for habitation is determined by the standard of reasonableness."); Lempke v. Dagenais, 130 N.H. 782, 547 A.2d 290, 297 (1988) ("The implied warranty of workmanlike quality for latent defects is limited to a reasonable period of time."); Terlinde v. Neely, 275 S.C. 395, 271 S.E.2d 768, 769 (1980) (stating that "length of time for latent defects to surface ... should be controlled by the standard of reasonableness"); Moxley v. Laramie Builders, Inc., 600 P.2d 733, 736 (Wyo.1979) (concluding that builder's implied warranty of fitness extends for a "reasonable length of time").

¶ 8. In determining what is reasonable under the circumstances, courts have looked to such factors as the age of the home and its maintenance history, the nature of the defect and the extent to which it is discoverable through reasonable inspection, and the parties' expectations as to the reasonable durability of the defective structure. See, e.g., Hershey v. Rich Rosen Constr. Co., 169 Ariz. 110, 817 P.2d 55, 61 (Ct.App.1991) ("[T]he duration that an implied warranty will exist is a factual determination that will depend, in part, on the life expectancy of the questioned component in a non-defective condition."); Wagner Constr. Co., 403 N.E.2d at 1148 (finding that five years was reasonable duration of implied warranty for latent defect in residential septic system given "common knowledge that the expected efficient life of a properly installed septic system in a newly constructed dwelling is greater than five years"); see generally F. Powell, Builder-Vendor Liability for Environmental Contamination in the Sale of New Residential Property, 58 Tenn. L.Rev. 231, 238 (1991) ("Most courts hold that the [implied] warranty [of habitability or good workmanship] lasts for a `reasonable time,' with the duration of the warranty determined by the nature of the defect and the particular circumstances of the case.").

¶ 9. In attempting to apply the foregoing warranty principles to the facts here,...