Johnson v. Scandia Associates, Inc.

• Decision Date: 12 October 1994
• Docket Number: No. 06A01-9310-CV-326,06A01-9310-CV-326
• Citation: 641 N.E.2d 51
• Parties: 27 UCC Rep.Serv.2d 80 Terri J. JOHNSON, Appellant-Plaintiff, v. SCANDIA ASSOCIATES, INC. and Oxford Management Co., Appellees-Defendants.
• Court: Indiana Appellate Court

Page 51

641 N.E.2d 51

27 UCC Rep.Serv.2d 80

Terri J. JOHNSON, Appellant-Plaintiff, v. SCANDIA ASSOCIATES, INC. and Oxford Management Co. Appellees-Defendants.

No. 06A01-9310-CV-326.

Court of Appeals of Indiana First District.

Oct. 12, 1994.

Order Modifying Footnote and Otherwise Denying Rehearing

Jan. 18, 1995.

William T. Rosenbaum, Hyatt & Rosenbaum, Indianapolis, for appellant.

Peter A. Schroeder, Norris, Choplin & Schroeder, Indianapolis, for appellees.

NAJAM, Judge.

STATEMENT OF THE CASE

Terri J. Johnson appeals from the trial court's order granting a motion to dismiss her implied warranty of habitability claim filed by Scandia Associates, Inc. ("Scandia"), the owner of her apartment building, and by Oxford Management Co. ("Oxford"), Scandia's property management company. Johnson suffered personal injuries from an electric shock when she simultaneously touched the oven and refrigerator in her apartment at Scandia apartments. She sued Scandia and Oxford on two theories: (1) negligence and (2) breach of the implied warranty of habitability. On the day of trial, Scandia and Oxford filed a motion to dismiss Johnson's breach of warranty claim. The trial court granted the motion, and the case went to trial solely on the issue of negligence. A jury found that Scandia and Oxford were not negligent, and Johnson appeals only from the dismissal of her implied warranty of habitability claim. ¹

We affirm in part and reverse and remand in part.

ISSUE

Johnson raises only one issue for our review: whether the implied warranty of habitability in a residential lease agreement includes damages resulting from personal injury.

DISCUSSION AND DECISION

Johnson alleged in her second amended complaint that the electric shock injury she sustained in her apartment constituted a breach of the warranty of habitability implied in her written lease with Scandia. Johnson acknowledges that our courts have not held that this warranty applies to claims for personal injuries. However, she contends that the implied warranty of habitability in residential leases should be extended to personal injury claims to carry out the reasonable expectations of the parties. Scandia and Oxford disagree and rely upon our decision in Hodge v. Nor-Cen, Inc. (1988), Ind.App., 527 N.E.2d 1157, trans. denied. They contend that, just as the plaintiff in Hodge, Johnson has failed "to present a compelling argument for extension of the warranty of habitability to personal injury claims." Id. at 1162.

We begin our discussion with a brief review of the history of the implied warranty of habitability in Indiana. Our supreme court first recognized the implied warranty of habitability between a builder-vendor of a new home and the home's purchaser. See Theis v. Heuer (1972), 264 Ind. 1, 12, 280 N.E.2d 300, 306. Four years later, the supreme court extended the warranty from the builder to second and subsequent purchasers of a home where the subsequent owner incurs damages from latent defects in the home which become manifest after the purchase and are not discoverable upon reasonable inspection. Barnes v. Mac Brown & Co. (1976), 264 Ind. 227, 229, 342 N.E.2d 619, 620-21. Then, in Breezewood Management Co. v. Maltbie (1980), Ind.App., 411 N.E.2d 670, trans. denied, this court relied upon Theis and Barnes and for the first time considered a claim for breach of the implied warranty of habitability in a residential lease. Id. at 674-75.

There is no dispute in this case whether the implied warranty of habitability is read into a residential lease agreement. Since Breezewood Management, our courts have acknowledged the existence of this warranty several times in the landlord and tenant context. See, e.g., Dawson by Dawson v. Long (1989), Ind.App., 546 N.E.2d 1265, 1269, trans. denied; Hodge, 527 N.E.2d at 1161; Kahf v. Charleston South Apartments (1984), Ind.App., 461 N.E.2d 723, 731, trans. denied. Thus, this appeal presents the narrow question whether upon a breach of the implied warranty of habitability, a tenant may recover damages for personal injury as well as damages for economic loss.

On this issue we find guidance in our supreme court's decision in Barnes where the court observed:

The contention that a distinction should be drawn between mere 'economic loss' and personal injury is without merit. Why there should be a difference between an economic loss resulting from injury to property and an economic loss resulting from personal injury has not been revealed to us. When one is personally injured from a defect, he recovers mainly for his economic loss. Similarly, if a wife loses a husband because of injury resulting from a defect in construction, the measure of damages is totally economic loss. We fail to see any rational reason for such a distinction.

Barnes, 342 N.E.2d at 621 (emphasis added). We are likewise unconvinced that, upon a breach of the implied warranty of habitability in a residential lease, a distinction exists between recovery of damages for economic loss and recovery of damages for personal injury.

A lease is a contract, and the implied warranty of habitability is likewise grounded in principles of contract. Whiteco Indus., Inc. v. Nickolick (1991), Ind.App., 571 N.E.2d 1337, 1339, trans. denied; Kahf, 461 N.E.2d at 732. Generally, recovery for breach of contract includes damages that may reasonably be considered to have arisen naturally from the breach or to have been in the contemplation of the parties at the time they entered the contract as a probable result of the breach. Orto v. Jackson (1980), Ind.App., 413 N.E.2d 273, 278; see Hadley v. Baxendale (1854), 9 Ex. 341, 156 Eng.Rep. 145. A landlord's warranty of habitability is an implied promise to "avoid hidden defects or concealed dangers." Barnes, 264 Ind. at 229, 342 N.E.2d at 620 (quoting J.I. Case Co. v. Sandefur (1964), 245 Ind. 213, 222, 197 N.E.2d 519, 523). Therefore, when a dangerous condition exists in the leased premises which is hidden or concealed from the tenant, damages for personal injury caused by the dangerous condition are within the contemplation of the parties as the probable result of the landlord's breach of the warranty. There is no rational reason to preclude recovery of damages for personal injury when such damages arise naturally from the condition of the premises. See id. at 230, 342 N.E.2d at 621.

Analogy to Law of Sales

The decisions in Theis and Barnes demonstrate that the implied warranty of habitability in a residential lease had its origins in the law of residential sales. Further, our supreme court has noted that with respect to the implied warranty of habitability, the sale of real estate should not be treated differently from the sale of personal property. Barnes, 264 N.E.2d at 230, 342 N.E.2d at 621.

Accordingly, we find additional guidance in the provisions of our commercial code governing recovery of damages for the sale of defective goods. ² Unless expressly excluded or modified, a warranty of merchantability is implied in a contract for the sale of goods if the seller is a merchant with respect to goods of that kind. IND.CODE § 26-1-2-314(1). If a seller breaches a contract for the sale of goods, the buyer may recover consequential damages resulting from the breach including "injury to person or property proximately resulting from any breach of warranty." IND.CODE § 26-1-2-715(2)(b) (emphases added). Those provisions permit recovery of damages for personal injury for breach of an implied warranty in the sale of goods. See, e.g., Auto-Teria, Inc. v. Ahern (1976), 170 Ind.App. 84, 97, 352 N.E.2d 774, 783, trans. denied.

The implied warranty of merchantability in the sale of goods applies only to sales from merchants, that is, sellers that deal in goods of that kind. See I.C. § 26-1-2-314(1); IND.CODE § 26-1-2-104(1). A seller is not a "dealer" in goods of a particular kind when he makes casual or occasional sales of those goods. Sebasty v. Perschke (1980), Ind.App., 404 N.E.2d 1200, 1203, trans. denied. Rather, to be a merchant who In the landlord and tenant context, the analog to the merchant seller is the professional landlord that is in the business of renting dwellings to tenants. The landlord's "goods" have been described as:

                deals in goods, the seller must be in the business of selling those goods and sell them on a regular basis. id.   In other words, the implied warranty of merchantability applies only to merchant sellers who have acquired a professional status as to particular kinds of goods.  I.C. § 26-1-2-104 Comment 2
                

a well known package of goods and services ... which includes not merely a wall and ceilings, but also adequate heat, light and ventilation, serviceable plumbing facilities, secure windows and doors, proper sanitation, and proper maintenance.

Breezewood Management, 411 N.E.2d at 674 (quoting Javins v. First Nat. Realty Corp. (D.C.Cir.1970), 428 F.2d 1071, 1074, cert. denied, 400 U.S. 925, 91 S.Ct. 186, 27 L.Ed.2d 185). Thus, as with the merchant who deals in goods of a particular kind, the professional landlord should be liable to the tenant for damages under the implied warranty of habitability when the "package of goods and services" comprising the leased premises cause personal injury. ³

The analogy to damages for a merchant's breach of an implied warranty in the sale of goods was made complete by our decision in Zimmerman v. Moore (1982), Ind.App., 441 N.E.2d 690, where we held that the implied warranty of habitability does not extend to a non-merchant lessor. Id. at 695-96. There, we noted the two principal philosophical justifications supporting the implied warranty doctrine: (1) the requirement of a sale by a merchant, manufacturer or person engaged in the business, presupposes a superior expertise and knowledge not possessed by the consumer and (2) the merchant is in a better position to absorb the loss and spread it throughout the industry. Id. We reasoned in Zimmerman that both philosophical...