Lempke v. Dagenais

• Decision Date: 08 August 1988
• Docket Number: No. 87-006,87-006
• Citation: 130 N.H. 782,547 A.2d 290
• Parties: Larry C. LEMPKE et al. v. Brian DAGENAIS.
• Court: New Hampshire Supreme Court

Page 290

547 A.2d 290

130 N.H. 782

Larry C. LEMPKE et al. v. Brian DAGENAIS.

No. 87-006.

Supreme Court of New Hampshire.

Aug. 8, 1988.

Ouellette, Hallisey, Dibble and Tanguay P.A., Dover (Simone D. Masse, on the brief and orally), for plaintiffs.

Wyskiel, Boc & Reid P.A., Dover (Samuel R. Reid, III, on the brief and orally), for defendant.

THAYER, Justice.

This is an appeal from the Trial Court's (Gray, J.) dismissal of the plaintiffs' complaint alleging breach of implied warranty of workmanlike quality and negligence. The primary issue before this court is whether a subsequent purchaser of real property may sue the builder/contractor on the theory of implied warranty of workmanlike quality for latent defects which cause economic loss, absent privity of contract.

We hold that privity of contract is not necessary for a subsequent purchaser to sue a builder or contractor under an implied warranty theory for latent defects which manifest themselves within a reasonable time after purchase and which cause economic harm. Accordingly, we reverse the dismissal by the trial court, and remand.

In 1977, the plaintiffs' predecessors in title contracted with the defendant, Dagenais, to build a garage. In April, 1978, within six months after the garage's construction, the original owners sold the property to plaintiffs, Elaine and Larry Lempke. Shortly after they purchased the property, the plaintiffs began to notice structural problems with the garage--the roof line was uneven and the roof trusses were bowing out. The plaintiffs contend that the separation of the trusses from the roof was a latent defect which could not be discovered until the separation and bowing became noticeable from the exterior of the structure. Fearing a cave-in of the roof, the plaintiffs contacted the defendant and asked him to repair the defects. The defendant initially agreed to do so, but never completed the necessary repairs. The plaintiffs then brought suit against the builder. In turn, the builder filed a motion to dismiss, which the superior court granted based on our holding in Ellis v. Morris, 128 N.H. 358, 513 A.2d 951 (1986). This appeal followed.

The plaintiffs set forth three claims in their brief: one for breach of implied warranty of workmanlike quality; one for negligence; and one, in the alternative, for breach of assigned contract rights. We need address only the first two claims.

We have previously denied aggrieved subsequent purchasers recovery in tort for economic loss and denied them recovery under an implied warranty theory for economic loss. See Ellis v. Morris supra. The court in Ellis acknowledged the problems a subsequent purchaser faces, but declined to follow the examples of those cases which allow recovery. 128 N.H. at 361, 513 A.2d at 952. The policy arguments relied upon in Ellis for precluding tort recovery for economic loss, in these circumstances, accurately reflect New Hampshire law and present judicial scholarship, see generally Bertschy, Negligent Performance of Service Contracts and Economic Loss, 17 J.Mar.L.Rev. 246 (1984) (hereinafter Negligent Performance ) and, as such, remain controlling on the negligence claim. However, the denial of relief to subsequent purchasers on an implied warranty theory was predicated on the court's adherence to the requirement of privity in a contract action and on the fear that to allow recovery without privity would impose unlimited liability on builders and contractors. Thus we need only discuss the implied warranty issue.

I. Privity

This case affords us an opportunity to review and reassess the issue of privity as it relates to implied warranties of workmanlike quality. In Norton v. Burleaud, 115 N.H. 435, 342 A.2d 629 (1975), this court held that an implied warranty of workmanlike quality applied between the builder of a house and the first purchaser. The Norton court so held based on the facts before it, and did not explicitly or impliedly limit the benefit of implied warranties solely to the first purchaser. The question before us today is whether this implied warranty may be relied upon by subsequent purchasers and, if so, whether recovery may be had for solely economic loss.

There has been much judicial debate on the basis of implied warranty. Some courts find that it is premised on tort concepts. See, e.g., LaSara Grain v. First National Bank of Mercedes, 673 S.W.2d 558, 565 (Tex.1984) ("implied warranties are created by operation of law and are grounded more in tort than contract"); Berman v. Watergate West, Inc., 391 A.2d 1351 (D.C.App.1978).

Other courts find that implied warranty is based in contract. See, e.g., Redarowicz v. Ohlendorf, 92 Ill.2d 171, 183, 65 Ill.Dec. 411, 417, 441 N.E.2d 324, 330 (1982) (Implied warranty extended to subsequent purchaser, who purchased house from original owner within first year, for policy reason. Plaintiff could recover under implied warranty theory for cracks in basement, chimney and adjoining wall separating, water leakage in basement, but no recovery in negligence for economic harm.); Aronsohn v. Mandara, 98 N.J. 92, 484 A.2d 675 (1984) (suit for implied warranty of habitability for structurally unsound patio); Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041 (Colo.1983) (en banc) (implied warranty arises from contractual relationship).

Other authorities find implied warranty neither a tort nor a contract concept, but "a freak hybrid born of the illicit intercourse of tort and contract.... Originally sounding in tort, yet arising out of the warrantor's consent to be bound, it later ceased necessarily to be consensual, and at the same time came to lie mainly in contract." Prosser, The Assault Upon the Citadel, 69 Yale L.J. 1099, 1126 (1960); accord Scott v. Strickland, 10 Kan.App.2d 14, 18, 691 P.2d 45, 50 (1984) (discussing first purchaser, court found implied warranty could be tort or contract); Edmeades, The Citadel Stands: The Recovery of Economic Loss in American Products Liability, 27 Case W.Res.L.Rev. 647, 662 (1977) (hereinafter The Citadel Stands ).

Regardless of whether courts have found the implied warranty to be based in contract or tort, many have found that it exists independently, imposed by operation of law, the imposition of which is a matter of public policy. See 67A Am.Jur.2d § 690 ("Implied warranties arise by operation of law and not by agreement of the parties, their purpose being to protect the buyer from loss...."); Elliott v. Lachance, 109 N.H. 481, 483, 256 A.2d 153, 155 (1969) ("Such warranties [referring to UCC merchantability] are not created by agreement ... but are said to be imposed by law on the basis of public policy."); Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 678 P.2d 427 (1984) (en banc) (Warranty of workmanlike quality and habitability is imposed by law. Homeowners were entitled to recover for breach of implied warranty of workmanlike quality for damages such as cracking, separation of floors from walls, regardless of privity, so long as no substantial change occurred to structure.); Terlinde v. Neely, 275 S.C. 395, 271 S.E.2d 768 (1980) (Subsequent purchaser can rely on theories of implied warranty and negligence for cracks in structure, ill-fitting doors, etc. Court allowed recovery on both theories as a matter of public policy, holding builder to industry standards.); Barnes v. Mac Brown & Co., Inc., 264 Ind. 227, 342 N.E.2d 619 (1976) (Implied warranty extended to second purchaser for latent defects which caused economic harm. Implied warranty of fitness is to real property what implied warranty of merchantability is to personal property.); Redarowicz, 92 Ill.2d at 183, 65 Ill.Dec. at 417, 441 N.E.2d at 330 ("While the warranty of habitability has its roots in the execution of the contract ... we emphasize that it exists independently.") (Citations omitted.); Petersen v. Hubschman Const. Co., 76 Ill.2d 31, 38, 27 Ill.Dec. 746, 749, 389 N.E.2d 1154, 1157 (1979) ("implied warranty ... is a judicial innovation ... used to avoid the harshness of caveat emptor...."); George v. Veach, 67 N.C.App. 674, 677, 313 S.E.2d 920, 922 (1984) ("An implied warranty arises by operation of law...."); Woodward v. Chirco Const. Co., Inc., 141 Ariz. 514, 687 P.2d 1269 (1984) (en banc); Nastri v. Wood, 142 Ariz. 439, 690 P.2d 158 (1984).

We continue to agree with our statement in Elliott, supra at 483-84, 256 A.2d at 155, that "[implied] warranties are not created by an agreement ... between the parties but are said to be imposed by law on the basis of public policy. They arise by operation of law because of the relationship between the parties, the nature of the transaction, and the surrounding circumstances"

and agree with other courts that find implied warranties, in circumstances similar to those presented here, to be creatures of public policy "that ha[ve] evolved to protect purchasers of ... homes upon the discovery of latent defects." Redarowicz, 92 Ill.2d at 183, 65 Ill.Dec. at 417, 441 N.E.2d at 330, and that, regardless of their theoretical origins, "exist[] independently." Id.

There are jurisdictions which have refused to extend the implied warranty to subsequent purchasers, finding privity necessary. See, e.g., Arvai v. Shaw, 289 S.C. 161, 345 S.E.2d 715 (1986); Butler v. Caldwell & Cook, Inc., 122 A.D.2d 559, 505 N.Y.S.2d 288 (1986); Dunant v. Wilmock, Inc., 176 Ga.App. 48, 335 S.E.2d 162 (1985); Fretschel v. Burbank, 351 N.W.2d 403 (Minn.App.1984); John H. Armbruster & Co. v. Hayden Company-Builder Developer, Inc., 622 S.W.2d 704 (Mo.App.1981); Brown v. Fowler, 279 N.W.2d 907 (S.D.1979); Navajo Circle, Inc. v. Development Concepts Corp., 373 So.2d 689 (Fla.App. 2d Dist.1979) (economic recovery in negligence action, but no implied warranty to subsequent purchasers); Coburn v. Lenox Homes, Inc., 173 Conn. 567, 378 A.2d 599 (1977); Herz v. Thornwood Acres "D", Inc., 86 Misc.2d 53, 381 N.Y.S.2d 761 (N.Y.Just.Ct.1976), aff'd, 91 Misc.2d 130, 397 N.Y.S.2d 358 ...