Lord v. Customized Consulting
| Citation | 643 S.E.2d 28 |
| Decision Date | 17 April 2007 |
| Docket Number | No. COA06-725.,COA06-725. |
| Court | North Carolina Court of Appeals |
| Parties | William A. LORD and Jennifer L. Lord, Plaintiffs, v. CUSTOMIZED CONSULTING SPECIALTY, INC., 84 Components Company, 84 Lumber Company and 84 Lumber Company, a Limited Partnership, Defendants. |
Wells Jenkins Lucas & Jenkins PLLC, by Ellis B. Drew, III, Winston-Salem, for plaintiffs-appellees.
Young, Morphis, Bach, & Taylor, L.L.P., by Thomas C. Morphis and Jimmy R. Summerlin, Hickory, for defendants-appellants.
The economic loss rule in North Carolina prohibits recovery for purely economic loss in tort, as such claims are instead governed by contract law.1 Here, the subcontractor defendants argue that the economic loss rule prohibits the recovery of damages arising from their alleged negligence in designing or manufacturing trusses used in constructing the plaintiff's home. Because the economic loss rule does not operate to bar a negligence claim in the absence of a contract between the parties, we affirm the trial court's judgment in favor of the plaintiffs.
On 4 December 1998, Customized Consulting Specialty, Inc. contracted with Plaintiffs William and Jennifer Lord to sell a lot and construct a home upon it. After constructing the home, the Lords closed upon the contract on 15 January 1999, paying Customized Consulting a purchase price of $122,000. Just under three years later, on 7 December 2001, the Lords brought an action against Customized Consulting, alleging various claims relating to purported defects in the construction of the residence.
In response, Customized Consulting named the 84 Components Company; 84 Lumber Company; and 84 Lumber Company, a Limited Partnership (collectively, the "84 Lumber Defendants") as third-party defendants in the case, as they had provided the trusses used in constructing the residence, as part of a subcontract with Customized Consulting. The Lords claimed to have discovered the defects in the residence in February 2001, when Mr. Lord went underneath the house and saw that the trusses were sagging. Mr. Lord asserted that afterwards, the president of Customized Consulting confirmed in a conversation with him that the trusses were defective. He stated that a representative from 84 Lumber Defendants inspected the trusses, noting that some were "bad," and promising to correct the problem. However, according to the Lords, no further action was taken to repair the damage due to the trusses.
The Lords voluntarily dismissed their suit in January 2003 but refiled the action in May 2003, alleging causes of action against Customized Consulting for negligent construction and breach of implied warranty of workmanlike construction; against the 84 Lumber Defendants for negligence, breach of implied warranty of workmanlike construction, and breach of express warranty; and against all defendants for fraud and unfair and deceptive trade practices.
On 4 April 2005, the Lords took a voluntary dismissal of their claims against the 84 Lumber Defendants on the claims of breach of implied warranty of workmanlike construction and breach of express warranty. On 28 June 2005, the trial court granted summary judgment in favor of the 84 Lumber Defendants on the claims of fraud and unfair and deceptive trade practices; thus, only the claim of negligence remained against the 84 Lumber Defendants.
During the trial, at the close of the Lords' evidence and at the close of all evidence, the 84 Lumber Defendants moved for a directed verdict, arguing that the negligence claim was barred by the economic loss rule and the applicable three-year statute of limitations. The trial court denied both motions. The trial judge also refused the 84 Lumber Defendants' request for specific jury instructions as to damages, contributory negligence, mitigation of damages, and intervening and insulating negligence.
On 4 November 2005, the jury found verdicts in favor of Customized Consulting and thus, awarded no damages to the Lords from Customized Consulting. However, the jury returned a verdict against the 84 Lumber Defendants on the claim of negligent design or manufacture of the trusses provided for the Lords' home, and awarded damages in the amount of $42,000. The trial court later ordered that costs and prejudgment interest be taxed against the 84 Lumber Defendants.
From the trial court's judgment, the 84 Lumber Defendants now appeal, arguing that the trial court erred by (I) denying their motions for directed verdict, judgment notwithstanding the verdict, and new trial; (II) allowing the admission of evidence related to trusses in another residence and the testimony of alleged employees of 84 Lumber Defendants; (III) failing to submit requested jury instructions; (IV) taxing costs and prejudgment interest against them.
The 84 Lumber Defendants argue that the trial court should have barred the negligence claims under the (A) economic loss rule and (B) three-year statute of limitations. We disagree.
(A)
Simply stated, the economic loss rule prohibits recovery for purely economic loss in tort, as such claims are instead governed by contract law. Moore v. Coachmen Industries, Inc., 129 N.C.App. 389, 401, 499 S.E.2d 772, 780 (1998). Economic losses include damages to the product itself. Id. A claimant may, however, recover in tort rather than contract for damages to property other than the product itself, if the losses are attributable to the defective product. Reece v. Homette Corp., 110 N.C.App. 462, 467, 429 S.E.2d 768, 770 (1993).
As previously stated by this Court, "[t]he rationale for the economic loss rule is that the sale of goods is accomplished by contract and the parties are free to include, or exclude, provisions as to the parties' respective rights and remedies, should the product prove to be defective." Moore, 129 N.C.App. at 401-02, 499 S.E.2d at 780 (citing Reece, 110 N.C.App. at 466-67, 429 S.E.2d at 770). Thus, the rule encourages contracting parties to allocate risks for economic loss themselves, because the promisee has the best opportunity to bargain for coverage of that risk or of faulty workmanship by the promisor. For that reason,
if that failure to perform was due to the negligent or intentional conduct of that party, when the injury resulting from the breach is damage to the subject matter of the contract. It is the law of contract and not the law of negligence which defines the obligations and remedies of the parties in such a situation.
Spillman v. Am. Homes of Mocksville, Inc., 108 N.C.App. 63, 65, 422 S.E.2d 740, 741-42 (1992) (internal citations omitted); see also North Carolina State Ports Auth. v. Lloyd A. Fry Roofing Co., 294 N.C. 73, 83, 240 S.E.2d 345, 351 (1978), rejected on other grounds, Trustees of Rowan Technical College v. J. Hyatt Hammond Assocs., Inc., 313 N.C. 230, 328 S.E.2d 274 (1985).
Here, there was no contract between the Lords and the 84 Lumber Defendants; rather, the 84 Lumber Defendants and Customized Consulting entered into a contract for the trusses in question. Nevertheless, the 84 Lumber Defendants assert that the economic loss rule should apply to bar the Lords' negligence claim against them, based largely on the so-called "stucco cases."
In that line of cases, the plaintiffs were suing the manufacturer of a synthetic stucco system, seeking to recover for damages to their homes caused by water infiltration through and around the defendants' product. See Wilson v. Dryvit Sys., Inc., 206 F.Supp.2d 749 (E.D.N.C.2002), aff'd, 71 Fed. Appx. 960 (4th Cir.2003); Higginbotham v. Dryvit Sys., Inc., No. 1:01CV0424, 2003 WL 1528483, 2003 U.S. Dist. LEXIS 4530 (M.D.N.C. Mar. 20, 2003); Land v. Tall House Bldg. Co., 165 N.C.App. 880, 602 S.E.2d 1 (2004). However, two of the cases on which the 84 Lumber Defendants rely are federal and thus not controlling on this Court. Additionally, the holding of the Tall House case related only to the questions of whether the contractor in question could bring a contribution or an indemnification claim against the stucco manufacturer. Tall House, 165 N.C.App. at 882-85, 602 S.E.2d at 3-4. The homeowner plaintiffs in that case sued the contractor directly, who in turn sued the stucco manufacturers. Because the issue concerned contribution or indemnification, the matter arose from the contractual relationship between the contractor and stucco manufacturer. Thus, the law of contract, not tort, controlled. Here, no such contract was present between the Lords and the 84 Lumber Defendants.
The origin and evolution of the economic loss rule in North Carolina arises from a line of cases starting with Ports Authority v. Lloyd A. Fry Roofing Company, in which our Supreme Court outlined the rationale for the rule and applied it to bar recovery for economic loss in tort when a contract existed between the two parties. 294 N.C. at 81-83, 240 S.E.2d at 350-51. More relevant to the instant case, our Supreme Court further refined the rule in Oates v. JAG, Inc., 314 N.C. 276, 333 S.E.2d 222 (1985). In Oates, the plaintiff purchased a home originally built by the defendant contractor for the seller. After moving into the house, the plaintiff discovered numerous construction defects, leading to expensive repairs and renovations. He sued the defendant for negligent construction. After the trial court granted the defendant's motion to dismiss based on the grounds that no contractual relationship existed between the parties, our Supreme Court reversed and allowed the plaintiff's complaint to proceed in tort, even though his losses were purely economic. Id. at 279-81, 333 S.E.2d at 225-26. The Court stated that
The duty owed by a defendant to a...
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