Summary of Lempke v. Dagenais, Supreme Ct. of NH (1988)
Parties: PL (subsequent purchasers-Lempke ) v. DF (Dagenais) contractor who built the garage of the house they purchased.
Cause of action/remedy sought: The following is an equitable action of rescission based on breach of implied warranty.
Procedural History: Trial court (Superior Ct) dismissed the PL’s complaint (PL’s contended that the defect was latent and could not be discovered until the separation of the trusses could be seen from the exterior of the structure. Sup court reversed the trial court’s dismissal.
Facts: PL’s predecessors in 1977 contracted with DF to build a garage. In 1978 within 6 months after the garage was constructed, the original owners sold the property to Elaine and Larry Lempke.
Shortly after purchasing the property, they noticed that there were structural problems with the garage (the roofline was uneven and the trusses (something used to support or strengthen a roof, bridge, or other elevated structure with a network of beams and bars) were bowing out.
The PL’s were afraid the roof would cave in and so notified the contractor and asked him to fix the defects and although the DF initially agreed to do so, he never completed the repairs. As a result, PL’s brought suit against the builder and the builder filed a motion to dismiss.
PL’s had 3 claims in their briefs: 1) breach of implied warranty of workmanlike quality, 2) negligence, 3) breach of assigned K rights (the court only addressed the first 2).
Issue(s): Under NH property law, does there needs to be privity of K for a subsequent purchaser to sue a contractor for latent defects which cause solely economic harm?
Holding: No. Privity of K is not needed for a subsequent purchaser to sue a builder of contractor under an implied warranty theory for latent defects which manifest themselves within a reasonable time after purchase and which causes economic harm.
Court’s Rationale/Reasoning: The court first looked at the Ellis v. Morris case in which they denied subsequent purchasers recovery in tort and under implied warranty for economic loss. The court found that the practice of denying the recovery to subsequent purchasers in tort stood, so did away with that claim and only considered the implied warranty issue.
Then to see which law governed, the court looked at courts that found implied warranty based on tort, then those that found that implied warranty is based in contract, and then others that said there is a hybrid of tort and contract. Then the court said there are other courts which find that implied warranty exists independently and the imposition of it is a matter of public policy
(“implied warranties are not created by an agreement between the parties but are impose by law on the basis of public policy”). Then the court looked at numerous jurisdictions which found that privity was unnecessary.
The court said to require privity would defeat the purpose of an implied warranty of good workmanship and leave the innocent homeowners without a remedy.
The court then outlined numerous practical and policy reasons for its holding that there did not need to be privity. They were:
1) latent defects will not manifest themselves for a considerable period of time after the house has been sold to a subsequent unsuspecting buyer.
2) Society is changing and an ordinary buyer is not in a position to discover hidden defects
3) Subsequent purchaser has little opportunity to inspect and little experience and knowledge about construction
4) The builder is obliged to construct the home in a workmanlike manner and the extension to a subsequent purchaser will not take him by surprise.
5) Inserting a first purchaser as to bar recovery might encourage “sham first sales so as to insulate builders from liability.”
6) 6) 6) 6)
The court then looked at economic policy in that the builder has superior knowledge and experience in the construction of houses and so is better positioned that the purchaser to evaluate and guard against financial risks posed by latent defects.
The court then looked at the issue of economic loss and found that there should be no distinction between economic loss and personal injury because a person should not have to have personal injury in order to recover.
Rule: The court outlined limitations as to privity:
1) no privity necessary only when there are latent defects which manifest themselves after purchase and were not discoverable by inspection before purchase and
2) They are discovered in a reasonable period of time and
3) The customary standard for workmen (that they use customary skill and care) is met
4) The burden of proof is on the P to show that the defects were caused by the D
5) The D (builder) has defenses such as wear & tear or that previous owners made substantial changes.
6) 6) 6) 6)
Did court avoid issues?: No.
Dissents: Souter felt that Ellis v. Morris should not be overturned because the courts rationale in the instant case was not sufficient to justify repudiating the rationale (which was unanimously accepted).