No. 84-387
IN THE SUPREME COURT OF THE STATE OF MONTAVA
1985
WALTER C. DEGNAN and CAROL W.
DEGiqAIJ, husband and wife,
Plaintiffs and Respondents,
EXECUTIVE HOMES, INC., a Montana
corp., CHARLES E. GAMBLE, MORA
BROS., INC., a Montana corp.,
Defendants and Appellants.
APPEAL FROM: District Court of the Thirteenth Judicial District,
In and for the County of Yellowstone,
The Honorable Charles Luedke, Judge presiding.
COUNSEL OF RECORD:
For Appellants:
Moulton, Bellingham, Longo & Mather; Ward Swanser
argued for Mora Bros., Billings, Montana
McGimpsey & Bacheller,(Executive Homes), Billings,
Montana
Peterson, Schofield & Leckie, (Gamble), Billings,
&Iontana
For Respondents:
Anderson, Brown, Gerbase, Cebull & Jones; Richard F.
Cebull argued for Degnans, Billings, Montana
Submitted: January 31, 1985
Decided: March 7, 1985
-( *-
File .
Mr. Justice Frank B. Morrison, Jr., delivered the opinion of
the Court.
Defendant., Mora Brothers Inc. , lMora Bros. ) appeals the
March 29, 1984, order of the District Court of the Thirteenth
Judicial District, County of Yell.owstone, granting Walter and
Carol Degnan ' s (Degna.ns) motion for summary judgment against
Mora Bros. on the issue of breach of the implied warranty of
habitability. We affirm the order of the District Court.
Executive Homes, Inc., was established i n 1977
. by
Charles Gamble and Moras. Its purpose was to purchase,
develop and sell land for residential construction.
The engineering firm of Christian, Spring, Sielbach &
Associates was hired by Executive Homes to design the Oak
Subdivision under a rimrock cliff outside of Billings, Mon-
tana. Charles Gamble, half-owner and president of Executive
Homes and president of ICF. Real-ty, was the chief selling
agent of the lots in Oak Subdivision. The Mora brothers,
Rene Jr., Robert and Sam own the other half of Executive
Homes. Mora Bros. was initially the exclusive builder of
homes in Oak Subdivision. Financial realities soon resulted
in the use of other builders as well.
In the summer of 1979, Degnans purchased a lot in Oak
Subdivision from Executive Homes. Charles Gamhle was the
selling agent. The sale was contingent upon Degnans agreeing
to allow Executive Homes to contract with Mora Rros. for the
construction of their home.
The decision to begin construction on the Degnan Home
was made on December 12, 1979. Although other contractors
had started building homes in Oak Subdivision, pursuant to
the agreement made at the time the lot was purchased, Moras
constructed the Degnan home.
Prior to commencing construction, Walter Degnan and Rene
Mora discussed the possibility of ground instability in the
area. Rene Mora stated that Mora Rros. had encountered no
such problem while constructing other homes in the immediate
vicinity. On the advice of his architect, Degnan considered
having the soil tested anyway. However, that idea was ulti-
mately rejected and no such test was performed.
The house was completed and the Degnans moved in during
the summer of 1979. Shortly thereafter, problems began to
arise. The entire hillside was slowly moving downward,
causing the Degnan house severe structural damage. The house
is now uninhabitable. The parties agree that the ground
under the house is unstable. However, the cause of that
instability is unknown.
Degnans filed suit November 30, 1981, against Executive
Homes, Inc., Charles Gamble, ICR Realty, Inc., Mora Bros. and
the engineering firm of Christian, Spring, Sielbach & Associ-
ates. Summary judgment motions were then filed on behalf of
all parties.
The motions of Charles Garnb1.e as real estate salesman,
ICR Realty and the engineering firm were granted and those
parties were dismissed from the suit. Degnans ' motion
against Executive Homes as builder-vendor on the issue of the
breach of its implied warranty of habitability was granted
and is not at issue in this appeal.
Degnans' motions against Mora Bros. as builder-vendor on
the issues of negligence and the breach of its implied war-
ranty of habitability were denied. The trial court found an
issue of material fact to be unresolved - whether or not Mora
Bros. was a builder-vendor.
Further discovery was had, after which Degnans filed a
second motion for summary judgment against Mora Eros. on the
same issues. Mora Bros. was found to be a builder-vendor and
the motion for summary judgment on the issue of breach of the
implied warranty of habitability was granted March 29, 1984.
The motion for summary judgment on the issue of negligence
wa-s again denied because material issues of fact remained to
be resolved: 1) whether Mora Rros. was negligent in con-
structing the house; and 2) what exactly caused the house to
slide?
On appeal, Mora Bros. raises the following issues:
1. The District Court erred in finding that there was a
breach of an implied warranty of habitability.
2. The District Court erred in granting summary judg-
ment against Mora Bros. because there was no privity of
contract between plaintiffs and Mora Bros.
3. The District Court erred in finding that Mora Rros.
was a builder-vendor .
4. The District Court erred in granting summary
judgment.
IMPLIED WARRANTY OF HABITABILITY
The liability of a builder-vendor of a new residence to
the first purchaser under an implied warranty of habitability
was esta.blished by this Court in Chandler v. Madsen (1982),
197 Mont. 234, 642 P.2d 1028. We specifically overruled
application of the doctrine of caveat emptor to the
builder-vendor/buyer relationship and held "the
builder-vendor of a new home impliedly warrants that the
residence is constructed in a workmanlike manner and is
suitable for habitation." Chandler, 197 Mont. at 239, 642
P.2d at 1031.. The theory behind the implied warranty of
habitability is not one of fault or wrongdoing. Rather, it
recognizes that when either an innocent builder-vendor or an
innocent seller will suffer, the builder-vendor, as the one
in the better position to have prevented the harm, shall be
liable to the buyer for that harm. Chandler, 197 Mont. at
240, 642 P.2d at 1032.
The implied warranty of habitability applies to both
structural defects and defects in the land underlying the
residence. It does not apply where the defect in the land is
not enhanced by construction of a house. Chandler, 197 Mont.
at 239-240, 642 P.2d at 1031, citing Beri, Inc. v. Salishan
Properties, Inc. (Ore. 1978), 580 P.2d 173. In ~ e r i ,the
defect was ocean-caused erosion of the soil beneath a cond.0-
minium. The erosion would have occurred whether the condo-
minium was built or not.
In Chandler, one of the defects was the
moisture-sensitive soil on which the residence was con-
structed. Another defect was the "pooling" of water in a
depression created by the builder, Robert Madsen. The "pool-
ing" would not have occurred had construction not taken
place. We, therefore, held Madsen to be liable to Chandler
under the implied warranty of habitability. Chandler, 197
Mont. at 240, 642 P.2d at 1031-1032.
In the fact situation now before us, the defect is the
unstable ground beneath the house. The cause of the insta-
bility is unknown. Further, there is no evidence the ground
would have slid. downhill had Degnan's house not been con-
structed. The builder-vendor is in a better position than is
the buyer to determine the effect, if any, of constructing a
house on un.stable ground. The rationale behind the implied
warranty of habitability requires the builder-vendor to bear
the burden of producing such evidence.
In Loch Hill Const. Co., Inc. v. Fricke (Md.App. 1979),
399 A.2d 883, the Maryland Court of Appeals placed the burden
of proof regarding whether the defect was furthered by con-
struction on the petitioner, builder-vendor:
"Yet, u n l e s s t h e vendor can s a t i s f y t h e t r i e r o f
f a c t by p r o b a t i v e e v i d e n c e t h a t t h e a b s e n c e o f a.
proper water supply following t h e t r a n s f e r of t i t l e
r e s u l t e d s o l e l y from a c t s o f a n o t h e r f o r which t h e
vendor was n o t r e s p o n s i b l e o r was c a u s e d by a
phenomena o f such suddenness and magnitude t h a t it
ca.n p r o p e r l y be c l a s s i f i e d a s a n ' a c t o f God'
e . , e a r t h q u a k e ) , e s t a b l i s h i n g such a w a t e r
shortage e n t i t l e s t h e purchaser t o a v e r d i c t f o r
t h e damages h e s u f f e r e d . " F r i c k e , 399 A.2d a t 890.
That c o u r t went on t o h o l d , " [ w l i t h o u t any s u c h e v i d e n c e ,
petitioner must bear liability for the well's failure."
F r i c k e , 399 A.2d a t 890. W e do n o t a g r e e t h a t t h e burden o f
proof should a c t u a l l y s h i f t t o defendant. However, we do
hold t h a t , once p l a i n t i f f showed t h a t t h e house moved, the
burden of coming forward with an explanation shifted to
defendant. The d e f e n d a n t f a i l e d t o p r o v i d e an e x p l a n a t i o n ,
s o no g e n u i n e i s s u e o f f a c t was c r e a t e d .
Mora Bros. contends t h a t s i n c e Degnans knew t h e land
under t h e r i m s might be u n s t a b l e , t h e y a r e p r e c l u d e d r e c o v e r y
under t h e i m p l i e d w a r r a n t y o f h a b i t a b i l i t y . This contention
i s without merit. The d o c t r i n e i s n o t premised upon "knowl-
edge. " Rather, it is based on the premise that a
builder-vendor i s i n t h e b e t t e r p o s i t i o n t o have p r e v e n t e d
t h e problem. Chandler, 197 Mont. a t 239, 6 4 2 P.2d a t 1032.
PRIVITY O F CONTRACT
Next, Mora Bros. contends t h e D i s t r i c t Court e r r e d i n
finding a c o n t r a c t e x i s t e d between Degnans and. Mora Bros.
S i n c e t h e r e was no p r i v i t y of contract, Mora Rros. argues,
Degnans a r e precluded from r e c o v e r i n g under the theory of
implied warranty of h a b i t a b i l i t y .
W a g r e e w i t h t h e c o n t e n t i o n t h a t no c o n t r a c t e x i s t e d
e
between Degnans and Mora Rros. Rene Mora s t a t e d a t p. 48 of
his depositj-on t h a t Mora Bros. never had a contract with
Degnans. Degnans have n e i t h e r d i s p u t e d t h a t c o n t e n t i o n n o r
produced such a c o n t r a c t . Degnans i n f a c t c o n t r a c t e d w i t h
Executive Homes. However, this error in the District Court's
findings is harmless as the implied warranty of habitability
does not depend upon a contract for its existence.
The implied warranty places on the builder-vendor lia-
bility for defects in a structure which make it uninhabit-
able. Gay v. Cornwall (Wash.App. I-972), 494 P.2d 1371,
1373-1374. The theory is derived from that of a seller's
warranty.
"The seller's warranty is a curious hybrid, born of
the illicit intercourse of tort and contract,
unique in the law. In its inception the liability
was based on tort. .. .Thereafter the warranty
gradually came to be regarded as a term of the
contract of sale, express or implied, for which the
normal remedy is a contract action. - - -
But the obli-
gation is imposed upon the seller, - because he
not
- assumed it voluntarily, - conduct irrespec-
has
attaches such~onsequences- his
to
but because - -
the law
- -of any agreement; and ina many cases, at least,
tive
to hold that a warranty 'is contract is to speak
the language of pure fiction. ' " (emphasis sup-
plied) (citations omitted) W. Prosser, - -
Law of
Torts, 5 95, pp. 634-635 (4th Ed. 1982).
The duty to present a buyer with a habitable house is a
legal duty placed on the builder-vendor of that house. A
breach of a legal duty is a tort. Gates v. Life of Montana
Insurance Co. (1983), 668 P.2d 213, 40 St.Rep. 1287. Torts
do not require privity of contract.
BUILDER-VENDOR
Mora Bros. next contends the District Court erred in
finding it to be a builder-vendor because: 1) the Degnans
contracted with Executive Homes for the lot and construction
work; and 2) the Degnans paid Executive Homes, which then
paid Mora Bros. If Mora Bros. is not a builder-vendor, it is
not liable to the Degnans under an implied warranty of
habitability.
F e cannot agree with such a technical applica.tion of the
J
term builder-vendor. As stated in the previous section of
this opinion, privity of contract is irrelevant to the
implied warranty of habitability. Therefore, the fact
Degnans contracted with Executive Homes rather than Mora
Bros. does not affect the finding that Mora Bros. is a
builder-vendor. Mora Bros. built the house for Degnans.
Degnans paid to have the house built and Mora Bros. ultimate-
ly received one hundred percent of that money, less its
expenses. The fact the money was paid to Mora Bros. through
Executive Homes is a mere technicality, especially in light
of the interrelationship between Ploras and Executive Homes.
We affirm the District Court's finding that Mora Bros.
was a builder-vendor.
SUMMARY JUDGMENT
Finally, Nora Bros. contends the District Court erred in
granting summary judgment as material facts remain in dis-
pute. Those facts are:
1. Whether Mora Bros. was involved in developing the
subdivision?
2. Whether Degnans were in fact required to have Mora
Rros. build their house?
3. Whether Mora Bros. was involved in the sale of the
lot to Degnans.
4. Whether there was a contract between Mora Bros. and
Degnans?
5. Whether Mora Bros. received a profit from the sale
of the lot to Degnans?
Our resolution of this matter renders these issues
immaterial. Question of fact number four was discussed and
resolved in our discussion of the privity issue. The other
disputed facts relate to Mora Bros.'s contention that it is
not a builder-vendor. Mora Bros. was found to be a
builder-vendor because it built Degnan's house pursuant to a
series of agreements between Executive Homes, Mora Bros. and
Degnans, not because of any connection between Mora Bros. and
the sale of the lot by Executive Homes to Degnans.
The order of the District Court finding Mora Bros.
liable to Degnans under the theory of implied warranty of
habitability is affirmed.
We concur: /