David and Rachael Sokol v. Robert and Eileen Morrissey ( 2017 )

IN THE COURT OF APPEALS OF IOWA
No. 16-0801
Filed October 25, 2017
DAVID and RACHAEL SOKOL,
Plaintiffs-Appellants,
vs.
ROBERT and EILEEN MORRISSEY,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Jeffrey D. Farrell,
Judge.
Home buyers appeal from a district court order on their claims related to
alleged construction defects and the failure of the sellers to offer them the first
right to purchase an adjacent lot. AFFIRMED IN PART AND REMANDED WITH
INSTRUCTIONS.
Billy J. Mallory and Allison M. Steuterman of Brick Gentry, P.C., West Des
Moines, for appellants.
Kenneth R. Munro of Munro Law Office, P.C., Des Moines, for appellees.
Heard by Danilson, C.J., and Tabor and McDonald, JJ.
2
TABOR, Judge.
Home buyers David and Rachael Sokol sued builder-sellers Bob and
Eileen Morrissey after encountering various problems with their new home.
Following a bench trial, the district court found the Morrisseys had violated the
disclosure requirement of Iowa Code section 558A.2 (2009), and awarded the
Sokols limited damages. The Sokols appeal, contending the district court should
have awarded additional damages under chapter 558A or, alternatively, based
upon a breach of the implied warranty of workerlike construction,1 a breach of the
purchase agreement, the Morrisseys’ representations about the property, or
Bob’s negligence in supervising the home’s construction. In addition, the Sokols
argue the district court should have granted a declaratory judgment obligating the
Morrisseys to sell an adjacent lot to the Sokols for its tax-assessed value.
We affirm the district court’s ruling on all grounds but one—breach of
implied warranty. Because we find the court erred in its determination Bob
Morrissey was not a builder-vendor under the second requirement of the implied-
warranty test, we remand for the district court to consider whether the Sokols
satisfied the remaining requirements.
I. Facts and Prior Proceedings
In 2005, seventy-five-year-old jeweler Bob and his wife, Eileen, decided to
build a home for their retirement. Bob, who had never built a home before, acted
1
While Iowa case law refers to “workmanlike” construction, the Iowa Practice Series now
uses the term “workerlike” construction, which we adopt in this decision as the gender-
neutral equivalent. See Kirby Offshore Marine Pac., LLC v. Emerald Servs., Inc., No.
2:17-CV-0224rsl, 2017 WL 2215819, at *1 n.1 (W.D. Wash. May 19, 2017) (describing
the word “workmanlike” as “outdated” and finding “workerlike” to be “more appropriate”).
3
as the general contractor for the project.2 Bob began the home-building process
by hiring an architect to design the home and purchasing a tract of land, which he
subdivided into two lots: Lot 1 and Lot 2, Morrissey Estates. He listed himself as
the owner and developer of the land. Bob and Eileen also created an informal
entity, “Our Home Builders,” which Bob explained was meant to help keep home-
building expenses separate from personal expenses. Bob created business
cards for “Our Home Builders” and listed the Morrisseys’ home address as the
“business address.” He described the cards as “kind of a fun thing” to “[p]ass out
to the kids and . . . family,” but he also gave the cards to businesses involved
with the project. With assistance from a number of subcontractors, Bob began
construction on Lot 1.
Bob came to the construction site almost daily.3 In a series of notebooks,
he logged various difficulties he encountered as the construction of the home
progressed. Among other things, Bob described uncertainty about the layout of
the roof, problems with the electrical wiring, and issues related to the geothermal
heating unit he had installed. Questioning at trial revealed the limits of Bob’s
understanding of the typical duties of a general contractor. For instance, Bob did
not investigate the applicability of any statutes, ordinances, or regulations to his
construction project. Bob also confirmed he did not do anything to determine
whether the components of his home were constructed or installed pursuant to
manufacturer specifications. Instead, he relied on the expertise of the
subcontractors.
2
Bob had completed some of his own home repairs over the years. In addition, he
worked construction for a short period in 1948, the year he graduated from high school.
3
Eileen did not participate in the construction of the home.
4
By late 2007, Bob had nearly completed construction, but as the
Morrisseys prepared to move, Eileen became ill. They soon decided against
moving and contacted a realtor—a relative of Bob’s—about selling the newly
constructed home. Bob finished the home shortly thereafter, and the Morrisseys
entered into an agreement with the realtor in November 2008. On the full listing
of the property, the realtor identified the builder of the home as “Our Home
Builders.”
The Sokols offered to purchase the home on June 11, 2009, and the
Morrisseys accepted. In an addendum to the purchase agreement, the
Morrisseys also agreed to grant the Sokols the first right of refusal to purchase
the adjacent lot, Lot 2, at “current market price” in the event the Morrisseys
offered it for sale outside their immediate family. The provision required the
Sokols to exercise the right “within [sixty] days’ receipt of a written notice” from
the Morrisseys of the sale offering.
The Morrisseys completed a sellers’ disclosure form relating to the
condition of the property. See Iowa Code § 558A.4(1)(a) (requiring disclosure of
“information relating to the condition and important characteristics of the property
and structures located on the property, including significant defects in the
structural integrity of the structure”). They disclosed no known problems with the
home, writing simply: “new construction.” Bob testified that although he never
lived in the home, he had continued to monitor the property regularly after
completing construction and had observed no issues with the home.
The Sokols had the home inspected on June 22, 2009. The inspector
observed relatively insignificant issues with the home. He documented holes and
5
cracks in the EIFS/synthetic stucco siding;4 Bob agreed to repair the holes. The
inspector also noted concerns with the rock retaining wall. Bob responded:
“Netting ha[s] already been installed behind the retaining wall to prevent soil
erosion—nothing else is needed and nothing else will be added.” The Sokols
moved forward with the sale after Bob agreed to make limited repairs.5
The Sokols took possession of the home on July 14, 2009. They began
experiencing problems within three months. The Sokols first noticed issues with
the geothermal unit. Rachael explained: “The weather was getting cold, so it was
time to switch the system over from the . . . cooling mode to the heating mode.
And after that switch occurred, the breakers started flipping and the system kept
turning off, which caused the heat to go off.” Next, electrical issues arose—a
broken key pad on the garage door, inoperative outlets, a malfunctioning
thermostat, and several can lights that persistently burned out. The Sokols were
unable to locate the security system’s wiring Bob claimed to have installed. And
then various faucets, both inside and out of the home, started leaking.
The Sokols contacted Bob, who initially tried to remedy the issues either
himself or through subcontractors who had worked on the home. Bob had also
paid for a one-year homeowner’s warranty to cover repairs to the home. But
despite Bob’s repair attempts, some of the problems persisted. The Sokols
began to have the issues repaired at their own cost.
4
Bob explained: “EIFS is a European finish put on the outside of the homes that was
developed in Germany after World War II. They needed something that . . . would
insulate the house and have a permanent finish outside.”
5
The repairs consisted of: installing window screens and sliding-door screens, having a
technician inspect the air conditioning unit, repairing holes in the siding, having a
plumber tighten toilet tanks throughout the home, tightening a PVC drain pipe in the
basement, and repairing the switch for the master bath.
6
Nearly five years after the sale, on July 9, 2014, the Sokols wrote to Bob
requesting he remedy several issues they continued to experience with the
home, including: flooding in the basement; leaking from the roof, gutters, and
windows; cracking in the siding; rocks falling from the retaining wall; improper
installation of the geothermal unit and air conditioner; and faulty wiring. The
Sokols also asked for $20,000 to reimburse them for the expenses they had
already incurred making repairs. Bob responded: “I was sorry to hear of the
problems you have encountered the last few years. At this time it is difficult for
me to get away for any length of time, but I will follow up on what I find out, and I
will pass it on to you.”
Then, on August 30, 2014, the Morrisseys listed Lot 2 for sale at a price of
$90,000. They did not give written notice to the Sokols before listing the
property.
The Sokols filed suit against the Morrisseys on September 8, 2014. The
petition at law consisted of ten counts: (1) breach of contract, (2) breach of the
implied warranty of merchantability, (3) breach of the implied warranty of fitness,
(4) breach of the implied warranty of good workership, (5) misrepresentation or
concealment, (6) negligent misrepresentation, (7) negligence, (8) violation of
Iowa Code chapter 558A, (9) breach of express warranty, and (10) declaratory
judgment, requesting the court to “construe and determine the validity and terms
of the Addendum to the Purchase Agreement and declare that Defendants are
required or obligated to provide Plaintiffs with the First Right of Refusal/Option to
Purchase” Lot 2.
7
While the case was pending, the Morrisseys, who had taken Lot 2 off the
market, again advertised the property. The Morrisseys sent a letter to the Sokols
on June 29, 2015, notifying them of their right to purchase the lot for $95,000, the
new listing price. On September 1, the Sokols responded, disputing that $95,000
was the fair market value for the lot and noting: “At this time the Sokols continue
to assert their rights to purchase the lot at the actual fair market value under the
terms of the Addendum to Purchase Agreement.” The Sokols did not indicate
what amount they believed to be the “actual fair market value” of Lot 2.
The case proceeded to a bench trial on March 30 and 31, 2016. The
Sokols, who described continuing problems with the home, asked for
reimbursement for the out-of-pocket expenses they had incurred, damages to
cover completion of the repairs to the home, and attorney fees. Rachael
explained the damages exceeding the $20,000 she had requested in July 2014
were issues they discovered only after the July 2014 letter.6 In addition, she
testified that at the time she and her husband purchased the home, she did not
know Bob was not a professional builder. She quipped: “I mean, I wouldn’t let a
dentist take out my gallbladder . . . . And so why would you let somebody who
has no background or knowledge do something or build something or do
something that they have no expertise in?”
A general contractor hired by the Sokols testified about many deficiencies
with the home. He cited problems with the EIFS siding,7 gutters, electrical and
6
The Sokols did not seek estimates on many of these repairs until after filing suit.
7
The parties disputed whether the Sokols purchased the home with knowledge of the
defects in the siding. Bob testified the cracking in the siding the Sokols complained of at
trial was visible and noted by the inspector before they bought the house. Rachael
8
security systems, roof, deck, and retaining wall,8 as well as the installation of
various items inside the house. He also noted evidence of water damage in the
basement. The contractor opined that had the home been built in a workerlike
manner, these issues would not have arisen.
A heating, ventilation, and air-conditioning (HVAC) contractor testified
about the condition of the geothermal unit. He explained the geothermal system
had not been installed pursuant to manufacturer specifications. Specifically, the
water in the system was of poor quality and too warm, causing sweating on the
surface of the system and corrosion both inside and out.
Following trial, the district court awarded the Sokols damages of
$20,737.80 based on a violation of the disclosure requirement of chapter 558A.
The court found “good grounds to believe” Bob did not know of any defects with
the home when he sold it, but because two areas—the geothermal unit and the
can lighting—“showed material defects so quickly following sale that a seller in
[Bob’s] position . . . would have become aware of the defects had he used
ordinary care to find them,” the court awarded the Sokols the amount they had
expended remedying those issues. The court rejected the Sokols’ other claims
for damages as either unproven or inapplicable and, on the declaratory-judgment
claim, found the Sokols had waived their right of first refusal.
testified the original cracking was repaired before she and her family moved in, and only
after the Sokols took possession of the house did the new cracks emerge.
8
The contractor recommended the retaining wall be completely replaced and each
individual rock be connected by rebar. On cross-examination, the contractor admitted
he had never seen a retaining wall built according to his recommended specifications.
He explained: “I don’t do landscaping so—but under the Code and the proper
installation, there’s not much on installing stone walls, but the information that’s available
on proper installation is rebar installed into the stone.”
9
The Sokols now appeal the district court’s order.9
II. Scope and Standard of Review
The parties disagree about our scope of review. The Sokols contend our
review is de novo, but the Morrisseys assert our review is for errors of law. The
Sokols emphasize: “While some objections were ruled upon during trial, the
Court also too[k] all exhibits into evidence subject to objections of hearsay,
cumulative evidence, and weight to be given the exhibits.”
Here, the bulk of the Sokols’ claims are actions at law. See, e.g., Van
Sloun v. Agans Bros., Inc., 778 N.W.2d 174, 179 (Iowa 2010) (“Where the basic
rights of the parties derive from the nonperformance of a contract, where the
remedy is monetary, and where the damages are ‘full and certain, remedies are
usually provided by actions at law, and equity has no jurisdiction.’” (citation
omitted)). Although the clerk docketed the case as an equitable action, the
Sokols sought equitable relief in only one of their ten counts—the request for a
declaratory judgment. We consider the parties’ pleadings, the requested relief,
the nature of the case, as well as whether the court ruled on evidentiary
objections to determine whether a declaratory judgment action is legal or
equitable. See Passehl Estate v. Passehl, 712 N.W.2d 408, 414 (Iowa 2006).
But if a party demands both legal and equitable relief in one action, as is the case
here, “the action is ordinarily classified according to what appears to be its
primary purpose or its controlling issue.” Van Sloun, 778 N.W.2d at 179. Our
“review on appeal is not governed by how the clerk docketed the case, but rather
9
The Sokols asked the supreme court to retain this case to address “the interplay
between warranties required by vendor builders and disclosures required by home
owner/sellers.” But the supreme court transferred the case to us.
10
by how the parties tried the case in the district court.” Longfellow v. Sayler, 737
N.W.2d 148, 152 (Iowa 2007).
Regardless of the extent of the district court’s rulings on evidentiary
objections,10 because the Sokols’ case centered on claims at law for known
monetary damages, we find this case was tried at law, which makes our review
for errors at law. See Iowa R. App. P. 6.907. As long as the district court’s
findings of fact are supported by substantial evidence, we are bound by them, but
we are not bound by the district court’s legal conclusions. See Longfellow, 737
N.W.2d at 153. “Evidence is substantial when a reasonable mind would accept it
as adequate to reach the same findings. Evidence is not insubstantial merely
because it would have supported contrary inferences.” Hendricks v. Great Plains
Supply Co., 609 N.W.2d 486, 490 (Iowa 2000) (citation omitted).
III. Analysis
A. Disclosure Requirements
Chapter 558A, Iowa’s Real Estate Disclosure Act, requires individuals
seeking to transfer real estate to deliver to interested transferees a written
disclosure statement detailing “the condition and important characteristics of the
property and structures located on the property, including significant defects in
the structural integrity of the structure, as provided in rules which shall be
adopted by the real estate commission.” Iowa Code § 558A.4; see also id.
§ 558A.2; Iowa Admin. Code r. 193E-14.1(6) (providing sample disclosure
statement). The standard for reporting the required information is one of good
faith, requiring a “reasonable effort . . . to ascertain the [relevant] information” and
10
The district court did rule on objections throughout the trial.
11
any approximation “be based on the best information available at the time.” Iowa
Code § 558A.3(1). A person who violates the disclosure requirement through
“error, inaccuracy, or omission” of required information is liable to the transferee
if “that person has actual knowledge of the inaccuracy, or fails to exercise
ordinary care in obtaining the information.” Id. § 558A.6(1); see also Jensen v.
Sattler, 696 N.W.2d 582, 587 (Iowa 2005) (finding showing of failure to exercise
ordinary care, whether or not the seller lived on the property, to be sufficient).
The Sokols assign error to the district court’s interpretation of chapter
558A as well as to the district court’s factual findings. They contend the court
incorrectly found the Morrisseys, as sellers of a newly constructed home, were
not required under chapter 558A to disclose issues that arose during
construction. The Sokols also argue the evidence presented at trial
demonstrated the Morrisseys had actual knowledge of the defects with the home
and failed to exercise ordinary care in obtaining information about the defects by
neglecting to ensure the subcontractors’ work was completed pursuant to
industry standard.
The Morrisseys respond that chapter 558A does not require disclosure of
every problem that arose while the home was being built. Citing the report of the
initial home inspector, the Morrisseys contend there is no evidence they “knew,
or should have known, of any defects with the house (other than for the geo-
thermal unit and the can lights)” at the time of sale.
Regardless of the exact scope of the disclosure requirement, the Sokols
have failed to identify with any specificity where the record reveals Bob’s actual
knowledge of any defects in the home before he completed it. Rather, the
12
Sokols cite generally to 300 pages of notes Bob jotted down during
construction—as well as after he had completed the home—and claim:
“Defendant knew of issues with water intrusion, the geothermal HVAC, electrical,
plumbing, the EIFS, etc.” The Sokols do not describe any details related to those
issues, nor do they pinpoint when the issues occurred.
Moreover, the Sokols provide no authority supporting their interpretation of
the disclosure requirement. See Iowa R. App. P. 6.903(2)(g)(3) (requiring the
argument section to “contain[] the appellant’s contentions and the reasons for
them with citations to the authorities relied on and references to the pertinent
parts of the record” and noting “[f]ailure to cite authority in support of an issue
may be deemed waiver of that issue”). Reaching the merits of this issue would
require us “to assume a partisan role and undertake a party’s research and
advocacy.” Hanson v. Harveys Casino Hotel, 652 N.W.2d 841, 843 (Iowa Ct.
App. 2002). We decline to adopt such a role and, accordingly, limit our analysis
to the Sokols’ challenge to the district court’s fact-findings.11
We find substantial evidence in the record to support the district court’s
conclusion the Morrisseys did not have actual knowledge of any defects with the
home and failed to exercise ordinary care only in regards to the geothermal unit
and can lighting. Bob testified at trial he did not know of any defects with the
11
We are also unconvinced by the Sokols’ contention the requirement of “exercis[ing]
ordinary care in obtaining the information” in the written disclosure includes the
construction process. See Iowa Code § 558A.6(1). The Sokols argue Bob had to
ensure the home was constructed in accordance with applicable ordinances and the
components installed pursuant to manufacturer specifications. But exercise of ordinary
care refers to obtaining information required by the disclosure—e.g., discovering a
defect in the home or determining whether the property is located in a flood plain—not to
exercising ordinary care in performing construction. See Jensen, 696 N.W.2d at 587
(stating seller must “‘exercise ordinary care in obtaining the information’ to be put on the
disclosure form”).
13
home when he sold it. The district court credited Bob’s testimony, and we defer
to that determination. See Brokaw v. Winfield-Mt. Union Cmty. Sch. Dist., 788
N.W.2d 386, 394 (Iowa 2010) (“The district court as the fact finder, determines
witness credibility and the weight of the evidence as a whole, and we will not
disturb the district court’s findings if they are supported by substantial evidence.”
(citation omitted)).12
We also find substantial evidence in the record to support the district
court’s finding the additional house problems alleged by the Sokols “were not so
apparent and would not have been revealed through the exercise of ordinary
care.” Bob testified that in the approximately two years between his completion
of the home and its sale, he visited the home regularly and did not detect any
problems. As the court noted: “[T]he Sokols paid for an inspector to look at the
home, including the [EIFS] and the roof. The inspection revealed limited or no
concerns.” Morrissey believed the home was free from defects, and he had no
reason to believe that problems would develop years later.
12
In their reply brief, the Sokols focus for the first time on specific entries in Bob’s
notebooks from the time leading up to and after the Sokols offered to purchase the
home. But the entries are either ambiguous (e.g., “8-8, 9-08 Worked in house, air
conditioner”), involve remedies requested by the Sokols (e.g., “7-1-09 . . . Also made a
trip to purchase some Styrofoam in a can (Great Stuff) to fill woodpecker holes in several
places on the siding”), or are unrelated to the issues the Sokols now allege (e.g., “9-23-
08 Tree maintance [sic] @ the lot, Erosion work in ditch”).
The most significant remark cited by the Sokols was: “4-15-09 Went to lot.
Realtor said there was a stain spot on the ceiling in the kitchen. I can’t say what it is.
Stopped at Hdwe store for some white ceiling paint on the way home.” At trial, Bob
explained he didn’t know the origin of the stain but believed it arose during construction.
But although the Sokols described leaking of the air conditioner in the attic as well as
leaks in other places throughout the home, the Sokols did not complain of any damage
or leaking in the kitchen ceiling. Accordingly, assuming Bob was required disclose the
ceiling stain, the Sokols cannot recover for this failure because they did not suffer any
resulting damages. See Iowa Code § 558A.6 (providing liability for 558A violations is
“for the amount of actual damages suffered by the transferee”).
14
Accordingly, we affirm the district court’s ruling on this issue.
B. Breach of Implied Warranty of Good and Workerlike Construction
We turn next to the Sokols’ implied-warranty argument.13 The implied
warranty that a home has been constructed in a reasonably good and workerlike
manner protects purchasers of newly constructed homes, as well as subsequent
purchasers, from latent defects—undiscoverable in the course of an ordinary
inspection. See Kirk v. Ridgway, 373 N.W.2d 491, 496 (Iowa 1985) (recognizing
implied warranty of good workership in the sale of a home by a builder-vendor);
Speight v. Walters Dev. Co., 744 N.W.2d 108, 111, 114 (Iowa 2008) (extending
implied warranty to subsequent purchasers); see also Luana Sav. Bank v. Pro-
Build Holdings, Inc., 856 N.W.2d 892, 893 (Iowa 2014) (recalling court created
doctrine “to redress the disparity in bargaining power and expertise between
homeowners and professional builders, and to provide a remedy for consumers
living in defectively constructed homes”); Rosauer Corp. v. Sapp Dev., L.L.C.,
856 N.W.2d 906, 912 (Iowa 2014) (identifying need to protect “innocent
homeowners who lack[] sophistication and bargaining power to protect
themselves” as “overriding policy” behind implied warranty).
13
The Sokols argue the Morrisseys “breached the implied warranties of merchantability,
fitness for a particular purpose, and good and workmanlike manner” but their analysis
focuses on the implied warranty of good and workerlike construction. Moreover, the
district court considered only the implied warranty of good and workerlike construction.
We limit our analysis accordingly. See EnviroGas, L.P. v. Cedar Rapids/Linn Cty. Solid
Waste Auth., 641 N.W.2d 776, 785 (Iowa 2002) (noting random mention of an issue is
not sufficient to raise it for our review).
15
To prove a breach of implied warranty, the Sokols were required to
establish:
(1) the house was constructed to be occupied as a home; (2) the
house was purchased from a builder-vendor, who constructed it for
the purpose of sale; (3) the house was not constructed in a good
and workmanlike manner; (4) the buyer was unaware of the defect;
and (5) the buyer suffered damages.
Flom v. Stahly, 569 N.W.2d 135, 142 (Iowa 1997). The district court found the
Sokols could not recover for a breach of implied warranty because Bob Morrissey
did not fit the definition of a builder-vendor. In Kirk, our supreme court adopted
the following definition of “builder-vendor”:
[A] person who is in the business of building or assembling homes
designed for dwelling purposes upon land owned by him, and who
then sells the houses, either after they are completed or during the
course of their construction, together with the tracts of land upon
which they are situated, to members of the buying public.
The term “builder” denotes a general building contractor who
controls and directs the construction of a building, has ultimate
responsibility for a completion of the whole contract and for putting
the structure into permanent form thus, necessarily excluding
merchants, material men, artisans, laborers, subcontractors, and
employees of a general contractor.
373 N.W.2d 491, 496 (Iowa 1985) (citation omitted).
The parties do not dispute that Bob fits the “builder” portion of the
definition; instead, they focus their arguments on the latter half of the term. The
Sokols assert Bob should be considered a builder-vendor because a person is a
builder-vendor “when [he] decide[s] to sell the first home.” But the Morrisseys
cite Flom, 569 N.W.2d at 142–43, in support of their position that because they
originally intended to live in the house themselves and did not build the house for
the purpose of selling it, Bob was not a builder-vendor.
16
In Flom, Thomas Stahly, a physician with no previous training in
construction, began building a home with the help of a several hired laborers.
569 N.W.2d at 137. He and his wife moved out of the area before completing the
project. Id. The Floms “saw a newspaper advertisement regarding the house
and became interested in the property.” Id. at 137–38. The Stahlys provided
written materials about the construction of the home, which indicated “the house
was approximately 85% finished.” Id. at 138. Before purchasing the home, the
Floms walked through it with the Stahlys, and Dr. Stahly described various
problems he had encountered throughout the construction process. Id. The
Floms also hired several construction professionals to inspect the property. Id.
The Floms purchased the property and began to complete the home, but they
encountered a number of unanticipated defects. Id. The Floms eventually sued
the Stahlys alleging, among other things, breach of implied warranty. Id.
The supreme court found the theory of implied warranty inapplicable,
reasoning “the Stahlys were not builder-vendors—persons in the business of
building or assembling homes for the purpose of sale. In addition, the Stahlys
intended to live in the house themselves and did not construct it for the purpose
of sale.” Id. at 142. When later discussing the definition of builder-vendor from
Kirk and Flom, the supreme court explained “the Stahlys did not have the same
unequal relationship with the Floms that a professional builder-vendor would
have with a purchaser.” Luana Sav. Bank, 856 N.W.2d at 897.14
14
In Luana Savings Bank, the supreme court concluded defendant Pro-Build Holdings
could not be sued on the implied-warranty theory because it did not own the land where
the apartment complex was constructed, did not build the complex to sell to the public,
and was not a general contractor. 856 N.W.2d at 897, 901.
17
Significant facts distinguish the instant case from Flom. First, the
Morrisseys finished construction of the home with the intent to sell it. See Kirk,
373 N.W.2d at 496 (requiring home to be “purchased from a builder-vendor, who
had constructed it for the purpose of sale”). In addition, the Morrisseys marketed
the completed home to the general public. See id. at 498 (noting a “builder-
vendor” is a person “who is in the business of building or assembling homes . . .
who then sells the houses . . . to members of the buying public” (emphasis
added) (citation omitted)).
But most importantly, the Morrisseys presented themselves as builder-
vendors. The Morrisseys did not disclose Bob’s lack of expertise in home-
building. Instead, they promoted the home in a commercial realtor’s listing as
being constructed by what sounded like a professional entity. The advertisement
stated: “This unique home was built by Our Home Builders showing
overwhelming detail, pride in workmanship and quality throughout.” And after
Sokols offered to purchase the home, Bob maintained his professional façade.
For instance, the Morrisseys declined to complete one of the Sokols’ requested
remedies—additional caulking around the windows and doors—and explained:
“The tight seal does not allow additional caulking. Builder will further educate the
buyers at the time of the final walk through.” Rachael testified these
circumstances led her to believe Bob was a professional builder: “To me, that led
me to believe that I was buying a new house from a builder who was building
The court also declined to equate the plaintiff-bank, a professional investor in real estate,
with “innocent home buyers.” Id.
18
homes and knew what they were doing, that we were going to get a product that
was brand-new and functional and not have any issues that we’re having today.”
Under these circumstances, we conclude Bob Morrissey fits the definition
of “builder-vendor.” The Morrisseys built the home—with Bob acting as general
contractor—and completed it for the purpose of a commercial sale. They
advertised the home as professionally built and sold it, along with the land upon
which it was situated, to members of the buying public.15 Unlike Dr. Stahly, who
was fully transparent with the Floms about his amateur construction efforts, Bob
held himself out as a professional builder. See Flom, 569 N.W.2d at 138. That
persona of expertise exacerbated the unequal relationship between the
Morrisseys and the Sokols. Bob possessed greater information not only about
the work on the house but also about his own skill level. Because the Sokols
lacked key information regarding Bob’s lack of experience and about the
intricacies of the construction, they were not able to protect their interests before
deciding to purchase the home. See Kirk, 373 N.W.2d at 494 (identifying
“increasing complexity in houses” and reliance by buyer on “skill and judgment of
the builder” as underlying rationale for adopting implied warranty).16
15
At oral argument, counsel for the Morrisseys asserted the definition of “builder-vendor”
required the vendor to sell multiple houses rather than one house. We disagree. Were
we to adopt such an interpretation, unsuspecting buyers of any builder’s first home
would be excluded from the implied-warranty protections.
16
Courts from other jurisdictions have adopted a similar interpretation, underscoring the
significance of a commercial sale to the general public. See, e.g., Dillig v. Fisher, 688
P.2d 693, 695–96 (Ariz. Ct. App. 1984) (finding implied warranty of habitability applied
“where a completed structure which has never been occupied is placed on the market
for sale,” regardless of whether the builder was a “mass builder” or “occasional builder”);
Sloat v. Matheny, 625 P.2d 1031, 1033 (Col. 1981) (en banc) (finding implied warranties
“arise so long as there is a commercial sale of a new home by a builder-vendor”
(emphasis added)); Schepps v. Howe, 665 P.2d 504, 510 (Wyo. 1983) (noting protection
19
Because Bob Morrissey qualifies as a builder-vendor, a remand is
necessary to allow the district court to consider whether the Sokols satisfied the
remaining elements of the breach-of-implied-warranty test.
C. Breach of Contract
The Sokols next argue because the district court found the Morrisseys had
not complied with the disclosure requirements of chapter 558A, it should have
found a breach of the purchase agreement between the parties and awarded the
Sokols attorney fees in accordance with the agreement. They contend the
statutory requirements were incorporated by reference into the purchase
agreement. See Longfellow, 737 N.W.2d at 154 (“Statutes and administrative
rules can become part of a contract under the doctrine of incorporation.”). The
Morrisseys counter that the Sokols are not entitled to relief under the purchase
agreement because the contract terms are more limited than the language of
chapter 558A.
We agree with the district court that the language of the purchase
agreement is insufficient to incorporate the disclosure requirement of
chapter 558A. The relevant provision of the purchase agreement states: “Sellers
and Buyers acknowledge that Sellers of real property have a legal duty to
disclose Material Defects of which Sellers have actual knowledge and which a
reasonable inspection by Buyers would not reveal.” For the requirements of
chapter 558A to be considered incorporated into the purchase agreement, the
agreement must “make a clear and specific reference” to chapter 558A. See id.
of implied warranty of habitability extends to both “builder-developers, but also against
those who hold themselves out as builders”).
20
This agreement does not do so. In fact, as the Morrisseys point out, the
contractual language is narrower than chapter 558A, requiring proof of actual
knowledge of material defects.17 See Iowa Code § 558A.6(1) (requiring proof of
actual knowledge or “fail[ure] to exercise ordinary care in obtaining the [requisite]
information”). As discussed above, the Sokols failed to demonstrate this more
stringent requirement. Accordingly, the Sokols cannot recover on their breach-
of-contract claim.18
D. Fraudulent Misrepresentation
Likewise, the Sokols’ fraudulent-misrepresentation claim must fail.19 To
prove their claim, the Sokols were required to demonstrate the Morrisseys made
a false representation to the Sokols that was material, the Morrisseys knew the
representation was false and intended to deceive the Sokols, the Sokols acted in
justifiable reliance on the truth of the Morrisseys’ representation, and the
representation was a proximate cause of the Sokols’ damages. See Dier v.
Peters, 815 N.W.2d 1, 7 (Iowa 2012). Knowledge of falsity can be proven “by
17
Confronted with an identical contract provision, a different panel of this court
considered a party’s breach-of-contract and chapter-558A claims together. See Lanczos
v. Walker, No. 11-2101, 2012 WL 5355959, at *2 (Iowa Ct. App. Oct. 31, 2012). But in
that case, the parties agreed the contract incorporated chapter 558A by reference. Id.
Moreover, unpublished decisions are not binding precedent. Iowa R. App. P.
6.904(2)(c).
18
At oral argument, counsel for the Sokols asserted they additionally appealed the
denial of their breach-of-express-warranty claim as part of the breach-of-contract claim.
We find no mention of express warranty in the Sokols’ appellate brief and, therefore,
decline to address the issue.
19
The Sokols frame this issue as follows: “The District Court Erred and was Incorrect in
Finding Defendants Did Not Make Fraudulent and/or Negligent
Misrepresentations/Concealments.” The body of their argument focuses on fraudulent
misrepresentations and concealments, while mention of negligent misrepresentation is
limited to a statement of law in the first sentence, and the Sokols make no specific
argument in support of a negligent-misrepresentation claim. Accordingly, we decline to
address it. See EnviroGas, 641 N.W.2d at 785.
21
showing that the defendant had actual knowledge of the falsity, possessed
reckless disregard for the truth [or] falsely stated or implied that the
representations were based on personal knowledge or investigation.” Hyler v.
Garner, 548 N.W.2d 864, 871 (Iowa 1996).
The Sokols contend the Morriseys knew of various defects with the home
and “purposely concealed the defects and misrepresented the condition of the
property and appropriateness/effectiveness of the repairs.” But because the
Sokols did not prove the Morrisseys had actual knowledge of material defects
with the home and the Sokols do not allege any other basis to satisfy the
knowledge requirement, they cannot recover on this claim.
E. Negligence
The district court dismissed the Sokols’ negligence claim, finding the
matter was contractual and not cognizable in tort. The Sokols disagree,
contending Bob, who was acting as a general contractor, had the duty to oversee
the work of his subcontractors and was liable for the damages caused by their
errors. We are not persuaded by the Sokols’ argument. As the district court
recognized, the Sokols’ negligence claim is barred by the economic-loss rule,
which prohibits “recovery in negligence when the plaintiff has suffered only
economic loss.” Annett Holdings, Inc. v. Kum & Go, L.C., 801 N.W.2d 499, 503
(Iowa 2011). In Determan v. Johnson, 613 N.W.2d 259, 260–61, 264 (Iowa
2000), our supreme court rejected a negligence claim brought by an individual
who had discovered problems with a defective roof after purchasing a home built
by amateur builders. The court found the buyer’s claim was “based on her
unfulfilled expectations with respect to the quality of the home she purchased.
22
Accordingly, her remedy lies in contract law, not tort law.” Determan, 613
N.W.2d at 263; see also id. at 264 (“When a buyer loses the benefit of his
bargain because the goods are defective . . . he has his contract to look to for
remedies. Tort law need not, and should not, enter the picture.” (citation
omitted)). The same reasoning applies here.20
F. Right of First Refusal
Lastly, the Sokols contest the district court’s denial of their claim for
declaratory judgment regarding their right of first refusal to purchase Lot 2. The
relevant provision of the parties’ purchase agreement provides:
Sellers agree that, should the lot locally known as [****] NW
Beaver Avenue and legally described as Lot 2 Morrissey Estates be
offered for sale outside the immediate family of Robert and Eileen
Morrissey that Buyers shall have first right of refusal to purchase
said lot at current market price. Exercise of the first right of refusal
shall take place within [sixty] days’ receipt of a written notice from
the Sellers to the Buyers that the lot is to be offered for sale
“outside” the Immediate Morrissey family.
The district court found the Sokols waived their right of first refusal by failing to
exercise their right within the sixty-day period. The court reasoned: “[The Sokols]
could have exercised their right subject to determining the fair market value of
20
Determan also clarifies why the negligence claims in the cases relied upon by the
Sokols, Giarratano v. Weitz Co., 147 N.W.2d 824 (Iowa 1967), abrogated on other
grounds by Van Fossen v. MidAmerican Energy Co., 777 N.W.2d 689 (Iowa 2009), and
Security National Bank v. American Piping Group, Inc., No. 12-1466, 2013 WL 2145763
(Iowa Ct. App. May 15, 2013), were viable. See Determan, 613 N.W.2d at 263 (finding
no cognizable claim when “the injury at present, and the one for which recovery is
sought, is limited to repair of the defective construction” and “[t]he plaintiff is not seeking
to recover damages from any ‘sudden or dangerous occurrence’” (citation omitted)).
Unlike Determan or the case at hand, the claims in Giarratano and Security National
Bank arose out of a “sudden or dangerous occurrence.” See Giarratano, 147 N.W.2d at
826 (involving damages for wrongful death after a young roofer fell from a roof under
construction); Sec. Nat’l Bank, 2013 WL 2145763, at *1 (involving damages where a
worker was injured after a fall at a construction site).
23
the lot. Either or both parties could have obtained appraisals at that time if there
was a dispute.”
The Sokols do not address the district court’s determination they waived
their right of first refusal, instead arguing they were entitled to a judgment
“declaring Defendants have the legal obligation to sell Lot 2 to Plaintiffs for
$39,500,” the tax-assessed value of the property.
Before reaching the issue of valuation, we must consider the district
court’s finding the Sokols had waived their right of first refusal. Without argument
or supporting authority from the Sokols on this issue, we find no reason to
deviate from the district court’s decision. The district court correctly decided the
Sokols waived their right because they took no meaningful steps to move forward
with the purchase of Lot 2. See Mercy Hosp. v. McNulty, No. 14-0241, 2015 WL
576016, at *1, *5 (Iowa Ct. App. Feb. 11, 2015) (finding right-of-first-refusal
provision unenforceable when party expressed intent to exercise right of first
refusal but, by the time the right expired, had not taken any “affirmative steps to
complete the purchase”); cf. In re Estate of Claussen, 482 N.W.2d 381, 384
(Iowa 1992) (“Where an option contract does not provide for any particular mode
of exercise, no particular form of notice of exercise is required, and anything
amounting to an unqualified manifestation of the optionee’s determination to
accept is sufficient.” (emphasis added)). In response to the Morrisseys’ letter
offering the Sokols the right to purchase Lot 2, the Sokols stated they “continue
to assert their rights to purchase the lot at the actual fair market value” but not
that they intended to purchase the lot at that value. Although litigation was
pending, the Sokols did not ask for specific performance but only a declaration
24
the Morrisseys were “required or obligated to provide [the Sokols] with the First
Right of Refusal/Option to Purchase,” which the Morrisseys had already done.
IV. Summary
We affirm the district court’s ruling in part. But because Bob Morrissey
qualifies as a builder-vendor under the second requirement of the breach-of-
implied-warranty test, a remand is necessary to allow the district court to
consider, on the existing record, whether the Sokols demonstrated the remaining
breach-of-implied-warranty requirements.
AFFIRMED IN PART AND REMANDED WITH INSTRUCTIONS.
Danilson, C.J., concurs; McDonald, J., dissents.
25
MCDONALD, Judge. (dissents)
I respectfully dissent from the majority’s resolution of the claim for the
breach of the implied warranty of workmanlike construction for two reasons.
First, I disagree with the majority’s application of the deferential standard of
review applicable here. Second, the history of the doctrine and its legal
foundations lead me to conclude the implied warranty should not be imposed
under the circumstances presented.
As the majority notes, this case arises at law, and our review is for the
correction of legal error. See Iowa R. App. 6.904(3)(a). When the matter is tried
to the district court, as this case was, the district court’s findings of fact “shall
have the effect of a special verdict.” Iowa R. App. P. 6.907. The district court’s
findings of fact are binding if supported by substantial evidence. See Land
O’Lakes, Inc. v. Hanig, 610 N.W.2d 518, 522 (Iowa 2000); Van Oort Constr. Co.
v. Nuckoll’s Concrete Serv., Inc., 599 N.W.2d 684, 689 (Iowa 1999). Evidence is
substantial “when a reasonable mind would accept it as adequate to reach a
conclusion.” Falczynski v. Amoco Oil Co., 533 N.W.2d 226, 230 (Iowa 1995). “In
determining whether substantial evidence exists, we view the evidence in the
light most favorable to the district court’s judgment.” Chrysler Fin. Co. v.
Bergstrom, 703 N.W.2d 415, 418 (Iowa 2005). “[W]e construe the evidence
broadly to uphold, rather than defeat, the trial court’s judgment.” Grall v. Meyer,
173 N.W.2d 61, 63 (Iowa 1969).
While the majority recites the correct standard of review, it does not apply
the standard in reviewing the judgment of the district court. Whether someone is
a builder-vendor is a question of fact. See Kirk v. Ridgeway, 373 N.W.2d 491,
26
497 (Iowa 1985) (conducting substantial evidence review on the elements of a
claim of implied warranty of workmanlike construction); see also Brown v. Merit
Corp., 494 So. 2d 399, 400 (Ala. 1986) (holding question of whether defendant
was a builder/vendor was for the jury); Hoke v. Beck, 587 N.E.2d 4, 7 (Ill. App.
Ct. 1992) (“Whether a defendant is a builder-vendor for the purposes of the
warranty is a question of fact to be determined on a case-to-case basis.”); Farm
Bureau Mut. Ins. Co. v. Sandbulte, 302 N.W.2d 104, 110 (Iowa 1981) (stating
“[w]hether or not such a warranty arises is usually a question of fact to be
determined from the circumstances of the parties’ negotiations”).
Here, the district court considered all of the evidence and found the
Morrisseys were not builder-vendors, but the majority does not afford the district
court’s finding of fact the deference owed. The majority parses the record and
makes a different finding, rather than reviewing the record to determine whether
the district court’s finding is supported by substantial evidence. This is a
misapplication of the standard of review. Evidence is not insubstantial “merely
because [the court] may draw different conclusions from it; the ultimate question
is whether it supports the finding actually made, not whether the evidence would
support a different finding.” Raper v. State, 688 N.W.2d 29, 36 (Iowa 2004); see
Portzen Constr., Inc. v. Cal-Co Insulation, Inc., No. 13-0758, 2014 WL 2347821,
at *4 (Iowa Ct. App. May 29, 2014) (“Our role as the reviewing court is not,
however, to dissect the record anew to reach our own factual findings.”). When
the record is reviewed in the light most favorable to the judgment of the district
court, the findings are supported by substantial evidence.
27
Even assuming the question presented were a question of law, I would
conclude the warranty is inapplicable here. In the performance of construction
contracts, Iowa has long imposed a duty of workmanlike performance upon
persons in the business of building homes. See Kirk, 373 N.W.2d at 493 (stating
it has long been the law of this state that there is an implied duty of workmanlike
performance of “construction contracts”); Smith v. Bristol, 33 Iowa 24, 25 (1871)
(“The contract was on the part of plaintiffs to do the work, nothing being specified
as to the manner in which it should be done. The court held, that as a matter of
law, it was to be done in a workmanlike manner.”); Mitchell v. Wiscotta Land Co.,
3 Iowa 209, 211 (1856) (recognizing claim to recover the contract price of
construction work on house “done in an unworkmanlike manner”).
The Iowa rule imposing a duty of workmanlike performance in construction
contracts arises out of the common law duty of workmanlike performance
imposed on tradespersons and businesspersons generally. See Blackstone,
Commentaries, Book 3, Chapter 9 (“There is also in law always an implied
contract with . . . other workman that he performs his business in a workmanlike
manner: in which if they fail, an action on the case lies to recover damages for
such breach of their general undertaking.”). However, at the common law, the
duty of workmanlike performance and concomitant liability was not imposed on
persons not in the profession or business at issue. See id. (“But if I employ a
person to transact any of these concerns, whose common profession and
business it is not, the law implies no such general undertaking; but in order to
charge him with damages, a special agreement is required. The action is thus
for something other than the breach of the implied duty.”).
28
In Kirk, the supreme court extended the duty of workmanlike performance
imposed on persons in the business of building homes by holding “in the sale of
a home, there is an implied warranty that it has been constructed in a reasonably
good and workmanlike manner.” 373 N.W.2d at 496. The primary rationale for
the court’s creation of the implied warranty was changed circumstances.
Specifically,
[y]ears ago, before the times of tract developments, prefabricated
homes, and “spec” houses, the purchase of a new home in a
completed stage was fairly rare. A prospective homeowner would
usually purchase a lot, hire a draftsman to prepare the plans, and
employ a builder to build the house. If the house turned out to be
defectively designed, the owner looked to the person who designed
it. If the house was improperly built, the owner looked to the
builder.
That scenario has, to a large extent, now changed.
Id. at 493 (citation omitted). In other words, the nature of the homebuilding/home
purchasing transaction changed. The typical modern prospective homeowner
does not contract with a builder for services to construct a home. The typical
modern homeowner contracts with a seller to purchase a completed home. In
Kirk, the supreme court merely recognized this change and concluded the duty of
workmanlike performance in construction contracts logically extended to a
judicially implied warranty of workmanlike construction in the product itself.
The Kirk court set forth the following elements of a claim for breach of the
implied warranty:
(1) [t]hat the house was constructed to be occupied by the
warrantee as a home;
(2) that the house was purchased from a builder-vendor, who had
constructed it for the purpose of sale;
29
(3) that when sold, the house was not reasonably fit for its intended
purpose or had not been constructed in a good and workmanlike
manner;
(4) that, at the time of purchase, the buyer was unaware of the
defect and had no reasonable means of discovering it; and
(5) that by reason of the defective condition the buyer suffered
damages.
Id. at 496.
With respect to the second element, the court maintained the common law
rule and adopted the following definition of a builder-vendor:
[A] person who is in the business of building or assembling homes
designed for dwelling purposes upon land owned by him, and who
then sells the houses, either after they are completed or during the
course of their construction, together with the tracts of land upon
which they are situated, to members of the buying public.
The term “builder” denotes a general building contractor who
controls and directs the construction of a building, has ultimate
responsibility for a completion of the whole contract and for putting
the structure into permanent form thus, necessarily excluding
merchants, material men, artisans, laborers, subcontractors, and
employees of a general contractor.
Id. (alteration in original).
The definition of a builder-vendor has several elements. The implied
warranty is imposed only on a “builder-vendor” who constructed the house at
issue “for the purpose of sale.” Id. This requires proof the person “is in the
business of building or assembling homes” and the home at issue was
constructed with the intent it be sold to the general public. See Luana Sav. Bank
v. Pro-Build Holdings, Inc., 856 N.W.2d 892, 896–97 (Iowa 2014). In recent
years, the supreme court has made clear the builder-vendor element is meant to
“limit[] the class of potential defendants” to those in the business of building and
selling homes. See Rosauer Corp. v. Sapp Dev. L.L.C., 856 N.W.2d 906, 911
(Iowa 2014); see generally Luana Sav. Bank., 856 N.W.2d at 893, 896 (noting
30
implied warranty “protect[s] an innocent home buyer [from] the experienced
builder” and “redress[es] disparity in bargaining power and expertise between
homeowners and professional builders” or “sophisticated builder-vendor[s]”
(emphases added)). The warranty is meant only to hold the “experienced builder
accountable for the quality of construction.” See Speight v. Walters Dev. Co.,
744 N.W.2d 108, 110 (Iowa 2008) (emphasis added).
In this case, the district court accurately stated the controlling law and
found the Morrisseys were not builder-vendors within the meaning of Kirk and
subsequent cases. The district court found “[t]here is no question that [the
Morrisseys] sincerely started this project with the intent to make it their retirement
home.” The district court found there was “no question that they only changed
their minds after Eileen’s health declined.” The district court also found the
Morrisseys were “not in the business of building homes for sale to the public.”
I agree with the district court’s finding that the Morrisseys were not builder-
vendors within meaning of Kirk and subsequent decisions. The controlling case
is Flom v. Stahly, 569 N.W.2d 135 (Iowa 1997).
In Flom, a defendant physician and his wife began construction of a
home on land they owned, intending to live in it. Before completing
construction, the Stahlys moved out of state and sold the
uncompleted home to the Floms. When wood in the home began
to rot, the Floms sued for breach of the implied warranty of
workmanlike construction, among other claims. We rejected this
extension of Kirk because the Stahlys did not meet the second
element of the Kirk test—they were not builder-vendors building a
home for the purpose of sale to the public.
Luana Sav. Bank, 856 N.W.2d at 897. As in Flom, the defendants here intended
to live in the house when starting construction. See Flom, 569 N.W.2d at 137.
As in Flom, the defendants here were not “in the business” of building and selling
31
houses. As in Flom, there was not in fact an unequal relationship between the
parties due to experience in the industry.
The majority attempts to distinguish Flom by noting the house in Flom was
under construction when sold but here the house was completed when sold. The
status of construction at the time the seller formed the intent to sell the home and
then actually sold the home is immaterial. In Kirk, the supreme court explained
the builder-vendor classification applies to those “in the business of building or
assembling homes” and “who then sells the houses, either after they are
completed or during the course of their construction.” 373 N.W.2d at 496. The
imposition of the warranty does not turn on the status of construction at the time
of sale.
The majority also attempts to distinguish Flom by noting the defendants in
this case represented themselves to be builders—Our Home Builders. The
representation is immaterial to the issue. The judicially implied warranty was an
extension of liability imposed on persons in the business of building homes. It is
not based on representations between the seller and buyer or principles of
contract. See Speight, 744 N.W.2d at 113–14 (stating the implied warranty
“exists independently of the contract [between the parties] by its very nature” and
noting “the implied warranty of workmanlike construction is a judicial creation and
does not, in itself, arise from the language of any contract between the builder-
vendor and the original purchaser”). The implied warranty is applicable only
where there is in fact an unequal position between the parties due to the sellers
experience in the industry. See Luana Sav. Bank, 856 N.W.2d at 897 (“Because
they intended to live in the house themselves and had never built a home before,
32
the Stahlys did not have the same unequal relationship with the Floms that a
professional builder-vendor would have with a purchaser.”); Rosauer Corp., 856
N.W.2d at 910 (“We rejected this extension of Kirk because the Stahlys did not
meet the second element of the Kirk test—they were not builder-vendors building
a home for the purpose of sale. Because the Stahlys had intended to live in the
house themselves and had never built a home for resale before, the Stahlys did
not have the same unequal relationship with the Floms that a builder-vendor
would have with a homebuyer.”). This is not to say the Morriseys’ representation
was legally immaterial. The representation could be material to other legal
claims. Indeed, the Sokols asserted nine other claims against the Morriseys,
including claims of fraud and misrepresentation arising out of this representation.
The Sokols were unsuccessful in proving their other claims, but their inability to
establish other claims does not mean we should extend liability on this claim
where not consistent with the underlying doctrine.
Limiting the application of an implied warranty to a particular class of
defendants is not uncommon. Iowa Code section 554.2314 imposes a warranty
of merchantability with respect to goods but only “if the seller is a merchant with
respect to goods of that kind.” In a claim for breach of the implied warranty, the
plaintiff must establish a “merchant” sold the goods. See Kendall v. Bausch &
Lomb, Inc., No. 05-5066-KES, 2009 WL 1740002, at *11 (D.S.D. June 17, 2009)
(“While some provisions of the UCC apply to ‘almost every person in business,’
other provisions such as the implied warranty of merchantability are limited in
application to those who are ‘merchant[s] with respect to goods of that kind,’
restricting the implied warranty to a much smaller group.” (citation omitted));
33
Wright v. Brooke Group, Ltd., 114 F. Supp. 2d 797, 828 (N.D. Iowa 2000); Renze
Hybrids, Inc. v. Shell Oil Co., 418 N.W.2d 634, 638 (Iowa 1988). Whether
someone is a merchant is a question of fact. See Prenger v. Baker, 542 N.W.2d
805, 808 (Iowa 1995) (“The determination of whether a party to a transaction is a
merchant is a question of fact.”); Digital Document Techs., LLC v. Freidberg &
Parker, LLP, No. C077910, 2015 WL 7075273, at *3 (Cal. Ct. App. Nov. 13,
2015) (“DDT suggests Freidberg’s merchant status is a legal question to be
reviewed de novo. We disagree. As in other factual contests, in determining
whether a party is a merchant under the UCC we review the facts for substantial
evidence and ascertain whether those facts support the judgment.”).
“In the decision of whether or not there is a duty, many factors interplay:
the hand of history, our ideals of morals and justice, the convenience of
administration of the rule, and our social ideas as to where the loss should fall.
In the end the court will decide whether there is a duty on the basis of the mores
of the community ‘always keeping in mind the fact that we endeavor to make a
rule in each case that will be practical and in keeping with the general
understanding of mankind.’” Trusiani v. Cumberland & York Distribs., Inc., 538
A.2d 258, 261 (Me. 1988) (citation omitted). I acknowledge the majority raises a
compelling policy argument regarding the purpose of the implied warranty. The
majority seems to conclude the implied warranty should be imposed to protect
consumers purchasing a home. I conclude the implied warranty should be
imposed on persons in the business of building homes to hold them accountable
for their product. In almost all cases, the subtle distinction between the two
views is immaterial; the result would be the same. This case happens to be the
34
outlier where the distinction matters. I cannot adopt a pure consumer-protection
approach, however, because in my view it creates the potential for ever-
expanding liability to innocent homeowners. Consider, for example, a person
who builds a home for herself and lives in it for several years. Our hypothetical
homeowner then decides to sell the home. If the primary purpose of the warranty
is consumer protection, the hypothetical homeowner should be subject to the
implied warranty. I cannot go that far. In my view, whether the person
constructing the home is in fact a builder-vendor is dispositive of the issue. The
Morrisseys are not “experienced builders” and cannot be held liable on a theory
of implied warranty of workmanlike construction.
For the foregoing reasons, I respectfully dissent from the resolution of the
Sokols’ claim for breach of the implied warranty of workmanlike construction. I
would affirm the judgment of the district court in all respects.