Bakke v. Magi-Touch Carpet One Floor & Home, Inc. , 2018 ND 273 ( 2018 )

Filed 12/6/18 by Clerk of Supreme Court
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2018 ND 273
Shannon Bakke, Plaintiff and Appellant
v.
Magi-Touch Carpet One Floor & Home, Inc., Defendant and Appellee
and
SPS Companies, Inc., Defendant
No. 20180116
Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable David E. Reich, Judge.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.
Opinion of the Court by Jensen, Justice.
Shawn A. Grinolds, Bismarck, ND, for plaintiff and appellant.
Cloe A. Kilwein (argued) and William P. Harrie (on brief), Fargo, ND, for
defendant and appellee Magi-Touch Carpet One Floor & Home, Inc.
Bakke v. Magi-Touch Carpet One Floor & Home, Inc.
No. 20180116
Jensen, Justice.
[¶1] Shannon Bakke appeals from a judgment in favor of Magi-Touch Carpet One
Floor & Home, Inc. and denial of her motion to amend her complaint. Bakke asserts
the district court erred in concluding she could not pursue a claim against Magi-Touch
because Magi-Touch was not liable for the acts of its independent contractor. Bakke
also asserts the district court erred in denying, as futile, her motion to amend her
complaint to assert a contract claim against Magi-Touch. We affirm in part, reverse
in part, and remand this case to the district court for further proceedings on Bakke’s
contract claim.
I.
[¶2] Bakke entered into a contract with Magi-Touch for the installation of floor
tiles, a shower base, and related products in a bathroom within Bakke’s home. Magi-
Touch arranged to have the shower base and tile installed by VA Solutions, LLC, an
independent contractor. Bakke asserts the shower door was improperly installed, the
improper installation resulted in the shower door imploding, and the implosion caused
damage to property in and around the shower requiring the bathroom door and trim
to be repainted.
[¶3] Magi-Touch refused to compensate Bakke for repainting the bathroom door
and trim. Bakke initiated the litigation in small claims court using a court provided
small claims court affidavit form and sought to recover compensation for the repairs
to the bathroom door and trim. The small claims court affidavit form only requires
a general description of the claim, and Bakke did not state whether she was asserting
tort or contract claims.
[¶4] Magi-Touch responded to the small claims court affidavit with a formal answer
and did not use the small claims court answer form. The answer included a demand
for a jury trial and defenses that can be fairly characterized as responding to a
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negligence (tort) cause of action. The answer included an assertion that Bakke’s
claim was barred by the economic loss doctrine; the economic loss doctrine would
limit Bakke’s recovery to a breach of contract claim and preclude tort claims such as
negligence. Magi-Touch also requested removal of the case from the small claims
court to the district court.
[¶5] After removal of the case to the district court, Magi-Touch moved for summary
judgment asserting VA Solutions was hired as an independent contractor and Magi-
Touch could not be held liable for the negligence of an independent contractor. The
district court granted Magi-Touch’s request for summary judgment after determining
Magi-Touch had no liability for the negligence of an independent contractor. In the
same order, the district court granted SPS Companies, Inc.’s motion to dismiss after
determining SPS was relieved from liability for distribution of a defective product
because SPS is a non-manufacturing seller as defined by N.D.C.C. § 28-01.3-04.
Bakke has not appealed the dismissal of SPS from the litigation.
[¶6] At the same time the district court considered Magi-Touch’s motion for
summary judgment and SPS’s motion to dismiss, the district court considered Bakke’s
motion to file an amended complaint. The amended complaint expanded on the
general claim asserted in the small claims court affidavit and specifically asserted
claims for breach of contract, fraud, deceit, negligence, and unlawful sales practices.
The district court denied Bakke’s request for leave to file the amended complaint after
determining the claims would be futile. In doing so, the district court relied on its
prior determination that Magi-Touch could not be held responsible for the negligent
acts of VA Solutions, an independent contractor.
II.
[¶7] In its order granting summary judgment, the district court determined Bakke
and Magi-Touch entered into a contract for the installation of floor tiles, a shower
base, and the related products in a bathroom within Bakke’s home. That finding is
consistent with Magi-Touch’s assertion in its answer that the economic loss doctrine
precludes tort claims.
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[¶8] The elements of a contract are outlined in N.D.C.C. § 9-01-02 and include
parties capable of contracting, the consent of the parties, a lawful object, and
consideration. In the present case, all of those elements exist: 1) both parties were
capable of entering into a contract; 2) both parties consented to the contract; 3)
installation/remodeling of a bathroom is a lawful object; and 4) consideration for the
contract was satisfied by Magi-Touch’s agreement to provide materials and
installation in exchange for payment from Bakke. The district court properly
determined the existence of a contract between the parties for the installation of floor
tiles, a shower base, and the related products in a bathroom within Bakke’s home.
III.
[¶9] North Dakota law recognizes an implied warranty of fitness for the purpose in
construction contracts. Leno v. K & L Homes, Inc., 2011 ND 171, ¶ 10, 803 N.W.2d
543 (citing Dobler v. Malloy, 214 N.W.2d 510, 516 (N.D. 1973)). This Court has
recognized the implied warranty of fitness for a particular purpose in construction
contracts where:
(1) the contractor holds himself out, expressly or by implication, as
competent to undertake the contract; and the owner (2) has no particular
expertise in the kind of work contemplated; (3) furnishes no plans,
designs, specifications, details, or blueprints; and (4) tacitly or
specifically indicates his reliance on the experience and skill of the
contractor, after making known to him the specific purposes for which
the building is intended.
Dobler, at 516. The existence of an implied warranty of fitness for a particular
purpose in a construction contract, and the breach of that warranty, are findings of
fact. Air Heaters, Inc. v. Johnson Elec., Inc., 258 N.W.2d 649, 654 (N.D. 1977).
[¶10] In distinguishing between claims for breach of a contract warranty and tort
claims, this Court has held:
In Dakota Grain Co. v. Ehrmantrout, 502 N.W.2d 234, 236-37 (N.D.
1993), we explained the difference between a breach of warranty action
arising under a sales contract and a negligence action. The seller’s
negligence, or lack of negligence, is not relevant to the question of
whether the seller breached his or her express warranty to deliver
conforming goods. Id. at 236. A mere breach of contract does not, by
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itself, furnish a basis for tort liability grounded in negligence. Id.
Conduct which constitutes a breach of contract does not subject the
actor to an action for negligence, unless the conduct also constitutes a
breach of an independent duty that did not arise from the contract. Id.
at 236-37; see also Olander Contracting Co. v. Gail Wachter
Investments, 2002 ND 65, ¶ 26, 643 N.W.2d 29.
Border Res., LLC v. Irish Oil & Gas, Inc., 2015 ND 238, ¶ 48, 869 N.W.2d 758
(Crothers, J., specially concurring) (citation omitted).
[¶11] Bakke’s breach of contract claim falls under the judicially-recognized doctrine
of implied warranty of fitness for a particular purpose arising from the parties’
construction contract. See e.g., Leno, 2011 ND 171, ¶ 16, 803 N.W.2d 543 (citing
Dobler, 214 N.W.2d at 516). The cause of action was for the economic loss
associated with Bakke not receiving what had been bargained for in the parties’
agreement; the installation of floor tiles, shower base, and related materials in a
manner that would satisfy the implied warranty of fitness for a particular purpose. See
Leno, at ¶ 16 (citing W. Page Keeton, Prosser & Keeton on Torts, 658-59, 680 (5th
ed. 1984). “Though implied warranties are often described as sounding both in tort
and contract law, we decline to apply a tort concept to a contractually-based implied
warranty.” Id. Despite pleadings which asserted negligence, fraud/deceit, unlawful
sales practices, defective products and other tort claims, along with extensive
argument in the district court and this Court regarding the tort claims, the actionable
portion of this case involves a breach of contract and is governed by contract law, not
the law of torts.
IV.
[¶12] We agree with the district court’s conclusion that Bakke would generally be
precluded from asserting a negligence action against Magi-Touch for any negligent
acts of its independent contractor, VA Solutions. See Grewal v. North Dakota Ass’n
of Ctys., 2003 ND 156, ¶¶ 10-12, 670 N.W.2d 336; Rogstad v. Dakota Gasification
Co., 2001 ND 54, ¶ 14, 623 N.W.2d 382. However, Bakke also seeks to assert a
claim for the breach of a contract, aside from negligence and other related torts.
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[¶13] A breach of contract is the nonperformance of a contractual duty when it is
due. See Restatement (Second) of Contracts § 235(2) (1981); see also WFND, LLC
v. Fargo Marc, LLC, 2007 ND 67, ¶ 13, 730 N.W.2d 841 (citing NDJI Civil C-50.50
(1995)). The elements of a prima facie case for breach of contract are: (1) the
existence of a contract; (2) breach of the contract; and (3) damages which flow from
the breach. See Kuhn v. Marquart, 45 N.D. 482, 487, 178 N.W. 428, 429 (1920).
Here, Magi-Touch agreed to provide materials and labor for the installation of floor
tiles, a shower base, and related materials.
[¶14] Magi-Touch attempts to avoid any implied warranty by suggesting that its
contractual obligation to provide the labor was satisfied by arranging for the labor
and, once they had delegated that obligation to VA Solutions, they were relieved from
any liability. “It is a well-established principle in the law of contracts that a
contracting party cannot escape its liability on the contract by merely assigning its
duties and rights under the contract to a third party.” Rosenberg v. Son, Inc., 491
N.W.2d 71, 74 (N.D. 1992). This well-established principle has been codified with
regard to the sale of goods in N.D.C.C. § 41-02-17(1), N.D.C.C., which reads as
follows:
1. A party may perform that party’s duty through a delegate unless
otherwise agreed or unless the other party has a substantial interest in
having the other party’s original promisor perform or control the acts
required by the contract. No delegation of performance relieves the
party delegating of any duty to perform or any liability for breach.
Professor Corbin explained this point succinctly in his treatise on contract law as
follows:
An assignment is an expression of intention by the assignor that his
duty shall immediately pass to the assignee. Many a debtor wishes that
by such an expression he could get rid of his debts. Any debtor can
express such an intention, but it is not operative to produce such a
hoped-for result. It does not cause society to relax its compulsion
against him and direct it toward the assignee as his substitute. In spite
of such an “assignment,” the debtor’s duty remains absolutely
unchanged. The performance required by a duty can often be
delegated; but by such a delegation the duty itself is not escaped.
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Rosenberg, at 74 (quoting 4 Corbin on Contracts § 866 at 452). This Court has
applied this rule of law to all categories of contracts. Id.
[¶15] Here, Magi-Touch contracted to install floor tiles, a shower base, and related
materials with its performance being subject to the implied warranty of fitness for a
particular purpose. A failure to satisfy the warranty of fitness for a particular purpose
would be a breach of the contract between Magi-Touch and Bakke and give rise to a
claim for breach of contract claim against Magi-Touch. While the agreement did not
prevent Magi-Touch from engaging an independent contractor to do the installation,
the hiring of an independent contractor does not relieve Magi-Touch from the
performance of its obligations under the contract it had with Bakke, including the
satisfaction of the implied warranty of fitness for a particular purpose. In summary,
assuming Bakke properly asserted a claim for breach of the parties’ contract, the
delegation of Magi-Touch’s obligation to provide labor to VA Solutions does not
preclude a cause of action against Magi-Touch for a breach of the contract.
V.
[¶16] Bakke’s proposed amended complaint included a claim that Magi-Touch had
breached the parties’ contract by failing to perform in a “workmanlike manner.”
While not stated specifically as a breach of the warranty of fitness for a particular
purpose, the allegations sufficiently raises a claim for breach of the warranty of fitness
for a particular purpose.
[¶17] “Under N.D.R.Civ.P. 15(a), once a responsive pleading has been served, a
complaint may only be amended by leave of court or by written consent of the
opposing party.” Johnson v. Hovland, 2011 ND 64, ¶ 8, 795 N.W.2d 294. This Court
has described the standard to be applied when a party moves to amend its complaint
in response to an opposing party’s summary judgment motion:
If leave to amend is sought before discovery is complete and neither
party has moved for summary judgment, the accuracy of the “futility”
label is gauged by reference to the liberal criteria of Federal Rule of
Civil Procedure 12(b)(6). In this situation, amendment is not deemed
futile as long as the proposed amended complaint sets forth a general
scenario which, if proven, would entitle the plaintiff to relief against the
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defendant on some cognizable theory. If, however, leave to amend is
not sought until after discovery has closed and a summary judgment
motion has been docketed, the proposed amendment must be not only
theoretically viable but also solidly grounded in the record. In that type
of situation, an amendment is properly classified as futile unless the
allegations of the proposed amended complaint are supported by
substantial evidence.
Darby v. Swenson, Inc., 2009 ND 103, ¶ 12, 767 N.W.2d 147 (quoting Hatch v. Dep’t
for Children, Youth and Their Families, 274 F.3d 12, 19 (1st Cir. 2001) (citations
omitted)). An amendment is futile for purposes of determining whether leave to
amend should be granted, if the added claim would not survive a motion for summary
judgment. Benz Farm, LLP v. Cavendish Farms, Inc., 2011 ND 184, ¶ 26, 803
N.W.2d 818.
[¶18] The district court denied Bakke’s request to amend the complaint after
determining the amendment would be futile. The district court’s determination of the
amendment to be futile was based on the premise that Bakke’s negligence claim was
precluded because the work was performed by an independent contractor. While we
agree a negligence cause of action against Magi-Touch would be precluded, the
existence of the independent contractor did not relieve Magi-Touch of its obligation
to perform under the terms of its contract with Bakke. In the context of a claim for
a breach of the parties’ contract, the amendment was not futile and should have been
allowed.
VI.
[¶19] We agree with the district court that the remaining claims for fraud, deceit, and
deceptive/fraudulent acts as proposed by Bakke would not withstand summary
judgment. The remedy for fraud is rescission of the contract and requires returning
the parties back to their original positions. Heart River Partners v. Goetzfried, 2005
ND 149, ¶ 21, 703 N.W.2d 330. Fraud, if asserted, terminates the contract at its
inception through the rescission. Bakke does not seek rescission of the contract, and
the amendment to assert a claim for fraud was properly denied.
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[¶20] In contrast to fraud, deceit is not an action dependent on a contract; it is a tort
cause of action, and allows recovery of damages upon proof of an affirmative
misrepresentation or suppression of material facts. See N.D.C.C. § 9-10-02; Delzer
v. United Bank of Bismarck, 527 N.W.2d 650, 653 (N.D. 1995). Deceit appears in
N.D.C.C. ch. 9-10, Obligations Imposed by Law, along with intentional acts and
negligence. If the parties have a contractual relationship, it is possible, in only very
limited circumstances, to assert both a breach of contract claim and a deceit claim.
Delzer, at 654; Pioneer Fuels, Inc. v. Montana-Dakota Utils., Co., 474 N.W.2d 706,
709 (N.D. 1991). Bakke has alleged no facts that there was deceit separate from the
parties’ contract and dismissal of an amended complaint to assert a cause of action for
deceit was appropriate.
[¶21] Lastly, N.D.C.C. § 51-15-02 prohibits deceptive or fraudulent acts in
connection with the sale of merchandise. Bakke sought leave to amend without
requesting additional discovery and a summary judgment motion has been docketed.
Under those circumstances, the proposed amendment must be both theoretically
viable and solidly grounded in the record. Darby, 2009 ND 103, ¶ 12, 767 N.W.2d
147. The district court properly denied the amendment for a claim under N.D.C.C.
ch. 51-15 in determining the amendment to be futile because the allegations of the
proposed amended complaint, with regard to a claim under N.D.C.C. ch. 51-15, were
not supported by substantial evidence.
VII.
[¶22] On remand, if Bakke is able to establish her breach of contract claim, she will
be entitled to damages. The parties agree Bakke has already been compensated for
the damaged door, and the installation has been completed. Their dispute involves
the expense associated with repairing damage to the bathroom door and trim caused
by the implosion of the shower door. The bathroom door and trim were not included
within the items and installation covered by the parties’ contract.
[¶23] The general rule in the case of a breach of contract is that the measure of
damages is the amount which will compensate the injured person for the loss which
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a fulfillment of the contract would have prevented or the breach of the contract now
requires. Vallejo v. Jamestown Coll., 244 N.W.2d 753, 758 (N.D. 1976). “The
person injured is, as far as it is possible to do so by monetary award, to be placed in
the position he would have been in had the contract been performed.” Id. The North
Dakota Legislature, through N.D.C.C. § 32-03-09, has set out the measure of damages
for breach of contract, which provides as follows:
For the breach of an obligation arising from contract, the measure of
damages, except when otherwise expressly provided by the laws of this
state, is the amount which will compensate the party aggrieved for all
the detriment proximately caused thereby or which in the ordinary
course of things would be likely to result therefrom. No damages can
be recovered for a breach of contract if they are not clearly
ascertainable in both their nature and origin.
“This statutory provision is, in effect, the adoption of the common law rule.” Id.
(citing Hayes v. Cooley, 13 N.D. 204, 100 N.W. 250, 254 (1904); Needham v. H.S.
Halverson & Co., 22 N.D. 594, 135 N.W. 203, 207 (1912)).
[¶24] In Dobler, we outlined the measure of damages under N.D.C.C. § 32-03-09,
for breach of a construction contract as follows:
There are, of course, two possible measures of damages. If the
contract is substantially performed, and the breach of contract can be
remedied without taking down and reconstructing a substantial portion
of the building, the amount of damages is the cost of making the work
conform to the contract. Or, where the defects cannot be remedied
without reconstruction of a substantial portion of the work, the measure
of damage is the difference in value between what it would have been
if built according to contract and what was actually built.
214 N.W.2d at 518 (citing Karlinski v. P.R. & H. Lumber & Constr. Co., 68 N.D. 522,
281 N.W. 898, 901 (1938). This Court has recognized that under some
circumstances, the cost to repair is the correct method for measuring damages. Swain
v. Harvest States Coops., 469 N.W.2d 571, 574 (N.D. 1991).
[¶25] The present dispute involves Bakke’s claim for damages necessitated by the
need to repair property damaged as a result of the alleged breach of contract premised
on the failure to satisfy the warranty of fitness for a particular purpose. Bakke’s
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damages, if proven, fall within the scope of damages recoverable for a breach of
contract.
VIII.
[¶26] Bakke’s cause of action against Magi-Touch is properly asserted as a breach
of contract claim, must be resolved by the law of contracts, and is not precluded by
Magi-Touch employing an independent contractor to complete the installation. We
affirm the district court’s summary judgment of Bakke’s tort claims against Magi-
Touch, affirm the dismissal of the claim against SPS, affirm the denial of Bakke’s
request to amend the complaint to assert tort claims, and reverse the district court’s
denial of Bakke’s request to amend the complaint to assert a breach of contract claim.
We remand this case for further proceedings consistent with this opinion on Bakke’s
breach of contract claim.
[¶27] Jon J. Jensen
Lisa Fair McEvers
Daniel J. Crothers
Jerod E. Tufte
Gerald W. VandeWalle, C.J.
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