Griffin v. Wheeler-Leonard & Co., Inc. , 290 N.C. 185 ( 1976 )

225 S.E.2d 557 (1976) 290 N.C. 185

Robert J. GRIFFIN and wife, Frances C. Griffin,
v.
WHEELER-LEONARD & CO., INC., et al.

No. 71.

Supreme Court of North Carolina.

June 17, 1976.

Powe, Porter, Alphin & Whichard, P.A. by J. G. Billings, Durham, for plaintiffs-appellants.

Blackwell M. Brogden, Durham, for defendants-appellees.

SHARP, Chief Justice:

Plaintiffs base their contention that the Court of Appeals erred in affirming the trial court's directed verdict for defendants Lonnie E. Wheeler, Wheeler-Leonard Co., Inc., M. D. Fletcher, Jr., and wife, Bonnie T. Fletcher upon the following grounds:

First, the evidence tending to establish a breach of an express warranty by Wheeler and Wheeler-Leonard, Inc., was sufficient for submission to the jury.

Second, the evidence tending to show a fraudulent nondisclosure of material facts by Wheeler and Wheeler-Leonard, Inc., while acting as broker for Fletcher in negotiating the sale of residential property to plaintiffs was sufficient to take that issue to the jury.

Third, there was substantial evidence of a breach of implied warranty by defendants Fletcher and wife, entitling plaintiffs to go to the jury on that issue.

The foregoing contentions will be considered in the order listed.

According to plaintiff Griffin's testimony, prior to the signing of the purchase contract, Wheeler made the following statements with reference to water in the crawl space and the ability and reputation of the contractor who built the house:

"I did make a comment to Mr. Wheeler about what I saw in the crawl space. When I got back into the house, I asked him about the water underneath and he just made the comment that it was probably left over from construction and it should dry up in a short time now that everything was covered over and water couldn't get in there any more."

"I asked him questions on quality of the house and how these things were done in North Carolina. The warranties, guarantees, and things like that, and he responded in the affirmative to all of my questions."

In response to a question about the contractor who built the house, Wheeler told Griffin that "he was a good contractor and he built good homes and that they were substantial."

We need not consider whether the admission of some or all of the foregoing testimony violated the rule against the admission of parol evidence which contradicts the terms of a written instrument (the purchase contract) since it was admitted without objection by defendants. See 2 Stanbury's N.C. Evidence § 251, n. 2 (Brandis Rev. 1973).

Although denying that prior to the signing of the purchase contract he had made any statement regarding the water problem in the crawl space, Wheeler testified that a few days after the signing of the contract and before the closing of the transaction, in a telephone conversation, Griffin had asked him about the water under the house, and he had replied, "Mr. Griffin, I don't know. It could be because it is coming from the rainy weather. I don't know, but let's let it dry up. Let it dry up and if it doesn't dry up, then call me back."

Are these statements, if made by Wheeler, sufficient (1) to constitute an express warranty that the residence he was attempting to sell plaintiffs, when completed, would be constructed in a workmanlike manner and, specifically, that water in the crawl space underneath the house would create no problems and (2) to support recovery by plaintiffs against Wheeler, Wheeler-Leonard, Inc., or the Fletchers, if a breach is shown? (As to an agent's liability on contracts entered into on behalf of his principal see Howell v. Smith, 261 N.C. 256, 134 S.E.2d 381 (1964); Walston v. Whitley & Co., 226 N.C. 537, 39 S.E.2d 375 (1946).) Taking plaintiffs' evidence as true and considering it in the light most favorable to them (as we are required to do in considering the sufficiency of the evidence to withstand the motion for a directed verdict, Anderson v. Butler, 284 N.C. 723, 202 S.E.2d 585 (1974); Kelly v. Harvester Co., 278 N.C. 153, 179 S.E.2d 396 (1971)), we conclude that the answer is NO.

Wheeler's statements, even assuming he was authorized to make them, were not sufficient to constitute an express warranty, on his own behalf, on behalf of Wheeler-Leonard, Inc., or on behalf of the Fletchers. All that Wheeler said with reference to water in the crawl space was that it was "probably" left over from construction and that it "should" dry up in a short time now that everything was covered over and water couldn't get in there any more. Thus, Wheeler did not expressly say, nor did his words reasonably imply, that he personally assumed a contractual obligation by warranting a dry crawl space.

The statement attributed to Wheeler, that the contractor who built the house "was a good contractor and he built good homes and that they were substantial," likewise falls far short of constituting an express warranty with respect to the house which plaintiffs purchased. This statement amounted to no more than a general testimonial that the contractor built good, substantial homes. Indeed, the statement did not specifically refer to the particular house which plaintiffs purchased. We would have to strain unduly to find in Wheeler's statement a contractual warranty with respect to plaintiffs' house. Cf. N.C.Gen.Stat. § 25-2-313(2) which provides: "It is not necessary to the creation of an express warranty that the seller use formal words such as ``warrant' or ``guarantee' or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement purporting to be merely the seller's opinion or commendation of the goods does not create a warranty." Compare Performance Motors, Inc. v. Allen, 280 N.C. 385, 186 S.E.2d 161 (1972).

With reference to the alleged fraud of defendant Wheeler, it is well settled that where there is a duty to speak the concealment of a material fact is equivalent to fraudulent misrepresentation. Setzer v. Insurance Co., 257 N.C. 396, 126 S.E.2d 135 (1962); Brooks v. Ervin Construction Co., 253 N.C. 214, 116 S.E.2d 454 (1960). See also 4 Strong's N.C. Index 2d, Fraud § 3 (1968) and Annot., Liability of Vendor's Broker or Agent to Purchase for Misrepresentation as to, or Nondisclosure of, Physical Defects of Property Sold, 8 A.L.R. 3d 550 (1966).

Plaintiffs rely upon Brooks v. Ervin Construction Co., supra, a case in which the defendant-builder had sold the plaintiffs a house and lot. The defendant had constructed the house over a large hole which it had filled with debris and then covered over with clay. The defendant knew, or should have known, that a house built on "disturbed soil" will settle and material damage result. In reversing a judgment of nonsuit, this Court said: "Since this defect in the lot and the house built centered over it was not apparent to plaintiffs and not within the reach of their diligent attention and observation, defendant was under a duty to disclose this information to plaintiffs. Plaintiffs' evidence makes out a case of actionable fraud sufficient to carry the case to the jury." Id. at 219, 116 S.E.2d at 458.

The Brooks case, however, does not require a reversal of the directed verdict in favor of Wheeler and Wheeler-Leonard, Inc. In this case defendant Wheeler did not build the Griffin house. There is no evidence whatever that Wheeler knew that the Griffin house had been constructed so that there would, or likely would, be a continuing water problem in the crawl space. The fact that Wheeler knew the condition of the soil in Bluestone Estates and knew of its poor porosity does not mean that he knew the house had, in fact, not been properly constructed to allow for that condition. Plaintiffs' own witness, Pickett, testified that the foundation of the house could have been constructed so that there would have been no continuing water problem beneath the house. Further, he outlined the measures which could still be taken to eliminate this condition and gave his estimate of their costs.

Had plaintiff shown (1) that, at the time he signed the contract with plaintiffs, defendant Wheeler knew, or had reason to believe, that the builder had not properly waterproofed the foundation of the house, and (2) that defendant Wheeler had withheld this fact from plaintiffs, such nondisclosure would have come within the rule applied in the Brooks case. However, all the testimony bearing upon this point, that offered by plaintiffs as well as by defendants, tended to show that, at the time of his transactions with plaintiffs, Wheeler thought the water accumulation underneath the house was a mere incident of construction and, once dried out, there would be no further water accumulation under the house.

We hold that the evidence adduced did not entitle plaintiffs to have the issue of misrepresentation by Wheeler and Wheeler-Leonard, Inc., submitted to the jury. Whether the evidence in the record was sufficient to have supported an amendment of the complaint and submission of the issue of fraudulent nondisclosure as against defendant Fletcher is not before us. Plaintiffs neither sought to amend their complaint before trial to allege such a theory against Fletcher; nor do they presently contend that the issue was tried below by the implied consent of the parties as provided in N.C.Gen.Stat. § 1A-1, Rule 15(b).

The third question is whether the issue of defendants Fletchers' liability to plaintiffs for the alleged breach of implied warranty should have been submitted to the jury.

This question is answered by our decision in Hartley v. Ballou, 286 N.C. 51, 209 S.E.2d 776 (1974), a case which was pending on appeal in this Court, but undecided, at the time the Court of Appeals rendered its decision in the instant case. Griffin v. Wheeler-Leonard & Co., 22 N.C.App. 323, 206 S.E.2d 313 (1974).

The rule adopted by this Court as governing implied warranty in the sale of a dwelling by the builder-vendor was stated by Chief Justice Bobbitt as follows:

"[I]n every contract for the sale of a recently completed dwelling, and in every contract for the sale of a dwelling then under construction, the vendor, if he be in the business of building such dwellings, shall be held to impliedly warrant to the initial vendee that, at the time of the passing of the deed or the taking of possession by the initial vendee (whichever first occurs), the dwelling, together with all its fixtures, is sufficiently free from major structural defects, and is constructed in a workmanlike manner, so as to meet the standard of workmanlike quality then prevailing at the time and place of construction; and that this implied warranty in the contract of sale survives the passing of the deed or the taking of possession by the initial vendee." Id. 286 N.C. at 62, 209 S.E.2d at 783.

The implied warranty of the builder-vendor does not, of course, extend to defects of which the purchaser had actual notice or which are or should be visible to a reasonably prudent man upon an inspection of the dwelling. Where, however, there is a breach of the implied warranty, the vendee can maintain an action for damages for such breach "either (1) for the difference between the reasonable market value of the subject property as impliedly warranted and its reasonable market value in its actual condition, or (2) for the amount required to bring the subject property into compliance with the implied warranty." Id. at 63, 209 S.E.2d at 783.

All the evidence tended to show that an extended period of wet weather and heavy rains had preceded plaintiffs' purchase of the property. As Griffin testified ". .it had been raining constantly, and the back yard also was one giant mud puddle . everything around here was saturated"; so he "saw nothing wrong" with Wheeler's statement that the crawl space "should dry up" shortly after the rain stopped. Under all the circumstances here disclosed we cannot say as a matter of law that plaintiffs could not have reasonably acted on this assumption.

Although plaintiffs were unaware of the admittedly poor porosity of the soil in the Bluestone Estates Subdivision, the condition of the soil was not the latent defect here involved but the absence of adequate construction measures to cope with that condition of the soil so as to prevent rainfall from puddling beneath the house. The condition of the foundation of the house and lack of sufficient waterproofing were defects which a jury could find would not have been discernible to a reasonably prudent person upon inspecting the property at the time of negotiating its purchase. Furthermore plaintiffs' evidence tended to show that at the time of trial two other defects—the failure of the top window sashes of several windows to stay up properly and the passage of water underneath the garage door whenever it rained "fairly hard"—had not been corrected. In addition there was evidence sufficient to go to the jury that a dwelling with these defects did not meet the standard of workmanlike construction then prevailing in Durham County. Thus, the jury could find the house was neither free from major structural defects nor constructed in a workmanlike manner and that therefore it did not meet the prevailing standard of workmanlike quality. Failure to meet this standard would constitute a breach of the implied warranty regardless of whether the house could be deemed "livable."

Finally, we consider the effect of the last paragraph in the purchase contract, executed on a standard contract form published by the North Carolina Association of Realtors. Plaintiffs signed this contract as "buyer," and the signature on the "seller" line is "W. F. Construction Co., Inc., by Lonnie E. Wheeler, Pres." The last paragraph is as follows: "Buyer hereby acknowledges that he has inspected the above described property, that no representations or inducements have been made other than those expressed herein, and that this contract contains the entire agreement between all parties hereto." Defendants contend that since the list of items on Attachment # 1 to the contract did not include water in the crawl space and in the garage or loose window sashes that they have no responsibility for these defects.

The implied warranty here under consideration, applicable to a dwelling sold by a builder, arises by operation of law, not by specific factual agreement between the parties. Without question, however, a builder-vendor and a purchaser could enter into a binding agreement that such implied warranty would not apply to their particular transaction.

Does the language in the last paragraph of the purchase contract constitute an agreement between defendant Fletcher and plaintiffs that no implied warranty is applicable to their transaction? The answer is clearly NO.

On its face this last paragraph purports to exclude only those "representations or inducements" which are not set out in the written contract. The implied warranty of workmanlike quality of construction does not exist by reason of a representation or inducement made by the builder-vendor, nor does it exist by reason of a representation or inducement made by the builder's sales agent, the real estate broker. Instead, it exists by operation of law.

The words, "this contract contains the entire agreement between all parties hereto" may be regarded as sufficient to exclude a matter which one of the parties might contend was in fact agreed to prior to the signing of the contract. However, standing alone, these words are not sufficient to exclude an implied warranty, which is applicable only by operation of law. Such an exclusion, if desired by the parties to a contract for the purchase of a residence, should be accomplished by clear, unambiguous language, reflecting the fact that the parties fully intended such result. Cf. N.C.Gen.Stat. § 25-2-316.

Further, it is relevant to note that defendant Fletcher (builder-vendor) was not one of the "parties" to the purchase contract. He did not sign the contract and nowhere in it is there any reference to him.

In summary, we hold that plaintiffs were entitled to go to the jury on the issue whether defendant M. D. Fletcher, Jr., breached the implied warranty of a builder vendor. While defendant Bonnie T. Fletcher also signed the deed of conveyance to plaintiffs as a grantor and vendor of the property, the record contains no evidence that she was in the construction business or had any part in building the residence on Lot No. 9. Therefore, no issue arose as to her liability for any breach of the implied warranty of a builder-vendor.

As to defendants Lonnie E. Wheeler, Wheeler-Leonard & Co., Inc., and Bonnie T. Fletcher, the decision of the Court of Appeals is affirmed. As to defendant M. D. Fletcher, Jr., the judgment of the Court of Appeals is reversed. Accordingly, the cause is remanded to the Court of Appeals for entry of a judgment vacating the judgment of the trial court as to defendant M. D. Fletcher, Jr., and remanding the cause to the District Court for trial de novo as to him.

Affirmed in part; reversed in part; remanded.

COPELAND and EXUM, JJ., did not participate in the consideration or decision of this case.