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Petersen v. Hubschman Construction Co., Inc

    Brief Fact Summary. In April 1972, the Plaintiffs Raymond Peterson (Mr. Peterson) and Delores Petersen (Plaintiffs), entered into a contract for $71,000 with the Defendant, Hubschman Construction (Defendant), for the purchase of a piece of land and to have a home constructed thereupon. The Plaintiffs paid $10,000 in earnest money and there was an offset of $9,000 for work done by Mr. Petersen. The Plaintiffs became dissatisfied with the Defendant’s performance and the Defendant agreed to repair numerous problems on a “punch list,” but failed to satisfactorily carry out the agreement.

    Synopsis of Rule of Law. In the sale of a new house by a builder-vendor there is an implied warranty of habitability, which will support an action against the builder-vendor by the vendee for latent defects and which will avoid the unjust results of caveat emptor and the merger rule.

    Facts. In April 1972, the Plaintiffs entered into a contract for $71,000 with the Defendant for the purchase of a piece of land and to have a home constructed thereupon. The Plaintiffs paid $10,000 in earnest money and there was an offset of $9,000 for work done by Mr. Petersen. The Plaintiffs became dissatisfied with the Defendant’s performance and Defendant agreed to repair numerous problems on a “punch list,” but failed to satisfactorily carry out the agreement. The trial court found that the defects consisted of a basement floor pitched away from the drain, improperly installed siding, a defective and ill-fitting bay window, a seriously defective front door, deterioration and “nail popping” of the drywall. The testimony showed that repair of those items would include a large amount of work. The Plaintiffs proposed to place $1,000 in escrow to ensure that the repairs were done, but the Defendant refused. The Plaintiffs refused to close the deal and the Defendant informed the Plain
    tiffs that the Defendant was invoking the forfeiture provision and retaining the $10,000 earnest money payment and the $9,000 offset of work done by Mr. Peterson. The Plaintiffs sued the Defendant. The trial court ruled there were defects in substance in the construction and that the Defendant had not substantially performed and could not declare a forfeiture. The trial court held that the Plaintiffs could recover the earnest money and the amount of the offset. The Defendant appealed.

    Issue. May the builder raise the non-breach of the implied warranty of habitability to enforce the forfeiture, insofar as the home was livable, though not well-made?

    Held. No. Judgment affirmed.
    The implied warranty of habitability in cases involving the sale of new homes by a builder-vendor is a judicial innovation of rather recent origin used to avoid the harshness of caveat emptor and the doctrine of merger and to afford a degree of relief to vendees of new homes who subsequently discover latent defects in the structure. In the old rule of buyer beware, the vendee took the title to the property at his own risk. Under merger, all the agreements between the vendor and vendee were said to have merged in the deed, which would prevent recovery by a vendee.
    In the sale of a new house by a builder-vendor there is an implied warranty of habitability, which will support an action against the builder-vendor by the vendee for latent defects and which will avoid the unjust results of caveat emptor and the merger rule.
    The implied warranty of habitability does not arise as a result of the execution of the deed. It arises by virtue of the execution of the agreement between the vendor and vendee. The implied warranty exists as an independent undertaking collateral to the covenant to convey.
    The mere fact that the house is capable of being inhabited does not satisfy the implied warranty. The Court analogized the implied warranty of habitability to the Uniform Commercial Code (U.C.C.) provisions concerning the warranties of merchantability or fitness for a particular purpose. [U.C.C. 2-314, 2-315].
    Because the land and the house belonged to the Defendant, the Defendant could re-sell the house and land and recover losses sustained by the Plaintiffs’ non-performance. The Plaintiffs were allowed to repudiate the contract on the basis of the implied warranty of habitability.

    Discussion. The Court based its decision to expand the application of the implied warranty of habitability on the changes in the sale and construction of homes. The Court found that, under the old rules, the result would be unduly harsh to the Plaintiffs. This decision shows the way in which judicial decisions tend to change over time.


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