No. 84-387 

### IN THE SUPREMECOURT OF THE STATEOF MONTAVA 1985

WALTER C. DEGNAN and CAROLW. DEGiqAIJ, husband and wife, Plaintiffsand Respondents,

EXECUTIVE HOMES, INC., aMontana corp., CHARLES E. GAMBLE,MORA BROS., INC., aMontana corp., Defendants and Appellants.

APPEAL FROM: District Court of the Thirteenth Judicial District, In and for the County of Yellowstone, TheHonorable Charles Luedke,Judgepresiding.

COUNSEL OF RECORD:

ForAppellants: Moulton, Bellingham, Longo & Mather;Ward Swanser argued for Mora Bros., Billings,Montana McGimpsey & Bacheller,(ExecutiveHomes), Billings, Montana Peterson,Schofield & Leckie, (Gamble),Billings, &Iontana For Respondents: Anderson, Brown, Gerbase, Cebull & Jones;Richard F. Cebull argued for Degnans, Billings,Montana

Submitted: January 31, 1985 Decided: March 7, 1985

-(*- File

# .Mr. Justice Frank B. Morrison, Jr., delivered the opinion of the Court. Defendant.,Mora Brothers Inc.

### , lMora Bros.) appeals the March 29, 1984,order of the DistrictCourt of the Thirteenth JudicialDistrict,County ofYell.owstone,granting Walter and Carol Degnan

### 's (Degna.ns)motion for summary judgment against Mora Bros. on the issue of breach of the implied warranty of habitability. We affirm the order of the District Court. Executive Homes, Inc., was established i.n 1977 by Charles Gamble and Moras. Its purpose was to purchase, develop and sell land for residentialconstruction. The engineering firm of Christian, Spring, Sielbach & Associates was hired by Executive Homes to design the Oak Subdivision under a rimrock cliff outside of Billings, Montana. Charles Gamble,half-owner and president of Executive Homes and president of ICF. Real-ty,was the chief selling agent of the lots in Oak Subdivision. The Mora brothers, Rene Jr., Robert and Sam own the other half of Executive Homes. Mora Bros. was initially the exclusive builder of homes in Oak Subdivision. Financial realities soon resulted in theuse of other builders aswell. In the summer of 1979, Degnans purchased a lot in Oak Subdivision from Executive Homes. Charles Gamhle was the selling agent. The salewas contingentupon Degnansagreeing to allow Executive Homes to contract with Mora Rros. for the constructionof theirhome. The decision to begin construction on the Degnan Home

was made on December 12, 1979. Although other contractors had started building homes in Oak Subdivision, pursuant to the agreement made at the time the lot was purchased, Moras constructed the Degnanhome. Prior to commencing construction,Walter Degnan and Rene Mora discussed the possibility of ground instability in thearea. Rene Mora stated that Mora Rros. had encountered no such problem while constructing other homes in the immediate vicinity. On the advice of his architect, Degnan considered having the soil tested anyway. However, that ideawas ultimately rejected and no such testwasperformed. The house was completed and the Degnansmoved in during the summer of 1979. Shortly thereafter, problems began to arise. The entire hillside was slowly moving downward, causing the Degnanhouse severe structuraldamage. The house is now uninhabitable. The parties agree that the ground under the house is unstable. However, the cause of that instability is unknown. Degnans filed suit November 30, 1981,against Executive Homes, Inc., Charles Gamble, ICRRealty, Inc.,Mora Bros. and the engineering firmofChristian, Spring,Sielbach & Associates. Summary judgment motions were then filed on behalf of allparties. The motions of Charles Garnb1.e as real estate salesman, ICR Realty and the engineering firm were granted and those parties were dismissed from the suit. Degnans

## ' motion against ExecutiveHomes asbuilder-vendor on the issue of the breach of its implied warranty of habitability was granted and isnot at issue in this appeal. Degnans' motions againstMora Bros. asbuilder-vendor on the issues of negligence and the breach of its implied warranty of habitability were denied. The trial court found an issue ofmaterial fact to be unresolved 

### -whether ornotMora Bros. was abuilder-vendor. Further discovery was had, after which Degnans filed a second motion for summary judgment againstMora Eros. on the

same issues. Mora Bros. was found tobe a builder-vendor and themotion for summary judgment on the issue of breach of theimplied warranty of habitability was granted March 29, 1984. The motion for summary judgment on the issue of negligence

wa-sagain denied because material issues of fact remained to be resolved: 1) whether Mora Rros. was negligent in constructing the house; and 2)what exactly caused the house to slide? On appeal,Mora Bros. raises the following issues: 1. The DistrictCourt erred in finding that therewas a breach of an impliedwarranty ofhabitability. 2. The District Court erred in granting summary judgment against Mora Bros. because there was no privity of contractbetween plaintiffs and Mora Bros. 3. The District Court erred in finding that Mora Rros.

was a builder-vendor

# . 4. The District Court erred in granting summary judgment. IMPLIED WARRANTY OF HABITABILITY The liability of a builder-vendor of a new residence to the first purchaser under an impliedwarranty of habitability

was esta.blishedby this Court 

### in Chandler v. Madsen (1982)

### , 197 Mont. 234, 642 P.2d 1028. We specifically overruled application of the doctrine of caveat emptor to the builder-vendor/buyer relationship and held "the builder-vendor of a new home impliedly warrants that the residence is constructed in a workmanlike manner and is suitable for habitation." Chandler, 197 Mont. at 239, 642 P.2d at 1031.. The theory behind the implied warranty of habitability is not one of fault or wrongdoing. Rather, it recognizes that when either an innocent builder-vendor or an innocent seller will suffer, the builder-vendor, as the one in the better position to have prevented the harm, shall beliable to the buyer for that harm. Chandler, 197 Mont. at 240, 642P.2d at 1032. The implied warranty of habitability applies to both structural defects and defects in the land underlying the residence. It does not applywhere the defect in the land is not enhanced by construction of a house. Chandler, 197Mont. at 239-240, 642 P.2d at 1031, citing Beri, Inc. v. Salishan Properties, Inc. (Ore. 1978), 580 P.2d 173. In ~eri, the defect was ocean-caused erosion of the soilbeneath a cond.0- minium. The erosion would have occurred whether the condominiumwas built ornot. In Chandler, one of the defects was the moisture-sensitive soil on which the residence was constructed. Another defect was the "pooling" of water in a depression created by the builder, Robert Madsen. The "pooling" would not have occurred had construction not taken place. We, therefore,held Madsen to be liable to Chandler under the implied warranty of habitability. Chandler, 197 Mont. at 240, 642P.2d at 1031-1032. In the fact situation now before us, the defect is the unstable ground beneath the house. The cause of the instability is unknown. Further, there is no evidence the ground would have slid.downhill had Degnan's house not been constructed. Thebuilder-vendor is in abetter position than is the buyer to determine the effect, if any, of constructing a house on un.stableground. The rationale behind the implied warranty of habitability requires the builder-vendor to bear the burden ofproducing such evidence. In Loch Hill Const. Co., Inc. v. Fricke (Md.App. 1979), 399 A.2d 883,theMaryland Court ofAppealsplaced the burden of proof regarding whether the defect was furthered by constructionon the petitioner,builder-vendor:"Yet, unless the vendor can satisfy the trier of fact by probative evidence that the absence of a. proper water supply following thetransferof title resulted solely from acts of another forwhich the vendor was not responsible or was caused by a phenomena of such suddenness and magnitude that it ca.n properly be classified as an 'act of God' e. 

## , earthquake)

## , establishing such a water shortage entitles the purchaser to a verdict for the damages he suffered." Fricke, 399 A.2d at890. That court went on to hold, "[wlithout any such evidence, petitioner must bear liability for the well's failure." Fricke, 399 A.2d at890. Wedo not agree that the burden of proof should actually shift to defendant. However, we do hold that, once plaintiff showed that the house moved, the burden of coming forward with an explanation shifted to defendant. The defendant failed toprovide an explanation,

sono genuine issueof factwas created. Mora Bros. contends that since Degnans knew the land under therimsmight be unstable, they areprecluded recovery under the implied warranty of habitability. This contention iswithout merit. The doctrine isnot premised upon "knowledge.

### " Rather, it is based on the premise that a builder-vendor is in the better position to have prevented the problem. Chandler, 197 Mont. at 239, 642 P.2d at 1032. PRIVITY OF CONTRACT Next, Mora Bros. contends the District Court erred in finding a contract existed between Degnans and. Mora Bros. Since there was no privity of contract, Mora Rros. argues, Degnans are precluded from recovering under the theory of implied warranty of habitability. We agree with the contention that no contract existed between Degnans and Mora Rros. Rene Mora stated atp. 48 of his depositj-on that Mora Bros. never had a contract with Degnans. Degnans have neither disputed that contention nor produced such a contract. Degnans in fact contracted withExecutiveHomes. However,this error in the DistrictCourt's findings is harmless as the impliedwarranty of habitability does notdepend upon a contract for its existence. The implied warranty places on the builder-vendor liability for defects in a structure which make it uninhabitable. Gay v. Cornwall (Wash.App. I-972), 494 P.2d 1371, 1373-1374. The theory is derived from that of a seller's warranty. "The seller's warranty is a curioushybrid,born of the illicit intercourse of tort and contract, unique in the law. In its inception the liability was based on tort.

# .. .Thereafter the warranty gradually came to be regarded as a term of the contractof sale,express or implied,forwhich the normal remedy is a contract action. But the obli

## --- gation

## is imposed upon the seller, 

## - not because he has assumed it voluntarily, but because the law 

## - -- attaches such~onsequences 

### -- to his conduct irrespec- tive of

### anyagreement;and inmany cases,at least, 

## -- to hold that awarranty 'is a contract is to speak the language of pure fiction.

## '" (emphasis supplied) (citations omitted) W. Prosser, 

### -- Law of Torts,

### 5 95,pp. 634-635 (4thEd. 1982). The duty topresent a buyer with a habitable house is a legal duty placed on the builder-vendor of that house. A breach of a legal duty is a tort. Gates v. Life ofMontana Insurance Co. (1983), 668 P.2d 213, 40 St.Rep. 1287. Torts do not requireprivity of contract. BUILDER-VENDOR Mora Bros. next contends the District Court erred in finding it to be a builder-vendor because: 1) the Degnans contracted with Executive Homes for the lot and construction work; and 2) the Degnans paid Executive Homes, which then paid Mora Bros. If Mora Bros. is not abuilder-vendor, it is not liable to the Degnans under an implied warranty of habitability. FJe cannot agree with such a technical applica.tionof the term builder-vendor. As stated in the previous section of this opinion, privity of contract is irrelevant to theimplied warranty of habitability. Therefore, the fact Degnans contracted with Executive Homes rather than Mora Bros. does not affect the finding that Mora Bros. is a builder-vendor. Mora Bros. built the house for Degnans. Degnanspaid tohave the housebuilt and Mora Bros. ultimately received one hundred percent of that money, less its expenses. The fact the money was paid to Mora Bros. through Executive Homes is a mere technicality, especially in light of the interrelationship between Ploras and Executive Homes. We affirm the District Court's finding that Mora Bros.

was abuilder-vendor. SUMMARYJUDGMENT Finally,Nora Bros. contends the District Court erred in granting summary judgment as material facts remain in dispute. Those factsare: 1. Whether Mora Bros. was involved in developing the subdivision? 2. Whether Degnans were in fact required to have Mora Rros. build theirhouse? 3. Whether Mora Bros. was involved in the sale of the lot to Degnans. 4. Whether there was a contract between Mora Bros. and Degnans? 5. Whether Mora Bros. received a profit from the sale of the lot to Degnans? Our resolution of this matter renders these issues immaterial. Question of fact number four was discussed and resolved in our discussion of the privity issue. The other disputed facts relate to Mora Bros.'s contention that it is not a builder-vendor. Mora Bros. was found to be a builder-vendor because it built Degnan's house pursuant to a series of agreements between Executive Homes,Mora Bros. andDegnans, not because of any connectionbetween Mora Bros. and the sale of the lot by Executive Homes to Degnans. The order of the District Court finding Mora Bros. liable to Degnans under the theory of implied warranty of habitability is affirmed.

We concur: /