No. 84-387 

IN THE SUPREME COURT OF THE STATE OF MONTAVA 

1985 

WALTER C. DEGNAN and CAROL W. 

DEGiqAIJ, husband and wife, 

Plaintiffs and Respondents, 

EXECUTIVE HOMES, INC., a Montana 

corp., CHARLES E. GAMBLE, MORA 

BROS., INC., a Montana corp., 

Defendants and Appellants. 

APPEAL FROM: District Court of the Thirteenth Judicial District, 

In and for the County of Yellowstone, 

The Honorable Charles Luedke, Judge presiding. 

COUNSEL OF RECORD: 

For Appellants: 

Moulton, Bellingham, Longo & Mather; Ward Swanser 

argued for Mora Bros., Billings, Montana 

McGimpsey & Bacheller,(Executive Homes), Billings, 

Montana 

Peterson, Schofield & Leckie, (Gamble), Billings, 

&Ion tana 

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 District Court of the Thirteenth 

Judicial District, County of Yell.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 residential construction. 

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 the use of other builders as well. 

In the summer of 1979, Degnans purchased a lot in Oak 

Subdivision from Executive Homes. Charles Gamhle was the 

selling agent. The sale was contingent upon Degnans agreeing 

to allow Executive Homes to contract with Mora Rros. for the 

construction of their home. 

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 Degnan home. 

Prior to commencing construction, Walter Degnan and Rene 

Mora discussed the possibility of ground instability in the 
area. 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 idea was ultimately rejected and no such test was performed. 

The house was completed and the Degnans moved in during 

the summer of 1979. Shortly thereafter, problems began to 

arise. The entire hillside was slowly moving downward, 

causing the Degnan house severe structural damage. 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, ICR Realty, Inc., Mora Bros. and 

the engineering firm of Christian, Spring, Sielbach & Associates. Summary judgment motions were then filed on behalf of 

all parties. 

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 Executive Homes as builder-vendor on the issue of the 

breach of its implied warranty of habitability was granted 

and is not at issue in this appeal. 

Degnans' motions against Mora Bros. as builder-vendor on 

the issues of negligence and the breach of its implied warranty of habitability were denied. The trial court found an 

issue of material fact to be unresolved - whether or not Mora 

Bros. was a builder-vendor. 

Further discovery was had, after which Degnans filed a 

second motion for summary judgment against Mora Eros. on the 

same issues. Mora Bros. was found to be a builder-vendor and 

the motion for summary judgment on the issue of breach of the 
implied warranty of habitability was granted March 29, 1984. 

The motion for summary judgment on the issue of negligence 

wa-s again 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 District Court erred in finding that there was a 

breach of an implied warranty of habitability. 

2. The District Court erred in granting summary judgment against Mora Bros. because there was no privity of 

contract between 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 implied warranty of habitability 

was esta.blished by 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 be 
liable to the buyer for that harm. Chandler, 197 Mont. at 

240, 642 P.2d at 1032. 

The implied warranty of habitability applies to both 

structural defects and defects in the land underlying the 

residence. It does not apply where the defect in the land is 

not enhanced by construction of a house. Chandler, 197 Mont. 

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 soil beneath a cond.0- 

minium. The erosion would have occurred whether the condominium was built or not. 

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, 642 P.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. The builder-vendor is in a better position than is 

the buyer to determine the effect, if any, of constructing a 

house on un.stable ground. The rationale behind the implied 

warranty of habitability requires the builder-vendor to bear 

the burden of producing such evidence. 

In Loch Hill Const. Co., Inc. v. Fricke (Md.App. 1979), 

399 A.2d 883, the Maryland Court of Appeals placed the burden 

of proof regarding whether the defect was furthered by construction on 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 the transfer of title 

resulted solely from acts of another for which 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 at 890. 

That court went on to hold, "[wlithout any such evidence, 

petitioner must bear liability for the well's failure." 

Fricke, 399 A.2d at 890. We do 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 to provide an explanation, 

so no genuine issue of fact was created. 

Mora Bros. contends that since Degnans knew the land 

under the rims might be unstable, they are precluded recovery 

under the implied warranty of habitability. This contention 

is without merit. The doctrine is not 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 at p. 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 with 
Executive Homes. However, this error in the District Court's 

findings is harmless as the implied warranty of habitability 

does not depend 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 curious hybrid, 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 

contract of sale, express or implied, for which the 

normal remedy is a contract action. --- But the obligation 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 any agreement; and in many cases, at least, 

to hold that a warranty '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 (4th Ed. 1982). 

The duty to present 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 of Montana 

Insurance Co. (1983), 668 P.2d 213, 40 St.Rep. 1287. Torts 

do not require privity 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 a builder-vendor, it is 

not liable to the Degnans under an implied warranty of 

habitability. 

FJe cannot agree with such a technical applica.tion of the 

term builder-vendor. As stated in the previous section of 

this opinion, privity of contract is irrelevant to the 
implied 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. 

Degnans paid to have the house built 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 a builder-vendor. 

SUMMARY JUDGMENT 

Finally, Nora Bros. contends the District Court erred in 

granting summary judgment as material facts remain in dispute. Those facts are: 

1. Whether Mora Bros. was involved in developing the 

subdivision? 

2. Whether Degnans were in fact required to have Mora 

Rros. build their house? 

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. and 
Degnans, not because of any connection between 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: /