Case Name: Donald Frickel, et al., Respondents, v. Sunnyside Enterprises, Inc., et al., Appellants
Court: Washington Supreme Court
Jurisdiction: Washington
Decision Date: 1986-09-18
Citations: 106 Wash. 2d 714
Docket Number: No. 51614-6
Parties: Donald Frickel, et al, Respondents, v. Sunnyside Enterprises, Inc., et al, Appellants.
Judges: 
Reporter: Washington Reports
Volume: 106
Pages: 714–738

Head Matter:
[No. 51614-6.
En Banc.
September 18, 1986.]
Donald Frickel, et al, Respondents, v. Sunnyside Enterprises, Inc., et al, Appellants.
Owens, Weaver, Davies, Mackie & Lyman and Alexander W. Mackie, for appellants.
Stritmatter, Kessler & McCauley, Keith L. Kessler, and F. Mark McCauley, for respondents.

Opinion:
Brachtenbach, J.
The main issue is whether an implied warranty of habitability applies to the sale of an apartment complex, under the facts of this case, and in the face of a contractual disclaimer of any such warranty. The trial court found there was such an implied warranty and held for the buyers. The court did not deal with the contractual disclaimer. We accepted certification from the Court of Appeals. We reverse.
The facts are important. The plaintiffs were seeking an investment which would give them a retirement income and a tax benefit. The defendants were builders of apartment complexes for their own ownership. Defendants did not build for resale. Defendants had built over 100 apartment units, but always for their own ownership and management. These units were no exception: the defendants expected to own and manage them.
The defendants were approached by a realtor who represented the buyers. The property was not on the market. The buyers' agent asked the sellers — would they sell? They answered — yes, for the right price.
This establishes the first point. The property was not built for resale. The builders intended it to be held within their own inventory and management.
The apartment complex consisted of five buildings. It was built in stages. The first four buildings, containing 28 units of apartments, had been completed and occupied by tenants — some for approximately 18 months. The last building had only been framed in when the owners were approached by the buyers' agent.
The record is silent as to what negotiations, if any, went on between the sellers and buyers. A contract was prepared by an attorney. The buyers, accompanied by their own attorney, went to the office of the lawyer who had prepared the contract. Somehow the parties agreed upon a sale price of $700,000 with $85,000 down. The contract was expressly tailored to this transaction. It recognized and accounted for tenants' cleaning deposits and last month's rent deposits. It recognized that Building 5 was incomplete. It set the standards for completion as well as needed repairs to the existing buildings.
Of importance to this controversy, the contract included this clause:
The purchaser agrees that full inspection of said real estate has been made and that neither the seller nor his assigns shall be held to any covenant respecting the condition of any improvements thereon nor shall the purchaser or seller or the assigns of either be held to any covenant or agreement for alterations, improvements or repairs unless the covenant or agreement relied on is contained herein or is in writing and attached to and made a part of the contract.
Clerk's Papers, at 9. The contract further stated:
The purchaser assumes all hazards of damage to or destruction of any improvements now on said real estate
Clerk's Papers, at 10.
The sale occurred in December 1976; by 1980 some problems with outside stairways developed. By 1983, after this suit was commenced, it was learned that the foundations were inadequate and improperly designed. Apparently the problem is that the foundations were not adequately designed to accommodate the soil conditions. The seller-builders had built to the specifications of the City of Hoquiam. In fact, the City rejected the seller-builders' first foundation plans. The seller-builders then built to the exact specifications of the City, even though, it turns out, those specifications did not meet the City's own building code.
The seller-builders do not challenge the trial court's findings that there were serious defects in the foundations and that improper construction has resulted in a situation where extensive repairs are necessary (at a cost of $330,000 according to the trial court) to prevent a foundation failure within 8 to 9 years. (The normal life expectancy of such buildings is 50 to 60 years.)
Two questions result. First, does a builder of an apartment complex, built not for resale, but for the seller's own inventory, guarantee to an unsolicited buyer that the buildings are so constructed that they are free from design errors? Put another way, does a builder who complies with the standards of the governing municipal entity, in a commercial setting, promise the buyer of those units that all of the risk of faulty construction is upon the builder? Certainly there was no such contractual undertaking. Indeed, the contract says otherwise. Only if this court substitutes its judgment for that of the parties can the buyer prevail.
The second question is the significance of the contractual disclaimer, an issue not addressed by the trial court.
The first question — i.e., the imposition of an implied warranty — is simply a matter of public policy to be determined by this court. Certainly it was not within the contemplation of the parties.
As a matter of policy, determined by this court, it seems apparent that a builder who puts a house on the market, brand new and never occupied, has some responsibility to the ultimate buyer. The builder built the thing. It was intended to be sold to a buyer for occupancy by the buyer — not as an assemblage of concrete and pieces of wood, but as a residence. It is no different from the manufacturer of an automobile. The auto should run down the road without wheels falling off and new houses should provide habitation without foundations falling apart. This court and other courts have recognized this principle. See, e.g., House v. Thornton, 76 Wn.2d 428, 457 P.2d 199 (1969); Yepsen v. Burgess, 269 Or. 635, 525 P.2d 1019 (1974); Tavares v. Horstman, 542 P.2d 1275 (Wyo. 1975); Petersen v. Hubschman Constr. Co., 76 Ill. 2d 31, 389 N.E.2d 1154 (1979); Dixon v. Mountain City Constr. Co., 632 S.W.2d 538 (Tenn. 1982). See generally Annot., Liability of Builder-Vendor or Other Vendor of New Dwelling for Loss, Injury, or Damage Occasioned by Defective Condition Thereof, 25 A.L.R.3d 383 (1969) and cases cited therein.
Thus, in House v. Thornton, supra, we held that the sale of a new house by a vendor-builder to the first intended occupant carries with it an implied warranty "that the foundations supporting it are firm and secure and that the house is structurally safe for the buyer's intended purpose of living in it." 76 Wn.2d at 436. There, the vendor-builders, a real estate broker and a building contractor, constructed a residence for purposes of sale. The buyers, a husband and wife, purchased the "brand new house" with the intention of making it their family home. In time, however, the house proved to have structural defects which rendered it unfit for further occupancy. In imposing an implied warranty of habitability or fitness upon the vendor-builders, this court, in effect, "did no more than apply a rule of common sense to the kind of transaction that recurs perhaps more than a million times annually in the country — the purchase of a brand new house." Berg v. Stromme, 79 Wn.2d 184, 196, 484 P.2d 380 (1971), discussing House v. Thornton, supra (same rationale used for adoption of implied warranty in sale of brand new automobiles).
The reach of this implied warranty was clarified but not extended in Klos v. Gockel, 87 Wn.2d 567, 554 P.2d 1349 . (1976), which involved the warranty liability of an occasional builder of houses who built the house at issue primarily for her own personal use rather than for purposes of resale and sold it to the plaintiff-buyers after living in it for a year. In finding no liability under the rule of House v. Thornton, supra, we made it clear that an implied warranty of habitability or fitness does not apply to every sale of a new house. The sale must be "commercial rather than casual or personal in nature." Klos v. Gockel, supra at 570. In other words, the warranty only applies where the new dwelling is built for purposes of sale by a builder-vendor in the business of building such dwellings. Klos v. Gockel, supra. See, e.g., Kirk v. Ridgway, 373 N.W.2d 491 (Iowa 1985); Dixon v. Mountain City Constr. Co., supra at 540; Bolkum v. Staab, 133 Vt. 467, 346 A.2d 210 (1975).
It is clear that the facts of this case do not come within the implied warranty doctrine as fashioned by this court in House v. Thornton, supra and Klos v. Gockel, supra. Unlike the sale of a house — brand new and never occupied — to its first intended occupant, the sale here involved the purchase of a 40-unit apartment complex, of which 28 units were completed at the time of sale and occupied by tenants for as long as 18 months. The defendants did not build apartment complexes for resale but for their own ownership and management purposes. The apartment complex at issue here was no different. It was not built for purposes of sale nor had it been listed or placed on the market when the buyers approached the defendants.
Moreover, we are not persuaded that the implied warranty of habitability should be extended, as a matter of public policy, to the sale of property under the facts and circumstances of this case. The implied warranty of habitability or fitness is based upon judicial recognition that the rule of caveat emptor — premised as it is on an arm's length transaction between buyers and sellers of comparable skill and experience — has little relevance when applied to the sale of new homes in today's market. See, e.g., House v. Thornton, supra at 435-36; Tavares v. Horstman, supra at 1282; Yepsen v. Burgess, supra at 639-40. The necessity of imposing an implied warranty upon builder-vendors of new houses, as a matter of public policy, to protect the ordinary purchasers of such homes, was well stated by the Illinois Supreme Court in Petersen v. Hubschman Constr. Co., supra.
Many new houses are, in a sense, now mass produced. The vendee buys in many instances from a model home or from predrawn plans. The nature of the construction methods is such that a vendee has little or no opportunity to inspect. The vendee is making a major investment, in many instances the largest single investment of his life. He is usually not knowledgeable in construction practices and, to a substantial degree, must rely upon the integrity and the skill of the builder-vendor, who is in the business of building and selling houses. The vendee has a right to expect to receive that for which he has bargained and that which the builder-vendor has agreed to construct and convey to him, that is, a house that is reasonably fit for use as a residence.
Petersen, at 40.
Unlike the inherently unequal bargaining position between the average home buyer and the vendor-builder of new houses, the factual scenario here is far different. The sale in this case is essentially an arm's length transaction between an unsolicited buyer who sought to invest in an ongoing if still uncompleted commercial enterprise and a builder-vendor who built an apartment complex for its own use and management and not for purposes of sale. It may be that the plaintiffs were relatively inexperienced as investors in commercial property. However, the plaintiffs, through their agent, sought out the property; it was not on the market. They had their own lawyer. They could and should have protected themselves in the contract negotiations. They had an opportunity to inspect and investigate. If plaintiffs were unsure of their investment, they were in a position to seek expert help, particularly with the plans and specifications identified in the contract and readily available for inspection which would have revealed the potential problems. They chose not to do so.
There is in this case no claim of fraud or misrepresentation. The seller-builders built to the exact specifications of the City. The construction was defective because of a combination of soil conditions and construction quality.
When competent persons deal at arm's length, with no claim of fraud, no claim of misrepresentation, no claim of an adhesion contract, with an opportunity to inspect and investigate, when the contract contains a specific disclaimer, when all of the facts are present, we see no policy reasons for this court to impose upon the sellers a guaranty which neither party negotiated nor expected.
There is no question but that the buyers will suffer a severe financial loss from the ownership of these apartments. We find no principle of law why that loss should be laid upon the sellers.
We now turn to the second point, the validity of the disclaimer clause in the contract. What could be more clear to a buyer than the following contract language:
The purchaser agrees that full inspection of said real estate has been made and that neither the seller nor his assigns shall be held to any covenant respecting the condition of any improvements thereon nor shall the . . . seller . be held to any covenant or agreement . . . relied on is contained herein or is in writing and attached to and made a part of this contract.
(Italics ours.) Clerk's Papers, at 9.
We emphasize again that the buyers, through their agent, sought out this property. They had ample opportunity to inspect. They had their own lawyer. The extent to which they inspected and used their lawyer was their choice. The contractual language is clear. This court not only should not, but it cannot, rewrite the clear agreement of the parties.
The buyers argue first that such a disclaimer must be clear and unambiguous. We find it to be so. Next, buyers contend that such disclaimer must be explicitly negotiated and that the sellers failed to prove that the disclaimer was so negotiated.
Buyers rely mainly upon Berg v. Stromme, 79 Wn.2d 184, 484 P.2d 380 (1971). There we held that the communicated particular needs of the buyer of an automobile would not be overcome by a boiler-plate exclusion of all warranties, express or implied. That case is quite different from this where the buyers sought no promises, the sellers made none, and the buyers with their lawyer, faced a clause which said the sellers not only made no covenant about the condition of the buildings, but expressly disclaimed any such covenant.
We do not hold that an implied warranty of habitability can never attach to the sale of an apartment complex. Rather we hold that such warranty does not exist under the facts of this case.
We reverse.
Dolliver, C.J., and Utter, Andersen, Goodloe, and Durham, JJ., concur.