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Warranties on real property must be honored

NC Supreme Court reverses lower court on contractual warranty versus state law

gavelA stucco manufacturer that advertised a 20-year warranty may have to make good on that offer, despite a North Carolina law that generally requires any lawsuits over real property improvements to be brought within six years of the construction’s completion.

The state Supreme Court on Dec. 19 unanimously reversed part of a state Court of Appeals decision that tossed out a homeowners’ construction lawsuit.

In 2004, George and Deborah Christie hired Hartley Construction to build a custom home for them in Chapel Hill. They purchased a waterproof exterior from GrailCoat WorldWide that they say the company had expressly warranted for 20 years.

The Christies say that GrailCoat’s faulty design caused water to leak into their home and rot the walls, compromising the house’s structural integrity and causing about $120,000 in damage, according to their attorney, Scott Harris of Whitfield Bryson & Mason in Raleigh.

 

Suit dismissed

The Christies sued GrailCoat and Hartley in 2011, but the trial court granted the companies’ motion to dismiss the suit, based on the state’s statute of repose.

That law bars any suit to recover damages for defective or unsafe improvement to real property brought more than six years after the substantial completion of the improvement, unless the defendant is guilty of fraud, or willful or wanton negligence.

A divided Court of Appeals affirmed that dismissal in July 2013.

The Supreme Court, however, reversed part of that ruling and said the Christies’ suit against GrailCoat could go forward because even though they brought their suit outside the six-year limit, they could still sue GrailCoat under a theory of breach of an express warranty.

Justice Robert Edmunds, writing for the court, said that the case presented the court with a conflict between the public policy embodied in the statute of repose — to provide a bulwark against the possibility of open-ended exposure to lawsuits — and the right of parties to contract freely. When facing such conflicts in the past, Edmunds said, the court has generally given contracting parties the freedom to bind themselves as they see fit, so long as the contract doesn’t violate some rule of public policy.

The court concluded that the six-year statute of repose provides valuable protection to companies that make improvements to real property, but that the beneficiaries of that statute may choose to forego that protection without violating any rule of public policy.

“We see no public policy reason why the beneficiary of a statute of repose cannot bargain away, or even waive, that benefit,” Edmunds wrote. “A supplier of improvements to real property who is willing in good faith to provide a warranty that extends beyond six years should not be forced to offer a more limited warranty. The continuing popularity of extended warranties … indicates both that buyers are mindful of the duration of warranty coverage and that sellers are aware that extended warranties provide value.”

 

Warranty would be ‘sham’

The court held that if GrailCoat had advertised its product as being “fully warranted” for 20 years, it could not then turn around and claim that the warranty covered only the first six years. It found that the Christies were influenced by the promise of the extended warranty in agreeing to purchase the product, and GrailCoat knowingly and freely entered into a contract of sale with them in which the company bargained away the protections of the statute of repose.

“A warranty that a seller knows is unenforceable is a sham, useful only to beguile the unsuspecting,” Edmunds wrote.

The Supreme Court affirmed the lower court decisions dismissing the Christies’ case against Hartley Construction, the general contractor, and also the other claims brought against GrailCoat other than the one for breach of an express warranty.

Harris and Daniel Bryson, also of Whitfield Bryson & Mason, represented the Christies.

“This is a wonderful result for consumers and homeowners throughout North Carolina,” Harris said. “It should ensure that manufacturers must comply with their express representations regarding products that they sell.”

William Pollock and Angela Allen of Ragsdale Liggett in Raleigh represented Hartley, and Drew Chapin of Conner Gwyn Schenck in Greensboro represented GrailCoat.

Chapin said he thought the decision will be an important one for construction companies and their attorneys because it clarifies a point of law that “was in a bit of a state of flux and confusion” previously.

He also noted that there has not yet been any finding in the case of whether GrailCoat had actually offered the 20-year warranty that the Christies claim. The case, he said, now goes back to the trial court to decide what warranty exists, if any, and what the remedy would be if damages are proven.

Pollock said that the decision would likely have little impact on general contractors like his client, who generally don’t offer warranties longer than six years anyway. He said the bigger significance of the decision is that it could affect whether manufacturers will continue to sell these types of products with the offer of an extended warranty.

“They’re going to need to go back and look at their warranties and see if they’re comfortable with what’s being offered,” Pollock said

DAVID DONOVAN can be reached at (704) 817-1355 or at david.donovan@nclawyersweekly.com. Follow Donovan on Twitter @NCLWDonovan

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