Posts Tagged ‘Superior Court of Pennsylvania’

Pennsylvania Appellate Court Holds Builder’s Implied Warranty of Habitability Extends to Subsequent Purchasers

by HDlawblog Posted: Friday, 1/11/2013

The Superior Court of Pennsylvania recently held, in the matter of Conway v. Cutler Group, Inc., that a builder’s implied warranty of habitability extends beyond the initial purchaser to subsequent purchasers of a home.

In the Conway case, the second homeowners of a house built in 2003 discovered water infiltration around windows in their master bedroom approximately two years after they purchased the home.  The second homeowners smartly retained an engineering and architecture firm to assess the water infiltration problems.  Someone from the firm inspected the second homeowner’s home and prepared a report stating that the home suffered from several defects that required correction.

Thereafter the second homeowners filed a one count complaint against the builder of their home asserting a claim for breach of the implied warranty of habitability.  [Note:  Keep in mind that the second homeowners could not sue the builder for breach of contract because, as second purchasers, they never had a contract with the builder.]

At the trial level, the builder successfully argued for the dismissal of the complaint on the basis that the implied warranty of habitability only extends from the builder to the initial purchaser.  The second homeowners appealed to the Superior Court of Pennsylvania.  The Superior Court of Pennsylvania found that the question of whether a builder’s implied warranty of habitability extends to subsequent purchasers of a home was an issue of first impression, meaning it was an issue that had not been heard by the court before.

In holding that a builder’s implied warranty of habitability applies to subsequent purchasers of a home, the court reasoned that the purpose of the implied warranty of habitability is to equalize the disparate positions of the builder and the average home purchaser by safeguarding the reasonable expectations of the purchaser.  According to the court, it would be nonsensical not to extend the implied warranty of habitability to subsequent purchasers because subsequent purchasers are in no better of a position than initial purchasers to discover latent defects with a home and to hold otherwise would create absurd results.  For example, the court stated that to rule otherwise would create a result where an original homeowner could recover under the theory of breach of the implied warranty of habitability where the initial homeowner discovered defects with the home five years after it was built, but a second purchaser could not recover if it discovered the same defects, in the same home, five years after it was built.

While this opinion may certainly alarm homebuilders, the court did point out that the implied warranty of habitability only covers defects which would not be apparent to the ordinary purchaser as a result of a reasonable inspection.  Therefore, in the Conway case, if the second homeowners should have been able to discover the water infiltration issues as a result of a reasonable inspection, the builder could have argued that the implied warranty of habitability should not have applied.  Moreover, while it may be cold comfort to builders, all homeowners, regardless of whether they are a first or subsequent purchaser, must bring a claim for breach of the implied warranty of habitability within the 12-year period of the statute of repose.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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Posted in Construction, Implied Warranty of Habitability, Residential Construction | No Comments »

Court Holds General Contractor’s Mechanics’ Lien Has Priority over Mortgagee’s Lien

by HDlawblog Posted: Thursday, 12/20/2012

In 2012 the Superior Court of Pennsylvania, in the matter of Commerce Bank/Harrisburg, N.A. v. Kessler et al., ruled in favor of a general contractor by finding that the general contractor’s mechanics’ lien had priority over the mortgagee’s lien.  For those outside the construction industry this might not be titillating news, but for members of the industry (and their lawyers) who rely on mechanics’ liens to ensure payment, the holding is welcome news.

The story starts in October 2006 when the general contractor contracted with a couple to build them a luxury home in Harrisburg.  Shortly thereafter, the GC started excavating.  A few months later, in January 2007, the couple got a construction loan from what is now Metro Bank for up to $435,000, which loan was secured by an open-ended mortgage that was recorded that same month.

The home was substantially complete in August 2007.  Unfortunately, the couple was unable to make their mortgage payments and Metro Bank filed a mortgage foreclosure action against the couple and obtained a default judgment against them for $403,994.84 in July 2008.  The couple also failed to make their payments to the general contractor and the general contractor obtained a default judgment against the couple in the amount of $411,304.14 in February 2009.

Thereafter, Metro Bank and the general contractor became entangled in a legal battle over which judgment took priority, in other words, there was a dispute over which party was first in line to collect the proceeds from the sale of the home.  The trial court entered an order holding that the judgment entered in favor of the general contractor took priority over the judgment entered in favor of Metro Bank.  Metro Bank appealed.

Under the 2007 amendments to Pennsylvania’s Mechanics’ Lien Law, Section 1508(c) awards priority to a mortgage over a mechanics’ lien where the mortgage constitutes:

(2) An open-end mortgage as defined in 42 Pa.C.S. 8143(f) (relating to open-end mortgages), the proceeds of which are used to pay all or part of the cost of completing erection, construction, alteration or repair of the mortgaged premises secured by the open-end mortgage.

49 Pa.C.S.A. 1508(c)(2) (emphasis added).  Metro Bank took the position that this section of the Mechanics’ Lien Law gave its mortgage priority over the general contractor’s mechanics’ lien, but the general contractor argued that the open-end mortgage upon which Metro Bank based its lien did not satisfy the requirements of Section 1508.

Indeed, it was undisputed that a portion of the proceeds of the open-end mortgage in this matter paid for expenses other than “completing erection, construction, alteration or repair of the mortgaged premises.”  Rather, some of the proceeds were used to pay costs such as tax claims, closing costs, satisfaction of an existing mortgage on the property, and payment of other judgments and liens.  The general contractor argued that to allow use of funds for reasons other than those expressly set forth in Section 1508(c)(2) would, for example, permit a lender and owner to defeat a contractor’s lien rights by using as little as $1.00 out of $1,000,000.00 for the enumerated purposes set forth in Section 1508(c)(2) and therefore Metro Bank could not rely on Section 1508(c)(2) to subordinate the general contractors mechanics’ lien on the property.

The Superior Court of Pennsylvania agreed with the general contractor finding that Section 1508(c)(2) only extends priority to mortgage loans where the proceeds were used to pay the expenses set forth in Section 1508(c)(2).  The court interpreted the use of the term “the proceeds” to mean all of the proceeds and agreed with the general contractor that any other interpretation of the statute would permit lenders and owners to improperly manipulate the system to defeat lien rights

In ruling in favor of the general contractor, the court also disagreed with Metro Bank’s contention that the mechanics’ lien was invalid on the basis that it allegedly failed to contain the statutorily mandated statement of the kind and nature of materials furnished.  Although the general contractor’s lien claim described the kind and character of the work as “all labor and materials required for the construction of a two story residential dwelling” and referred to the construction contract, Metro Bank argued that because the lien claim failed to attach the drawings and specifications referenced in the contract, the statement of the kind and character of the labor and materials furnished was too vague.  As such, Metro Bank asserted that the mechanics’ lien was invalid.

The general contractor argued that his lien was not invalid because he substantially complied with the requirements of the Mechanics’ Lien Law.  Again, the court agreed with the general contractor noting that multiple Pennsylvania cases interpreting the “contents of the claim” section of the Mechanics’ Lien Law have long held that “in considering a mechanics’ lien claim, it must be kept in mind that substantial compliance with the Act is sufficient” and that the express terms of Section 1503((5) only required a general statement of the kind and character of the labor and materials furnished.  Accordingly the court held that the lien claim sufficiency described the nature of materials furnished.

Lesson Learned:  If all the proceeds of a mortgage were not applied to the cost of completing erection, construction, alteration or repair of the mortgaged premises, a contractor’s mechanics’ lien claim should take priority over the lien of a mortgagee.  Of course, these things can vary depending on the circumstances of an individual case and it is highly recommended that a general contractor consult with a lawyer to ensure that its lien rights are protected to the maximum extent possible.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

 

 

 

 

 

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Superior Court of Pennsylvania Holds Homebuilder Personally Liable

by HDlawblog Posted: Wednesday, 4/18/2012

The Superior Court of Pennsylvania recently upheld a York County jury verdict that found a homebuilder personally liable for defective construction work.  In Bennett et al. v. A.T. Masterpiece Homes at BroadSprings, LLC et al., two sets of homeowners who purchased new residential homes from A.T. Masterpiece Homes at Broadsprings, LLC (“A.T. Masterpiece”), sued the limited liability company and its managing member, Grant Colledge, in his individual capacity, for breach of contract, breach of warranty, and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) alleging that the defendants engaged in deceptive and dishonest practices during the construction process.

The homeowners alleged that during the construction of their homes they noticed numerous building deficiencies and that Colledge, who was the homeowners’ primary contact during the construction process, made certain assurances to them in the form of statements akin to: “I guarantee it” or “I will take care of it.”  For example, when one of the homeowners noticed that the dormer above his garage did not correspond to building plans and structural design, Colledge assured the homeowner that the dormer had been redesigned and the final product would work fine.  In another instance, a homeowner visited her home to check on its progress and noticed a crack in the foundation.  When the homeowner reported the crack to Colledge, he stated that he “will take care of it and will take care of you.”  Colledge made other guarantees regarding issues with the flooring and repeated his intention to take care of both the specific problem and the homeowner’s general concerns.

After construction finished, the homeowners discovered that their new homes were in various states of disrepair and structural failure.  The dormer that had been an issue on one of the homes was in such bad structural shape that the homeowner had to install temporary bracing to avoid collapse.  There were other alleged deficiencies including nails protruding from sections of drywall, cracked tiles, and floors being so poorly laid that a person could feel the joints move while walking.

The homeowners retained an engineering expert who found similar construction defects and housing code violations in each home.  The deficiencies included:  using poor grade lumber, improperly installing the floor joists, and housing code violations related to the insulation, height clearances, ventilation, plumbing, and electrical systems.

At trial, the jury found Colledge and his company liable for breach of contract, breach of warranty, and violations of the UTPCPL.  The jury further concluded that Colledge’s representations and guarantees regarding the homes exposed him to personal liability and awarded the homeowners double the damages under their UTPCL claims.

Colledge appealed his case to the Superior Court of Pennsylvania arguing that the trial court erred: (1) by permitting the jury to hold him personally liable to the homeowners when he did not specifically agree to assume liability; (2) by holding him personally liable when there was no evidence of fraudulent conduct by him; and (3) by doubling the jury’s award under the UTPCPL when the Court itself did not view Colledge as an absolute crook.

Colledge argued that he should be shielded from personal liability because he was at all times acting only as an agent on behalf of a limited liability company.  Colledge claimed that any statements attributed to him (where he said “I will take care of it” or “I guarantee it”) were simply figures of speech and did not amount to express assumptions of personal liability.  The Superior Court disagreed and found that there was ample evidence presented at trial to lead the jury to find that Colledge had assumed personal liability.

The Court noted that the several occasions where Colledge had reassured the homeowners that he would take care of their concerns and made express promises guaranteeing the quality of their homes did not take place in a vacuum but in the context of recurring building deficiencies which arose during construction of the homes.  The court stated that although the homeowners officially contracted with A.T. Masterpiece, Colledge voluntarily assumed personal liability on the building contract when he guaranteed the final quality of the home because the statements were intended to calm the homeowners about the building deficiencies and to maintain their contracts.

Moreover, the Superior Court found that there was sufficient evidence to support the jury’s finding of liability under the UTPCPL because the jury was not required to find proof of common law fraud to find that Colledge had engaged in misleading conduct under the UTPCPL.  Again, the facts presented at trial showed that Colledge made numerous specific representations to the homeowners regarding the construction and ultimate quality of their homes.  Despite such guarantees, Colledge failed to deliver the quality he promised to the homeowners and the homeowners received brand new homes in need of many thousands of dollars in repairs.  The jury heard this evidence and concluded Colledge’s conduct was deceptive or misleading.  Thus, the court found that the evidence at trial was sufficient to support the jury’s finding.

This case is concerning not only for contractors, but for any business owners who make statements such as “I guarantee it.”  In light of this decision, Pennsylvania small business owners should be particularly careful about the assures that they give to clients or else they may find themselves personally liable.

This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice.  Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.

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Posted in Construction, Residential Construction | No Comments »