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Breach of contract limited warranty was the only legal theory homeowner could pursue against builder. The negligence count was dismissed by the court as being duplicative of the breach of contract count and based on the exact same facts as what constituted the breach of contract claim. The risk allocation clauses of the contract including a limitation of liability and waiver of consequential clause were enforceable under the contract and could not be gotten around by filing a negligence claim seeking punitive damages where there was no independent duty owed to the homeowner outside of the contractual obligations. Millet v. Kamen, 2018 NY Slip Op. 28181 (N.Y. Sup. Ct. 2018).

The action arose out of the construction and sale to the plaintiffs of a new single family house. The developer/builder was a licensed architect. The parties had a contract of sale that included a limited warranty that replaced all other warranties that might otherwise arise. After the plaintiffs took possession of the house, and during the applicable warranty periods, they discovered latent defects that resulted from defective installation of plumbing, HVAC and electrical systems.

The plaintiffs filed suit initially for breach of contract and unjust enrichment. Subsequently, they amended the complaint to assert a negligence claim against the defendants and also a “malpractice” claim against the architect individually, and this included a demand for punitive damages. Defendants filed a motion for summary judgment on the basis that the claims for negligence and malpractice duplicated the breach of contract claim.

The negligence claim alleged that the defendants owed a duty to build, construct, alter, repair, maintain or oversee the building and construction in a safe and reasonable manner and to a standard of good and reasonable workmanship and craftsmanship. The complaint alleged twenty-two specifically enumerated defects.

The court found that the allegations in the “malpractice” claim were virtually identical to the negligence claim, including the dollar amount of the damages claimed. The malpractice claim also included a demand for $3.5 million in punitive damages based on what the plaintiffs’ claimed was negligence to the level of “exceptional/or outrageous conduct.”

Defendants moved to dismiss the negligence and malpractice claims on the grounds that they merely restate and replicate the breach of contract claim and are based on the identical set of facts. With regard to the punitive damages, the defendants argued that dismissal was warranted because punitive damages are not available for a mere breach of contract as it only involves a private wrong and not a public right. The express terms of the “Limited Warranty” provision of the contract excluded “special” damages.

In its analysis of the case, the court quoted case precedent for the proposition that “It is a well-settled principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated,” and “Merely alleging that the breach of a contract duty arose from a lack of due care will not transform a simple breach of contract into a tort.”

How is it decided if there is a duty independent of the contractual duty?

The court stated that in determining whether a legal duty independent of a contractual obligation should be imposed, courts look to the nature of the services performed and the parties’ relationship as well as the nature of the injury. Quoting case precedent, the court stated that, “Where plaintiff is essentially seeking enforcement of the bargain, the action should proceed under a contract theory.”

In this case the court found that nothing in the contract or complaint suggested that the architect was retained to provide architectural services or design a home “specifically for the Plaintiffs herein.” Rather, the court found that although the architect was involved in the design and construction, the nature of the parties’ relations was in contract.

The court stated, “The parties contemplated that [Architect’s] responsibility for defects and damages resulting from defective workmanship, materials, or design by [Architect] … and addressed it in the contract terms. The unambiguous terms detailed in the Limited Warranty were bargained for by the parties and determine the rights and obligations of the parties” including agreement to “limit [Architect’s] total liability to $500,000; and exclude all consequential, special, and indirect damages. The court sees no reason to disturb the parties’ clear and unequivocal agreement.”

In its concluding remarks the court found that “the damages alleged fall squarely within the contemplation of the parties under the contract” and “Since the plaintiffs ostensibly seek economic damages recoverable under a breach of contract theory, the Plaintiffs’ negligence claims must be dismissed as duplicative of their breach of contract claim.”

Comment: This is a good decision for explaining the importance of respecting and honoring the contract terms for which the parties bargained (including any risk allocation clauses) and not permitting a plaintiff to get out from under the contractual bargain by asserting a separate claims for negligence or malpractice.   This decision does not discuss the economic loss doctrine but the principles discussed here support the reasoning for enforcing the economic loss doctrine to prevent negligence complaints when the parties are in a contractual relationship with each other.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 20, No. 9 (Oct 2018).

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