On this date in 1984, the Supreme Court decided Arohnson v. Mandara, 98 N.J. 92 (1984). A unanimous opinion written by Justice Schreiber, the opinion was one of a series that cut back on privity of contract as a defense.
Plaintiffs purchased a home, a re-sale, in 1975. The sellers had entered into a contract with defendants for the construction of a patio at the home. The patio was alleged to have been constructed in 1974.
By 1978, plaintiffs “noticed that the patio was beginning to separate from the wall of the house; that some of the slate slabs that formed the patio floor were beginning to rise; and that the outside patio wall was beginning to buckle.” Plaintiffs sued defendants on theories of strict liability, negligence, and breaches of express and implied warranties.
The case went to trial, but the trial court dismissed plaintiffs’ claims. “It found that plaintiff's claim on express warranty was flawed because defendants' contract to construct the patio had been with Edward and Theresa Kawash and not the plaintiffs. It ruled that the negligence claim was also defective, reasoning that it was really a suit on the contract as well, since plaintiffs were seeking economic loss, rather than personal injury or property damage. The trial court also held that no implied warranty of habitability or strict liability applied because the philosophy of the law with respect to mass producers of goods or homes was inapplicable to a situation like this one, which involved a service contract.”
Plaintiffs appealed, but the Appellate Division affirmed. The Supreme Court granted review and reversed in part, remanding for a new trial on plaintiffs’’ implied contract claim only.
The Court recognized that plaintiffs were relying on the contract between their sellers and defendants. Under the law, that contract contained an implied provision that the patio would be constructed in a workmanlike manner, so that if the sellers had not sold to plaintiffs, the sellers could have sued defendants for the problems with the patio. Thus, “[t]he question in this case [was] whether the contractor should be immunized from his contractual obligation to have performed his work in a workmanlike, non-negligent manner simply because the original owner or buyer transferred the property to a successor.” The Court said there should be no such immunity in this case.
“Ordinarily, rights for breach of contract are assignable.” The contract between the sellers and defendants did not restrict assignability. In that circumstance, “such rights may be assigned in the absence of any public policy reason to the contrary,” and the Court saw none here.
“Moreover, one can infer from the circumstances that the [sellers] did in fact assign those rights to plaintiffs. Once they sold their house to plaintiffs, the [sellers] no longer had any interest in retaining for themselves the right to have had their patio built in a non-negligent manner. Rather, it is reasonable to infer that they transferred any such claim to plaintiffs. The transfer or conveyance of their property is indicative of their intent to assign to the buyers their right of action to enforce promises made with respect to that property. [Citation]. Defendants' contention that the provision in the purchase agreement that ‘[t]his contract contains the entire agreement of the parties’ impliedly negates any assignment of the contract between defendants and the [sellers] misses the point. The implied covenants and terms of a contract are as effective components of the agreement as those expressed.”
The Court offered an additional rationale as well. “Defendants' implied promise to construct the patio in a workmanlike manner may also be analogized to a real property covenant that runs with the land. What happens when a vendor has had a new roof installed, accompanied by a ten-year warranty, and the vendor sells the home within one year after the installation? Should not covenants of this type, which benefit the property, continue to run with the land? Although the technical elements of covenants that run with the land may not be satisfied, the policy reasons for not requiring contractual privity are fully applicable to promises by contractors properly to perform their work on residential homes. The benefits of such covenants touch and concern the property and should flow with the ownership despite the absence of privity between the contractor and the present owner.” The Court cited its own prior cases and a ruling of the Supreme Court of Mississippi in support of that result.
The Court therefore reversed and remanded for a new trial as to the implied contract claim. But the Court upheld the dismissal of plaintiffs’ other claims. “Plaintiffs did not establish that defendants had violated any express provisions” of their agreement with the sellers. And plaintiffs’ implied warranty of habitability claim failed because a patio does not relate to “essential habitability.” The Court hinted that the circumstances might have sustained a negligence claim, but there was no need to address that issue “since, as discussed above, the contractor's negligence would constitute a breach of the contractor's implied promise to construct the patio in a workmanlike manner.”
