In Rich v. Orlando the Appellate Division of the Supreme Court of New York, fourth department reversed a lower court order and dismissed two of the defendant’s counterclaims for negligence and fraud arising out of a custom home building contract. This case presents an interesting look at some common issues present in home building contracts under New York state law. As with many of the Appellate Division’s recent decisions, this case helps elucidate a body of judicial rulings and past precedent to clarify and provide guidance as to the overlap of contract liability, premised upon breach of contract, and tort liability, premised upon negligence or other theories such as (as in this case) fraud. Once again the clear message is that simple breach of contract is not tortious conduct.
Background of the Case
In 2003, plaintiff Rich, a home builder, agreed to build a home for the defendant, the Orlando family. The two parties entered into a contract for the construction of a custom home. There were apparently some defects, which plaintiff continued to work on and fix even after the defendants moved into the house in 2004. However, the defendants refused to make the final payment due under the contract to the plaintiff, and the plaintiff filed a lawsuit to recover this amount. When learning of the lawsuit, the defendants filed counterclaims for breach of warranty, negligence, and fraud. The plaintiff urged the lower court to dismiss these three counterclaims, and when they denied the motion, this current appeal to the Appellate Division ensued.
In New York, General Business Law § 777-a is implied in every contract for the sale of a new home (e.g. one that has just been constructed and is being sold for the first time) as a matter of public policy. This implication illustrates the importance of being familiar with the body of New York law applicable to one’s trade or business – because a law might apply and operate to affect the contract even if never explicitly stated in the contract! Here § 777-a is concerned with the requirement that the purchaser provide written notice of any defects in the home to the seller. Here the plaintiff claims that the defendant did not provide written notice of the defects, which was a bargained-for element of the contract, and because this written notice was not provided, the counterclaim for breach of warranty cannot stand because written notice was an express, non-waivable condition precedent. The court disagrees, using slightly non-intuitive reasoning. Because § 777-a would require written notice regardless of its inclusion in the contract, the written notice requirement was not bargained for. Because the plaintiff actually made the repairs due to oral requests from the defendants, the plaintiff waived his right to written notice regarding these claims. This reasoning illustrates an important point: a court will look to the parties’ actual conduct in their course of dealing, and contract law will often operate to yield unexpected results – one more reason to hire experienced counsel and communicate expeditiously with them during the course of contract dealings in which anything at all seems unusual or amiss.
The court then summarily dismisses defendant’s counterclaims for negligence and fraud, stating the principle that an ordinary breach of contract is not a tort unless a legal duty outside of the contract exists. Here, as in most cases where the parties are not related and dealing at arms-length, there is no such independent duty. With these three counterclaims addressed, the case can now move forward to the weighing of evidence – presumably unless the defendant were to win on the breach of warranty counterclaim, the plaintiff will eventually recover the sum owed under the contract.
This case illustrates why it is imperative to be sure the law will operate in the manner you believe it will in situations that amount to, or may be used as evidence in future, breach of contract cases. Please do not hesitate to contact our office for a consultation.