Update: The merit decision in this case was handed down March 14, 2012. Read the analysis of the decision here.
On October 4, 2011, the Supreme Court of Ohio will hear arguments in Paul Jones et al. v. Centex Homes #10-1826. The main issues in this case are whether Ohio recognizes a waiver of the implied duty to build a house in workmanlike fashion, and whether, if allowed, that waiver must be clear and conspicuous. While Plaintiffs say these are issues of first impression, Centex argues that Plainitffs are just trying to avoid the application of well-settled contract law.
Plaintiffs purchased new homes built by Centex Homes. These houses featured steel joists that became magnetized during construction. Plaintiffs claim that the magnetization has disrupted the operation of their electronic equipment, decreased property values, and created potential health hazards.
The contract that Plaintiffs signed contained clauses that waived all warranties except those provided in a Limited Warranty Booklet that was held by Centex. Plaintiffs argue that they never saw the booklet until after they signed the contract even though the contract stated that the buyer could see the booklet by request.
Plaintiffs brought claims of breach of contract, breach of express warranty, breach of implied warranty of workmanship, negligence, and failure to perform in a workmanlike manner. The trial court granted Centex’s motion for summary judgment, holding that the plaintiffs had waived all claims for property damage except what was covered under the Limited Home Warranty, and that the limited warranty did not cover magnetized joists.
The Tenth District Court of Appeals affirmed the decision of the trial court, holding that a waiver of the implied duty to construct a house in workmanlike fashion was permissible so long as it was conspicuous, unambiguous, and fully disclosed. The appeals court agreed with the trial court that the waiver, a document incorporated by reference into the contract, was an effective waiver of the implied duty to perform in a workmanlike manner, and was both clear and unambiguous. The court of appeals held that the waiver did not offend Ohio public policy and was not unconscionable. Finally, the appeals court declined to apply the failure-of-the-essential-purpose doctrine to the sale of a home.
In their brief to the Ohio Supreme Court, Plaintiffs first argue that any waiver of the duty to perform construction in a workmanlike manner is against public policy. Plaintiffs point to Ohio Supreme Court cases that have found the duty to perform in a workmanlike manner as being implied in law, and that nothing in these cases suggests that this implied duty can be waived. Plaintiffs discuss the harm of allowing a waiver of this duty. If the duty is waived, buyers would be placed in an unfortunate bargaining position in relation to sellers, and sellers could construct poor homes without fear of recourse. This places home buyers in a worse position than they were under the doctrine of caveat emptor.
Plaintiffs also claim that if the duty to perform construction in a workmanlike manner can be waived, it must be done in a clear, conspicuous manner, made obvious to the buyer. That was not effectuated in this case. The paragraphs laying out the waiver in the contract were inconspicuous and not specific enough. Plaintiffs also say that they were not allowed to bargain or negotiate the terms of the contract, so the waiver was not voluntary.
Plaintiffs’ third argument is they did not see the Limited Warranty Booklet before signing the contract, so they cannot be held to have voluntary relinquished their rights. It is the seller’s responsibility to establish that the buyer had seen and understood the waiver before signing the contract.
Finally, Plaintiffs argue that the Court must adopt the doctrine of failure of essential purpose if the Limited Warranty provided by Centex is allowed. If they are unable to claim that Centex breached its duty to perform in a workmanlike manner, Plaintiffs have no protection in one of the most important of all consumer transactions to the average citizen. The doctrine of failure of essential purpose allows Plaintiffs an opportunity to get around the Limited Warranty by claiming the Limited Warranty has failed in its application.
Centex’s response centers on freedom to contract. The builder argues that Ohio law permits the waiver of implied warranties, and while there is no case directly on point, no case has ever held that the implied warranty to perform in a workmanlike fashion cannot be waived. Centex points to other jurisdictions that have allowed contracting parties to limit warranty coverage as long as each side fairly and knowingly contracted to that effect. Here, each side knew the terms of the contract before it was signed.
Centex also argues that Ohio public policy does not prohibit a waiver to perform in a workmanlike manner because Centex is not in an unconscionable bargaining position in relation to the Plaintiffs. Plaintiffs could have taken their business elsewhere if they were not satisfied with the terms of the agreement.
Centex answers Plaintiffs’ second and third arguments by stating that Plaintiffs cannot avoid a clear disclaimer of warranties by failing to read the documents necessary to give them full knowledge of the agreement. Had the Plaintiffs read the contract, they would have known the Limited Warranty Booklet was available upon request. Ohio law only requires a contracting party be given the opportunity to read and understand the contract before signing.
Finally, Centex argues that the doctrine of failure of essential purpose, taken from the Uniform Commercial Code, applies only to a sale of goods, not to real estate transactions. But even if it did apply, the Limited Home Warranty did not fail in its essential purpose.
The National Association of Home Builders, Ohio Home Builders Association, Inc. has submitted an amicus brief in support of Centex.
Student Contributor: Jason Persinger