On certification to the Superior Court, Appellate Division, whose opinion is reported at 159 N.J. Super. 1 (1978).
For affirmance -- Chief Justice Hughes and Justices Mountain, Sullivan, Pashman, Clifford, Schreiber and Handler. For reversal -- None. The opinion of the court was delivered by Pashman, J.
[79 NJ Page 277] In this case, we are called upon to decide whether an implied warranty of workmanship and habitability arises upon the sale of a home by a builder-vendor, and, if so, whether potability of the water supply is included within the realm of warranted items. For the reasons given herein,
we conclude that both questions must be answered in the affirmative. A further issue is raised regarding the plaintiff's duty to mitigate damages.
In 1972 Joseph Mianecki, one of the defendants herein, placed a newspaper advertisement in which he offered to build a house on a certain piece of property now identified as 7 Dolores Place, Mine Hill Township. Plaintiffs Mr. and Mrs. Henry McDonald, desirous of purchasing a new home, responded to this advertisement and in July 1972 met with Mianecki at the proposed site and discussed the type of house they wished to have constructed. At that meeting the McDonalds were informed that Mianecki had built two other houses in the area. Although Mianecki was also employed as a construction project engineer by a large commercial contractor, by the start of the present litigation he classified his occupation as that of "builder."
The parties reached agreement as to the dwelling to be erected which was formalized in a written contract dated July 17, 1972. The purchase price was $44,500. The contract provided, inter alia, that the house would be serviced by water from a well to be constructed by Mianecki, and that the well system would be guaranteed for a one- year period. The McDonalds had never before had a house built for them nor had they lived in a home serviced by well water.
During the early stages of the construction process, the McDonalds frequently visited the property to do some painting and perform other odd jobs. At first they cleaned their hands and brushes at a nearby barn as their water supply had not yet been connected. Later, as the house neared completion, the water began to flow and the McDonalds washed up inside the home. They soon noticed that the sinks and toilet fixtures were becoming discolored and that standing water in the fixtures had a "chocolate brown" tint. The McDonalds
apprised Mianecki of the situation and were told that inasmuch as the well was newly dug there might be some impurities still present. A commercial stain-remover, "Rust-Raze," was supplied to Mrs. McDonald, who cleaned the discolored fixtures. The stains, however, shortly returned.
Due to the continuing discoloration problem, Mianecki arranged to have the water tested. This test was, in any event, a prerequisite to the obtaining of a certificate of occupancy. The test, performed by third-party defendant Duncan Medical Laboratory, indicated an unacceptably high iron content. Mianecki attempted to rectify this situation through the installation of a water softener/conditioner, manufactured and installed by third-party defendant Deran Sales, Inc. A test performed after the installation of the unit indicated that the water was acceptable and, based upon its results, a certificate of occupancy was granted. Closing of title occurred on November 15, 1972, and two days later the McDonalds settled into their new home.
The problems with the water continued after the McDonalds moved in. Although water tests conducted before March 1973 showed that the water, after passing through the conditioner, met State standards, there was sufficient evidence from which a jury could have determined that the water was non-potable. It is clear that the raw water -- i.e., water before it passed through the conditioner -- never satisfied State standards of potability. There was testimony that, among other things, the staining of the fixtures continued; the water had a bad odor and taste; when left standing the water fizzled like "Alka-Seltzer," gave off a vapor and turned colors; clothes washed in the washing machine became stained, as did dishware and utensils when washed in the dishwasher; and coffee would turn deep black and sugar would not dissolve. Furthermore, according to expert testimony, after March 1973 even the treated water continuously failed to meet State standards of potability.
According to plaintiffs, Mianecki was continuously informed about the condition of the water. A number of
unsuccessful attempts were made to alleviate the problem. These included replacement of the heating coils, alteration of the back-flushing cycle on the water conditioner, and the installation of a venting system designed to eliminate gas in the water pipes. By the spring of 1973 the relationship between the parties had deteriorated and no further repairs were attempted. Alternative sources of water were suggested but, due to a variety of circumstances, no viable solution was adopted. Although each party alleged that these failures were due to the other's fault, there is sufficient evidence upon which a jury could have found that plaintiffs did not act unreasonably in their attempts to ameliorate the condition.
On March 25, 1974 the plaintiffs instituted the instant suit for damages against Mianecki. The complaint alleged breach of express and implied warranties, fraudulent and negligent misrepresentations, negligent construction of the well and water system and negligent supervision of the construction and water testing. At this time plaintiffs were still residing in the Mine Hill house. In December of 1975, however, they moved to Maryland as a result of Mr. McDonald's job transfer.
Defendant Mianecki, in turn, made claims against the following third party defendants: (1) Bryan Drilling Company, the outfit which had actually drilled the well; (2) Deran Sales, Inc., the company which had installed the conditioner and performed tests on the water; (3) Duncan Medical Laboratory, the entity which had conducted the original tests on the water; and (4) Shire National Corporation and Mine Hill Board of Education, which owned the property adjacent to the McDonald's lot suspected of being the source of contamination.
A bifurcated jury trial was ordered and the trial as to liability commenced on January 19, 1976. Prior to submission of the case to the jury, the third party complaints, except that against Deran, were dismissed by the trial judge without objection from the defendants. The jurors were
charged as to fraud and misrepresentation, breach of contract, and breach of implied warranty, and were given special interrogatories to answer. They found that defendants were liable solely for breach of an implied warranty of habitability. Findings of no cause for action were returned as to the other grounds for liability as well as Mianecki's third-party complaint against Deran.
The case then proceeded to a trial as to damages. Evidence was introduced by plaintiffs with respect to the change in the quality of their lives occasioned by the lack of potable water, and as to the staining and odor. The McDonalds testified that in the spring of 1973 they had to discontinue using the water for cooking and drinking purposes, and instead were forced to obtain water by either purchasing it bottled or filling containers at a neighbor's home. Moreover, there was testimony from a real estate agent that the value of the house, assuming a lack of water problems, would be $57,660, but that with such problems the value was only $36,847.
In order to demonstrate that plaintiffs had failed to mitigate damages, Mianecki testified that on January 14, 1976 he sent, through counsel, a letter to the McDonalds offering to buy the house for $50,000. This letter reached the McDonalds on January 17, 1976, just two days before the trial began and three days after the trial was originally scheduled to commence. The proposal contained no mortgage contingency and provided for closing 90 days from the date of the signing of a contract. This offer was refused by the plaintiffs who, on January 20, 1976, signed a contract of sale for the Mine Hill home at a price of $35,000 plus one-half of any excess liability incurred by the McDonalds in paying off the outstanding mortgage and tax assessments. Plaintiffs testified that they had reached oral agreement with the ultimate purchaser prior to receiving Mianecki's proposal and that they understood Mianecki's offer to be an attempt to settle the entire case.
The trial court charged the jurors that in assessing damages they were to place the McDonalds in the position they would have been in had the implied warranty not been breached. Thus, the judge instructed that the McDonalds should be compensated for all damages proximately caused by the breach and within the reasonable contemplation of the parties at the time that the contract was entered into. He further elaborated on the nature of the damages awardable, charging that the McDonalds were entitled to (1) out of pocket expenses, (2) compensation for the deterioration in their quality of living, and (3) the reduction in the fair market value of their home attributable to the defect.*fn1 Mitigation of damages was explained at length.
The jury returned an award in favor of plaintiffs in the amount of $32,000. Motions for judgment N.O.V., new trial and remittitur were denied by the trial court.
On appeal, defendants sought reversal of the finding of implied warranty of habitability and raised numerous other allegations of error. The Appellate Division affirmed, McDonald v. Mianecki, 159 N.J. Super. 1 (App. Div. 1978), holding that "in a case such as this where a vendor-builder constructs a new house for the purpose of sale, the sale carries with it an implied warranty that it was constructed in a reasonably workmanlike manner and is fit for habitation." Id. at 19. Further, the appellate court concluded that the jury was given a proper opportunity to consider the
question of mitigation and that its determination was supportable by the record. Id. at 24-25. We granted Mianecki's petition for certification. 77 N.J. 498 (1978).
Whether an Implied Warranty of Habitability Arose Under the Facts of This Case
A. General Legal Background
Prior to the mid-1950's the ancient maxim of caveat emptor ("let the buyer beware") long ruled the law relating to the sale of real property. Thought to have originated in late sixteenth-century English trade society, the doctrine was especially prevalent during the early 1800's when judges looked upon purchasing land as a "game of chance." Hamilton, "The Ancient Maxim Caveat Emptor," 40 Yale L.J. 1133, 1187 (1931).*fn2 The maxim, derived from the then contemporary political philosophy of laissez faire, held that a "buyer deserved whatever he got if he relied on his own inspection of the merchandise and did not extract an express warranty from the seller." Roberts, supra note 2, at 836-837.
According to one commentator, however,
Caveat emptor * * * did not adversely affect the typical buyer of a new house during the nineteenth century. In those days, after all, the home-owner-to-be was commonly a middle-class fellow who purchased his own lot of land and then retained an architect to design a home for him. Once the plans were ready the landowner hired a contractor who built a house according to the plans. Quality control was assured because the builder was paid in stages as he completed each part of the house to the satisfaction of the architect.
If the house did happen to collapse, the homeowner had a choice of lawsuits to recoup his losses: either the plans were defective, in which case the architect had been negligent, or the building job had not ...