Daily Development for Monday, May 8, 2000

By: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu

LANDLORD AND TENANT; RESIDENTIAL; IMPLIED WARRANTY OF HABITABILITY: Indiana Supreme Court finally decides an implied warranty case and finds a different drummer. Although warranties of habitability may be implied in fact, they are dependent entirely upon the understandings of the parties, and thus can be waived in the agreement, and in any event only contract damages are available. Personal injuries are compensable only through claims based upon negligence.

Johnson v. Scandia Associates, Inc. 717 N.E. 2d 24 (Ind. 1999).

Tenant sued landlord after suffering electric shock while simultaneously touching two appliances in her apartment. She sought damages from the landlord based both upon a warranty of habitability theory and a negligence theory. The trial court found for the landlord on the negligence claim, but dismissed the waranty claim on the grounds that Indiana law did not support such a claim.

The Supreme Court, acknowledging that the issues before it were matters of first impression at the Supreme Court level, identified a distinct trend in Indiana in favor of finding some exceptions from the traditional caveat emptor rule in the sale and leasing of residential real estate.

The court stated that a warranty of habitability rooted in contract law has developed in the common law of Indiana with respect to the sale of property. In fact, the warranty has been extended from the builder to remote purchasers of property. But the Indiana warranty has always been based upon the notion that the warranty arises out of the probable expectations of the contracting parties, and is not imposed upon the contract as an independent matter of public policy.

Thus, the warranty clearly is defined by the understandings of the parties, and may not be implied in every transaction. Further, it is waivable. And, as a contract right, it can provide a foundation only for contract damages, and normally is not a basis for personal injury damage claims, unless protection from personal injury is within the parties' understanding.

As to the scope of the warranty, the court was equally cautious. It noted that the existence of a warranty of habitability does not mean that there is no risk of harm. An apartment may provide adequate amenities and shelter and still pose some risk. In light of the fact that broadening the tenant's rights under a warranty of habitability may cause increases in rent and other expenses, the Court determined that it is best thought of as "a landlord's promise to convey to a tenant an apartment suitable for living, and breach of which promise occurs when a landlord fails to tender a suitable apartment." A violation of a housing code is not necessarily a breach of warranty of habitability, and the parties may agree that the premises are not required to meet housing code standards.

The court held that here because the tenant could not demonstrate that the agreement formed with the landlord provided a warranty of habitability, or that the parties intended that any warranty would protect against personal injury, the tenant failed to state a valid claim.

Comment: Were this question still an open issue in courts in the most populous parts of the country, this ruling would be viewed as historic and momentous, because it clearly turns a corner of the judicial activism that has marked this corner of the law for three decades. Although now the consumer protection concepts that underly the implied warranty have been incorporated into statutory provisions in more than half the states, a number of jurisdictions still apply common law notions to the implied warranty concept. The majority of decided cases, most of them having origins in the late sixties through the early eighties, impose a nonwaivable warranty protecting tenants at least from housing code defects and often from much more. Many courts use the warranty as a basis for establishing tort liability, even liability for inflction of emotional distress and punitive damages.

Good ole grey rock Indiana takes us back to first principles. When courts impose relationships on landlords and tenants, the marketplace does not work. The first implied warranty cases arose out of the slums of D.C. and New Jersey, where, the courts contended, there was no market to begin with. But clearly these concepts have swept more broadly, and now are an unavoidable part of almost every apartment lease in America. In many of these relationships, the tenants clearly do have a bargaining choice, and the courts generous implied warranty rulings are simply protecting these tenants from themselves, and not from rapacious landlords. Contrariwise, it might be argued that the real target beneficiaries, the slum dwellers, now deprived of significant legal aid assistance, have little ability to pursue the legal remedies the courts have provided them.

In fact, more than one law professor has mused that the only class that has really benefitted as a group from the implied warranty doctrine is law students sophisticated, litigious, with resources to fight and with flexibility to move. The editor loves law students of course, but questions whether their interests justify the degree of judicial activisim that has occurred in this area nationwide.

Comment 2: All of the above is wistful musing, of course, because there are few courts with the need or desire to revisit the question of implied warranties in residential housing. It's either a statutory issue or the rules have been worked out long since and the marketplace has adjusted. The issue of whether the implied warranty supports personal injury claims, however, still comes up from time to time, and usually the recent decisions, like Indiana's find that the implied warranty's protection is for contract expectations only.

Readers are urged to respond, comment, and argue with the daily development or the editor's comments about it.

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