Daily Development for Monday, October 17, 2005
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

CONSTRUCTION; CONTRACTOR LIABILITY;  STATUTE OF LIMITATIONS; STUCCO:  In an action alleging breach of contract and negligent installation of synthetic stucco, the six-year statute of limitations on a breach of contract claim begins to run on the date the homeowners purchase a house, even if the house is substantially completed before title is conveyed to them have knowledge. 

Skully v. First Magnolia Homes, 614 SE 2d 43  (Ga. 2005).

The Court of Appeals had held that damage to property arising out of faulty construction is considered to occur on the date of the project’s “substantial completion, i.e. when the certificate of occupancy is issued.”  Because the house at issue here had already been substantially completed when the Plaintiffs entered into the purchase and sale agreement, the Court of Appeals held that the statute of limitations began running when the agreement was executed.

The Supreme Court of Georgia reversed.  It noted that the ordinary rule for breach of contract damages against a contract related to work done on a building is the date of substantial completion,  because it is assumed that at that time the owner is in a position to identify defects.  But it noted that Georgia courts have noted an exception when  the work is not done to property already owned by the plaintiff, but rather when the property is still in title to the contractor.  In such cases, the court stated, the date of completion is not a relevant date for ascertaining whether it is reasonable for the owner to identify the defects. 

But rather than follow the Court of Appeals conclusion that the date of contract of sale to the buyer should apply, the court held  held that if a new house is defectively constructed by an owner/builder for the purpose of sale, the applicable period of limitations for damage to realty begins to run at the time of the closing of the  initial sale of the improved property, regardless of the date of ‘substantial completion."  In light of that formulation, the plaintiffs filed their lawsuit two days prior to the running of the statute. 

At to the action for negligence, however, the court agreed with the Court of Appeals that the action begins to run at the time that the plaintiff reasonably should have become aware of th potential claim (presumably when it discovered the defect.)  Note that the statute of limitations on negligence is shorter - four years vs. six years on the contract claim.  The result was in this case the plaintiffs were out of look on their negligence claim, but made their contract claim by two days. 

Comment 1:  Is the court reaching too far to protect the home buyer?  If the principle is to establish a time when the homebuyer should become aware of defects in the property, wouldn't it be appropriate to assume that the homebuyer has examined the property before agreeing to buy it, rather than to assume that it won't make such an inspection until after closing? 

Of course, in many real estate contracts there is a "due diligence" period following contract, and the conclusion of that period probably is the time that the contract truly becomes binding and that is likely the best time to use.  The court's use of the closing date is meaningless in terms of the stated purpose of the choice for the date the statute begins to run.

Comment 2:  In this case, the buyers in fact did not identify problems until well after they had closed on the home.  They learned of potential defects in the products used from talking to friends and neighbors who owned similar houses.  But a neighbor, who was a real estate broker, told them that the problems were exaggerated.  Consequently, they waited a bit longer to get a full inspection, and the statute of limitations on negligence ran in the meantime.  Hmmmm.  Good Samaritan or "officious intermeddler?"

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