North Carolina: If You Hired A Contractor To Build Or Do Work On Your Home, This Brief Guide To Implied Warranties Is A Must-Read

Most homeowners understand that the explicit terms of a construction contract govern the exchange between the homeowner and a contractor when the homeowner hires the contractor to build or do work on her home.

What many do not know, however, is that North Carolina law also recognizes implied warranties into every construction (a.k.a. "home improvement") contract, and these implied warranties protect the purchaser whether they are explicitly written into the contract or not (provided that they have not been lawfully disclaimed). Thus, by simply knowing what these implied warranties are and how they apply, homeowners are better equipped to assert their rights than than they would have been had they not known that and how these implied warranties applied to protect them.

Four implied warranties in North Carolina construction contracts

Note that, while there are other implied warranties in North Carolina, the four implied warranties listed below are all designed to protect purchasers, as opposed to contractors, in the course of a construction/home improvement contract. So, I've written this article to specifically inform purchasers of construction/home improvement goods and services.

1) Implied Warranty of Merchantability

North Carolina recognizes an implied warranty of merchantability (see N.C. Gen. Stat. § 25-2-314). The purpose of the implied warranty of merchantability is to assure the purchaser of goods that those goods are "fit for their ordinary purpose."

The two key words here are "goods" and "ordinary." With respect to the first, it's important to understand that this warranty applies only to goods, and not to services. With respect to the second, it's important to understand that the requirement here is only that the goods be fit for their ordinary purpose, as opposed to some esoteric purpose.

Example: let's say that you've hired a contractor to remodel your bathroom, and that the project entails purchasing new appliances (e.g. a bathtub) and parts (e.g. a shower head), remodeling the bathroom space (e.g. relocating walls), and putting it all back together (e.g. installing new tile, the bathtub, and the shower head). The implied warranty of merchantability would apply to the bathtub, parts, and materials that you purchased, but not to the installation of those parts. So, suppose that the purchased bathtub, for some reason, had extra, inexplicable holes drilled through its bottom pan; because these "extra" holes are neither ordinary nor there for any ordinary purpose, it seems clear that they are the result of some sort of manufacturing mistake or defect; and because the ordinary purpose of a bathtub is to hold water, and because an extra, pointless hole in the bottom of that bathtub is antithetical to the bathtub's ordinary purpose, the implied warranty of merchantability may reasonably apply: because the implied warranty of merchantability operates to assure purchasers of bathtubs in North Carolina that those bathtubs "are fit for the ordinary purposes for which such goods are used[.]"

2) Implied Warranty of Fitness for a Particular Purpose

North Carolina recognizes an implied warranty of fitness for a particular purpose (see N.C. Gen. Stat. § 25-2-315). The purpose of the implied warranty of fitness for a particular purpose is to assure the purchaser of goods that those goods are "suitable" for the purchaser's particular purpose.

The two key words here are "goods" and "particular." With respect to the first, as with the implied warranty of merchantability, the implied warranty of fitness for a particular purpose applies only to goods, and not to services. With respect to the second, the requirement here is that the goods be suitable for the purchaser's particular purpose, as opposed to the ordinary purpose of those goods in general; and, as such, a precondition for the implied warranty of fitness for a particular purpose to apply is that the seller would have had to have been aware of the purchaser's particular purpose before the purchase.

Example: using the prior example of your bathroom remodeling project, suppose that you live on house boat and that you make the bathtub seller aware of this before you purchase the bathtub. In particular, you explained to the bathtub seller that you're concerned with the texture of the bathtub's floor pan, because you know that your house boat tends to move with waves and bad weather. So, you ask the bathtub seller to sell you a bathtub whose floor pan has a suitable floor texture to assure your footing even when the house boat is moving. Suppose, though, that the bathtub seller then sells you a bathtub with little to no floor texture. Because that bathtub would likely not be suitable for your particular purpose, and because you had made the seller aware of your particular purpose before you purchased the bathtub, the implied warranty of fitness for a particular purpose may reasonably apply: because...

Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified [...] an implied warranty that the goods shall be fit for such purpose.

3) Implied Warranty of Habitability

In North Carolina, the implied warranty of habitability applies to residential construction contracts and to residential leases. Its purpose is to assure the purchaser, or tenant, that the home is "fit for human occupancy." The definition of that phrase most often refers to "major structural defects," in both the building and its "fixtures," and to violations of various local housing and building codes. Interestingly, the implied warranty of habitability extends beyond the original purchaser to subsequent purchasers, which should reflect North Carolina's strong interest in builders and home improvement contractors doing their job correctly.

Historical Background: North Carolina's recognition of the implied warranty of habitability dates back to Hartley v. Ballou in 1974. Prior to that case, many North Carolina builders/home improvement contractors who were sued for defects in their work product would raise the defense of caveat emptor, which, in essence, stood for the notion that the purchaser was responsible for inspecting the work product upon completion, and that any defect not discovered by the purchaser at that time would not later be "actionable."

The Hartley court noted that builders/home improvement contractors were, by that time, already held to (what, in effect, amounted to) an implied warranty of workmanship, but that the defense of caveat emptor had historically operated to limit the amount of time the purchaser had to discover and take action based upon an observed defect that would suggest a failure by the builder/home improvement contractor to have complied with its implied warranty of workmanship.

But, as Hartley explained, many such defects cannot be immediately observed, even after careful inspection at the time that the work is completed. So, to address the scenario in which a purchaser later discovers a defect that the purchaser could not have reasonably discovered at the time of the completion-of-work inspection, Hartley clarified that a separate implied warranty of habitability existed.

This implied warranty of habitability required...

[...] that a dwelling and all of its fixtures be sufficiently free from major structural defects, and . . . constructed in a workmanlike manner, so as to meet the standard of workmanlike quality then prevailing at the time and place of construction. The test for breach of implied warranty of habitability is whether there is a failure to meet the prevailing standard of workmanlike quality" in the construction of the house[.]

See Allen v. Roberts Constr. Co. (To prove the "so as to meet the standard of workmanlike quality then prevailing at the time and place of construction" element, plaintiffs often cite building code and other relevant regulations to note the difference in what was built and what those codes require.)

In the case law that has followed since Hartley, these not-discovered-until-later defects are commonly referred to as "latent defects," to describe their characteristic of having been there all along since the work was completed, but having not yet been detected. When a purchaser discovers one of these latent defects, to the extent that the builder/home improvement contractor breached the implied warranty of habitability to cause this defect, what the plaintiff in a derivative suit would typically plead is that the home is not fit for human habitation, according to the prevailing standards and/or local building or housing codes.

Example: suppose the contractor on your bathroom remodel improperly installed the bathtub, and result was a leak hidden beneath the tile work. Perhaps you discovered the leak six months later, when you discovered extensive damage to the ceiling below. The implied warranty of habitability may reasonably apply if the leak was the result of the builder/home improvement contractor not installing the bath tub in a "workmanlike manner" or in way that did not otherwise "meet the standard of workmanlike quality then prevailing at the time and place of construction."

As will be made clear when we next look at, and compare to the implied warranty of habitability, the fourth and final implied warranty in this article, a claim for breach of the implied warranty of habitability looks more at the resulting work product rather than the path leading to that work product. In Medlin v. Fyco, Inc., the court explained that...

As we have discussed, a builder-vendor [...] is liable for breach of the implied warranty of habitability if the house fails to meet the standard of workmanlike quality, irrespective of fault.

Similarly, in George v. Veach, the North Carolina Court of Appeals held that...

The implied warranty of habitability imposes strict liability upon the warrantor [...] Fault on the part of the builder-vendor is not a prerequisite to liability under the doctrine of implied warranty.

So, while a given case may feature facts common to both a claim for breach of the implied warranty of habitability and a claim for breach of the implied warranty of workmanship, the important fact in a breach of the implied warranty of habitability claim is typically whether the end product, once the work is complete, complies with habitability and building code standards such that the building is fit for human habitation.

4) Implied Warranty of Workmanship (a.k.a. "Workmanlike Quality")

The purpose of the implied warranty of workmanship is to assure the purchaser that the hired builder/home improvement contractor performed its work consistent with the prevailing local standards and that the home is sufficiently free of major defects. Now, although you would be correct to point out the overlap in the second part with the purpose of the implied warranty of habitability, in this section, I will explain some key differences between the implied warranty of habitability and the implied warranty of workmanship.

Comparison: in Kenney v. Medlin Construction Realty, the plaintiff purchased a new-construction house from the defendant. When plaintiff later discovered major structural issues--all of which seem to have stemmed from extensive settling of the home--plaintiff hired another builder from the same neighborhood to inspect the issues. That other builder reported "that the construction of plaintiff's house did not meet the standards of workmanlike quality prevailing in [the area at that time.]" Accordingly, plaintiff filed suit against defendant-builder for breach of the implied warranty of workmanlike quality.

At trial, the defendant-builder produced evidence to show that all of his work on the home "exceeded the minimum building code requirements for [the home's county]" and "was of sufficient quality to pass inspections" at least two different times. The defendant-builder's strategy, it seems, was to highlight that the home was habitable, at least in comparison to the local building and housing codes. But the court found the requirement for breach of the implied warranty of workmanlike quality claim to be more about how the work was done than about what the resulting work product was; and, in so doing, the court highlighted the key difference between breach of the implied warranty of habitability claim and a claim for breach of the implied warranty of workmanship.

Although, in a claim for breach of the implied warranty of workmanship, some of the evidence the plaintiff produces tends to be defects in the resulting building, there will also tend to be evidence showing that those defects were the result of the defendant's poor workmanship.

Example: suppose the bath tub in your bathroom remodel was installed cockeyed due to your contractor's incorrect measurements. To the extent that bathroom remodel contractors in your area tend to take correct measurements in the course of planning and constructing a bathroom remodel, the implied warranty of workmanship may reasonably apply. Even though the cockeyed bathtub may not qualify as a "major structural defect," as a claim for breach of the implied warranty of habitability may require, because the requirements for claiming breach of the implied warranty of workmanship are less specific, you may still have recourse on account of the workmanship aspects.

Statutes of Limitations

As with any claims, you need to be aware of the applicable statutes of limitations. That means that, even if you have a viable claim, you need to make sure that you file the claim, and take any other required action, before the respective statute of limitation expires for your given claim.

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