Plaintiffs, Dale H. and Jeanne M. Pracht, filed a
complaint in the District Court of the Tenth Judicial
District, Fergus County, seeking specific performance of a
contract for deed dated August 14, 1984. Defendants, Scott
S. and LaDonna K. Rollins, filed a counterclaim, seeking
rescission of the contract due to a breach of the implied
warranty of habitability and workmanship. The District
Court, sitting without a jury, entered judgment for
defendants. Plaintiffs appeal. We affirm in part, reverse
in part and remand.
The issues raised on appeal are:
1. Whether the District Court erred by determining
that plaintiffs breached the implied warranty of
habitability.
2. Whether the District Court erred by rescinding the
contract for deed due to failure of consideration.
Dale H. and Jeanne M. Pracht, current residents of
Wisconsin, owned and still own in fee simple absolute a house
built by Dale H. Pracht and located in Fergus County,
Montana. Dale H. Pracht is a pharmacist by profession but
built and sold two other houses prior to the house that is
the subject of this case. After building the house during
1982 and 1983, the Prachts advertised the house for sale in
1984 as a "newer high-tech solar home." The Prachts sold the
property and house located thereon to Scott S. and LaDonna K.
Rollins for $65,000 via a contract for deed dated August 14,
1984. The Rollinses paid $7,500 as a downpayment and
commenced to make the monthly payments on the house beginning
in August, 1984.
The Rollinses moved into the house shortly after
s i g n i n g t h e c o n t r a c t f o r deed. Beginning i n December, 1984,
t h e R o l l i n s e s became a l e r t e d t o a p o s s i b l e h u m i d i t y problem
in the house. The Rollinses f i r s t discovered that cloth
i t e m s t h e y s t o r e d i n a c l o s e t o f t h e house f o r a p p r o x i m a t e l y
f o u r months were moldy and had t o b e thrown away. Other
problems slowly manifested themselves throughout 1985 and
1986. S p e c i f i c a l l y , d u r i n g t h e summer of 1985, t h e R o l l i n s e s
n o t i c e d t h a t t h e p a i n t was b e g i n n i n g t o p e e l o f f t h e d e c k ,
s u p p o s e d l y a s a r e s u l t o f u s i n g g r e e n lumber, and a few of
t h e b o a r d s on t h e deck were c u r l i n g up. The R o l l i n s e s a l s o
began t o n o t i c e t h a t when t h e y c l o s e d t h e d o o r s and windows
i n t h e house, t h e y expanded and were t h e r e f o r e v e r y h a r d o r
even i m p o s s i b l e t o open o r c l o s e a g a i n . T h i s problem was
also attributed to the humidity problem found within the
house.
Near the end of 1985 o r the beginning of 1986, the
Rollinses noticed that the s i d i n g of t h e house started to
pull away from where it was joined together. After the
s i d i n g began t o g i v e way, t h e R o l l i n s e s t h e n n o t i c e d t h a t t h e
house was n o t s h e a t h e d u n d e r n e a t h o r b r a c e d w i t h plywood; a s
a result, g a p s began t o form i n t h e s i d i n g . The R o l l i n s e s
a l s o n o t i c e d t h a t t h e g a r a g e r o o f began t o l e a k ; t h a t mold
was growing in s e v e r a l window and closet areas; that the
window s i l l s began t o c r a c k ; and t h a t d u r i n g t h e w i n t e r of
1986-87 t h e f o u n d a t i o n of t h e house began t o s e p a r a t e from
the backfill soil. Scott Rollins also testified that he
s u s p e c t e d a w i r i n g d e f e c t i n t h e house b e c a u s e l i g h t b u l b s
d i d n o t seem t o l a s t i n t h e house and because t h e y had t o
have their microwave repaired four different times.
According to the repairman, the microwave breakdowns occurred
as a result of power surges.
The Rollinses initially took steps to repair and fix
the problems, including venting the clothes dryer outside and
putting in a new window in the basement. However, in light
of all of the problems that began to appear after the
Rollinses bought the house, they finally made a decision in
late December of 1986 or early January of 1987 to move out of
the house. Beginning in June, 1987, and after contacting an
attorney, the Rollinses ceased making payments under the
contract for deed. The Rollinses, via their attorney, sent a
notice to the Prachts on July 7, 1987 stating that the house
was noticeably deteriorating and that it was becoming
uninhabitable. The Rollinses then demanded cancellation of
the contract and a refund of their downpayment. The Prachts
responded in October, 1987 by filing a lawsuit seeking
specific performance of the August 14, 1984 contract for deed
in the District Court of the Tenth Judicial District, Fergus
County. The Rollinses filed a counterclaim, seeking
rescission of the contract for deed due to a breach of the
implied warranty of habitability and workmanship. The
Rollinses then remained in the house until October, 1988
without making any further payments.
The District Court, sitting without a jury, found that
the house was not constructed in a workman-like manner or
according to the Uniform Building Code; that the defects the
Rollinses discovered in the house were not readily apparent
when they bought the house and did not begin to appear until
December, 1984; that the Rollinses relied upon the Prachts'
representations that they were capable of building, and did
build a "high-tech" energy efficient house; and that neither
Scott nor LaDonna Rollins were knowledgeable in the
construction of houses. The court then concluded that the
Prachts breached the implied warranty of habitability and
workmanship in building the house; that the breach was
material and constituted a condition entitling the Rollinses
to stop making their payments under the contract for deed;
that the Prachts, as the builder-vendor of the house, were in
a better position to have prevented the improper construction
of the house and to have avoided the problems; and that the
Rollinses were entitled to rescission of the contract which
therefore entitled them to recover their $7,500 downpayment.
The court, however, allowed the Prachts to retain the monthly
payments made by the Rollinses from August, 1984 through May,
1987 as reasonable rent. The District Court then entered
judgment for the Rollinses on January 4, 1989. The Prachts
appeal from this judgment.
The first issue raised on appeal is whether the
District Court erred by determining that the Prachts breached
the implied warranty of habitability.
This Court first recognized the implied warranty of
habitability in 1982 in Chandler v. Madsen (1982), 197 Mont.
234, 642 P.2d 1028. In Chandler, the evidence demonstrated
that the house was uninhabitable due to inoperative doors,
windows, and locks; cracked walls and floors; broken windows;
bent plumbing; uneven and bulged floors; separation between
fixtures and walls; cracked bathroom tiles; and a settlement
of the foundation by 3.6 inches in some areas. We therefore
abandoned the doctrine of caveat emptor and adopted the
implied warranty of habitability. We held that a
builder-vendor of a new house impliedly warrants that the
house is constructed in a workman-like manner and is suitable
for habitation. Chandler, 197 Mont. at 239, 642 P.2d at
1031. In a subsequent case, Degnan v. Executive Homes, Inc.
(1985), 215 Mont. 162, 696 P.2d 431, we upheld the
application of the implied warranty of habitability. In
Degnan, the house in question suffered from structural damage
as a result of it being built on unstable ground. We again
emphasized that the theory behind the implied warranty of
habitability is not one of fault, but rather that the
builder-vendor is in a better position to prevent the
resulting harm and therefore is properly liable as opposed to
the innocent buyer. Degnan, 215 Mont. at 166, 696 P.2d at
433. We then held that the builder-vendor was liable for
defects in the structure which made it uninhabitable.
Degnan, 215 Mont. at 166-67, 696 P.2d at 434.
More recently, in Samuelson v. A.A. Quality Const., Inc.
(Mont. 1988), 749 P.2d 73, 45 St.Rep. 157, this Court further
refined the definition of the implied warranty of
habitability. In Samuelson, the basement of the house in
question had a water seepage problem. As a result of the
seepage problem, the buyers had to remove furniture from the
guest room; remove portions of the sheetrock in an attempt to
locate the problem; roll back the carpeting for weeks at a
time to allow the floor to dry; install floor heaters to dry
the wet areas; raise items in the storeroom; restrict the use
of the recreational room; use a pump to clear the crawl space
of excess water; and make use of a vacuuming service to clear
the water from the basement. The buyers eventually had the
problems remedied. We then held that "the implied warranty
of habitability of a dwelling house is limited to defects
which are so substantial as reasonably to preclude the use of
the dwelling as a residence." Samuelson, 749 P.2d at 75, 45
St.Rep. at 160.
In the present case, the Prachts argue that the implied
warranty of habitability does not apply in this case. They
argue that they are not a "builder-vendor" as contemplated by
this Court. Further, the Prachts argue that they built the
house for themselves and then resided in it for approximately
a year, therefore they argue that the house was not new at
the time of the sale. The Prachts also argue that even if
this Court finds that the implied warranty of habitability
applies, that the defects in this house do not equal a breach
of the warranty since the defects do not reasonably preclude
the use of the house as a residence. We disagree.
The record reveals that Dale Pracht had built and sold
at least two other houses prior to building the house in
question and then selling it to the Rollinses. Although Dale
Pracht is obviously an amateur builder and a pharmacist by
profession, the implied warranty of habitability is
nonetheless applicable. As noted earlier, the theory behind
the implied warranty is not to discern fault, but to place
the liability on the party most able to prevent the resulting
harm. Dale Pracht was the builder-vendor and was thus in a
better position to prevent the structural and design problems
that arose in the house than the innocent buyers--the
Rollinses. Further, the record also reveals that although
the Prachts lived in the house for approximately a year, they
nonetheless had not yet completed the house before selling it
to the Rollinses. The District Court therefore did not err
in finding that the implied warranty of habitability applied
in this case.
in part that the District Court erred in concluding that the
Rollinses were entitled to rescind the contract as a result
of failure of consideration because the Rollinses did not
plead this affirmative defense as required by Rule 8 (c),
M.R.Civ.P.. We agree with this part of the Prachts'
argument.
Rule 8 (c), M.R.Civ.P., states that "a party shall set
forth affirmatively ... .
failure of consideration ."
. An
affirmative defense is generally waived if not set forth
affirmatively. Chandler, 97 Mont. at 241, 642 P.2d at 1032.
The record shows that the Rollinses did not plead the
affirmative defense of failure of consideration in either
their answer or their counterclaim. Therefore the District
Court erred in concluding that the Rollinses were entitled to
rescind the contract as a result of failure of consideration.
The court, however, also stated in its Conclusions of
Law No. 8, that the Rollinses were entitled to rescission of
the contract due to the Prachts' material breach of the
implied warranty of habitability and workmanship. The
Prachts then also attempt to argue that the equitable remedy
of rescission is applicable only in those circumstances that
are set forth in S 28-2-1711, MCA, which addresses when a
party to a contract may rescind. While many of our common
law principles have been codified in statutes, a court of
equity nonetheless is not bound by the codified laws when
fashioning an equitable result. On the contrary, a court
sitting in equity has all the power requisite to render
justice between the parties. Maddox v. Norman (1983), 206
Mont. 1, 13-14, 669 P.2d 230, 237; Rase v. Castle Mountain
Ranch, Inc. (Mont. 1981), 631 P.2d 680, 687, 38 St.Rep. 992,
1000. We thus reject the Prachts' argument tha.t rescission
We also hold that in light of the facts, the District
Court did not err in finding that the defects in the house
constituted a breach of the implied warranty of habitability.
The District Court found and the evidence shows that a severe
ventilation problem existed in the house as a result of the
design and construction of the house. As a consequence,
problems began gradually to manifest themselves while the
Rollinses were living in the house. These problems included
inoperative windows, doors, and locks; a faulty heating and
air exchange system; cracked window sills and door frames;
moldy fixtures; a leaky garage roof; separation of the
foundation from the backfill soil; and separation of the
siding from each other and the house. The defects also
included the house not being properly sheathed or braced with
plywood. These problems constituted defects which were so
substantial as reasonably to preclude the use of the dwelling
as a residence. Merely because the occupants continued to
live in the house until they were able to find another
suitable place to live, does not necessarily mean that the
defects were not so substantial as to preclude reasonably the
use of the dwelling as a residence. We therefore affirm the
District Court on this issue.
The second issue on appeal is whether the District Court
erred by rescinding the contract for deed due to failure of
consideration.
In Conclusion of Law No. 6, the District Court stated
that the house was not what the Prachts represented it to be
and therefore it was not what the Rollinses had reasonably
expected. The District Court therefore concluded that the
Rollinses were entitled to rescind the contract as a result
of a substantial failure of consideration. The Prachts argue
is not proper in this case, however, we do note that the
District Court did not properly consider all of the available
evidence. After finding that the Rollinses were entitled to
rescission of the contract, the District Court also found
that the Rollinses were entitled to recover their $7,500
downpayment and that the Prachts were entitled to retain the
monthly payments made by the Rollinses as reasonable rent.
However, we note that when fashioning this remedy, the
District Court failed to consider the time the Rollinses
spent in the house from June, 1 9 8 7 to October, 1 9 8 8 . During
this sixteen month time period, the Rollinses lived in the
house without paying the Prachts any sort of reasonable rent.
In light of the District Court's oversight of this evidence,
we remand this case to the District Court to consider all of
the evidence before fashioning a remedy.
Affirmed in part, reversed in part, and remanded. We concur: f