Tag: disclaimer

Implied Warranty of Habitability Waiver Doesn’t Bind Second Home Buyer: Deconstructing Fattah v. Bim (IL 1st Dist.)(Part I of II)

Fattah v. Bim, 2015 IL App (1st) 140171 will likely be viewed as a significant victory for homeowners (and a correlative loss for builders) in residential construction disputes.

The plaintiff bought a million-plus dollar home in Chicago’s northern suburbs from the defendant homebuilder “as-is” and subject to an earlier waiver of the implied warranty of habitability signed by a prior purchaser (“Buyer 1”) who sold the house to the plaintiff.

In reversing a bench trial judgment for the defendants, the court answered some important questions concerning the scope and enforceability of disclaimers contained in the sale of real property in Illinois.

Facts:

The sale of the home from defendant to Buyer 1 included a written waiver of the implied warranty of habitability that specifically provided it was binding on the seller, the purchaser, and any successors.

The plaintiff bought the property from Buyer 1 “as is” three years after Buyer 1 bought it.  The contract’s as-is rider provided, among other things, that the seller (Buyer 1) shall not be responsible for “the repair, replacement or modification of any deficiencies, malfunctions or mechanical defects on the Property or to any improvements thereon” and that Buyer 1 makes no representation or warranty to plaintiff concerning the Property’s condition, zoning or suitability for its intended use.

Despite this broad Rider’s language, the contract still required Buyer 1 to disclose known material latent defects.

Four months after plaintiff moved in, the patio collapsed and plaintiff sued the defendant homebuilder.  The trial court found for defendant at trial on the basis that Buyer 1’s implied warranty waiver extended to the plaintiff.  Plaintiff appealed.

Result: Reversed:

Rules/Reasoning:

The appeals court found that the earlier implied warranty of habitability waiver did not bind the plaintiff.  The court’s reasoning:

– the implied warranty of habitability is a creature of public policy that aims to protect innocent purchasers of new houses who discover latent defects in their homes;

– the implied warranty of habitability recognizes that the purchaser, who is generally not knowledgeable in construction practices, has to rely n the integrity and the skill of the builder-vendor, whose business is home building;

– it (the implied warranty of habitability) applies not only to builder-vendors, but also to subcontractors and developer-vendors;

– subsequent home buyers can be protected by the implied warranty of habitability.  This is because a “subsequent purchaser is like the initial purchaser in that neither is knowledgeable in construction practice and must rely on the expertise of the person who built the home to a substantial degree.”

– the warranty of habitability exists independently of a contract between the builder and twice-removed buyer and extends only to “latent defects which manifest themselves within a reasonable time after the purchase of the house.”

– despite the strong public policy reason behind the implied warranty of habitability, a “knowing disclaimer” of the warranty doesn’t violate Illinois public policy;

– one who seeks to benefit from a disclaimer has the weighty burden of establishing that the disclaimer is (1) conspicuous, (2) fully disclosed (along with its consequences) to the buyer, and (3) mutually agreed on by the parties.

(¶¶ 23-25).

With these principles in mind, the court found that Buyer 1’s waiver of the implied warranty of habitability was valid as it appeared prominently in the sales materials and recited the waiver’s impact of the Seller’s rights.

The court then considered whether Buyer 1’s waiver of the implied warranty was binding on plaintiff – a subsequent purchaser who lacked knowledge of the earlier waiver.

Finding that Buyer 1’s waiver did not bind plaintiff, the court noted there was no agreement between plaintiff and defendant and the waiver of the implied warranty of habitability never was brought to plaintiff’s attention.

The court held that an implied warranty of habitability can only be waived where it’s done so “knowingly.”  Here, the plaintiff wasn’t party to Buyer 1’s waiver and testified she wasn’t aware of the waiver when she (plaintiff) bought the house.  Since defendants didn’t refute plaintiff’s testimony, it failed to prove plaintiff knowingly bought the property subject to Buyer 1’s waiver of the implied warranty.  As a result, the waiver didn’t bind the plaintiff.

(¶¶ 28-31)

Take-aways:

1/ The implied warranty of habitability extends to subsequent home purchaser for latent (not overt) defects;

2/ A disclaimer or waiver of an implied warranty offered by a prior buyer won’t bind a subsequent buyer where that later buyer offers evidence that she lacked knowledge of the disclaimer or waiver and that the disclaimer’s importance wasn’t pointed out to her.

Suit Against Home Inspector Thrown Out Based on Contractual Liquidated Damages Clause and Disclaimers

In Boshyan v. Private I. Home Inspections, Inc., 2014 IL App (1st) 287715, the First District examines the interplay between a liquidated damages provision and limitation of liability language in a written home inspection contract.

The plaintiff home buyer sued his home inspector for breach of contract after the plaintiff encountered property defects after he moved into a house.  The trial court granted the  inspector’s Section 2-619 motion to dismiss based on the exculpatory contract language.

Held: affirmed

Rules/Reasoning:

The inspection contract was profuse with disclaimers.  Itlimited the plaintiff to damages of $500, it excluded latent defects from the inspection and also disclaimed any express or implied warranties.

Affirming dismissal of the home buyer’s suit, the Court held that the inspection contract’s $500 damage cap was a valid liquidated damages clause.  The Court defined a liquidated damages provision as one that specifies a method of determining damages in the event a contract is breached and that provides an agreed-upon measure of damages upon breach.

The court distinguished a liquidated damage clause from an exculpatory clause: the latter completely insulates the defaulting party’s liability.  ¶¶ 23-27.

The Court found the liquidated damages term unambiguous and contract manifested the parties’ intent to pre-calibrate damages at the contract’s outset.  ¶ 27.

The Court went further.  It held that even if the $500 damage cap wasn’t a valid liquidated damages clause (e.g. it was a penalty to secure performance or was optional in nature*), the term would still be enforced as an exculpatory clause.

Exculpatory clauses seek to strike a balance between freedom of contract principles on the one hand and any public policy considerations which would restrain that freedom on the other hand.

In the area of “nonregulated” contracts (e.g. contracts involving private parties), the Court permits competent parties to allocate business risks as they see fit.  Here, since there was no special relationship between the parties – the home buyer and inspector were on an equal bargaining footing – no public policy of Illinois was violated by the contract term limiting plaintiff’s damages to $500.

Take-away: Freedom of contract principles will trump public policy considerations where the contracting parties are on an equal contractual footing in terms of education and socio-economic status and there is no fraud or over-reaching by one of the parties.

Home buyers should be aware that home inspection agreements are often laden with either or both (like the one here) disclaimer language and liquidated damages terms.  They should be especially cognizant of damage caps in written home inspection agreements.  This case also stands for proposition that a technical violation of a business licensing statute won’t necessarily void a contract involving the violating business.

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* For Detailed Discussion of Liquidated Damages Clause, see  “Holdback Provision in Real Estate Contract Fails Liquidated Damages Test”, Chicago Daily Law Bulletin, Commercial Litigation Column, March 10, 2014 http://www.slideshare.net/slideshow/embed_code/32194241

Fitness Formula Club’s Contractual Release Defeats Member’s Personal Training Mishap (The ‘The Beach is That-A-Way’ Post)

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This one’s just in time for the annual blizzard of new gym memberships and personal training sign-ups each January seems to bring.  Cox v. US Fitness, LLC d/b/a Fitness Formula Club, 2013 IL App (1st) 122442, examines whether a gym (FFC) membership agreement’s liability release is enforceable against a gym patron who sued after she broke her wrist while attempting an exercise during a personal training session.  The answer: “yes.”

Facts

Plaintiff signed an FFC membership agreement which contained a broad release which immunized the gym from any personal injury claims by a member associated with any equipment, exercises, classes, advisory services or the facility generally.  The plaintiff signed the release but didn’t read it or ask questions about it.  Plaintiff also signed a second personal training contract  but couldn’t locate or produce that contract in discovery.  Plaintiff fell and broke her wrist during a personal training session and sued FFC’s corporate parent and the personal trainer for negligence.  She alleged the defendants improperly instructed plaintiff, neglected to implement safety measures, and failed to adequately monitor or supervise plaintiff’s exercises.  The trial court granted defendants’ summary  judgment motion based on the expansive language of the release.

 Held: Affirmed

 Why?

Affirming the trial court (and finding for defendants), the Court applied a slew of black-letter contractual release rules and summary judgment burden-shifting principles.  Cox’s key rules:

–  Illinois allows parties to contract away their liability for negligence;

–  While exculpatory clauses which insulate someone from his own negligence aren’t favored, they are still enforceable if specific and conspicuous;

–  The precise occurrence doesn’t have to be contemplated by the parties at the time of contracting for the release language to be upheld;

–  The injury must fall within the scope of possible dangers which ordinarily accompany a given activity (like fitness training, e.g.) to be considered in the parties’ reasonable contemplation;

–  The key inquiry is whether plaintiff knew or should have known the accident was a risk encompassed by the release; not whether plaintiff foresaw the exact act of negligence alleged;

–  Where a defendant supports its summary judgment motion with admissible evidence, the burden shifts to the plaintiff to present a factual basis arguably entitling her to judgment (the burden shifting rule);

–  Where a summary judgment movant bases his motion on affirmative matter – like a release – and attaches that release to its motion, the burden shifts back to the respondent/plaintiff to show that the release is void or inapplicable;

–  Procedural unconscionability applies where a weaker party is deprived of a meaningful choice in entering a contract with a stronger party such as where the release language is hidden or where the weaker party is prevented from reading it or can’t comprehend it;

– A contract won’t be voided on public policy grounds unless it is clearly contrary to statutes or court decisions which pronounce the State’s public policy.

Cox, ¶¶. 14, 26-27, 32, 36.

The Court held that the FFC release was broad enough to encompass plaintiff’s personal training session injury.  By its plain text, the release applied to equipment and fitness advisory services which clearly included personal training session injuries.  This broad language made it (or should have made it) plainly foreseeable that the plaintiff could get injured while training. Cox, ¶ 17.  In fact, that’s the whole purpose for having personal trainee’s sign releases before engaging in strenuous athletic activity.

The court also discarded plaintiff’s argument that the later personal training contract – which plaintiff couldn’t locate – modified the membership agreement and created a question of fact to survive summary judgment.  The Court held that it was plaintiff’s summary judgment burden to produce a specimen copy of the second contract.  Since plaintiff failed to do so, it couldn’t create a fact question on whether the missing personal training contract modified the FFC contract’s release.

Rejecting plaintiff’s procedural unconscionability (plaintiff claimed she didn’t see the release language) argument, the Court noted that the release was easily located and in large bold-face letters.  The Court held that plaintiff adduced no evidence that the release language was obscure or that  defendants hid the language from the plaintiff.  In fact, the evidence showed that defendant’s membership agent specifically asked plaintiff to read the liability release before signing the contract.  Cox, ¶¶ 32-33.

The Cox Court also shot down plaintiff’s argument premised on the Physical Fitness Services Act (815 ILCS 645/10) which, among other things, voids false advertising in fitness contracts.  The Court noted there was no evidence of fraudulent conduct by the defendants and that as a result, FFC’s release didn’t violate the statute.  Cox, ¶ 35.   The plaintiff also lost on her public policy argument: that enforcing the release against her violated public policy.  The Court ruled that no Illinois statute or case provides that a gym membership agreement’s release violates Illinois public policy.  Cox, ¶¶ 35-36.

Afterword: Release language in a gym contract will be enforced as written so long as there’s equal bargaining power between gym and member and the release language is clear and conspicuous.  A release will be construed broadly if its language permits it and the release doesn’t have to spell out every possible injury to be valid.  Its’ enough that the claimed injury has some connection to and falls within the scope of the claims being released.  Cox also illustrates that a summary judgment respondent can’t use a missing document to create a fact question where it’s in that person’s power to obtain the missing document.