This was a case where homeowners alleged construction defect claims against various contractors who had built their home. Eight years after their home was complete the Abrahams noticed many defects in the construction of their home, including water intrusion caused by faulty workmanship. Because the statute of limitations for a contract claim in Oregon is 6 years, the contractors argued that the Abrahams' contract claim was time barred. The contractors further argued that the Abrahams could not assert a negligence claim because a party to a contract cannot bring an action in tort (such as negligence) against the other party, unless the action arises from a breach of some standard of care independent from the terms of the parties' contract. The Oregon Court of Appeals agreed that the contract claims were time barred, but the negligence claims should survive because they were based on code violations, which were independent from the contract.
The Plaintiffs argued that the principle calling for an independent standard of care should not apply to construction defect cases. They cited a previous Supreme Court decision, Newman v. Tualatin Development Co., Inc., 287 Or 47 (1979). In that case, the trial court approved a group (or class) of plaintiffs, some of whom had purchased their home directly from a developer and some had not. The Newman court looked to whether a homeowner and builder had a "special relationship" which imposed a heightened duty of care. That heightened duty could create potential tort liability when one delegates to another the authority to make important decisions on their behalf. (Examples of this relationship could include individuals and their lawyers, physicians, architects or engineers.)
The Abrahams argued that they trusted the builder to build their dream home free of defects and they had assurances from the builder that their home was free from defects, and that the builder was supposed to use his own independent judgment on their behalf concerning things like costs and skills in the construction of the home. The Oregon Court of Appeals disagreed, ruling that the parties had entered into an arm's length transaction and no special relationship existed.
In their appeal, the Plaintiffs further argued that there was an additional duty owed apart from the contract, since the builders violated legal rules (specifically, the Oregon building code) and these violations caused damages. The purpose of the Oregon building code, Plantiffs argue, is to protect homeowners from the effects of substandard and defective construction such as water intrusion, exactly the type of damage Plantiffs suffered.
The Appeal Court agreed and stated that there was an issue as to whether the defendants breached their standard of care that was independent of the contract and Plantiffs possibly had a negligence claim for Defendants' construction defect by violating Oregon building codes.
Many believe that the Supreme Court will modify the Court of Appeals decision and allow negligence claims even when a contract exists, without having to allege that there were code violations. This will aid home owners who discover the defects in their homes more than 6 years after it was completed.
For more information on statute of limitations see my previous blog post, and stay tuned for the Supreme Court's ruling on this issue.