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Court rules wife is not liable for the defective house that her husband’s construction company built


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ddavis

By Andrew Davis

The Court of Appeals in Nashville, Tennessee recently upheld a decision ruling that a wife of an owner of a construction company is not individually liable for the damages caused by her husband’s construction company even though she was the real estate agent for the defective house. 

The lawsuit arose after the homeowners noticed defects in the house that was built and sold by the construction company. The owner’s wife served as real estate agent for the home. Prior to closing, the homeowners had sent a “punch list” of last-minute, minor items that needed to be fixed. As part of the sale of the house, the construction company provided the purchasers with a document entitled “One Year Structural Warranty (Warranty).” The Warranty pledged to repair or replace enumerated items in the home if necessary.

After taking possession of the home, the homeowners noticed that not all of the “punch list” items had been repaired. Further, they noticed that a brick retaining wall was cracked and would allow water through the mortar after heavy rains. They notified the construction company and workers were sent to make repairs. All issues, however, were not resolved. The homeowners hired a home inspector. The home inspector itemized the still-existing defects and forwarded the itemization to the construction company. After several unsuccessful attempts to resolve the remaining issues, the homeowners filed a lawsuit against the construction company, its owner and his wife. The trial court ruled that the construction company and its owner were liable for the damages. The court, however, held that the owner’s wife was not liable even though she served as the real estate agent for the sale. The homeowners appealed this decision.

The appellate court’s decision
The appellate court agreed that the owner’s wife was not liable in her individual capacity simply by virtue of acting as the real estate agent in this transaction. There was no written partnership agreement between the agent and her husband. The homeowners, therefore, argued that she was liable under a theory of an implied partnership or an implied co-venture. The court noted that in order for there to be a partnership between two parties, there would have to be evidence that the two parties had intended to enter a business relationship for profit, combining their property, labor, skill, experience, and/or money.

At the trial, the real estate agent testified that she, her husband, and the construction company all maintained different bank accounts. She did not have access to her husband’s or the construction company’s bank accounts and her husband did not have access to her bank account. She testified that the construction company existed long before their marriage and that her husband did not rely on her to make business decisions. Although she received commissions as a real estate agent, she did not receive any commission from the sale of this particular house. Although she admitted that she did offer some advice to the color of the roof and brick when her husband was building this particular house, the trial court found that this was insufficient to create a business partnership. The appellate court agreed.

Alternatively, the homeowners argued an implied joint venture in regards to the construction and sale of the home. The court noted that a joint venture in many ways is like a partnership, but for a more limited scope and purpose. The court noted that three factors must exist to create an implied co-venture: (1) a common purpose; (2) some manner of agreement between the parties, and (3) the equal right of each to control the venture as a whole. The court noted that for the same reasons the facts did not support the creation of an implied partnership, there was no creation of an implied co-venture.

Finally, the homeowners argued that the real estate agent was the “vendor” of the home because she was the agent for the sale. Under the terms of the Warranty, the “vendor, if he be in the business of building such dwellings” was liable for any defects to the home. The court ruled that the notion that the real estate agent was the vendor of the home was “without merit.” The court noted that since she was neither in a partnership nor co-venture with her husband, she was not “in the business of building such dwellings.” Therefore, she was not liable under the Warranty.

Conclusion
Although the court went on to affirm the trial court’s awarding damages to the homeowners, liability for these damages were only imposed upon the construction company and its owner.



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