ATTORNEY FOR APPELLANT ATTORNEY FOR APPELLEES
William T. Rosenbaum Peter A. Schroeder
Indianapolis, Indiana Indianapolis, Indiana
ATTORNEY FOR AMICUS CURIAE
APARTMENT ASSOCIATION OF
Andrew C. Charnstrom
SUPREME COURT OF INDIANA
TERRI J. JOHNSON, ) ) Appellant (Plaintiff Below ), ) ) 06S01-9506-CV-785 v. ) in the Supreme Court ) SCANDIA ASSOCIATES, INC., ) 06A01-9310-CV-326 OXFORD MANAGEMENT COMPANY, ) in the Court of Appeals ) Appellees, (Defendants Below ).)Cause No. 06D01-9106-CT-227A
APPEAL FROM THE BOONE SUPERIOR COURT The Honorable O.A. Kincaid, Judge
SHEPARD, Chief Justice.
Some Indiana cases have recognized that a warranty of
habitability may be implied in a residential lease, giving rise to
damages for breach of contract upon appropriate proof. In this
appeal, we recognize for the first time that such a warranty may be
implied in some leases and explore the conditions under which it
may be held to exist. Ultimately, we conclude that the claimant in
this case has not demonstrated that a warranty was implied in her
The defendants moved to dismiss both claims. The trial court denied the motion as to the negligence claim, but dismissed the warranty claim. In the wake of the defense verdict on the negligence claim, Johnson appeals only the dismissal of her claim for breach of warranty. See footnote 1
Scandia responds that Johnson's real claim is tort, a matter already resolved against her by the jury. It says that a personal injury remedy founded on an imposed warranty would render landlords strictly liable. Scandia notes that this Court recently examined a similar issue and adopted tort rules for adjudicating personal injury claims in properties let for residential use. See Childress v. Bowser, 546 N.E.2d 1221 (Ind. 1989) (covenant to repair can be implied from landlord's oral promise and is subject to duty of reasonable care, per Restatement (Second) of Torts § 357). Scandia also argues it is inequitable to expect a landlord to warrant that
tenants will be free from physical injury because the landlord is
not in control of the property, and thus cannot monitor or maintain
it for safety once the tenant takes possession.
We begin our analysis by reviewing the common law development
of the warranty of habitability in Indiana.
Indiana has been part of this movement. This Court first imported a warranty of habitability into conveyances of real property when we adopted the Appellate Court's opinion in Theis v. Heuer, 264 Ind. 1, 280 N.E.2d 300 (1972). There, the plaintiffs sued the builder-vendor of their new home because substantial defects caused property damage, rendering the house uninhabitable, and deprived them of the benefit of their bargain. Id. at 3, 280 N.E.2d at 301. The trial court granted defendants' motion to
dismiss, and the plaintiffs appealed.
We overruled the doctrine of caveat emptor, holding that a
warranty of fitness for habitation may be implied in a builder-
vendor's sale of a new house to the first purchaser. We concluded
that the complaint contained facts sufficient to state a claim "in
that it relies on the concept of implied warranty of fitness of
habitation . . . ." Id. at 12, 280 N.E.2d at 306 (emphasis added).
Still, there was little guidance in Theis about the theory or basis
of the warranty.
Then, in Barnes v. Mac Brown & Co., Inc., 264 Ind. 227, 342
N.E.2d 619 (1976), we extended the protection of the implied
warranty to subsequent purchases of the house, but limited its
scope to latent or hidden defects. Id. at 229, 342 N.E.2d at 621.
Implicit in our holding was the notion that the warranty was
implied-in-fact in the original parties' sales contract.
To justify abrogating the builder-vendor's privity defense, we
borrowed principles from the law of strict liability in products
cases. We said that a plaintiff must prove that the defect's
causation originated in the builder-vendor, that the standard of
proof is reasonableness in light of the circumstances, and that
contractual privity between buyer and builder-seller was not
required. Id. at 229-30, 342 N.E.2d at 621.
The same year, the Court of Appeals held that the implied
warranty of habitability does not attach merely on transfer of
possession. Great Atlantic & Pacific Tea Co. v. Wilson, 408 N.E.2d
144 (Ind. Ct. App. 1980). In that case, the lessee was held not
liable on a breach of warranty theory for injuries caused by a
dangerous condition existing in the leased premises when possession
was tendered back to the landlord, inasmuch as no warranty or
covenant was implied in the transfer. The court distinguished
Theis and Barnes by pointing out that the lessee, A & P, was
neither a builder nor a vendor. Id. In the very least, this
implied that law of contract was the source of the warranty of
Asked whether a warranty of habitability is implied in the residential leasehold contract, the Court of Appeals held in Breezewood Management Co. v. Maltbie, 411 N.E.2d 670 (Ind. Ct. App.
1980), that a landlord could be found liable to his tenant on a
breach of implied warranty, at least where there was a housing code
and city inspectors had cited the landlord with multiple
violations. Id. at 671, 675 (quoting Boston Housing Auth. v.
Hemingway, 293 N.E.2d 831, 845 (Mass. 1973)
damages in such circumstances.)
The trial court had awarded
damages based on the law of contract: the difference between the
rents paid for the apartment as warranted and its fair rental value
in the substandard condition, compensating the tenants' for their
economic loss. Id. at 675. The Court of Appeals affirmed these
damages after a review of the evidence. Id. at 676.
Plainly, a warranty of habitability, whether in the sale or
lease of residential dwellings, has developed in the common law of
Indiana, and its roots are in the law of contract.
A warranty is a promise relating to past or existing fact that
incorporates a "commitment by the promisor that he will be
responsible if the facts are not as manifested." 1 Samuel
Williston, A Treatise on the Law of Contracts § 1:2, at 10 (Richard
A. Lord, ed., 4th ed. 1990). Habitability means reasonably fit for
occupation as a dwelling. See Webster's Third New International
Dictionary 1017 (1993). Thus, when a landlord warrants
habitability, the warranty is an affirmative declaration of the
apartment's fitness for habitation, that is, as a dwelling place.
Habitability is not the same as no risk of harm. Conditions which might cause injury can flow from many actors besides the lessor--builders, independent contractors, or even negligence by visitors. An apartment can thus provide adequate shelter and amenities, as promised, and still be a place which presents some
A case of negligence in leaseholds is subject to tort
principles. See Childress, 546 N.E.2d 1221 (finding binding
covenant to repair from landlord's admonition at inception of oral
lease to "do nothing" to premises and his specific promise to make
particular repair); Restatement (Second) of Torts §§ 355-62 (1965)
(describing various rules under which landlords should be liable in
tort to tenants).
Tort law imposes on all persons who engage in risk-creating
activities the duty of reasonable care under the circumstances.See footnote
Tort liability is involuntary, and it is balanced between the
parties according to each's comparative fault.
See Ind. Code Ann.
§ 34-51-21 (West Supp. 1999).
By contrast, when a party breaches his legal obligation under a contract, liability is strict.See footnote 7 Contracts are private, voluntary allocations by which two or more parties distribute specific
entitlements and obligations.See footnote
When a landlord enters a lease agreement with her tenant, she
voluntarily confers certain rights upon the tenant, such as
possession and quiet enjoyment for a specific term.
(Second) of Property (Landlord and Tenant) §§ 1.2, 4.3 (1977).
She does this in consideration of the tenant's promise to pay rent,
not to waste the property, not to use it for illegal purposes, and
not to "holdover" beyond the term. See id. §§ 12.1, 12.2, 12.3,
12.5. The landlord agrees to this legal relationship after
balancing the costs and benefits, and the same is true for the
tenant. The parties may grant additional rights or assume special
obligations, but each has just one duty under the contract--to
perform as promised.
Defining a warranty of habitability broadly as a tenant's right to be free from injury might have many effects. A broad
definition might cause landlords to increase maintenance of
properties, at least where doing so would still produce an economic
return. It would undoubtedly prompt landlords to purchase
additional insurance, spreading the risk of harm more broadly.See footnote
Landlords would, of course, attempt to pass along increased
insurance costs to tenants by raising rents. Increased leasing
costs might also cause conversion of some properties from
residential uses and outright abandonment of others. This would
shrink the supply of affordable housing, which could have
potentially adverse social effects and would, of course, be borne
by society's poorest renters.See footnote
Potential negative outcomes also could flow from a warranty rule on injury--because high standards of upkeep could be discouraged by shifting the risk of liability, and thus economic
incentive, from the landlord to the insurer. A contractual right
could diminish a tenant's incentive to report or repair defects by
eliminating the economic risk of contributory negligence. All of
these outcomes would increase the risk of harm to tenants,
residents, and guests.
In light of these considerations, we conclude that a warranty
of habitability is best thought of along the lines of
a landlord's promise to convey to a tenant an apartment suitable
for living, and breach of which promise occurs when a landlord
fails to tender a suitable apartment.
fitness for a particular purpose imposed by statute on contracts
governing transactions for the sale of goods).
Habitability is an objective factual determination which may
be codified, but is not necessarily prescribed by a housing code.
A community's adoption of a building or housing code is evidence of
its conception of habitability standards for dwellings in that
locale. These codes vary enormously in their prescriptions;
absent explicit statutory or regulatory language imposing on
landlords the obligation to warrant a codified standard of
habitability in property rented as a residence, a housing code does
not impose a warranty on the residential leasehold transaction.
Even though an implied warranty of habitability is not imposed by law on every residential lease contract, it may be implied in fact in the agreement between landlord and tenant. Contracts and covenants implied in fact arise from the course of dealing between the parties and may be evidenced by acts done in the course of performance or by ordinary practices in the trade.See footnote 11 This seems the best way of viewing Breezewood. The warranty extended by the landlord was implied in fact from the parties' course of dealing, which included dealings related to the Bloomington Housing Code. The Code thus provided evidence for determining that the landlord
breached his promise.See footnote
Johnson does not identify any state or local law as the source
of the warranty she pleads as implied in her contract. Moreover,
she has not identified any facts demonstrating that a warranty of
habitability was either express or implied-in-fact in the
suitable for living.
Consequential damages may be awarded on a breach of contract
claim when the non-breaching party's loss flows naturally and
probably from the breach and was contemplated by the parties when
the contract was made. Western Union Telegraph Co. v. Biggerstaff,
177 Ind. 168, 97 N.E. 531 (1912). This follows the rule of Hadley
v. Baxendale, 156 Eng. Rep. 145 (1854), and generally limits
consequential damages to reasonably foreseeable economic losses.
Accordingly, recovery for personal injury on a contract claim is
allowable only when the particular injury was within the parties'
contemplation during contract formation. See Strong v. Commercial
Carpet Co., 163 Ind. App. 145, 152-53, 322 N.E.2d 387, 391-92
(1975), reh'g den. in part, 163 Ind. App. 153, 324 N.E.2d 834.
Thus, to claim consequential damages the tenant must show the
parties intended to compensate for personal injury losses caused by
the apartment's unfitness. The tenant may prove the promise to
compensate personal injury by showing its expression as a contract
term or by pointing to evidence showing it to be implied in the
granted. Ind.Trial Rule 12(B)(6).
In the most favorable light, Johnson complains that her
apartment was not suitable for living because its fixtures
unexpectedly released an electric current and, second, that her
injuries were foreseeably caused by the breaching condition. She
does not allege whether the defect was present at the time of entry
or arose after taking possession, nor does she have any contention
about giving Scandia notice of the defect.
Johnson says her leasehold contract is governed by a writing,
so we look within the document to see if it extended her a
warranty. There is no mention of a warranty of habitability.
Because the writing does not show that Scandia expressly warranted
the apartment's habitability, Johnson's assertion can mean just one
thing: Scandia Associates impliedly warranted the habitability of
Johnson's apartment. Johnson pleads no facts which, if true, tend
to show that the agreement formed with Scandia gives a warranty of
habitability. Her failure to plead a factual basis showing that
Scandia actually extended the warranty as part of the agreement
results in a failure to state a valid claim that the warranty was
For these reasons, we affirm the trial court.
Sullivan, and Selby, JJ., concur.
Boehm, J., concurs in result, agreeing with Justice Dickson
that the law implies a warranty of habitability, but
concluding that the remedies for breach of that warranty
are essentially along the lines indicated by Restatement
(Second) of Property § 10.2, and that recovery of personal
injuries requires a showing of negligence.
Dickson, J., dissents, believing that an implied warranty
of habitability in leased residential premises should
be recognized as a matter of law.
professional in the residential apartment trade and the plaintiff is a tenant in privity of contract with the landlord. Id. Finally, the Court said the burden of proof to sustain the breach of implied warranty of habitability claim is "one of reasonableness in light of the surrounding circumstances." Id. It is not clear that this would afford Johnson any tool she did not possess in her negligence trial.
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