By: Kathleen M. Morley and Jennifer M. Horn
The Superior Court of Pennsylvania recently issued a decision in the case of Bennett v. Masterpiece Homes et al. in which the Court found that an owner of a construction company personally assumed liability for defects in construction work based upon his oral representations and assurances made to homeowner customers regarding the work.
The Force and Effect of “I Guarantee It”
This case involved claims brought by individuals (“Homeowners”) against a construction company and the managing member (“Owner”) of the company, which the Homeowners had hired for the construction of homes in a residential development. During construction of the homes, the Homeowners noticed certain building deficiencies and brought them to the attention of the Owner, who served as their primary contact at the company throughout construction. On numerous occasions, the Owner assured the Homeowners of the quality of the work being performed on their homes by making verbal, direct assurances often in the form of personal guarantees by saying things such as “I will take care of it,” or “I guarantee it” when questioned about the quality or remediation of certain work. Upon completion of construction, however, the Homeowners discovered significant, latent structural problems and defects in the construction of their homes requiring extensive repair.
Held to His Word
The Homeowners filed suit for breach of contract, breach of warranty and violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (“UTPCPL”) against both the Owner and the construction company alleging that they had built defective homes and engaged in deceptive and dishonest practices during the construction process. The trial court found that the Owner’s personal representations and guarantees regarding the homes and the quality of the construction work exposed him to personal liability for the damages and, in fact, awarded the Homeowners double the amount of damages based on what the Court found to be “misleading conduct” in violation of the UTPCPL, which is a consumer protection law that allows for the award of up to three times the amount of actual damages suffered by a member of the public as a result of unfair or deceptive business practices.
Not A Mere “Figure of Speech”
The Owner appealed the trial court’s ruling arguing on appeal that he did not assume personal liability by virtue of his personal, verbal assurances and that he could not be liable for punitive damages under the UTPCPL without evidence of fraudulent, not just misleading, conduct. With respect to his personal assurances and statements, the Owner argued that such statements were merely figures of speech and did not act as an assumption of personal liability. The Owner also argued that imposing personal liability was improper because he was acting as an agent of the construction company at the time these statements were made.
“Double” Damages Under PA’s Unfair Trade Practice and Consumer Protection Law Upheld
The Superior Court upheld the trial court’s ruling and found that the Owner’s assurances were akin to express promises guaranteeing the quality of the construction. His promises had the effect of personally obligating him for the structural soundness and integrity of the homes because the statements were made for the purpose of securing the Homeowners’ continuing performance (payment) under their respective contracts. The Court also upheld the trial court’s award of double damages, finding that the “catchall provision” of the UTPCPL, which prohibits “fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding[,]” only requires a showing that conduct was misleading to trigger liability. Accordingly, the Court held that a more stringent standard requiring a showing of fraud was not required in order to be liable for double or triple damages under the UTPCPL.
Personal Liability Attaches Despite Seemingly “Informal” Statements
The Court’s finding of personal liability based upon seemingly informal statements of assurance and guarantee should serve as a cautionary warning for construction professionals who may be quick to make such assurances to appease concerned clients when issues arise during construction. Additionally, the case demonstrates that the standard of liability for double or triple damages under the UTPCPL is low and such damages can be imposed upon construction companies, or their owners or managers, for conduct that a Court considers misleading.
Jennifer M. Horn is Senior Counsel at Cohen Seglias and a member of the Construction Group. She concentrates her practice in the areas of construction litigation and real estate.