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Ingraham v. Trowbridge Builders

297 N.J. Super. 72, 687 A.2d 785 (App. Div. 1997)

CONTRACTORS; HOUSING; WARRANTIES—The new home warranty periods for a model home begin when the model is sold to the ultimate purchaser, and not when the certificate of occupancy is first issued.

A developer constructed a house to use as a model home and obtained home warranty coverage under the New Home Warranty and Builders’ Registration Act. Two years later, the developer sold the model home and delivered the certificate for home warranty coverage. After various problems with the house, and failed efforts to get the developer to repair them, the purchaser filed a claim with the company that issued the home warranty coverage. Its claim was rejected as untimely. The primary issue was whether the purchaser was entitled to damages under the Act, which provides that a builder of a new home is liable to an owner for one year from the time the house was first constructed or one year from when it was first occupied by an owner. The developer relied on similar language in a regulatory provision from the Department of Community Affairs, N.J.A.C. 5:25-1.3, stating that the warranty date is “the first occupation or settlement date, whichever is sooner.” The trial judge awarded damages to the purchaser, concluding that this regulation was merely interpretive, and without any force or effect. The judge also concluded that a model home is not owner occupied within the meaning of the Act until one occupies it as a home, therefore the warranty began on the date the purchaser took title.

The developer appealed, claiming the judge failed to apply the regulation to bar the purchaser’s claim, and failed to apply the doctrine of mitigation of damages. The Appellate Division first disagreed with the trial court and stated that although the regulation was only an interpretive rule, any regulation promulgated pursuant to statutory authority has the force and effect of law and carries a presumption of reasonableness. The plain language of the regulation provides a one year warranty, but the end result would be either to invalidate the Act’s warranty for model homes sold more than one year after their construction, or to provide purchasers with less than one full year of protection if purchased within the first year after construction. The Court found that these results contradict legislative intent since there is a clear statutory mandate that warranties are given by the builder to the owner, that the builder cannot be an owner by definition, that the owner is to have the benefit of the warranty, and that the legislature did not intend for a builder to give itself a warranty. The Department of Community Affairs conceded that had this house been built on speculation and not sold until three years after construction, the purchaser would be entitled to the full one year warranty. The Court refused to find a difference between that scenario and one where the house is used as a model before being sold. The Appellate Division concluded that the trial judge reached the proper result, and declared the regulation invalid since it frustrated legislative goals and failed to mirror the Act properly.

The developer also claimed the purchaser had a duty to mitigate damages and should not be allowed to recover damages he could have avoided through reasonable efforts. A judge’s decision on mitigation of damages will be upheld if his or her findings are supported by sufficient credible evidence. The Court concluded that this standard was met since the record indicated numerous attempts by the purchaser to get the builder to fix the problems, even trying to make the repairs himself, and then making substitute arrangements within a reasonable time after discovering the builder would not correct the problems.


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