Allan J. Hartzell v. Justus Company, Inc., a Corporation, and Justus Homes

Citations: 693 F.2d 770; 34 U.C.C. Rep. Serv. (West) 1594; 1982 U.S. App. LEXIS 23975Docket: 82-1521

Court: Court of Appeals for the Eighth Circuit; November 18, 1982; Federal Appellate Court

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In the case of Allan J. Hartzell v. Justus Company, Inc. and Justus Homes, the Eighth Circuit Court of Appeals addressed an appeal from the defendants concerning a jury verdict that awarded Hartzell $34,794.67. The dispute arose from Hartzell's purchase of a log home construction kit in 1977, which he claimed had numerous defects, including leaking knotholes, improper materials, and structural issues resulting in reduced property value. Hartzell alleged breaches of implied and express warranties and negligence, seeking damages for the diminished value and repair costs.

The defendants contended that the trial court erred by not instructing the jury on a limitation-of-remedies clause in their contract, which stipulated that Justus would repair or replace defective materials as the exclusive remedy. They cited the Uniform Commercial Code, arguing that this clause should preclude any claims for consequential damages, specifically the loss in fair market value. The appellate court affirmed the lower court's decision, rejecting the defendants' claims of error regarding the jury instructions and the potential for double recovery.

The appellants argue that neither the jury nor the District Court made a specific finding that the limited remedies failed their essential purpose, nor was this issue presented to the jury through a special interrogatory. The plaintiff contends that even if the warranty instructions were flawed, the general verdict should remain valid based on a correct negligence instruction. The court finds that the instructions regarding warranty and damages were sufficient. Judge Jones adequately framed the issue of consequential damages, requiring a finding of failure of essential purpose before awarding damages for market value diminution. The jury was directed to compensate the plaintiff for necessary repair costs and for any unrepaired structural defects reducing the home's value. The jury’s verdict, aligning closely with the repair costs and market value decline, implies a finding that structural defects were not fully correctable, indicating a failure of the limited warranty's essential purpose. This conclusion is supported by precedents, including Soo Line R.R. v. Fruehauf Corp., where a similar limitation-of-remedies clause was deemed ineffective due to failure to fulfill essential purpose. Justus Homes attempted repairs but ultimately did not deliver the promised quality, thus limiting remedy to repairs alone would contravene the intended purpose of the warranty. No explicit finding was made in this case regarding the limitation-of-remedies clause's ineffectiveness, nor was a reason articulated in the trial court as seen in Soo Line.

In Select Pork, Inc. v. Babcock Swine, Inc., the Eighth Circuit addressed a breach of warranty claim where the defendant failed to deliver promised special pigs, instead providing ordinary ones. The court deemed the contract's limitation of damages clause unenforceable due to unconscionability and failure to meet its essential purpose. Consequently, the defendant could not limit liability to the purchase price. In this case involving a house sale, the jury determined the house did not meet the seller's promises, and repairs were insufficient. Thus, the defendant's liability could not be restricted to repair costs. Justus Homes argued that the trial court should have evaluated the unconscionability of the limitation clause before jury deliberation on consequential damages; however, this was deemed unnecessary since the clause failed to fulfill its intended purpose, allowing for buyer remedies under UCC Sec. 2-719(2), including consequential damages. Justus Homes also contested the trial court's decision to allow evidence of both repair costs and diminution in value without clear jury instructions. They claimed that the appropriate measure of damages should be the lesser of the two. However, the judge clarified that the applicable law varies based on case specifics and noted that unlike the referenced case, evidence indicated potential structural defects in this instance, which the jury recognized in their verdict. The court found no ambiguity in the jury instructions, which mandated a finding of unrepaired structural defects to award damages based on diminished market value.

No double recovery occurred; the jury's verdict accounted for the cost of repairs plus the remaining decrease in market value post-repair, not for both the full decrease in value and repair costs. Justus Homes claimed insufficient evidence of proximate cause, arguing that some damage was attributed to the builders’ fault, and contended that the jury could only speculate on the cause of the damage. Despite evidence of poor construction practices, the record also showed Justus Homes' responsibility due to inadequate design and missing materials. The court noted that Justus Homes could have included the builders as third-party defendants if this argument held weight. The defendant alleged inadequate jury instructions on proximate cause but did not specify deficiencies, and the instructions clearly directed the jury to award damages solely for defects caused by the defendants’ actions. After a thorough review, no errors were found, and the judgment was affirmed. The legal status of Justus Homes is ambiguous, appearing to be a trade name for Justus Company, Inc., but this does not impact the decision. The judgment must also stand as the jury had ample evidence of significant structural defects, including unlevel floors and essential components that could not be replaced without extensive rebuilding. An expert appraiser testified that these issues diminished the home's value by approximately $21,000.