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Wednesday, February 5, 2014

Indiana Court of Appeals on the Economic Loss Doctrine

Floor TilesThis is the fourth in a series of posts that draw on Michael Dorelli and Kimberly Cohen's recent article in the Indiana Law Review on developments in contracts law in Indiana.   

In teaching contracts, we often feel a bit guilty about presenting the world of contracts as if contracts involved two people meeting, dickering over terms and then knowingly consenting to an agreement.  Most contracts don't happen that way nowadays.  Most contracts that consumers enter into are standard form contracts with terms to which they agree without knowing what they are.  And contracts among business entities tend to be relational contracts in which it is difficult to extract from the parties' complex interactions the moment when an offer was made and acceptance occurred.

Cyprus_floor_tileSo it's nice to have a straightforward case involving two homeowners dissatisfied with the quality of work performed by a man hired to lay tile in their home.  Interesting contractual issues arise in such cases as well.

In 2008, Ramon and Stacey Halum entered into a written contract (how quaint!) with Michael Thalheimer for Thalheimer to remove carpeting and tiles from their home and to install new tiles.  When Thalheimer completed the work, the Halums paid him in full and also gave him two $100 gift cards, which he regarded as a bonus.  But the parties also agreed that Thalheimer would return to fix six unsatisfactory tiles.  

Thalheimer never came, and the Halums hired someone else to do the work.  They then sued Thalheimer for breach of contract, negligence and breach of the implied warranty of habitability.  After a bench trial, they won a judgment of over $14,000 against Thalheimer, covering labor and materials paid to the man who re-did their floors.  

On appeal in Thalheimer v. Halum, Thalheimer invoked the economic loss doctrine, seeking to limit recovery to damages for breach of contract where the Halums' loss was purely economic in nature.  In response to this, the Halums noted that their son was injured by the improperly installed tiles.  The trial court found Thalheimer liable both for breach of contract and for negligence in connection with the Halums' son's injury.  The Court of Appeals found that the economic loss doctrine does not preclude recovery in a case such as this one in which an independent tort has been alleged.  The Court of Appeals construed Thalheimer's remaining objections as a claim that the son was not really injured, but the Court of Appeals refused to be drawn into a factual dispute already resolved at trial.  

The warranty issue is a bit more interesting.  The parties' agreement included the following warranty:

“All workmanship guaranteed for two (2) years from date of completion.” 

On my reading of the case, it seems that Thalheimer argued that he should have beeen permitted to repair the tiles himself rather than having to pay for the full replacement costs.  But the Court of Appeals agreed with the trial court that by being dilatory in responding to the Halums' requests that he repair the faulty tile, Thalheimer had voided the warranty, freeing the Halums to hire another installer.  There was a potentially relevant ambiguity in the warranty, which might have guaranteed only quality workmanship and not quality tile, but the Court of Appeals found that the trial court did not err in construing the ambiguity against Thalheimer, the drafter.  Contra proferentem lives!

 

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