Subcontract – Warranty – Virginia Consumer Protection Act – Statute of Limitations

Johnston v. Stephan (VLW No. 017-8-097, 14 pp.) (Bernhard, J.) Fairfax Cir.Ct.Case No. Cl-2017-5006

Holding: Where the defendant-subcontractor installed a roof under a subcontract with a general contractor employed by a homeowner who then sold the home to plaintiff-homeowners, the homeowners are not parties to the subcontract and do not have a right to enforce its terms; the subcontractor is not required to warrant the roof; and the homeowners failed to state a claim for violation of the Virginia Consumer Protection Act (VCPA) because the act is limited to consumer transactions. The subcontractor’s demurrer to the homeowners’ complaint’s causes of action for breach of warranty and violation of the VCPA is sustained with leave to amend. We overrule the subcontractor’s statute of limitations objection finding that by code it must be raised by plea at bar or as an affirmative defense at trial.

Facts: A general contractor hired by a couple to build a home entered into a standard contract agreement with the defendant-subcontractor to install a roof. The couple later sold the home to plaintiff-homeowners, who soon allegedly demanded that the subcontractor perform further work on the roof. The subcontractor declined. The homeowners then filed this action, alleging that the subcontractor’s refusal violated consumer protection law and breached an alleged contractual warranty. In response, the subcontractor craved oyer for the alleged warranty. The homeowners attached to the complaint the subcontract between the subcontractor and the general contractor. The subcontractor filed a demurrer to the causes of action for breach of warranty and violation of the VCPA, arguing (1) that there is no privity of contract between the homeowners and the subcontractor and that the subcontract does not permit the transfer of any warranty to third parties; (2) that the subcontract did not require the subcontractor to warrant the roof; (3) that the action was filed past the VCPA’s two-year statute of limitations; and (4) that the homeowners failed to state a claim for violation of the VCPA because the act is limited to consumer transactions and does not apply to contracts between two separate businesses for business purposes. The subcontractor further argues that even if the act applies, the homeowners’ claim should be dismissed because they did not allege the proper elements to support a cause of action, i.e., “a false representation, of material fact, made intentionally and knowingly, with intent to mislead, reliance by the party misled, and resulting in damage.” Additionally, they did not suffer damages caused by the alleged representation.

The homeowners argue that (1) they only need to prove the required terms of the warranty; that a third party may enforce a warranty if the contracting parties intended the third party to benefit from the warranty; that the subcontractor provided an express warranty to the original owner and that the warranty was transferred to the homeowners; (2) that the defense of the statute of limitations may not be raised by demurrer; and (3) that the act does not limit its protections to transactions that occur between a supplier and a consumer; that a roof is used for “personal, family and household purposes” as defined by the act; and that representations made pertaining to the roof by the subcontractor, who later admitted to the homeowners that the warranty was enforceable and the roof was installed incorrectly, were of a material fact and were false.

Analysis: The homeowners rely entirely on two contracts, the first between them and the original homeowners that provides “[w]arranties on roof (10 years) and all appliances,” and the second between the general contractor and subcontractor for the work performed. Although this case varies slightly from Sensenbrenner v. Rust, Orling & Neal, Architects, Inc. because the homeowners did not bring a tort action, the court’s reasoning is still applicable. The homeowners are requesting actual damages based on a warranty provided for in a contract to which they are not in privity. They do not provide facts to support their allegation that the warranty is transferrable.

The General Assembly enacted the VCPA with the intent to “promote fair and ethical standards of dealings between suppliers and the consuming public.” Va. Code Ann. § 59.1-197. In considering the subcontractor’s objections, we address whether there is a consumer transaction, whether the homeowners have alleged all the elements required, and whether the applicable statute of limitations is addressable by demurrer. While the Supreme Court has not addressed the definition of a “consumer transaction,” a few trial courts have discussed the implications of the definition. In Bindra v. Michael Bowman and Assocs., the court found that contractors who purchase materials for a construction project on a house do not fall under the definition because they are “a commercial entity [purchasing] goods from another commercial entity for commercial purposes; i.e., the construction of a home to be sold by [the contractor] (not lived in by [the contractor]).” (Emphasis in original). Second, courts have found that while plaintiffs can bring claims against suppliers regardless if that supplier was involved in a transaction with the plaintiff, the plaintiffs must still show that the transaction occurred for a personal use rather than for the benefit of potential customers. In this cause, the subcontractor is an improper party to this claim as pled because it is alleged as a commercial entity contracting with another commercial entity for the construction of a home, and therefore the transaction did not occur for a “personal, family, or household purpose.” As a subcontractor, the defendant provided a service to the general contractor. The service provided was merely for a business purpose. We find the homeowners did not allege facts supporting the allegation that the transaction at issue falls within the definition of “consumer transaction.” The VCPA prohibits misrepresentation by a supplier in connection with a consumer transaction. In this case, the homeowners have not alleged that the subcontractor misrepresented a material fact or knowingly made a misrepresentation. In turn, the homeowners have not alleged all of the required elements for this cause of action.

Virginia Code states that “the defense that the statute of limitations period has expired may not be set up by demurrer.” As the homeowners correctly posit, this type of argument is best made by plea in bar, or as an affirmative defense, and not in a demurrer.

Objections to breach of warranty and VCPA claims sustained with leave to amend. Objection under the statute of limitations overruled.