Milton Co. v. Council of Unit Owners of Bentley Place Condominium

RODOWSKY, Judge. This building construction case involves the Bentley Place Condominium (the Condominium), a complex consisting of 240 residential units in 20 two-story buildings located on approximately 14.2 acres in Montgomery County. Our grant of ²⁶⁷ certiorari embraces a number of issues including whether the express and implied warranties on the sale of newly constructed private dwelling units, recognized and created by Maryland Code (1974, 1996 RepLVol.), §§ 10-202 and 10-203 of the Real Property Article (RP), are subject to RP § 11-131, creating warranties by the developer of a residential condominium and providing for notice of defects, duration of warranties, and limitations of actions. 1 The sole plaintiff in this action, the Respondent in this Court, is the Council of Unit Owners of Bentley Place Condominium (the Council). 2 The Petitioners in this Court are defendants The Milton Company (Milton) and Tuckerman Lane Development Company, Inc. (Tuckerman). Bentley Place was built in phases.

The first sales of units were on January 31, 1987, and sales to original purchasers continued through July 24, 1991. By a letter dated September 13, 1989, the Council notified the Petitioners of claimed defects in materials and workmanship in common elements at the Condominium. Discussions between the parties began and continued after the parties, on January 25, 1991, executed an agreement headed “Agreement to Extend Statute of Limitations” (the Tolling Agreement). The date for filing suit under the protection of the Tolling Agreement was extended to and including October 31,1991.

This action was filed October 30, 1991. The Council sought damages for claimed defects in the common elements and in the units of individual owners. Insofar as relevant to this certiorari review the complaint, after alleging facts applicable to all counts, was divided into counts labeled as negligence, breach of implied warranties, breach of contract, breach of express warranty, negligent misrepresentation, and violation of the Maryland Consumer Protection Act. ²⁶⁸ The case was tried before a jury for over three weeks in June and July of 1994. During the trial the Council introduced a survey of unit owners that was conducted by an expert engaged by, and who testified for, the Council.

The circuit court submitted the case to the jury on special interrogatories that first asked the jury to determine liability, if any, as to each defendant on each of the above-recited counts. The jury returned a verdict in favor of the Council on each count against both Petitioners, with the exception of the negligent misrepresentation count on which the verdict was returned against Milton only. No issue is presented by the Petitioners that asks this Court to distinguish between the Petitioners. The circuit court’s verdict form next asked the jury to itemize damages on any count on which the jury found liability.

Presented on the form were ten possible categories which basically coincided with the categories utilized by the Council in presenting evidence of damages. On the breach of contract, negligent misrepresentation, and negligence counts the jury awarded damages of $6,682,052 itemized in the negligence section of the verdict form as follows: “(i) Site Components $ 214,787 (ii) Exterior Building Envelope 1,427,705 (in) Building Attic Spaces and Ventilation 589,000 (iv) Building Servic.es 142,400 (v) Interior Common Elements (floor/ceiling assembly) 1,620,160 (vi) Cathedral Beam 693,000 (vii) General Conditions 705,000 (viii) Contingency 300,000 (ix) Plumbing 440,000 (x) HVAC 550,000.” On the counts labeled as breach of implied warranties and breach of express warranty the jury awarded $5,677,052. Accounting for the $1,005,000 difference from the breach of contract, negligent misrepresentation, and negligence counts is the absence of any award on the warranty counts for general conditions and contingency. On the claim of violation of the Consumer Protection Act the verdict was $5,977,052.

On that claim there was no award of damages for general ²⁶⁹ conditions. These various theories of liability may be the basis for but one recovery, as the Council recognizes that recovery cannot exceed the maximum verdict of $6,682,052. The parties agree that items (i) through (viii) of the special verdicts are damages that were awarded for defects in common elements and that the damages specified in items (ix) and (x) were awarded for defects in the units that are individually owned. Following receipt of the jury verdict the proceedings in the circuit court were directed to the resolution of post-judgment motions and of a myriad of third-party claims.

Final judgment was entered in May 1996, and both parties appealed to the Court of Special Appeals. That court affirmed. Milton Co. v. Council of Unit Owners of Bentley Place Condominium, 121 Md.App. 100 , 708 A.2d 1047 (1998). Milton and Tuekerman petitioned this Court for a writ of certiorari, which we granted. 351 Md. 6 , 715 A.2d 965 (1998).

The petition for certiorari raises five issues. Of these issues, one raises limitations and the other an objection to the evidence of the survey of unit owners. Specifically, the Petitioners ask: 1. “Did The Trial Court And Court Of Special Appeals Err In Holding That Unit Owners Whose Claims Were Time-Barred Could Recover Damages For Alleged Defects In Their Individual Units?” 3 2. “Did The Trial Court And Court Of Special Appeals Err In Holding That An Expert May Base Opinions Concerning Alleged Defects On Hearsay Information Provided By Lay Persons?” ²⁷⁰ Two other issues raised in the certiorari petition would result, if the Petitioners are successful, in the' reversal of the award of damages for defects in individually owned units, assessed in the plumbing and HVAC classifications on the special verdict form. The verdicts on all counts included damages for those two classifications.

Specifically, the Petitioners ask: 3. “Did The Trial Court And Court Of Special Appeals Err In Holding That Respondent Has Standing To Pursue And Recover For Individual Unit Owner Claims For Alleged Damages Uniquely Applicable To Such Claims?” 4. “Did The Trial Court And Court Of Special Appeals Err In Holding That The Implied Warranties Under Title 10 Of The Real Property Code Apply Independently Of The Warranties Found In The Maryland Condominium Act?” Finally, the Petitioners challenge the verdict on the negligence count by asking: 5. “Did The Trial Court And Court Of Special Appeals Err In Refusing to Limit The Respondent’s Negligent Construction Claim For Economic Loss To The Cost Of Repairing Only Those Improvements That Allegedly Posed A Serious And Immediate Risk Of Death Or Serious Personal Injury?” These issues will be further explained, and additional facts will be stated, as we address the specific issues below. Three of the issues are intimately interwoven with statutory provisions concerning warranties that are found in Title 10, “Sales of Property,” Subtitle 2, “Express and Implied Warranties,” and in Title 11, the “Maryland Condominium Act.” The warranties addressed by Title 10 are made by a “vendor” to a “purchaser” with respect to “improvements.” A vendor is “any person engaged in the business of erecting or otherwise creating an improvement on realty, or to whom a completed improvement has been granted for resale in the course of his business.” § 10-201(e). A purchaser is “the original purchaser of improved realty ____” § 10-201 (c). ‘“Improvements’ ²⁷¹ includes every newly constructed private dwelling unit .... ” § 10—201(b). Particularly relevant to the instant matter are §§ 10-202 and 10-203, dealing respectively with express and implied warranties.

Under § 10-202(a) the means by which an express warranty may be created by a vendor include: “(1) Any written affirmation of fact or promise which relates to the improvement and is made a part of the basis of the bargain between the vendor and the purchaser creates an express warranty that the improvement conforms to the affirmation or promise. “(2) Any written description of the improvement, including plans and specifications of it, which is made a part of the basis of the bargain between the vendor and the purchaser creates an express warranty that the improvement conforms to the description.” In relevant part § 10-203(a) provides that “in every sale, warranties are implied that, at the time of the delivery of the deed to a completed improvement or at the time of completion of an improvement not completed when the deed is delivered, the improvement is: (1) Free from faulty materials; (2) Constructed according to sound engineering standards; (3) Constructed in a workmanlike manner; and (4) Fit for habitation.” The provisions now found in §§ 10-202 and 10-203(a) have been in effect since Chapter 151 of the Acts of 1970. The Title 10 implied warranties expire “(1) [i]n the case of a dwelling completed at the time of the delivery of the deed to the original purchaser, one year after the delivery or after the taking of possession by the original purchaser, whichever occurs first; [or] ²⁷² “(3) [i]n the case of structural defects, 2 years after the date of completion, delivery, or taking possession, whichever occurs first.” § 10—204(b). The statute of limitations for a breach of warranty action under Title 10 is two years “after the defect was discovered or should have been discovered or within two years after the expiration of the warranty, whichever occurs first.” § 10-204(d). Title 11, the Maryland Condominium Act, provides for warranties in § 11-131.

In relevant part that section reads: “(a) Application of §§ 10-202 and 10-203; liability of developer for improvements.—(1) The provisions of §§ 10-202 and 10-203 of this article apply to all sales by developers under this title. For the purposes of this article, a newly constructed dwelling unit means a newly constructed or newly converted condominium unit and its appurtenant undivided fee simple interest in the common areas. “(2) [Deals with certain grants of an improvement by a developer to an intermediate purchaser]. “(b) Warranty on unit from developer to owner.—In addition to the implied warranties set forth in § 10-203 of this article there shall be an implied warranty on an individual unit from a developer to a unit owner. The warranty on an individual unit commences with the transfer of title to that unit and extends for a period of 1 year. The warranty shall provide: “(1) That the developer is responsible for correcting any defects in materials or workmanship in the construction of walls, ceilings, floors, and heating and air conditioning systems in the unit; and “(2) [Establishes specific criteria for the performance of heating and of any air conditioning systems]. “(c) Warranty on common elements.—(1) In addition to the implied warranties set forth in § 10-203 of this article there shall be an implied warranty on common elements from a developer to the council of unit owners.

The warranty shall apply to: the roof, .foundation, external and ²⁷³ supporting walls, mechanical, electrical, and plumbing systems, and other structural elements. “(2) The warranty shall provide that the developer is responsible for correcting any defect in materials or workmanship, and that the specified common elements are within acceptable industry standards in effect when the building was constructed. “(3) The warranty on common elements commences with the first transfer of title to a unit owner. The warranty of any common elements not completed at that time shall commence with the completion of that element or with its availability for use by all unit owners, whichever occurs later. The warranty extends for a period of 3 years. “(4) A suit for enforcement of the warranty on general common elements shall be brought only by the council of unit owners. A suit for enforcement of the warranty on limited common elements may be brought by the council of unit owners or any unit owner to whose use it is reserved. “(d) Limitation of actions.—Notice of defect shall be given within the warranty period and suit for enforcement of the warranty shall be brought within 1 year of the warranty period. “(e) Exceptions. ... “(2) The provisions of this section do not apply to a condominium that is occupied and used solely for nonresidential purposes.” The Maryland Condominium Act in § 11-141 also provides, in relevant part, as follows: “(a) In general.—The provisions of this title are in addition and supplemental to all other provisions of the public general laws, the public local laws, and any local enactment in the State. “(c) Conflict with other enactments.—If the application of the provisions of this title conflict with the application of other provisions of the public general laws, public local laws, or any local enactment, in the State, the provisions of this title shall prevail.” ²⁷⁴ I The circuit court ruled that the Tolling Agreement applied to all of the claims asserted against the Petitioners, and the Court of Special Appeals agreed.

Milton Co., 121 Md.App. at 117-18 , 708 A.2d at 1055 . The Petitioners’ position is that the Tolling Agreement applies only to claims by the Council based on the implied warranty on common elements provided by § 11—131(c). Under the Petitioners’ construction of the Tolling Agreement all of the common law claims based on defects in individual units are subject to the general statute of limitations, Md.Code (1974, 1998 Repl.Vol.), § 5-101 of the Courts and Judicial Proceedings Article. Under that statute limitations run three years after the cause of action accrues, and, under Poffenberger v. Risser, 290 Md. 631 , 431 A.2d 677 (1981), a cause of action ordinarily accrues when it is discovered.

Further, the maximum period of limitations for a Title 10 implied warranty claim is four years from delivery of the deed to a completed improvement. §§ 10-203 and 10-204(b), (d). Because sales of units began in January 1987, but suit was not filed until October 30, 1991, there would be some undetermined number of claims of unit owners that would be barred by these statutes of limitations, if the Tolling Agreement did not apply. Excerpted below are the principal provisions of the Tolling Agreement. The recitals included the following: “WHEREAS, notification of a claim under the Maryland Condominium Act, Section ll-131(d) was provided by [the Council] to [the Petitioners] on or about September 13, 1989; and “WHEREAS, the statute of limitations with respect to any suit which the [Council] may file against the developer expires one year from the date of the expiration of the warranty period[.]” The parties then agreed that “1. [Petitioners] will not interpose as a defense the statute of limitations with respect to any suit which may be ²⁷⁵ filed against [Petitioners] by [the Council] on or before [October 31, 1991] with respect to claims outlined in the September 13, 1989 letter from ... attorneys for [the Council] to [the principal of Petitioners] and subsequent notice including a report provided [to Petitioners] from Architectural Design Consultants, Inc. (‘ADC’) enclosed with a letter dated September 27, 1990 from [the attorneys for the Council] to [a representative of the Petitioners]. “2. [Petitioners disclaim any concession] that any or all of the claims outlined in the ADC report or previous correspondence to the developer referenced above constitutes compensable warranty claims under the Maryland Condominium Act or under any theory. “3. [Negotiations will continue with regard to claims made by [the Council] as outlined in the correspondence and ADC report referenced above, but that this Agreement is solely for the purpose of extending the statute of limitations with regard to those claims and does not constitute an acceptance of liability by the developer or a concession of any or all the claims by the [Council]. “4. [I]f suit is not filed by [the Council] against [Petitioners] by [October 31, 1991], the [Council] understands that it is waiving its right to file suit in connection with claims made for all common element warranty matters contained in Phase I of Bentley Place ---- Nothing contained in this document shall constitute a waiver of [the Council’s] ability to file suit against [Petitioners] in connection with claims arising out of warranty periods for any phases in Bentley Place ... subsequent to Phase I____” Clearly various portions of the Tolling Agreement contain language arguably supporting the position of one or the other party.

No party, however, contends that, under the circumstances of this case, it was not exclusively the function of the circuit court to interpret the contract. Cf. Calomiris v. Woods, 353 Md. 425, 434-35 , 727 A.2d 358, 362-63 (1999). We hold that the circuit court did not err, as a matter of law, in interpreting the Tolling Agreement to apply to all of the claims asserted in this action. ²⁷⁶ Although the Tolling Agreement may have resulted from negotiations that focused on implied warranties under § 11-131(c), the operative provision of the Tolling Agreement is paragraph one under which the Petitioners covenant not to raise limitations “with respect to any suit.” Paragraph one further recognizes that the “claims” being asserted are outlined in the notice of September 13, 1989, and in subsequent notice, including the ADC report.

The ADC report includes complaints of alleged defects in individually owned units, and notices subsequent to that of September 13, 1989, included letters of complaint from unit owners concerning alleged defects in their individual units. In addition, paragraph two explicitly recognizes that the threatened lawsuit could assert claims, not only under the Maryland Condominium Act, but “under any theory.” II The Petitioners contend that the circuit court erred in admitting certain unit owner surveys conducted by the Council’s expert, Robert Davidson, A.I.A., because the surveys contained inadmissible hearsay. The circumstances surrounding admission of the surveys are set forth in Part V of the opinion in this case by Chief Judge Joseph Murphy for the Court of Special Appeals. Milton Co., 121 Md.App. at 119-20 , 708 A.2d at 1056-57 .

We agree with the reasons stated by, and the conclusion of, the Court of Special Appeals on this issue. Essentially that court rested its holding on two grounds. First, the trial court did not abuse its discretion when it ruled that the surveys had significant probative value in assisting the jury to resolve a conflict between the parties’ respective expert .witnesses by the jury’s making a credibility determination. 4 The Court , of Special Appeals further reasoned, under the standard enunciated in Hartless v. State, 327 ²⁷⁷ Md. 558, 579, 611 A.2d 581, 591 (1992), that the surveys contained the type of information reasonably relied upon by experts rendering opinions on similar matters. We note that the Petitioners do not assert that they sought and were denied a limiting instruction advising the jury that the surveys were not substantive evidence.

Ill Under this issue the Petitioners challenge the standing of the Council to sue for damages based on defects in individually owned units. The Petitioners’ position is succinctly stated in their petition for certiorari. “As a legal entity representing the interests of its members, a council of unit owners may sue to enforce the rights of claims of its members only where there exists an express statutory grant of standing. In the instant case, [the Council], which does not have a property interest in the