Starfish Condominium Ass'n v. Yorkridge Service Corp.

Rodowsky, J., delivered the opinion of the Court. This case involves claims that an Ocean City condominium has been defectively constructed. The claims are based upon the implied warranties created by Md. Code (1974, 1981 Repl. Vol.), § 10-201, §§ 10-203 through 10-205 of the Real Property Article (RP).

There are multiple issues, including applicability of the statutory warranties, standing of the council of unit owners to sue, a discovery dispute, sufficiency of the evidence and liability of a parent corporation for the obligations of its subsidiary. In the early 1970’s Paddy Construction Company, Inc. (Paddy) was acting as both developer and builder of three garden apartment buildings on the eastern half of the block of Ocean City land bounded on the south by 126th Street, on the east by Assawoman Drive, on the north by 127th Street and on the west by Ocean Highway. Each building contained ⁶⁹⁷ three floors, of four apartment units each, for a total of 12 units per building and of 36 units in the project. When the construction was 70% to 85% completed, Paddy’s business failed and the deed of trust on the property was foreclosed.

At the trustees’ public auction on November 30, 1973, the property was bought in, at a price of $755,000, on behalf of Yorkridge-Graham Joint Venture No. II (Joint Venture). The Joint Venture was a Maryland general partnership in which a 60% interest was held by Yorkridge Service Corporation, Inc. (Service Co.) and a 40% interest was held by R. Walter Graham, III (Graham). Service Co. is a Maryland stock corporation and is a wholly-owned subsidiary of The Yorkridge Federal Savings & Loan Association of Baltimore County (the S&L). The S&L’s offices are at 3725 Old Court Road, Pikesville, Maryland.

Graham was an Ocean City realtor. A written joint venture agreement, effective November 30, 1973, was executed between Service Co. and Graham on February 28, 1974. It contemplated the prompt completion of construction on the property. Graham was to supervise construction.

Service Co. was to control the disbursement of all funds of the venture. A commitment for a loan to the Joint Venture had been procured by Service Co. from Independence Federal Savings & Loan Association of Philadelphia in the principal amount of $725,000. Service Co. was also to provide additional development money by way of loans to the Joint Venture. A condominium regime was to be imposed upon the property, and Graham was to use his best efforts to effect sales of the individual condominium units.

The deed from the foreclosing trustees to the Joint Venture was granted on February 27, 1974. Thereafter the Joint Venture expended $222,315, including punch list items, in completing construction. The certificate of occupancy was issued on March 10, 1975. On April 29, 1975 the declaration, bylaws, and plats were recorded establishing Starfish III, IV, & V Condominium (Starfish).

Melvin Berger (Berger), the president of S&L and of Service Co., John J. Davis (Davis), the vice president of S&L and of Service Co., ⁶⁹⁸ and Graham were the initial members of the board of directors of the council of unit owners. The first annual meeting of the council of unit owners of Starfish was held on December 18, 1975. By that time sales of 35 out of the 36 units had been closed. ■ On May 11, 1976 Starfish Condominium Association, which is the council of unit owners at Starfish (Council), and the owners of nine units brought suit against the Joint Venture, Service Co., Graham, S&L, Berger and Davis. On July 2, 1976 the owners of nine additional units brought a separate action against the same defendants.

These actions were consolidated and tried by the court. While the actions asserted a number of theories, we are concerned here only with the claims predicated on statutorily implied warranties. The Council sought damages for alleged construction defects relating to the common elements. The owners of individual units sought damages for construction defects in their particular units.

One unit owners’ claim was dismissed by the trial court, and that dismissal is not involved in these appeals. In a memorandum opinion and order of April 21,1980, the trial court adjudicated most of the claims. Judgment was entered in favor of Berger and Davis as to all claims. There is no appeal from that determination.

Judgment was entered in favor of the remaining defendants on the claim of the Council. The Council appeals that adverse judgment. Separate judgments for damages were entered against the Joint Venture, Service Co. and S&L in favor of the 17 remaining unit owners. These judgments were in amounts ranging from $2,227 to $2,567.

The three judgment debtors appeal those judgments. We shall refer to the Joint Venture, Service Co. and S&L collectively as "Defendants,” and to the Council and unit owner parties collectively as "Plaintiffs.” In its April 21,1980 order the trial court made no disposition of the claims against Graham, because Graham had filed in bankruptcy. We dismissed prior appeals noted from the April 21,1980 order, because it was not a final judgment. ⁶⁹⁹ Starfish Condominium v. Yorkridge Service, 292 Md. 557 , 440 A.2d 373 (1982). Thereafter, the Plaintiffs dismissed their claims against Graham.

A final judgment, which did not disturb the previous trial court determinations, was entered on May 6, 1982. We granted certiorari on cross-appeals from that judgment prior to consideration of the matter by the Court of Special Appeals. The issues fall into three general categories: (1) those relating to the warranties, (2) those relating to matters of evidence, and (3) whether the corporate veil of Service Co. may be pierced to reach S&L. I Defendants assert that no Plaintiff is an "original” purchaser so as to have the benefit of statutorily implied warranties. The argument involves the interpretation of RP §§ 10-201, 10-203 and 10-205 which in relevant part provide: § 10-201.

Definitions. (a) In general. — In this subtitle the following words have the meanings indicated unless otherwise apparent from context. (b) Improvements. — "Improvements” includes every newly constructed private dwelling unit, and fixture and structure which is made a part of a newly constructed private dwelling unit at the time of construction by any building contractor or subcontractor. (c) Purchaser. — "Purchaser” means the original purchaser of improved realty, and the heirs and personal representatives of the original purchaser.

(e) Vendor. — "Vendor” means 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. ⁷⁰⁰ § 10-203. Implied warranties. (a) Warranties which are implied. — Except as provided in subsection (b) or unless excluded or modified pursuant to subsection (d), 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. (b) Exception. — The warranties of subsection (a) do not apply to any condition that an inspection of the premises would reveal to a reasonably diligent purchaser at the time the contract is signed.

(d) Exclusion or modifícation ofimplied warranty. — Neither words in the contract of sale, nor the deed, nor merger of the contract of sale into the deed is effective to exclude or modify any implied warranty. However, if the contract of sale pertains to an improvement then completed, an implied warrant [sic] may be excluded or modified wholly or partially by a written instrument, signed by the purchaser, setting forth in detail the warranty to be excluded or modified, the consent of the purchaser to exclusion or modification, and the terms of the new agreement with respect to it. § 10-205. Grant to intermediate purchaser to evade liability. If a vendor grants an improvement to an intermediate purchaser to evade any liability to a user and purchaser imposed by this subtitle, the vendor is liable on the subsequent sale of the ⁷⁰¹ improvement by the intermediate purchaser as if the' subsequent sale had been effectuated by the vendor without regard to the intervening grant.

As Defendants see it, the Joint Venture was the original purchaser of the property. They say that the sale to the Joint Venture from the trustees was not for the purpose of evading liability, as addressed in § 10-205. Because § 10-205, it is argued, establishes the exclusive basis for ignoring a sale in order to determine the original purchaser, the Joint Venture became the original purchaser so that the later sales by it were free of warranty. This argument conflicts with other provisions of the statute.

Under § 10-203 (a) the implied warranty relates to the condition of the improvement "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 subject matter of the warranty is a completed improvement. Furthermore, "sale” as used in § 10-203 means a sale from a vendor to a purchaser. A "purchaser” is "the original purchaser of improved realty . . ..” § 10-201 (c). Improvements, which make realty "improved,” include "every newly constructed private dwelling unit, and fixture and structure which is made a part of a newly constructed private dwelling unit at the time of construction ....”§ 10-201 (b).

At the time of the trustees-Joint Venture sale, the improvements were 15% or more short of completion. The condominium units in their condition at the time of the trustees’ sale could not constitute completed "dwelling” units, because no certificate of occupancy could be issued. Moreover, the trustees did not undertake to complete the work which was not completed when their deed was delivered to the Joint Venture. It was the Joint Venture which completed the newly constructed private dwelling units on the property, which acted as vendor, and on which the implied warranty obligations are imposed in this case.

Defendants next point to a provision in the form of contract of sale used by the Joint Venture in sales to unit owners. It reads: "The Unit and the appliances and fixtures ⁷⁰² contained therein are sold 'as is’ and except as may be provided for on exhibit 'B’ attached hereto, the Seller is under no obligation to decorate, repaint, replace or repair any item or matter contained therein.” There was no standard exhibit "B.” The reference is a drafting technique designed to permit special features for a particular transaction to be incorporated within the form contract. This "as is” provision does not satisfy the requirements of § 10-203 (d). It does not "[set] forth in detail the warranty to be excluded or modified . . . .” The obvious purpose of this requirement is to advise the purchaser of the rights which the statute confers and which the purchaser is asked contractually to waive.

Because the form of contract used at Starfish fails so to advise, the attempted exclusion of implied warranties by the "as is” provision is ineffective. Accordingly, we hold that each of the original purchasers of the condominium units from the Joint Venture obtained from the Joint Venture the implied warranties described in § 10-203 (a) on that particular unit. We also hold that the Joint Venture, by statute, made implied warranties as to the common elements, but that analysis is more complex. Starfish consists of three separate buildings.

The condominium declaration, Article FOURTH, ¶ 2, provides in part as follows: As to each separate Building ... beginning at the ground level, of each Building and extending from there upwards, all of the area of each Building not included in the individual Units, as shown on the Plats, including but not limited to stariways [sic], breezeways, partitions, doors, windows, plumbing, heating, electric, air-conditioning components, doorways, curbing, parking areas [and] pedestrian walkways, shall be general common elements as between the owners of the Units within that specific Building, and shall be limited common elements as between the owners of the Units with[in] that specific Building and the owners of Units in the other Buildings, the rights and limitations of each ⁷⁰³ Unit owner as to such general and limited common elements to be determined by the Board of Directors in accordance with provisions of the By-Laws. In its complaint directed to defects in the common areas, the Council specified alleged defects building by building. As to one or more of the buildings, the Council alleged defects in electrical wiring, electric service entrance meter installation, roof, gutters and downspouts, air-conditioning compressors, stairways and walls. Each of these alleged defects relates to a "fixture and structure which is made a part of a newly constructed private dwelling unit,” so that it constitutes an improvement under § 10-201 (b).

Each is the subject of the warranty provided by § 10-203 (a). Under the statute, however, the warranties run to the original purchasing unit owners. The Maryland Condominium Act, Title 11 of the Real Property Article, in § 11-107 (a), provides that each unit owner owns "an undivided percentage interest in the common elements equal to that set forth in the declaration.” Under the Starfish declaration, that percentage is 2.777 per unit. In a condominium regime unit owners own the common elements in fee as tenants in common.

See Andrews v. City of Greenbelt, 293 Md. 69, 73-74 , 441 A.2d 1064, 1068 (1982). This matter of legal title gives rise to another argument advanced by the Defendants. In the instant matter, the claim for damages for breach of warranty relating to the common elements at Starfish was asserted by the Council in its own name and not in the name of any unit owner or owners. Because the Council does not own the common elements, Defendants assert that the Council lacks standing.

In this connection Defendants distinguish between capacity to sue and standing to sue. They recognize that under RP § 11-109 (d) a council of unit owners, even if unincorporated as is the Starfish council, has the capacity to sue or be sued. But, say the Defendants, that capacity to sue may not be exercised, for want of standing, by suing on a warranty which did not run to the Council and which relates ⁷⁰⁴ to improvements, i.e., the common elements, which the Council does not own. In its memorandum opinion of April 21, 1980, the trial court concluded that the Council had standing because "effect should be given to the recent amendments to the Horizontal Property Act. . . giving [a council of unit owners] the right to sue to the use of the unit owners in relation to the common elements.” That reference was to House Bill 1946 of the 1980 Session of the General Assembly, signed by the Governor on May 20, 1980 and effective July 1, 1980 as Ch. 681.

It is RP § 11-109 (d) (4) which provides that a council of unit owners has the power, inter alia: (4) To sue and be sued, complain and defend, or intervene in litigation or administrative proceedings in its own name on behalf of itself or two or more unit owners on matters affecting the condominium. Although the above-quoted statute was not in effect at the time the trial court made its ruling, the April 21, 1980 order was not a final judgment. Until the orders for appeal were entered following the final judgment of May 6, 1982, the ruling by the trial court was subject to revision. For this reason, we find it unnecessary to determine whether the Council had standing to sue on the instant claim prior to the 1980 amendment.

Assuming arguendo that the Council did not have standing when the litigation was instituted, the defect was procedural only and was cured by the 1980 amendment. Friendly Village Community Association, Inc. v. Silva & Hill Construction Co., 31 Cal. App. 3d 220 , 107 Cal. Rptr. 123 (1973), on which Defendants place heavy reliance, held that an incorporated association of condominium unit owners had no standing to sue for damage to common elements caused by negligence, because the association did not own the property.

That court viewed its conclusion as consistent with the rule that every action must be prosecuted in the name of the real party in interest and said that the real parties in interest were the unit owners. Md. Rule ⁷⁰⁵ 203 a requires an action to be prosecuted in the name of the real party in interest, with certain exceptions set forth in section b. These exceptions are various types of representative actions. In essence, the 1980 amendment to the condominium statutes declares that, under the circumstances there specified, a council of unit owners may sue in its own name in a representative capacity.

The amendment affects procedure. The question then arises whether that change can be applied to the present case. Janda v. General Motors, 237 Md. 161 , 205 A.2d 228 (1964) reviewed the various rules formulated by courts to aid in determining whether a statute is to be applied retrospectively or prospectively. There we said, quoting from Richardson v. Richardson, 217 Md. 316, 320 , 142 A.2d 550, 553 (1958), that " '[o]rdinarily a change affecting procedure only, and not substantive rights, made by statute (and an amendment of the Maryland Rules has essentially the same effect) applies to all actions [and matters] whether accrued, pending or future, unless a contrary intention is expressed.’” 237 Md. at 168 , 205 A.2d at 232 .

See also Ireland v. Shipley, 165 Md. 90, 98 , 166 A. 593, 596 (1933). Chapter 681 of the Acts of 1980 does not express an intent contrary to the general rule. That Act’s effective date clause reads that it "shall take effect July 1, 1980.” The title to that Act provides that the Act is, in part, for the purpose of "clarifying and enlarging certain powers of a council of unit owners . . . .” Even on the assumption that the representational suit provision constituted an enlargement, rather than a clarification, of the powers of a council of unit owners, the 1980 enactment in no way indicates that it is inapplicable to pending litigation. 1 ⁷⁰⁶ The present case is indistinguishable in principle from Richardson, supra, where a husband, suing for divorce, obtained service on his wife who failed timely to answer. A decree pro confesso was entered on June 19, 1957.

The wife moved to strike the decree pro confesso on July 25, 1957. At that time Md. Rule 675 a 3 read as follows: At any time after the passage of an interlocutory decree, and within thirty days from the date on which a decree pro confesso shall have been entered, and before final decree, upon motion or upon its own initiative, the court may set aside the decree, and permit the filing of an answer or the interposing of other defense. [Underlining supplied.] On September 26, 1957 the rule was amended to delete the underlined language, so that the time within which a motion to set aside such a decree was to be filed was no longer limited to 30 days following the decree. At a hearing on October 2, 1957 the trial court denied the wife’s motion to strike and a final decree was entered. This Court reversed and remanded the matter for further proceedings.

Despite the fact that the wife’s motion was out of time under Rule 675 as it stood when her motion was filed, the procedural change in the law was applied. We said that in the present case the [husband] had no vested right to the maintenance of any procedural rule affecting his case until the termination thereof.... This case is not one in which the successful party in the trial court has a final and enrolled judgment and his adversary’s right of appeal has expired by lapse of time. [ 217 Md. at 321-22 , 142 A.2d at 553 .] In the instant matter, applying the 1980 amendment to the Maryland Condominium Act does not deprive the Defen ⁷⁰⁷ dants of any vested right. This is so, even though the Council sues for the entire cost of making the common elements at Starfish conform to the implied warranties under RP § 10-203.

Because the § 10-203 implied warranties run only to original purchasers of condominium units, it might be argued that each original purchaser at Starfish would be entitled to claim for only l/36th of any damages. However, the few cases which have considered this question are to the contrary. Stony Ridge Hill Condominium Owners Ass’n v. Auerbach, 64 Ohio App. 2d 40 , 410 N.E.2d 782 (1979) involved a 24 unit condominium. Representations had been made by the developer to only four of the unit owners that the roof of the building was a " 'twenty-year roof.’ ” Suit was brought by the council of unit owners which had statutorily conferred standing.

The court concluded that "[e]ach person who purchased a condominium unit, as a result of the misrepresentation, has a right to have the whole damage to the entire common area of the building remedied and completely satisfied.” Id. at 43 , 410 N.E.2d at 785 . Otherwise, "|p]ayment by defendants of only one-sixth of the roof damage, representing the share of four unit owners, and the consequent repair of only one-sixth of the roof would still leave the roof in the same leaky condition, and would be the equivalent of giving plaintiff no legal remedy or relief whatever.” Id. at 44 , 410 N.E.2d at 786 . Of similar effect is Drexel Properties, Inc. v. Bay Colony Club Condominium, Inc., 406 So. 2d 515 (Fla. App. 1981).

That case was a class action brought by the unit owners association and by representative unit owners based, inter alia, upon breach of a judicially created implied warranty on new dwellings which ran only to original purchasers. The court held that as to common elements, the [plaintiffs] may recover the entire damages on either [an implied warranty or negligence] theory, albeit the subsequent or remote purchasers will benefit thereby. To conclude otherwise and apportion the damages would penalize the original purchasers. In order for appellees to receive the benefit of their bargain and be made whole, the amount of damages awarded ⁷⁰⁸ must equal the sum necessary to correct the condition. [Id. at 519-20.] In the case at hand, one or more of the original purchasing unit owners in Starfish could directly have sued for breach of § 10-203 implied warranties as to the common elements and could have sought the entire damages to the common elements. 2 Under Md. Rule 209, the action could have been treated as a class action, particularly to protect the parties defendant from possible multiple or successive suits.

The 1980 amendment, codified as RP § 11-109 (d) (4), created a new procedure by declaring a council of unit owners to be a proper representative of two or more unit owners on matters affecting the condominium. No change of substance, by way of enlargement of any liability of the Defendants, was effected. In furnishing the validity for the Council’s standing, the 1980 amendment operates, under the facts in this case, pursuant to the rule that a court applies the law in effect at the time of its decision. See United States v. Fresno Unified School District, 592 F.2d 1088 (9th Cir. 1979), cert. denied, 444 U.S. 832 , 100 S. Ct. 62 , 62 L. Ed. 2d 41 (1978 presidential reorganizational plan transferring to the Attorney General the function of initiating "pattern and practice” suits under Title VII of the Civil Rights Act of 1964 applied to pending suit initiated in 1975 by the Attorney General); United States v. County of Hawaii, 473 F. Supp. 261 (D. Hawaii 1979) (same); T & R Joint Venture v. Office of Planning and Zoning, 47 Md. App. 395 , 424 A.2d 384 (1980) (county council bill effective December 21, 1979, conferring standing, as an aggrieved party, on the office of planning and zoning under statute governing appeals from any decision of the zoning hearing officer, applied to an October 5, 1979 appeal to the circuit court from the board of appeals’ dismissal for ⁷⁰⁹ lack of standing on an appeal from the zoning hearing officer noted on May 14, 1979). 3 We now turn to the merits of the Council’s appeal.

The issue involves the interpretation of the trial court’s opinion. The Council’s position is that the trial court conceptually divided the warranty along the lines that the work of constructing Starfish was physically divided. Physical construction was in two phases, one by Paddy and the other by the Joint Venture. The Council says that the trial court erred by concluding that the Joint Venture did not warrant work performed during the Paddy phase.

That work