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Finke v. Woodard





Appeal from the Circuit Court of Champaign County; the Hon. John G. Townsend, Judge, presiding.


This action was brought by plaintiffs, Gary and Teresa Finke, to recover damages and an order of rescission as a result of defects in a new home built and sold by defendant Elmer Woodard. Among the issues to be considered in this appeal are whether plaintiffs' suit is barred by section 13-214 of the Code of Civil Procedure (Ill. Rev. Stat. 1981, ch. 110, par. 13-214) or laches, whether plaintiffs are entitled to rescind the sale, and the appropriate measure of restitution following a rescission of the sale. We affirm the award of rescission, but reverse and remand this cause for appropriate findings on the proper amount of restitution to which plaintiffs are entitled.

At trial, plaintiffs testified that on April 23, 1977, they executed a purchase agreement with defendant for the sale of a new house under construction by him in Heather Hills subdivision near Champaign. Plaintiffs paid $52,050 for the house, moved in on June 16, 1977, and continued to occupy it at the time of trial. Plaintiffs testified that they began to experience problems with the home upon taking possession, leading them to file this lawsuit in which they sought recovery on theories of implied warranty of habitability, negligence, gross negligence, and fraud. The plaintiffs testified to a number of complaints within the home: the water conditioner was installed backwards causing filtering chemicals to be discharged, the dishwasher was improperly installed allowing water from the garbage disposal to drain into the dishwasher, a septic system malfunctioned forming a pool of effluent in the backyard, the interior walls of the house were weak and separated from the ceiling, nails continuously popped out in various locations in the house, doors would not close, a crack developed in the concrete floor of an outside storage shed, and a portion of the bathroom plumbing broke loose from its connection causing water damage to the floor and tile. The jury found for plaintiffs on theories of warranty, negligence, and gross negligence and returned a not guilty verdict on the fraud count. The jury also awarded plaintiffs both rescission of the sales contract and deed and damages.

• 1 Defendant's first argument on appeal is that plaintiffs' suit is barred by section 13-214(a) of the Code of Civil Procedure, which provides:

"Actions based upon tort, contract or otherwise against any person for an act or omission of such person in the design, planning, supervision, observation or management of construction, or construction of an improvement to real property shall be commenced within 2 years from the time the person bringing an action, or his or her privity, knew or should reasonably have known of such act or omission." Ill. Rev. Stat. 1981, ch. 110, par. 13-214(a).

Plaintiffs' home was completed by June 16, 1977, and the original complaint was filed on July 7, 1981, well beyond the two years in which plaintiffs knew or reasonably should have known of the acts or omissions of the defendant as provided in that section. If this were the only circumstance to consider, then defendant's argument would be well taken, but defendant fails to point out that the statute was amended after plaintiffs' suit was filed.

Effective November 29, 1979, Public Act 81-1169 added section 21.3 of the former Limitations Act, the current section 13-214 of the Code of Civil Procedure. (1979 Ill. Laws 4480; Ill. Rev. Stat. 1981, ch. 83, par. 22.3.) At that time, Public Act 81-1169 provided in subsection (e) that "[t]he limitations of this section [current section 13-214] shall apply to all acts or omissions which occur on or after the effective date of this amendatory Act of 1979." On July 7, 1981, plaintiffs filed their suit when the statute contained that section. On September 16, 1981, Public Act 82-539 deleted subparagraph (e) (1981 Ill. Laws 2709) and on July 1, 1981, Public Act 82-280 incorporated chapter 83 into chapter 110 of the new Code of Civil Procedure, erroneously including old subparagraph (e) (1981 Ill. Laws 1591). Finally, on July 13, 1982, the Revisory Act of 1982, Public Act 82-783, deleted subparagraph (e). 1982 Ill. Laws 397.

Thus, at the time plaintiffs filed their suit, former section 21.3 of the Limitations Act had a prospective application, applying to acts or omissions occurring after November 29, 1979. The acts or omissions at issue here, the improper construction of the home, occurred on or before 1977 and were outside of the plain language of that section. When plaintiffs filed suit, the only applicable limitation period was section 15 of the Limitations Act, which provided a period of five years for all civil actions not otherwise provided for. (Ill. Rev. Stat. 1979, ch. 83, par. 16.) To retroactively apply the deletion of subparagraph (e) as defendant urges, would result in the barring of plaintiffs' action, a result which is clearly not permitted. As noted by the supreme court in Hupp v. Gray (1978), 73 Ill.2d 78, 83, 382 N.E.2d 1211, 1213, and amendment which shortens a limitations period may not operate to divest a litigant of a cause of action if his suit has already been filed. We conclude that plaintiffs' suit was not barred by section 13-214 of the Code of Civil Procedure.

• 2 Although plaintiffs' suit was brought within the five-year limitations period, defendant next argues that the equitable remedy of rescission is not available because plaintiffs failed to timely assert this claim earlier. Plaintiffs' original complaint, filed on July 7, 1981, sought damages for the various defects and on July 30, 1982, plaintiffs were granted leave to amend their complaint to seek a claim of rescission without objection by the defendant. The motion for leave to amend as well as testimony at trial indicates that the addition of this claim resulted from an opinion of plaintiffs' expert that the problems plaintiffs were experiencing were not isolated defects but were interrelated complaints pointing out latent structural defects in the walls.

In Pyle v. Ferrell (1958), 12 Ill.2d 547, 147 N.E.2d 341, the supreme court upheld a defense of laches in bar of plaintiff's suit to quiet title to a mineral estate which was brought more than 18 years after plaintiff learned of his interest. The Pyle court noted that laches is defined as such delay in enforcing one's rights as would work to the disadvantage of another. The doctrine is founded not merely upon the amount of time involved but is properly invoked where there has been some change of condition or circumstances of the property or the parties, making relief inequitable. Whether the delay is sufficient to constitute laches depends upon the circumstance of the case and requires an examination of when the party became aware of the reasons which would support the equitable remedy. In Pinelli v. Alpine Development Corp. (1979), 70 Ill. App.3d 980, 388 N.E.2d 943, for example, the court upheld an order rescinding a stock sale agreement on the basis of fraud five years after the transaction, even though the claim for rescission was not made until after the close of evidence at trial. The court there noted that the plaintiff had not become aware of the defendant's fraud or misrepresentation until the close of the evidence.

An examination of when plaintiffs became aware of the availability of the equitable remedy also requires some consideration of when a breach of contract will support an award of rescission. Among other grounds which can be used to support a claim of rescission, failure of consideration is a recognized basis for such a relief, but not every breach of contract will warrant this extraordinary remedy. In C.G. Caster Co. v. Regan (1980), 88 Ill. App.3d 280, 285, 410 N.E.2d 422, 426, the court stated:

"`[A] party may terminate or rescind a contract because of substantial nonperformance or breach by the other party.' [Citation.] `A total breach of contract is a nonperformance of duty that is so material and important as to justify the injured party in regarding the whole transaction as at an end.' (A. Corbin, Contracts sec. 946, at 925 (1952).) Whether or not a breach is material and important is a question of degree which must be answered by weighing the consequences of the breach in light of the actual custom of persons in the performance of contracts similar to the one involved in the specific case. A. Corbin, Contracts sec. 946, at 925 (1952)."

In Petersen v. Hubschman Construction Co. (1979), 76 Ill.2d 31, 389 N.E.2d 1154, an implied warranty of habitability was breached by a builder-vendor where plaintiff's house was constructed with "substantial defects" requiring major amounts of work to repair. Although the house was habitable and not dangerously unsafe, the court allowed the buyers to rescind their contract and recover the value of labor and materials they supplied as well as their down payment. The Petersen court expressly noted that they were not deciding what the appropriate remedy would have been if the defects had not been discovered until after the deed had been delivered, but we do not interpret that case as precluding rescission where a house is discovered with substantial structural defects after the deed has passed to the buyer. The opinion did say, however, that "[t]he implied warranty arises with the execution of the contract and survives the delivery of the deed." (76 Ill.2d 31, 41, 389 N.E.2d 1154, 1158.) In the case at bar, for example, testimony was introduced that the cost of repairing the defective conditions complained of would come close to the original price of the house.

We conclude that the trial court correctly rejected defendant's claim of laches. The plaintiffs testified that the cracks in the walls became progressively worse each year; they apparently did not realize the magnitude of the problems until the house was examined by a structural engineer in 1981 and 1982. The septic system was noticed to be deficient in 1978, and when plaintiffs informed defendant he attributed the problem to excessive groundwater and suggested that plaintiffs reduce the amount of laundry for a few weeks. On April 13, 1981, plaintiffs received a complaint regarding the septic system from the Illinois Department of Public Health notifying them that they had to take immediate action to correct a sewage eruption on their property. This evidence suggests that plaintiffs were not aware of the substantial ...

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