Johnson v. Wall

248 S.E.2d 571 (1978)

38 N.C. App. 406

Wilton R. JOHNSON and wife, Ingelberge R. Johnson v. Greg WALL and Terminix Service II, Inc.

No. 7710SC982.

Court of Appeals of North Carolina.

November 7, 1978.

*573 Kimzey & Smith by James M. Kimzey, Raleigh, for plaintiffs-appellants.

Teague, Johnson, Patterson, Dilthey & Clay by Ronald C. Dilthey; Manning, Fulton & Skinner by John B. McMillan, Raleigh, for defendants-appellees.

CLARK, Judge.

The trial court did not specify which one or more of the four grounds set forth by the defendants were accepted in granting the directed verdict. Because any one of the grounds would support the granting of the defendants' motion, we must consider all of them in order to determine whether the directed verdict was properly granted.

Plaintiffs first contend that the defendants owed a duty to the plaintiffs to exercise due care in inspecting for termite damage and in reporting the results of the inspection, and that therefore, the directed verdict could not be properly granted on the basis that there was no duty. Defendants contend that the directed verdict was properly granted because such a duty arises only through a contractual relationship, and the parties here were not in privity of contract.

It is well settled in North Carolina that where a contract between two parties is entered into for the benefit of a third party, the latter may maintain an action for its *574 breach or in tort if he has been injured as a result of its negligent performance. Toone v. Adams, 262 N.C. 403, 137 S.E.2d 132 (1964); C. F. Industries v. Transcontinental Gas Pipe Line, 448 F. Supp. 475 (W.D.N.C. 1978). If the third party is an intended beneficiary, the law implies privity of contract. Calder v. Richardson, 11 F. Supp. 948 (S.D.Fla.1935), aff'd, 118 F.2d 249 (1941). See, Pickelsimer v. Pickelsimer, 257 N.C. 696, 127 S.E.2d 557 (1962). The question of whether a contract was intended for the benefit of a third party is generally regarded as one of construction of the contract. The intention of the parties in this respect is determined by the provisions of the contract, construed in light of the circumstances under which it was made and the apparent purpose that the parties are trying to accomplish. 17 Am.Jur.2d Contracts, § 304.

In this case, the plaintiffs' contract with the vendor provided that the vendor would obtain a wood infestation report. The clear intent of the vendor, in contracting with the defendants, was to benefit the plaintiffs. Although the plaintiffs never dealt directly with the defendants, the testimony of defendant Wall tended to show that the defendants were aware that the vendor would provide the report to potential purchasers and that a purchaser might rely on such a report. Since Terminix had already reported on past termite damage in 1972, and the house was thereafter under contract with defendants, the defendants should have been put on notice that the report on the status of termite damage was intended for a third person. Wall also testified that this type of report was normally obtained by a vendor to give to prospective purchasers as a condition of the sale. The contract itself indicates that the defendants were aware that parties other than the vendor would receive the report. The contract provides:

"I hereby certify that neither I nor the company for whom I am acting has had, presently have or contemplate having any interest in the property involved. I do further certify that neither I nor the company for whom I am acting is associated in any way with any party to this transaction."

Although the contract does not specifically state that the plaintiffs were the intended beneficiaries of the contract, it is sufficient that the contract was evidently made for the benefit of third persons. See, 17 Am. Jur.2d Contracts, § 304. Since defendants had provided the vendor with a grid map of existing termite damage in 1972, and since the contract was not an agreement to treat the home, the benefit to the vendor was minimal. He was already fully aware of the damage. The vendor's status could not be altered by the report submitted in 1974. See Foreman v. Jordan, 131 So. 2d 796 (La. Ct.App.1961). Therefore, it seems clear that the benefit to the vendor was small in comparison to the benefit to be gained by the plaintiffs.

There are several cases from other jurisdictions which have held that an exterminating company is liable to a plaintiff who purchases property in reliance upon a false or inaccurate wood infestation report provided to the vendor. See, Hardy v. Carmichael, 207 Cal. App. 2d 218, 24 Cal. Rptr. 475 (1962); Wice v. Shilling, 124 Cal. App. 2d 735, 269 P.2d 231 (1954); Hamilton v. Walker Chemical & Exterminating Co., 233 So. 2d 440 (Fla.Ct.App.1970); Ruehmkorf v. McCartney, 168 La. 241, 121 So. 2d 757 (1960).

A similar rule has been applied in cases where a title abstract company negligently prepared an abstract and a purchaser relies on the report. The abstracter is generally held liable if he was aware that the report would be provided to persons other than the vendor who contracted for the abstract. 1 Am.Jur.2d, Abstracts of Title, § 16. In Williams v. Polgar, 391 Mich. 6, 215 N.W.2d 149 (1974), the court held that an abstracter was liable to a third party who relied on an inaccurate report if the existence of the third party was reasonably foreseeable. The court noted that the bounds of duty are constantly enlarged by the knowledge of a prospective use. For an analysis of the rules regarding the liability of abstract companies to third parties, see Williams, supra, app. A, B; Annot., 34 A.L.R.3d 1122 *575 §§ 5, 6(b) (1970); Annot., 68 A.L.R. 375, 376 (1930); see, Annot., 35 A.L.R.3d 504, § 4(a) (1971) (liability of surveyor to third party who relies on inaccurate survey).

In North Carolina there are no cases in which a purchaser has sought to recover from an exterminating company who provided a false or inaccurate infestation report. But in Gorrell v. Water Supply Co., 124 N.C. 328, 32 S.E. 720 (1899), it was held that a third party could recover for the negligent breach of a contract between a water company and a municipality. The company had negligently failed to supply water to the city and, as a result, plaintiff's home was destroyed by fire. The Court noted that "the object [of the contract] is the comfort, ease, and security from fire. . .. The benefit to the nominal contracting party . . . is small in comparison." 124 N.C. at 333, 32 S.E. at 721.

There was ample evidence presented by the plaintiffs which tended to show that the contract between the vendor and the defendants was entered into for the benefit of the plaintiffs, and that the defendants were aware that potential purchasers would receive the report. There was sufficient evidence presented to overcome defendants' motion for directed verdict on the grounds that the defendants owed no duty to the plaintiffs.

The second ground asserted in defendants' motion for directed verdict is that there was insufficient evidence of defendants' negligence as a matter of law. See, Prevatte v. Cabble, 24 N.C.App. 524, 211 S.E.2d 528 (1975). In determining whether the evidence is sufficient, the plaintiff's evidence must be taken as the truth and considered in the light most favorable to him. Manganello v. Permastone, Inc., 291 N.C. 666, 231 S.E.2d 678 (1977); Brooks v. Boucher, 22 N.C.App. 676, 207 S.E.2d 282, cert. denied, 286 N.C. 211, 209 S.E.2d 319 (1974). The evidence presented by the plaintiffs tended to show that the report which the plaintiffs received did not accurately reflect the findings made by Wall. Although finding number four on the report was changed to indicate that there was some structural damage, the second finding was not altered. Finding number two stated that there was no evidence of prior infestation of termites or other wood destroying evidence. On the back of the report is a notation supplementing statement 4 that, in the inspector's opinion, "there is no structural weakness." There was overwhelming evidence presented by plaintiffs which shows that the home had substantial termite damage which resulted in structural weakness at the time of the inspection. Plaintiffs presented sufficient evidence to show that the defendants negligently failed to accurately report their findings. The granting of a directed verdict in favor of the defendants cannot be supported on the ground that there was insufficient evidence of negligence as a matter of law.

Nor can the directed verdict be supported on the ground that the plaintiffs failed to establish proximate cause. Defendants contend that the plaintiffs inspected the home themselves and relied solely upon the representations of the vendor and the real estate agent. The plaintiff, Wilton Johnson, testified that he observed some sagging beams in the basement and so requested a termite report. He testified that he had relied upon the report. Taking the plaintiffs' evidence as the truth and considering it in the light most favorable to them, there was sufficient evidence to establish the plaintiffs' reliance on the report.

The final ground asserted by defendants in support of their motion for directed verdict was that the plaintiffs were contributorily negligent as a matter of law. A directed verdict on the ground of contributory negligence is proper only when the plaintiff's evidence so clearly establishes the defense of contributory negligence that no other conclusion can reasonably be drawn. Naylor v. Naylor, 11 N.C.App. 384, 181 S.E.2d 222 (1971). Defendants cite several cases which hold that a purchaser may not rely upon misrepresentations by a vendor without making his own independent investigation of the premises to support their contention that the plaintiffs cannot rely on misrepresentations by third parties. It is a *576 well-settled rule that a purchaser is contributorily negligent if he relies on statements by a vendor as to the physical condition of property. Calloway v. Wyatt, 246 N.C. 129, 97 S.E.2d 881 (1957); Harding v. Southern Loan & Insurance Co., 218 N.C. 129, 10 S.E.2d 599 (1940); Goff v. Frank Ward Realty & Insurance Co., 21 N.C.App. 25, 203 S.E.2d 65, cert. denied 285 N.C. 373, 205 S.E.2d 97 (1974); see, Davis v. Dunn, 58 So. 2d 539 (Fla.Sup.Ct.1952). In the case sub judice, the plaintiffs did not rely on the vendor's statements but obtained an independent examination of the premises by a neutral third party. The cases cited by defendants require a purchaser to make an independent check of the premises and this is precisely what the plaintiffs did.

Defendants also contend that the plaintiffs' own evidence establishes that they were put on notice that the house was structurally damaged and that therefore the plaintiffs were contributorily negligent as a matter of law. The plaintiffs' evidence, taken in the light most favorable to them, shows that they were aware that there was, or might be, damage and as a result they required a negative termite inspection report. The report, although confusing, can reasonably be interpreted to mean that there was no prior or present infestation by termites or other wood-boring insects, but that there was some other inconsequential damage to the house. Considering the evidence in the light most favorable to the plaintiffs, the defendants have failed to show contributory negligence as a matter of law.

The granting of defendants' motion for directed verdict cannot be supported by any of the grounds set forth by the defendants.

Reversed and remanded.

PARKER and ERWIN, JJ., concur.