Claimant, George Cabrera, commenced this small claims action against Howard Feiwus, individually, and Michelle Development, Ltd., alleging that the defendants sold a defective house to the claimant and his wife. A trial was held on January 6, 2011. Both sides appeared without lawyers.

Claimant testified that he and his wife purchased the premises, 31 New Lane, Staten Island, New York, from defendant Michelle Development, Ltd. pursuant to a contract entered into in August 2005. This was one of several homes being constructed on New Lane by defendants. Claimant stated that the skylight in the house started to leak in May 2010. He asserted that he notified the defendants and they refused to make the repairs. Defendant Feiwus testified that Michelle Development was no longer a viable corporation having been declared "inactive" and dissolved by the Department of State on May 6, 2008 and that, although an officer of the defunct corporation, he had no personal liability under the contract. The contract, prepared by defendant, provided the claimant with a warranty pursuant Article 36-B of the General Business Law, "Warranties on Sale of New Homes," legislation which provided some minimal protection to home buyers for construction related defects. Defendant stated that it did not provide any other warranty to the claimant such as those permitted by GBL§777-b, electing to limit his obligation to that set forth in GBL§777-a.

The statute (GBL §777-a(1)) provides:

A housing merchant implied warranty shall mean that:

a. one year from and after the warranty date the home will be free from defects due to a failure to have been constructed in a skillful manner;

b. two years from and after the warranty date the plumbing, electrical, heating, [*2]cooling and ventilation systems of the home will be free from defects due to a failure by the builder to have installed such systems in a skillful manner; and

c. six years from and after the warranty date the home will be free from material defects.

Although the statute does not specify warranty protection for a roof or skylight, a leaking condition such as described by the claimant, would seem to qualify as a "material defect" in that it involves "roof framing systems"(GBL §777(4)) with its attendant six year statute of limitations (GBL §777-a(1)( c)). There is no testimony as to when the claimant obtained title, although the defendant presented a signed contract dated August 11, 2005, which provided for a closing on or about September 1, 2005. This being the case, the claimant's cause of action alleging a material defect in the construction is timely having been commenced within six years of acquiring title and the issuance of the warranty by the defendant corporation.

Claimant presented one estimate for $2,800.00 to install the new skylight and a paid bill for $2,469.61, the cost of materials. As these two expenses total more than $5,200.00, an amount in excess of the $5,000.00 jurisdictional limit of the small claims part (NYCCCA §1800), claimant, if successful, cannot collect more than the $5,000.00.

There is a problem with the estimate from D & K Contracting for the installation of the skylight, in that it does not contain a license number for D & K establishing that it is licensed as a home improvement contractor by the Department of Consumer Affairs. All home improvement contractors in the City of New York must be licensed (6 Rules of the City of New York §2-221 et seq.). A search of Consumer Affairs records reveals that there is no license issued for the entity providing the estimate. Because the estimate is not from a licensed contractor, it is not admissible.

Further, the rules of the small claims part require either a paid bill, two estimates or an expert to testify (New York City Civil Court Act §1804). Claimant has only submitted one estimate in an attempt to establish the cost of installing the skylight and is not in compliance with the court rule, so that even if it were from a licensed home improvement contractor, it would not be sufficient to prove his damages.

Claimant also failed to provide proof that he complied with the notice requirements of the statute as required by GBL§777-a(4). The statute requires that written notice of the warranty claim must be received by the builder prior to the commencement of any action. However, because the defendant corporation was declared "inactive" in May 2008, two years prior to the defect being discovered, to whom is the claimant to have given notice?

This statute is a prime example of a law drafted by the New York equivalent of Monty Python's "Ministry of Well-Intentioned But Ineffective Legislation." The statute, by providing for warranties of one, two and six years for certain structural components of a [*3]house, presumes that the builder will remain in existence for at least that period of time. It shows naivety or a complete lack of understanding of the new home construction industry where the standard mode of operation is to form a corporation to construct a set number of houses, sell the houses and then either legally dissolve the corporation or let the corporation cease operations leaving it without any assets. Historically, builders engaged in this practice of using multiple corporate entities to sell houses, with the less reliable of them often leaving purchasers without final certificates of occupancy or "punch lists" with incomplete items. This effectively makes the corporation, and its principals-who are afforded the protection of the statutory limitation on personal liability given to corporations, judgment-proof. The corollary being that the injured home owner if successful in court unable to enforce the judgment.

This case is a prime example as to why home builders must be licensed and to post a bond or some other amount of money to insure that injured homeowners may be made whole. A simple licensing statute whereby new building permits would not be issued to individuals or entities where the principals had open certificates of occupancy or unresolved statutory warranty claims would put teeth into the legislative intent of providing some consumer protection to new home buyers. The defendant corporation was formed in 2001, built homes in 2005, guaranteed purchasers, such as the claimant, that it would stand behind its contract for a period of six years as required by the statute, yet the Department of State permitted the defendant corporation to become inactive, walk away from its contractual and statutory obligation, and leave the claimant remediless.

The above being said, the fact that the defendant corporation went "inactive" when it still had a statutory and contractual obligation to provide the home owner with certain warranty protections, triggered a right on the part of the claimant to assert a common law breach of contract and breach of an implied warranty and negates the holding of the Court of Appeals in Fumarellii v Marsam Development, Inc., 92 NY2d 298 (1998), that the Article 36-B of the GBL was a full substitute for any antecedent common law housing merchant implied warranty. It makes little sense to permit the corporate defendant to ignore its contractual and statutory obligations and then be able to allege that the claimant is precluded from asserting a claim because of claimant's failure to comply with the notice requirement of the statute. Although the actions of the defendant obviate the notice requirements of the statute, there still does not exist a remedy for the claimant because the corporation is defunct and without assets.

A search of NYC Buildings Department records lists defendant Feiwus as the "owner" of the property on the application for the building permit on July 16, 2003 with the business name for the owner as defendant Michelle Development, Ltd. The work permit from the Buildings Department was issued to defendant Feiwus on February 7, 2005. These facts perhaps would trigger personal liability for defendant Feiwus but for the fact that the statute defines the "builder" as "any person, corporation partnership or other entity contracting with an owner for the construction or sale of a new home" (GBL§777(1)) [*4]and the corporation is the entity entering into the contract with the claimant.

The individual defendant was an officer of the defendant corporation, his allowing the corporation to become inactive fully knowing of the contractual obligation that existed on this and other homes constructed on New Lane, would seem to be valid grounds to permit the corporate veil to be pierced and to hold individuals, such as the defendant, personally liable.

Unfortunately for the claimant, even if the court holds the defendant has personal liability in this situation, the claimant has not established his prima facie case owing to his failure to provide proper evidence as required by the court rules.

Claimant's cause of action against the defendants is dismissed without prejudice to renew on a theory of breach of contract under the common law and the obtaining of the proper proof as required by the rules of the small claims part. By permitting the corporation to become defunct and without any assets, defendants cannot claim the protections afforded to it by the statute. Claimant may also consider pursuing a claim under GBL§349 that the actions of the individual defendant in permitting the corporation to dissolve when contractual and statutory obligations still existed amounted to a deceptive act or practice under that statute.

Exhibits, if any, will be available at the office of the clerk of the court thirty days after receipt of a copy of this decision.

The foregoing constitutes the decision and order of the court.

Dated: January 20, 2011

Staten Island, NYHON. PHILIP S. STRANIERE

Judge, Civil Court

[*5]ASN byon