Home Construction Contracts Involve “Consumer Merchandise” – Statutory Fraud Protections Applicable

May 31, 2011 | Erin C. Herbold-Swalwell

Iowa law provides for various protections against fraud.  But, is there a provision governing contracts for the construction of personal residences?  The plaintiff in this case claimed that there was.  Indeed, the plaintiff claimed that Iowa Code §714H.5 which provides that a “consumer who suffers an ascertainable loss of money or property as the result of a prohibited practice or act in violation of this chapter may bring an action at law to recover actual damages” applies to personal residence construction contracts.  The trial court said the statute did not apply.  

A builder sued a homeowner for breach of contract involving the construction of a new home. The homeowner counterclaimed that the document he signed was not a “contract” but merely a preliminary estimate of work to be done. The homeowner alleged that the builder engaged in “unfair practices, false promises, and misrepresentation by altering the preliminary estimate and attempting to bind them to it.” The trial court determined that the statute didn’t apply.  

On appeal, the court noted that the statute defined “consumer merchandise” as “merchandise offered for sale or lease, or sold or leased, primarily for personal, family or household purposes.” “Merchandise” was further defined as “any objects, wares, goods, commodities, securities, bonds, debentures, stocks, real estate, or services sold” for the above-listed purposes. Based on those definitions, the appellate court reversed.  The court also noted that the statute includes land “or anything growing on, attached to, or erected on it, excluding anything that may be severed without injury from the land.” 

Thus, home construction contracts are considered contracts relating to real estate and, as a result, are subject to Iowa Code §714H.  The court remanded the case to the trial court with instructions to view the contract as “consumer merchandise.”  Thus, the homeowner may be provided protection under Ch. 714H and can recover for unfair practices, false promises and misrepresentation by the builder (if the homeowner presents substantial evidence at trial of such wrongdoing).  Scenic Builders v. Peiffer, No. 1-259/10-0794, 2011 Iowa App. LEXIS 364 (Iowa Ct. App., May 25, 2011).