In
a divided opinion, the Supreme Court of Missouri issued a 3-2 per curiam
opinion,[1] holding that when a tenant
asserts a breach of the implied warranty of habitability as a defense in an
action by a landlord to recover rent, and the tenant retains possession of the property,
then a trial court may institute an in custodia legis procedure, which requires
a tenant to place unpaid rent into an escrow account to be distributed at the
conclusion of the litigation.[2]
I.
Factual Background
Latasha
Johnson rented an apartment from Kohner Properties, Inc., in St. Louis.[3] During her lease the bathroom ceiling above
her shower collapsed due to a water leak.[4] Kohner Properties attempted to repair the
leak by placing a trash bag over the hole in the ceiling, but was unsuccessful.[5] As a result, Johnson stopped paying rent and began
paying for a room at a hotel so she could use its shower.[6] Kohner Properties sued Johnson to recover
unpaid rent and evict her.[7] Johnson raised an implied warranty of
habitability defense, which Kohner Properties moved to bar because she had not
deposited unpaid rent with the circuit court.[8] The circuit court granted Kohner Properties’
motion because it believed that it had no choice but to order an in custodia legis procedure, and Johnson
did not comply with that procedure.[9]
Johnson
was held liable for unpaid rent, late fees, attorney fees, and court costs.[10] Johnson appealed to the court of appeals,
which transferred the case to the Supreme Court of Missouri.[11] The Supreme Court of Missouri upheld the
circuit court’s ruling but held that an in
custodia legis procedure is discretionary, not mandatory.[12]
II.
Legal Background
The
implied warranty of habitability requires that landlords provide a dwelling that
is “habitable and fit for living” for the entirety of the lease.[13] Missouri first recognized the implied
warranty of habitability in 1973, in King
v. Moorehead, where
the court of appeals first adopted the doctrine.[14]
In
King the court examined the history
of landlord-tenant law to reach its decision.[15] Prior to the advent of the implied warranty
of habitability, the doctrine of caveat emptor or ‘buyer beware’ dominated
landlord-tenant law.[16] This meant that the tenant assumed the risk and
responsibility of maintaining habitable dwellings.[17] This doctrine was adopted because,
historically, leases were made primarily for agricultural use.[18] The tenant was deemed to be in the best
position to discover and correct any habitability issues in the property.[19] So, the doctrine of caveat emptor rightly dominated
lease agreements.[20]
As
time went on, populations moved to urban centers and tenants started leasing
property primarily for residential purposes.[21] Thus the justifications for caveat emptor slowly
withered.[22] Adapting to the march of time, courts began
to treat lease agreements as bilateral contracts where the tenant’s obligation
to pay rent is conditioned on the landlord providing a habitable dwelling.[23]
When
the King court recognized implied
warranty of habitability in Missouri it – in dicta – also recognized a
mandatory in custodia legis
procedure, which requires anyone who asserts the implied warranty of
habitability as a defense and retains possession of that property to deposit any
unpaid rent with the court.[24] The court believed that this procedure would
ensure that landlords have what they need to correct defects in habitability by
recovering unpaid rent, and thus encourage landlord’s to minimize tenant
damages.[25]
Since King, trial courts and secondary sources have recognized this dicta
as binding.[26]
III.
Instant Decision
A. Majority
In
Johnson, the Supreme Court of
Missouri issued a per curiam opinion,
joined by Chief Justice Zel M. Fisher and Judges Paul C. Wilson and Mary R. Russell,
holding that trial courts have the discretion to employ an in custodia legis procedure when a tenant raises an implied
warranty of habitability defense.[27] In its analysis the court expressed a
preference for maintaining the status quo and noted that trial courts have been
using the in custodia legis procedure
for almost fifty years.[28] Next, the court examined the approaches of other
jurisdictions that have adopted the implied warranty of habitability and found
that most of those jurisdictions give trial courts the discretion to employ an in custodia legis procedure.[29] The court noted that the procedure was
designed to protect landlords by preventing a tenant from using the implied
warranty of habitability to occupy property without paying rent while court
proceedings are ongoing.[30] The court reasoned that this procedure both
protects the interests of the landlord and allows tenants to have a meaningful
opportunity to assert the implied warranty of habitability defense.[31]
B. Dissent
Judge
Patricia Breckenridge authored the dissent and was joined by Judge Laura Denvir
Stith.[32] The dissent began by stating that the
procedure outlined in King is merely
dicta and, in the past five decades, only one appellate court has followed it.[33] The dissent noted that the principal opinion’s
approach “differs significantly” from the status quo and King opinion because the procedure outlined in King is not discretionary.[34] However, the dissent preferred to emphasize
that the King decision was a
departure from traditional common law principals, not an adherence to the
status quo.[35] Next, the dissent focused on the economic
disparity between landlords and the tenants who might assert the implied
warranty of habitability.[36] The dissent stated that that the procedure “acts as a deterrent to tenants wishing to assert the
defense” and places landlords in a better position than they would have been in
if the tenant did not assert this defense.[37] In its conclusion, the dissent stated
that even if the majority’s legal approach were recognized, the case should still
be remanded because the trial court—incorrectly—believed that it was required
to order an in custodia legis procedure
in this case.[38]
IV.
Comment
By
and large, people who rent property that may be uninhabitable are poor people. After all, low quality housing is
significantly cheaper than high quality housing. Consequently, the implied warranty of
habitability is a defense unlikely to be raised by anyone other than poor
people. Both the majority and the
dissent recognized this fact and used it to justify their respective positions. The majority implicitly did so when it stated
that the in custodia legis procedure
protects landlords who might suffer economic harm if tenants frivolously raise
this defense.[39] The dissent explicitly did so when it stated
that low income individuals will be less likely to assert the implied warranty
of habitability if an in custodia legis procedure
is implemented.[40] Both of those assertions are true.
It
is not hard to imagine that a low-income individual might assert a frivolous
implied warranty of habitability defense to take advantage of a landlord. However, it is equally plausible that a
landlord will abuse the in custodia legis
procedure to take advantage of tenants and refuse to correct habitability
defects.
The
standard announced by the Supreme Court of Missouri in Johnson balances these concerns by vesting trial courts with the
discretion to implement an in custodia
legis procedure. Now trial courts
can take all factors into consideration when deciding whether to implement this
procedure. Thus, the Johnson standard gives trial courts the
power to use an in custodia legis procedure
to prevent abuse.
However,
in this case the trial court did not have the opportunity to consider whether
it should implement an in custodia legis procedure.
Instead, the trial court believed that
it was required to institute an in
custodia legis procedure. This
amounted to an erroneous application of the law. Because an erroneous application of the law
is reversible error, the Supreme Court of Missouri should have reversed the
trial court’s judgment and remanded the case.[41]
- David O'Connell
[1] Judge Brent W. Powell and Judge George
W. Draper III did not take part in this opinion. Kohner Properties, Inc. v. Johnson, No. SC
95944, 2018 WL 3235686 (Mo. July 3, 2018) (en banc).
[2] Id. at *1.
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8] Id.
[9] Id.
[10] Id. at *2.
[11] Id.
[12] Id. at *5.
[13] King v. Moorehead, 495 S.W.2d 65,
75 (Mo. Ct. App. 1973).
[14] Id. at 79.
[15] Id. at 69-72.
[16] Id. at 72.
[17] Id.
[18] Id. at 68-69.
[19] Id. at 71.
[20] Id.
[22] Id.
[23] Id.
[24] Id. at 77.
[25] Id.
[26] Kohner Properties, Inc. v.
Johnson, No. SC 95944, 2018 WL 3235686, at *3 (Mo. July 3, 2018) (en banc) (citing 36 Jane
Pansing Brown, Missouri Practice Series: Landlord-Tenant Handbook §§
1:1, 23:8 (2017); 18A Timothy J. Tryniecki, Missouri Practice Series:
Real Estate Law § 52:18 (3d ed. 2006)).
[27] Id. at *7.
[28] Id. at *3.
[29] Id. at *3-5.
[30] Id. at *5.
[31] Id.
[32] Id. at *7.
[33] Id. at *7-8.
[34] Id. at *7 n.1.
[35] Id. at *8.
[36] Id.
[37] Id.
[38] Id.
[39] Id. at *5.
[40] Id. at *8.
[41] See Sun Aviation v. L-3 Commc'ns
Avionics Sys., 533 S.W.3d 720, 727 (Mo. 2017) (en banc) (stating “On
review of a court-tried case, [this C]ourt will affirm the circuit court’s
judgment unless there is no substantial evidence to support it, it is against
the weight of the evidence, or it
erroneously declares or applies the law.”) (alteration in original)
(emphasis added) (quoting Ivie v. Smith, 439 S.W.3d 189, 198–99) (Mo. 2014) (en
banc).
