Duty to Perform Good Workmanship Extends Beyond Parties to Contract
The Arizona Supreme Court rules that a builder's implied warranty applies to the buyer and to subsequent owners.
On August 19, 2008, the
Arizona Supreme Court ruled, in
The Lofts at Fillmore v. Reliance Commercial Construction, that a
contractor is responsible for defects in a condo project that it built but did
not sell. The ruling overturned a Court of Appeals decision that the
contractor's implied warranty did not extend to subsequent owners with whom it
had not contracted.
The Lofts at Fillmore
v. Reliance Commercial Construction, involved the builder of a Phoenix condo
project, the Lofts at Fillmore. The developers contracted with Reliance
Commercial Construction to build the project, then sold completed units to
The development has a
condo association, The Lofts at Fillmore Condominium Association, made up of the
owners of the individual condos. At some point, members of the association
became unhappy with the quality of the condos’ construction, and the Lofts
association sued Reliance for breach of implied warranty, alleging construction
Architect's Errors May Create Liability for a
Contractor's Damages Court Reaffirms
Contract Requirement in Breach of Implied Warranty Claims
Important to this case is
that a breach of implied warranty of good workmanship is a contract claim, and
doctrine of privity provides that only the parties to a contract are bound
by its provisions or entitled to its protections.
Thus, when the Lofts
condo association hauled Reliance into court for alleged construction defects,
the association quickly ran into a legal hurdle, i.e., neither the
association nor its members had a contractual relationship with Reliance.
Each owner had a contract with the developer, and the developer had a contract
with Reliance, but that’s as far as it went.
Reliance asked the trial
court for a dismissal. The court, finding that the association and its members
had no contract with – and, thus, no claim against – Reliance, granted
Reliance’s motion for summary judgment.
The Lofts association
appealed. At the Court of Appeals, the association argued that, in its decision
in Richards v. Powercraft Homes, the Arizona Supreme Court abolished the
privity requirement for an implied warranty claim. In the Richards case,
the plaintiffs were owners of homes in a Powercraft subdivision. Some were
original owners who bought directly from Powercraft; others had purchased their
homes from the original owners.
In Richards, the
Supreme Court ruled that the implied warranty of habitability that Powercraft
made to original buyers should also extend to subsequent buyers of those homes.
Subsequent purchasers should have the same remedies as the original purchasers,
even though they had no contract with Powercraft.
In the view of the Court
of Appeals, the association’s Richards argument failed because Reliance
did not sell the condominiums. The warranty of habitability, the Court found, is
implied only when the builder of homes also sells them to owners who intend to
live in them.
The Supreme Court ruled
disagreed, affirming the applicability of Richards to this case, and
remanded the case back to Maricopa County Superior Court for retrial. In its
opinion, the Court determined that "absence of contractual privity does not bar
such a suit."
The opinion also noted that failure to extend the implied warranty to subsequent
buyers "might encourage sham first sales to insulate builders from liability.
[...] Innocent buyers of defectively constructed homes should not be denied
redress on the implied warranty simply because of the form of the business deal
chosen by the builder and vendor."