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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.
Here is a recap of the case, as we
originally discussed in the January 2008
Construction Advisor.
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
individual residents.
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
defects.
Important to this case is that a breach of
implied warranty of good workmanship is a
contract claim, and the
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."
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