Tina Zambrano v. M & Rc II LLC ( 2022 )

IN THE
SUPREME COURT OF THE STATE OF ARIZONA
TINA ZAMBRANO,
Plaintiff/Appellant,
v.
M & RC II LLC, ET AL.,
Defendants/Appellees.
No. CV-21-0205-PR
Filed September 28, 2022
Appeal from the Superior Court in Maricopa County
The Honorable Danielle J. Viola, Judge
No. CV2017-008174
REVERSED AND REMANDED
Opinion of the Court of Appeals, Division One
252 Ariz. 10 (App. 2021)
VACATED
COUNSEL:
Darrien Shuquem (argued), Vial Fotheringham, LLP, Mesa, Attorneys for
Tina Zambrano
James E. Holland, Jr. (argued), Michael Vincent, Stinson LLP, Phoenix,
Attorneys for M & RC II LLC, et al.
Thomas L. Hudson, Joshua D. Bendor, Osborn Maledon, P.A., Phoenix,
Attorneys for Amici Curiae Diamante Condominium Association and
Kasdan Turner Thomson Booth LLP
Rosary A. Hernandez, Kenneth Januszewski, Katelyn E. Towe, Burch &
Cracchiolo, P.A., Phoenix, Attorneys for Amici Curiae Home Builders
ZAMBRANO V. M & RC II LLC, ET AL.
Opinion of the Court
Association of Central Arizona and Southern Arizona Home Builders
Association
Jeremy R. Alberts, Ryan S. Saldanha, Weinberg, Wheeler, Hudgins, Gunn
& Dial, LLC, Las Vegas, NV, Attorneys for Amicus Curiae Home Buyers
Warranty Corporation
VICE CHIEF JUSTICE TIMMER authored the Opinion of the Court, in
which CHIEF JUSTICE BRUTINEL and JUSTICES LOPEZ, BEENE, and
MONTGOMERY joined. JUSTICE KING, joined by JUSTICE BOLICK,
dissented.
VICE CHIEF JUSTICE TIMMER, Opinion of the Court:
¶1 This case involves a clash of two public policies recognized by
the common law. On the one hand, parties are generally free to contract
on whatever terms they choose. See 1800 Ocotillo, LLC v. WLB Grp., Inc.,
219 Ariz. 200, 202 ¶ 8 (2008). Thus, unless legislation precludes
enforcement of a contract term, our courts will uphold it unless “the term
is contrary to an otherwise identifiable public policy that clearly outweighs
any interests in the term’s enforcement.” Id.¶2 On the other hand, Arizona implies a warranty of
workmanship and habitability in every contract entered into between a
builder-vendor and a homebuyer. See Richards v. Powercraft Homes, Inc.,
139 Ariz. 242, 244 (1984). This warranty protects the homebuyer and
successive purchasers from financial responsibility for latent defects in the
home that the buyer could not have reasonably discovered at the time of
purchase and holds the builder accountable for the home’s faulty
construction. Id. at 245.
¶3 Whether Arizona should continue to imply a warranty of
workmanship and habitability into all contracts between builder-vendors
and homebuyers is not before us. Rather, the issue here is whether a
builder-vendor and a homebuyer may agree to disclaim and waive the
implied warranty if they replace it with an express warranty. We hold
public policy prohibits enforcement of the disclaimer and waiver.
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Opinion of the Court
BACKGROUND
¶4 In 2013, Tina Zambrano entered into a preprinted purchase
agreement with M & RC II, LLC, to buy a home that M & RC II’s affiliate,
Scott Homes Development Company, would build in a new subdivision in
Surprise, Arizona. (We refer to M & RC II and Scott Homes Development
Company collectively as “Scott Homes”). Relevant here, paragraph
fifteen of the agreement states:
SELLER’S LIMITED WARRANTY.
(a) At Closing, Seller shall issue a “Home Builder’s Limited
Warranty” to Buyer, a sample of which has been provided to
Buyer prior to the execution of this Contract. The Home
“Builder’s [sic.] Warranty is the only warranty applicable to
the purchase of the Property.
....
THE HOME BUILDER’S LIMITED WARRANTY
REFERENCED ABOVE IS THE ONLY WARRANTY
APPLICABLE TO THE PURCHASE OF THE PROPERTY.
ALL OTHER EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, HABITABILITY AND WORKMANSHIP ARE
HEREBY DISCLAIMED BY SELLER AND ITS AFFILIATES
AND WAIVED BY BUYER, ANY IMPLIED WARRANTY
THAT MAY EXIST DEPITE [sic] THE ABOVE DISCLAIMER
IS HEREBY LIMITED TO A ONE (1) YEAR PERIOD.
Zambrano initialed the first paragraph and another, which confirmed she
had read and understood the agreement.
¶5 Scott Homes built the home and, fulfilling its promise, issued
Zambrano a forty-page, preprinted “Builder’s Limited Warranty,” which is
administered by Professional Warranty Services Corporation (“PWC”).
PWC sells the warranty to homebuilders, claiming the warranty
“provide[s] ‘layers of protection to you as a builder’” and permits builders
to “manage [their] risk.” Arnold v. Standard Pac. of Ariz. Inc., No. CV-16-
00452-PHX-DGC, 2016 WL 4259762, at *4 (D. Ariz. Aug. 12, 2016).
Significantly, the PWC warranty does not generally warrant the
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Opinion of the Court
workmanship and habitability of the home. Instead, it arranges
construction elements into coverage groups; warrants each group,
respectively, for one year, two years, or three to ten years against damages
from variances in materials or workmanship from defined standards of
performance; and establishes responsibilities for the builder and the
homebuyer. For example, the warranty here provides that during the first
year of ownership, Scott Homes will fill excessively settled areas of ground
around the home’s foundation that prevent sufficient drainage, and the
homebuyer will remove and replace any affected landscaping. As another
example, the warranty provides that during the first year of ownership,
Scott Homes will repair any floors having more than a one-quarter-inch
ridge or depression within thirty inches of the joists. Like the purchase
agreement, the PWC warranty disclaims all implied warranties.
¶6 In 2017, Zambrano sued Scott Homes for breach of the
implied warranty of workmanship and habitability. She alleged several
design and construction defects, including improper grading and soil
movement mitigation, separation of windows from cracking stucco,
separation of baseboards from the tile and walls, and nail pops in the
ceiling. A claim under the PWC warranty to correct these defects was
either time barred or outside its coverage. Scott Homes ultimately moved
for summary judgment, arguing Zambrano had waived the implied
warranty per the purchase agreement. The trial court agreed and entered
judgment for Scott Homes.
¶7 The court of appeals reversed. Zambrano v. M & RC II LLC,
252 Ariz. 10, 11 ¶ 1 (App. 2021). It reasoned that “the public policy
supporting the implied warranty clearly outweighs the freedom-of-contract
interest in the waiver’s enforcement.” Id. at 13 ¶ 16.
¶8 We accepted review of Scott Homes’ petition for review
because whether and to what extent the implied warranty of workmanship
and habitability can be disclaimed and waived or replaced by an express
warranty is a recurring issue of statewide importance.
DISCUSSION
I. Standard of Review
¶9 Summary judgment is appropriate when “no genuine dispute
as to any material fact [exists] and the moving party is entitled to judgment
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Opinion of the Court
as a matter of law.” Ariz. R. Civ. P. 56(a). “We review de novo a grant of
summary judgment, viewing the evidence and reasonable inferences in the
light most favorable to the party opposing the motion.” Andrews v. Blake,
205 Ariz. 236, 240 ¶ 12 (2003). We likewise review a contract’s meaning de
novo. Id.II. Voiding a Contract Term as Against Public Policy
¶10 The freedom to contract has long been considered a
“paramount public policy” under our common law that courts do not
lightly infringe.1 Consumers Int’l., Inc. v. Sysco Corp., 191 Ariz. 32, 34 (App.
1997) (quoting Wood Motor Co. v. Nebel, 238 S.W.2d 181, 185 (Tex. 1951));
accord CSA 13-101 Loop, LLC v. Loop 101, LLC, 236 Ariz. 410, 411 ¶ 6 (2014)
(“Our law values the private ordering of commercial relationships and
seeks to protect parties’ bargained-for expectations.”). Thus, courts will
not refuse to enforce a contract merely because one party made a bad deal,
even when the terms are harsh. See Goodman v. Newzona Inv. Co., 101 Ariz.
470, 473–74 (1966) (enforcing refusal of seller to transfer ownership of
property to buyer despite partial payment); S.H. Kress & Co. v. Evans,
21 Ariz. 442, 449 (1920) (refusing to enforce oral profit-sharing agreement
not reflected in a written contract).
¶11 But courts will refuse to enforce a contract term if legislation
prohibits the term or when an identifiable public policy clearly outweighs
enforcement. 1800 Ocotillo, 219 Ariz. at 202 ¶¶ 7–8; CSA 13-101 Loop,
1 The Supreme Court once held that “liberty” under the Due Process Clause
protected “freedom of contract,” Adkins v. Child.’s Hosp. of D.C., 261 U.S.
525, 545 (1923); see Lochner v. New York, 198 U.S. 45, 57 (1905), but ultimately
retreated from that position, W. Coast Hotel Co. v. Parrish, 300 U.S. 379, 391–
92, 400 (1937) (overruling Adkins and, effectively, Lochner and other cases);
see also Dobbs v. Jackson Women’s Health Org., 142 S. Ct. 2228, 2262–64 (2022)
(recognizing reversal of these Lochner-era holdings). Courts now
recognize the freedom to contract as protected by the common law.
Flagstaff Affordable Hous. Ltd. P’ship v. Design All., Inc., 223 Ariz. 320, 323 ¶ 14
(2010) (describing contract law as “seek[ing] to preserve freedom of
contract and to promote the free flow of commerce”); Michael Pillow,
Liberty Over Death: Seeking Due Process Dimensions for Freedom of Contract,
8 Fla. A & M U. L. Rev. 39, 40–41 (2012) (“Freedom of contract derives from
philosophical perspectives that underpin the common law.”).
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236 Ariz. at 411 ¶ 6. Because the law generally presumes parties are best
situated to decide whether contractual terms are beneficial, especially in
commercial settings, courts are hesitant to declare terms unenforceable on
public policy grounds. 1800 Ocotillo, 219 Ariz. at 202 ¶ 8; see 15 Timothy
Murray, Corbin on Contracts § 79.4, at 15 (rev. ed. 2020) (“In rare cases, a
public policy other than the freedom of contract overrides such freedom.”).
To do so, courts balance the interests in enforcing the terms against the
public policy interest opposing it. See 1800 Ocotillo, 219 Ariz. at 202 ¶ 7.
“[T]he weight of the public policy interest generally focuses on the extent
to which enforcement of the term would be injurious to the public welfare.”
Id. (citing Restatement (Second) of Contracts § 178 cmt. b (Am. L. Inst.
1981)). We identify public policy by examining our constitution,
legislation, and judicial decisions. CSA 13-101 Loop, 236 Ariz. at 412 ¶ 8;
1800 Ocotillo, 219 Ariz. at 202 ¶ 7; Wagenseller v. Scottsdale Memorial Hosp.,
147 Ariz. 370, 378 (1985), superseded by statute on other grounds, as recognized
in Powell v. Washburn, 211 Ariz. 553, 560 ¶ 29 (2006).
¶12 Consistent with these principles, this Court has refused to
enforce contract terms that were unconscionable, illegal, or otherwise
against public policy. See, e.g., Dobson Bay Club II DD, LLC v. La Sonrisa de
Siena, LLC, 242 Ariz. 108, 115 ¶¶ 37–38 (2017) (voiding a contractual late fee
as an unenforceable penalty provision); CSA 13-101 Loop, 236 Ariz. at 411
¶ 1 (holding that parties to a promissory note and deed of trust could not
prospectively waive a judgment debtor’s statutory right to have the fair
market value of the burdened property credited against the amount owed
on the note); Wagenseller, 147 Ariz. at 381 (“Firing for bad cause—one
against public policy articulated by constitutional, statutory, or decisional
law—is not a right inherent in the at-will contract, or in any other contract,
even if expressly provided.”); Darner Motor Sales, Inc. v. Universal
Underwriters Ins., 140 Ariz. 383, 390–91 (1984) (stating courts will not enforce
a standardized insurance contract term when the insurer has reason to
believe that the insured would not have agreed to the contract if he had
known about the term).
¶13 With these principles in mind, we identify the public policy
underlying the implied warranty of workmanship and habitability and
then determine whether that policy clearly outweighs enforcement of the
parties’ disclaimer and waiver of the implied warranty when an express
warranty otherwise exists. See 1800 Ocotillo, 219 Ariz. at 202 ¶ 7.
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Opinion of the Court
III. Enforcing the Disclaimer and Waiver Provision Here
A. Identifying the public policy underlying the implied
warranty
¶14 Commencing in 1979, Arizona eliminated application of
caveat emptor—or “buyer beware”—to the purchase of newly built homes.
Columbia W. Corp. v. Vela, 122 Ariz. 28, 32 (App. 1979) (describing the rule
as “an anachronism patently out of harmony with modern home buying
practices” (quoting Humber v. Morton, 426 S.W.2d 554, 562 (Tex. 1968))); see
also Dorman v. Swift and Co., 162 Ariz. 228, 231 (1989) (stating that the
common law doctrine of caveat emptor presumes the buyer has fully
inspected the premises before conveyance). Instead, we impute the
implied warranty of workmanship and habitability into all contracts
between builder-vendors and homebuyers as a matter of common law.
See Sirrah Enters., LLC v. Wunderlich, 242 Ariz. 542, 544 ¶ 8 (2017); Sullivan v.
Pulte Home Corp., 232 Ariz. 344, 346 ¶ 12 (2013). Under this implied
warranty, the builder-vendor guarantees it built the home in a
workmanlike manner and that it is habitable. Sirrah Enters., 242 Ariz.
at 544 ¶ 8. The warranty is limited to latent defects that are
undiscoverable by a reasonable pre-purchase inspection and serves “to
protect innocent purchasers and hold builders accountable for their work.”
Richards, 139 Ariz. at 245 (quoting Moxley v. Laramie Builders, Inc., 600 P.2d
733, 736 (Wyo. 1979)).
¶15 The implied warranty “arises from construction of the home”
itself. Sirrah Enters., 242 Ariz. at 544 ¶ 8 (quoting Lofts at Fillmore Condo.
Ass’n v. Reliance Com. Constr., Inc., 218 Ariz. 574, 577 ¶ 13 (2008)).
Consequently, although the warranty is an imputed term of the original
purchase agreement, it applies to non-builder-vendors and is enforceable
by subsequent purchasers, despite a lack of contractual privity with the
builder. Id. at 545 ¶¶ 9–12 (subsequent purchaser); Lofts, 218 Ariz. at 575
¶ 1 (non-builder-vendor). A lawsuit filed to enforce the warranty is
subject to the six-year statute of limitations applicable to contract actions,
A.R.S. § 12-548(A); Woodward v. Chirco Constr. Co., 141 Ariz. 514, 516 (1984),
but cannot be filed later than eight years after construction is completed per
our statute of repose, A.R.S. § 12-552(F).
¶16 Given the warranty’s origins and application, it is not a mere
“gap filler” supplied by the court when an otherwise enforceable contract
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Opinion of the Court
lacks an essential term, as Scott Homes and the dissent here assert. See
Restatement § 204. Our cases are clear that policy considerations gave
birth to the implied warranty, not a need to fill in an overlooked “gap” in
contracting. See supra ¶¶ 14–15. Further, because an express warranty is
not essential to determining a builder-vendor and homebuyer’s rights and
duties under a purchase agreement, its omission does not leave a “gap” to
fill. See Restatement § 204. And if an express warranty is included in a
purchase agreement, it may coexist with the implied warranty; the
warranties are not mutually exclusive. See Columbia W. Corp., 122 Ariz.
at 29, 33 (recognizing an implied warranty despite the existence of an
express warranty and the lack of any gap); Desert Mountain Props. Ltd. P’ship
v. Liberty Mut. Fire Ins. Co., 225 Ariz. 194, 207 ¶ 46 (App. 2010) (same).
¶17 Although the legislature has not explicitly codified the terms
of the implied warranty of workmanship and habitability, it has explicitly
approved it (1) by accommodating causes of action based on the warranty
in the Purchaser Dwelling Act, A.R.S. § 12-1362(E) (providing that “the
bifurcation process prescribed in [the Act] does not alter the seller’s liability
under the seller’s implied warranty to the purchaser”); (2) by including it
within a statute of repose for contract actions against home builders and
vendors, § 12-552(F) (stating that the eight-year limitation period applies to
“any action based on implied warranty arising out of the contract or the
construction, including implied warranties of habitability, fitness or
workmanship”); and (3) by providing a one-year repose period for
homebuyers to sue for damages caused by latent defects discovered in the
eighth year after purchase, § 12-552(E). See CSA 13-101 Loop, 236 Ariz. at
412 ¶ 8 (“Even when not expressly prohibited [by statute], contract terms
may be invalidated ‘if the legislature makes an adequate declaration of
public policy which is inconsistent with [them].’” (second alteration in
original) (quoting Shadis v. Beal, 685 F.2d 824, 833–34 (3d Cir. 1982))).
¶18 The legislature has also recognized the importance of holding
builders in general to sufficient workmanship standards by requiring the
registrar of contractors to establish “minimum standards for good and
workmanlike construction.” A.R.S. § 32-1104(A)(5). Fulfilling this
mandate, the registrar requires builders to “perform all work in a
professional and workmanlike manner” and “in accordance with any
applicable building codes and professional industry standards.” Ariz.
Admin. Code R4-9-108(A)–(B). To satisfy this standard, “a contractor shall
use such skills, prudence, and diligence in performing and completing tasks
undertaken that the completed work meets the standards of a similarly
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licensed contractor possessing ordinary skill and capacity.” R4-9-108(B).
By establishing workmanship standards for licensed contractors, which
benefit those contractors’ customers and the public at large, Rule 4-9-108
aligns with the purposes of the implied warranty of workmanship and
habitability.
¶19 In sum, the public policy underlying the implied warranty of
workmanship and habitability is twofold: (1) protecting buyers of newly
built homes and successive owners against latent construction defects that
were not reasonably discoverable when the home was initially sold and
(2) holding builders accountable for their work. Richards, 139 Ariz.
at 244–45.
B. Weighing the public policy underlying the implied
warranty against enforcement of the disclaimer and
waiver provision
¶20 While acknowledging the presumption that private parties
are best able to decide whether particular contract terms serve their
interests, and respecting that society broadly benefits from relying on the
enforcement of bargains struck between competent parties, we nevertheless
decide that the circumstances here present the rare case where public policy
clearly outweighs enforcing a contract term. See 1800 Ocotillo, 219 Ariz.
at 202 ¶ 8.
1. The interest in enforcing the disclaimer and waiver provision
¶21 We start by noting a diminished interest in enforcing a
disclaimer and waiver of the implied warranty because homebuyers
possess vastly unequal bargaining power, expertise, and knowledge as
compared with the builder-vendor. Id. ¶ 7 (“Analysis of the weight of the
public policy interest generally focuses on the extent to which enforcement
of the term would be injurious to the public welfare.”). Modern
homebuilding frequently occurs in large-scale developments, leaving the
buyer to either purchase the home under terms directed by the builder-
vendor or forego the purchase altogether. See Richards, 139 Ariz. at 245.
Indeed, Zambrano signed Scott Homes’ form purchase agreement and
accepted the PWC warranty with no variation to the preprinted terms in
either document, without representation, and without any negotiation
about warranties, suggesting she was in a take-it-or-leave-it situation. See
Darner Motor Sales, 140 Ariz. at 390–91 (observing that a term in a
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standardized contract is “an illusory ‘bargain’ . . . when that ‘bargain’ was
never really made and would, if applied, defeat the true agreement which
was supposedly contained in the [contract]”).
¶22 A homebuyer must also rely heavily on the builder-vendor’s
knowledge of construction quality, as builders are “skilled in the
profession, . . . modern construction is complex and regulated by many
governmental codes, and . . . homebuyers are generally not skilled or
knowledgeable in construction, plumbing, or electrical requirements and
practices.” Richards, 139 Ariz. at 245; see Columbia W. Corp., 122 Ariz. at 32(“The ordinary home buyer is not in a position, by skill or training, to
discover defects lurking in the plumbing, the electrical wiring, the structure
itself, all of which is usually covered up and not open for inspection.”
(quoting Tavares v. Horstman, 542 P.2d 1275, 1279 (Wyo. 1975))). And
unlike those who purchase older homes, a person who buys a newly built
home “has no opportunity to observe how the [home] has withstood the
passage of time.” Columbia W. Corp., 122 Ariz. at 32 (quoting Pollard v. Saxe
& Yolles Dev. Co., 525 P.2d 88, 91 (Cal. 1974)).
¶23 This inequality in bargaining power, expertise, and
knowledge distinguishes the new-home-buying scenario from ones in
which the parties are on similar footing and are thus better able to decide
what contract terms serve their individual interests. See 1800 Ocotillo,
219 Ariz. at 204 ¶ 17 (declining to invalidate a liability-limitation clause
entered by a real estate developer and a surveying firm on public policy
grounds as such clauses desirably permitted sophisticated parties to
allocate risks). The implied warranty was created in recognition of this
disparity, see Richards, 139 Ariz. at 245, and undoubtedly reflects the
homebuyers’ reasonable expectations that a newly constructed home
would be properly designed and built, see Columbia W. Corp., 122 Ariz. at 33.
2. The counterweight of the public policy supporting imposition of
the implied warranty
¶24 As previously explained, in assigning weight to the public
policy underlying the implied warranty we generally focus on the extent to
which enforcement of the disclaimer and waiver provision would injure the
public welfare. 1800 Ocotillo, 219 Ariz. at 202 ¶ 7.
¶25 The implied warranty serves to protect homebuyers and the
public at large in multiple ways. First, warranting that a home was built
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using minimum standards of good workmanship conforms to a
homebuyer’s reasonable expectations. See Columbia W. Corp., 122 Ariz.
at 33. Second, the warranty discourages “the unscrupulous, fly-by-night
operator and purveyor of shoddy work,” who might otherwise blight our
communities. Id. at 32 (quoting Humber, 426 S.W.2d at 562). Third, it
protects not only the original buyer but also subsequent purchasers. See
Richards, 139 Ariz. at 245 (“The effect of latent defects will be just as
catastrophic on a subsequent owner as on an original buyer and the builder
will be just as unable to justify improper or substandard work.”). Fourth,
the warranty shields a purchase that “is usually the most important and
expensive purchase of a lifetime,” thus minimizing the risk of catastrophic
financial losses for all homebuyers who purchase a home within eight years
of construction. Columbia W. Corp., 122 Ariz. at 33 (quoting W. Durrell
Nielsen II, Comment, Caveat Emptor in Sales of Real Property Time for a
Reappraisal, 10 Ariz. L. Rev. 484, 491 (1968)); see Richards, 139 Ariz. at 245.
¶26 Enforcing the disclaimer and waiver here would grievously
injure homebuyers and the public welfare as doing so would likely spell the
end for the implied warranty and eliminate the above-described
protections. Builders would almost certainly include a disclaimer and
waiver in every purchase agreement with the new homebuyer lacking any
realistic ability to negotiate deletion of the term. And, as has already
occurred in Arizona and reflected in the public record, the builder would
surely record the disclaimer and waiver to provide notice to subsequent
homebuyers and prevent them from enforcing the implied warranty, as the
law currently permits, even though they had no say in waiving a warranty
that arose from the construction itself. See Sirrah Enters., 242 Ariz. at 544–
45 ¶¶ 8–12.
¶27 Effectively eliminating the implied warranty, in turn, would
gut a homebuyer’s ability to hold a builder responsible for latent defects,
increasing the likelihood that homes would be left unrepaired, to the
detriment of homebuyers, their neighbors, and the public generally. The
Purchaser Dwelling Act permits a homebuyer to sue a builder-vendor for
defects involving the builder’s “violation of construction codes,” its “use of
defective materials,” and its “failure to adhere to generally accepted
workmanship standards in the community,” after giving the builder a
chance to repair or replace those defects. See A.R.S. § 12-1361(4), (7);
§ 12-1362(A)–(B). But the Act does not itself provide a legal cause of action
for such lawsuits. And without the ability to enforce the implied warranty
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of workmanship and habitability, there is no legal cause of action to remedy
these defects.
¶28 A homebuyer cannot pursue a negligence claim against the
builder to recover economic damages caused by latent defects, absent
personal injury or damage to other property, because Arizona, unlike other
states, does not permit such claims. See Sullivan, 232 Ariz. at 345–46
¶¶ 8–9 (concluding the economic loss doctrine bars the original homebuyer
from asserting a negligence claim to recover repair costs); Sullivan v. Pulte
Home Corp., 237 Ariz. 547, 548 ¶¶ 1–3 (App. 2015) (holding that a
subsequent homebuyer cannot maintain a negligence action against a
builder to recover repair costs because the builder does not owe a duty to
that homebuyer); see also Sewell v. Gregory, 371 S.E.2d 82, 84–85 (W. Va. 1988)
(noting most state courts which have considered the issue permit a
subsequent homebuyer to sue a builder for negligent construction).
Causes of action based on fraud, misrepresentation, and material omissions
remain available, just as they did before Arizona recognized the implied
warranty of workmanship and habitability. See, e.g., Echols v. Beauty Built
Homes, Inc., 132 Ariz. 498, 499 (1982) (addressing fraud in sale of home).
But these claims depend on purposeful wrongdoing by the builder,
presumably an uncommon occurrence, and would not protect the
homebuyer from the builder’s unintentionally poor workmanship. See id.
at 500 (setting out the elements of fraud).
¶29 An unhappy homebuyer may file a complaint against the
builder’s license with the registrar of contractors and potentially recover
money from the residential contractors’ recovery fund. See A.R.S.
§§ 32-1131 to -1140. But this remedy is no substitute for enforcing the
implied warranty of workmanship and habitability against the
builder-vendor. Unlike a claim for breach of the implied warranty, the
homebuyer’s recovery is capped at $30,000, does not reimburse
consequential damages, and attorney fees are not generally recoverable.
See Sirrah Enters., 242 Ariz. at 547 ¶¶ 20–22; Flagstaff Affordable Hous. Ltd.,
223 Ariz. at 325–26 ¶ 27; A.R.S. § 32-1132.01(B), (D)–(E). Also, the registrar
proceedings must commence within two years after the builder’s act, see
A.R.S. § 32-1133(A), which forecloses claims involving later-discovered
latent defects. See, e.g., Woodward, 141 Ariz. at 515 (addressing cracks in
home, ceiling bowing, and floor warping that started three years after
purchase); § 12-552(E) (permitting suit on latent defects discovered eight
years after purchase if brought within the following year).
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¶30 Scott Homes argues the PWC warranty adequately satisfies
the public interest in protecting homebuyers from shoddy workmanship.
It further asserts the express warranty is superior to the implied warranty
by explicitly defining the parties’ rights and obligations in advance, thereby
avoiding costly litigation about what is “habitable,” and by extending the
warranty up to ten years for some defects. We disagree.
¶31 The PWC warranty does not protect the same interests as
those protected by the implied warranty. While the implied warranty
protects against a builder’s lack of conformity with generally accepted
community standards for workmanship and habitability, 2 the PWC
warranty protects against nonconformity with tolerances it establishes for
certain construction components within the warranty periods, most of
which fall into the one-year period. For example, regardless of
workmanship standards, the PWC warranty provides that Scott Homes will
repair a separation of stoops, steps, or garage floors from the home if the
width exceeds one inch and if that separation occurs within the first year of
ownership. A violation of the PWC warranty tolerances might not violate
the implied warranty and vice versa. Cf. Nastri, 142 Ariz. at 444 (noting
the implied warranty does not protect against every imperfection).
Although related, the interests protected by each warranty—good
workmanship (implied) versus conformance with specific standards
(express)—are distinct. Cf. Columbia W. Corp., 122 Ariz. at 29, 32(recognizing the need for the implied warranty even though the builder had
expressly warranted that the home would be built in substantial
conformance with plans and specifications).
2 Contrary to Scott Homes’ assertion, the implied warranty of
workmanship and habitability is not so ill-defined that parties are left
scratching their heads about the meaning of “habitability” absent an
express warranty. The implied warranty is a single warranty. See Nastri
v. Wood Bros. Homes, 142 Ariz. 439, 444 (App. 1984). It is breached if the
builder did not construct the home in a workmanlike manner. See Dillig v.
Fisher, 142 Ariz. 47, 50 (App. 1984); see also Nastri, 142 Ariz. at 444 (stating
the implied warranty is satisfied if the home is “reasonably suited for its
intended use” (quoting Petersen v. Hubschman Constr. Co., 389 N.E.2d 1154,
1158 (Ill. 1979))). There is no requirement to show that the home is
unlivable. See Dillig, 142 Ariz. at 50.
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Opinion of the Court
¶32 Comparing the two warranties further demonstrates that the
PWC warranty is an insufficient substitute for the implied warranty and is
certainly not superior from the homebuyer’s or the public’s perspective.
Unlike the implied warranty, the PWC warranty does not apply to latent
design defects that may later result in damages. See Woodward, 141 Ariz.
at 516. Most components are warrantied for only one year after purchase,
even if latent defects manifest after one year. Cf. id. at 515 (allowing a
cause of action for defect found over three years after closing on the home
purchase); § 12-552(E) (allowing a cause of action for defects discovered
within eight years of substantial completion). Additionally, the PWC
warranty caps the amount Scott Homes must spend to repair deficiencies
(the cap amount is reflected in a form that is not part of our record).
Finally, rather than warranting the entire home from defects, the PWC
warranty applies only to select construction components and leaves others
uncovered. For example, defects in roof or floor sheathing due to faulty
materials or substandard installation are explicitly not warrantied, unless
the buyer holds a Federal Housing Administration or United States
Department of Veterans Affairs mortgage.
¶33 We also disagree with Scott Homes’ remaining arguments,
most of which are intended to add weight to enforcement of the disclaimer
and waiver provision. Prohibiting waiver of the implied warranty will not
itself prevent enforcement of arbitration provisions set forth in the PWC
warranty because the warranty has a severability clause. See Hamblen v.
Hatch, 242 Ariz. 483, 491 ¶ 34 (2017) (noting that public policy favors
arbitration). And disallowing disclaimer and waiver of the implied
warranty will not disincentivize builders from competing to offer the “best”
express warranty. A builder can still offer an attractive express warranty
that exceeds the minimum standards of workmanship and habitability
established by the implied warranty.
¶34 Scott Homes also asserts that the implied warranty serves a
similar purpose to the implied warranties of merchantability and fitness for
a particular purpose, which apply to consumer goods. It argues that
because those warranties can be waived, see A.R.S. § 47-2316(B), we should
similarly conclude that the implied warranty here can be disclaimed and
waived. But an implied home warranty is unique in protecting against
financial catastrophe for homebuyers and community blight. See supra
¶ 25. Unlike with most defective consumer goods, poorly built homes are
not easily discarded or replaced, and their impact can linger for decades.
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Opinion of the Court
¶35 Finally, although we considered leaving open the possibility
that a sophisticated homebuyer in some settings could negotiate to waive
the implied warranty, we reject that idea. It would be next to impossible
for courts to decide whether a homebuyer was sophisticated “enough.”
Even sophisticated homebuyers need the protection offered by the implied
warranty because they cannot spot hidden, latent defects at the time of
purchase; and subsequent homebuyers should not be penalized simply
because the original owner was sophisticated and chose to waive the
implied warranty. Thus, unless the legislature enacts a statute permitting
waiver of the implied warranty, our courts will not permit it.
¶36 In sum, we conclude the public policy underlying the implied
warranty of workmanship and habitability clearly outweighs enforcement
of the disclaimer and waiver of that warranty in the purchase agreement
and the PWC warranty here. See 1800 Ocotillo, 219 Ariz. at 202 ¶¶ 7–8;
CSA 13-101 Loop, 236 Ariz. at 411 ¶ 6. Because the PWC warranty has a
severability clause, the other provisions in that warranty are unaffected by
this decision.
¶37 Our court of appeals has reached conclusions similar to our
decision today, see Buchanan v. Scottsdale Env’t Constr. & Dev. Co., 163 Ariz.
285, 286–87 (App. 1989) (concluding that the policies giving rise to the
implied warranty also void any attempt by the builder to disclaim the
warranty against the original owner); see also Nastri, 142 Ariz. at 442–43
(having the same effect as applied to a subsequent homebuyer), as have
courts in other jurisdictions, see, e.g., Trs. of Cambridge Point Condo. Tr. v.
Cambridge Point, LLC, 88 N.E. 3d 1142, 1151 (Mass. 2018) (“[T]o permit the
disclaimer of a warranty protecting a purchaser from the consequences of
latent defects would defeat the very purpose of the warranty.” (quoting
Albrecht v. Clifford, 767 N.E.2d 42, 47 (Mass. 2002))); Davencourt at Pilgrims
Landing Homeowners Ass’n v. Davencourt at Pilgrims Landing, LC, 221 P.3d
234, 252–53 ¶ 58 (Utah 2009) (to same effect). Although we recognize that
other courts have reached different conclusions, we find those cases either
distinguishable or simply wrong. See, e.g., Tusch Enters. v. Coffin, 740 P.2d
1022, 1030–31 (Idaho 1987) (permitting disclaimer of the implied warranty
outside boilerplate clauses if builder shows a knowing waiver); Crowder v.
Vandendeale, 564 S.W.2d 879, 881 (Mo. 1978) (to same effect).
15
ZAMBRANO V. M & RC II LLC, ET AL.
Opinion of the Court
C. The dissent
¶38 Our dissenting colleagues spill considerable ink expressing a
contrary view. Most of their arguments track Scott Homes’ arguments,
which we have already addressed and rejected. A few additional points
warrant mention or emphasis.
¶39 First, the dissent bases all its arguments on the false premise
that the parties here simply “modified” the implied warranty, otherwise
leaving its protections intact. See infra ¶ 52. But the agreement and the
PWC warranty plainly provide that the implied warranty is “waived” and
“disclaimed,” not modified. Supra ¶¶ 4–5. And as explained, the PWC
warranty and the implied warranty protect different interests. Supra ¶ 31.
The dissent’s mischaracterization of the waiver and disclaimer provision as
a “modification” of the implied warranty leads it to mistakenly conclude
that the express warranty similarly serves to protect unwary buyers from
suffering the consequences of latent defects, the implied warranty is merely
a “gap-filler” rendered unnecessary by an express warranty, and the
implied warranty therefore “should not be held paramount.” See infra
¶ 57.
¶40 Second, although the dissent claims to embrace the analytical
paradigm this Court established in 1800 Ocotillo to determine the
enforceability of a contract provision, see infra ¶ 58, it wholly fails to apply
it. Our colleagues do not identify a different public policy underlying the
implied warranty than we do or weigh that policy against enforcement of
the waiver and disclaimer provision. For example, the dissent fails to
discuss the ramifications of permitting builder-vendors to insert waiver
provisions in standard form contracts or the ability of buyers—whatever
their sophistication level—to understand they are agreeing to purchase a
new home with the risk of latent defects. Nor does the dissent identify
attributes of express warranties that are “good enough” to further the same
policies underlying the implied warranty or the characteristics of parties
sufficiently “sophisticated” to protect themselves from the risk of latent
defects.
¶41 Instead, the dissent confuses matters by ignoring the policies
underlying the implied warranty, failing to weigh them against the waiver
provision, and pointing out needlessly that this Court has never before
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ZAMBRANO V. M & RC II LLC, ET AL.
Opinion of the Court
established a public policy prohibiting such waivers. 3 See infra ¶ 58. By
the dissent’s flawed logic, because we have not previously conducted an
1800 Ocotillo analysis to find that the policies underlying the implied
warranty clearly outweigh enforcement of a contractual waiver provision,
we are wrong to do so today. See id. Illogic aside, the dissent’s analysis
sidesteps 1800 Ocotillo.
¶42 Third, the dissent cries foul on us for “focus[ing] on policy
matters that are better—and, as a matter of separation of powers, more
appropriately—left for the legislature to address.” See infra ¶ 63. This
criticism is unpersuasive and confusing.
¶43 Arizona is not a code state; we are a common law state. See
A.R.S. § 1-201 (adopting the common law and directing courts to follow it
unless inconsistent with the state or federal constitution or the laws of this
state). Who declares the common law by focusing on public policy? We
do, with appropriate restraint. See Cal-Am Props. Inc. v. Edais Eng’g Inc.,
253 Ariz. 78, 83 ¶ 17 (2022) (noting “‘we exercise great restraint in declaring
public policy’ in the absence of legislative guidance” (quoting Quiroz v.
ALCOA, Inc., 243 Ariz. 560, 566 ¶ 19 (2018))); Ontiveros v. Borak, 136 Ariz.
500, 504 (1983) (stating that the common law is “judge-made and judge-
applied” and changes as public policy changes). The common law has its
place in our democracy, and we establish and apply it appropriately and
with fitting restraint.
¶44 Since 1979, our courts have continuously applied the implied
warranty as part of the common law. See supra ¶ 14. The legislature has
explicitly approved causes of action based on the warranty by enacting laws
governing their assertion. See supra ¶ 17. Indeed, explanatory
documents supporting the bill enacted to amend the Purchaser Dwelling
Act in 2019 reflected that a purchaser of a home may file a lawsuit against
a builder-vendor for any construction defect after following the Act’s
procedures. See Ariz. State H.R. Summary for S.B. 1271, 54th Leg., 1st Reg.
Sess. (Mar. 18, 2019); Ariz. State Senate Fact Sheet for S.B. 1271, 54th Leg.,
1st Reg. Sess. (Feb. 19, 2019). The House of Representatives summary also
cited an implied warranty case as authority that the buyer may only file suit
against the party in privity. See Ariz. State H.R. Summary for S.B. 1271
(citing Yanni v. Tucker Plumbing, Inc., 233 Ariz. 364, 367–68 (App. 2013)).
3 The dissent ignores the two court of appeals cases decided more than
thirty years ago that prohibited such waivers. See supra ¶ 37.
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Opinion of the Court
As previously explained, see supra ¶¶ 26–28, if the dissent’s position
prevails, the implied warranty would likely disappear, and without it
buyers would have no cause of action to assert, making statutory references
to the implied warranty superfluous. See § 12-552(E), (F); § 12-1362(E).
¶45 We are also confused by our colleagues’ criticism because,
ironically, they focus on the public policy underlying the common law
freedom to contract to urge their position. See infra ¶¶ 55, 60. Also, it
seems to us that despite its protest to the contrary, see infra ¶ 62, the
dissent’s analysis would require a court to enforce a waiver and disclaimer
provision even absent an express warranty, see infra ¶ 60 (relying on cases
with holdings to that effect), leaving the homeowner with no warranty at
all and changing our existing public policy that favors such provisions.
And the dissent’s assertion that the implied warranty can only be waived
when an express warranty exists is itself a declaration of policy. See infra
¶ 62. Just like with the proverbial goose and gander, the criticism our
dissenting colleagues throws our way applies equally to them.
¶46 Fourth, the dissent gives short shrift to subsequent
homebuyers, who would lose the protection offered by the implied
warranty if the original purchaser could waive it. See infra ¶ 68. Again,
by not weighing the 1800 Ocotillo factors, the dissent kicks subsequent
homebuyers to the curb by saying the impact on those buyers—and
necessarily the public as a whole—“should be left for another day.” See
infra ¶ 68. But this is the day, and the dissent neatly avoids the
uncomfortable reality that if builder-vendors are permitted to waive and
disclaim the warranty, the warranty will vanish. See supra ¶ 26.
¶47 Contrary to the dissent’s assertion, we do not declare any new
public policy today. See infra ¶ 65. Instead, we preserve the public
policies that created the implied warranty more than forty years ago, which
our legislature has approved and accommodated, and our courts have
routinely enforced.
¶48 We respect and take seriously parties’ freedom of contract,
and act with appropriate restraint when asked to prohibit enforcement of a
term. But we also will not ignore our obligation to acquiesce to such
requests when appropriate after conducting the 1800 Ocotillo inquiry. This
case presents one of the rare occasions we find a public policy paramount
to the freedom of contract. Any relief for builder-vendors from our
holding lies squarely with the legislature.
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Opinion of the Court
IV. Attorney Fees
¶49 Zambrano seeks an award of attorney fees incurred on
appeal, but she failed to state the basis for the request as required by our
rules of procedure. See ARCAP 21(a)(2) (requiring a party to “specifically
state the statute, rule, decisional law, contract, or other authority for an
award of attorneys’ fees”). We therefore decline the request. As the
prevailing party, we award Zambrano her costs. See A.R.S. § 12-341.
CONCLUSION
¶50 For the foregoing reasons, we reverse the summary judgment
and remand this matter to the trial court. Although we agree with the
court of appeals’ holding, we vacate its opinion to replace its reasoning with
our own.
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ZAMBRANO V. M & RC II LLC, ET AL.
JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
KING, J., joined by BOLICK, J., Dissenting
¶51 In this case, a builder-vendor and a homebuyer, who is a
licensed real estate broker, entered into a written contract agreeing to
disclaim the judicially-created implied warranty of workmanship and
habitability and enter into an express warranty instead. The majority
believes this “presents one of the rare occasions” where “public policy [is]
paramount to the freedom of contract.” Supra ¶ 48. We disagree.
¶52 Since the court of appeals created the implied warranty of
workmanship and habitability in Columbia Western Corp. v. Vela, 122 Ariz.
28 (App. 1979), this Court has only applied the implied warranty in cases
where the builder-vendor and homebuyer did not agree to modify the implied
warranty with an express warranty. See, e.g., Sirrah Enters., LLC v. Wunderlich,
242 Ariz. 542 (2017); Lofts at Fillmore Condo. Ass’n v. Reliance Com. Constr.,
Inc., 218 Ariz. 574 (2008); Richards v. Powercraft Homes, Inc., 139 Ariz. 242(1984). We reject the majority’s bright-line rule today that Arizona’s
public policy prohibits two competent parties, in all instances, from
modifying the implied warranty with specific warranty terms of their own
choosing—even when they knowingly, voluntarily, and intelligently do so.
We respectfully dissent.
¶53 At the outset, the majority acknowledges the implied
warranty of workmanship and habitability is a court-made doctrine. The
majority then concludes the implied warranty can never—regardless of the
circumstances or sophistication of the parties—be waived and replaced
with an express warranty. Supra ¶ 35 (“[A]lthough we considered leaving
open the possibility that a sophisticated homebuyer in some settings could
negotiate to waive the implied warranty, we reject that idea.”). This
categorical constraint states a highly unusual exception in the law.
¶54 Generally speaking, parties are free to waive any number of
rights, even constitutional rights such as the right to appeal, Hinton v.
Hotchkiss, 65 Ariz. 110, 113–14 (1946), the right to counsel, State v. Cornell,
179 Ariz. 314, 322–23 (1994), the right to a jury trial, State v. Butrick, 113 Ariz.
563, 565–66 (1976), and the right to be present during criminal proceedings,
State v. Dann, 205 Ariz. 557, 572 ¶ 54 (2003). We are generally free to waive
implied warranties and protections in other contexts. See, e.g., A.R.S.
§ 47-2316(B) (explaining how “to exclude or modify the implied warranty
20
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JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
of merchantability” and how “to exclude or modify any implied warranty
of fitness”). We are free to waive indemnification. See INA Ins. Co. of N.
Am. v. Valley Forge Ins. Co., 150 Ariz. 248, 252 (App. 1986) (“When there is
an express indemnity contract, the extent of the duty to indemnify must be
determined from the contract, and not by reliance on implied indemnity
principles.” (internal citations omitted)). We are even free to waive
parental rights. See A.R.S. § 8-106(A). And, as a matter of freedom of
contract, we may waive another’s duty to perform under a contract
provision. See Mohave Cnty. v. Mohave-Kingman Ests., Inc., 120 Ariz. 417,
421 (1978). Today’s ruling is a sharp departure from the ordinary rule that
parties may waive their rights.
¶55 Arizona’s public policy favoring freedom of contract was
established long before the court of appeals adopted the implied warranty
in Columbia Western Corp. For over 100 years, this Court has affirmed
Arizona’s public policy that parties have the right to make decisions
regarding their own affairs, property, and services, consistent with their
priorities and values. Indeed, in 1914, this Court explained,
We have always understood the law to be that persons under
no legal disability, as a general rule, have power to do as they
wish with their own. They may enter into contracts; they may
give away their substance; they may spend it for mere
baubles; they may exchange it for high and riotous living; it
may go to satisfy vanity or pride or ambition; and the courts
are helpless to say nay or to control their freedom of action in
those respects. Courts are not instituted to control and
supervise the private dealings of persons compos mentis who
are upon an equal footing and labor under no restraint of
person, property, or mind, such as fraud, duress, coercion, or
extortion. Freedom of contract and freedom in the use and
disposition of one’s own are no less sacred than freedom of
speech.
Merrill v. Gordon, 15 Ariz. 521, 531 (1914); see also Warren v. Mosher, 31 Ariz.
33, 38 (1926) (“A man may do as he will with his own, and if he chooses to
give or contract it away, so long as it does not interfere with the rights of
others, the contract will stand.”); Com. Standard Ins. Co. v. Cleveland, 86 Ariz.
288, 293 (1959) (“[P]arties have a legal right to make such contracts as they
desire to make, provided only that the contract shall not be for an illegal
purpose or against public policy. A party cannot complain of the
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JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
harshness of the terms of the contract.”); Goodman v. Newzona Inv. Co.,
101 Ariz. 470, 472 (1966) (“It is not within the province or power of the court
to alter, revise, modify, extend, rewrite or remake an agreement. Its duty
is confined to the construction or interpretation of the one which the parties
have made for themselves.”); 1800 Ocotillo, LLC v. WLB Grp., Inc., 219 Ariz.
200, 202 ¶ 8 (2008) (“Our law generally presumes . . . that private parties are
best able to determine if particular contractual terms serve their interests.
Society also broadly benefits from the prospect that bargains struck
between competent parties will be enforced.” (internal citation omitted));
Flagstaff Affordable Hous. Ltd. v. Design All., Inc., 223 Ariz. 320, 323 ¶ 14 (2010)
(“Contract law . . . seeks to preserve freedom of contract and to promote the
free flow of commerce.”). The “utmost liberty of contracting” has been
described as a “paramount public policy.” Consumers Int’l, Inc. v. Sysco
Corp., 191 Ariz. 32, 34 (App. 1997) (quoting Wood Motor Co. v. Nebel,
238 S.W.2d 181, 185 (Tex. 1951)). Moreover, although not directly
implicated here, the framers of the Arizona Constitution drafted a provision
supporting the general principle of contractual freedom in Arizona’s
Declaration of Rights in 1912. Ariz. Const. art. 2, § 25 (“No . . . law
impairing the obligation of a contract[] shall ever be enacted.”).
¶56 Conversely, the implied warranty of workmanship and
habitability is of more recent vintage, tracing its roots to the 1979 court of
appeals’ decision in Columbia Western Corp. Today, we confront the very
question that was expressly reserved in Columbia Western Corp.: whether
parties may modify the implied warranty of workmanship and habitability
with an express warranty. 122 Ariz. at 30 n.1 (“As the issue was not
raised, we do not in this decision address the question as to what effect, if
any, the existence of an express warranty may have in excluding or
modifying implied warranties in this context.”).
¶57 As explained in Columbia Western Corp., the implied
warranty of workmanship and habitability was judicially created to
“eliminate a trap for unwary buyers who fail or are unable to secure an
express warranty” and to “conform to the reasonable expectations of the
vendee.” Id. at 33 (quoting W. Durrell Nielsen II, Comment, Caveat Emptor
in Sales of Real Property Time for a Reappraisal, 10 Ariz. L. Rev. 484, 491 (1968)).
To that end, “the implied warranty of good workmanship serves as a ‘gap-
filler’ or ‘default warranty’; it applies unless and until the parties express a
contrary intention.” Centex Homes v. Buecher, 95 S.W.3d 266, 273 (Tex.
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ZAMBRANO V. M & RC II LLC, ET AL.
JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
2002). 4 And as this Court explained in Balon v. Hotel & Restaurant Supplies,
Inc., 103 Ariz. 474, 477 (1968), “[a] fictitious inference of law created to fill
gaps in written contracts should not be held paramount over the express
manifestations of intent of the parties.” Thus, the implied warranty of
workmanship and habitability “should not be held paramount” where
competent parties have agreed to modify the implied warranty with an
express warranty. Id.; see also Consumers Int’l, 191 Ariz. at 34 (describing
parties’ ability to contract freely as a “paramount public policy” (quoting
Wood Motor Co., 238 S.W.2d at 185)).
¶58 We recognize this Court’s jurisprudence that “courts should
rely on public policy to displace the private ordering of relationships only
when the term is contrary to an otherwise identifiable public policy that
clearly outweighs any interests in the term’s enforcement.” 1800 Ocotillo,
219 Ariz. at 202 ¶ 8; see also Goodman, 101 Ariz. at 474 (recognizing a
“fundamental right of the individual to complete freedom to contract or
decline to do so, as he conceives to be for his best interests, so long as his
contract is not illegal or against public policy” (quoting McCall v. Carlson,
172 P.2d 171, 187 (Nev. 1946)). But this Court has also explained that
in the absence of a legislative declaration of what that public
policy is, before courts are justified in declaring its existence[,]
such public policy should be so thoroughly established as a state
of public mind, so united and so definite and fixed that its
existence is not subject to any substantial doubt.
Ray v. Tucson Med. Ctr., 72 Ariz. 22, 36 (1951) (emphasis added). Since its
creation, this Court has applied the implied warranty in instances where
the builder-vendor and homebuyer had not agreed to modify the implied
4 Centex Homes was later superseded by statute when the Texas Legislature
“created the Texas Residential Construction Commission and gave it
rulemaking authority to create statutory warranties of workmanship and
habitability as to new residential construction,” and “[t]hese statutory
warranties [became] exclusive and supercede[d] all previous implied
warranties of workmanship and habitability.” Gym-N-I Playgrounds, Inc.,
v. Snider, 220 S.W.3d 905, 913 n.11 (Tex. 2007). Indeed, the exclusive type
of warranty available to parties is an issue better suited for the legislature
to address. Infra ¶¶ 63–65.
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ZAMBRANO V. M & RC II LLC, ET AL.
JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
warranty with an express warranty. This Court has never previously
established a public policy that prohibits sophisticated parties in all cases
from negotiating their own warranty terms—much less a public policy that
is “so thoroughly established . . ., so united and so definite and fixed.” Id.Thus, while “[t]he common law . . . is adopted and shall be the rule of
decision in all courts of this state,” A.R.S. § 1-201, the common law does not
mandate the result today.
¶59 In the majority’s view, the type of contract a homebuyer
enters into does not make a difference. The majority makes clear that no
party under any set of circumstances may modify the implied warranty of
workmanship and habitability—even if the homebuyer is sophisticated and
seeks to purchase a customized home that presents specific risks, for which
the homebuyer prefers to negotiate unique coverage in an express
warranty. See supra ¶ 35. The majority further indicates that parties may
still enter into an express warranty, so long as those terms are in addition
to the implied warranty of workmanship and habitability. See supra ¶¶ 16,
20 (stating “if an express warranty is included in a purchase agreement, it
may coexist with the implied warranty,” but public policy prohibits
enforcement of a disclaimer of the implied warranty). But what about a
homebuyer who prefers a contractual term that is less protective than the
implied warranty as to one section or component of the home, in exchange
for greater and broader protection in another area of the home? What
about a homebuyer’s ability to negotiate a reduced purchase price in
exchange for a warranty more limited than the implied warranty? Even
here, Zambrano admits her express warranty may in some instances
provide greater protection than the implied warranty, as a homebuyer may
have a remedy under the express warranty (but not the implied warranty)
if there are major structural defects after the statute of repose for the implied
warranty has passed. In fact, Zambrano’s express warranty covers one of
the coverage groups for up to ten years against damages from certain
variances in materials or workmanship, supra ¶ 5, whereas the statute of
repose for the implied warranty is eight years, A.R.S. § 12-552(E)–(F). The
majority replaces the parties’ ability to determine their own best interests
with an absolute prohibition on their ability to do so.
¶60 Many other jurisdictions have rejected the categorical rule
the majority employs today. See, e.g., Turner v. Westhampton Ct., LLC,
903 So. 2d 82, 93 (Ala. 2004) (“[T]he principle of freedom of contract permits
a party to effectively disclaim the implied warranty of habitability.”);
Greeves v. Rosenbaum, 965 P.2d 669, 673 (Wyo. 1998) (“The protection
afforded to purchasers of a new home, however, does not go so far as to
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ZAMBRANO V. M & RC II LLC, ET AL.
JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
allow the purchasers to ignore their negotiated responsibilities.”); Tusch
Enters. v. Coffin, 740 P.2d 1022, 1030–31 (Idaho 1987) (explaining “[t]he
majority of states permit a disclaimer of an implied warranty of habitability,
but the disclaimer must be clear and unambiguous,” and permitting
disclaimer of the implied warranty in Idaho where the builder shows a
knowing waiver); Bridges v. Ferrell, 685 P.2d 409, 410–11 (Okla. Civ. App.
1984) (explaining the Oklahoma Supreme Court’s holding “that the implied
warranty of habitability could be waived by the parties by agreement. . . . is
in accord with the great majority of courts holding that while an implied
warranty of habitability is a creature of public policy, a knowing disclaimer
of the implied warranty would not be considered against public policy of
[Oklahoma]”); Crowder v. Vandendeale, 564 S.W.2d 879, 881 n.4 (Mo. 1978)
(explaining that, in Missouri, “one seeking the benefit of such a disclaimer
[of the implied warranty] must not only show a conspicuous provision
which fully discloses the consequences of its inclusion but also that such
was in fact the agreement reached”).
¶61 The majority argues that Zambrano signed the “warranty
with no variation to the preprinted terms in either document, without
representation, and without any negotiation about warranties, suggesting
she was in a take-it-or-leave-it situation.” Supra ¶ 21. But there are
already well-established legal remedies that could render a contract,
including an express warranty, invalid and unenforceable. Indeed, courts
decline to enforce contract terms (1) that are unconscionable or illegal; (2)
where there was fraud, duress, coercion, misrepresentation, or mistake; and
(3) where a contract of adhesion was unconscionable and outside the
reasonable expectations of the parties. See A.R.S. § 47-2302
(“Unconscionable contract or clause”); see also Maxwell v. Fid. Fin. Servs.,
Inc., 184 Ariz. 82, 88, 90 (1995) (providing that contract provisions “are
unenforceable if they are oppressive or unconscionable” and noting that
“claims under the doctrines of fraud, misrepresentation, duress, and
mistake” may be pursued); Goodman, 101 Ariz. at 474 (recognizing “illegal”
contracts as unenforceable); Merrill, 15 Ariz. at 531 (discussing “fraud,
duress, coercion, or extortion”); Broemmer v. Abortion Servs. of Phx., Ltd.,
173 Ariz. 148, 153 (1992) (“Contracts of adhesion will not be enforced unless
they are conscionable and within the reasonable expectations of the
parties.”). Therefore, by way of example, if a trial court determines a
homebuyer’s express warranty is invalid and unenforceable because it is
unconscionable, then the implied warranty of workmanship and
habitability would apply. See Sirrah Enters., 242 Ariz. at 544 ¶ 8
(explaining the implied warranty “arises from construction of the home”
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ZAMBRANO V. M & RC II LLC, ET AL.
JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
(quoting Lofts at Fillmore Condo. Ass’n, 218 Ariz. at 576 ¶ 13)). Here,
Zambrano asserted a claim for “Breach of Contract” and a claim for “Breach
of Implied Warranties.” But Zambrano never asserted any such
contractual defenses to the formation of her express warranty.
¶62 We are not, as the majority claims, “[e]ffectively eliminating
the implied warranty.” Supra ¶ 27. We would continue to apply the
implied warranty in cases where the parties have not otherwise agreed to
substitute it with an enforceable express warranty. Moreover, contrary to
the majority’s claim, we would not “enforce a waiver and disclaimer
provision even absent an express warranty.” Supra ¶ 45. The very nature
of the implied warranty is that it applies where there is no warranty at all.5
See Richards, 139 Ariz. at 244–46 (extending implied warranty to subsequent
purchasers lacking privity of contract with builder-vendor where record
indicated no express warranty). Thus, where parties have a waiver and
disclaimer provision that lacks an express warranty, this would mandate
application of the implied warranty. See 1800 Ocotillo, 219 Ariz. at 202 ¶ 8
(“[C]ourts should rely on public policy to displace the private ordering of
relationships only when the term is contrary to an otherwise identifiable
public policy that clearly outweighs any interests in the term’s
enforcement.”).
¶63 In reaching today’s decision prohibiting a waiver of the
implied warranty, the majority focuses on policy matters that are better—
5 We would apply the implied warranty as the limited “default” and “gap-
filler” it was intended to be, recognizing that an assurance of workmanlike
performance inheres in contracts for the exchange of goods or services that
conforms to the reasonable expectations of the parties. See, e.g., Kubby v.
Crescent Steel, 105 Ariz. 459, 460 (1970) (“A contractor who undertakes to
perform a contract in accordance with plans and specifications furnished
by the contractee . . . must perform the work in a workmanlike manner and
without negligence. A contractor impliedly warrants that he will perform
in a workmanlike manner even though the contract itself does not contain
an express warranty of good workmanship.” (internal citations omitted));
Cameron v. Sisson, 74 Ariz. 226, 230 (1952) (explaining that “an implied
warranty did arise” and “[i]t is incumbent upon a contractor who
undertakes to build a structure or as in this case, a well, to do so in a manner
befitting a skilled well-driller”); see also A.R.S. §§ 47-2314 to -2317 (granting
and protecting implied warranties of merchantability and fitness for a
particular purpose in the sale of goods).
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JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
and, as a matter of separation of powers, more appropriately—left for the
legislature to address. The majority attempts to balance various interests
of homebuyers and the public at large, supporting its decision by reasoning
that: (1) “an implied home warranty is unique in protecting against
financial catastrophe for homebuyers and community blight . . . . [P]oorly
built homes are not easily discarded or replaced, and their impact can linger
for decades,” supra ¶ 34; (2) eliminating the implied warranty would
“increas[e] the likelihood that homes would be left unrepaired, to the
detriment of homebuyers, their neighbors, and the public generally,” supra
¶ 27; and (3) the implied warranty “minimiz[es] the risk of catastrophic
financial losses for all homebuyers,” supra ¶ 25.
¶64 In the context of homebuilding and homebuying, these are
policy considerations better suited for the legislature to address, as we are
not equipped to evaluate offsetting policy considerations such as the impact
to home prices or other economic consequences to the public at large.
Indeed, amici have presented competing policy considerations, including
that a lack of predictability regarding homebuyer warranties has played a
role in increasing home prices—an issue we are unable to consider because
we are limited to the parties, facts, and arguments in this case. By contrast,
the legislature routinely weighs these types of competing policy
considerations. See Ariz. Const. art. 3 (“The powers of the government of
the state of Arizona shall be divided into three separate departments, the
legislative, the executive, and the judicial; . . . such departments shall be
separate and distinct, and no one of such departments shall exercise the
powers properly belonging to either of the others.”). Moreover, the
contours of the implied warranty of workmanship and habitability are
nebulous and developed in the context of specific court cases, unlike the
legislative process where competing interests and approaches are weighed,
and clear and precise requirements can be adopted.
¶65 This Court recently explained that a declaration of public
policy is primarily a legislative function: “In Arizona, our primary source
for identifying a duty based on public policy is our state statutes,” and “in
the absence of a statute, we exercise great restraint in declaring public
policy.” Quiroz v. ALCOA Inc., 243 Ariz. 560, 566 ¶¶ 18–19 (2018)
(rejecting a tort duty based on foreseeability); see also Local 266, Int'l Bhd. of
Elec. Workers v. Salt River Project Agric. Improvement & Power Dist., 78 Ariz.
30, 40–41 (1954) (“We have said that statements of public policy must be
made by the people through the legislature.”); Ray, 72 Ariz. at 35 (“The
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JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
declaration of ‘public policy’ is primarily a legislative function.”). 6 This
Court has appropriately declined to declare public policy in the absence of
legislative action in the area of torts. We cannot reconcile the divergent
approach today and would apply judicial deference to legislative
policymaking in both contexts.
¶66 The legislature has recognized the existence of the implied
warranty of workmanship and habitability by creating a statute of repose
for such claims, § 12-552(E)–(F), and mentioning the implied warranty in
the Purchaser Dwelling Act, A.R.S. § 12-1362(E). We disagree with the
majority’s conclusion that all waivers of the implied warranty are
prohibited and that parties must now wait for the legislature to expressly
permit such waivers. Supra ¶ 48. The legislature has specifically
prohibited waivers in other contexts. See, e.g., A.R.S. § 20-3214(D) (“The
provisions of this chapter [regarding life insurance] may not be waived by
agreement.”); A.R.S. § 44-1615(A) (“The requirements and rights set forth
in this article [regarding household goods movers] may not be waived.”);
A.R.S. § 44-1371(A) (“Any remedy for a violation of this section [regarding
motor vehicle transactions] may not be waived, modified or limited by
agreement or contract.”). The legislature, however, has not prohibited the
waiver of the implied warranty. This is significant and revealing. The
legislature knows how to prohibit waivers—and has prohibited certain
waivers—but it has not prohibited a waiver of the implied warranty.
Therefore, on the specific issue before us, it is unnecessary to wait for the
legislature to expressly permit such waiver, as the majority contends here.
¶67 The legislature has not rendered the implied warranty non-
waivable, nor has it mandated the implied warranty in all instances. This
is noteworthy because the legislature has extensively legislated in this area.
For example, the legislature has required the Registrar of Contractors to
establish “minimum standards for good and workmanlike construction.”
A.R.S. § 32-1104(A)(5); see also Ariz. Admin. Code R4-9-108(A)(B) (requiring
builders, pursuant to legislative standards, to “perform all work in a
professional and workmanlike manner” and “in accordance with any
applicable building codes and professional industry standards”). The
6 The majority’s concern that homebuilders may exclusively start using
express warranties and disclaiming the implied warranty altogether—a
concern that is currently abstract and speculative—is likewise better suited
for the legislature to address. Supra ¶ 26.
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JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
legislature has also created mechanisms for resolving disputes in the
homebuilding context, including through “Purchaser Dwelling Actions”
and the filing of a complaint with the Registrar of Contractors; and,
pursuant to legislative authority, the Registrar of Contractors has issued
rules providing mechanisms for resolving disputes. See A.R.S. §§ 12-1361
to -1366 (addressing “Purchaser Dwelling Actions” permitting a
homebuyer to sue a builder-vendor for defects involving the builder’s
“violation of construction codes,” “use of defective materials,” and “failure
to adhere to generally accepted workmanship standards in the
community”); A.R.S. §§ 32-1131 to -1140 (providing that homebuyer may
file a complaint with the Registrar of Contractors and potentially recover
money); §§ 32-1104(A)(5), -1105 (providing rulemaking authority for the
Registrar of Contractors); A.R.S. §§ 32-1155 to -1169 (addressing regulation
of contractors and construction contracts). The legislature has also created
requirements for construction contracts, see A.R.S. §§ 32-1158, -1158.01,
made certain provisions within construction contracts void and
unenforceable, see A.R.S. § 32-1186, and clarified when performance may be
suspended under a construction contract, see A.R.S. § 32-1185. 7
¶68 The majority also expresses concern that, if the implied
warranty may be modified, subsequent purchasers of a home (who did not
enter into an express warranty) may be left with no warranty at all. See
supra ¶¶ 26, 46. This issue, however, is not before us, because:
(1) Zambrano directly purchased her home from Scott Homes; and (2) there
is nothing in this record to indicate Scott Homes recorded the waiver and
disclaimer as a covenant, thereby giving notice to subsequent purchasers.
Thus, this case does not present this unresolved issue and it should be left
for another day. See Richards, 139 Ariz. at 245 (concluding subsequent
purchasers can pursue claims against a builder-vendor for breach of the
implied warranty, and explaining that “the purpose of a warranty is to
protect innocent purchasers and hold builders accountable for their work”
and thus “any reasoning which would arbitrarily interpose a first buyer as
an obstruction to someone equally deserving of recovery is
7 Zambrano argues the legislature’s activity in this area has been primarily
for the benefit of the builder, and that not much has been done for the
benefit of the consumer. But, even if true, this is a policy choice made by
the legislature, and it is not our place to alter that decision “based on our
own notions of appropriate public policy.” Quiroz, 243 Ariz. at 567 ¶ 20.
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JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
incomprehensible”) (quoting Moxley v. Laramie Builders, Inc., 600 P.2d 733,
736 (Wyo. 1979)).
¶69 In conclusion, this Court previously held that “absent
legislation specifying that a contractual term is unenforceable, courts
should rely on public policy to displace the private ordering of
relationships only when the term is contrary to an otherwise identifiable
public policy that clearly outweighs any interests in the term’s
enforcement.” 1800 Ocotillo, 219 Ariz. at 202 ¶ 8. For the reasons
previously stated, we would reject a sweeping rule that the public policy in
favor of the implied warranty in all cases “clearly outweighs any interests in
the . . . enforcement” of an express warranty to which parties agreed in the
course of organizing their private affairs. Id. Trial courts are certainly
capable of determining the enforceability of terms in an express warranty
pursuant to the 1800 Ocotillo standard and recognized contract defenses.
¶70 Here, the trial court considered the 1800 Ocotillo standard
and rejected Zambrano’s public policy arguments under this express
warranty. The trial court concluded that: (1) Zambrano’s “express
warranty covers defined structural defects” for “two years more” than “an
implied warranty claim;” (2) Zambrano “has not asserted that the ten year
express warranty is insufficient in scope so as to fail to protect” Zambrano;
and (3) Zambrano “failed to present any controverting evidence to support
a conclusion that the waiver and express warranty allow the builder to
avoid being held accountable for their work.” We would affirm the trial
court’s grant of summary judgment in favor of Scott Homes on the implied
warranty claim.
30