The Lofts at Fillmore v. Reliance Commercial ( 2008 )

SUPREME COURT OF ARIZONA
En Banc
THE LOFTS AT FILLMORE ) Arizona Supreme Court
CONDOMINIUM ASSOCIATION, an ) No. CV-07-0416-PR
Arizona nonprofit corporation, )
) Court of Appeals
Plaintiff/Appellant, ) Division One
) No. 1 CA-CV 06-0257
v. )
) Maricopa County
RELIANCE COMMERCIAL CONSTRUCTION, ) Superior Court
INC., an Arizona corporation, ) No. CV2004-012726
)
Defendant/Appellee. )
)
)
) O P I N I O N
_________________________________ )
Appeal from the Superior Court in Maricopa County
The Honorable Kristin C. Hoffman, Judge
REVERSED AND REMANDED
________________________________________________________________
Opinion of the Court of Appeals, Division One
___ Ariz. ___, ___ P.3d ___ (2007)
VACATED
________________________________________________________________
THORSNES BARTOLOTTA McGUIRE San Diego, CA
By John F. McGuire, Jr.
And
EKMARK & EKMARK, L.L.C. Scottsdale
By Curtis S. Ekmark
Quentin T. Phillips
Attorneys for The Lofts at Fillmore Condominium Association
BREMER, WHYTE, BROWN & O'MEARA, LLP Phoenix
By Jeffrey D. Holland
John J. Belanger
And
ISRAEL & GERITY, PLLC Phoenix
By Kyle A. Israel
Jeffrey R. Cobb
Attorneys for Reliance Commercial Construction, Inc.
FEINBERG GRANT MAYFIELD KANEDA & LITT, LLP Phoenix
By Daniel H. Clifford
Bruce Mayfield
Charles R. Fenton
Attorneys for Amicus Curiae Regatta Pointe Condominium
Association
DICKS, COGLIANESE, LIPSON & SHUQUEM, APC Phoenix
By Michael D. Dicks
Darrien O. Shuquem
Attorneys for Amici Curiae Alta Mesa Resort Village Homeowners
Association, Inc.; Bella Vista Condominium Homeowners
Association; Villages of Chandler: The Boardwalk Homeowners
Association, Inc.; Cave Creek Villas Homeowners Association,
Inc.; Kennedy Park Homeowners Association, Inc.; Mona Lisa
Village Homeowners Association; Scottsdale Abrivado Condominium
Association; The Salado Grand Residential Association, Inc.; Tre
Bellavia Homeowners Association, Inc.; and The Village at
Carefree Conference Resort Condominium Association, Inc.
KASDAN SIMONDS RILEY & VAUGHAN, LLP Phoenix
By Kenneth S. Kasdan
Stephen L. Weber
Michael J. White
Attorneys for Amicus Curiae Adobe Villas Condominium Association
ECKLEY & ASSOCIATES, P.C. Phoenix
By J. Robert Eckley
M. Philip Escolar
Attorneys for Amici Curiae National Association of Home
Inspectors, Inc. and American Society of Home Inspectors
BOROWSKY LAW, P.C. Scottsdale
By Lisa M. Borowsky
Attorney for Amici Curiae Arizona Consumers Council and Consumer
Federation of America
2
KASDAN SIMONDS RILEY & VAUGHAN, LLP Phoenix
By Kenneth S. Kasdan
Stephen L. Weber
Michael J. White
And
OSBORN MALEDON, P.A. Phoenix
By Thomas L. Hudson
Attorneys for Amicus Curiae Frye Park Townhomes Homeowner
Association
________________________________________________________________
H U R W I T Z, Justice
¶1 We consider today whether a homebuilder who is not
also the vendor of the residence can be sued by a buyer for
breach of the implied warranty of workmanship and habitability.
We conclude that absence of contractual privity does not bar
such a suit.
I.
¶2 William Mahoney and The Lofts at Fillmore, L.L.C.
(collectively, “the Developer”) contracted with Reliance
Commercial Construction, Inc. (“Reliance”) to convert a building
owned by the Developer into condominiums. The Developer later
sold condominium units to individual buyers, who formed The
Lofts at Fillmore Condominium Association (“the Association”).
Claiming various construction defects, the Association
subsequently sued the Developer and Reliance for breach of the
implied warranty of workmanship and habitability.
3
¶3 The superior court granted summary judgment to
Reliance. The court of appeals affirmed, finding the implied
warranty claim barred because the Association had no contractual
relationship with Reliance. The Lofts at Fillmore Condo. Ass'n
v. Reliance Commercial Constr., Inc., ___ Ariz. ___, ___ P.3d
____, 2007 WL 3287391 (App. Nov. 6, 2007). That court
distinguished Richards v. Powercraft Homes, Inc., which held
“that privity is not required to maintain an action for breach
of the implied warranty of workmanship and habitability,” 139
Ariz. 242, 244, 678 P.2d 427, 429 (1984), because in Richards
the builder was also the vendor of the property. The Lofts, ___
Ariz. at ___ ¶¶ 6-10, ___ P.3d at ___.
¶4 We granted the Association’s petition for review
because the issue presented is of statewide importance. See
ARCAP 23(c). We have jurisdiction pursuant to Article 6,
Section 5(3) of the Arizona Constitution and A.R.S. § 12-120.24
(2003).
II.
A.
¶5 Arizona courts have long recognized that, “as to new
home construction, . . . the builder-vendor impliedly warrants
that the construction was done in a workmanlike manner and that
the structure is habitable.” Columbia Western Corp. v. Vela,
122 Ariz. 28, 33, 592 P.2d 1294, 1299 (App. 1979). A claim for
4
breach of the implied warranty sounds in contract. Woodward v.
Chirco Constr. Co., 141 Ariz. 514, 516, 687 P.2d 1269, 1271
(1984). “[A]s a general rule only the parties and privies to a
contract may enforce it.” Treadway v. W. Cotton Oil & Ginning
Co., 40 Ariz. 125, 138, 10 P.2d 371, 375 (1932). In Richards,
however, we held that suit on the implied warranty of
workmanship and habitability may be brought not only by the
original buyer of the home, but also by subsequent buyers. 139
Ariz. at 245, 678 P.2d at 430.
¶6 Richards involved claims by homebuyers against a
builder-vendor – a company that built and then sold homes to
residential purchasers. Reliance, in contrast, only built The
Lofts condominiums; the Developer owned the property throughout
and sold the residences to members of the Association. The
issue before us is whether the absence of privity bars the
Association’s suit on the implied warranty against Reliance.
B.
¶7 The threshold question is whether a builder who is not
also the vendor of a new home impliedly warrants that
construction has been done in a workmanlike manner and that the
home is habitable.1
1
The parties have apparently assumed that the condominium
conversion constituted new home construction. We also so assume
without deciding the issue.
5
¶8 Although prior Arizona cases do not directly address
this issue, they provide important guidance. It has long been
the rule “that implied warranties as to quality or condition do
not apply to realty.” Voight v. Ott, 86 Ariz. 128, 132, 341
P.2d 923, 925 (1959). In Columbia Western, the court of appeals
recognized this rule, but distinguished Voight:
In our opinion Voight is authority for the proposition that
no implied warranties arise from the sale of realty, but is
not dispositive of the issue of implied warranties arising
out of the construction of new housing which ultimately
becomes “realty.”
122 Ariz. at 30, 592 P.2d at 1296.
¶9 Columbia Western then turned to settled Arizona law
holding that “a contractor impliedly warrants that the
construction he undertakes which ultimately becomes realty will
be performed in a good and workmanlike manner.” Id. at 31, 592
P.2d at 1297 (discussing Kubby v. Crescent Steel, 105 Ariz. 459,
466 P.2d 753 (1970); Cameron v. Sisson, 74 Ariz. 226, 246 P.2d
189 (1952); and Reliable Electric Co. v. Clinton Campbell
Contractor, Inc., 10 Ariz. App. 371, 459 P.2d 98 (1969)). These
cases are distinguishable from Columbia Western, as they
involved agreements directly between the contractors and the
plaintiffs for non-residential construction. Nonetheless, the
court of appeals concluded from these cases that Arizona had
abandoned the traditional rule of caveat emptor in suits against
6
contractors for defects in construction incorporated into
realty. Id.¶10 Based on this understanding, Columbia Western held
that an implied warranty of good workmanship and habitability
was also given in connection with new home construction, noting
that
[b]uilding construction by modern methods is complex
and intertwined with governmental codes and
regulations. 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.
Id. at 32, 592 P.2d at 1298 (quoting Tavares v. Horstman, 542
P.2d 1275, 1279 (Wyo. 1975)).
¶11 The Arizona cases upon which the court of appeals
relied in Columbia Western did not involve a sale of the
underlying property. See Kubby, 105 Ariz. at 459-60, 466 P.2d
at 753-54 (involving alleged failure properly to build a roof on
plaintiff’s shed); Cameron, 74 Ariz. at 227-28, 246 P.2d at 189-
90 (involving allegedly defective well drilled on defendant’s
property); Reliable Elec., 10 Ariz. App. at 373, 459 P.2d at 100(involving faulty construction of electrical system in a kiln
owned by the plaintiff). Given its careful distinction of
Voight, Columbia Western thus rests on the premise that an
7
implied warranty arises from the construction of a new home,
whether or not the builder is also a vendor of the home.2
¶12 Richards is to the same effect. We stated there that
the purpose of the implied warranty “is to protect innocent
purchasers and hold builders accountable for their work.”
Richards, 139 Ariz. at 245, 678 P.2d at 430 (quoting Moxley v.
Laramie Builders, Inc., 600 P.2d 733, 736 (Wyo. 1979)). We also
reiterated the policy considerations that gave rise to the
recognition of the warranty in Columbia Western, noting that
house-building is frequently undertaken on a large
scale, that builders hold themselves out as skilled in
the profession, that modern construction is complex
and regulated by many governmental codes, and that
homebuyers are generally not skilled or knowledgeable
in construction, plumbing, or electrical requirements
and practices.
Id.¶13 Thus, although Columbia Western and Richards involved
builder-vendors, both opinions – and our prior cases – make
clear that an implied warranty arises from construction of the
home, without regard to the identity of the vendor. Moxley,
2
All parties to this case have assumed that there is a
single implied warranty of workmanship and habitability, as
opposed to two separate warranties. See Nastri v. Wood Bros.
Homes, Inc., 142 Ariz. 439, 444, 690 P.2d 158, 163 (App. 1984)
(holding that the Arizona decisions establish one implied
warranty). We therefore today make a similar assumption,
without deciding the issue. We also assume arguendo, as have
the parties, that suit could properly be brought against the
Developer on an implied warranty theory.
8
which we cited with approval in Richards, makes this point
expressly:
We can see no difference between a builder or
contractor who undertakes construction of a home and a
builder-developer. To the buyer of a home the same
considerations are present, no matter whether a
builder constructs a residence on the land of the
owner or whether the builder constructs a habitation
on land he is developing and selling the residential
structures as part of a package including the land.
It is the structure and all its intricate components
and related facilities that are the subject matter of
the implied warranty. Those who hold themselves out
as builders must be just as accountable for the
workmanship that goes into a home . . . as are
builder-developers.
Moxley, 600 P.2d at 735.
¶14 We therefore conclude that Reliance gave an implied
warranty of workmanship and habitability, even though it was not
also the vendor of the condominiums. We next turn to the issue
of whether suit on this warranty can be brought by residential
homebuyers, like those in the Association, who had no direct
contractual relationship with the builder.
C.
¶15 The courts below held that Richards abrogated the
common law requirement of privity in contract actions only when
the builder of the new home is also the vendor. We disagree.
¶16 We stressed in Richards that, given the policies
behind the implied warranty – to protect innocent buyers and
hold builders responsible for their work – “any reasoning which
9
would arbitrarily interpose a first buyer as an obstruction to
someone equally deserving of recovery is incomprehensible.” 139
Ariz. at 245, 678 P.2d at 430 (quoting Moxley, 600 P.2d at 736).
We also noted that such a rule “might encourage sham first sales
to insulate builders from liability.” Id. And, we emphasized
that the character of our society is such that people
and families are increasingly mobile. Home builders
should anticipate that the houses they construct will
eventually, and perhaps frequently, change ownership.
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.
Id.
¶17 Identical concerns guide us today. In today’s
marketplace, as this case illustrates, there has been some shift
from the traditional builder-vendor model to arrangements under
which a construction entity builds the homes and a sales entity
markets them to the public. In some cases, the builder may be
related to the vendor; in other cases, the vendor and the
builder may be unrelated. But whatever the commercial utility
of such contractual arrangements, they should not affect the
homebuyer’s ability to enforce the implied warranty against the
builder. Innocent buyers of defectively constructed homes
should not be denied redress on the implied warranty simply
10
because of the form of the business deal chosen by the builder
and vendor.3
D.
¶18 Reliance argues that failure to require privity in
implied warranty actions will expose residential homebuilders to
expanded liability and disrupt an important sector of the
Arizona economy. But homebuilders who do not sell directly to
the public already are liable for defective construction. As
noted above, builders have long been directly liable to those
with whom they contract for breach of the implied warranty of
good workmanship. Therefore, a developer-vendor sued for
defective construction will typically seek indemnity from the
builder; such a defendant may also choose to assign his claim
against the builder to the plaintiff. See Webb v. Gittlen, 217
Ariz. 363, 364 ¶ 6, 174 P.3d 275, 276 (2008) (noting that
unliquidated non-personal injury claims are generally
3
We have no occasion today to decide whether privity is a
requirement for enforcement of implied warranties in the context
of non-residential construction. See Hayden Bus. Ctr. Condos.
Ass’n v. Pegasus Dev. Corp., 209 Ariz. 511, 513 ¶ 14, 105 P.3d
157, 159 (App. 2005) (declining to allow subsequent purchasers
of commercial buildings to sue for breach of the implied
warranty of good workmanship). We disapprove Hayden Business
Center, however, to the extent that it rests on the premise that
the Richards exception applies only to homebuilders who are also
vendors. Id. ¶ 12.
11
assignable). Our decision today thus does not impose liability
on builders where none existed in the past.4
¶19 Reliance also argues that failure to require privity
will chill salutary attempts between developers and builders to
allocate responsibility for contract damages arising out of
construction defects. But nothing in our opinion today prevents
or discourages such agreements; we hold only that the
Association may bring suit directly against Reliance. Reliance
may not rely upon an agreement it has with the Developer
respecting allocation of eventual responsibility for defective
construction to escape its obligations to the Association on the
implied warranty.5
III.
¶20 For the foregoing reasons, we hold that the superior
court erred in dismissing the Association’s implied warranty
claim for lack of privity. We therefore vacate the opinion of
4
Arizona law also provides builders with protections against
actions by those claiming construction defects. See A.R.S. §§
12-1361 to -1366 (requiring putative plaintiffs to give builders
notice and an opportunity to repair defective construction); id.
§ 12-552 (imposing eight-year statute of limitations from
substantial completion of the dwelling, regardless of whether
defective construction is discovered during that period).
5
We recognize that if the developer-vendor is financially
unable to satisfy a judgment for breach of the implied warranty,
the builder may be left with the entire monetary responsibility,
notwithstanding any allocation agreements. But under such
circumstances, the costs of remedying defective construction
most appropriately fall on the builder, rather than on innocent
end users.
12
the court of appeals, reverse the judgment of the superior
court, and remand to the superior court for further proceedings
consistent with this opinion.6
_______________________________________
Andrew D. Hurwitz, Justice
CONCURRING:
_______________________________________
Ruth V. McGregor, Chief Justice
_______________________________________
Rebecca White Berch, Vice Chief Justice
_______________________________________
Michael D. Ryan, Justice
_______________________________________
W. Scott Bales, Justice
6
Both parties seek attorneys’ fees pursuant to A.R.S. § 12-
341.01(A). We decline to award fees because the eventual
successful party has not yet been determined.
13