Lofts at Fillmore Condominium Association v. Reliance Commercial Construction, Inc.
190 P.3d 733, 218 Ariz. 574, 2008 Ariz. LEXIS 139 (2008)
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Rule of Law:
The absence of contractual privity does not bar a buyer of a new home from suing a general contractor, who is not also the vendor, for breach of the implied warranty of workmanship and habitability.
Facts:
- William Mahoney and The Lofts at Fillmore, L.L.C. (the Developer) owned a building.
- The Developer contracted with Reliance Commercial Construction, Inc. (Reliance) to convert the building into condominiums.
- The Developer later sold the individual condominium units to various buyers.
- The individual buyers of the condominium units formed The Lofts at Fillmore Condominium Association (the Association).
- The Association claimed that the condominiums suffered from various construction defects.
Procedural Posture:
- The Lofts at Fillmore Condominium Association sued the Developer and Reliance Commercial Construction, Inc. in superior court for breach of the implied warranty of workmanship and habitability.
- The superior court granted summary judgment to Reliance Commercial Construction, Inc.
- The Association appealed the superior court's ruling, with Reliance Commercial Construction, Inc. as the appellee.
- The court of appeals affirmed the superior court's judgment, finding the implied warranty claim against Reliance barred due to lack of contractual privity between the Association and Reliance.
- The Association filed a petition for review with the Supreme Court of Arizona.
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Issue:
Does the absence of contractual privity prevent a homebuyer from suing a general contractor for breach of the implied warranty of workmanship and habitability when the general contractor was not also the vendor of the property?
Opinions:
Majority - Hurwitz, Justice
No, the absence of contractual privity does not bar a homebuyer from suing a general contractor for breach of the implied warranty of workmanship and habitability. The court affirmed that an implied warranty of workmanship and habitability arises from the construction of a new home, regardless of whether the builder is also the vendor. Previous Arizona cases, such as Richards v. Powercraft Homes, Inc. (1984) and Columbia Western Corp. v. Vela (1979), established that this implied warranty protects innocent purchasers and holds builders accountable for their work, and that privity is not required for subsequent buyers to sue a builder-vendor. The court reasoned that the underlying policy considerations — the complexity of modern construction, the ordinary buyer's inability to discover hidden defects, and the need to hold skilled builders responsible — apply equally whether the builder is a vendor or a pure contractor. Quoting Moxley v. Laramie Builders, Inc., the court found no functional difference between a builder who constructs on an owner's land and a builder-developer; the warranty relates to the structure itself. To deny redress based on the business structure between the builder and vendor would be arbitrary and could encourage 'sham first sales' to insulate builders. The court clarified that its decision does not impose new liability, as builders are already liable to those they contract with, and traditional indemnity or assignment mechanisms exist. Furthermore, contractual agreements between developers and builders to allocate responsibility do not diminish the builder's obligations to the end-user homeowners under the implied warranty.
Analysis:
This case significantly broadens the scope of the implied warranty of workmanship and habitability in Arizona, allowing residential purchasers to bring direct claims against general contractors even without contractual privity. The decision reinforces the consumer protection rationale behind the warranty, emphasizing that accountability for construction defects should rest with the party primarily responsible for the construction, irrespective of the specific commercial arrangement with the vendor. This ruling enhances homeowner remedies and makes it more challenging for builders to insulate themselves from liability through corporate structures or contractual divisions, potentially leading to higher construction quality standards and increased builder due diligence.
