Tina Zambrano v. M & Rc II LLC
Pending Publication (Filed September 28, 2022); Vacating 252 Ariz. 10 (App. 2021) (2022)
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Rule of Law:
Under Arizona common law, public policy prohibits a builder-vendor and a homebuyer from contractually disclaiming and waiving the implied warranty of workmanship and habitability, even if they replace it with an express warranty.
Facts:
- In 2013, Tina Zambrano entered into a preprinted purchase agreement with M & RC II, LLC, for a new home to be built by its affiliate, Scott Homes Development Company (collectively 'Scott Homes').
- The purchase agreement included a provision that explicitly disclaimed all implied warranties, including the warranty of habitability and workmanship, and stated that a 'Home Builder's Limited Warranty' was the only applicable warranty.
- Zambrano initialed the paragraph containing the disclaimer.
- Upon closing, Scott Homes issued Zambrano a 40-page, preprinted 'Builder's Limited Warranty' administered by Professional Warranty Services Corporation (PWC).
- The PWC warranty covered specific construction components for set periods (one, two, or ten years) against variances from defined performance standards, and it also disclaimed all implied warranties.
- In 2017, Zambrano discovered several alleged construction and design defects in her home, including improper grading, cracking stucco, separation of baseboards from walls, and nail pops in the ceiling.
- Zambrano's claims to correct these defects under the express PWC warranty were either time-barred or outside its specific coverage.
Procedural Posture:
- Tina Zambrano sued M & RC II, LLC and Scott Homes Development Company in the Superior Court in Maricopa County (trial court), alleging breach of the implied warranty of workmanship and habitability.
- Scott Homes moved for summary judgment, arguing Zambrano had waived the implied warranty in the purchase agreement.
- The trial court granted summary judgment in favor of Scott Homes.
- Zambrano, as appellant, appealed the trial court's decision to the Arizona Court of Appeals, Division One.
- The Court of Appeals reversed the trial court's judgment, holding that public policy supporting the implied warranty outweighed the freedom-of-contract interest.
- Scott Homes, as petitioner, petitioned the Supreme Court of Arizona for review of the Court of Appeals' decision, which was granted.
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Issue:
Does public policy prohibit the enforcement of a contract term in which a homebuyer disclaims and waives the implied warranty of workmanship and habitability in exchange for an express warranty from the builder-vendor?
Opinions:
Majority - Vice Chief Justice Timmer
Yes. Public policy prohibits the enforcement of a disclaimer and waiver of the implied warranty of workmanship and habitability. The public policy of protecting new homebuyers from latent defects and holding builders accountable for their work clearly outweighs the interest in enforcing the contract term. The court reasoned that homebuyers possess vastly unequal bargaining power, expertise, and knowledge compared to builder-vendors, diminishing the interest in enforcing such waivers in preprinted form contracts. Enforcing the disclaimer would likely lead to the elimination of the implied warranty, leaving homebuyers with inadequate remedies for latent defects, as express warranties like the one here are often an insufficient substitute and other legal claims (like negligence for economic loss) are barred in Arizona. Therefore, unless the legislature enacts a statute permitting it, the implied warranty cannot be waived.
Dissenting - Justice King
No. Public policy does not prohibit competent parties from contractually agreeing to disclaim the judicially-created implied warranty and replace it with an express warranty. The dissent argues that freedom of contract is a paramount public policy and that the implied warranty was created as a 'gap-filler' for unwary buyers, a purpose not served when parties explicitly agree to different terms. It contends that the majority's bright-line rule improperly prevents even sophisticated parties from negotiating warranty terms that may better suit their needs, such as gaining longer coverage for certain structural defects in exchange for waiving broader, more ambiguous implied protections. The dissent asserts that existing contract defenses like unconscionability are sufficient to protect against unfair bargains, and that creating such a non-waivable right is a policy matter better left to the legislature, which has not prohibited such waivers despite extensive regulation in the construction field.
Analysis:
This decision solidifies the implied warranty of workmanship and habitability as a mandatory, non-waivable consumer protection for new homebuyers in Arizona. It elevates this judicially-created warranty to a level of public policy that overrides the fundamental principle of freedom of contract in this specific context. The ruling effectively prevents builders from using express warranties to opt out of the baseline quality standards imposed by the common law, thereby shifting the risk of latent defects back to builders. By creating a bright-line rule against waiver, the court places the onus on the legislature to explicitly authorize such waivers, rather than leaving it to case-by-case judicial determination.
