JSH Reporter Summer 2014 - Page 10

PRIVITYOFCONTRACTARTICLE 010 PRIVITY OF CONTRACT IS STILL THE RULE... For Breach-Of-Implied-Warranty Claims Against Subcontractors, Even For New Home Construction AUTHOR: Jon Barnes EMAIL: jbarnes@jshfirm.com BIO: jshfirm.com/jonathanpbarnes Arizona has long recognized the existence of an implied warranty arising out of new home construction. In Columbia Western Corp. v. Vela., the Arizona Court of Appeals expanded implied warranty liability to cover builder-vendors with overarching responsibility for “new home construction.” The Court viewed such an implied warranty as necessary to protect new-home buyers because: (1) modern building construction is complex; (2) the builder holds himself out as an expert in building houses for individual new-home buyers; and (3) ordinary homebuyers are not sophisticated enough to discover latent defects in a new home. Typically, enforcement of an implied warranty requires privity of contract. Because implied warranty claims sound in contract, the general rule is that only parties and privies may enforce them. However, this rule proved to be inequitable in some “new home construction” cases arising under Columbia Western. Courts were faced with concerns that builders might escape the implied warranty by hiding behind the first purchaser, thus encouraging “sham first sales.” An exception to the rule requiring privity emerged. In Richards v. Powercraft Homes, Inc., the Arizona Supreme Court held that subsequent purchasers of a home can enforce Colombia Western against the buildervendor regardless of privity. The Court later took this exception one step further in Lofts at Fillmore Condominium Assoc. v. Reliance Commercial Construction, Inc. In Lofts, the Court allowed purchasers to enforce Colombia Western against non-vendor builders, regardless of privity. Both cases reasoned that the purpose for the implied warranty—to protect innocent buyers and hold builders responsible for their work—would be defeated unless an exception to the privity requirement applied under the circumstances. In Yanni v. Tucker Plumbing, Inc., 233 Ariz. 364, 312 P.3d 1130 (App. 2013), a group of plaintiff-homeowners discovered allegedly defective plumbing components in their homes. Instead of suing the general contractor in charge of the homes’ construction, the homeowners sued the plumbing subcontractors. They argued that the Richards/Lofts exception completely abrogated the rule requiring privity in implied warranty cases. Thus, according to the homeowners, they could sue the defendant-subcontractors directly, regardless of privity. The subcontractors, including one represented by JSH, successfully argued that Richards and Lofts did not completely abandon the privity requirement for all implied warranty claims. They prevailed on summary judgment, arguing that the Richards/Lofts exception applied only in a very narrow context. As the subcontractors explained, the Richards/ Lofts exception developed in response to very specific policy concerns. Because these policy concerns are unique to implied warranty claims arising under Columbia Western, the Richards/Lofts exception should only apply in that context—namely, when the implied warranty covers