Court Opinion

ID: 867335
Source: CourtListenerOpinion
Date Created: 2013-05-11 22:43:40.696797+00
Date Added: 2024-06-11T15:27:48.222168
License: Public Domain

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