Court Opinion

ID: 4162335
Source: CourtListenerOpinion
Date Created: 2017-04-21 19:08:48.593756+00
Date Added: 2024-06-11T07:46:49.367395
License: Public Domain

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                                                         ADVANCE SHEET HEADNOTE
                                                                      April 17, 2017

                                        2017 CO 23

No. 15SC1089, Forest City v. Rogers—Implied Warranty of Suitability—Privity of
Contract—Implied Warranties.

       In this case, the supreme court considers whether privity of contract is necessary

for a home buyer to assert a claim for breach of the implied warranty of suitability

against a developer. The supreme court concludes that because breach of the implied

warranty of suitability is a contract claim, privity of contract is required in such a case.

Here, the home buyer was not in privity of contract with the developer and thus cannot

pursue a claim against the developer for breach of the implied warranty of suitability.
                     The Supreme Court of the State of Colorado
                     2 East 14th Avenue • Denver, Colorado 80203

                                     2017 CO 23

                         Supreme Court Case No. 15SC1089
                      Certiorari to the Colorado Court of Appeals
                  Court of Appeals Case Nos. 14CA63 and 14CA797
                           Petitioners/Cross-Respondents:
Forest City Stapleton Inc., a Colorado Corporation and FC Stapleton II, LLC, a Colorado
                                limited liability company,
                                             v.
                            Respondent/Cross-Petitioner:
                                    Tad S. Rogers.

                                 Judgment Reversed
                                      en banc
                                    April 17, 2017

Attorneys for Petitioners/Cross-Respondents:
Brownstein Hyatt Farber Schreck, LLP
Hubert A. Farbes, Jr.
Jonathan G. Pray
David B. Meschke
  Denver, Colorado

Attorneys for Respondent/Cross-Petitioner
Hamilton Faatz, PC
Clyde A. Faatz, Jr.
Frank J. Morroni
 Greenwood Village, Colorado

CHIEF JUSTICE RICE delivered the Opinion of the Court.
¶1     This case requires us to determine whether contractual privity is necessary for a

home buyer to assert a claim for breach of the implied warranty of suitability against a

developer. We hold that, because breach of the implied warranty of suitability is a

contract claim, privity of contract is required in such a case. Here, because the home

buyer did not have contractual privity with the developer, he may not pursue a claim

against the developer for breach of the implied warranty of suitability.

                            I. Facts and Procedural History

¶2     In 1990, after Denver determined that it needed a new airport, a group of citizens

formed the Stapleton Redevelopment Foundation to develop the former Stapleton

International Airport. The Stapleton Redevelopment Foundation created a master plan

to convert the former airport site into a pedestrian-centric, mixed-use development. In

1995, the private, nonprofit Stapleton Development Corporation (“SDC”) was formed to

lease and sell the former airport property. SDC selected Forest City1 as the master

developer for redevelopment of the property.

¶3     As the master developer, Forest City subdivides the land into lots and sells the

lots to builders. The builders in turn construct and sell houses on the lots. Although

Forest City does not build the homes, it selects the builders and styles of homes that can

be built on each individual lot to maintain a desired architectural and design aesthetic

1 Before any new structures were built, Forest City Enterprises, Inc., incorporated Forest
City Stapleton, Inc., as a subsidiary to subdivide former Stapleton International Airport
land into individual lots to create a new residential development. Then another entity,
FC Stapleton II, LLC, would sell individual lots to residential builders. At trial, the two
entities were treated as one. For simplicity, we refer to the entities collectively as Forest
City.

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for the Stapleton community.       It also reviews whether proposed homes will be

consistent with the applicable design guidelines for the development.

¶4     Forest City sold the vacant residential lot at issue here to a professional home

builder, Infinity Home Collection at Stapleton, LLC (“Infinity”), with whom

Respondent/Cross-Petitioner, Tad Rogers, had contracted to build a home.             When

Infinity purchased the lot from Forest City, the lot was vacant, did not have utilities,

and still needed to be graded to its final configurations. Rogers paid Infinity an extra

fee to include a basement that could later be finished.2 Rogers ultimately purchased the

lot and the home from Infinity. The home included a foundation drain system designed

to collect ground water into a sump pit and to pump that water into the yard by way of

a sump pump.

¶5     After Rogers moved into the home, he noticed that the sump pump was

discharging frequently. Rogers hired engineers to investigate and discovered that the

ground water level was higher than he had believed it to be. He believed that the high

water table beneath his house, coupled with calcite leaching from the recycled concrete

aggregate base course used to construct the roads, caused a buildup of calcite in the

foundation drain around his house. In turn, this water and calcite buildup makes his

basement uninhabitable and causes his sump pump to run and discharge more water

2 The parties dispute the extent to which Forest City exercised control over whether and
how a basement in Rogers’s house would be built and whether Forest City assessed the
suitability of Rogers’s lot for a home with a basement. However, resolving this dispute
is irrelevant to the question of whether privity of contract is required before a buyer of a
home can sue a developer for breach of the implied warranty of suitability and whether
privity existed between Forest City and Rogers.

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than expected. Rogers sued Forest City, alleging claims including breach of the implied

warranty of suitability, nuisance, and negligent misrepresentation.3 As relevant here,

Rogers’s breach of the implied warranty of suitability claim alleged that Forest City

impliedly warranted to him that his lot was suitable for a home with a finished

basement, when in fact it was not. The jury rendered a verdict in favor of Rogers’s

breach of the implied warranty of suitability claim, as well as his claims for nuisance

and negligent misrepresentation.

¶6     Forest City appealed. The court of appeals in a split decision held that the

implied warranty of suitability can exist between a developer who sells a vacant lot and

a homeowner who is not the first purchaser of that lot. Rogers v. Forest City Stapleton,

Inc., 2015 COA 167M, ¶ 1, __ P.3d __. However, it also held that it was unable to

determine whether such an implied warranty existed in this case because the trial court

did not properly instruct the jury, and the jury did not make the relevant factual

findings. Id. It then remanded for a new trial. Id. at ¶ 23. The court also concluded

that the evidence was insufficient to support the jury’s verdict on the nuisance claim.

Id. at ¶ 2. Forest City and Rogers both filed petitions for certiorari, and this court

granted certiorari.4

3 Rogers also separately filed a suit against Infinity. That case was initially stayed
pending arbitration and later dismissed without prejudice pending the resolution of this
action.
4 We granted certiorari to review the following issues:

       1. Whether privity of contract is required before a buyer of a home can
          sue a developer for breach of the implied warranty of suitability.
       2. Whether the court of appeals erred in holding that an implied
          warranty of suitability can exist when a developer sells a vacant lot to

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                                      II. Analysis

¶7    The threshold question in this case is whether contractual privity is necessary for

a home buyer to assert a claim for breach of the implied warranty of suitability against a

developer. We hold that, because breach of the implied warranty of suitability is a

contract claim, privity of contract is required to prevail on such a claim.5 Because

Rogers did not have contractual privity with Forest City, he may not pursue a claim

against Forest City for breach of the implied warranty of suitability. Consequently, we

do not need to address the remaining issues presented on certiorari.

                               A. Standard of Review

¶8    We review questions of law, including whether privity is required for an implied

warranty of suitability claim, de novo. See Magill v. Ford Motor Co., 2016 CO 57, ¶ 11,

379 P.3d 1033, 1036.

           a third party who, without any participation by the developer, builds a
           home on the lot and sells it to the home buyer.
       3. Whether the court of appeals misstated the instruction for an implied
           warranty as a matter of law between a developer and the buyer of a
           home.
       4. Whether the court of appeals disregarded the jury’s determination that
           a warranty was implied by conduct.
5 We recognize that in contracts that are intended to benefit and give rights to third

parties, these third parties may enforce a contractual obligation without being a party to
the contract or without being in privity of contract with the actual parties. See S K
Peightal Engineers, LTD v. Mid Valley Real Estate Sols. V, LLC, 2015 CO 7, ¶ 7, 342 P.3d
868, 872 (“A third-party beneficiary is a ‘person not a party to an express contract [who
nevertheless] may bring an action on the contract if the parties to the agreement
intended to benefit the [third party and if] . . . the benefit claimed is a direct and not
merely an incidental benefit of the contract.’” (alterations in original) (quoting Parrish
Chiropractic Ctrs., P.C. v. Progressive Cas. Ins. Co., 874 P.2d 1049, 1056 (Colo. 1994)));
see also 17A Am. Jur. 2d Contracts § 414. However, because this issue was not raised
by the parties, we decline to reach it.

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                         B. Implied Warranties Generally

¶9    When parties enter into a contract, they make a series of promises. If a party fails

to perform any of these promises, a court may enforce them, either for specific

performance or for a money judgment. One type of promise parties make is called a

warranty. Specifically, a warranty is “an express or implied promise that something in

furtherance of the contract is guaranteed by one of the contracting parties.” Warranty,

Black’s Law Dictionary (10th ed. 2014). Express warranties are usually written on the

face of a contract or created by the overt words or actions of one party. Id.; see also

Express Warranty, Black’s Law Dictionary (10th ed. 2014).          By contrast, implied

warranties are those promises not explicitly made by contract, but nonetheless enforced

by courts. Implied Warranty, Black’s Law Dictionary (10th ed. 2014). They “arise by

operation of law because of the circumstances of a sale, rather than by the seller’s

express promise.” Id.

¶10   Over time, Colorado courts have recognized a series of implied warranties. Such

warranties in the construction context include the implied warranty of habitability and

the implied warranty of suitability. See, e.g., Duncan v. Schuster-Graham Homes, Inc.,

578 P.2d 637, 638–39 (Colo. 1978) (holding that a claim for breach of the implied

warranty of habitability was available to a home buyer who bought a home that was

previously sold and repurchased by the builder but suffered from defects caused by a

drainage problem); Rusch v. Lincoln-Devore Testing Lab., Inc., 698 P.2d 832, 835 (Colo.

App. 1984) (holding that the implied warranty of suitability existed between the

developer and the home buyer). By their very nature, these implied warranties are

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contractual obligations, and thus breaches of these implied warranties give rise to

contract claims. See Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041, 1042 (Colo.

1983) (noting that the implied warranty of habitability is a contractual obligation). We

have clarified that an action for damages for breach of such warranties “involves the

relations between the parties arising out of contract.” Carpenter v. Donohoe, 388 P.2d
399, 401 (Colo. 1964). Thus, a claim for breach of an implied warranty is a contract

claim and must therefore be analyzed according to contractual principles.

¶11    Privity of contract between parties has long been a touchstone of contract causes

of action. Stated simply, privity of contract requires that one must be a party to the

contract to enforce a term in the contract or an implied warranty arising out of the

contract. See G.H. Treitel, The Law of Contract 538 (8th ed. 1991) (“[A] person cannot

acquire rights or be subject to liability arising under a contract to which he is not a

party.”).   This requirement has been relaxed under a variety of modern laws and

doctrines such as strict liability and some implied warranty theories. See Privity of

Contract, Black’s Law Dictionary (10th ed. 2014). Notably, in Colorado, the legislature

has eliminated the privity of contract requirement in implied warranty cases involving

the sale of personal property by extending implied warranties to any person who may

reasonably be expected to use, consume, or be affected by the goods and who is injured

by breach of the implied warranties. § 4-2-318, C.R.S. (2016) (adopting Alternative B in

Uniform Commercial Code § 2-318); see also § 4-2-102, C.R.S. (2016) (stating that the

Uniform Commercial Code applies only to the sale of goods, but not of real property).

The Supreme Court of South Dakota noted that, in the implied warranty context,

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eliminating strict privity of contract makes sense because “[a]n implied warranty would

be of little use if it did not, in the case of personal property, extend beyond the

manufacturer’s buyer.” Brown v. Fowler, 279 N.W.2d 907, 910 (S.D. 1979). The South

Dakota court also aptly pointed out, however, that this rationale does not apply when

land or a dwelling is sold, especially in cases where the damage is purely economic. Id.

¶12    Apart from the legislative exception in section 4-2-318, Colorado courts have

continued to require privity of contract between parties in breach of implied warranty

of habitability cases. See, e.g., H. B. Bolas Enters., Inc. v. Zarlengo, 400 P.2d 447, 450

(Colo. 1965) (holding that in an action for breach of the implied warranty of habitability

by a builder-vendor of newly constructed building, privity of contract was required);

Cosmopolitan Homes, 663 P.2d at 1043 (limiting the contractual protections of the

implied warranty of habitability to first purchasers).

¶13    Because breaches of implied warranties—such as the implied warranty of

habitability and the implied warranty of suitability—implicate contract claims,

requiring privity of contract in these cases is consistent with upholding the distinction

between contract claims and tort claims. See id. at 1042 (“An obligation to act without

negligence in the construction of a home is independent of contractual obligations such

as an implied warranty of habitability.”). While a contractual obligation may give rise

to a builder’s “common law duty to perform the work subject to the contract with

reasonable care and skill,” this does not “transform the builder’s contractual obligation

into the measure of its tort liability arising out of its contractual performance.” Id. at

1043. Rather, contract claims require different proof than tort claims and should be

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treated separately. Id. at 1045. In particular, a tort claim for negligence is “not limited

by privity of contact.” Id. at 1043. Instead, foreseeability determines its scope. Id. at

1045.   Thus, recognizing the necessity of privity of contract for breach of implied

warranty claims is consistent with the boundary between tort and contract claims.6 See

Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1259 (Colo. 2000) (adopting the

economic loss rule, which provides that a party who suffers only economic harm may

recover damages for that harm based only upon a contractual claim and not on a tort

theory, such as negligence or strict liability, in order to “maintain the boundary between

tort law and contract law”).

                         C. Implied Warranty of Suitability

¶14     Colorado courts have long recognized a series of implied warranties in the

construction context.    Specifically, the implied warranty of suitability was first

addressed by the court of appeals in Rusch, which held that when “a commercial

developer improves and sells land for the express purpose of residential construction,

an implied representation to a purchaser arises that the property is suitable for the

residential purpose for which it is sold.” 698 P.2d at 835. The court specified in Rusch

that this type of implied warranty has three elements: (1) land is improved and sold for

a particular purpose; (2) a vendor has reason to know that the purchaser is relying upon

the skill or expertise of the vendor in improving the parcel for that particular purpose;

6 As discussed, contractual privity is not required for breach of implied warranty claims
for which the legislature has eliminated the contractual privity requirement, such as
claims for breach of implied warranties for the sale of personal property. See § 4-2-318.

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and (3) the purchaser does in fact so rely. Id. The court of appeals again addressed the

warranty of suitability in Beeftu v. Creekside Ventures LLC, 37 P.3d 526, 528 (Colo.

App. 2001), and suggested that the implied warranty of suitability is a subset of the

implied warranty of habitability. But neither case addressed the question of whether

privity of contract is required in order for a party to make a claim for breach of the

implied warranty of suitability.7

¶15    To determine whether privity of contract is required for a home buyer to sue a

developer for breach of the implied warranty of suitability, we must recognize that, like

other implied warranties, the implied warranty of suitability is by its very nature a

contract claim.    Additionally, this warranty involves the sale of real property and

therefore any legislative elimination of the privity of contract requirement as outlined in

section 4-2-318 is not applicable. Instead traditional contractual theories apply, which

include the requirement of privity of contract.8 Therefore, for a home buyer to bring a

breach of the implied warranty of suitability claim against a developer, the parties must

be in privity of contract.

¶16    Here, Rogers and Forest City were not in privity of contract because they were

not both parties to the same contract. Rogers contracted with Infinity, not Forest City,

7 Though neither case addressed the issue of privity of contract directly, it should be
noted that in Rusch, a warranty of suitability was found where there was privity of
contract between the home buyer and the developer. 698 P.2d at 835. In contrast, in
Beeftu, there was no privity of contract between the home buyer and developer, but the
court of appeals did not address the issue of privity and instead noted that even
assuming an implied warranty of suitability could exist, the plaintiffs failed to prove all
of the Rusch elements for an implied warranty of suitability. 37 P.3d at 528.
8 See supra note 5.

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to acquire the lot at issue and to build and purchase his home. Therefore, because

Rogers was not in privity of contract with Forest City, he is not entitled to pursue a

claim against Forest City for breach of the implied warranty of suitability.

¶17    This conclusion is consistent with the principles underlying implied warranties

in the construction context. Specifically, implied warranties in this context are premised

on the disparity in knowledge and expertise between the seller and the ultimate home

buyer. For example, in Duncan, this court described that the purpose of imposing the

implied warranty of habitability is to afford “home buyers protections from

overreaching by comparatively more knowledgeable builder-vendors.” 578 P.2d at 638.

Similarly, in Rusch, the court of appeals determined that a purchaser of an improved lot

who is not a professional builder is in a comparable position to a purchaser of a new

home “because of the disparity of expertise between the vendor and the purchaser and

because many of the alterations [made to the lots] are necessarily invisible from the

surface.” 698 P.2d at 834–35. Thus, in that case, an implied warranty of suitability

existed between the developer and the purchaser, who was both the builder and the

home buyer. Id. at 835. In each of these cases, based on the seller’s role, the seller was

in a better position than the home buyer to know of and assess potential defects.

¶18    In this case, by contrast, Infinity, not Forest City, had superior knowledge and

expertise as to the building of the basement at issue. Forest City did not participate in

the building or selling of the home. Instead, Infinity, a professional builder, improved

and finished the lot, built a house on it, and sold the house and the lot to Rogers.

Therefore, the policy rationale for imposing an implied warranty between a developer

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and a home buyer does not exist when, as here, a developer sells a lot to a professional

builder who in turn improves the lot and sells it to a third-party home buyer. In

circumstances such as these, there is no reason to presume that a disparity exists in

sophistication between the developer and the professional builder, that the professional

builder was in a worse position than the developer to know of and assess potential

defects in a lot, or that the professional builder would rely upon the developer—rather

than its own investigative resources—to provide lots suitable for the builder’s intended

purposes.

                                   III. Conclusion

¶19   We hold that, because breach of the implied warranty of suitability is a contract

claim, privity of contract is required to assert a claim for breach of this warranty.

Because Rogers did not have contractual privity with Forest City and he did not assert a

claim based on a third-party beneficiary theory of contract, he may not pursue a claim

against Forest City for breach of the implied warranty of suitability. Accordingly, the

judgment of the court of appeals regarding Rogers’s implied warranty of suitability

claim is reversed. We remand to the court of appeals for further proceedings consistent

with this opinion.

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