The Lofts at Fillmore Condominium Ass’n v. Reliance Commercial Constr. Inc. – 11/6/2007

November 9, 2007

Arizona Court of Appeals Division One Holds That The Richards v. Powercraft Homes Exception To The Privity Requirement For Implied Warranty of Habitability Claims Applies Only To a Defendant That Is Both A Builder And A Vendor To A Residential End-User.

Reliance contracted with William Mahoney and the Lofts at Fillmore (“the Developers”) to perform work on a residential condominium project that the Developers owned and designed. Members of the Lofts at Fillmore Condominium Associations (“Lofts”) purchased condominiums in the project from Developers. The trial court granted summary judgment in favor of Reliance on Lofts’ claim for breach of the implied warranty of habitability and workmanlike construction. The Lofts appealed. The sole issue on appeal was “whether Lofts has an implied warranty claim against Reliance for alleged construction defects when neither Lofts nor its members had a contractual relationship with Reliance for its work on the project.”

On de novo review, the Arizona Appeals Court affirmed the trial court, finding that the implied warranty claim is a contract claim and that Arizona law has long recognized that only parties to a contract may maintain an action on it. The Arizona Supreme Court recognized a narrow exception to this privity requirement for implied warranty claims in Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 245, 678 P.2d 427, 430 (1984). The plaintiffs in Richards had either purchased directly from Powercraft Homes (the builder) or had purchased from previous owners. The only issue in Richards was whether these subsequent purchasers had a claim for breach of the implied warranty. Richards allowed these subsequent purchasers to pursue their implied warranty claim even though they were not in privity with Powercraft Homes, “based on the same policy considerations underlying the imposition of the implied warranty to the first purchaser.” However, Richards emphasized that the exception to the privity requirement “applies only to homebuilder-vendors,” i.e. to a “contractor who sells to a purchaser who will live in the home.”

Reliance was not a contractor who sold to a purchaser who will live in the home. Extending implied warranty claims beyond homebuilder vendors to construction companies like Reliance, the Court noted, is a function for the legislature, not the courts.

Judge Barker authored the opinion, with Judges Portley and Ehrlich concurring.