Arizona Court of Appeals Division Two Holds That Homeowner May Not Sue Subcontractor for Breach of the Implied Warranty of Workmanship and Habitability Unless Homeowner Has Contractual Privity with Subcontractor.

Yanni and a class of similarly situated homeowners sued two plumbing subcontractors who had done work on construction of new homes.  The plaintiff class alleged that the plumbers had violated the implied warranty of workmanship and habitability by using defective plumbing components in the new homes. 

The plumbing subcontractors moved for summary judgment, arguing that a claim for breach of the implied warranty required proof of privity of contract between the parties.  The homeowners conceded that there was no privity between the parties – the subcontractors contracted with a general contractor – but argued that the implied warranty arises from the construction of the home.  The trial court granted the subcontractors’ motion and the homeowners appealed.

Under Arizona law, the “builder-vendor” of a new home “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).  In general “only the parties and their privies to a contract” may enforce the implied warranty.  Lofts at Fillmore Condo. Ass’n v. Reliance Commercial Constr., Inc., 218 Ariz. 574, 575, 190 P.3d 733, 734 (2008). 

But courts have fashioned some exceptions to the privity requirement by allowing subsequent purchasers of homes to enforce the implied warranty even though they lack privity with the original builder/vendor.  See Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 245, 678 P.2d 427, 430 (1984).  Most recently, in Lofts at Fillmore, the Arizona Supreme Court expanded the ability of homebuyers to sue by holding that (1) a homebuyer may sue a builder even if the builder was not also the vendor, and (2) a homebuyer may sue a builder even when there was no contractual relationship with the vendor.  218 Ariz. at 577, 190 P.3d at 736.  The Court of Appeals described the Supreme Court’s expansion of the privity-exception as “cautious” and based on a policy rationale that “innocent buyers” should not have their recovery depend on “the form of the business deal chosen by the builder and the vendor.”

Applying Richards and Lofts at Fillmore, the Court held that the exception to the privity requirement should not expand to allow a homeowner to sue a subcontractor who works on the construction of a new home.  The homeowner-plaintiffs argued for an expansive reading of the cases, urging the Court to hold that the law should protect the “innocent home purchaser” and also hold accountable the parties that “actually construct” the home, regardless of the contractual relationships in play.  The Court, however, held that the public policy rationales motivating Richards and Lofts at Fillmore were not present in this case.  In those cases, the Supreme Court was concerned with privity rules that would deprive “homebuyers of a remedy for defective construction based on arbitrarily chosen business forms.” 

In this case, the homebuyers were not deprived of a remedy; instead, they merely could not sue the subcontractor directly for breach of the implied warranty.  They could sue the general contractor, the developer, or other parties, “who may then seek indemnity from other responsible parties or assign [their] claim to the plaintiff.” 

Judge Kelly authored the unanimous opinion; Judges Espinosa and Eckerstrom concurred.