ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Thursday, September 4, 2008

AZ Supreme Court Permits Breach of Implied Warranties Claim to Proceed Despite Lack of Privity

Az_court_seal The Supreme Court of the home state of Republican Presidential candidate, John McCain, decided last week that a homebuilder who is not also the vendor of a residence can be sued for breaches of implied warranties of workmanship and habitability even in the absence of privity. Could this be the next big election issue?

In Lofts at Fillmore Condo. Ass'n v. Reliance Comm. Constr., Inc., No. CV-07-0416 - PR, 2008 WL 3834587 (Aug. 19, 2008, AZ), the developer hired Reliance to convert a building owned by the developer into condominiums. The Condo Association sued, alleging breaches of implied warranties. The trial court granted Reliance summary judgment, finding no contractual relationship between Reliance and the Condo Association. Although it found no prior Arizona case directly on point, the Arizona Supreme Court found that earlier precedents rested "on the premise that an implied warranty arises from the construction of a new home, whether or not the builder is also a vendor of the home." In retreating from older principles of caveat emptor in the home construction context, the court found support in Wyoming law. Does this suggest that Dick Cheney will have a role in a future McCain administration?

Reliance objected that failure to require privity of contract in such cases will have disastrous consequences for residential homebuilders. The court rejected this argument, noting that builders have long been liable to developers, who can seek indemnification for breaches of implied warranties. Nor does the court view its decision as in any way preventing builders and developers from allocating risk between them as they please.

[Jeremy Telman]

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