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Where a condominium association filed suit against the general contractor for breach of implied warranty of habitability due to alleged faulty construction, the contractor was determined by a court to be insolvent, and under state law this permitted the plaintiff to pursue its action directly against a masonry subcontractor that was allegedly responsible for the alleged faulty workmanship.   Under Illinois law, an innocent purchaser may proceed on a claim for the breach of implied warranty against a subcontractor where the builder-vendor is insolvent. The warranty binds the subcontractor who did the defective work even though there was no privity of contract between the owner and the subcontractor.  But the subcontractor is not bound by the warranty if the contractor is not insolvent.  1324 W. Pratt Condo Association v. Platt Construction Group, 997 N.E.2d 246 (Illinois 2013).

The litigation in this particular case turned on the question of whether the prime contractor was indeed “insolvent” even though it was legally still in “good standing” and had some limited assets. The court held that for purposes of determining whether a purchaser may proceed against a subcontractor on a breach of implied warranty of habitability claim, the court must look to whether the general contractor was insolvent.  That “simply means that a party’s liabilities exceed the value of its assets, and that it has stopped paying debts in the ordinary course of business.”  Once a plaintiff has met its burden of proving that the contractor is insolvent, it must file an amended complaint alleging the insolvency and seeking to proceed against the subcontractor.  That was done in this case.  The plaintiff was, therefore, entitled to pursue its case against the subcontractor on the merits.   

 

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 16, No. 3 (Mar 2014).

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