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Where the second purchasers of a home sued the builder asserting a breach of implied warranty of habitability, a 2012 Pennsylvania Superior Court decision held that despite the lack of privity of contract between the parties, public policy dictated that the subsequent purchaser should be able to maintain suit against the builder. This was reversed by the Pennsylvania Supreme Court in Conway v. Cutler Group, Inc., 99 A.3d 767 (August 2014), which held that the action for breach of the implied warranty must be dismissed because the action requires a contractual relationship between the parties. The court analyzed decisions by courts in other states that have allowed such suits in the absence of contractual privity. The court concluded that it was improper for Pennsylvania courts to allow such suits because while many of the arguments in support were cogent and compelling, the arguments were “predominantly grounded in policy considerations that necessitate judgments reserved to the legislature after fact-finding and weighing of the ramifications of any decision.”

The court, quoting early cases precedent, explained that its authority to declare public policy is limited: “In our judicial system, the power of courts to formulate pronouncements of public policy is sharply restricted; otherwise they would become judicial legislatures rather than instrumentalities for the interpretation of law. General speaking, the Legislature is the body to declare the public policy of a state and to ordain changes therein…. If in the domain of economic and social controversies, a court were, under the guise of the application of the doctrine of public policy, in effect to enact provisions which it might consider expedient and desirable, such action would be nothing short of judicial legislation, and each such court would be creating positive laws according to the particular views, and idiosyncrasies of its members. Only in the clearest cases, therefore, may a court make an alleged public policy the basis of judicial decision.”

The problems alleged with the house concerned water infiltration around the windows that was allegedly due to construction defects. The earlier decision in this case by the Superior Court of Pennsylvania was reported in this ConstructionRisk.com Report in 2012 and can be found in the website search engine. The Superior Court had unanimously held that no privity of contract was needed in order for a homeowner to sue a builder for implied warranty.

The Superior court had noted that the implied warranty of habitability is based on public policy considerations and is designed to equalize the disparate positions of the builder-vendor and the home purchaser, and that it exists independently of any representation of the builder, and even in the absence of an express contract between the builder and the purchaser.   With its holding, the Superior Court rejected the builder’s argument that extending the warranty to those not in privity of contract would lead to unlimited liability for home builders.

After reviewing cases from other states that have found a duty in the absence of contract (e.g., Iowa and Rhode Island) and states that have found there can be no implied warranty to anyone not in contract with the builder-vendor (e.g., Vermont and Connecticut), the court stated:

“After careful review of the arguments of the parties, the comments of amici, and the reasoned decisions of our sister states on this issue, we conclude that the question of whether and/or under what circumstances to extend an implied warranty of habitability to subsequent purchasers of a newly constructed residence is a matter of public policy properly left to the General Assembly. We do not minimize the potential concerns, nor do we disregard the rationales set forth by the parties and amici; to the contrary, many of the arguments are cogent and compelling. However, the arguments are predominantly grounded in policy considerations that necessitate judgments reserved to the legislature after fact-finding and weighing of the ramifications of any decision.”

The court concluded: “[W]e decline to extend the implied warranty of habitability beyond its firm grounding in contract law. Under the facts of this case, where the builder-vendor sold a new home to a purchaser-user, we hold that an action for breach of the implied warranty requires contractual privity between the parties.”

Comment: It is refreshing to read a decision that so succinctly distinguishes between the proper Constitutional responsibilities of courts and legislatures. If it is to be determined that second-, third- and even fourth-tier purchasers of homes should have a cause of action against a builder with whom they had no contract, it seems only right that such broad protection for homeowners, and such draconian potential liability for builders, should be determined as a matter of public policy by state legislatures and not by the courts.

 

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. 17, No. 3 (March 2015).

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