Implied Warranty Doesn't Extend to Subsequent Home Buyers

Implied Warranty Doesn't Extend to Subsequent Home Buyers

Subsequent home buyers may not sue for breach of an implied warranty of habitability, the state Supreme Court has ruled.

On Aug. 18, the justices unanimously overturned the 2012 Superior Court ruling in Conway v. Cutler Group, which said home buyers who were not the original purchaser-owners of a home could bring implied warranty claims against the home builder if defects were discovered.

Writing for the court, Justice Seamus P. McCaffery said privity of contract between the home buyer and home builder was necessary for an extension of the implied warranty. Arguments from the homeowners to the contrary, he said, would best be addressed by the state General Assembly.

“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,” McCaffery said.

“Under the facts of this case … we hold that an action for breach of the implied warranty requires contractual privity between the parties.”

Justice Max Baer issued a concurring opinion, and said that the Real Estate Seller Disclosure Law already provides protections to subsequent home purchasers from defects that affect habitability of the home. Justice Correale F. Stevens joined both decisions.

According to court documents, the Cutler Group built a home for David and Holly Fields in Jamison, Pa., in September 2003. The Conways bought the home from the Fieldses in June 2006 and discovered water coming into the home around the windows of their master bedroom in April 2008, court records said.

An engineering and architecture firm inspected the home and discovered several defects, records said. The plaintiffs sued the Cutler Group in June 2011, alleging breach of implied warranty of habitability.

The trial court dismissed the case on motions from the Cutler Group, which contended that implied warranty does not extend beyond the initial purchaser. The Conways appealed to the Superior Court, arguing that privity of contract is not required for an implied warranty of habitability claim.

Attorney Steven F. Fairlie of Fairlie & Lippy, who represented the Conways, said the ruling is a “dramatic change in the state law.” Fairlie said he has taken hundreds of cases involving implied warranty of habitability for subsequent home buyers to settlement, arbitration or trial and had successful outcomes for the plaintiffs.

“There are thousands of defective stucco homes across the state of Pennsylvania. It’s common that people move out of them, so a lot of people are living in a defective stucco home that they didn’t buy from the original builder,” he said. “Those people are potentially out of luck as a result of this.”

According to Paul R. Rosen of Spector Gadon & Rosen, who represented the Cutler Group, the Superior Court’s ruling acted like a new cause of action opening up for plaintiffs.

“This changed the law back to the way it was and stopped all these hundreds of lawsuits coming out of nowhere against every developer,” he said. “It made it clear that when someone buys a new home, that’s the person who needs protection.”

According to McCaffery’s opinion, the Supreme Court adopted the application of implied warranty of habitability against home builders for original purchases of a new home in the 1972 case Elderkin v. Gaster.

Fairlie noted that the application of implied warranty of habitability to original home buyers had been judicially created through the Elderkin ruling, and questioned why the court felt that extending the judicially created doctrine needed to be done through legislative action.

“It makes no sense that the first purchaser can take advantage of this judicially created warranty, but the subsequent home buyer can’t,” he said.

In its ruling last year extending the implied warranty to subsequent home buyers, the Superior Court relied on its 1990 decision in Spivack v. Berks Ridge, in which the warranty was extended to a second purchaser.

However, McCaffery distinguished Spivack from the Conways’ case because, in Spivack, the first purchaser had never used the home. McCaffery further noted that the ruling in Elderkin was rooted in the existence of a contract between the builder-vendor and the purchaser-resident—a relationship that was lacking in the Conway case.

“Here, the Superior Court extended that implied warranty to circumstances where the parties were not in privity of contract and the residence was not newly constructed, but rather had been occupied for several years,” McCaffery said. “The Superior Court’s reliance on its precedent in Spivack for its broad holding here is misplaced, as Spivack not only is readily distinguishable on its facts, but also promulgated a much narrower holding.”

McCaffery also noted a split between state courts across the country on the issue, with supreme courts of Iowa and Rhode Island extending the warranty, and the high courts in Vermont and Connecticut drawing the line at privity between the parties.

“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,” he said. “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.”

Robert B. Hoffman, of Eckert Seamans Cherin & Mellott, who filed an amicus brief for the Pennsylvania Home Builders Association, said that home builders often extend their own transferable warranties to home purchasers, and that protections for subsequent home buyers are already in place.

“It’s tough proving or disproving what the cause of harm is when the builder has been away from the home for six or eight years,” he said. “The home builder industry is happy not to face this liability.”

According to attorney P. Timothy Kelly of Mattise & Kelly, who filed an amicus brief in the case for the Pennsylvania Association for Justice, the Superior Court’s ruling had recognized a trend in the case law. He noted that after the courts left behind the notion of buyer beware in homeowner cases in the 1920s, the courts recognized implied warranty for new construction, and a ruling for the Conways would have allowed the application of the warranty for existing structures.

“It’s gotten to the point where construction methods are much more sophisticated,” Kelly said. “Many states have recognized that we’re not living in the 1920s anymore and have extended that warranty.”

According to Kelly, while the ruling will not change the law, it will make similar cases more difficult for plaintiffs.

Max Mitchell can be contacted at 215-557-2354 or mmitchell@alm.com. Follow him on Twitter @MMitchellTLI.

(Copies of the 13-page opinion in Conway v. Cutler Group, PICS No. 14-1321, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) 

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