In a case of first impression, the state Superior Court has ruled that homebuyers who are not the original purchaser-users of a home may still bring implied warranty of habitability claims against the builder if defects are discovered.

A unanimous three-judge panel in Conway v. Cutler Group reversed a Bucks County trial judge’s ruling dismissing a complaint filed by homeowners Michael and Deborah Conway against defendant builder the Cutler Group.

Judge Sallie Updyke Mundy, writing for the court, said that because the implied warranty of habitability applies to “defects which would not be apparent to the ordinary purchaser as a result of a reasonable inspection,” the question of whether the homeowner was the original purchaser is “immaterial.”

“A second or subsequent purchaser is entitled to the same assurances as the original purchaser that the home the builder has constructed is habitable for human living,” Mundy said. “By its very nature, the implied warranty of habitability shifts the risk of latent defects from the initial homeowner to the builder because the builder is the party with the ‘necessary expertise’ that the initial purchaser does not possess.”

Mundy was joined by Judges Stephen J. McEwen Jr. and John L. Musmanno.

The Conways’ attorney, Steven F. Fairlie of Fairlie & Lippy in North Wales, Pa., told the Law Weekly there are “a ton of cases riding on the outcome” of this case.

In Conway, according to Mundy, 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, Mundy said.

The Conways hired engineering and architecture firm the Falcon Group to perform an inspection of the home, which discovered several defects, according to Mundy.

In June 2011, Mundy said, the Conways filed suit against the Cutler Group for breach of the implied warranty of habitability.

The Cutler Group responded with preliminary objections in August 2011, arguing that the implied warranty does not extend beyond the builder and the initial purchaser of the home, according to Mundy.

This past February, Bucks County Court of Common Pleas Judge Clyde W. Waite granted the defendants’ preliminary objections and dismissed the complaint with prejudice, Mundy said.

The Conways appealed, arguing that privity of contract is not required for an implied warranty of habitability claim, according to Mundy.

The Cutler Group, meanwhile, argued the opposite, citing the Superior Court’s 1986 ruling in Manor Junior College v. Kaller’s, in which the plaintiff college entered into a written contract with a builder to install a new roof on one of its buildings and the builder subcontracted the work to another company by oral agreement, Mundy said.

The Superior Court held in that case that the college could not sue the subcontractor for a breach of the implied warranty of workmanlike performance because the college was not in privity with the company, according to Mundy.

But Mundy said Manor was distinguishable from Conway because an implied warranty of habitability claim “is based upon public policy considerations and is not a contractually dependent remedy.”

Mundy also pointed to the Superior Court’s 1990 ruling in Spivack v. Berks Ridge, in which it held that “privity of contract is not required to assert a breach of warranty claim against the builder of a new residential unit.”

In that case, the court found that even though the builder had sold a home to a vendor, who then resold the home to its initial purchaser-user, the builder’s implied warranty still extended to the initial purchaser-user.

“Consistent with this court’s rationale in Spivack, we see ‘no logical reason to limit a builder’s implied warranty to his immediate vendee,’” Mundy said.

But the Cutler Group’s attorney, Paul R. Rosen of Spector Gadon & Rosen in Philadelphia, said the language in Spivack is clear that the implied warranty extends only from the builder of a new home to the new home’s first purchaser-user.

Rosen said he and his client plan to ask for review by the state Supreme Court.

The Conways also argued that many defects are present from the time a home is built but don’t manifest themselves until years later.

Mundy agreed.

“In our view, it would be patently inequitable to re-shift the risk of latent defects back to a second or subsequent homeowner,” Mundy said, adding that siding with the Cutler Group “would present problematic consequences.”

“For example, if a given structural defect does not materialize until a home is five years old, and the original purchaser is still occupying the home, he or she may recover under the implied warranty of habitability,” Mundy said. “However, if the same defect materializes when a home is five years old, but the original purchaser sold the home after the third year, the current homeowner cannot recover. We conclude that allowing such divided recovery based on whether the home is sold, a factor that is immaterial to whether a ‘defect … [would be] apparent to the ordinary purchaser as a result of a reasonable inspection,’ would be inherently unfair.”

Mundy noted that trial courts across the state have been “deeply divided” on the issue, but noted that courts in several other states, including Arizona, Arkansas, Illinois, Iowa, Indiana, New Hampshire, New Jersey, Mississippi, Louisiana, Idaho, South Carolina, Wyoming, Rhode Island, Oklahoma and West Virginia, have all determined that second or subsequent purchasers may bring implied warranty of habitability suits.

Mundy said the Superior Court’s decision in Conway would not result in “unlimited liability against homebuilders.”
”It is still the plaintiff’s burden to show that the alleged defect is latent, attributable to the builder’s design or construction, and affects habitability,” Mundy said. “Moreover, all homeowners must still bring their claims within the 12-year period set out by the statute of repose.”

Zack Needles can be contacted at 215-557-2493 or zneedles@alm.com. Follow him on Twitter @ZNeedlesTLI.

(Copies of the 16-page opinion in Conway v. Cutler Group, PICS No. 12-2102, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •