The Builder's Burden of Defective Construction-part I
| Publication year | 1984 |
| Pages | 2021 |
1984, November, Pg. 2021. The Builder's Burden of Defective Construction-Part I
Generally, when a builder-vendor sells a new home to a consumer-vendee, he impliedly warrants that the structure is or will be completed in a workmanlike manner and will be reasonably fit for occupancy.(fn1) In 1972, a minority of only fifteen states recognized this implied warranty of habitability (hereafter, "implied warranty").(fn2) Since that time, the minority has grown to a majority of thirty-three states which grant this protection to purchasers of residential homes.(fn3)
Although the implied warranty has been commonly accepted for consumer purchasers, it is less clear whether that same protection should extend to business entities that purchase new commercial buildings with serious defects. The courts which have considered this issue are divided in their results.(fn4)
This article discusses the question of whether the purchaser of a new commercial building should receive the same protection as the residential purchaser of a new home against defective construction by the builder-vendor,(fn5) at least to the extent of latent defects. Part I examines the consumer protection arguments generally made against extending the implied warranty to commercial purchasers. Part II, to be published in the December issue, will examine those policies which gave rise to the implied warranty doctrine and how they support extension of protection to commercial purchasers.(fn6)
Few courts have specifically held that the implied warranty does not extend to commercial purchasers. In four of the six cases denying extension, the courts relied upon the consumer protection reasoning in the development of the original doctrine as it applies to homeowners. The doctrine, in part, grew out of concern for the unsophisticated home purchaser.(fn7) The other two cases were based on less convincing reasoning.
Those cases which attempt to distinguish between business and consumer purchasers appear to make the most convincing arguments against extending the implied warranty. They emphasize the unequal bargaining position between the builder-vendor and consumer-vendee which led to the retreat from caveat emptor in purchases of residential homes. However, these cases also stand for the proposition that business purchasers are sophisticated individuals or entities and do not require the protection of the implied warranty.
Illinois has drawn a sharp distinction between a contractor-builder who sells to a lay purchaser and other vendors who sell older structures, particularly when the sale is to a business entity(fn9) (emphasis added).The Illinois Court of Appeals, in Century Display Mfg. v. D.R. Wager Const. Co.,(fn8) was one of the first courts to recognize this distinction. In this case, the plaintiff's purchased a manufacturing plant from the defendants, U.S. Steel. Soon after the plaintiff's took possession of the plant, fire broke out on the premises, allegedly due to flammable liquids left in tanks and pipes that were still in the building. After discussing the implied warranty doctrine, the court stated,
The court found that the facts represented a sale of an old structure by one business entity to another, after extensive negotiation and inspection. It also found that plaintiff's involved in the sale could not be viewed as laypersons, due to their experience in purchasing and liquidating commercial plants. The court therefore concluded that this was an "arms-length" transaction which did not require the protection offered by the implied warranty.(fn10)
However, in Century Display it was more important that the transaction involved the sale of a used structure, than the fact that the sale was to a business entity. The limitation of protection to only "immediate purchasers" of new property already exists in the implied
The fact that a commercial purchaser generally has more sophisticated knowledge and familiarity with building practices should not by itself preclude implied warranty protection. Courts have limited the implied warranty to cover only "latent defects," which have been defined as, "those manifesting themselves after purchase and which are not discoverable through reasonable inspection."(fn13) A reasonable inspection by a business purchaser might require more extensive investigation than one by a residential purchaser. Just as with a house, however, the business purchaser can never possess the same knowledge as does the builder-vendor.
The California Supreme Court in Pollard v. Saxe & Yolles Dev. Co. based its decision to grant a cause of action for breach of implied warranty to consumers in part on the following:
Just as in a house, certain deficiencies in buildings will manifest themselves only over a period of time unless over-extensive, unreasonable and costly inspections are required.(fn15)[The purchased is unable to fully examine a completed house and its components without disturbing the finished product. Further, unlike the purchaser of an older building, he has no opportunity to observe how the building has withstood the passage of time.(fn14)
Other cases focus more specifically on the different motives of the investment and consumer purchaser in making a distinction between business and residential buildings. The Florida Supreme Court in Conklin v. Hurley considered the sale of vacant waterfront lots protected by a seawall that later collapsed following unusually heavy rains.(fn16) The plaintiff's in that case asserted an implied warranty of fitness covering the collapsed seawall.(fn17) In Hopkins v. Hartman, the plaintiff's purchased income-producing property---a duplex residence rented to tenants, which was never occupied by the plaintiff's themselves.(fn18) They sought damages from the builder-sellers, based upon the implied warranty of habitability, when the floor of the structure began to pull away from the walls, due to rotting main supports.(fn19)
In both cases, the courts emphasized the consumer protection rationale behind the implied warranty and decided that purchasers of...
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