Chapter 16 - § 16.3 • IMPLIED WARRANTIES
| Jurisdiction | Colorado |
§ 16.3.1-Definition
Implied warranties are obligations imposed by law that provide purchasers with recourse against a builder or manufacturer for defects in residential construction.30 "[I]mplied warranties are those promises not explicitly made by contract, but nonetheless enforced by courts."31 The implied warranties of habit-ability and workmanlike construction have received much attention in Colorado case law, which provides substantial guidance regarding the parameters of such claims.
§ 16.3.2-Implied Warranties of Habitability and Workmanlike Construction
Definition
By selling a new residence to a first purchaser in a commercial transaction, a builder-vendor implicitly warrants that the residence is built in a workmanlike manner or is suitable for habitation for a reasonable period.32 Colorado was one of the first jurisdictions to recognize this cause of action because, in part, the traditional rule of caveat emptor or "let the buyer beware" failed to equitably distribute the risks associated with the purchase of new homes. Early decisions in this area embraced this rule of law because: (1) builder-vendors possess superior knowledge, experience, and skill in constructing homes when compared to the typical consumer; and (2) every builder-vendor holds itself out, expressly or impliedly, as having the expertise necessary to construct a livable dwelling; and (3) almost every buyer acts upon these representations and expects that the new house, whether already constructed or not, will be suitable for use as a home.33
The implied warranty of habitability "has been likened to strict liability for construction defects, and proof of a defect due to improper construction, design, or preparations is sufficient to establish liability in the builder-vendor."34 Thus, it is "not necessary to consider the discoverability of defects through inspection in order to establish a builder-vendor's liability under an implied warranty of habitability,"35 and claimants seeking to recover under this theory do not have to establish that the builder-vendor was negligent or acted fraudulently in making representations regarding the construction.36
Persons Protected - Privity of Contract Required
In a 2014 decision, Forest City Stapleton Inc. v. Rogers, the Colorado Supreme Court held that a home buyer must be in privity of contract with the builder or developer to advance a claim for breach of the implied warranty of suitability.37 In reaching this conclusion, the Colorado Supreme Court reasoned that, "because breach of the implied warranty of suitability is a contract claim, privity of contract is required in such a case."38
In prior case law, Colorado courts identified the class of persons entitled to the protections of implied warranties as the first purchasers of new homes in commercial transactions,39 because the implied warranty of habitability "applies only to 'new' as opposed to 'used' homes."40 In light of the Rogers decision, older case law must be viewed with an understanding that, for a homeowner to advance an actionable implied warranty claim, such homeowner must be in privity of contract with the builder or developer, with a few possible exceptions noted below.
First, in Rogers, the Colorado Supreme Court recognized in dicta "that in contracts that are intended to benefit and give rights to third parties, these third parties may enforce a contractual obligation without being a party to the contract or without being in privity of contract with the actual parties."41 The supreme court, however, declined to decide whether third-party beneficiaries are protected by implied warranties "because this issue was not raised by the parties" in Rogers.42
Second, in some older cases, Colorado courts expanded the definition of the protected class to purchasers of homes that were not technically "new." For example, one court held that where a builder repurchased a home from the original owner after various defects arose, attempted to fix such defects, and then resold the home to another consumer, the second purchaser was entitled to the protections of an implied warranty of habitability even though the home was not new.43 In another case, a homeowner who purchased a duplex that had been leased for two months prior to sale was found to be a "first purchaser" and was entitled to assert implied warranty clams.44 So long as the privity of contract requirement has been met, an extension of the implied warranties to the type of persons identified in these cases may still be valid. In other decisions preceding Rogers, however, courts have strictly adhered to the definition of "first purchaser" in defining the protected class. For example, a bank that obtained title to a home in foreclosure proceedings was unable to step into the shoes of the original purchaser and assert claims for breach of the implied warranty of habitability against the builder-vendor.45
Application to Builder-Vendors
Provided that privity of contract exists, the implied warranties of habitability and workmanlike construction are imposed upon "builder-vendors," which are defined as any seller who built or participated in the building of, or supervised the building of, the property, and is regularly engaged in building.46 Included within this definition are individuals who do not hire a general contractor and instead employ architects, contractors, and subcontractors directly for the purpose of building a home.47 Although some reported decisions state that the builder-vendor must be in the business of building, even a "first time builder-seller may be 'in the business of building' for purposes of impliedly warranting his work, if the primary reason for constructing the house is to resell it."48 Similarly, if a builder-vendor initially constructs a home for personal use, but then decides to sell it to a consumer in a partially finished state, these implied warranties apply.49
Application to Developers
Again noting the privity of contract requirement, Colorado courts have imposed an implied warranty of suitability on developers where the following three elements are met: (1) land is improved and sold for a particular purpose; (2) a vendor has reason to know that the purchaser is relying upon the skill or expertise of the vendor in improving the parcel for that particular purpose; and (3) the purchaser does in fact so rely.50 This does not mean that a developer will be liable for all types of defects that later arise. In a 2001 decision, the Colorado Court of Appeals held that a developer did not breach the implied warranty of habitability even though water repeatedly seeped into the walk-out basement of a home.51 In that case, the developer's grading plan submitted to the municipality specified that any home built on the subject lot would not have a walk-out basement. Nonetheless, the builder opted to construct a home with a walk-out basement without the developer's knowledge. In rejecting the implied warranty claims against the developer, the court of appeals recognized that the "lot at issue may have been unsuitable for a home with a walkout basement," but there was "no evidence that it was unsuitable for other types of homes."52
As noted above, Colorado appellate courts recently provided guidance regarding the limits on implied warranty of suitability claims against developers. In Forest City Stapleton Inc. v. Rogers, the purchaser of a new home won a jury verdict against the master developer of residential units for breach of the implied warranty of habitability, negligent misrepresentation, and nuisance.53 The underlying claims emanated from assertions that a high water table caused the plaintiff-homeowner's basement to flood, the sump pump to run frequently, and the subsurface drain system to fail.54 The plaintiff-homeowner attributed the water intrusion and related problems to acts by the defendant master-developer such as the placement of recycled aggregate base course (i.e., concrete from former airport runways) beneath adjacent roads, which caused a buildup of minerals (calcite) in the subsurface drain system and impaired the performance of the system.55
Some relevant facts relating to the home purchase transaction included the following: (1) the developer subdivided the area into lots, some of which were for residential use, and then sold the lots to homebuilders;56 (2) the developer did not build the homes, but did select the builders and styles of homes;57 (3) the homebuilder, a non-party to the lawsuit, contracted with the plaintiff-homeowner to build the home;58 (4) the homebuilder constructed the home;59 (5) the plaintiff-homeowner purchased the lot and home directly from the homebuilder;60 and (6) when the homebuilder purchased the lot from the developer, it was vacant, did not have utilities, and needed additional grading.61
After the jury found for the plaintiff-homeowner on all three claims, the developer appealed to the court of appeals. The court of appeals held that contractual privity was not required between the developer and plaintiff-homeowner for the plaintiff-homeowner to sue the developer for breach of the implied warranty,62 but the court reversed on this claim because of incorrect jury instructions. The trial court had instructed the jury that it had to find: (1) that the developer had sold the lot "for the purpose of residential construction," and (2) that the developer "impliedly warranted" to the plaintiff-homeowner "that [his] lot was suitable for a home with a basement...
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