Chapter 4 - § 4.2 • BREACH OF EXPRESS WARRANTIES

• Jurisdiction: Colorado

§ 4.2 • BREACH OF EXPRESS WARRANTIES

A warranty is "an express or implied promise that something in furtherance of the contract is guaranteed by one of the contracting parties."⁶ An assertion at the time of sale is a warranty by the seller, if so intended.⁷ Such intention may be inferred from circumstances revealed in the evidence.⁸ Express warranties are usually written on the face of a contract or created by the overt words or actions of one party.⁹ Whether a particular statement constitutes an express warranty is generally a question of fact.¹⁰ A warranty may be express (oral or in writing)¹¹ or implied (based on the intent or reasonable expectations of the parties, the circumstances, or as a matter of public policy).¹²

A warranty is a binding promise, enforceable in contract for its breach.¹³ A representation may or may not rise to the level of a warranty and, thus, become part of a bargained-for agreement, the breach of which is enforceable in contract.¹⁴ Depending on the circumstances, where a representation does not become part of a contract, relief for misrepresentations or unfulfilled representations may lie in either tort or equity.

In analyzing the existence of express warranties, one should examine, at a minimum, (1) the parties' course of dealing leading up to the execution of the lot or home purchase contract and the closing; (2) any material oral or written representations accompanying the marketing of the home upon which the home buyer reasonably relied; (3) the home purchase contract; (4) the closing documents; (5) all written warranties; and (6) the nature and subject matter of the transaction, including the features of the lot or the home itself.

Conduct may give rise to an express warranty.¹⁵ The owners of over 15,000 Colorado homes have settled class action claims against builder-vendors premised, in part, on the contention that the installation of rough-in plumbing allowing construction of a bathroom, "egress" windows necessary to build out living areas, or a walkout feature in a basement constitutes an express representation and warranty that the basement is reasonably expected to be suitable for finishing by the homeowner at a later date.¹⁶

Many homebuilders provide a limited, express warranty with the sale of a new home. Often, these written warranties apply to defects that arise during a prescribed time and limit the remedy to repair or replacement. Frequently, these written warranties will be bundled with a commercial "home warranty" product that may provide for a third party to act as surety for the builder's performance of its warranty obligation or for the third party to underwrite liability insurance indemnifying the builder against its liability under the warranty. These "hybrid" warranty products are discussed below.

Generally, a builder must substantially perform its contract according to its terms, and it will be excused only by acts of God, impossibility of performance, or acts of the other party to the contract preventing performance. If the builder wishes to protect itself against "the hazards of the soil, the weather, labor, or other uncertain contingencies, he must do so by his contract."¹⁷ However, deviation from contract duties in "trifling particulars" that do not materially detract from the benefits the other party would have derived from literal performance does not constitute a material breach.¹⁸

§ 4.2.1—Home Warranty Contracts

Builder-vendors frequently provide home buyers with express warranties regarding a new home's structure, systems, and finishes. Typically, the warranty will guarantee that defined elements of the home will perform within prescribed criteria for a specific time, most often one or two years, and guarantee the home's structural elements for a longer period, usually 10 years.

Often, express warranties attempt to disclaim or limit implied warranties of habitability, fitness, and workmanship. They also frequently contain arbitration clauses and remedies limitations. In many cases, the limited warranty agreement and its conditions are contained in a writing separate from the purchase contract and are not delivered until long after the purchase contract is signed, usually close to the closing date, and sometimes later. Often, these express warranties provide that they are automatically assigned or otherwise transferred to subsequent purchasers. The Homeowner Protection Act of 2007, discussed more fully in § 2.2.3, expressly excepts from its reach express warranties and related limitations on remedies for their breach.¹⁹

§ 4.2.2—"True" Warranties

A homeowner may receive express and implied warranties accompanying the sale of a new home. As noted above, express warranties are frequently packaged with a commercial "warranty" product issued by a third party. Such products, and their issuers, have been the subject of litigation and federal and state statutory regulation.²⁰ Several issuers of these products have become insolvent due to improper underwriting and business practices and placed in receivership or under "watch" by various state insurance regulatory agencies.²¹ Unlike "true" warranties extended by the builder-vendor to the...