Chapter 4 - § 4.3 • BREACH OF IMPLIED WARRANTIES
| Jurisdiction | Colorado |
In 1963, Colorado became one of the first jurisdictions to recognize implied warranties in home construction contracts, and has since become a leading jurisdiction in this evolving area of law.37 Implied warranties are those promises not explicitly made by contract, but nonetheless enforced by courts.38 Colorado recognizes implied warranties that the home will be fit for human habitation, is built in a workmanlike manner, and complies with the applicable building code in contracts for the purchase of a new home in which the purchaser intends to live.39 An implied warranty that the home will be "suitable for the ordinary purposes for which it might reasonably be used" is subsumed within the implied warranty of habitability.40
When a commercial developer improves and sells land for the express purpose of residential construction, an implied representation to the purchaser arises that the property is suitable for the construction of a residence.41 "[T]his type of implied warranty has three elements: (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."42
However, the implied warranty that land will be suitable for residential construction does not run for the benefit of later purchasers who have no contractual privity with the original developer, but only with an intermediate builder who purchased the improved lot.43 This is because a claim for breach of an implied warranty is a contract claim that must be analyzed according to contractual principles.44 Because privity of contract requires that one must be a party to the contract to enforce a term in the contract or an implied warranty arising out of the contract, a subsequent residential lot purchaser cannot sue the original lot developer for breach of the implied warranty of suitability.45
§ 4.3.1—Public Policy Underlying Colorado's Implied Warranties
Courts recognize implied warranties pertaining to new home construction because an experienced builder who has erected and sold many houses is in a far better position to determine the structural condition of a house than most buyers. Even if a buyer is sufficiently knowledgeable to evaluate a home's condition, he or she rarely has access to make any inspection of the underlying structural work, as distinguished from the merely cosmetic features.46
Moreover, the ordinary purchaser of a home is not qualified to determine when or where a defect exists. Yet, the purchaser makes the biggest and most important investment in his or her life and, more times than not, on a limited budget. The purchaser can ill afford to suddenly find a latent defect in his or her home that completely destroys the family's budget and have no remedy or recourse.47
The warranty of habitability has been likened to strict liability for faulty construction, and "[p]roof of a defect due to improper construction, design, or preparation is sufficient to establish liability in the builder-vendor."48 The Colorado Supreme Court has said, "[t]he position of the builder-vendor, as compared to the buyer, dictates that the builder bear the risk that the house is fit for its intended use."49 Whether the defects could have been discovered through inspection is irrelevant to establishing a builder-vendor's liability for breach of the implied warranty of habitability.50
Colorado district courts have held that an implied warranty for fitness and habitation arises as a matter of law as to homeowners' association-owned property and common elements for the same public policy reasons that give rise to such an implied warranty in the sale of a new home,51 as have many appellate courts outside Colorado.52 Another Colorado district court held that a developer's sale of lots in a platted subdivision, where the lots are part of a common interest community, gives rise to an implied warranty that the common interest roads in the subdivision are adequately constructed.53
§ 4.3.2—Statutory Warranties
Colorado has no statutory warranties that apply to the sale of a new home.54 Implied warranties provided for in Colorado's statutory commercial code do not apply to home sales.55 Federal law creates certain warranties relevant to new home purchases, such as warranties on products marketed to consumers, like appliances.56
§ 4.3.3—Strict Liability in Tort
A few states expressly extend strict product liability to new homes.57 Although the Colorado Supreme Court has not addressed the issue, the Colorado Court of Appeals has held that strict product liability based on an "enterprise liability" theory does not arise from the construction of a home.58
In some circumstances, the use of defectively designed or fabricated mass-produced, pre-manufactured components in a home may give rise to the component seller or manufacturer's strict product liability.59 Such product liability claims may not be subject to CDARA.60 The Colorado Supreme Court has held that the economic loss rule, discussed more fully in § 5.1.1, does not bar a tort claim against a consumer product manufacturer, and a Colorado district court has similarly held that the rule does not bar claims against a builder's material supplier, a window manufacturer, and its distributor under Colorado's Product Liability Act.61 For a fuller discussion of this issue, see § 5.3, "Strict Product Liability." Some home-rule cities have adopted local ordinances that may, if they are not preempted by state law, limit or preclude application of the strict liability doctrine in construction defect disputes. See § 2.2.6, "Construction Defect Municipal Ordinances."
§ 4.3.4—Scope of Implied Warranties
In light of the amelioratory policies underlying Colorado's implied warranties, courts apply them broadly to encompass many defects that affect a home's habitability, aesthetics, or reasonably contemplated use.62 The Colorado Court of Appeals has cited with approval cases finding a breach of the implied warranty where only part of a home is defective,63 and held that Colorado's implied warranties extend to matters necessary and appurtenant to the use of a residence.64 Defects exist if the problems adversely affect the structure's use as a residence.65 Colorado appellate courts have affirmed judgments premised on breach of implied warranties relating to a myriad of problems.66
Some commentators suggest that the implied warranties guarantee a house of "reasonable quality" and that the definitions of implied merchantability and fitness contained in Colorado's Commercial Code should be applied to new home construction. They suggest that the the test be "[w]hether the house is of fair and average quality, passes without objection in the building trade and is fit for its ordinary purpose."67
The mere presence of an undisclosed amount of bentonite (a clay material that expands when wetted) in soils beneath a home does not, alone, constitute a "defect"68 or provide a prospective purchaser with notice of a patent problem.69 But the affirmative disclosure obligations imposed by the Soils Disclosure Statute, or the presence of highly expansive soils with significant swell pressures, may open the door for liability in both implied warranty and tort.
Implied Warranty of Habitability
The implied warranty of habitability requires that a newly constructed residence actually be fit for use as a residence. The entire structure need not be uninhabitable for this implied warranty to be breached. In practice, this term has come to mean that the residence and its parts are impliedly warranted to be suitable for their reasonably intended uses.
A basement rendered unsuitable for finishing as living space due to the builder-vendor's construction practices is defective, giving rise to liability. In Mulhern v. Hederich, the Colorado Supreme Court affirmed a judgment for the homeowner for breach of the implied warranty of habitability where the trial court found,
As a result of the movement of the house, which was described by one of the expert witnesses as a "wracking" of the structure, the basement of the house became uninhabitable and could not be used for the purposes for which it had been designed, namely the division thereof into rooms for use by members of the family. Likewise, the first floor area in the vicinity of the center hallways situate above the supporting steel beam became to a degree uninhabitable by reason of the failure of the doors to function properly.70
In Mulhern, the court found that substantial defects that would cost $3,500 to remedy in a $25,000 house (including the land) were sufficient to support the claim for breach of the implied warranty of habitability.71
In another case, the Colorado Court of Appeals held that an odor that permeated a garage purchased as an integral part of a home, causing the garage to be unusable for substantial parts of the year, sufficiently supported a breach of the implied warranty of habitability claim.72 And, the Colorado Court of Appeals found a substantial breach of a builder-vendor's implied warranty of habitability where water seeped into a basement and, because of the water's effect on the underlying expansive soils, cracks developed in the basement slab and in drywall throughout the house.73 There, the court allowed rescission of the home purchase contract because the damage was incurable and damages would be difficult to assess.74
Implied warranties extend to elements outside of homes. For example, courts recognize an implied warranty that a home has a suitable water supply, and that the ground upon which the home is built is suitable for residential construction.75
However, in Beeftu v. Creekside Ventures LLC, the court upheld summary judgment in favor of a developer on a homeowner's breach of implied warranty of habitability claim.76 Although the...
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