This situation is all too common in my practice—individuals purchase a home and, afterward, they discover defects with the home that were not disclosed or discovered during the home-purchasing process. The new homeowners have many potential avenues to seek legal redress: their seller, their real estate agent and that of the seller, and their home inspector.
In a ruling handed down by the Pennsylvania Supreme Court in Conway v. Cutler Group, 2014 Pa. LEXIS 2084 (Pa. Aug. 18, 2014), one such avenue of recovery has been eliminated for some purchasers of newly constructed homes—home builders who did not sell the home to the homeowners cannot be sued by second and subsequent purchasers under the theory of the implied warranty of habitability.
In Conway, the Cutler Group Inc. sold a newly constructed home in Bucks County to Davey and Holly Fields, the opinion said. After residing in the home for several years, the Fields sold the home to Michael and Deborah Conway, the opinion said. Subsequently thereafter, the Conways discovered water infiltration around some of the windows in the home, and, after consultation with an engineering and architectural firm, concluded that the infiltration was caused by several construction defects, the opinion said.
The Conways elected to only sue the Cutler Group, alleging that its manner of construction breached the home builder’s implied warranty of habitability.
The Cutler Group then filed preliminary objections, arguing that the implied warranty of habitability for newly constructed homes should only extend from the home builder to the first purchaser of the home. In making that argument, the Cutler Group pointed out that Pennsylvania courts have traditionally required a showing of privity of contract before permitting a party to proceed with a warranty claim and such privity was lacking between it and the Conways, the second purchasers of the home.
The trial court agreed with the argument made by the Cutler Group, sustaining the preliminary objections on the ground of lack of privity between the litigants.
The Conways then appealed the trial court’s ruling on the preliminary objections to the Pennsylvania Superior Court.
In a unanimous opinion published by the Superior Court, the trial court’s ruling was reversed, finding that a home builder’s implied warranty of habitability extended to second and subsequent purchasers of the newly constructed home.
In doing so, the Superior Court relied upon its holding in Spivack v. Berks Ridge, 586 A.2d 402 (Pa. Super. Ct. 1990), a case in which the home builder’s implied warranty of habitability was extended beyond the first purchaser of the home.
Furthermore, the Superior Court glowingly cited to a ruling subsequently issued by a trial court in Allegheny County in Kapetanovich v. Fox, 20 Pa. D&C.4th 316 (C.P. Allegheny 1993).
In Kapetanovich, according to the Superior Court, the trial court concluded that, even where a home has been purchased by a subsequent owner, the bargain and price still reflect an inherent assumption that the home has no latent construction defects, and, thus, the home builder is still best suited to resolve any potential defects that may as yet be discovered.
The Cutler Group then petitioned for allowance of appeal in the Supreme Court.
The Supreme Court elected to accept the following issue for review: “Did the Superior Court wrongly decide an important question of first impression in Pennsylvania when it held that any subsequent purchaser of a used residence may recover contract damages for breach of the builder’s implied warranty of habitability to new home purchasers?”
Justice Seamus McCaffery wrote the majority opinion of the Supreme Court. By way of his opinion, the Supreme Court held that, as a matter of law, a subsequent purchaser of a newly constructed home may not recover damages against the home builder based upon an alleged breach of the home builder’s implied warranty of habitability.
In the beginning of his opinion, McCaffery discussed the origin of a home builder’s implied warranty of habitability. McCaffery explained that the Supreme Court adopted the implied warranty of habitability in the context of new home sales in Elderkin v. Gaster, 288 A.2d 771 (Pa. 1972).
McCaffery emphasized the Supreme Court’s “holding in Elderkin was rooted in the existence of a contract—an agreement of sale—between the builder-vendor of a residence and the purchaser-resident.”
In comparison, McCaffery noted that, in Conway, “the Superior Court extended that implied warranty to circumstances where the parties were not in privity of contract and the residence was not newly constructed, but rather had been occupied for several years.”
McCaffery criticized the Superior Court in Conway for improperly increasing the scope of a home builder’s implied warranty of habitability through its utilization of its precedence in Spivack. According to McCaffery, the home builder’s implied warranty of habitability was extended to a second purchaser in Spivack, but only because the first purchaser had never used or occupied the home.
In Spivack, the plaintiffs had purchased a yet-to-be-constructed condominium from a developer that was an entity separate and distinct from the builder of the condominium. However, the Superior Court emphasized that, “where the builder knows or should know that [the first] purchaser will not be the first user … any implied warranties must necessarily extend to the first user-purchaser.”
McCaffery, thus, believed the holding in Spivack was much narrower than what was characterized by the Superior Court in Conway.
While McCaffery acknowledged that other jurisdictions have actually extended a home builder’s implied warranty of habitability of newly constructed homes to second and subsequent purchasers for a variety of reasons, the Supreme Court concluded that the question of whether and under what circumstances to extend the warranty of habitability to subsequent purchasers of a newly constructed home in Pennsylvania is a matter of public policy properly left to the legislative process.
McCaffery noted that the arguments made on appeal to the contrary, while, in his own words, are cogent and compelling, they “are predominantly grounded in policy considerations that necessitate judgments reserved to the legislature after fact-finding and weighing of the ramifications of any decision.”
As such, the Supreme Court, through McCaffery’s opinion, found that the implied warranty of habitability for new homes requires contractual privity between the parties and does not extend to second and subsequent homeowners.
In a concurring opinion written by Justice Max Baer in which Justice Correale Stevens joined, Baer pointed out that our legislature has already acted to protect subsequent home purchasers from defects in residential structures that affect the habitability of the home by enacting the Real Estate Seller Disclosure Law (RESDL).
According to Baer, subsequent to the Supreme Court’s holding in Elderkin, the legislature enacted the RESDL in order to require a seller, as opposed to the builder of a residence, to disclose to the buyer “any material defects with the property.” Baer believed it was not coincidental that the RESDL’s disclosure requirements do not generally apply to a builder selling a home to the original purchaser. In his opinion, Baer stated that he “presume[d] the legislature recognized the judicially decreed warranty benefiting the first purchaser when it designated its statutory protection of all subsequent home buyers.”
Similar to McCaffery, Baer reasoned that “it is preferable for the General Assembly, rather than th[e Supreme] Court, to engage in the policy determinations involving expanding or contracting available remedies to remote purchasers, which would purportedly reduce or eliminate the need for the statutorily mandated disclosures.”
Through its holding in Conway, the Supreme Court has placed the burden upon the legislature to expand protections to second and subsequent homeowners of newly constructed homes. In Conway, the Supreme Court expressed its reluctance to create an implied warranty out of thin air in spite of the practical considerations for doing so.
Unless the legislature takes the initiative here, second and subsequent homeowners of newly constructed homes will be unable to sue the builders of their home. Rather, as Baer pointed out, these homeowners can seek legal redress against their sellers for defects with the home that were not discovered or disclosed during the home-purchasing process through the RESDL. Furthermore, the Supreme Court’s holding also does not limit the homeowners’ ability to recover damages against their seller under other legal theories, as well as against their real estate agent or that of the seller, and the home inspector, among others.
Reprinted with permission from the October 21, 2014 edition of The Legal Intelligencer © 2014 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382, firstname.lastname@example.org or visit www.almreprints.com.