Speight v. Walters Development Co., Ltd.

• Decision Date: 01 February 2008
• Docket Number: No. 05-1996.,05-1996.
• Citation: 744 N.W.2d 108
• Parties: Robert M. SPEIGHT and Beverly E. Speight, Appellants v. WALTERS DEVELOPMENT COMPANY, LTD., Appellee.
• Court: Iowa Supreme Court

744 N.W.2d 108

Robert M. SPEIGHT and Beverly E. Speight, Appellants v. WALTERS DEVELOPMENT COMPANY, LTD., Appellee.

No. 05-1996.

Supreme Court of Iowa.

February 1, 2008.

Harley C. Erbe of Erbe Law Firm, West Des Moines, for appellants.

Brian P. Rickert and Michael J. Green of Brown, Winick, Graves, Gross, Baskerville & Schoenebaum, P.L.C., Des Moines, for appellee.

LARSON, Justice.

The plaintiffs, Robert and Beverly Speight, appeal from a summary judgment entered against them in their suit for breach of implied warranty of workmanlike construction against the builder of their home. The court of appeals affirmed. Both the district court and the court of appeals expressly declined to recognize an implied-warranty claim in favor of third party purchasers, deferring for such a decision to this court. We now extend our common law of implied warranty to cover such parties and therefore vacate the decision of the court of appeals, reverse the judgment of the district court, and remand for further proceedings.

I. Facts and Prior Proceedings.

The Speights are the present owners of a home in Clive, Iowa, which was custom-built in 1995 by the defendant, Walters Development Company, Ltd. It was built for use by the original buyers, named Roche. The Roches sold the home to people named Rogers, who in turn sold it to the Speights on August 1, 2000. Sometime after purchasing the home, the Speights noticed water damage and mold. A building inspector determined that the damage was the result of a defectively constructed roof and defective rain gutters. Nothing in the record indicates that any of the owners between the original builder and the Speights had actual or imputed knowledge of these defects:

The Speights filed suit against Walters on May 23, 2005, alleging a breach of implied warranty of workmanlike construction and general negligence in construction of the home. Both the Speights and Walters moved for summary judgment raising the issue of whether the Speights, as remote purchasers, could pursue a claim for breach of an implied warranty of workmanlike construction. Walters also raised the issue of whether the plaintiffs' claim for breach of implied warranty was barred by Iowa Code section 614.1(4) (2005), the applicable statute of limitations. The district court concluded that, under the present state of the law, the Speights could not maintain an implied warranty claim and, in any event, such claim would be barred by the statute of limitations. The district court also concluded that the Speights could not bring a general negligence claim because they did not assert an accompanying claim for personal injury—a ruling the plaintiffs do not challenge on appeal.

II. The Implied-Warranty Claim.

The implied warranty of workmanlike construction is a judicially created doctrine implemented to protect an innocent home buyer by holding the experienced builder accountable for the quality of construction. See 17 Richard A. Lord, Williston on Contracts § 50:30 (4th ed. 2007) [hereinafter Lord]. Home buyers are generally in an inferior position when purchasing a home from a builder-vendor because of the buyer's lack of expertise in quality home construction and the fact that many defects in construction are latent. These defects, even if the home were inspected by a professional, would not be discoverable. See Sean M. O'Brien, Note, Caveat Venditor: A Case for Granting Subsequent Purchasers a Cause of Action Against Builder-Vendors for Latent Defects in the Home, 20 J. Corp. L. 525, 529 (Spring 1995).

The implied warranty of workmanlike construction addresses the inequities between the buyer and the builder-vendor by requiring that a building be constructed "in a reasonably good and workmanlike manner and . . . be reasonably fit for the intended purpose." Kirk v. Ridgway, 373 N.W.2d 491, 492 (Iowa 1985). In Kirk this court applied the doctrine of implied warranty of workmanlike construction to the sale of a home by the builder to the first owner. 373 N.W.2d at 496. In doing so, we noted that interest in consumer protection had increased, and the complexity of homes had increased, making it difficult for a buyer to discover defects in the construction. Id. at 493-94. In Kirk we rejected the application of the doctrine of caveat emptor under which "it has been observed, courts considered purchasing as a game of chance." Id. at 493 (citing Roberts, The Case of the, Unwary Home Buyer: The Housing Merchant Did It, 52 Cornell L.Q. 835, 836 (1967)). We noted that home buyers are ill-equipped to discover defects in homes, which are increasingly complex, and therefore must rely on the skill and judgment of the vendor. Id. at 494.

In Kirk we held that, in order to sustain a claim that a builder-vendor has breached the implied warranty of workmanlike construction, the buyer must show:

(1) [t]hat the house was constructed to be occupied by the [buyer] as a home;

(2) that the house was purchased from a builder-vendor, who had constructed it for the purpose of sale;

(3) that when sold, the house was not reasonably fit for its intended purpose or had not been constructed in a good and Workmanlike manner;

(4) that, at the time of purchase, the buyer was unaware of the defect and had no reasonable means of discovering it; and

(5) that by reason of the defective condition the buyer suffered damages.

Id. at 496; see also Flom v. Stagily, 569 N.W.2d 135, 142 (Iowa 1997).

In Kirk we defined a "builder" as

"a general building contractor who controls and directs the construction of a building, has ultimate responsibility for completion of the whole contract and for putting the structure into permanent form thus, necessarily excluding merchants, material men, artisans, laborers, subcontractors, and employees of a general contractor."

373 N.W.2d at 496 (quoting Jeanguneat v. Jackie Hames Constr. Co., 576 P.2d 761, 762 (Okla.1978)).

The plaintiffs ask this court to take the cause of action recognized in Kirk one step further by applying it to the case of a subsequent purchaser. Jurisdictions outside of Iowa are split on this issue.

Many jurisdictions do not permit subsequent purchasers to recover for a breach of the implied warranty of workmanlike construction.¹ This holding stems from the lack of a contractual relationship between the subsequent purchaser and the builder-vendor. Michael A. DiSabatino, J.D., Annotation, Liability of Builder of Residence for Latent Defects Therein as Running to Subsequent Purchasers from Original Vendee, 10 A.L.R.4th 385, 388 (1981) [hereinafter DiSabatino]. The implied warranty of workmanlike construction is contractual in nature, and because privity is traditionally required in order to maintain a contract action, some courts have concluded that the lack of privity between the subsequent purchaser and the builder-vendor prevents the subsequent purchaser's implied-warranty claim. O'Brien, 20 J. Corp. L. at 537; see also Mary Dee Pridgen, Consumer Protection and the Law § 18:19 (2006) [hereinafter Pridgen] (discussing the holding in Crowder v. Vandendeale, 564 S.W.2d 879, 881 (Mo.1978)); 2 James Acret, Construction Law Digests § 14:12 (2007) [hereinafter Acret] ("The implied warranty, of habitability arises out of a contract between the builder and the initial buyer. There is no hint in the case law that it arises out of the general duty to build a reasonably fit house, by reason of which the builder would be liable to remote purchasers, that is, the general public, having no privity with it." (discussing the holding in Foxcroft Townhorne Owners Ass'n v. Hoffman Rosner Corp., 96 Ill.2d 150, 70 Ill.Dec. 251, 449 N.E.2d 125 (1983))). Further, because there is a lack of privity between the subsequent purchaser and the builder-vendor, there is no reliance by the subsequent purchaser on any representations made by the builder-vendor regarding the quality of construction. See Pridgen, § 18:19. Finally, some courts have concluded that the justifications for eliminating the privity requirement in products liability cases do not exist in the sale of real estate. See DiSabatino, 10 A.L.R.4th at 397-98 ("The court reasoned that a house which is not the product of a mass marketing scheme or which is not designed as a temporary dwelling differs from the usual item to which the principles of strict liability have generally been applied, in that it is not an item which generally changes owners or occupants frequently." (discussing Coburn v. Lenox Homes, Inc., 173 Conn. 567, 378 A.2d 599 (1977))).

Other jurisdictions do permit subsequent purchasers to recover for a breach of the implied warranty of workmanlike construction.² The purpose of the implied warranty of workmanlike construction is to ensure that innocent home buyers are protected from latent defects. This principle is "`equally applicable to subsequent purchasers'" who are in no better position to discover those defects than the original purchaser. Acret, § 14:12 (discussing and quoting the holding in Lempke Dagenais, 130 N.H. 782, 547 A.2d 290 (1988)); see also Pridgen, § 18:19 ("`The purpose of a warranty is to protect innocent purchasers and hold builders accountable for their work. With that object in mind, any reasoning which would arbitrarily interpose a first buyer as an obstruction to someone equally as deserving of recovery is incomprehensible.'" (quoting Moxley v. Laramie Builders, Inc., 600 P.2d 733, 736 (Wyo.1979))). Thus, the public policy justifications for eliminating the doctrine of caveat emptor for original purchasers of new homes similarly support allowing subsequent purchasers to recover on a theory of a breach of the implied warranty of workmanlike construction. See O'Brien, 20 J. Corp. L. at 531-32 ("[B]y definition, latent defects are not discoverable by reasonable inspection. Thus, home buyers are left with the choice of relying on a builder-vendor's expertise, or not buying a home at all. As one court stated, `(t)o apply the...