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PA Supreme Court Narrows Applicability of Habitability Warranty

In Conway v. Cutler Group, Inc., (2014 Pa. LEXIS 2084) the Pennsylvania Supreme Court recently issued a decision holding that an implied habitability warranty from developers does not extend to secondary purchasers of a property. The Court reasoned that because the secondary purchasers were not a party to a contract with the homebuilders, the homebuilders could not be liable to them for breach of implied warranty.1 Despite the plaintiffs' contention that the implied warranty of habitability was a judicial creation from a 1972 Pennsylvania Supreme Court decision, the Court held that if the warranty is to be expanded to secondary purchasers, it must be the Pennsylvania State Legislature that makes that decision. 2

The Court overruled a 2012 Pennsylvania Superior Court decision (2012 PA Super 242) which ruled that the implied warranty of habitability did, in fact, apply to secondary purchasers. The Superior Court reasoned that the implied warranty was based on public policy and not on contract, which meant that the warranty could, in fact, be used by all home purchasers.3 Like the Superior and Supreme Courts in Pennsylvania, other courts have disagreed on the same issue. The Rhode Island and Iowa Supreme Courts also focused on the importance of public policy in determining whether secondary purchasers had access to the implied warranty and held the "warranty was not extinguished when the original purchaser sold the home to a subsequent purchaser, and contractual privity was not required for maintenance of an implied warranty action against the builder." The Vermont and Connecticut Supreme Courts have held that a privity contract was a necessary prerequisite for the existence of the implied habitability warranty "and the rationale underlying it are 'founded on a sale.'"4

The Supreme Court held that the Superior Court had incorrectly relied on Spivack v. Berks Ridge Corp., (402 Pa. Super. 73) which it found to be distinguishable from Conway. In Spivack, the implied warranty extended to the secondary purchaser because the first buyer never occupied the home. The Court held that Spivack did not control Conway, and that the authority of the judiciary to determine a public policy should be very limited and found the Superior Court's public policy argument unpersuasive.5

The ruling may be detrimental to secondary home buyers who "now appear to have little or no recourse for construction defects against the homebuilder which sometimes may not become evident until after they purchase the home from the original buyer."6 Any changes to this ruling will likely have to come from the state legistlature.

If you have any questions regarding this subject or this posting, please contact James E. Miller (jmiller@sfmslaw.com) or Michael Ols (mols@sfmslaw.com). We can also be reached toll-free at (866) 540-5505.

Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS also maintains an affiliate office in London, England and is an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.

Sources:

1. http://caselaw.findlaw.com/pa-supreme-court/1675990.html

2. http://www.law360.com/pennsylvania/articles/568855?nl_pk=03b5bb04-d9da-4dc8-b878-c2c98d9a728f&utm_source=newsletter&utm_medium=email&utm_campaign=pennsylvania

3. http://www.leagle.com/decision/In%20PACO%2020121105384

4. http://caselaw.findlaw.com/pa-supreme-court/1675990.html

5. http://caselaw.findlaw.com/pa-supreme-court/1675990.html

6. http://www.harrisburgbuilders.com/industry-update/

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