The following article was published as Chapter 3.9
("Construction Warranties") of the
Arizona Construction Law Practice Manual, 3rd
Ed. 2016, State Bar of Arizona.
§ 3.9.1 Introduction and
The topic of construction warranties can be complex and requires thoughtful
consideration when workmanship issues arise. Due to the significant amount of
construction defect litigation over the past several decades, this area of
construction law has become well developed in Arizona. A contractor is
vulnerable to a breach of construction warranty claim under four separate and
distinct bodies of law:
1. By Contract – Express Warranties;
Administrative Regulation – Registrar of Contractors’ Standards;
3. By the
Appellate Courts – Implied Warranties; and
4. By Statute –
Warranties Under the Uniform Commercial Code (UCC).
In any given situation, one, or perhaps all, of these warranties may apply. The
practitioner must, therefore, analyze each type of warranty to determine whether
a breach of warranty has occurred in a particular case.
This chapter addresses each of these areas of warranty law and discusses various
ways in which warranties may be defended or limited, including disclaimers,
statutes of limitation and the statute of repose.
Warranties by Contract – Express Warranties
The first place to look to determine whether a contractor is bound by a warranty
is the general contract between the owner and contractor. Most standard form
construction contracts contain express warranty provisions.
An express warranty is an assurance by one party to a contract of the existence
of a fact upon which the other party may rely.
This type of warranty is intended to relieve the other party of any duty to
ascertain the warranted fact for itself. The warranty amounts to an obligation
to indemnify the other party for any loss that results if the warranted fact is
not as promised. The Arizona Supreme Court has ruled that an express warranty
must be construed “according to the clear and natural import of the language
Express Warranties under the AIA Standard Form of Agreement
The General Conditions of the Contract for Construction between Owner and
Contractor, AIA A201 (2007), contain two main express warranties. The first is
set forth in Section 3.5 and provides as follows:
The Contractor warrants to the Owner and Architect
that materials and equipment furnished under the Contract will be of good
quality and new unless the Contract Documents require or permit otherwise. The
Contractor further warrants that the Work will conform to the requirements of
the Contract Documents and will be free from defects, except for those inherent
in the quality of the Work the Contract Documents require or permit. Work,
materials, or equipment not conforming to these requirements may be considered
defective. The Contractor’s warranty excludes remedy for damage or defect caused
by abuse, alterations to the Work not executed by the Contractor, improper or
insufficient maintenance, improper operation, or normal wear and tear and normal
usage. If required by the Architect, the Contractor shall furnish satisfactory
evidence as to the kind and quality of materials and equipment.
Essentially, the foregoing provision is a general warranty in which the
contractor provides the following three express warranties:
1. That all the
material and equipment for the project will be new and of good quality, unless
the parties otherwise specify;
2. That all work
will be of good quality, free from faults and defects; and
3. That the work
will be done in conformity with the contract documents.
In addition to the
warranties contained in Subparagraph 3.5, AIA A201 also includes a one-year
repair warranty. AIA A201, Section 22.214.171.124 provides:
126.96.36.199 In addition to the Contractor’s obligations under
Section 3.5, if, within one year after the date of Substantial Completion of the
Work or designated portion thereof or after the date for commencement of
warranties established under Section 9.9.1, or by terms of an applicable special
warranty required by the Contract Documents, any of the Work is found to be not
in accordance with the requirements of the Contract Documents, the Contractor
shall correct it promptly after receipt of written notice from the Owner to do
so unless the Owner has previously given the Contractor a written acceptance of
such condition. The Owner shall give such notice promptly after discovery of the
condition. During the one-year period for correction of Work, if the Owner fails
to notify the Contractor and give the Contractor an opportunity to make the
correction, the Owner waives the rights to require correction by the Contractor
and to make a claim for breach of warranty. If the Contractor fails to correct
nonconforming Work within a reasonable time during that period after receipt of
notice from the Owner or Architect, the Owner may correct it in accordance with
This warranty is nothing more than a repair obligation that generally takes
effect on the date of substantial completion. If the owner discovers a defect
within the one-year period and provides notice to the contractor, the contractor
is obligated to repair the defect. If the owner discovers a defect within the
one-year period and fails to notify the contractor, the owner waives the right
to have the defect corrected and to make a claim for breach of warranty.
The question that often arises under AIA A201 is whether the one-year repair
warranty under Subparagraph 188.8.131.52 is a limitation on the general warranty
provided in Section 3.5. AIA Document A201, Section 12.2.5 answers this question
by specifically stating that Section 12.2 is not a limitation on other
obligations the contractor might have under the contract documents.
Consequently, the warranties provided for in the AIA A201 are cumulative such
that the owner retains a warranty claim under the general warranty provision for
a defect that is discovered after the one-year period lapses.
The only limitations on the general warranty, therefore, are the statute of
limitation for contract actions (which runs from the discovery of the defect)
and the statute of repose.
§ 184.108.40.206 Express Warranties Under the
ConsensusDOCS Standard Form of Agreement
The Associated General Contractors of America’s Standard Agreement and General
Conditions Between Owner and Contractor, ConsensusDOCS No. 200 (2007), contains
two main express warranty provisions that are very similar to the warranty
provisions discussed above with respect to AIA A201. The ConsensusDOCS general
warranty provision provides as follows:
Contractor warrants that all materials and equipment shall be new unless
otherwise specified, of good quality, in conformance with the Contract
Documents, and free from defective workmanship and materials. At the Owner’s
request, the Contractor shall furnish satisfactory evidence of the quality and
type of materials and equipment furnished. The Contractor further warrants that
the Work shall be free from material defects not intrinsic in the design or
materials required in the Contract Documents. The Contractor’s warranty does not
include remedies for defects or damages caused by normal wear and tear during
normal usage, use for a purpose for which the Project was not intended, improper
or insufficient maintenance, modifications performed by the Owner or Others, or
abuse. The contractor’s warranty pursuant to this Paragraph 3.8 shall commence
on the Date of Substantial Completion.
ConsensusDOCS No. 200 also provides a one-year repair warranty that is
equivalent to AIA A201 Section 220.127.116.11.
Unlike AIA A201, however, ConsensusDOCS No. 200 specifically states that if any
defective work is discovered after the one-year correction period, the
contractor has the option to correct the work or to allow the owner to correct
the work and charge the contractor for the reasonable cost of the correction.
The limitation on that obligation is the applicable contract statute of
limitation and, in Arizona, the statute of repose. Thus, while the AIA and
ConsensusDOCS documents have the same effect, ConsensusDOCS No. 200 specifically
states the contractor’s obligation for defects discovered after the one-year
repair warranty expires.
Under both standard forms of agreement, an owner may accept non-conforming work
and elect, instead, to receive an equitable adjustment to the contract sum.
Under AIA A201 Section 12.3, the owner may unilaterally choose this option, even
after final payment has been made. Under ConsensusDOCS No. 200 Section 3.9.7,
the contractor must agree to this option and it is only available prior to final
§ 18.104.22.168 Nonstandard
Express warranty provisions in nonstandard contract forms are limited only by
the imagination of the drafter of the provision. Typically, a general contractor
will seek to limit its express warranties or perhaps provide no express warranty
at all. Consequently, it is not uncommon for a general contractor to limit its
express warranty to a one-year repair warranty, being careful to exclude any
type of general warranty that could extend beyond the one-year time frame. In
such circumstances, the practitioner may need to rely on one of the other types
of warranty claims when a defect in the work is discovered after one year.
Defenses to express warranties are those available in any typical contract
dispute and may include impossibility, impracticality, and first material
breach, or non-payment. Significantly, express warranties are not available to
subsequent purchasers who have no privity of contract with the builder. As
discussed in § 3.9.4 below, implied warranties may apply to subsequent
purchasers who have no privity of contract with the builder. Finally, the
equitable concept of “economic waste” may apply, allowing the builder to provide
an appropriate credit to the owner, in lieu of the removal and replacement of
defective work, when correction would be unreasonably destructive.
Administrative Regulation – Registrar of Contractor Standards
Although the parties to a construction contract for the most part enjoy freedom
of contract, a contractor who performs faulty work may be held accountable by a
governmental agency for defective work beyond the express warranties stated in
its contract with the owner. In Arizona, the state legislature has created the
office of the Arizona Registrar of Contractors to regulate the quality of work
and building practices of contractors. The Registrar has been given the power
[m]ake rules he deems necessary to effectually carry
out the provisions and intent of this chapter. Such rules shall include the
adoption of minimum standards for good and workmanlike construction. In the
adoption of such rules of minimum standard, the Registrar shall be guided by
established usage and procedures found in the construction business in
Pursuant to this authority, the Registrar has enacted administrative regulations
that state “[a]ll work shall be done in a workmanlike manner.”
§ 22.214.171.124 The
“Workmanlike Manner” Requirement
Arizona’s Supreme Court has defined “workmanlike manner” as work performed in an
“ordinarily skilled manner as a skilled workman should do it.”
Thus, minimum workmanship standards imposed on contractors by the Registrar act
as an implied warranty that the contractor will perform its work according to
those standards. The contractor may not avoid the minimum workmanship standards
by limiting its warranty obligations in its contract form.
Under the requirements set forth by the Registrar, every contractor will be held
to the minimum standard of doing work in an ordinarily skilled manner as skilled
workmen should do it. This is true even if the parties have not bargained
specifically for such a provision.
Remedies at the Registrar of Contractors
If a contractor fails to build a project or part of a project in a “workmanlike
manner,” the owner may file a complaint with the Registrar of Contractors.
Arizona statutory law empowers the Registrar to “temporarily suspend, . . . or
permanently revoke any or all licenses issued . . . if the holder of the license
issued pursuant to this chapter is guilty of or commits any of the acts or
omissions set forth in [the statute].”
The statute prohibits a contractor from violating any rule adopted by the
Registrar, so a contractor that fails to build a project in a workmanlike manner
is subject to having its license suspended or revoked. The owner, therefore, has
a powerful remedy against a contractor in the event the contractor’s license is
suspended or revoked for failing to build a project in a workmanlike manner, as
a contractor may be criminally prosecuted and is subject to civil penalties for
engaging in contracting without a license in good standing.
Typically, when an owner files a complaint against a contractor with the
Registrar of Contractors, the Registrar’s office will send a copy of the
complaint to the contractor. If the complainant owner does not provide the
contractor an opportunity to investigate its work within fifteen days of receipt
of the complaint, then the Registrar is precluded from issuing a citation on
If the contractor has had an opportunity to inspect, and no resolution is made,
the Registrar will investigate the complaint, and if it finds that the work does
not meet the minimum workmanship standards, it will issue a corrective work
order to the contractor. If the contractor satisfactorily repairs the work, the
complaint will be dismissed. If the contractor does not repair the work, then
the contractor is subject to having its license suspended or revoked.
In addition to requiring the contractor to repair faulty work, the Registrar may
also require the contractor to make restitution to an owner in certain
On occasion, the Registrar will give the contractor the option of correcting the
defective work or simply paying restitution to the owner before suspending or
revoking the contractor’s license. An additional remedy that is available to a
residential owner is a recovery from the Residential Contractors’ Recovery Fund.
This Fund is only available to those who have been damaged by a contractor in
the construction of their personal residence, and the contractor has refused or
has been unable to pay for the damages. Currently, the most that a single
homeowner may recover from the Fund is $30,000.00.
§ 126.96.36.199 The
Limitations Period for Enforcement
If an owner decides to file a complaint against a contractor with the Registrar
of Contractors, the owner must do so within two years of the “earlier
of the close of escrow or actual occupancy for new home or other new building
construction ... [or] … completion of the specific project.”
regardless of any contract provision that warrants workmanship for a period of
less than two years, an owner has a minimum two-year workmanship warranty period
on licensed contractors through the Registrar. However, the Registrar of
Contractors has no jurisdiction over defects or poor workmanship discovered more
than two years after the earlier of the close of escrow or actual occupancy.
§ 3.9.4 Implied
Warranties Imposed Under Arizona Law
An implied warranty is one created by the law without any express statement of
warranty in the contract between the parties. Such warranties are created by
court decisions, otherwise known as the common law. According to Arizona court
decisions, even in the absence of a specific contractual provision, the law
implies a requirement that a contractor must perform its work in a good,
workmanlike manner and in a manner befitting a skilled contractor.
As discussed below, Arizona law is well developed with respect to implied
warranties in the home building context. The same cannot be said in the
commercial building context. This may be due to the fact that with respect to
most commercial buildings, the parties’ bargaining power is more equalized,
resulting in an express warranty that the work will be performed in a
workmanlike manner (see the discussion of AIA A201 and ConsensusDOCS No. 200
supra). Thus, the owner of the commercial building does not normally need to
rely on an implied warranty of good workmanship. Nevertheless, several Arizona
case decisions support the proposition that a commercial builder is subject to
an implied warranty that its work will be performed in a workmanlike manner.
As early as 1952, Arizona’s appellate courts began recognizing and applying the
doctrine of implied warranty with respect to construction contracts. In 1952,
the Supreme Court of Arizona ruled that, notwithstanding the absence of an
express warranty in a contract for the drilling and casing of a well, an implied
warranty arose, making it incumbent upon a contractor who undertakes to build a
structure to do so in a manner befitting a skilled workman.
Similarly, in 1969, the Arizona Court of Appeals recognized the implied warranty
of good workmanship when it ruled that an electrical contractor who had designed
and installed the electrical system for a massive brick kiln for a brick
manufacturer had failed to perform its work in a workmanlike manner.
Along the same lines, in 1970 the Supreme Court of Arizona ruled in a matter
involving the construction of a storage shed that a contractor impliedly
warranted that he would perform in a workmanlike manner, even though the
contract itself did not contain an express warranty of good workmanship.
§ 188.8.131.52 Implied Warranties for New Home
Construction: Caveat Emptor No More
Before 1979, no Arizona case had specifically held that the law imposed an
implied warranty of good workmanship and habitability on contractors of new
homes. To the contrary, the general assumption was that the governing principle
was caveat emptor (buyer beware). This assumption was based on the case of
Voight v. Ott,which
stated that “[i]t is the general rule of law that implied warranties as to
quality or condition do not apply to realty.” Under the doctrine of caveat
emptor, once the buyer accepted the deed to the property, the contract of sale
merged with the deed and only the rights and remedies contained in the deed were
available to the purchaser.
Arizona Judicially Recognizes Implied Warranties for Builder/Vendors
In 1979, the Arizona Court of Appeals decided Columbia Western Corp. v. Vela,
which was the first case in Arizona to recognize implied warranties with regard
to the construction of new housing. The court addressed the basic issue of
whether the law would impose an implied warranty upon the builder of new home
construction, following the sale of that home by the builder.
In Vela, the purchasers of a new home began having problems shortly after
the purchase, primarily because the walls of the structure began to crack.
Subsequently, the purchaser sued the builder/vendor on a theory of breach of
implied warranty of habitability. The builder/vendor argued that based on
Voight v. Ott, the judgment could not be supported under a theory of breach
of implied warranty because implied warranties as to quality or condition did
not apply to realty. The court, however, distinguished Voight on the
basis that it involved only the sale of realty as opposed to the
construction of new housing that ultimately became realty. The court,
therefore, relying on previous Arizona cases that imposed an implied warranty of
good workmanship on contractors, held “that the builder-vendor impliedly
warrants that the construction was done in a workmanlike manner and that the
structure is habitable.”
In reaching its decision, the court also recognized that the trend in other
jurisdictions was to reject the doctrine of caveat emptor with respect to the
builder-vendor of new construction. In so doing, it quoted the following
statement set forth in a Texas appellate decision:
The caveat emptor rule as applied to new houses is
an anachronism patently out of harmony with modern home buying practices. It
does a disservice not only to the ordinary prudent purchaser but to the industry
itself by lending encouragement to the unscrupulous, fly-by-night operator and
purveyor of shoddy work.
Based on the above stated policy, the court followed the nationwide trend and
concluded that an implied warranty of good workmanship and habitability should
be imposed on the builder/vendor of new home construction.
Implied Warranties Extended to Subsequent Purchasers
In 1984, the Supreme Court of Arizona held, in Richards v. Powercraft Homes,
that the same policy considerations that led to the decision that an original
homebuyer could rely on a builder/vendors implied warranty should be equally
applicable to subsequent homebuyers. The court reasoned that people and families
are increasingly mobile in our society, and homebuilders can anticipate that the
houses they construct will eventually, and perhaps frequently, change ownership.
In Richards, several individually-named plaintiffs purchased homes in a
subdivision built by Powercraft Homes. After occupying the houses, each
plaintiff discovered numerous defects, including faulty water pipes, improperly
leveled yards, cracking of the interior and exterior walls, separation of the
floors from the walls, separation of sidewalks, and misaligned doors and windows
that were stuck closed or could not be locked. The homeowners filed suit against
Powercraft, alleging violation of the Consumer Fraud Act and breach of the
implied warranty that houses be habitable and constructed in a workmanlike
The court rejected the contractor’s main argument that privity of contract was
required to maintain an action for breach of the implied warranty of workmanship
The court, however, restricted the subsequent purchasers’ recovery to damages
caused by latent defects that became manifest after the subsequent owners
purchased the structure and that were not discoverable had a reasonable
inspection of the structure been made prior to purchase.
The court also set forth the standard to be applied when determining whether
there was a breach of warranty. The court stated:
The standard . . . is one of reasonableness in light
of surrounding circumstances. The age of a home, its maintenance, the use to
which it has been put, are but a few factors entering into this factual
determination at trial.
In Nastri v.
Wood Brothers Homes, Inc.,
the Arizona Supreme Court further explained the implied warranty of workmanship
and habitability available to subsequent purchasers. In Nastri, second
purchasers of a home brought suit against the builder alleging that latent
defects in construction had caused numerous cracks in the ceiling, walls and
foundation of the home. The builder argued that since the home was not
“structurally unsound,” as demonstrated by the fact that the owner was living in
it, the home was not uninhabitable. The builder thus concluded that it had not
breached the implied warranty of habitability. The court rejected this argument
stating that the implied warranty was one of workmanship and
habitability, and that the test was whether the home was reasonably suited for
its intended purpose.
The court reasoned that “it would be the height of cynicism to allow a shoddy
builder to escape liability because his work was not shoddy enough.”
Implied Warranties Not Limited to Builder-Vendors
Prior to 2008, the exception to privity recognized by Vela and
Richards only extended as far as subsequent purchasers against
vendor-builders. However, the supreme court in Lofts at Fillmore
Condominium Association v.
Reliance Commercial Construction, Inc.
stated that it was “clear
that an implied warranty arises from construction of the home, without regard to
the identity of the vendor.”
The Lofts at Fillmore case involved a lawsuit filed by a residential
condominium association against the general contractor Reliance. A developer,
William Mahoney and The Lofts at Fillmore, L.L.C., contracted with Reliance to
convert an existing building into condominiums. Subsequently, the developer sold
the units to individual buyers, who formed the condominium association. After
defects began to surface, the condo association sued Reliance, despite the fact
that there was no direct contract between Reliance and the individual buyers or
the association. The Arizona Supreme Court in Lofts at Fillmore, in
finding that Reliance’s implied warranties extended to the association, stated
In today’s marketplace, as this case illustrates,
there has been some shift from the traditional builder-vendor model to
arrangements under which a construction entity builds the homes and a sales
entity markets them to the public. In some cases, the builder may be related to
the vendor; in other cases, the vendor and the builder may be unrelated. But
whatever the commercial utility of such contractual arrangements, they should
not affect the homebuyer’s ability to enforce the implied warranty against the
builder. Innocent buyers of defectively constructed homes should not be denied
redress on the implied warranty simply because of the form of the business deal
chosen by the builder and vendor.
The Supreme Court seemed to determine that its decision in Lofts at Fillmore
was a logical extension of Richards, but it abrogated prior case law
that appeared to limit a subsequent purchaser’s implied warranty claims to
builders who are also vendors.
§ 184.108.40.206 What
is “New Home Construction” After Lofts at Fillmore?
As discussed above, the Vela court held that “as to new home
construction, . . . the builder-vendor impliedly warrants that the
construction was done in a workmanlike manner and that the structure is
While that language has been cited often by subsequent appellate court
decisions, the courts have not elaborated on what “new home construction” means.
In Lofts at Fillmore, the supreme court expressly avoided the question by
stating in footnote 1:
The parties have apparently assumed that the
condominium conversion constituted new home construction. We also so assume
without deciding the issue.
While the supreme court in the Lofts at Fillmore noted that the project
involved a residential condominium conversion of an existing building, it was
not brought up that the condos were converted from an existing apartment
building that had been originally built in 1929, seventy-one years prior to its
Whether the narrow exception to privity afforded subsequent purchasers is only
available for a new house, or simply new construction on that house, is yet to
be decided at the appellate level as of the date of this edition. This issue
will most likely arise in the residential remodel context when older homes are
updated and sold. However, all of the factors weighing in favor of extending the
exception to homebuyers, as cited in Richards, Hayden, and
Lofts at Fillmore, would seem to equally apply in the case of a purchaser of
a remodeled home.
§ 220.127.116.11 The Far Reach of Implied Warranties as a
Contract Claim: Six Year Statute of Limitations and the Discovery Rule
Negligence actions, including actions that allege negligent injury to real
estate, must be commenced within two years after the cause of actions accrues.
On the other hand, an action for a debt that is evidenced by or founded upon a
contract in writing must be commenced within six years after the cause of action
Under what theory is a breach of implied warranty brought? Is it under the
theory of negligent injury to real estate? Is it a contract claim? Can it be
brought under both theories? A string of cases has determined that the claim is
an action under contract law.
This was precisely the issue that was before the Arizona Supreme Court in
Woodward v. Chirco Construction Co., Inc.
In Woodward, purchasers of a home sued the builder/vendor five years
after the purchase. They claimed that the builder/vendor had been negligent in
failing to perform a soil analysis prior to construction and had breached its
implied warranty of workmanlike performance and habitability. The trial court
dismissed both claims for being filed after the statute of limitations had
expired. On appeal, the court of appeals affirmed the dismissal of the
negligence claim, but reversed with respect to the claim based upon the implied
warranty, finding that the implied warranty claim was a contract action so that
the six-year statute of limitations applied.
On further appeal, the Supreme Court of Arizona affirmed the appellate court’s
decision and held that because “the cause of action based on the implied
warranty of workmanlike performance and habitability was based on the contract
between [the purchasers and the builder/vendor], the court of appeals properly
concluded that the six-year statute of limitations should apply.”
In reaching its decision, the court stated:
The purchaser of a home can seek to recover in
contract for defects in the structure itself as such defects render the home
less than the purchaser bargained for . . . The purchaser can also seek to
recover in tort for injuries sustained due to the contractor’s failure to
construct the home as a reasonable contractor would. For example, if a fireplace
collapses, the purchaser can then sue in contract for the cost of remedying the
structural defects and sue in tort for damage to personal property or personal
injury caused by the collapse. Each claim will stand or fail on its own; a
distinct statute of limitations applied to each.
This result was adopted, and the principle further refined in Matusik
In Matusik, the owners of a home brought an action against a builder nine
years after they had purchased the home, but only four years after they had
discovered the defects. The trial court granted the builder’s motion for summary
judgment based on the conclusion that the statute of limitations had run. On
appeal, the issue was whether the “discovery rule” applied to a breach of
contract against the builder of improvements to real estate. The court held “in
an action based upon either tort or contract claims arising out of allegedly
deficient design or construction of improvements to real estate, the cause of
action does not accrue until the plaintiff knows, or in the exercise of
reasonable diligence, should know, of the injury.”
The court reasoned that it would be unjust to require a person to bring an
action for damages to either his person or property if he does not know or have
reason to know the facts giving rise to the claim.
Further, with respect to the implied warranty contract claim, the court reasoned
that buyers have a right to rely upon the warranties of sellers of products or
services, and that this very reliance underlies the reason for the application
of the discovery rule.
§ 18.104.22.168 The Duration of
The Implied Warranty of Workmanship and Habitability: The Rule of Reasonableness
and The Statute of Repose
Following the decisions in Richards, Woodward
and Matusik, contractors became worried that their liability under the implied warranty of
workmanship and habitability was virtually limitless. After all, those cases
supported the proposition that a subsequent purchaser had six years after
discovering a defect to bring an implied warranty claim. Two cases decided
after the Matusik case involved just how long after building a home a
contractor could be sued for breach of the implied warranty of workmanship and
habitability. One of the cases eased the contractors’ worries; the other
inflamed the contractors’ worst nightmares.
The Rule of Reasonableness Prevails
In Sheibels v. Estes Homes,
a homeowner brought an action fourteen years after the home was constructed, but
only four years after purchasing the home. The action was for termite damage
resulting from a crack in the slab into which moisture was leaking, thereby
hampering termite control. The court held that the implied warranty, as extended
to subsequent purchasers, did not run indefinitely, but only for a
reasonable length of time.
The evidence presented in the case showed that treatment for termites for a
newly built home could not be expected to last longer than five years.
Accordingly, the court stated that it was unreasonable to extend the builder’s
implied warranty for termite damage beyond the five-year time frame.
The court also re-emphasized the limitations of the implied warranty as
expressed in Richards. The court in Richards stated that the
implied warranty for subsequent purchasers was limited to latent defects that
were not discoverable by a reasonable inspection prior to purchase.
There was no evidence in Sheibels that the subsequent purchaser had the
ten-year old house inspected for termite damage prior to the purchase.
Accordingly, the court further concluded that the builder was not responsible
for termite damage that could have been discovered by a reasonable inspection
had the subsequent purchaser chosen to conduct one prior to purchasing the home.
2. Hershey: Taking Implied Warranties
While the decision in Sheibels provided homebuilders with some sense of
reasonableness when it came to the implied warranty of workmanship and
habitability, the decision in Hershey v. Rich Rosen Construction Co.,
only two years later, left homebuilders wondering if there was any limit to
their potential liability. In Hershey, a contractor was sued for having
allegedly installed defective stucco twelve years earlier. The suit had been
brought by the third purchaser of the house, who, of course, had never had a
contract with the contractor.
The issue on appeal was whether the twelve years between the stucco installation
and the filing of the complaint was an unreasonable time to extend a
homebuilder’s implied warranty of habitability and workmanship for a stucco
installation. The court applied the rule of reasonableness set forth in the
Powercraft and Sheibels decisions, stating that “the duration that an
implied warranty will exist is a factual determination that will depend, in
part, on the life expectancy of the questioned component in a non-defective
condition.” The court then held that because expert testimony had shown that a
stucco exterior has a normal life expectancy of 30 to 50 years, twelve years was
not an unreasonable period for an implied warranty of habitability and
workmanship to exist.
The court further held that the reasonable inspection requirement did not
require the subsequent purchaser to hire an expert or professional home
inspection service to inspect the house. Instead, the court stated that the
implied warranty would not be applied only if the defect could have been
discovered during an inspection made by the average purchaser, not an expert.
Because the evidence established that the damage for the defective stucco was
not discoverable by a reasonable inspection until it was actually discovered,
the homeowner was covered under the implied warranty.
§ 22.214.171.124 Relief
to Builders: Arizona’s Statute of Repose
Quite obviously, contractors did not like the idea that they could be subject to
the implied warranty of workmanship and habitability for 30 to 50 years after
completing the construction of a home. In 1989, approximately one year after the
original lawsuit in Hershey
was filed; however, the Arizona Legislature enacted a statute of repose to
limit the time within which implied warranty suits could be brought.
While the statute was not enacted in time to help the contractor in Hershey,
the statute limited the duration of implied warranty claims to a maximum of nine
years after the completion of the structure.
The statute of repose states that no action based in contract (which includes
implied warranty claims) may be instituted against “a person who develops or
develops and sells real property, or performs or furnishes the design,
specifications, surveying, planning, supervision, testing, construction or
observation of construction of an improvement to real property more than eight
years after substantial completion of the improvement to real property.”
If a latent defect is not discovered until the eighth year after substantial
completion, an action may be brought within one year thereafter. Accordingly,
the longest period during which an action may be brought is nine years.
The statute of repose has not completely eliminated the rule of reasonableness
set forth in Richards and applied in Sheibels and Hershey. For instance, the decision in Sheibels, which ruled that the owner could not
pursue an implied warranty claim more than five years after the completion of
the home, would still be decided the same after the statute of repose. That is
because under the facts of that case, five years was determined to be the
reasonable length of time in which the claim could be brought. The statute of
repose merely places an outside limit on the time within which an implied
warranty claim may be instituted, but it does not establish the minimum time if
the facts of the particular case demonstrate that a shorter time is more
§ 126.96.36.199 The
Statute of Repose is Limited to Contract Actions
Is an action sounding
exclusively in tort subject to the statute of repose if the action is generated
by a contractual relationship between the parties? That was the issue before the
Arizona Court of Appeals in Fry’s Food Stores of Arizona,
Inc. v. Mather and Associates.
the plaintiffs filed an action alleging that the project architect, structural
engineer, general contractor, and canopy subcontractor had negligently selected
and installed connectors that held a canopy in place. The canopy was installed
in 1974, and a windstorm in 1989 lifted the 500 foot canopy from the wall of
Fry’s warehouse onto the roof causing exterior and interior
damage. The defendants argued that the action arose from a contract to construct
an improvement to real property and was therefore barred by the eight-year
construction statute of repose.
The trial court found that
the parties’ relationships, which had generated the defendants’ duty of care,
were based in contract and dismissed the case. The court of appeals disagreed,
stating that to adopt the trial court’s reasoning would render the statute
unconstitutional and abrogate a common-law negligence action. Thus, the court
narrowly interpreted the statute to apply only to those claims truly “based in
contract,” and held that the statute did not apply to negligence claims.
Based on the decision in Fry’s, the duration in which an injured party may bring a claim against a contractor
based in negligence is limited only by the two-year statute of limitations for
negligence actions. Because the two-year statute of limitations does not begin
to run until the date of the injury is discovered, contractors can be subject to
negligence actions for many years after the completion of a structure. As the
decision in Woodward v. Chirco Constr. Co., Inc.
instructs, however, the claim must truly arise out of negligence. For instance,
in Fry’s, the claim for the damage done to the warehouse was based in negligence, but any
claim to repair the canopy itself would have been based in contract and barred
by the statute of repose.
Limitations on Implied Warranties
§ 188.8.131.52 Contract Disclaimers of Implied
Warranties Are Against Public Policy and Are Void
One of the issues that arises with
respect to implied warranties is whether a contractor can limit the implied
warranty of workmanship and habitability through an express warranty or a
specific disclaimer in its contract with the owner. That issue was raised in
Nastri v. Wood Bros. Homes, Inc.
In Nastri, the contract with the original owner provided for a one-year
repair warranty and stated that no other warranties, expressed or implied, were
given, including a warranty of fitness for habitation.
The original purchasers sold the home
two years after purchasing it. Shortly after the second purchasers moved into
the home, they observed many problems with the foundation of the home and
numerous cracks in the walls and ceilings. When the second purchasers sued the
builder under the implied warranty of workmanship and habitability, the builder
argued that the implied warranty did not apply because its contract with the
original purchaser negated all implied warranties.
The court, relying on the guiding
principle set forth in Richards v. Powercraft Homes, Inc., that innocent
purchasers should be protected and builders held accountable for their work,
ruled that it would be against public policy in Arizona to allow a builder to
disclaim the implied warranty of workmanship and habitability.
The court’s ruling, however, was limited to innocent subsequent purchasers of a
home. In fact, the court stated that “[w]e do not decide in this case whether a
knowing disclaimer of the implied warranty is void as against the public policy
by its facts to subsequent purchasers, its reasoning was extended to original
purchasers in Buchanan
v. Scottsdale Environmental
Construction & Development Co. Inc.
Buchanan involved the sale of an improved homesite rather than the home
itself. Nevertheless, the court stated that “[i]f one constructing homes is
required to warrant fitness of both the house and the land on which it is built,
we see no reason why one constructing a homesite should not be required to
warrant that it is fit for the purpose for which it is sold.”
The court also stated that due to the same policy reasons that led to the
decision in Richards v. Powercraft Homes, Inc., “any attempt by the
seller to disclaim by contract the liability imposed by law [is] void.”
Accordingly, absent any special circumstances, a disclaimer of the implied
warranty of workmanship and habitability in a contract between an owner and
contractor is void in Arizona as to both an original purchaser and subsequent
§ 184.108.40.206 Vendors Not
Engaged in the Business of Building
While the implied warranty of workmanship and habitability may extend for as
long as nine years and may not be excluded by contract, Arizona’s courts had
recognized for decades that “accountability for construction defects should be
limited to builders and only to those vendors who build the home or at least
work in tandem with builders.”
Thus, the implied warranty theory does not extend to a bank that, through
foreclosure, acquired six homes under construction and subsequently sold the
homes to third parties after completing the construction. Similarly, the theory
of implied warranty does not extend to a homeowner who built his home,
originally intending the property for his own use, then sells it but was never
engaged in the business of building.
§ 220.127.116.11 No Exception
to Privity in Commercial Construction
Prior to the Lofts at Fillmore case, it was generally
understood that subsequent purchasers only had implied warranty claims against a
vendor-builder for latent defects in a residential construction project.
The vast majority of the cases involving implied warranty claims involved
residential construction projects. In deciding those cases, the courts often
turned to public policy discussion to help mold the nature and application of
implied warranties. However, because of the general lack of the same public
policy concerns in commercial construction, the courts have rejected claims by
subsequent purchasers absent a contractual relationship with the contractor.
Richards involved implied warranties in the residential
context. The court was clear that the residential aspect to the facts was very
important in coming to its decision to extend implied warranties to subsequent
purchasers. The court stated that considerations applicable to new homebuyers,
including “that house-building is frequently undertaken on a large scale, that
builders hold themselves out as skilled in the profession, that modern
construction is complex and regulated by many governmental codes, and that
homebuyers are generally not skilled or knowledgeable in construction, plumbing,
or electrical requirements and practices,” are equally applicable to subsequent
These considerations do not seem to have any application to the purchaser of
Business Center Condominiums Association v. Pegasus Development
involved breach of implied warranty claims relating to defective construction by
a condominium association against the builder of a business condominium complex.
In rejecting the association’s plea that the exception to privity be applied to
it, the court stated the following:
Based upon the public policy
considerations in Richards, we see no basis to extend an implied warranty
of good workmanship claim to subsequent purchasers of commercial buildings.
Unlike the parties to a home sale, no gross disparity in sophistication
generally exists between the buyers and sellers of commercial real estate.
Moreover, unlike new homes, commercial buildings generally are not
The Hayden court also found that “the Richards exception
applies only to homebuilder-vendors.”
This statement was based in part on the 1991 appellate court decision
Menendez v. Paddock Pool Construction Co., which held that “Richards and its progeny expanded implied warranty liability for the
homebuilder-vendor but failed to address non-owner subcontractors like Paddock.”
Therefore, the court in Hayden concluded that a subsequent
purchaser had no claim for breach of implied warranties against a builder who
was not also the vendor. This conclusion was specifically overruled by the
supreme court in the Lofts at Fillmore.
While the rule in Hayden
is weakened by Lofts at Fillmore, its policy discussion as
to why the exception to privity does not apply in a commercial context still
appears sound. In Highland Village Partners, LLC v. Bradbury & Stamm
Construction Co., Inc.,
the court of appeals reaffirmed the policy that subsequent purchasers of
commercial structures have no implied warranty claims. The court stated that “the
Hayden court declined to extend the
Richards exception to the commercial
property context because the public policy concerns present in residential
homebuilding did not exist.”
However, the Lofts at Fillmore case could open the door to application of
the privity exception to commercial development as well as to owners’ claims
against subcontractors. While the structure in Lofts at Fillmore was
ultimately sold as residential units, the conversion project performed by
Reliance, in contract with the developer, was entirely a commercial transaction.
It can be said that the lines between commercial and residential have been
blurred a bit by Lofts at Fillmore.
Exception to Privity is Not Extended to Claims Against Subcontractors
After the Lofts at
Fillmore decision, one may have assumed that the next logical step in the
evolution of implied warranty law would be to hold subcontractors liable to
subsequent purchasers (or original purchasers for that matter) for their implied
warranties. That assumption would have been wrong. In 2013, the court of appeals
expressly rejected the argument that the Richards and Lofts at
Fillmore cases abolished a requirement of privity in new home cases.
The court in Yanni stated the following:
Although an implied warranty flows from the
construction of a residence and applies to all of its individual components, the
exceptions to the general privity requirement found in Richards and Lofts have
never been extended to a homebuyer’s claims against a builder’s subcontractors.
court of appeals reasoned that a purchaser’s remedies against developers and
general contractors involved with the construction of the house was sufficient
to protect purchasers.
§ 3.9.6 Damages
Damages for a breach of the implied warranty of workmanship and habitability are
fact specific and, thus, determined on a case-by-case basis. The measure of
damages in an action for breach of the implied warranty is the cost of remedying
The exception to this rule is where economic waste would occur as a result of
repairing the defect, in which event, the plaintiff receives the difference in
value between the structure received and a comparable structure without defects.
However, no reported Arizona case has specifically dealt with the issue of
residual loss of market value after a defect has been repaired due to the stigma
that is inherent in some types of defects. For example, owners who have incurred
the expense of repairing a defective foundation or remediating a serious mold
problem caused by defective construction will often find that, despite their
repair efforts, purchasers are not willing to pay as much for a building with a
history of mold or foundation defects as they would for a building without such
a history. There is a significant amount case law outside of Arizona that
supports a recovery of residual loss of market value on top of actual repair
The United States Court of Appeals for the Third Circuit in
In re Paoli Railroad
Yard PCB Litigation v. Southeastern Pennsylvania Transportation Authority
stated the following:
This approach is
normally consistent with the view that, when physical damage is temporary, only
repair costs are recoverable, because in a perfectly functioning market, fully
repaired property will return to its former value. Thus, an award of repair
costs will be fully compensatory. And it makes sense to award repair costs
rather than the equivalent diminution of value absent repair, because it is
easier to measure repair costs. Hence, normally, it is only when property cannot
be repaired that courts must award damages for diminution of value in order to
fully compensate plaintiffs. However, the market sometimes fails and repair
costs are not fully compensatory. In such cases, according to the principles of
the Wade court, plaintiffs should be compensated for their remaining loss.
Absent such an approach, plaintiffs are permanently deprived of significant
value without any compensation. (emphasis added).
Attorney’s Fees Are Not Recoverable in Implied Warranty Cases
In 2012, the court of appeals issued its first decision in Sullivan v. Pulte
That case involved tort and implied warranty claims by a subsequent purchaser of
a house related to defective construction of a retaining wall. The implied
warranty claims were barred by the statute of repose, but the court denied an
award of attorneys’ fees and stated the following:
The fact that an implied warranty claim sounds in
contract “does not compel the conclusion that it ‘arises out of contract’ within
the meaning of § 12–341.01(A).” North Peak, 227 Ariz. at 170, ¶ 26, 254 P.3d at
409. The Arizona Supreme Court’s analysis in Barmat v. John and Jane Doe
Partners A–D, 155 Ariz. 519, 521, 747 P.2d 1218, 1220 (1987), is
controlling. The supreme court determined that A.R.S. § 12–341.01(A) applies to
actions arising out of express contracts and implied-in-fact contracts, but not
implied-in-law contracts. Id. at 521–24, 747 P.2d at 1220–23. The implied
warranty of workmanship and habitability is implied-in-law, not implied-in-fact.
See North Peak, 227 Ariz. at 170, ¶ 26, 254 P.3d at 409. Accordingly, we
conclude that § 12–341.01(A) is not applicable to the Sullivans’ breach of
implied warranty claim.
Thus, while the
implied warranty of workmanship and habitability sounds in contract for purposes
of the statute of repose, it does not necessarily arise out of contract for
purposes of A.R.S. § 12-341.01.
§ 3.9.7 The
General Inapplicability of Products Liability in Construction Cases
Although, technically speaking, a claim alleging products liability is not an
issue involving an implied warranty, there are similarities. In Arizona, as in
most every jurisdiction, the appellate courts have formulated a special cause of
action known as “products liability” or “strict tort liability” with regard to
personal injury sustained through the use of a mass-produced or manufactured
product. Under this claim for relief, a plaintiff must merely demonstrate that
the product was defective, i.e., unreasonably dangerous, to recover damages.
Neither negligence nor privity of contract are essential elements to a products
Thus, manufacturers of mass-produced products, in a sense, impliedly warrant
that their products will be safe when used for their intended purposes.
The elimination of privity as a requirement to a products liability claim allows
subsequent purchasers or even non-purchasers who use the product to recover
against the retailer, distributor and manufacturer of defective products. As
noted in Nastri, product liability and strict tort liability theories of recovery are generally
inapplicable in construction defect cases. In its opinion, the court ruled that
a claim for damages caused to a residence by latent structural defects was not
actionable on a products liability theory, finding that there was no evidence
that suggested that the construction defects made the property unreasonably
§ 3.9.8 Master Planner Beware: Contractor’s
Potential Liability Under a Theory of Products Liability in Planned Community
In Menendez v. Paddock Pool Construction,
the Arizona Court of Appeals considered the issue of whether the company that
had constructed a shallow swimming pool could be held liable under a theory of
strict products liability. The court held that the contractor was not liable,
but suggested that a builder/vendor of mass-produced tract homes could possibly
be found strictly liable for injuries resulting from defective construction. The
court concluded that the custom pool at issue in that case was not a “product”
for purposes of strict liability in tort as it was not a standardized model
constructed, assembled, or manufactured by a mass-production process analogous
to that used in tract housing.
Although the Menendez court did not find the contractor liable, it
applied the reasoning of a New Jersey case where the New Jersey Supreme Court
held that a builder/vendor of mass-produced tract homes was strictly liable for
injuries resulting from a defect in a water distribution design that allowed
excessively hot water into a bathroom faucet.
In Schipper, the court found that there were no meaningful distinctions
between the contractor’s mass-production and sale of homes and the
mass-production and sale of automobiles and that the pertinent overriding policy
considerations were the same. The Menendez court, quoting Schipper
[i]f there is improper
construction such as a defective heating system or a defective ceiling, stairway
and the like, the well-being of the vendee and others is seriously endangered
and serious injury is foreseeable. The public interest dictates that if such
injury does result from the defective construction, its cost should be borne by
the responsible developer who created the danger and who is in the better
economic position to bear the loss rather than by the injured party who
justifiably relied on the developer’s skill and implied representation.
Menendez leaves open the possibility that a contractor of mass-produced
construction, such as tract homes, could be liable in Arizona under a theory of
Warranties Under the Uniform Commercial Code
The Uniform Commercial Code (“UCC”) was developed as a recommended code of laws
governing commercial conduct. All the states have adopted the UCC except
Louisiana. Article Two of the UCC’s nine articles governs the sale of goods.
Article Two applies to construction contracts, where the predominant feature of
the contract is the sale of equipment as opposed to the performance of labor.
Express Warranties Under the UCC
Similar to the common law, the Uniform Commercial Code recognizes both express
and implied warranties. Section 47-2313 of the Arizona Revised Statutes states,
“[a]ny affirmation of fact or promise made by the seller to the buyer, which
relates to the goods and becomes part of the basis of the bargain, creates an
express warranty that the goods shall conform to the affirmation or promise.”
Further, any description of the goods which is made part of the basis of the
bargain creates an express warranty that the goods shall conform to the
Warranties may arise by simple actions such as the contractor describing the
goods. Reliance on a sample or model may also create an express warranty.
Anything that is used as “the basis of the bargain” creates “an express warranty
that the goods shall conform to that description or to the sample or model.” In
order to create an express warranty, the seller of the goods need not use formal
words such as “warrant” or “guarantee” nor have a specific intention to make a
warranty. However, an affirmation merely of the value of the goods or a
statement purporting to be merely the seller’s opinion or commendation of the
goods does not create a warranty.
Express warranties should be in writing, and should incorporate everything the
seller intends to warrant and everything the buyer expects to receive. Further,
warranties should flow through [i.e., when the subcontractor makes specific
warranties to the general contractor regarding goods, the seller of the good’s
(subcontractor’s supplier) should expressly warrant performance of the buyer’s
(subcontractor’s) warranty given to the general contractor.]. It is important to
incorporate by reference the warranty given by the subcontractor to the general
contractor into the contract of sale including modifications to ensure that the
responsibility flows through the supplier. In particular, the warranty period of
the supplier should be made clearly coextensive with the period committed to by
Implied Warranties Under the UCC
The UCC also recognizes implied warranties of merchantability and fitness for a
particular purpose. Goods are merchantable if they “pass without objection in
the trade under the contract description and, if fungible goods, are of fair,
average quality within the description and are fit for the ordinary purpose for
which such goods are used.”
An implied warranty of fitness for a particular purpose arises when the seller
at the time of contracting has reason to know the particular purpose for which
the goods are required and that the buyer is relying on the seller’s skills or
judgment to select or furnish suitable goods.
This warranty arises in construction situations when the seller has a special
expertise regarding the goods and the buyer relies on the seller to supply what
is required. An example is if a subcontractor supplies specifications to the
seller and the sales contract required the seller to supply goods to meet those
Implied warranties under the UCC are defined by statute. A.R.S. § 47-2314
states, “[u]nless excluded or modified . . . a warranty that the goods shall be
merchantable is implied in a contract for their sale as if the seller is a
merchant with respect to goods of that kind.”
The statute further states:
[w]here the seller at the time of contracting has
reason to know any particular purpose for which the goods are required and that
the buyer is relying on the seller’s skill or judgment to select or furnish
suitable goods, there is . . . an implied warranty that the goods shall be fit
for such purpose.
Unlike the common law of implied warranties of workmanship and habitability, the
parties to a contract can limit or exclude the UCC warranties of merchantability
and fitness for a particular purpose. A.R.S. § 47-2316(B), in pertinent part,
[t]o exclude or modify the implied warranty of
merchantability or any part of it, the language must mention merchantability and
in case of a writing must be conspicuous, and to exclude or modify any implied
warranty of fitness, the exclusion must be by a writing and conspicuous.
Language to exclude all implied warranties of fitness is sufficient if it
states, for example, that ‘there are no warranties which extend beyond the
description on the face hereof.’
§ 18.104.22.168 Limitations of
The time during which a party can bring suit for breach of warranty under the
Uniform Commercial Code has been limited by statue. A.R.S. § 47-2725 states that
“[a]n action for breach of any contract for sale must be commenced within
four years after the cause of action has accrued. By the original agreement,
the parties may reduce the period of limitation to not less than one year but
may not extend it.”
(Emphasis added). The section further provides:
[a] cause of action accrues when the breach occurs,
regardless of the grieved parties’ lack of knowledge of the breach. A breach of
warranty occurs when tender of delivery is made, except that where a warranty
explicitly extends to future performance of the goods and discovery of the
breach must await the time of such performance, the cause of action accrues when
the breach is or should have been discovered.
One additional difference between common law implied warranties and those
defined by the UCC is that a buyer of goods must give reasonable notice to the
seller after a breach of the warranty is discovered or should have been
Remedies for breach of warranty under the UCC are either specified in the
warranty, or if not specified or limited, the measure of damages is the
difference between the value of the goods accepted and the value they would have
had if they had been as warranted.
§ 3.9.10 Owner
Although this chapter deals primarily with contractor liability, an owner, too,
may be liable to a builder for breach of warranty. A contractor is not liable
for damages which are the direct result of plans and specifications furnished by
the owner, an owner impliedly warrants the accuracy of the plans and
specifications he provides to the contractor.
Further, a contractor who relies on defective plans provided by an architect has
a direct cause of action against that architect for breach of an implied
warranty “that they have exercised their skills with
care and diligence and in a reasonable, non-negligent manner.”
The following issued checklist can be used by either the contractor or the owner
in the event a problem arises:
1. Look to the express
warranty for assurances made to the owner.
2. What is the clear and
natural import of the language?
3. What was excluded from
the express warranty?
4. What defenses are
available to the contractor (examples, impossibility, impracticability, failure
of consideration, design defect, etc.)?
1. Has a compliant been
filed with the Registrar of Contractors?
2. Are there arguments
that support the finding of the work meeting the workmanlike standard
3. Look at the Registrar
of Contractors’ Minimum Workmanship Standards for Contractors to find
acceptable levels of workmanship and specific instances of work and tolerances.
4. Has the 2-year statute
of limitations expired?
5. Has the contractor
complied with Registrar of Contractor orders such as restitution for defective
work, in order to avoid suspension or revocation of license?
1. A disclaimer or
express warranty cannot be used to relieve a contractor from implied warranty
2. Subsequent purchasers
are protected in residential construction.
3. Is the contractor a
master planner? If so, there is a potential for liability under a products
4. Has the statute of
limitations expired? (6 years from occupancy or 6 years from discovery of the
defect. Take into account discovery rule, but this rule only applies for a
5. Has the Statute of
Repose cut-off implied warranty claim?
6. Does the Statute of
Repose apply? (Statute of repose does not apply to negligence claims).
Warranties Under Uniform Commercial Code:
1. Has an express
warranty under the UCC been created? (Formal words such as ‘warrant’ or
‘guarantee’ need not be used, but any description of goods which is made part of
the basis of the bargain creates an express warranty.)
2. Has an implied
warranty of fitness for a particular purpose been created? (i.e., did seller
know the particular purpose for which the goods were required?)
3. Did the contract
exclude UCC warranties of merchantability and fitness for a particular purpose?
4. Has the statute of
limitations expired? (4 years after goods delivered unless limited by
1. Did the owner supply
contractor with defective plans and specifications?
2. Did the contractor
have notice of the defects? If so, contractor must have notified owner.
Regarding express warranties, the contractor will be bound by the clear import
of the language used in the construction agreement. If a contractor warrants
that all of the materials and equipment furnished will be new, or meet other
requirements, under the express warranty law, courts will require the contractor
to meet its stated quality standards.
In addition to any express warranties included in the construction agreement,
the Registrar of Contractors requires that a contractor must perform its work in
an ordinarily skilled manner as a skilled workman. A complaint for failure to
satisfy the Registrar of Contractors’ requirements, however, must be filed in
most cases within two years of completion of the project.
In addition, contractors impliedly warrant that all construction will be done in
a workmanlike manner and that the structure will be habitable. This implied
warranty runs to subsequent purchasers of a residence, but under the Statute of
Repose, no action for breach of the implied warranty of habitability may be
brought more than eight/nine years after substantial completion of the work.
Arizona case law suggests that in some cases mass producers of tract homes may
be held liable for injuries to third persons under product liability theory.
Therefore, contractors who build and sell mass produced tract homes should be
aware of the emerging trend of strict liability, and should take appropriate
steps to guarantee high quality workmanship.
Further, if a contractor sells goods to another party, the contractor may
be liable for breach of the implied warranty of merchantability and fitness for
a particular purpose under the Uniform Commercial Code. An action for breach of
either an express or implied warranty under the Uniform Commercial Code must be
brought within four years of the date when tender of delivery of the goods is
A property owner usually has several potential warranty claims available
when faced with construction problems. Contractors need to recognize their
potential liability based on well drafted express warranties, implied
warranties, Registrar of Contractor’s rules and regulations, and the Uniform
Commercial Code. Both the common law and statutory law must be analyzed together
in order to determine the best approach to take in the event of a warranty