A few years back I blogged (#84) that owners generally lack “third party beneficiary” rights required in order to enforce subcontracts. While some commercial subcontracts do extend the subcontractor’s express warranties to the owner, such provisions are rarely found in residential construction, where there is often no express warranty in the subcontract at all. But what about the implied warranty of good workmanship (#4)? Does it apply to subcontractors’ work as well? Is it enforceable by the owner despite the lack of a contractual relationship between the two?
Until our Supreme Court weighs in, we can only make an educated guess here. Lempke v. Dagenais, 130 N.H. 782, 789 (1988), held that in the residential context “the privity requirement should be abandoned in suits by subsequent purchasers against a builder or contractor for breach of an implied warranty of good workmanship for latent defects.” Some of the Court’s expressed rationale for extending that warranty to remote purchasers – most notably, that implied warranties are not founded on contract but on public policy – would suggest that privity of contract is irrelevant to an owner’s implied warranty suit against a subcontractor. But other factors mentioned in Lempke are specific to subsequent purchasers suing builder-vendors.
Some courts that allow subsequent purchaser suits for breach of implied warranty against the builder-vendor refuse to allow them against subcontractors. See Moglia v. McNeil Co., Inc., 270 Neb. 241, 700 N.W.2d 608 (2005); Yanni v. Tucker Plumbing, Inc., 312 P.3d 1130 (Ariz.App. 2013). Lempke itself relied heavily on an Illinois decision, Redarowicz v. Ohlendorf, which allowed a subsequent purchaser to sue the original builder for breach of implied warranty of habitability, finding that “[p]rivity of contract is not required,” id. at 183. But Illinois has declined to abandon the privity requirement when it comes to suits against subcontractors. Sienna Court Condominium Ass’n v. Champion Aluminum Corp., 129 N.E.3d 1112, 1121 (Ill. 2018) (“The purchaser of a newly constructed home may not pursue a claim for breach of an implied warranty of habitability against a subcontractor where there is no contractual relationship.”).
Other courts have allowed direct homeowner suits against subcontractors only if there is no recourse against the general contractor. Raymond v. Rahme, 78 S.W.3d 552, 563 (Tex. App. 2002) (holding that because a property owner has recourse against the general contractor with whom he contracted, “there is no compelling public policy reason to impose an implied warranty against a subcontractor”); Minton v. The Richards Group of Chicago, 116 Ill. App.3d 852, 856, 452 N.E.2d 835 (1983) (“where the innocent purchaser has no recourse to the builder-vendor and has sustained loss due to the faulty and latent defect in their new home caused by the subcontractor, the warranty of habitability applies to such subcontractor.”).
Still other courts allow homeowners to bring negligence claims against subcontractors regardless of recourse against the builder-vendor. See A.C. Excavating v. Yacht Club II Homeowners Association, Inc., 114 P.3d 862, 865 (Colo. 2005) (“subcontractors owe homeowners a duty of care, independent of any contractual obligations, to act without negligence in the construction of homes.”). Even the economic loss rule, which ordinarily bars recovery in a negligence action of the costs or repair and replacement of defective work, “has no application to this case because the Association’s negligence claim is based on a recognized independent duty of care,” id. (New Hampshire likewise recognizes the “independent duty” exception to the economic loss rule, but thus far only for parties in privity of contract. Wyle v. Lees, 162 N.H. 406, 410 (2011).)
A clue as to which of the three approaches New Hampshire will favor may be found in Healy v. Telge, 139 N.H. 407 (1995), which dismissed a homeowner’s implied warranty claim against the seller who wasn’t also the builder, but allowed an implied warranty claim to proceed against the septic installer hired by that seller. Strictly speaking, that installer wasn’t a “subcontractor.” But Healy did permit a homeowner without recourse against the builder to sue the installer of just one component part of the house for breach of implied warranty, despite lack of privity.
Until our Supreme Court weighs in, we can only make an educated guess here. Lempke v. Dagenais, 130 N.H. 782, 789 (1988), held that in the residential context “the privity requirement should be abandoned in suits by subsequent purchasers against a builder or contractor for breach of an implied warranty of good workmanship for latent defects.” Some of the Court’s expressed rationale for extending that warranty to remote purchasers – most notably, that implied warranties are not founded on contract but on public policy – would suggest that privity of contract is irrelevant to an owner’s implied warranty suit against a subcontractor. But other factors mentioned in Lempke are specific to subsequent purchasers suing builder-vendors.
Some courts that allow subsequent purchaser suits for breach of implied warranty against the builder-vendor refuse to allow them against subcontractors. See Moglia v. McNeil Co., Inc., 270 Neb. 241, 700 N.W.2d 608 (2005); Yanni v. Tucker Plumbing, Inc., 312 P.3d 1130 (Ariz.App. 2013). Lempke itself relied heavily on an Illinois decision, Redarowicz v. Ohlendorf, which allowed a subsequent purchaser to sue the original builder for breach of implied warranty of habitability, finding that “[p]rivity of contract is not required,” id. at 183. But Illinois has declined to abandon the privity requirement when it comes to suits against subcontractors. Sienna Court Condominium Ass’n v. Champion Aluminum Corp., 129 N.E.3d 1112, 1121 (Ill. 2018) (“The purchaser of a newly constructed home may not pursue a claim for breach of an implied warranty of habitability against a subcontractor where there is no contractual relationship.”).
Other courts have allowed direct homeowner suits against subcontractors only if there is no recourse against the general contractor. Raymond v. Rahme, 78 S.W.3d 552, 563 (Tex. App. 2002) (holding that because a property owner has recourse against the general contractor with whom he contracted, “there is no compelling public policy reason to impose an implied warranty against a subcontractor”); Minton v. The Richards Group of Chicago, 116 Ill. App.3d 852, 856, 452 N.E.2d 835 (1983) (“where the innocent purchaser has no recourse to the builder-vendor and has sustained loss due to the faulty and latent defect in their new home caused by the subcontractor, the warranty of habitability applies to such subcontractor.”).
Still other courts allow homeowners to bring negligence claims against subcontractors regardless of recourse against the builder-vendor. See A.C. Excavating v. Yacht Club II Homeowners Association, Inc., 114 P.3d 862, 865 (Colo. 2005) (“subcontractors owe homeowners a duty of care, independent of any contractual obligations, to act without negligence in the construction of homes.”). Even the economic loss rule, which ordinarily bars recovery in a negligence action of the costs or repair and replacement of defective work, “has no application to this case because the Association’s negligence claim is based on a recognized independent duty of care,” id. (New Hampshire likewise recognizes the “independent duty” exception to the economic loss rule, but thus far only for parties in privity of contract. Wyle v. Lees, 162 N.H. 406, 410 (2011).)
A clue as to which of the three approaches New Hampshire will favor may be found in Healy v. Telge, 139 N.H. 407 (1995), which dismissed a homeowner’s implied warranty claim against the seller who wasn’t also the builder, but allowed an implied warranty claim to proceed against the septic installer hired by that seller. Strictly speaking, that installer wasn’t a “subcontractor.” But Healy did permit a homeowner without recourse against the builder to sue the installer of just one component part of the house for breach of implied warranty, despite lack of privity.
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