For many of us of a certain age, our first exposure to the Latin phrase caveat emptor came from an episode of the classic sitcom, The Brady Bunch. “Let the buyer beware” was the lesson Mr. Brady imparted to Greg for his spontaneous purchase of a beat-up convertible. That same lesson was one homebuyers learned for many years. In Illinois, a seller of real property was not liable to a purchaser for defects in the design or construction of the property which existed, even in a latent state, at the time of the sale.
However, the harshness of caveat emptor eventually led to the adoption of the implied warranty of habitability when purchasers discover latent defects in their homes. This implied warranty, however, is not without limitations.
In Sinema Court Condominium Assoc. v. Champion Aluminum Corp., the Illinois Supreme Court determined the implied warranty of habitability is a creature of contract, not tort, which meant a purchaser of a home could not sue a sub-contractor absent privity of contract.[i]
Recently, in 1400 Museum Park Condominium Assoc. v. Kenny Construction Co. a condominium association unsuccessfully argued its claim for breach of an implied warranty of habitability for plumbing defects was proper against a general contractor since the Sinema decision was limited to sub-contractors.[ii] The trial court and First District Appellate Court disagreed and, in so doing, clarified the rule. The Appellate Court began with a discussion about the implied warranty, recognizing its purpose is to protect homeowners from latent defects in their homes which affect the habitability of them. The Court further observed the loss which can be recovered under an implied warranty of habitability claim is for disappointed commercial expectations which constitute “economic loss” can only be sought in contract and not tort pursuant to the economic loss doctrine. Accordingly, contractual privity is necessarily required.
The Association, obviously mindful of the privity requirement, creatively argued since the developer-vender had dissolved and become insolvent, the individual unit owners stepped into the shoes of the developer, which did have a contract with the general contractor, to establish privity. The Association attempted to rationalize its position by further arguing since the individual unit owners contracted with the developer in sales contracts for the latter to construction their residences, this obligation to construction necessarily extended to the general contractor. The Court rejected the argument for a simple reason: the general contractor was not a party to the sales contracts on which the Association relied.
The Association also argued the dissolved developer assigned its obligations and liabilities under the sales contracts to the general contractor in another attempt to establish privity. The Court rejected this argument as well, finding there was no evidence to support an assignment.
For these reasons, the Association could not pursue a claim for breach of an implied warranty of habitability against the general contractor. Similarly, absent privity of contract, the Association could not sue the general contractor for breach of contractor.
1400 Museum Park importantly confirmed the rule of Sinema broadly applies equally to general contractors and sub-contractors alike. It is not the role an entity plays in a construction project which dictates whether an implied warranty of habitability claim can be asserted against it. Rather, the fundamental principle of privity of contract is the critical element which must exist whether the defendant is a general contractor, a sub-contractor, a design professional, or any other construction-related entity.