Cosmopolitan Homes, Inc. v. Weller

663 P.2d 1041, 1983 Colo. LEXIS 559

• Court: Supreme Court of Colorado
• Decided: May 23, 1983
• Docket: No. 80SC260
• Status: Published

Opinions

DUBOFSKY, Justice.

We granted certiorari to review the Court of Appeals’ holding in Weller v. Cosmopolitan Homes, Inc., 44 Colo.App. 470, 622 P.2d 577 (Colo.App.1980) which allowed subsequent purchasers of a home to assert a claim for property damage to the structure allegedly caused by the negligence of the homebuilder. We affirm the judgment of the Court of Appeals but limit the negligence claim to latent defects which the purchaser was unable to discover prior to purchase.

The plaintiffs, Shirley Mae Weller and William E. Weller, are the fourth owners of a house designed, built and sold in 1973 by the defendants Cosmopolitan Homes, Inc., Hutchinson Construction Company, and Builders’ Research Engineering Company (the builders). Although the Wellers seek to recover for deficiencies in workmanship, design and materials in the house attributable to negligent design and construction by the defendants, the facts alleged in the complaint relate to cracking in the foundation from movement or settling of the house which had not occurred at the time the Wellers made their purchase on January 4, 1977. '

The district court dismissed the Wellers’ complaint on the ground that there was no privity of contract between the defendants and the Wellers because the Wellers were not the first purchasers or users of the house, and therefore the defendants did not owe the Wellers a duty of reasonable care. The Court of Appeals reversed the district court ruling, holding that regardless of lack of privity of contract, the purchaser of a used home may recover for property damage caused by the negligence of the builder.

On certiorari review, the defendants argue that a claim for negligence against a builder is indistinguishable as a matter of proof from a claim of breach of implied warranty of habitability.¹ The defendants therefore assert that the builder should not be held liable in a negligence action brought by a subsequent purchaser because case law in Colorado has limited an implied warranty’s protection to first purchasers. We disagree with the defendants’ assertion. An obligation to act without negligence in the construction of a home is independent of contractual obligations such as an implied warranty of habitability. Our cases allow a subsequent home owner to maintain an action against a builder for negligence resulting in latent defects which the subsequent purchaser was unable to discover prior to purchase if the action is filed within the statute of limitations set out in section 13-80-127, C.R.S.1973 (1982 Supp.).

I.

This Court defined an implied warranty of fitness and habitability for purchasers of new homes in Carpenter v. Donohoe, 154 Colo. 78, 388 P.2d 399, 401-402 (1964):

An action for damages for breach of warranty, whether express or implied, involves the relations between the parties arising out of contract.... There is an implied warranty that builder-vendors have complied with the building code of the area in which the structure is located. Where, as here, a home is a subject of sale, there are implied warranties that the home was built in a workmanlike manner and is suitable for habitation.

We have limited the class of purchasers entitled to the contractual protection of the implied warranty to first purchasers. See, e.g., H.B. Bolas Enterprises, Inc. v. Zarlengo, 156 Colo. 530, 400 P.2d 447 (1965); Gallegos v. Graff, 32 Colo.App. 213, 508 P.2d 798 (1973).²

However, the “contractual obligation is not the touchstone of civil liability in tort. It is only the matrix from which an independent tort obligation may arise.” Metropolitan Gas Repair Service, Inc. v. Kulik, 621 P.2d 313 (Colo.1980). A contractual obligation gives rise to a common law duty to perform the work subject to the contract with reasonable care and skill. Id.; Lembke Plumbing and Heating v. Hayutin, 148 Colo. 334, 366 P.2d 673 (1961). The fact that a contract may have existed between a builder and the original purchaser of the home does not transform the builder’s contractual obligation into the measure of its tort liability arising out of- its contractual performance. Metropolitan Gas Repair Service, Inc. v. Kulik, supra; Lembke Plumbing and Heating v. Hayutin, supra; Wright v. Creative Corp., 30 Colo.App. 575, 498 P.2d 1179 (1972). Metropolitan Gas involved the duty of a heating contractor to exercise reasonable care and skill in the installation of a new part in a heating system, including a safety inspection of the boiler, and Lembke Plumbing concerned' the failure of a plumbing contractor to exercise reasonable care and skill in the installation of a plumbing system in a new house, resulting in structural damage.³ The principle enunciated' in both cases— that a negligence claim, not limited by privity of contract, may lie against a contractor — requires a builder to use reasonable care in the construction of a home in light of the apparent risk. Metropolitan Gas Repair Service, Inc. v. Kulik, supra; W. Prosser, The Law of Torts § 53 (4th ed. 1971).⁴

The apparent risk encompasses one who foreseeably suffers personal injury as a consequence of builder or contractor negligence. In DeCaire v. Public Service Company, 173 Colo. 402, 479 P.2d 964 (1971), subsequent purchasers of a house had a negligence claim against the gas company for failure to exercise due care in servicing the furnace system, resulting in personal injury and death from carbon monoxide poisoning. In Wright v. Creative Corp., supra, a subsequent purchaser could recover for injuries suffered by his minor child who ran into a negligently installed sliding glass door. The question remaining for us to decide in this case is whether a subsequent purchaser can state a claim against a builder for latent defects in a residence caused by the builder’s negligence.⁵

II.

A number of cases from other jurisdictions allow a subsequent purchaser to state a claim against a builder for negligence in the construction of a home: Coburn v. Lennox Homes, Inc., 173 Conn. 567, 378 A.2d 599 (1977) (subsequent purchasers may state a claim in negligence for latent defects, although the implied warranty does not extend to them); Terlinde v. Neely, 275 S.C. 395, 271 S.E.2d 768 (S.C.1980) (subsequent purchasers may bring claims for latent defects under either implied warranty or negligence theories); Brown v. Fowler, 279 N.W.2d 907 (S.D.1979) (subsequent purchasers may state a claim for negligence against a builder, although implied warranties do not extend beyond the first purchaser); Moxley v. Larimee Builders, Inc., 600 P.2d 733 (Wyo.1979) (subsequent purchasers may sue for breach of implied warranty as well as state a claim in negligence). See Simmons v. Owens, 363 So.2d 142 (Fla.Dist.Ct.App.1978); McDonough v. Whalen, 365 Mass. 506, 313 N.E.2d 435 (1974); Steinberg v. Coda Roberson Construction Company, 79 N.M. 123, 440 P.2d 798 (1968); Comment, Builders’ Liability for Latent Defects in Used Homes, 32 Stanford L.Rev. 607 (1980); Liability for Soil Problems in Residential Construction, 7 Colorado Lawyer No. 8 at 1311-1320 (August 1978). See also Elden v. Simmons, 631 P.2d 739 (Okl.1981) and Barnes v. Mac Brown and Company, Inc., 264 Ind. 227, 342 N.E.2d 619 (Ind.1976) (extending implied warranty of habitability to subsequent purchasers).

At least two states have refused to extend the negligence cause of action to subsequent purchasers. Redarowicz v. Ohlendorf, 92 Ill.2d 171, 65 Ill.Dec. 411, 441 N.E.2d 324 (1982) (refusing to extend negligence claim to subsequent purchasers on the basis that a plaintiff cannot recover solely economic losses in tort, but extending implied warranty of habitability to subsequent purchasers); Crowder v. Vandendeale, 564 S.W.2d 879, 881 (Mo.1978) (“liability imposed for mere deterioration on or loss of bargain resulting from latent structural defects is contractual”). The results in both Illinois and Missouri turn on case law in each jurisdiction which prevents recovery in tort for economic loss. Colorado precedent is not so limited. Tamblyn v. Mickey & Fox, Inc., 195 Colo. 354, 578 P.2d 641 (1978); Lembke Plumbing and Heating, supra; see also Sabella v. Wisler, 59 Cal.2d 21, 27 Cal.Rptr. 689, 377 P.2d 889 (1963).

The policy supporting the extension of the negligence remedy to a subsequent purchaser is based on many of the reasons for implying a warranty of habitability to the first purchaser. In Duncan v. Schuster-Graham Homes, Inc., 194 Colo. 441, 578 P.2d 637 (1978), we described the purpose of the implied warranty of habitability as affording

home buyers protection from overreaching by comparatively more knowledgeable builder-vendors. An experienced builder who has erected and sold many houses is in a far better position to determine the structural condition of a house than most buyers. Even if a buyer is sufficiently knowledgeable to evaluate a home’s condition, he rarely has access to make any inspection of the underlying structural work, as distinguished from the merely cosmetic features.

578 P.2d at 638-639. As the court noted in Simmons v. Owens, supra, 363 So.2d at 143:

The ordinary purchaser of a home is not qualified to determine when or where a defect exists. Yet, the purchaser makes the biggest and most important investment in his or her life and, more times than not, on a limited budget. The purchaser can ill afford to suddenly find a latent defect in his or her home that completely destroys the family’s budget and have no remedy for recourse....

Moreover, given the mobility of most potential home owners, it is foreseeable that a house will be sold to subsequent purchasers, and any structural defects are as certain to harm the subsequent purchaser as the first. Brown v. Fowler, supra. We see no reason for disallowing a subsequent purchaser to state a claim in negligence.

Although some states have allowed both a claim for negligence against a builder and a claim for implied warranty to be brought by subsequent purchasers, and despite the claim of the builder here that the two claims are indistinguishable as a matter of proof, we conclude that there are a number of differences between the two claims and therefore they should be treated differently. Some overlap in elements of proof of such actions may occur, but the scope of duty differs and the basis for liability is distinguishable. The implied warranty of habitability and fitness arises from the contractual relation between the builder and the purchaser. Proof of a defect due to improper construction, design, or preparation is sufficient to establish liability in the builder-vendor.⁶ Negligence, however, requires that a builder or contractor be held to a standard of reasonable care in the conduct of its duties to the foreseeable users of the property. Lembke Plumbing and Heating, supra; Wright v. Creative Corp., supra. Negligence in tort must establish defects in workmanship, supervision, or design as a responsibility of the individual defendant. Proof of defect alone is not enough to establish the claim. Foreseeability limits the scope of the duty, and the-passage of time following construction makes causation difficult to prove. Comment, Builders’ Liability for Latent Defects in Used Homes, supra, at 611. Moreover, in the context of the purchase of a used home, the owner must demonstrate that the defect is latent or hidden, and must show that the defect was caused by the builder. Id. at 623; see also Duncan v. Schuster-Graham Homes, Inc., supra.

The reason for allowing recovery only for latent or hidden defects, which have been defined as “those manifesting themselves after purchase and which are not discoverable through reasonable inspection,” Comment, Builders’ Liability for Latent Defects in Used Homes, supra at 623, is to prevent an action where mere deterioration or loss of a bargain is claimed. See Crowder v. Vandendeale, supra. Often a buyer is willing to accept certain deficiencies in a house in exchange for a lower purchase price. However, a buyer cannot be expected to discover structural defects which remain latent at the time of purchase.

An additional limitation on the ability of a subsequent purchaser to bring a negligence action against a builder for latent defects in a residence is the statute of limitations adopted by the General Assembly in 1979.⁷ Section 13-80-127, C.R.S.1973 (1982 Supp.) provides in part:

(l)(a) All actions against any architect, contractor, builder or builder vendor, engineer, or inspector performing or furnishing the design, planning, supervision, inspection, construction, or observation of construction of any improvement to real property shall be brought within two years after the claim for relief arises, and not thereafter, but in no case shall such an action be brought more than ten years after the substantial completion of the improvement to the real property, except as provided in subsection (2) of this section.

(b) A claim for relief arises under this section at the time the damaged party discovers or in the exercise of reasonable diligence should have discovered the defect in the improvement which ultimately causes the injury, when such defect is of a substantial or significant nature.

(c) Such action shall include any and all actions in tort, contract, indemnity, or contribution or other actions for the recovery of damages for:

(I) Any deficiency in the design, planning, supervision, construction, or observation of construction of any improvement to real property; or

(II) Injury to real or personal property caused by any such deficiencies; or

(III) Injury to or wrongful death of a person caused by any such deficiency.

We note that the statute applies to structural damage to a residence and allows actions against a builder, whether in tort or contract, by a subsequent purchaser.

We affirm the judgment of the Court of Appeals and remand the case to the district court with instructions to reinstate the plaintiffs’ complaint.

ROVIRA, J., dissents. KIRSHBAUM, J., does not participate.

1 . The plaintiffs’ claim was grounded in negligence; they did not seek relief on a builder’s implied warranty of habitability.

2 . But see Sloat v. Matheny, 625 P.2d 1031 (Colo.1981) (one who builds for himself but changes his mind and sells to another gives warranties to first occupier of the home); Duncan v. Schuster-Graham Homes, Inc., 194 Colo. 441, 578 P.2d 637 (1978) (where a builder repurchases used home and then resells, implied warranty extends to a subsequent purchaser); Utz v. Moss, 31 Colo.App. 475, 503 P.2d 365 (1972) (where house was intended for resale to consumer although originally purchased by realty company, warranty extends to consumer).

3 . The plaintiffs in Lembke, the first purchasers of the house, had a written contract with the defendants. However, none of the language in Lembke limits the common law obligation to exercise due care to the first purchasers of the house or to persons in privity of contract with the defendant. In fact, the court in Lembke describes the defendant’s duty as “the common-law obligation to exercise due care, caution and skill resting on all persons and in all undertakings when the rights of others are involved.” Lembke Plumbing and Heating v. Hayutin, 366 P.2d at 675. In so stating, Lembke impliedly overruled Hartwich v. Crotty, et al., 131 Colo. 69, 279 P.2d 413 (1955), which held that lack of privity of contract prevented subsequent purchasers from asserting a cause of action for negligence against a contractor. We now explicitly overrule Hartwich. In Metropolitan Gas Repair Service, Inc., the decedent had contracted with the repair company to repair the heating system. In the action brought by the decedent’s representatives, the issue was whether the duty of the defendant was limited to the contractual repairs, or whether it included an inspection of the safety system for the boiler. We held that the defendant’s duty of care was not limited by the contract.

4 . This Court assumed in H.B. Bolas Enterprises, Inc. v. Zarlengo, supra, that a negligence claim could be stated against a builder. In Bolas, the plaintiffs were subsequent purchasers but there was no evidence that the named defendant was the builder. In Tamblyn v. Mickey & FoX, Inc., 195 Colo. 354, 578 P.2d 641 (1978), the first purchasers of a home brought an action for damages “alleging that the respondents had negligently performed certain engineering work” which resulted in a cracking foundation. We said, “It is irrelevant that the Tamblyns’ claims against these respondents are based on negligence, rather than breach of contract or warranty.” 578 P.2d at 644.

5 . We agree with the conclusion of the Indiana Supreme Court that there is no rational reason to distinguish between negligence resulting in personal injury and negligence resulting in property damage. Barnes v. Mac Brown and Co., 264 Ind. 227, 342 N.E.2d 619 (Ind.1976). Attempts to distinguish a cause of action for property damages as one sounding exclusively in contract because the damages represent an “economic loss” are unpersuasive. Logically, both injury to one’s person and injury to one’s property result in economic loss. Id.

6 . An implied warranty of habitability has been likened to strict liability of the builder for construction defects. Redarowicz v. Ohlendorf, supra; Coburn v. Lennox Homes, Inc., supra.

7 . The Wellers’ action was filed on September 28, 1979. The act took effect on July 1, 1979 and required all claims to be commenced on or before July 1, 1981, if not barred by section 13-80-127 as it existed prior to July 1, 1979, or by any other applicable statute of limitations.