Fortune View Condominium Ass'n v. Fortune Star Development Co.

151 Wash. 2d 534

• Court: Washington Supreme Court
• Decided: May 27, 2004
• Docket: No. 73543-3
• Status: Published

Opinions

Fairhurst, J.

A general contractor brought breach of warranty (express and implied) and implied indemnity claims against the manufacturer of an allegedly defective siding system used in the construction of a condominium project. The Court of Appeals held that express warranties made through advertising can form the basis of an implied indemnity claim. We affirm.

I. STATEMENT OF THE CASE

Urban Development, Inc., a general contractor, was hired by Fortune Star Development Company to construct the Fortune View Condominiums. Soon after the condominiums were completed, they began to crack and leak, resulting in serious water damage. The condominium homeowners association sued Fortune Star, and Fortune Star sued Urban Development. Urban Development counterclaimed and brought fourth-party claims, including breach of warranty and implied indemnity, against several subcontractors. Many of Urban Development’s claims against the subcontractors were denied by the trial court, and some were reinstated by the Court of Appeals. Although Urban Development cross-petitioned for review of certain claims against the subcontractors, we denied Urban Development’s cross-petition for review.

In addition to the subcontractor claims, Urban Development filed claims against Dryvit Systems, Inc., the manufacturer of an allegedly defective siding system used in the condominium project, and Evergreen Building Products, L.L.C.,¹ the distributor that sold the Dryvit siding system to the siding subcontractor.² The Dryvit siding system is sold through exclusive Dryvit distributors and installed by subcontractors trained or approved by Dryvit. Evergreen was the exclusive distributor for Dryvit materials in Washington, Northern Idaho and Alaska, and sold the Dryvit siding system to the siding subcontractor hired by Urban Development.

Dryvit provided Evergreen with sales brochures that were used to convince Urban Development to incorporate the Dryvit siding system into the Fortune View condominium project. The Dryvit sales brochure contained a section specifying the physical properties of the system, including water penetration and water resistance test results. This section of the brochure also specified that the Dryvit materials come with a five-year limited warranty. Clerk’s Papers at 713 (“WARRANTY Dryvit offers a five-year limited warranty on Dryvit materials. Contact Dryvit Systems, Inc. for further details”). The brochure also represented that the Dryvit siding system was “designed and engineered specifically for the residential and light commercial market,” and listed the use of “warranted materials” as an advantage for builders. Id. at 711. In an affidavit, Urban Development’s president asserted that the company relied on the warranties in the brochure when submitting its bid for the Fortune View condominium project and understood that the Dryvit materials were supposed to be good for at least five years.

Urban Development obtained the Dryvit siding system for use in the Fortune View condominium project through Dryvit’s normal distribution chain. Thus, while Urban Development entered into a contract with the Dryvitapproved installer (the siding subcontractor), it did not have contracts with Evergreen or Dryvit. Nevertheless, Urban Development claimed it was entitled to both implied and express warranties and implied indemnity from Evergreen and Dryvit. The trial court granted summary judgment against Urban Development and in favor of Evergreen and Dryvit.

The Court of Appeals agreed that Urban Development was not entitled to the benefits of implied warranties for the sale of goods found in the Uniform Commercial Code (UCC) because there was no privity of contract between Urban Development and Evergreen or Dryvit. Urban Dev., Inc. v. Evergreen Bldg. Prods., L.L.C., 114 Wn. App. 639, 647, 59 P.3d 112 (2002). The Court of Appeals also agreed that vertical privity was not sufficient to provide Urban Development the benefit of any warranties made by Evergreen or Dryvit to the siding subcontractor because Urban Development was not an intended third-party beneficiary of those warranties. Id. at 649. Urban Development cross-petitioned for review of these implied warranty claims against Evergreen and Dryvit, but we did not accept review.

Although the Court of Appeals agreed that Urban Development did not benefit from implied warranties under the UCC and was not a third-party beneficiary of any warranties made to the siding subcontractor, the Court of Appeals determined that factual issues remain regarding whether Urban Development is entitled to the benefit of express warranties made in Dryvit’s advertising. Id. Accordingly, the Court of Appeals reversed the entry of summary judgment in favor of Dryvit and reinstated Urban Development’s claims for breach of express warranties and implied indemnity (based on breach of express warranties). Id. at 649-50. The Court of Appeals affirmed the dismissal of claims against Evergreen. Id. at 650.

Dryvit did not petition for review of the Court of Appeals decision to reinstate Urban Development’s express warranty claim but did seek review of the court’s holding that the express warranties in advertising can support an implied indemnity claim. We granted Dryvit’s petition for review. Urban Dev., Inc. v. Evergreen Bldg. Prods., LLC, 149 Wn.2d 1027, 78 P.3d 657 (2003).

II. ISSUE

Can express warranties made in advertising support an implied indemnity claim?

III. ANALYSIS

A. Express Warranties in Advertising

As noted above, the issue of whether Dryvit’s advertising creates express warranties is not before us because Dryvit has petitioned for review of only the Court of Appeals’ decision to revive Urban Development’s claim for implied indemnity.³ Accordingly, for purposes of reviewing the summary judgment order dismissing Urban Development’s implied indemnity claim, we assume that Urban Development benefits from express warranties in Dryvit’s advertising. Tex Enters., Inc. v. Brockway Standard, Inc., 149 Wn.2d 204, 208, 66 P.3d 625 (2003) (“The facts and reasonable inferences from the facts must be considered in the light most favorable to . . . the nonmoving party.”).

B. Implied Indemnity Claims

We established the availability of implied indemnity claims in Central Washington Refrigeration, Inc. v. Barbee, 133 Wn.2d 509, 946 P.2d 760 (1997). As Barbee explains, “[w]hile indemnity sounds in contract and tort it is a separate equitable cause of action.” 133 Wn.2d at 513 (footnote omitted). A cause of action for implied indemnity “arises when one party incurs a liability the other party should discharge by virtue of the nature of the relationship between the two parties.” Id. The implied indemnity action in Barbee was based on the existence of implied warranties. Id. at 516 (“a contractual relationship under the U.C.C., with its implied warranties, provides sufficient basis for an implied indemnity claim”).

While the implied indemnity claim in Barbee was supported by implied warranties, the issue in this case is whether an implied indemnity claim can go forward on the basis of express warranties. The Court of Appeals held that an implied indemnity claim can be supported by an express warranty. Urban Dev., 114 Wn. App. at 649-50 (“Because a relationship involving express warranties provides a sufficient basis for an implied indemnity claim, the trial court also erred in dismissing the indemnity claim against Dryvit.”). We agree.

Dryvit argues that the Court of Appeals holding conflicts with our decision in Barbee because the express warranty in this case arose through representations made in advertising and did not involve a contractual relationship. As noted above, Barbee states that “a contractual relationship under the U.C.C., with its implied warranties, provides sufficient basis for an implied indemnity claim . . . .” Barbee, 133 Wn.2d at 516. From this statement, Dryvit concludes implied indemnity claims must be based on an underlying contract. According to Dryvit, Barbee creates a distinction between express warranties that arise through contract and express warranties that arise through direct representations in advertising.

Dryvit’s position that an implied indemnity may be supported only by an express warranty contained in a contract is a misreading of Barbee. Barbee specifically identifies implied indemnity as a separate equitable remedy, not an implied contractual remedy. Barbee, 133 Wn.2d at 517 n.12 (“indemnity is an equitable action and ‘is not based on contract or tort, although either may secondarily be involved, but on one party paying more than its fair share’ ” (quoting City of Willmar v. Short-Elliott-Hendrickson, Inc., 512 N.W.2d 872, 874 (Minn. 1994))). A contract was not required in Barbee to support the implied indemnity claim. Instead, a contract was required to support the implied warranties upon which the implied indemnity claim rested because implied warranties are not permitted in the absence of a contract. See Tex Enters., 149 Wn.2d at 211 (“the plain language of both RCW 62A.2-314 and -315 [UCC] requires that implied warranties arise only out of contractual relationships.... This language can be contrasted with RCW 62A.2-313 (express warranties), the language of which does not refer to an underlying ‘contract’ ”). A contract was necessary in Barbee, therefore, to support the warranty basis for the implied indemnity claim.

Barbee does not support Dryvit’s position that there must always be a contractual privity for an implied indemnity claim to arise. As discussed above, contractual privity is not required to create express warranties. Dryvit offers no reason why Barbee should be read to permit implied indemnity on the basis of an implied warranty but forbid implied indemnity on the basis of an express warranty.⁴ Moreover, the language of Barbee does not contain such a distinction. 133 Wn.2d at 517 (implied indemnity claim permitted “when the buyer incurs liability to a third party as a result of a defect in the goods which would constitute a breach of the seller’s implied or express warranties” (emphasis added)).

Instead, Dryvit argues that permitting implied indemnity in this case will expose it to claims from anyone who comes into contact with a Dryvit brochure. The extent of Dryvit’s exposure, however, is tied to the extent of any express warranties it chose to make in its advertising. Dryvit may limit its exposure to express warranties by not making them. If, however, Dryvit finds express warranties to be a useful tool to induce builders to use its products and wishes to continue to make such representations regarding the quality and durability of its products, it cannot hide behind the doctrine of privity when its product fails to perform as represented.

IV. CONCLUSION

Express warranties, including those made through advertising, provide a sufficient basis for an implied indemnity claim. Accordingly, we affirm the Court of Appeals’ decision reinstating Urban Development’s claim for implied indemnity based on breach of express warranties.

Alexander, C.J., and Ireland, Bridge, Chambers, and Owens, JJ., concur.

1 Evergreen is the successor-in-interest to a company called Seattle Wall Systems, Inc.

2 The siding subcontractor and Urban Development settled out of court.

3 Dryvit concedes in its petition for review that strict privity is not required for advertising to give rise to express warranties. In Baughn v. Honda Motor Co., we held that while contractual privity is required for implied warranty claims, contractual privity is not required for a plaintiff to benefit from express warranties in advertising. See Baughn v. Honda Motor Co., 107 Wn.2d 127, 151-52, 727 P.2d 655 (1986); see also Touchet Valley Grain Growers, Inc. v. Opp & Seibold Gen. Constr., Inc., 119 Wn.2d 334, 347, 831 P.2d 724 (1992) (“[W]e believe Baughn expands privity to include the express representations at issue here.”); Tex Enters., Inc. v. Brockway Standard, Inc., 149 Wn.2d 204, 213, 66 P.3d 625 (2003) (explaining that express warranties are not as closely guarded as implied warranties because their adoption requires some voluntary action).

4 Dryvit does argue that Touchet Valley, Tex Enterprises, and Kadiak Fisheries Co. v. Murphy Diesel Co., 70 Wn.2d 153, 422 P.2d 496 (1967), require a contractual basis for implied indemnity claims. However, the portions of these cases cited by Dryvit pertain only to the need for a contractual basis for establishing implied warranties, and fail to address the reasoning of these three cases in the context of express warranties. As noted above, “[implied] warranties must be more closely guarded than express warranties, whose adoption requires some voluntary action.” Tex Enters., 149 Wn.2d at 212. Dryvit’s argument conflates the meaning of implied warranty with implied indemnity and does not address whether express warranties may support a claim of implied indemnity.