Tag: construction

As-Is Rider in Real Estate Contract Doesn’t Defeat Implied Warranty of Habitability in Home Sale – Fattah v. Bim Deconstruction – Part II of II)

The Fattah v. Bim (2015 IL App (1st) 140171) developer defendant seemed to have double protection.  Not only did the person it sold the home to (Buyer 1) waive the implied warranty of habitability, but Buyer 1’s buyer – the plaintiff – took the home “as-is” pursuant to a contract rider.

Despite the added layer of protection, the court still allowed the plaintiff’s case to proceed against the developer defendant. It’s reasons:

– the “as is” rider was part of the contract between plaintiff and Buyer 1: it has no bearing on plaintiff’s rights versus the defendant;

– even if the “as is” rider did impact plaintiff’s rights versus the  defendant,  the rider wouldn’t negate the implied warranty of habitability;

– that’s because the “as is” rider (in the plaintiff-Buyer 1 contract) didn’t mention the implied warranty of habitability or a waiver of it;

– where a purchaser agrees to accept a house “as is” and the “as-is” provision doesn’t refer to any implied warranties in general and also doesn’t disclose the consequences of waiving an implied warranty, the as-is provision can’t be viewed as a valid disclaimer that a home builder/developer can rely on.

(¶¶ 34-35)

The court also fond that when a purchaser accepts a home as-is, a builder/developer still has to carry its burden of proving the home buyer   knowingly waived the implied warranty of habitability “by showing a conspicuous provision [that] fully discloses the consequences of [the waiver.]”  Since the defendant failed to meet its burden, the as is rider didn’t defeat the earlier waiver of the implied warranty of habitability on the house.

The court further circumscribed the implied warranty waiver signed by Buyer 1.  It held that a waiver of an implied warranty of habitability protects only the person identified in the contract.  It doesn’t extend to unwitting parties (like the plaintiff) unless there is a clear intent for that waiver to apply to a third party.

The as-is rider precludes the plaintiff from pursuing Buyer 1 (who sold the home to plaintiff) for damages based on home defects but it does not impact plaintiff’s rights versus the developer.  The developer defendant was not party to the as-is agreement between plaintiff and Buyer 1  wasn’t a named beneficiary of it.

Now What?

While the plaintiff obtained a reversal of summary judgment in the builder’s favor, he still hasn’t won the case.  He must now carry his burden of proving the defendant breached the implied warranty of habitability.  He must prove: (1) latent defects in the house, (2) that interfere with the reasonably intended use of the house and (3) the latent defects manifested themselves within a reasonable time after the house was purchased.  

The court agreed that the patio collapse constituted a latent defect.  Plaintiff will now have to establish elements (2) and (3) – that the patio defects interfered with plaintiff’s use of the home and that he learned of the defects a reasonable time after he bought the house.

 

Sub-subcontractor Recovers From General Contractor Under Implied Contract/Unjust Enrichment Theory

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C. Szabo Contracting v. Lorig Construction, 2014 IL App (2d) 131328’s plaintiff  sub-subcontractor (it contracted with a subcontractor, tried to use unjust enrichment to recover against a twice-removed general contractor on a highway construction job.

The plaintiff installed underground pipes under a subcontract.  When the subcontractor didn’t pay, the Plaintiff sued the general contractor to recover over $200K worth of work under a breach of an implied contract theory.

The general contractor defended on the basis that there was no contractual relationship between it and plaintiff and that plaintiff’s sole remedy was against the subcontractor.

After a bench trial, the trial court entered judgment for the plaintiff for over $200,000 and the general contractor appealed.

Held: Affirmed

Reasons:  Siding with the plaintiff, the Court discussed the rules that govern whether and when a party can sue another for damages where there is no express contract between them:

–  Unjust enrichment is not a standalone cause of action but a remedy based on quasi-contract or contract implied-in-law

–  A contract implied-in-law is one in which there is no express contract but the court imposes a duty to prevent unjustness;

–  A plaintiff must show he furnished valuable services or materials and the defendant received them under circumstances making it unfair for the defendant to retain the benefits;

–  Normally an express contract will preclude quasi-contractual recovery.  So, if A has a contract with B, and B breaches, A can’t then sue C.  A can only look to B for recovery – even if C benefits from A’s services;

–  Simply because a third party benefits from a plaintiff’s work isn’t enough to make that third party responsible to the plaintiff;

–  In the construction context, where a contract is placed by an owner under a general contractor who has power to employ whom it wishes, the owner is justified in presuming that the work is being done for the contractor and not the owner;

–  The policy reasons that underlie the rule that only a party to a contract can sue and be sued for its breach is to avoid double-recovery for a plaintiff or forcing a non-party into a “forced exchange” (i.e. where a third party is paying for something it never received)

–   A plaintiff can sue a non-party to a contract in situations where the non-party entices or encourages a plaintiff to perform;

(¶¶ 25-41).

Finding for the plaintiff, the Second District ruled that principles of fairness weighed in favor of allowing recovery from the general contractor even though there was no contractual relationship between it and plaintiff.

The record showed that plaintiff and defendant had multiple oral and written conversations before, during and after completion of the job.  The plaintiff sent correspondence to the defendant concerning the scope of the project and invoices after the piping work was finished.  This evidence supported plaintiff’s theory that the defendant actively encouraged the plaintiff’s work.

The Court also noted that the general contractor received over $200K worth of plaintiff’s piping work for which it didn’t pay and was fully paid over $40M by the project owner.  (¶¶ 16, 42).

In addition, the Court found that there was no risk of double-recovery for the plaintiff since it was proceeding against the general contractor alone (not the subcontractor) and there was no risk of double liability for the defendant since it wasn’t being sued by the subcontractor who hired the plaintiff.  Combined, these factors created a climate that justified the defendant general contractor paying the plaintiff for its project pipe-installation work.

Afterwords:

The case presents a good example of a court refusing to rigidly follow strict rules of privity of contract and quasi-contract recovery in favor of a more relaxed, fact-specific standard.  The fact that the defendant was paid $40M and was refusing to pay $200K worth of piping work figured prominently in the Court’s decision.

Going forward, if an owner or contractor receives the benefit of what it contracted for, is fully paid and there’s evidence that the owner (or general contractor) communicated directly with the performing subcontractor (or sub-subcontractor) during the course of the subcontractor’s work, a strong argument can be made that a sub or sub-subcontractor can recover under an implied contract theory.