Implied warranties and tort liability
We came across a fantastic article that outlines the various theories of recovery against residential builders in South Carolina under implied warranty and tort liability. South Carolina has strong pro homeowner case law and builders need to be aware of the theories of recovery in order to avoid liability. We often see these theories of recovery listed on lawsuits filed against our builder clients that purchase contractor General Liability policies.
The article also distinguishes between the liability of professional builders and homeowners who build homes for their own private use. In some cases, homeowner builders can escape liability under the implied warranties.
Below are highlights of the article:
Implied Warranty of Workmanship/Workmanlike Service
- Warrants that the home will be built with the quality one would reasonable expect for a careful, diligent workman.
- Arises from he contract for construction for a new home.
- Applicable only to a builder who “is in the business of constructing homes”.
Implied Warranty of Habitability/Fitness for a Particular Purpose/Merchantability
- Warrants the home will be fit for habitation
- Arises from the initial sale of a new home, not a used home
- Applicable to the home’s first seller only (not necessarily the builder) and not to any subsequent sellers.
Tort – Negligent Construction
- Builder is liability for negligence in construction of a house
- Violation of building codes and industry standards
- Homeowner may recover for mere economic loss
- Existence of duty depends on foreseeability of future purchasers
Lack of Privity of Contract Not a Defense for Builder
The concept of privity of contract is important in determining if a duty is owed by a builder under implied warranties. Both parties (builder and initial purchaser) are in privity of contract. However, subsequent purchasers are not in privity of contract with the builder. Builders have attempted to use lack of privity as a defense but the courts in SC have struck down that argument. Instead, if it’s reasonably foreseeable that a home will be used by subsequent purchasers, the builder owes a duty to them under implied warranty law. In most situations, it is foreseeable that the home built by a professional builder will be used by multiple subsequent purchasers.
A House is Not a Product under Strict Liability/Product Liability
The South Carolina courts have ruled that strict liability and product liability theories of recovery are applicable because the building of a house is the performance of a service and not the sale of a product.
The Uniform Commercial Code (UCC) and Implied Warranties
Article 2 of the UCC governs the performance of goods and the associated warranties of fitness for a particular purpose and merchantability closely track the home construction implied warranties of habitability and workmanship. SC courts have looked at rationale found under Article 2 of the UCC when deciding construction implied warranty cases; however, they have dismissed the argument that the UCC should govern the sale of a house.
Builders often attempt to disclaim implied warranties but SC courts require stringent conditions such as a requirement for the disclaimer to be conspicuous, known to buyer, and specifically bargained for (i.e. price discount or other desired benefit to buyer).
Statutes of Repose and Statutes of Limitation
In 2005, the South Carolina legislature adopted an 8-year statute of repose, which applies to actions based on defective or unsafe condition of improvements to real property such as breach of contract, breach of warranty, and tort claims. The 8 year time period starts upon substantial completion of improvement to real property, within which, normal statutes of limitations continue to run. The applicable statute of limitations to bring an action for implied warranty and negligence actions for a home is three years in South Carolina.