Hepler Broom, LLC

Illinois Supreme Court Holds that Implied Warranty of Habitability Inapplicable to Sub-Contractors Absent Contractual Relationship with Purchaser

June 11, 2019

The Illinois Supreme Court recently decided Sienna Court Condominium Ass’n v. Champion Aluminum Corp., 2018 IL 122022 (December 28, 2018). The case raised a rather straightforward question: May the purchaser of a newly constructed home assert a claim for breach of an implied warranty of habitability against a subcontractor who had no contractual relationship with the purchaser? The Court held that the purchaser could not assert such a cause of action, regardless of the general contractor’s insolvency or the unavailability of recourse against the general contractor. This ruling overturned the decades-long rule established in Minton v. The Richards Group of Chicago, 116 Ill. App. 3d 852, 855 (1983), which allowed such claims against subscontractors where the purchaser had “no recourse to the builder-vendor and has sustained loss due to the faulty and latent defect in their new home caused by the subcontractor.”

In Sienna, a condominium association, on behalf of individual condominium owners, sued the developer, seller, general contractor, architects, engineers, material providers, and several sub-contractors involved in the construction of condominiums. Specifically, the association alleged that the buildings contained a number of latent defects that resulted in water infiltration. The association claimed, among other things, that the sub-contractors were subject to an implied warranty of habitability, warranting the buildings or the portions constructed by them, would be suitable and fit for their intended purpose of habitation. The sub-contractors moved to dismiss the claims, arguing, among other things, that the implied warranty of habitability did not extend to sub-contractors, because there was no contractual privity. Plaintiff, on the other hand, argued that because the developer-vendor had been declared legally insolvent, the Minton rule applied, allowing for the implied warranty claims to proceed against the subcontractors.

The Circuit Court denied the motion to dismiss, but granted the subcontractors leave to certify several questions for appeal. The First District Appellate Court held that legal insolvency of the developer allowed for an implied warranty of habitability claim against the subcontractors, and an inquiry into the availability of recourse need not be conducted. The Appellate Court, applying Minton, further rejected the subcontractors’ argument that there could be no implied warranty of habitability because there was no contractual relationship with the purchasers.

The Circuit Court denied the motion to dismiss, but granted the subcontractors leave to certify several questions for appeal. The First District Appellate Court held that legal insolvency of the developer allowed for an implied warranty of habitability claim against the subcontractors, and an inquiry into the availability of recourse need not be conducted. The Appellate Court, applying Minton, further rejected the subcontractors’ argument that there could be no implied warranty of habitability because there was no contractual relationship with the purchasers.

The Supreme Court granted the subcontractors’ petition for leave to appeal, and reversed the Appellate Court. In finding that there is no implied warranty of habitability between a purchaser and a subcontractor with whom the purchaser has no contractual relationship, the Court first noted that the implied warranty of habitability arises from contract, not in tort, as Plaintiffs suggested. The Court rejected Plaintiffs’ attempt to characterize the action as akin to a strict liability tort claim, and pointed out that such an argument is refuted by the economic loss doctrine. “The implied warranty of habitability allows the homeowner to recover solely for latent defects that interfere with the home’s intended use . . . This is the definition of pure economic loss under Moorman,” found the Court. “[A]n action for economic loss requires the plaintiff to be in contractual privity with the defendant.”

Minton, found the Court, was incorrectly decided in that it allowed a tort action against sub-contractors for economic loss where the builder-vendor had gone bankrupt. Minton failed to address why the economic loss rule would not apply, and it also failed to address what effect the holding would have on the contractual relationships between subcontractors and general contractors. Minton, therefore, was overruled.

The rule in Illinois, without exception, is that “[t]he purchaser of a newly constructed home may not pursue a claim for breach of an implied warranty of habitability against a subcontractor where there is no contractual relationship.”