Contracts: Disclaimer and Waiver of Implied Warranty of Workmanship & Habitability

Zambrano v. M&RC II LLC, No. CV-21-0205-PR (September 28, 2022) (J. Timmer) https://www.azcourts.gov/Portals/0/OpinionFiles/Supreme/2022/CV210205PR.pdf

WAIVER AND DISCLAIMER OF IMPLIED WARRANTY OF HABITABILITY & WORKMANSHIP IN CONTRACT FOR PURCHASE OF NEW HOME VIOLATES PUBLIC POLICY & IS UNENFORCEABLE DESPITE EXISTENCE OF EXPRESS WARRANTY IN SAME CONTRACT

Plaintiffs purchased a new home from defendants. The contract of sale included a limited express warranty and disclaimer and waiver of the more expansive common law implied warranty of workmanship and habitability.  Plaintiffs sued defendant alleging defects discovered in the home after purchase constituted a breach of the implied warranty. The trial court granted defendant summary judgment finding plaintiffs had indeed waived the implied warranty. The Arizona Court of Appeals reversed. The Arizona Supreme Court reversed and remanded the trial court and vacated the court of appeals.

The court recognized the conflict between public policies favoring freedom of contract and those favoring protection of consumers under an implied warranty of workmanship and habitability. Here the court determined that public policy designed to protect buyers of unequal bargaining power to builders required a holding that a seller cannot avoid enforcement of the implied warranty by providing for a more restrictive express warranty in the purchase agreement along with a disclaimer and waiver of the implied warranty.

This inequality in bargaining power, expertise, and

knowledge distinguishes the new-home-buying scenario from ones in

which the parties are on similar footing and are thus better able to decide

what contract terms serve their individual interests.

Enforcing the disclaimer and waiver here would grievously

injure homebuyers and the public welfare as doing so would likely spell the

end for the implied warranty and eliminate the above-described

protections. Builders would almost certainly include a disclaimer and

waiver in every purchase agreement with the new homebuyer lacking any

realistic ability to negotiate deletion of the term. And, as has already

occurred in Arizona and reflected in the public record, the builder would

surely record the disclaimer and waiver to provide notice to subsequent

homebuyers and prevent them from enforcing the implied warranty, as the

law currently permits, even though they had no say in waiving a warranty

that arose from the construction itself.