Lead Opinion
In this appeal, we must decide whether to extend the implied warranty of workmanlike construction to the sale of a residential lot without a home or other structure. The plaintiff, a contractor-developer, bought the lot from a realtor to build townhomes for sale. He alleges the lot had improperly compacted backfill, requiring extensive additional work to get it ready for construction. Plaintiff sued the original developers whose contractor had performed the substandard soil work. The district court granted defendants’ mo
We now join the majority of courts reaching this question and hold the implied warranty of workmanlike construction does not apply to the sale of a lot with no dwelling. As explained below, the implied warranty was judicially created to protect residents from substandard living conditions. The purpose of the implied warranty is to redress the disparity in expertise and bargaining power between consumers and builder-vendors in recognition of the difficulty of discovering latent defects in complex modern residential structures. We decline to extend the implied warranty to the sale of land between developers able to protect themselves through express contract terms and simple soil tests.
I. Background Facts and Proceedings.
Defendants, Todd Sapp and his company, W.C. Development, L.L.C., developed a large residential subdivision, Royal Highland, out of farmland on the southeast side of Sioux City, Iowa. W.C. Development hired an engineer to prepare a topographical map, perform soil testing, and create a plat. At the center of this dispute is lot 13 of the third addition. The actual grading, backfilling, and compaction of lot 13 was performed by Burkhardt Construction, hired by W.C. Development. W.C. Development also hired Certified Testing Services (CTS) to ensure that the fill and soil compaction were done correctly. In April 2003, W.C. Development sold lot 13 to Kenneth Beaulieu, a realtor.
Plaintiff, Rosauer Corporation, owned by Anthony Rosauer, is a home building and landscaping corporation doing business since 1997. Rosauer purchased lot 13 from Beaulieu for $50,000 on July 24, 2007. It was Rosauer’s first purchase of a residential building lot. The lot was subject to restrictive covenants, and Rosauer planned to build two townhomes for sale. Before he purchased lot 13, Rosauer heard rumors that homes in the development were settling due to soil compaction problems. Rosauer nevertheless failed to request any soil tests on lot 13 before he bought it. After the sale was final, Rosauer’s lender required soil testing on the lot, which revealed undocumented fill with inconsistent moisture levels. CTS recommended complete removal and replacement of existing fill material before building on lot 13. Ro-sauer telephoned Sapp to discuss the CTS report. During this phone call, Sapp told Rosauer that the problem had happened on several other lots, and W.C. Development had paid extra costs associated with soil work for those lots. They had no further discussions before this litigation commenced. Rosauer spent $76,858 to comply with the CTS recommendations, with $69,995 of the work completed by his own landscaping company.
Rosauer ultimately built two townhomes on lot 13 and continued to buy other lots in the same development. As he purchased additional lots, Rosauer requested soil testing, but the lot owners refused, asserting liability concerns. Rosauer then negotiated contractual provisions that allowed
In June 2012, Rosauer filed this lawsuit to recover the costs of the soil work on lot 13, naming Sapp and W.C. Development as defendants on theories of negligence and breach of implied warranty. Sapp moved for summary judgment, alleging that Ro-sauer’s economic losses were not recoverable in tort and that Iowa courts had not recognized a claim for implied warranties in the sale of unimproved land. Rosauer conceded that the economic loss doctrine precluded recovery in negligence,
II. Standard of Review.
We review rulings that grant summary judgment for correction of errors at law. Parish v. Jumpking, Inc.,
III. Analysis.
We must decide whether to extend the implied warranty of workmanlike construction to the sale of land without a dwelling. This is a question of first impression in Iowa. We begin our analysis with a review of the history of the implied warranty of workmanlike construction in our state and the policies underlying that doctrine. Then we examine the elements of the implied warranty as applied to the sale of a lot. Next, we determine whether the underlying policies support extending the doctrine to these facts. Finally, we examine cases from other jurisdictions adjudicating whether to allow implied warranty claims on the sale of lots without dwellings. We conclude the doctrine should not be extended to the sale of lots between developers.
A. The Implied Warranty of Workmanlike Construction in Iowa. Iowa has long recognized in construction contracts an implied warranty that a building “ ‘will be erected in a reasonably good and workmanlike manner’ ” and that it “ ‘will be reasonably fit for the intended purpose.’ ” See Busker v. Sokolowski,
In Mease v. Fox, we recognized an implied warranty of habitability in a residential lease.
We did not adopt the implied warranty of workmanlike construction in the sale of residential real estate until our decision in Kirk v. Ridgway. See
In Kirk, we adopted an implied warranty of workmanlike construction in the sale of new homes by a builder-vendor. See id. at 496. Kirk had purchased a new home from Ridgway, a contractor who built and owned the home. Id. at 492. After purchasing the home, Kirk discovered peeling paint resulting from defective construction and brought an action for breach of an implied warranty. Id. The district court found that Ridgway had breached the implied warranty of workmanlike construction, and on appeal we addressed the situation in which “a prospective homeowner does not hire the builder to build the house but buys one from him already built.” Id. at 492-93.
In Kirk, we gave three reasons for adopting the implied warranty of workmanlike construction in the sale of a new home. Id. at 493-94. First, we noted the change in house-construction techniques “from single-unit construction under the supervision of the owner, to the tract development commonly found today.” Id. at 493. Second, we noted the increasing interest other courts had taken in consumer protection in real estate transactions. Id. Finally, we pointed out the increasing complexity of home construction makes it more difficult for the buyer to discover latent defects, requiring a buyer to rely on the skill and judgment of the builder. Id. at 494. We concluded that the adoption of the implied warranty was a “logical extension of Mease,” protecting the innocent purchaser of a home who must rely on the skill of another for the basic condition of their habitation. Id. at 496. In Kirk, we adopted the following “generally recognized” elements for the newly adopted implied warranty:
(1) That the house was constructed to be occupied by the warrantee as a home;
(2) that the house was purchased from a builder-vendor, who had constructed it for the purpose of sale;
(3) that when sold, the house was not reasonably fit for its intended purpose or had not been constructed in a good and workmanlike manner;
*910 (4) that, at the time of purchase, the buyer was unaware of the defect and had no reasonable means of discovering it; and (5) that by reason of the defective condition the buyer suffered damages.
Id.
We revisited the second element in Flom v. Stahly,
We extended the implied warranty to subsequent purchasers of homes in Speight v. Walters Development Co.,
The primary purpose behind the implied warranty of workmanlike construction adopted in Kirk is the protection of consumers. See
B. The Elements of Kirk’s Implied Warranty as Applied to the Sale of a Lot With No Dwelling. Rosauer admittedly cannot satisfy the first three elements of the Kirk test for the simple reason there was no house or dwelling constructed or sold by the defendants. We briefly address each element in turn.
1. The requirement that the house was constructed to be occupied by the warran-tee as a home. The first element limits the potential class of plaintiffs to innocent homebuyers for whose benefit we created the warranty. In this case, Rosauer pur
2. The requirement that the house was purchased from a builder-vendor, who had constructed it for the purpose of sale. Just as the first element limits the class of potential plaintiffs, the second element limits the class of potential defendants to a builder-vendor doing construction for the purpose of sale. In Kirk, we adopted the following definition for the term “builder-vendor”:
“[A] person who is in the business of building or assembling homes designed for dwelling purposes upon land owned by him, and who then sells the houses, either after they are completed or during the course of their construction, together with the tracts of land upon which they are situated, to members of the buying public.
The term ‘builder’ denotes a general building contractor who controls and directs the construction of a building, has ultimate responsibility for a completion of the whole contract and for putting the structure into, permanent form thus, necessarily excluding merchants, material men, artisans, laborers, subcontractors, and employees of a general contractor.”
When no dwelling has been constructed at the time of the sale of property, we do not have a builder-vendor, only a vendor. It is true that defendants W.C. Development and Sapp acquired the land for sale and, through a subcontractor, graded and backfilled the lot in preparation for its sale. However, the defendants constructed no home on the lot and sold only the land without any dwelling. The definition we adopted in Kirk and reaffirmed in Flom is clear — a builder-vendor must construct a home on land it owns for purposes of sale to the public. In this case, the defendants are land developers, not builder-vendors. Indeed, Rosauer is the builder-vendor of the townhomes he built on this lot. Rosauer cannot meet the second element requiring proof the defendant is a builder-vendor.
3. The requirement that the house was unfit for its intended purpose or defectively built. Rosauer also cannot satisfy the third element of the Kirk test because there was no house sold by defendant that was defectively built or unfit for its intend
This case, however, involves more than a sale of raw land. Rather, the lot at issue was graded, backfilled, and compacted by defendants’ subcontractor. The evidence supports a finding that the work was substandard, requiring costly additional soil work by Rosauer. We will now examine the policies underlying Iowa’s implied warranty doctrine to decide whether it should be extended to the sale of a lot without a dwelling.
C. The Public Policies Underlying the Implied Warranty of Workmanlike Construction. In Kirk, we identified several reasons to extend an implied warranty to new homeowners: changes in construction techniques, a growing consensus in other jurisdictions that implied warranties should extend to protect consumer-homeowners, the increasing complexity of homes, and our concern for the safety and living standards of persons inhabiting new houses. Kirk,
Third, homes are built as a final product for habitation. A homebuyer relies on the expertise of the builder. Kirk,
Finally, the overriding policy of our decision in Kirk was the protection of innocent homeowners who lacked sophistication and bargaining power to protect themselves. See
Homebuyers are a class apart from developers such as Rosauer. Iowa’s existing implied warranty of workmanlike construction protects consumers buying their own residences. Homeowners are seeking the basic necessity of shelter, often with a time limit imposed by career or family demands. Conklin v. Hurley,
D. Caselaw in Other Jurisdictions on the Applicability of Implied Warranties for the Sale of Lots Without Dwellings. In both Kirk and Speight, we looked to caselaw from other jurisdictions for guidance to determine national trends in the scope of implied warranties of workmanlike construction. We do so again today.
A majority of courts to address the question decline to extend the implied warranty of workmanlike construction to the sale of lots with no dwelling. See, e.g., DeAravjo v. Walker,
Rosauer argues that, while lot 13 did not have a structure when he purchased it, it had been backfilled and compacted. Further, the land was subject to restrictive covenants limiting new construction to residences. Therefore, Rosauer claims, the land was not raw but instead developed
A few courts have extended implied warranties to improved lots without a dwelling. In Rusch v. Lincoln-Devore Testing Laboratory, Inc., the court awarded relief to a purchaser for defective fill in a building lot.
Two other appellate courts have adopted an implied warranty in sale of building lots without a dwelling when the purchaser was closer to our description in Kirk of an innocent homebuyer. See Overton v. Kingsbrooke Dev., Inc.,
Our survey shows the caselaw extending the implied warranty to the sale of lots is sparse. The weight of authority nationally limits the implied warranty of workmanlike construction to the sale of homes already built. We join the majority of courts to hold that the implied warranty of workmanlike construction in our state does not extend to a developer’s purchase of a lot without a dwelling.
IV. Disposition.
For these reasons, we decline to extend the implied warranty of workmanlike con
DECISION OF COURT OF APPEALS AND JUDGMENT OF DISTRICT COURT AFFIRMED.
Notes
. In Luana Savings Bank v. Pro-Build Holdings, Inc., decided today, we decline to extend the implied warranty to allow claims by a foreclosing lender that acquired the buildings by deed in lieu of foreclosure.
. The economic loss doctrine is not at issue in this appeal.
. The common law implied warranty of habitability adopted in Mease to protect tenants has been codified by the Uniform Residential
Concurrence Opinion
(concurring specially).
The rationale behind the implied warranty of workmanlike construction is to ensure a dwelling “will be fit for habitation.” Speight v. Walters Dev. Co.,
APPEL, J., joins this special concurrence.
