TINA ZAMBRANO, Plaintiff/Appellant, υ. M & RC II LLC, ET AL., Defendants/Appellees.
No. CV-21-0205-PR
SUPREME COURT OF THE STATE OF ARIZONA
September 28, 2022
252 Ariz. 10
Appeal from the Superior Court in Maricopa County, The Honorable Danielle J. Viola, Judge, No. CV2017-008174. REVERSED AND REMANDED. Opinion of the Court of Appeals, Division One, 252 Ariz. 10 (App. 2021), VACATED.
COUNSEL:
Darrien Shuquem (argued), Vial Fotheringham, LLP, Mesa, Attorneys for Tina Zambrano
James E. Holland, Jr. (argued), Michael Vincent, Stinson LLP, Phoenix, Attorneys for M & RC II LLC, et al.
Thomas L. Hudson, Joshua D. Bendor, Osborn Maledon, P.A., Phoenix, Attorneys for Amici Curiae Diamante Condominium Association and Kasdan Turner Thomson Booth LLP
Rosary A. Hernandez, Kenneth Januszewski, Katelyn E. Towe, Burch & Cracchiolo, P.A., Phoenix, Attorneys for Amici Curiae Home Builders Association of Central Arizona and Southern Arizona Home Builders Association
Jeremy R. Alberts, Ryan S. Saldanha, Weinberg, Wheeler, Hudgins, Gunn & Dial, LLC, Las Vegas, NV, Attorneys for Amicus Curiae Home Buyers Warranty Corporation
VICE CHIEF JUSTICE TIMMER authored the Opinion of the Court, in which CHIEF JUSTICE BRUTINEL and JUSTICES LOPEZ, BEENE, and MONTGOMERY joined. JUSTICE KING, joined by JUSTICE BOLICK, dissented.
¶1 This case involves a clash of two public policies recognized by the common law. On the one hand, parties are generally free to contract on whatever terms they choose. See 1800 Ocotillo, LLC v. WLB Grp., Inc., 219 Ariz. 200, 202 ¶ 8 (2008). Thus, unless legislation precludes enforcement of a contract term, our courts will uphold it unless “the term is contrary to an otherwise identifiable public policy that clearly outweighs any interests in the term‘s enforcement.” Id.
¶2 On the other hand, Arizona implies a warranty of workmanship and habitability in every contract entered into between a builder-vendor and a homebuyer. See Richards v. Powercraft Homes, Inc., 139 Ariz. 242, 244 (1984). This warranty protects the homebuyer and successive purchasers from financial responsibility for latent defects in the home that the buyer could not have reasonably discovered at the time of purchase and holds the builder accountable for the home‘s faulty construction. Id. at 245.
¶3 Whether Arizona should continue to imply a warranty of workmanship and habitability into all contracts between builder-vendors and homebuyers is not before us. Rather, the issue here is whether a builder-vendor and a homebuyer may agree to disclaim and waive the implied warranty if they replace it with an express warranty. We hold public policy prohibits enforcement of the disclaimer and waiver.
BACKGROUND
¶4 In 2013, Tina Zambrano entered into a preprinted purchase agreement with M & RC II, LLC, to buy a home that M & RC II‘s affiliate, Scott Homes Development Company, would build in a new subdivision in Surprise, Arizona. (We refer to M & RC II and Scott Homes Development Company collectively as “Scott Homes“). Relevant here, paragraph fifteen of the agreement states:
SELLER‘S LIMITED WARRANTY.
(a) At Closing, Seller shall issue a “Home Builder‘s Limited Warranty” to Buyer, a sample of which has been provided to Buyer prior to the execution of this Contract. The Home Builder‘s [sic.] Warranty is the only warranty applicable to the purchase of the Property.
. . . .
THE HOME BUILDER‘S LIMITED WARRANTY REFERENCED ABOVE IS THE ONLY WARRANTY APPLICABLE TO THE PURCHASE OF THE PROPERTY. ALL OTHER EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, HABITABILITY AND WORKMANSHIP ARE HEREBY DISCLAIMED BY SELLER AND ITS AFFILIATES AND WAIVED BY BUYER, ANY IMPLIED WARRANTY THAT MAY EXIST DEPITE [sic] THE ABOVE DISCLAIMER IS HEREBY LIMITED TO A ONE (1) YEAR PERIOD.
Zambrano initialed the first paragraph and another, which confirmed she had read and understood the agreement.
¶5 Scott Homes built the home and, fulfilling its promise, issued Zambrano a forty-page, preprinted “Builder‘s Limited Warranty,” which is administered by Professional Warranty Services Corporation (“PWC“). PWC sells the warranty to homebuilders, claiming the warranty “provide[s] ‘layers of protection to you as a builder‘” and permits builders to “manage [their] risk.” Arnold v. Standard Pac. of Ariz. Inc., No. CV-16-00452-PHX-DGC, 2016 WL 4259762, at *4 (D. Ariz. Aug. 12, 2016). Significantly, the PWC warranty does not generally warrant the workmanship and habitability of the home. Instead, it arranges construction elements into coverage groups; warrants each group, respectively, for one year, two years, or three to ten years against damages from variances in materials or workmanship from defined standards of performance; and establishes responsibilities for the builder and the homebuyer. For example, the warranty here provides that during the first year of ownership, Scott Homes will fill excessively settled areas of ground around the home‘s foundation that prevent sufficient drainage, and the homebuyer will remove and replace any affected landscaping. As another example, the warranty provides that during the first year of ownership, Scott Homes will repair any floors having more than a one-quarter-inch ridge or depression within thirty inches of the joists. Like the purchase agreement, the PWC warranty disclaims all implied warranties.
¶6 In 2017, Zambrano sued Scott Homes for breach of the implied warranty of workmanship and habitability. She alleged several design and construction defects, including improper grading and soil movement mitigation, separation of windows from cracking stucco, separation of baseboards from the tile and walls, and nail pops in the ceiling. A claim under the PWC warranty to correct these defects was either time barred or outside
¶7 The court of appeals reversed. Zambrano v. M & RC II LLC, 252 Ariz. 10, 11 ¶ 1 (App. 2021). It reasoned that “the public policy supporting the implied warranty clearly outweighs the freedom-of-contract interest in the waiver‘s enforcement.” Id. at 13 ¶ 16.
¶8 We accepted review of Scott Homes’ petition for review because whether and to what extent the implied warranty of workmanship and habitability can be disclaimed and waived or replaced by an express warranty is a recurring issue of statewide importance.
DISCUSSION
I. Standard of Review
¶9 Summary judgment is appropriate when “no genuine dispute as to any material fact [exists] and the moving party is entitled to judgment as a matter of law.”
II. Voiding a Contract Term as Against Public Policy
¶10 The freedom to contract has long been considered a “paramount public policy” under our common law that courts do not lightly infringe.1 Consumers Int‘l., Inc. v. Sysco Corp., 191 Ariz. 32, 34 (App. 1997) (quoting Wood Motor Co. v. Nebel, 238 S.W.2d 181, 185 (Tex. 1951)); accord CSA 13-101 Loop, LLC v. Loop 101, LLC, 236 Ariz. 410, 411 ¶ 6 (2014) (“Our law values the private ordering of commercial relationships and seeks to protect parties’ bargained-for expectations.“). Thus, courts will not refuse to enforce a contract merely because one party made a bad deal, even when the terms are harsh. See Goodman v. Newzona Inv. Co., 101 Ariz. 470, 473-74 (1966) (enforcing refusal of seller to transfer ownership of property to buyer despite partial payment); S.H. Kress & Co. v. Evans, 21 Ariz. 442, 449 (1920) (refusing to enforce oral profit-sharing agreement not reflected in a written contract).
¶11 But courts will refuse to enforce a contract term if legislation prohibits the term or when an identifiable public policy clearly outweighs enforcement. 1800 Ocotillo, 219 Ariz. at 202 ¶¶ 7-8; CSA 13-101 Loop,
236 Ariz. at 411 ¶ 6. Because the law generally presumes parties are best situated to decide whether contractual terms are beneficial, especially in commercial settings, courts are hesitant to declare terms unenforceable on public policy grounds. 1800 Ocotillo, 219 Ariz. at 202 ¶ 8; see 15 Timothy Murray, Corbin on Contracts § 79.4, at 15 (rev. ed. 2020) (“In rare cases, a public policy other than the freedom of contract overrides such freedom.“). To do so, courts balance the interests in enforcing the terms against the public policy interest opposing it. See 1800 Ocotillo, 219 Ariz. at 202 ¶ 7. “[T]he weight of the public policy interest
¶12 Consistent with these principles, this Court has refused to enforce contract terms that were unconscionable, illegal, or otherwise against public policy. See, e.g., Dobson Bay Club II DD, LLC v. La Sonrisa de Siena, LLC, 242 Ariz. 108, 115 ¶¶ 37-38 (2017) (voiding a contractual late fee as an unenforceable penalty provision); CSA 13-101 Loop, 236 Ariz. at 411 ¶ 1 (holding that parties to a promissory note and deed of trust could not prospectively waive a judgment debtor‘s statutory right to have the fair market value of the burdened property credited against the amount owed on the note); Wagenseller, 147 Ariz. at 381 (“Firing for bad cause—one against public policy articulated by constitutional, statutory, or decisional law—is not a right inherent in the at-will contract, or in any other contract, even if expressly provided.“); Darner Motor Sales, Inc. v. Universal Underwriters Ins., 140 Ariz. 383, 390-91 (1984) (stating courts will not enforce a standardized insurance contract term when the insurer has reason to believe that the insured would not have agreed to the contract if he had known about the term).
¶13 With these principles in mind, we identify the public policy underlying the implied warranty of workmanship and habitability and then determine whether that policy clearly outweighs enforcement of the parties’ disclaimer and waiver of the implied warranty when an express warranty otherwise exists. See 1800 Ocotillo, 219 Ariz. at 202 ¶ 7.
III. Enforcing the Disclaimer and Waiver Provision Here
A. Identifying the public policy underlying the implied warranty
¶14 Commencing in 1979, Arizona eliminated application of caveat emptor—or “buyer beware“—to the purchase of newly built homes. Columbia W. Corp. v. Vela, 122 Ariz. 28, 32 (App. 1979) (describing the rule as “an anachronism patently out of harmony with modern home buying practices” (quoting Humber v. Morton, 426 S.W.2d 554, 562 (Tex. 1968))); see also Dorman v. Swift and Co., 162 Ariz. 228, 231 (1989) (stating that the common law doctrine of caveat emptor presumes the buyer has fully inspected the premises before conveyance). Instead, we impute the implied warranty of workmanship and habitability into all contracts between builder-vendors and homebuyers as a matter of common law. See Sirrah Enters., LLC v. Wunderlich, 242 Ariz. 542, 544 ¶ 8 (2017); Sullivan v. Pulte Home Corp., 232 Ariz. 344, 346 ¶ 12 (2013). Under this implied warranty, the builder-vendor guarantees it built the home in a workmanlike manner and that it is habitable. Sirrah Enters., 242 Ariz. at 544 ¶ 8. The warranty is limited to latent defects that are undiscoverable by a reasonable pre-purchase inspection and serves “to protect innocent purchasers and hold builders accountable for their work.” Richards, 139 Ariz. at 245 (quoting Moxley v. Laramie Builders, Inc., 600 P.2d 733, 736 (Wyo. 1979)).
¶15 The implied warranty “arises from construction of the home” itself. Sirrah Enters., 242 Ariz. at 544 ¶ 8 (quoting Lofts at Fillmore Condo. Ass‘n v. Reliance Com. Constr., Inc., 218 Ariz. 574, 577 ¶ 13 (2008)). Consequently, although the warranty is an imputed term of the original purchase agreement, it applies to non-builder-vendors and is enforceable by subsequent purchasers, despite a lack of contractual privity with the builder. Id. at 575 ¶ 1 (non-builder-vendor). A lawsuit filed to enforce the warranty is subject
¶16 Given the warranty‘s origins and application, it is not a mere “gap filler” supplied by the court when an otherwise enforceable contract lacks an essential term, as Scott Homes and the dissent here assert. See Restatement § 204. Our cases are clear that policy considerations gave birth to the implied warranty, not a need to fill in an overlooked “gap” in contracting. See supra ¶¶ 14-15. Further, because an express warranty is not essential to determining a builder-vendor and homebuyer‘s rights and duties under a purchase agreement, its omission does not leave a “gap” to fill. See Restatement § 204. And if an express warranty is included in a purchase agreement, it may coexist with the implied warranty; the warranties are not mutually exclusive. See Columbia W. Corp., 122 Ariz. at 29, 33 (recognizing an implied warranty despite the existence of an express warranty and the lack of any gap); Desert Mountain Props. Ltd. P‘ship v. Liberty Mut. Fire Ins. Co., 225 Ariz. 194, 207 ¶ 46 (App. 2010) (same).
¶17 Although the legislature has not explicitly codified the terms of the implied warranty of workmanship and habitability, it has explicitly approved it (1) by accommodating causes of action based on the warranty in the Purchaser Dwelling Act,
¶18 The legislature has also recognized the importance of holding builders in general to sufficient workmanship standards by requiring the registrar of contractors to establish “minimum standards for good and workmanlike construction.”
¶19 In sum, the public policy underlying the implied warranty of workmanship and habitability is twofold: (1) protecting buyers of newly built homes and successive owners against latent construction defects that were not reasonably discoverable when the home was initially sold and (2) holding builders accountable for their work. Richards, 139 Ariz. at 244-45.
B. Weighing the public policy underlying the implied warranty against enforcement of the disclaimer and waiver provision
¶20 While acknowledging the presumption that private parties are best able to decide whether particular contract terms serve their interests, and respecting that society broadly benefits from relying on the enforcement of
1. The interest in enforcing the disclaimer and waiver provision
¶21 We start by noting a diminished interest in enforcing a disclaimer and waiver of the implied warranty because homebuyers possess vastly unequal bargaining power, expertise, and knowledge as compared with the builder-vendor. Id. at 202 ¶ 7 (“Analysis of the weight of the public policy interest generally focuses on the extent to which enforcement of the term would be injurious to the public welfare.“). Modern homebuilding frequently occurs in large-scale developments, leaving the buyer to either purchase the home under terms directed by the builder-vendor or forego the purchase altogether. See Richards, 139 Ariz. at 245. Indeed, Zambrano signed Scott Homes’ form purchase agreement and accepted the PWC warranty with no variation to the preprinted terms in either document, without representation, and without any negotiation about warranties, suggesting she was in a take-it-or-leave-it situation. See Darner Motor Sales, 140 Ariz. at 390-91 (observing that a term in a standardized contract is “an illusory ‘bargain’ . . . when that ‘bargain’ was never really made and would, if applied, defeat the true agreement which was supposedly contained in the [contract]“).
¶22 A homebuyer must also rely heavily on the builder-vendor‘s knowledge of construction quality, as builders are “skilled in the profession, . . . modern construction is complex and regulated by many governmental codes, and . . . homebuyers are generally not skilled or knowledgeable in construction, plumbing, or electrical requirements and practices.” Richards, 139 Ariz. at 245; see Columbia W. Corp., 122 Ariz. at 32 (“The ordinary home buyer is not in a position, by skill or training, to discover defects lurking in the plumbing, the electrical wiring, the structure itself, all of which is usually covered up and not open for inspection.” (quoting Tavares v. Horstman, 542 P.2d 1275, 1279 (Wyo. 1975))). And unlike those who purchase older homes, a person who buys a newly built home “has no opportunity to observe how the [home] has withstood the passage of time.” Columbia W. Corp., 122 Ariz. at 32 (quoting Pollard v. Saxe & Yolles Dev. Co., 525 P.2d 88, 91 (Cal. 1974)).
¶23 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. See 1800 Ocotillo, 219 Ariz. at 204 ¶ 17 (declining to invalidate a liability-limitation clause entered by a real estate developer and a surveying firm on public policy grounds as such clauses desirably permitted sophisticated parties to allocate risks). The implied warranty was created in recognition of this disparity, see Richards, 139 Ariz. at 245, and undoubtedly reflects the homebuyers’ reasonable expectations that a newly constructed home would be properly designed and built, see Columbia W. Corp., 122 Ariz. at 33.
2. The counterweight of the public policy supporting imposition of the implied warranty
¶24 As previously explained, in assigning weight to the public policy underlying the implied warranty we generally focus on the extent to which enforcement of the disclaimer and waiver provision would injure the public welfare. 1800 Ocotillo, 219 Ariz. at 202 ¶ 7.
¶25 The implied warranty serves to protect homebuyers and the public at large in multiple ways. First, warranting that a home was built using minimum standards of good workmanship conforms to a homebuyer‘s reasonable expectations. See Columbia W. Corp., 122 Ariz. at 33. Second, the warranty discourages “the unscrupulous, fly-by-night operator and purveyor of shoddy work,” who might otherwise blight our communities. Id. at 32 (quoting Humber, 426 S.W.2d at 562).
¶26 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. See Sirrah Enters., 242 Ariz. at 544-45 ¶¶ 8-12.
¶27 Effectively eliminating the implied warranty, in turn, would gut a homebuyer‘s ability to hold a builder responsible for latent defects, increasing the likelihood that homes would be left unrepaired, to the detriment of homebuyers, their neighbors, and the public generally. The Purchaser Dwelling Act permits a homebuyer to sue a builder-vendor for defects involving the builder‘s “violation of construction codes,” its “use of defective materials,” and its “failure to adhere to generally accepted workmanship standards in the community,” after giving the builder a chance to repair or replace those defects. See
¶28 A homebuyer cannot pursue a negligence claim against the builder to recover economic damages caused by latent defects, absent personal injury or damage to other property, because Arizona, unlike other states, does not permit such claims. See Sullivan, 232 Ariz. at 345-46 ¶¶ 8-9 (concluding the economic loss doctrine bars the original homebuyer from asserting a negligence claim to recover repair costs); Sullivan v. Pulte Home Corp., 237 Ariz. 547, 548 ¶¶ 1-3 (App. 2015) (holding that a subsequent homebuyer cannot maintain a negligence action against a builder to recover repair costs because the builder does not owe a duty to that homebuyer); see also Sewell v. Gregory, 371 S.E.2d 82, 84-85 (W. Va. 1988) (noting most state courts which have considered the issue permit a subsequent homebuyer to sue a builder for negligent construction). Causes of action based on fraud, misrepresentation, and material omissions remain available, just as they did before Arizona recognized the implied warranty of workmanship and habitability. See, e.g., Echols v. Beauty Built Homes, Inc., 132 Ariz. 498, 499 (1982) (addressing fraud in sale of home). But these claims depend on purposeful wrongdoing by the builder, presumably an uncommon occurrence, and would not protect the homebuyer from the builder‘s unintentionally poor workmanship. See Id. at 500 (setting out the elements of fraud).
¶29 An unhappy homebuyer may file a complaint against the builder‘s license with the registrar of contractors and potentially recover money from the residential contractors’ recovery fund. See
¶30 Scott Homes argues the PWC warranty adequately satisfies the public interest in protecting homebuyers from shoddy workmanship. It further asserts the express warranty is superior to the implied warranty by explicitly defining the parties’ rights and obligations in advance, thereby avoiding costly litigation about what is “habitable,” and by extending the warranty up to ten years for some defects. We disagree.
¶31 The PWC warranty does not protect the same interests as those protected by the implied warranty. While the implied warranty protects against a builder‘s lack of conformity with generally accepted community standards for workmanship and habitability,2 the PWC warranty protects against nonconformity with tolerances it establishes for certain construction components within the warranty periods, most of which fall into the one-year period. For example, regardless of workmanship standards, the PWC warranty provides that Scott Homes will repair a separation of stoops, steps, or garage floors from the home if the width exceeds one inch and if that separation occurs within the first year of ownership. A violation of the PWC warranty tolerances might not violate the implied warranty and vice versa. Cf. Nastri v. Wood Bros. Homes, Inc., 142 Ariz. 439, 444 (App. 1984) (noting the implied warranty does not protect against every imperfection). Although related, the interests protected by each warranty—good workmanship (implied) versus conformance with specific standards (express)—are distinct. Cf. Columbia W. Corp., 122 Ariz. at 29, 32 (recognizing the need for the implied warranty even though the builder had expressly warranted that the home would be built in substantial conformance with plans and specifications).
¶32 Comparing the two warranties further demonstrates that the PWC warranty is an insufficient substitute for the implied warranty and is certainly not superior from the homebuyer‘s or the public‘s perspective. Unlike the implied warranty, the PWC warranty does not apply to latent design defects that may later result in damages. See Woodward, 141 Ariz. at 516. Most components are warrantied for only one year after purchase, even if latent defects manifest after one year. Cf. id. at 515 (allowing a cause of action for defect found over three years after closing on the home purchase);
¶34 Scott Homes also asserts that the implied warranty serves a similar purpose to the implied warranties of merchantability and fitness for a particular purpose, which apply to consumer goods. It argues that because those warranties can be waived, see
¶35 Finally, although we considered leaving open the possibility that a sophisticated homebuyer in some settings could negotiate to waive the implied warranty, we reject that idea. It would be next to impossible for courts to decide whether a homebuyer was sophisticated “enough.” Even sophisticated homebuyers need the protection offered by the implied warranty because they cannot spot hidden, latent defects at the time of purchase; and subsequent homebuyers should not be penalized simply because the original owner was sophisticated and chose to waive the implied warranty. Thus, unless the legislature enacts a statute permitting waiver of the implied warranty, our courts will not permit it.
¶36 In sum, we conclude the public policy underlying the implied warranty of workmanship and habitability clearly outweighs enforcement of the disclaimer and waiver of that warranty in the purchase agreement and the PWC warranty here. See 1800 Ocotillo, 219 Ariz. at 202 ¶¶ 7-8; CSA 13-101 Loop, 236 Ariz. at 411 ¶ 6. Because the PWC warranty has a severability clause, the other provisions in that warranty are unaffected by this decision.
¶37 Our court of appeals has reached conclusions similar to our decision today, see Buchanan v. Scottsdale Env‘t Constr. & Dev. Co., 163 Ariz. 285, 286-87 (App. 1989) (concluding that the policies giving rise to the implied warranty also void any attempt by the builder to disclaim the warranty against the original owner); see also Nastri, 142 Ariz. at 442-43 (having the same effect as applied to a subsequent homebuyer), as have courts in other jurisdictions, see, e.g., Trs. of Cambridge Point Condo. Tr. v. Cambridge Point, LLC, 88 N.E. 3d 1142, 1151 (Mass. 2018) (“[T]o permit the disclaimer of a warranty protecting a purchaser from the consequences of latent defects would defeat the very purpose of the warranty.” (quoting Albrecht v. Clifford, 767 N.E.2d 42, 47 (Mass. 2002))); Davencourt at Pilgrims Landing Homeowners Ass‘n v. Davencourt at Pilgrims Landing, LC, 221 P.3d 234, 252-53 ¶ 58 (Utah 2009) (to same effect). Although we recognize that other courts have reached different conclusions, we find those cases either distinguishable or simply wrong. See, e.g., Tusch Enters. v. Coffin, 740 P.2d 1022, 1030-31 (Idaho 1987) (permitting disclaimer of the implied warranty outside boilerplate clauses if builder shows a knowing waiver); Crowder v. Vandendeale, 564 S.W.2d 879, 881 (Mo. 1978) (to same effect).
C. The dissent
¶38 Our dissenting colleagues spill considerable ink expressing a contrary view. Most of their arguments track Scott Homes’ arguments, which we have already addressed and rejected. A few additional points warrant mention or emphasis.
¶40 Second, although the dissent claims to embrace the analytical paradigm this Court established in 1800 Ocotillo to determine the enforceability of a contract provision, see infra ¶ 58, it wholly fails to apply it. Our colleagues do not identify a different public policy underlying the implied warranty than we do or weigh that policy against enforcement of the waiver and disclaimer provision. For example, the dissent fails to discuss the ramifications of permitting builder-vendors to insert waiver provisions in standard form contracts or the ability of buyers—whatever their sophistication level—to understand they are agreeing to purchase a new home with the risk of latent defects. Nor does the dissent identify attributes of express warranties that are “good enough” to further the same policies underlying the implied warranty or the characteristics of parties sufficiently “sophisticated” to protect themselves from the risk of latent defects.
¶41 Instead, the dissent confuses matters by ignoring the policies underlying the implied warranty, failing to weigh them against the waiver provision, and pointing out needlessly that this Court has never before established a public policy prohibiting such waivers.3 See infra ¶ 58. By the dissent‘s flawed logic, because we have not previously conducted an 1800 Ocotillo analysis to find that the policies underlying the implied warranty clearly outweigh enforcement of a contractual waiver provision, we are wrong to do so today. See id. Illogic aside, the dissent‘s analysis sidesteps 1800 Ocotillo.
¶42 Third, the dissent cries foul on us for “focus[ing] on policy matters that are better—and, as a matter of separation of powers, more appropriately—left for the legislature to address.” See infra ¶ 63. This criticism is unpersuasive and confusing.
¶43 Arizona is not a code state; we are a common law state. See
¶44 Since 1979, our courts have continuously applied the implied warranty as part of the common law. See supra ¶ 14. The legislature has explicitly approved causes of action based on the warranty by enacting laws governing their assertion. See supra ¶ 17. Indeed, explanatory documents supporting the bill enacted to amend the Purchaser Dwelling Act in 2019 reflected that a purchaser of a home may file a lawsuit against a builder-vendor for any construction defect after following the Act‘s procedures. See Ariz. State H.R. Summary for S.B. 1271, 54th Leg., 1st Reg. Sess. (Mar. 18, 2019); Ariz. State Senate
As previously explained, see supra ¶¶ 26-28, if the dissent‘s position prevails, the implied warranty would likely disappear, and without it buyers would have no cause of action to assert, making statutory references to the implied warranty superfluous. See
¶45 We are also confused by our colleagues’ criticism because, ironically, they focus on the public policy underlying the common law freedom to contract to urge their position. See infra ¶¶ 55, 60. Also, it seems to us that despite its protest to the contrary, see infra ¶ 62, the dissent‘s analysis would require a court to enforce a waiver and disclaimer provision even absent an express warranty, see infra ¶ 60 (relying on cases with holdings to that effect), leaving the homeowner with no warranty at all and changing our existing public policy that favors such provisions. And the dissent‘s assertion that the implied warranty can only be waived when an express warranty exists is itself a declaration of policy. See infra ¶ 62. Just like with the proverbial goose and gander, the criticism our dissenting colleagues throws our way applies equally to them.
¶46 Fourth, the dissent gives short shrift to subsequent homebuyers, who would lose the protection offered by the implied warranty if the original purchaser could waive it. See infra ¶ 68. Again, by not weighing the 1800 Ocotillo factors, the dissent kicks subsequent homebuyers to the curb by saying the impact on those buyers—and necessarily the public as a whole—“should be left for another day.” See infra ¶ 68. But this is the day, and the dissent neatly avoids the uncomfortable reality that if builder-vendors are permitted to waive and disclaim the warranty, the warranty will vanish. See supra ¶ 26.
¶47 Contrary to the dissent‘s assertion, we do not declare any new public policy today. See infra ¶ 65. Instead, we preserve the public policies that created the implied warranty more than forty years ago, which our legislature has approved and accommodated, and our courts have routinely enforced.
¶48 We respect and take seriously parties’ freedom of contract, and act with appropriate restraint when asked to prohibit enforcement of a term. But we also will not ignore our obligation to acquiesce to such requests when appropriate after conducting the 1800 Ocotillo inquiry. This case presents one of the rare occasions we find a public policy paramount to the freedom of contract. Any relief for builder-vendors from our holding lies squarely with the legislature.
IV. Attorney Fees
¶49 Zambrano seeks an award of attorney fees incurred on appeal, but she failed to state the basis for the request as required by our rules of procedure. See
CONCLUSION
¶50 For the foregoing reasons, we reverse the summary judgment and remand this matter to the trial court. Although we agree with the court of appeals’ holding, we vacate its opinion to replace its reasoning with our own.
JUSTICE KING, joined by JUSTICE BOLICK, Dissenting
KING, J., joined by BOLICK, J., Dissenting
¶51 In this case, a builder-vendor and a homebuyer, who is a licensed real estate broker, entered into a written contract agreeing to disclaim the judicially-created implied warranty of workmanship and habitability and enter into an express warranty instead. The majority believes this “presents one of the rare occasions” where “public policy [is] paramount to the freedom of contract.” Supra ¶ 48. We disagree.
¶52 Since the court of appeals created the implied warranty of workmanship and habitability in Columbia Western Corp. v. Vela, 122 Ariz. 28 (App. 1979), this Court has
¶53 At the outset, the majority acknowledges the implied warranty of workmanship and habitability is a court-made doctrine. The majority then concludes the implied warranty can never—regardless of the circumstances or sophistication of the parties—be waived and replaced with an express warranty. Supra ¶ 35 (“[A]lthough we considered leaving open the possibility that a sophisticated homebuyer in some settings could negotiate to waive the implied warranty, we reject that idea.“). This categorical constraint states a highly unusual exception in the law.
¶54 Generally speaking, parties are free to waive any number of rights, even constitutional rights such as the right to appeal, Hinton v. Hotchkiss, 65 Ariz. 110, 113-14 (1946), the right to counsel, State v. Cornell, 179 Ariz. 314, 322-23 (1994), the right to a jury trial, State v. Butrick, 113 Ariz. 563, 565-66 (1976), and the right to be present during criminal proceedings, State v. Dann, 205 Ariz. 557, 572 ¶ 54 (2003). We are generally free to waive implied warranties and protections in other contexts. See, e.g.,
¶55 Arizona‘s public policy favoring freedom of contract was established long before the court of appeals adopted the implied warranty in Columbia Western Corp. For over 100 years, this Court has affirmed Arizona‘s public policy that parties have the right to make decisions regarding their own affairs, property, and services, consistent with their priorities and values. Indeed, in 1914, this Court explained,
We have always understood the law to be that persons under no legal disability, as a general rule, have power to do as they wish with their own. They may enter into contracts; they may give away their substance; they may spend it for mere baubles; they may exchange it for high and riotous living; it may go to satisfy vanity or pride or ambition; and the courts are helpless to say nay or to control their freedom of action in those respects. Courts are not instituted to control and supervise the private dealings of persons compos mentis who are upon an equal footing and labor under no restraint of person, property, or mind, such as fraud, duress, coercion, or extortion. Freedom of contract and freedom in the use and disposition of one‘s own are no less sacred than freedom of speech.
Merrill v. Gordon, 15 Ariz. 521, 531 (1914); see also Warren v. Mosher, 31 Ariz. 33, 38 (1926) (“A man may do as he will with his own, and if he chooses to give or contract it away, so long as it does not interfere with the rights of others, the contract will stand.“); Com. Standard Ins. Co. v. Cleveland, 86 Ariz. 288, 293 (1959) (“[P]arties have a legal right to make such contracts as they desire to make, provided only that the contract shall not be
¶56 Conversely, the implied warranty of workmanship and habitability is of more recent vintage, tracing its roots to the 1979 court of appeals’ decision in Columbia Western Corp. Today, we confront the very question that was expressly reserved in Columbia Western Corp.: whether parties may modify the implied warranty of workmanship and habitability with an express warranty. 122 Ariz. at 30 n.1 (“As the issue was not raised, we do not in this decision address the question as to what effect, if any, the existence of an express warranty may have in excluding or modifying implied warranties in this context.“).
¶57 As explained in Columbia Western Corp., the implied warranty of workmanship and habitability was judicially created to “eliminate a trap for unwary buyers who fail or are unable to secure an express warranty” and to “conform to the reasonable expectations of the vendee.” Id. at 33 (quoting Caveat Emptor in Sales of Real Property Time for a Reappraisal, 10 Ariz. L. Rev. at 484, 491). To that end, “the implied warranty of good workmanship serves as a ‘gap-filler’ or ‘default warranty‘; it applies unless and until the parties express a contrary intention.” Centex Homes v. Buecher, 95 S.W.3d 266, 273 (Tex. 2002).4 And as this Court explained in Balon v. Hotel & Restaurant Supplies, Inc., 103 Ariz. 474, 477 (1968), “[a] fictitious inference of law created to fill gaps in written contracts should not be held paramount over the express manifestations of intent of the parties.” Thus, the implied warranty of workmanship and habitability “should not be held paramount” where competent parties have agreed to modify the implied warranty with an express warranty. Id.; see also Consumers Int‘l, 191 Ariz. at 34 (describing parties’ ability to contract freely as a “paramount public policy” (quoting Wood Motor Co., 238 S.W.2d at 185)).
¶58 We recognize this Court‘s jurisprudence that “courts should rely on public policy to displace the private ordering of relationships only when the term is contrary to an otherwise identifiable public policy that clearly outweighs any interests in the term‘s enforcement.” 1800 Ocotillo, 219 Ariz. at 202 ¶ 8; see also Goodman, 101 Ariz. at 474 (recognizing a “fundamental right of the individual to complete
in the absence of a legislative declaration of what that public policy is, before courts are justified in declaring its existence[,] such public policy should be so thoroughly established as a state of public mind, so united and so definite and fixed that its existence is not subject to any substantial doubt.
Ray v. Tucson Med. Ctr., 72 Ariz. 22, 36 (1951) (emphasis added). Since its creation, this Court has applied the implied warranty in instances where the builder-vendor and homebuyer had not agreed to modify the implied
warranty with an express warranty. This Court has never previously established a public policy that prohibits sophisticated parties in all cases from negotiating their own warranty terms—much less a public policy that is “so thoroughly established . . ., so united and so definite and fixed.” Id. Thus, while “[t]he common law . . . is adopted and shall be the rule of decision in all courts of this state,”
¶59 In the majority‘s view, the type of contract a homebuyer enters into does not make a difference. The majority makes clear that no party under any set of circumstances may modify the implied warranty of workmanship and habitability—even if the homebuyer is sophisticated and seeks to purchase a customized home that presents specific risks, for which the homebuyer prefers to negotiate unique coverage in an express warranty. See supra ¶ 35. The majority further indicates that parties may still enter into an express warranty, so long as those terms are in addition to the implied warranty of workmanship and habitability. See supra ¶¶ 16, 20 (stating “if an express warranty is included in a purchase agreement, it may coexist with the implied warranty,” but public policy prohibits enforcement of a disclaimer of the implied warranty). But what about a homebuyer who prefers a contractual term that is less protective than the implied warranty as to one section or component of the home, in exchange for greater and broader protection in another area of the home? What about a homebuyer‘s ability to negotiate a reduced purchase price in exchange for a warranty more limited than the implied warranty? Even here, Zambrano admits her express warranty may in some instances provide greater protection than the implied warranty, as a homebuyer may have a remedy under the express warranty (but not the implied warranty) if there are major structural defects after the statute of repose for the implied warranty has passed. In fact, Zambrano‘s express warranty covers one of the coverage groups for up to ten years against damages from certain variances in materials or workmanship, supra ¶ 5, whereas the statute of repose for the implied warranty is eight years,
¶60 Many other jurisdictions have rejected the categorical rule the majority employs today. See, e.g., Turner v. Westhampton Ct., LLC, 903 So. 2d 82, 93 (Ala. 2004) (“The principle of freedom of contract permits a party to effectively disclaim the implied warranty of habitability.“); Greeves v. Rosenbaum, 965 P.2d 669, 673 (Wyo. 1998) (“The protection afforded to purchasers of a new home, however, does not go so far as to allow the purchasers to ignore their negotiated responsibilities.“); Tusch Enters., 740 P.2d at 1030-31 (explaining “[t]he majority of states permit a disclaimer of an implied warranty of habitability, but the disclaimer must be clear and unambiguous,” and permitting disclaimer of the implied warranty in Idaho where the builder shows a knowing waiver); Bridges v. Ferrell, 685 P.2d 409, 410-11 (Okla. Civ. App. 1984) (explaining the Oklahoma Supreme Court‘s holding “that the implied warranty of habitability could be waived by the parties by agreement. . . . is in accord with the great majority of courts holding that while an implied warranty of habitability is a creature of public policy, a knowing disclaimer of the implied warranty would not be considered against public policy of
¶61 The majority argues that Zambrano signed the “warranty with no variation to the preprinted terms in either document, without representation, and without any negotiation about warranties, suggesting she was in a take-it-or-leave-it situation.” Supra ¶ 21. But there are already well-established legal remedies that could render a contract, including an express warranty, invalid and unenforceable. Indeed, courts decline to enforce contract terms (1) that are unconscionable or illegal; (2) where there was fraud, duress, coercion, misrepresentation, or mistake; and (3) where a contract of adhesion was unconscionable and outside the reasonable expectations of the parties. See
¶62 We are not, as the majority claims, “[e]ffectively eliminating the implied warranty.” Supra ¶ 27. We would continue to apply the implied warranty in cases where the parties have not otherwise agreed to substitute it with an enforceable express warranty. Moreover, contrary to the majority‘s claim, we would not “enforce a waiver and disclaimer provision even absent an express warranty.” Supra ¶ 45. The very nature of the implied warranty is that it applies where there is no warranty at all.5 See Richards, 139 Ariz. at 244-46 (extending implied warranty to subsequent purchasers lacking privity of contract with builder-vendor where record indicated no express warranty). Thus, where parties have a waiver and disclaimer provision that lacks an express warranty, this would mandate application of the implied warranty. See 1800 Ocotillo, 219 Ariz. at 202 ¶ 8 (“[C]ourts should rely on public policy to displace the private ordering of relationships only when the term is contrary to an otherwise identifiable public policy that clearly outweighs any interests in the term‘s enforcement.“).
and, as a matter of separation of powers, more appropriately—left for the legislature to address. The majority attempts to balance various interests of homebuyers and the public at large, supporting its decision by reasoning that: (1) “an implied home warranty is unique in protecting against financial catastrophe for homebuyers and community blight . . . . [P]oorly built homes are not easily discarded or replaced, and their impact can linger for decades,” supra ¶ 34; (2) eliminating the implied warranty would “increas[e] the likelihood that homes would be left unrepaired, to the detriment of homebuyers, their neighbors, and the public generally,” supra ¶ 27; and (3) the implied warranty “minimiz[es] the risk of catastrophic financial losses for all homebuyers,” supra ¶ 25.
¶64 In the context of homebuilding and homebuying, these are policy considerations better suited for the legislature to address, as we are not equipped to evaluate offsetting policy considerations such as the impact to home prices or other economic consequences to the public at large. Indeed, amici have presented competing policy considerations, including that a lack of predictability regarding homebuyer warranties has played a role in increasing home prices—an issue we are unable to consider because we are limited to the parties, facts, and arguments in this case. By contrast, the legislature routinely weighs these types of competing policy considerations. See
¶65 This Court recently explained that a declaration of public policy is primarily a legislative function: “In Arizona, our primary source for identifying a duty based on public policy is our state statutes,” and “in the absence of a statute, we exercise great restraint in declaring public policy.” Quiroz, 243 Ariz. at 566 ¶¶ 18-19 (rejecting a tort duty based on foreseeability); see also Local 266, Int‘l Bhd. of Elec. Workers v. Salt River Project Agric. Improvement & Power Dist., 78 Ariz. 30, 40-41 (1954) (“We have said that statements of public policy must be made by the people through the legislature.“); Ray, 72 Ariz. at 35 (“The declaration of ‘public policy’ is primarily a legislative function.“).6 This Court has appropriately declined to declare public policy in the absence of legislative action in the area of torts. We cannot reconcile the divergent approach today and would apply judicial deference to legislative policymaking in both contexts.
¶66 The legislature has recognized the existence of the implied warranty of workmanship and habitability by creating a statute of repose for such claims,
¶67 The legislature has not rendered the implied warranty non-waivable, nor has it mandated the implied warranty in all instances. This is noteworthy because the legislature has extensively legislated in this area. For example, the legislature has required the Registrar of Contractors to establish “minimum standards for good and workmanlike construction.”
legislature has also created mechanisms for resolving disputes in the homebuilding context, including through “Purchaser Dwelling Actions” and the filing of a complaint with the Registrar of Contractors; and, pursuant to legislative authority, the Registrar of Contractors has issued rules providing mechanisms for resolving disputes. See
¶68 The majority also expresses concern that, if the implied warranty may be modified, subsequent purchasers of a home (who did not enter into an express warranty) may be left with no warranty at all. See supra ¶¶ 26, 46. This issue, however, is not before us, because: (1) Zambrano directly purchased her home from Scott Homes; and (2) there is nothing in this record to indicate Scott Homes recorded the waiver and disclaimer as a covenant, thereby giving notice to subsequent purchasers. Thus, this case does not present this unresolved issue and it should be left for another day. See Richards, 139 Ariz. at 245 (concluding subsequent purchasers can pursue claims against a builder-vendor for breach of the implied warranty, and explaining that “the purpose of a warranty is to protect innocent purchasers and hold builders accountable for their work” and thus “any reasoning which would arbitrarily interpose a first buyer as an obstruction to someone equally deserving of recovery is
incomprehensible” (quoting Moxley v. Laramie Builders, Inc., 600 P.2d 733, 736 (Wyo. 1979))).
¶69 In conclusion, this Court previously held that “absent legislation specifying that a contractual term is unenforceable, courts should rely on public policy to displace the private ordering of relationships only when the term is contrary to an otherwise identifiable public policy that clearly outweighs any interests in the term‘s enforcement.” 1800 Ocotillo, 219 Ariz. at 202 ¶ 8. For the reasons previously stated, we would reject a sweeping rule that the public policy in favor of the implied warranty in all cases “clearly outweighs any interests in the . . . enforcement” of an express warranty to which parties agreed in the course of organizing their private affairs. Id. Trial courts are certainly capable of determining the enforceability
¶70 Here, the trial court considered the 1800 Ocotillo standard and rejected Zambrano‘s public policy arguments under this express warranty. The trial court concluded that: (1) Zambrano‘s “express warranty covers defined structural defects” for “two years more” than “an implied warranty claim;” (2) Zambrano “has not asserted that the ten year express warranty is insufficient in scope so as to fail to protect” Zambrano; and (3) Zambrano “failed to present any controverting evidence to support a conclusion that the waiver and express warranty allow the builder to avoid being held accountable for their work.” We would affirm the trial court‘s grant of summary judgment in favor of Scott Homes on the implied warranty claim.