IL Supreme Court: If home seller has waived warranty, new buyer can't sue builder for defects

By Jonathan Bilyk | May 19, 2016

Saying any other conclusion would place a potentially “unreasonable” burden on the state’s home builders, a unanimous Illinois Supreme Court has ruled a man whose patio collapsed cannot sue the builder who built the home, because the previous owner from whom he purchased the home had waived her rights to an implied warranty and so could not pass the warranty to future owners of the home.

On May 19, the Illinois State Supreme Court decided 7-0 to affirm the ruling of a Cook County Associate Judge Sanjay T. Tailor, and overturn the ruling of a First District Appellate Court panel, which had held the warranty should still apply in the case of the collapsed patio.

The high court’s opinion effectively ends the five-year legal dispute between plaintiff John Fattah and defendant Mirek Bim, former president of defunct home building company Masterklad Inc.

In 2011, Fattah filed suit against Bim and Masterklad in Cook County Circuit Court, after a retaining wall at his Glenview home had failed, resulting in the collapse of the paved six-foot tall, 1,000-square-foot patio which sloped downward from the rear of the house. Fattah demanded $86,000 in damages.

Illinois Supreme Court  

A little less than a year earlier, Fattah had purchased the house for $1.1 million from previous owner Beth Lubeck. She had, in turn, purchased the house from the home’s original builder, Masterklad, in 2007 for $1.7 million.

However, when Lubeck had purchased the property, she had waived her rights to an implied warranty of habitability – a legal promise that the seller makes ensuring the house and its various accoutrements are suitable for living – in exchange for an expressed warranty from Masterklad.

While Illinois law allows the implied warranty to be passed from one home buyer to another under a sale contract, builders may also ask the buyer to waive the rights to an implied warranty in favor of an expressed warranty as a way of limiting their liability exposure should the home suffer defects after the home is again sold to a different owner.

In this case, the Cook County judge said, because Lubeck had waived her rights to the implied warranty, Fattah did not have the opportunity to sue Bim and Masterklad because he had purchased the house “as is,” even though Fattah asserted he had no knowledge of Lubeck’s arrangement with Masterklad.

The appeals court reversed the judge’s decision, however, as justices there said Lubeck’s waiver should not apply to Fattah because he was not a party to the waiver agreement the “as is” rider was between Fattah and Lubeck, and did not involve Masterklad.

The Supreme Court justices, however, said this reading of the law would be unfair to builders, who may ask a home buyer to waive the warranty in exchange for other consideration, such as an express warranty or even a reduced selling price. The court documents don’t indicate Lubeck obtained a discount in exchange for waiving the implied warranty rights.

Justices noted the purchaser of a home could call upon a builder under an implied warranty to pay for damage caused by “latent defects” caused by poor construction - but only if the new buyer was demanding something to which the previous owner would have also been entitled. In this case, the justices noted, Fattah was demanding rights Lubeck had already waived, and thus, could not have passed on to him in a sale contract.

“The builder-vendor has no means of knowing when the house might be sold by the first purchaser or to whom and, thus, no way of knowing when, or if, liability for latent defects in the construction of the house will reappear,” the justices wrote. “Thus, in this case, extending the implied warranty of habitability to plaintiff would mean that defendants paid the price to obtain the waiver of the implied warranty from Lubeck, by providing and performing under an express warranty, but face liability anyway. This is unreasonable.”

Justices said home builders negotiating purchases of new construction homes over the last four decades have relied on the case law limiting the ability of future home purchasers to sue them over “latent defects.” Should the courts now reverse that precedent, rendering warranty waivers “effectively meaningless,” it “would ensure that no builder-vendor would ever enter into waiver agreements in the future.”

The Supreme Court opinion was authored by Justice Anne M. Burke. Chief Justice Rita B. Garman concurred, along with justices Charles E. Freeman, Robert R. Thomas, Thomas L. Kilbride, Lloyd A. Karmeier and Mary Jane Theis.

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