North Peak Construction, LLC v. Architecture Plus, Ltd. – 4/26/2011

May 2, 2011

Arizona Court of Appeals Division One Holds that Breach of Implied Warranty Claim May Be Brought Against Design Professional and “Very Likely” Sounds in Contract, Despite Lack of Privity.

Plaintiff ( “Builder”) sued Defendants (“Architect”) for alleged failures to properly align plans for a custom home under construction in Scottsdale to provide views of the city lights.  Builder alleged that the error required demolition and rebuilding of construction work already completed.  The complaint alleged negligence and breach of an implied warranty.  Builder alleged that the implied warranty claim arose out of contract for purposes of A.R.S. § 12-341.01(A) (allowing award of reasonable attorneys’ fees to a successful party in an action arising out of contract).

The trial court granted Architect’s motion to dismiss the implied warranty claim, for failure to state a claim.  The trial court reasoned that the implied warranty claim was essentially a claim for attorneys’ fees, and should therefore be dismissed because Builder’s claims sounded in tort, not contract.  The court subsequently granted a motion for summary judgment dismissing the remaining negligence claim under the applicable statute of limitations.  Builder appealed the dismissal of the implied warranty claim.

The Court of Appeals reversed. 

Contracts with design professionals contain an implied warranty “that they have exercised their skills with care and diligence and in a reasonable, non-negligent manner.”  Donnelly Constr. Co. v. Oberg/Hunt/Gilleland, 139 Ariz. 184, 189, 677 P.2d 1292, 1297 (1984) (overruled on other grounds; citation omitted).  The Arizona Supreme Court held in Donnelly that a claim for breach of this implied warranty may be brought against a design professional even in the absence of privity of contract.  Such a claim is similar to a claim for breach of the implied warranty of habitability and workmanlike performance, which the Arizona Supreme Court has held sounds in contract, rather than tort. 

The Court of Appeals, therefore, found that the implied warranty claim brought by Builder “very likely” sounds in contract.  And, the implied warranty claim could be brought despite that the design contracts did not expressly require the home to be designed to ensure a specific view.

The Court denied the parties’ requests for attorneys’ fees on appeal pursuant to A.R.S. § 12-341.01(A).  The statute allows a fee award for claims arising out of implied-in-fact contracts, not implied-in-law contracts.  The implied warranty here is created (or “implied”) by law, and the fee award statute, therefore, does not apply.  The fact that the implied warranty claim likely sounds in a contract does not compel the conclusion that it “arises out of contract” for purposes of A.R.S. § 12-341.01(A).

Judge Gemmill authored the opinion; Judges Johnsen and Brown concurred.