By: Thomas S. Tripodianos Published: September 2007

Warranty Vs Breach of Contract

Question. Homeowners and Builder entered into a written contract for Builder to construct a single family home on Homeowners' property. That contract obligated the Builder to provide labor and materials necessary for such construction in accordance with certain plans and specifications. Those plans stipulated the type of roof and its materials, including specific shingles of a particular manufacturer. The contract also provided that the Builder would “deliver those warranties given under Article 36-B of the General Business Law except as may be contained herein.” The Builder constructed the home and was paid in accordance with the contract. The Builder did not install the shingles as stipulated in the written contract. Rather, Builder installed shingles manufactured by another company.

Homeowners also claim that after the completion of the home problems began developing with the roofing shingles, resulting in some shingles being blown off the roof. They further claim that they contacted the Builder, who refused to address the situation. They contacted the manufacturer of the shingles that were installed, which acknowledged that the shingles were defective and refunded Homeowners the purchase price paid by the Builder. Refund of the shingles' purchase price did not cover installation of a new roof. Homeowners seek compensation from the Builder representing the cost of a new roof less the sum reimbursed by the shingle manufacturer.

Builder claims that he received no written notice of any alleged shingle defect until almost four years after contract completion and that he did replace the shingles that were blown off the roof but refused to replace the entire roof.

Homeowners rely on a breach of contract theory. Builder asserts the Homeowners' had to comply with the requirements of article 36-B of the General Business Law, entitled “Warranties on Sales of New Homes.”1 If the Breach of Contract theory is not available the Homeowners will have no remedy under the warranty as the defect complained of did not arise within the applicable statutory one year warranty period.

Can the Homeowners rely on a breach of contract cause of action?

answer YES. The statutory new home implied warranties imposed by article 36-B of the General Business Law apply to custom homes and protect purchasers of such homes. If a home buyer fails to comply with the statutory requirements for assertion of his rights under the statutory implied warranty, he has no cause of action for breach of contract based upon the builder's or seller's implied obligation of merchantability. Thus, to the extent that Homeowners' cause of action is based upon defective workmanship and materials predicating a claim that the home was not “constructed in a skillful manner as defined in General Business Law § 777(a), the Homeowners' failure to abide the statutory notice and limitations period would bar the action. However, Homeowners assert that the Builder breached the express provision of their contract regarding the manufacturer and type of shingles to be installed This claim is one that is not encompassed within the statutory new home warranty law, and would not be barred by the written notice and abbreviated limitations period applicable to most statutory implied warranty claims. The six year statute of limitations for breach of contract governs, absent agreement to the contrary, which is not alleged in this case. Whether the Homeowners suffered compensable damages is another question.

The Statutory New Home Warranty Law: History and Overview

It has long been cemented in the common law of contracts that, “[a]s a general rule, there is implied in every contract for work or services a duty to perform it skillfully, carefully, diligently, and in a workmanlike manner”. This general rule has also been long understood to apply to housing construction contracts.

Traditionally, once the buyer accepted the deed, he absolved the vendor of all duties under the sales contract. Under the merger doctrine, all contract obligations ‘merged’ into the deed when the seller delivered it to the buyer. If the vendor intended to fulfill additional obligations, the parties had to list the obligations in the deed.

The effect of the merger doctrine was to extinguish claims based upon defective home construction once the buyer accepted title to the underlying real estate. Consequently, because of the perceived unfairness and inequity of this result, the Court of Appeals held that at least in the context of new residential home sales, the merger doctrine applicable upon transfer of title, whether derived from the parties' contract or otherwise by operation of law, would not extinguish the implied warranty

Less than two months after the Court of Appeals decided that case the State Legislature enacted and the Governor signed into law what is now codified as article 36-B of the General Business Law, and known as the new home warranty law.

After enactment of General Business Law article 36-B, there was uncertainty as to whether the common law implied warranty recognized by the Court of Appeals survived the statutory enactment. It became and remains clear that the courts will enforce the notice requirement of the statute as a condition precedent to suit and the abbreviated statute of limitations applicable to statutory new home warranty claims and dismiss actions failing compliance with either or both. As such, it became inevitable that the case would arise where a buyer unable to establish compliance with the notice or statute of limitations requirements of the statutory new home warranty would seek a basis for a remedy outside of the statute.

That case arose in 1998. More than a year after transfer of title, the plaintiff home buyer discovered defects in the sprinkler system master pump, as well as in a bathroom drain, handrail, and plumbing fixture. The plaintiff failed to comply with the condition precedent to suit under the limited warranty given by the builder under the statute. The Court of Appeals ruled that the statutory warranty effected a complete displacement of the common law implied warranty in cases where the statute is applicable and denied the home buyer's claim.

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