In Dismissing Homebuyer’s Defective Construction Suit Against Contractor for Lack of Privity, Supreme Court of Utah Cautions Future Homebuyers to Obtain Express Assignment of All Available Warranties at Time of Acquiring Home

Tomlinson v. Douglas Knight Constr., Inc., 2017 Utah Lexis 132 (August 29, 2017)

This case arises out of the construction of a residential property.  Lot 84 Deer Crossing (“Lot 84”) purchased the property and contracted with Douglas Knight Construction, Inc. (“DKC”) to build a house on it.  The parties’ contract included a one-year construction warranty.  Lot 84 then assigned to Outpost Development, Inc. (“Outpost”) all of its rights in the property and the construction agreement.  As the home neared completion, Outpost noticed defects in its construction and, pursuant to the warranty, directed DKC to fix the deficiencies.  Despite DKC’s efforts, the defects remained.  Outpost then sold the home to Joseph Tomlinson, but did not assign to Tomlinson its interests in the DKC construction agreement.  Tomlinson subsequently noticed defects in the home and filed suit against Outpost and DKC.

Shortly thereafter, Outpost declared bankruptcy and was dismissed from the case.  During the bankruptcy proceedings, Tomlinson was assigned an interest in any claims that Outpost had asserted or may assert against DKC.  Tomlinson maintained that this assignment encompassed claims for breach of the DKC construction agreement and amended his complaint to include claims for breach of express and implied warranties.  Tomlinson sought to assert these claims as an assignee of rights of parties in privity with DKC: first, through the assignment made when Outpost purchased the property from Lot 84, and second, through the assignment in Outpost’s bankruptcy proceedings.  The district court rejected these theories and dismissed Tomlinson’s claims, holding that they were barred because Tomlinson had never acquired a direct interest in the DKC construction agreement.

On appeal, the Supreme Court of Utah identified Tomlinson’s claims as arising under Utah Code § 78B-4-513, which provides that (1) an action for defective construction is limited to an action for breach of contract, and (2) the action may be brought only by a person in privity of contract with the original contractor.  The Utah Code also permits these rights to be assigned to homebuyers.  The Supreme Court first held that Tomlinson lacked the required privity of contract with DKC to bring a suit under the Utah Code.  The Supreme Court also held there was no effective assignment.  While Lot 84 had assigned its rights to sue for defective construction to Outpost, Outpost had made no such assignment to Tomlinson.  Moreover, the Outpost bankruptcy assignment included only claims that Outpost “had asserted” as of the time of the bankruptcy or that it “may yet assert” against DKC in the future, neither of which encompassed the claims Tomlinson pursued against DKC.  Accordingly, the Supreme Court held that Tomlinson had no right to sue under § 78B-4-513, and affirmed dismissal of his case.

In its opinion, the Supreme Court offered future homebuyers a footnote of advice, noting:

The outcome would obviously have been different if Tomlinson had acquired Outpost’s claims or interest in the Construction Agreement at the time he purchased the home.  With that in mind, future homebuyers would do well to obtain an express assignment of all available warranties at the time they acquire a home.  And it might well serve the interests of such homebuyers if a standard assignment-of-warranties clause were included in the standard real estate purchase contract.

 To view the full text of the court’s decision, courtesy of Lexis®, click here.

John J. Gazzola

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