Daily Development for
Monday, June 9, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

CONDOMINIUMS; ASSOCIATION; CONSTRUCTION CONTRACT: Condominium association is not a third party beneficiary on the contracts and subcontracts between owner, contractors and subcontractors regarding construction of condominium units; further, condominium association cannot sue seller of condominiums under an implied warranty of habitability.

American Towers Owners Association, Inc. v. CCI Mechanical, Inc., 930 P.2d 1182 (Utah 1996).

Condominium owners' association was dissatisfied with the condition of plumbing and mechanical systems within the condominium complex. Seeking a remedy, the condominium association pursued several potential paths for relief, including suing the contractors and subcontractors that installed such systems. The Utah Supreme Court held that in a matter of law there could be no recovery under a theory of breach of contract or of warranty because the condominium association was not in privity with the contracting parties and was not an intended third party beneficiary on the contacts. The Court noted that the mere fact that the contracts contemplated condominiums was not sufficient to make the condominium association a third party beneficiary. Further, the Court made quick work of the negligence claim against the contractors based on economic loss, noting that under the economic loss rule one may not recover "economic losses" under theory of nonintentional tort, since there was no physical property damage or bodily injuries as a result of the inadequate plumbing and mechanical systems, there was no basis for such a claim.

After quickly doing away with an unjust enrichment claim against the contractor, (which the condominium association could not pursue as a stranger to the contracts) the court finally noted that there was no implied warranty of habitability granted by the seller of the condominiums. Each individual condominium buyer had access to his condominium unit to perform inspections. Thus, the court held no warrant of habitability was warranted. The condominium association contended that condominium purchasers are especially subject to latent defects, thus justifying the need for the implied warrant of habitability. The Supreme Court disagreed.

Comment 1: Note that the case does not bar entirely a claim of the association against the seller. It simply holds that the ordinary Utah rules regarding seller's disclosure duties apply in the case of condominiums. Although the condominium owners have something of an argument that they are more likely to be exposed to defects that are difficult to detect than are ordinary homeowners, the fact is that both groups really are "sitting ducks" and some warranty of merchantability.

Comment 2: Had the association prevailed in this case, it might have found itself the beneficiary of a mixed blessing. Although here it sought empowerment, in the next case it might have discovered that with power comes responsibility. Associations in California have discovered that they often are forced to investigate and prosecute defect litigation under circumstances in which they might not find the prospect so enticing, because to fail to do so would result in liability to homeowners.

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