With certain purchases, buyers cannot determine whether the purchased items are defective until sometime after the items are purchased and used. For example, when a farmer buys seed, there is no way that the farmer can determine if the seed is defective (such as by failing to germinate properly) until after the seed has been purchased, planted and begins to produce a crop. By the time the farmer realizes that the seed is defective, substantial sums may have been expended to not only buy the seed, but also to plant the seed, spray chemicals for weed control and cultivate the soil. Likewise, the buyer of an automobile may not have the expertise to determine if there is some kind of mechanical defect in the auto due to a manufacturing problem. In these and other similar situations, the law generally provides protection for buyers. The seed buyer, for example, can rely on an implied warranty of merchantability with respect to the seed, and if the seller tries to limit damages to the cost of the seed, most courts would not so limit the buyer’s recovery. As for the automobile buyer, many states have “lemon laws” that provide protection. But, what about subsequent buyers – are they similarly protected? In other words, does the law only protect the first purchaser of the item? Some courts have said that there must there be a contractual relationship between the party that makes the item at issue and the buyer? But, that may no longer be the present trend. This case is an example of what seems to be the modern trend of protecting remote buyers from latent (non-obvious) defects that a reasonable inspection doesn’t disclose.
In this case, the defendant, a homebuilder, constructed a custom-built home in 1995. The house was initially sold to the buyer, who then resold the home. That buyer, in turn, sold the home in 2000 to the plaintiffs. After they moved in, the plaintiffs noticed water damage and mold. It was later determined that the problem resulted from a defectively constructed roof and defective rain gutters. The plaintiffs sued the builder on the basis that the builder breached an implied warranty of workmanlike construction and was negligent in constructing the home. The trial court held that the plaintiffs, as a remote buyer could not rely on an implied warranty of workmanlike construction, and that the claim was, in any event, barred by the statute of limitations. The plaintiffs appealed.
The appellate court reversed. While the court noted that some state courts require a contractual relationship between the seller and the buyer (known as “privity”), other states did not require such a relationship between home buyers and builders. The court noted that the modern trend, for various reasons, is to eliminate the privity requirement in home sale transactions. By definition, a latent defect is not discoverable by the buyer conducting a reasonable inspection, and most buyers don’t have the expertise necessary to discover construction defects. Thus, placing responsibility for damage due to shoddy construction, the court reasoned, should lie with the builder. The court also held that the plaintiff’s claim was not time-barred by the applicable five-year statute of limitations. While the home was built in 1995, the plaintiff filed suit within five years of their purchase of the home. They didn’t have either actual or imputed knowledge of the problems with the home prior to their purchase, so the statute of limitations didn’t begin to run until the time of their purchase. Speight v. Walters Development Co., LTD., 744 N.W.2d 108 (Iowa Sup. Ct. 2008).