Construction Services Group Alert: Builders Beware—Pennsylvania Superior Court Reaffirms That An Original Builder May Be Liable To Subsequent Remote Residential Purchasers For Construction Defects

No privity of contract, no problem.  That is precisely what the Superior Court of Pennsylvania recently reaffirmed in Adams v. Hellings Builders, Inc., No. 1407 EDA 2015, 2016 WL 4522278 (Pa. Super Ct. Aug. 29, 2016), holding that the second owners of a home had viable claims for fraud and violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. §§ 201-1 et seq. (“UTPCPL”) against the original home builder.

In Hellings, Christopher and Margaret Adams purchased a residence from the Witsky family in 2011.  The home in question was originally constructed by Hellings and the Witskys were the original purchasers of the home in 2008.  In or around 2014, after the Adamses purchased the residence, infrared testing of the home revealed the possible presence of moisture and mold due to defective installation of stucco as originally constructed.  Consequently, the Adamses filed a lawsuit against Hellings in the Court of Common Pleas of Chester County alleging, inter alia, claims for fraud and violation of UTPCPL.  Hellings filed preliminary objections to the fraud and UTPCPL claims asserting that the Adamses “were not the direct purchasers of the property”, that the Adamses “had no direct business dealings” with Hellings, and that Hellings “was never employed by” the Adamses.  Hellings, 2016 WL 4522278, at *1.  Hellings further asserted that the Adamses had “failed to establish that they relied on direct conversations with [Hellings].”  Id.  The trial court sustained Hellings’ preliminary objections and the Adamses subsequently appealed.

On appeal, the Superior Court of Pennsylvania referenced its prior decisions in Woodward v. Dietrich, 548 A.2d 301 (Pa. Super. Ct. 1988) and Valley Forge Towers South Condominium v. Ron-Ike Foam Insulators, Inc., 574 A.2d 641 (Pa. Super. Ct. 1990) as “dispositive of the issues” presented by the Adamses.  Hellings, 2016 WL 4522278, at *3.  Indeed, as explained by the Superior Court, the Woodward and Valley Forge decisions make clear “that fraud and UTPCPL claims may be asserted by third parties against contractors who make representations, despite the absence of privity, when reliance is specially foreseeable and damage proximately results.”  Hellings, 2016 WL 4522278, at *3.  Moreover, because the Superior Court had already determined in Woodward that “a third-party purchaser of property is specially foreseeable”, the critical inquiry and focus in the Hellings case was whether the Adamses had relied on alleged misrepresentations of Hellings prior to purchasing the home.  Hellings, 2016 WL 4522278, at *5.  Viewing the record before it on appeal in this context, the Superior Court concluded that the trial court erred in sustaining Hellings’ preliminary objections insofar as the Adamses’ complaint alleged, inter alia: (i) that “Hellings generally represented, in printed materials and on Hellings’ own website, that it was a reputable builder touting superior quality and construction”; (ii) that Hellings represented in the sales agreement with Witsky “that the home at issue would include a three-coat stucco system according to International Residential Code standards”; (iii) that upon inspection by the Adamses’ expert, “the stucco system did not comply with those standards”; and (iv) that the Adamses “justifiably relied upon Hellings’ misrepresentations in purchasing the home.”  Id.

To be clear, the Superior Court’s decision in Hellings does not represent a change in or departure from existing Pennsylvania appellate court precedent concerning the potential liability of residential builders to subsequent remote purchasers with whom the builder never contracted.  Rather, it serves as a very recent and more eye-catching reminder that a residential builder may be held accountable to subsequent purchasers for defects in construction where the subsequent homeowner can establish that he/she justifiably relied on the original builder’s misrepresentations—regardless of how, when or to whom those misrepresentations are made such as on the internet or in general sales literature—in purchasing the defective home.

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