AL Supreme Court Allows Homebuyers’ Claims Against Seller’s Repair Company

The Alabama Supreme Court recently held that a prospective home purchaser could proceed to trial on claims against a roofing company based on faulty repairs – even though the prospective purchaser was not a party to the relevant repair contract, and the roofing company maintained it had no intention of benefiting the prospective purchaser. This ruling highlights the need for contractors and repair companies to review contract and warranty terms to reduce risks when working on homes in escrow.

In Iskra v. Bear Roofing, LLC, Joe Iskra and Rani Singh entered into a contract with Kenneth Vinoski to purchase a house. After a home inspection revealed evidence of water in the attic, the Iskras asked Vinoski to repair the source of the leak before closing. Vinoski hired Bear Roofing, LLC, to make repairs. Vinoski informed Bear that he was selling his house and that the leak was documented in an inspection report.

The only evidence memorializing the agreement between Bear and Vinoski was the receipt for the work, which referenced a “Bear Tough” warranty. The receipt made no mention of the Iskras, the inspection report, or that Vinoski was selling the house. Per company policy, the warranty did not automatically transfer (and no one requested that the warranty be transferred).

After the Iskras moved in, they observed a leak in the same location. Despite not being parties to the contract between Vinoski and Bear, the Iskras sued Bear for breach of contract, breach of warranty and negligence. Bear moved for summary judgment, arguing it never intended to benefit the Iskras, that the warranty had never been transferred to the Iskras, and that Bear owed no duty to the Iskras. The Jefferson County Circuit Court sided with Bear. The Alabama Supreme Court disagreed, finding the Iskras presented enough evidence to demonstrate a genuine dispute of material fact to proceed to trial on the following points:

1. Buyers of a home can be intended third-party beneficiaries to a contract between the seller and a repair company where evidence demonstrates the repairs are clearly in contemplation of the sale of the house and that the repair company intended to bestow a direct benefit upon the buyer.
2. Buyers of a home, as third parties, may be able to enforce an express warranty, despite a repair company’s non-transfer policy, where evidence indicates the warranty was meant to cover prospective purchasers and the repair company was aware that repairs were needed to close on the sale of the home.
3. A third-party homebuyer may be able to recover on a negligence claim, even though the buyer is not in privity with the parties to a repair contract, where the buyer relied to his or her detriment on performance and the repair company had knowledge of the buyer’s reliance.

The key point for the court was that Bear had been made aware that Vinoski requested its services to repair deficiencies noted on an inspection report and in connection with the impending sale of the house. This constituted sufficient evidence to preclude summary judgment for Bear and to proceed to trial.

General contractors, subcontractors and any business offering services that might involve prospective home purchasers should consider the following questions when entering into such transactions:

• Is the agreement memorialized in a written contract?
• Who is the work and warranty intended to directly benefit?
• What third parties may claim an intention to benefit and reliance on performance?
• Should the contract include an express disclaimer of any intent to benefit third parties?

Please contact Diane Maughan, Terra Silva, or any member of Phelps’ Litigation team if you have questions or need advice or guidance.