Davencourt v. Davencourt

2009 UT 65
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----oo0oo----
Davencourt at Pilgrims Landing 	No. 20070914
Homeowners Association,
Plaintiff and Appellant,
v.
Davencourt at Pilgrims Landing, LC;
LeGrand Woolstenhulme; Michael D.
Parry Construction Company, Inc.; 	F I L E D
and John Does 1-30,
Defendants and Appellees. 	October 2, 2009
---
Fourth District, Provo Dep’t
The Honorable James R. Taylor
No. 060401118
Attorneys: 	A. Richard Vial, Michael B. Miller, Salt Lake City,
for plaintiff
Stephen Quesenberry, Charles L. Perschon, Provo,
for defendants
Craig C. Coburn, Zachary E. Peterson, Lincoln W.
Hobbs, Julie Ladle, Stanford P. Fitts, William B.
Ingram, Aaron C. Jacobs, Salt Lake City, for amici
American Institute of Architects, Utah Chapter of the
Community Assoc., Community Assocs. Institute,
National Assoc. of Home Builders, Utah Valley Home
Builders Assoc.
---
DURHAM, Chief Justice:
INTRODUCTION
¶1 	Davencourt at Pilgrims Landing Townhome Owners
Association (Association) appeals the district court’s rulings
that granted in part the Motion to Dismiss Complaint filed by
Davencourt at Pilgrims Landing, LC, Le Grand Woolstenhulme, and
Michael D. Parry Construction Company, Inc. (collectively,
Defendants), and that denied the Motion to Amend Complaint and
Reinstate Dismissed Claims filed by the Association. 	We affirm
in part and reverse in part.

No. 20070914 	2
BACKGROUND
¶2 	Davencourt at Pilgrims Landing (the Project) is a
planned unit development. 	The Project is the result of the
design and development efforts by Davencourt at Pilgrims Landing,
LC (Developer), which is managed by its member, LeGrand
Woolstenhulme. 	To construct the Project, the Developer
contracted with Michael D. Parry Construction Company, Inc.
(Builder). 	The Builder constructed, supervised construction, and
inspected the Project for quality and compliance with building
codes. 	When finished, the Project included thirty-eight
buildings, each of which consisted of three to four attached
townhomes, for a total of 145 units with appurtenant common
areas.
¶3 	The Developer planned to sell the 145 units to
individual owners, but before doing so, it organized and
established by a Declaration of Easements, Covenants, Conditions,
and Restrictions (CC&Rs), the Davencourt at Pilgrim’s Landing
Townhome Owners’ Association, a Utah nonprofit corporation.
Pursuant to the Declaration, the Association has the obligation
and duty to maintain and repair the common areas, which include
exterior surfaces and roofs. 	The Association is also responsible
for levying assessments and setting reserves to cover the
maintenance and repair of the common areas.
¶4 	Because no units had been sold at the time of the
Association’s establishment, the Developer was the initial owner
of all the units and the controlling member. 	Thus the Developer,
through Woolstenhulme as the trustee, the president, the
secretary, and the treasurer, controlled the Association. 	The
Developer’s control of the Association continued until its
marketing efforts resulted in the sale of a certain percentage of
the units. 	The Developer then turned over control of the
Association to the owners of the units (Unit Owners) and later
sold the remaining units.
¶5 	In selling the units, the Developer used a standard
form real estate purchase contract for residential construction
in each transaction. 	Also, the Developer represented and
warranted that the Project (1) complied with the building code
and had been inspected for such; (2) consisted of high-quality
structures; (3) was in good condition and properly and fully
maintained; (4) had no faulty workmanship; (5) had no water
intrusion, moisture problems, or other material defects; and
(6) the Association’s budget and monthly assessments were
accurate and adequate for future maintenance, repair, and
replacement.
¶6 	A few years after turnover of the Association to the
Unit Owners, the Association learned of significant problems with

3 	No. 20070914
the Project. 	Water began to seep into the buildings through the
foundation, floors, porches, stucco, sidewalls, exterior walls,
doors, windows, window boxes, and roofs. 	The water intrusion
caused damage to the buildings in the form of dryrot, mold,
staining, and degradation of the stucco. 	Upon hiring a building
envelope specialist, the Association learned that the water
intrusion and resulting damage stemmed from faulty design, faulty
workmanship, defective materials, improper construction, and/or
noncompliance with building codes. 	The building envelope
specialist informed the Association that these flaws and defects,
evident in all the buildings, were present in several latent
construction defects, including: improper installation of stucco;
improper stucco termination points at slabs and foundations;
window boxes designed without a drainage plane, allowing water
into the building cavity; improper integration of the stucco;
missing or inadequate control joints in the stucco to prevent
cracking; missing or improper flashings; and missing, incomplete,
or improperly installed waterproofing at the foundations and
walls of the units.
¶7 	The Association also learned that before construction
began, the Developer and the Builder had obtained a geo-technical
study on the soil and subsurface soils of the Project. 	The
report from the study warned that the Project would rest on
collapsible subsurface soils that would cause land subsidence
without proper preparation. 	Following construction, the land
subsided. 	This land subsidence caused severe structural defects
to the stucco and cement work and contributed to the water
intrusion through the foundation, floors, porches, stucco,
sidewalls, exterior walls, windows, window boxes, and roofs.
¶8 	The Association repeatedly requested that the Developer
and the Builder repair the defects, but they refused to do so.
Because the Association, as required by the CC&Rs, was
responsible for repair of these defects in the common areas, it
turned to its reserves. 	But the level of monthly assessments
that had been established by the Developer during its control of
the Association was inadequate to fund the repair and replacement
costs arising from the construction defects. 	To foot the multi-
million dollar repair cost, the Association faced the choice of
either imposing a special, unexpected assessment on each unit
owner, doing nothing and risk being sued by the unit owners, or
obtaining legal redress from the parties responsible. 	The
Association filed suit.
¶9 	In its complaint, the Association sought recovery of
damages from the Developer, Woolstenhulme, the Builder, and John
Does 1-30 for fifteen causes of action. 	The Association asserted
these causes of action in the following order: (1) against the
Developer, Woolstenhulme, and the Builder: negligence, nuisance,
and negligence per se; (2) against the Developer and

No. 20070914 	4
Woolstenhulme: negligent misrepresentation, misrepresentation and
nondisclosure, and breach of fiduciary duties; (3) against the
Developer: breach of contract, breach of express and implied
warranties, and breach of contract as a third party beneficiary;
(4) against the Builder: breach of contract as a third party
beneficiary; and (5) against John Does 1-30: negligence,
negligent misrepresentation, misrepresentation and nondisclosure,
breach of fiduciary duties; and (6) against all defendants:
equitable subrogation.
¶10 	The Defendants filed a motion to dismiss pursuant to
rule 12(b)(6) of the Utah Rules of Civil Procedure. 	The district
court granted the motion in part. 	Citing to the economic loss
rule, the district court dismissed the claims for negligence,
negligent misrepresentation, negligence per se, and nuisance.
The district court also dismissed the claim for breach of implied
warranties because Utah law does not recognize such warranties,
and it dismissed the claim for breach of express warranty and
breach of contract under the merger doctrine. 	The court denied
the motion as to the remaining claims.
¶11 	Following the issuance of Moore v. Smith, 2007 UT App
101, 158 P.3d 562, and the newly discovered evidence of soil
subsidence, the Association filed a Motion to Amend the Complaint
and Reinstate Dismissed Claims. 	In deciding the motion, the
district court reviewed the Defendants’ original motion to
dismiss in light of Moore and the recent cases of Smith v.
Frandsen, 2004 UT 55, 94 P.3d 919, and Yazd v. Woodside Homes
Corp., 2006 UT 47, 143 P.3d 283. 	Again citing to the economic
loss rule, the district court concluded that the dismissed tort-
based claims were precluded and denied the Association’s motion.
However, the district court granted the Association’s alternative
motion pursuant to rule 54(b) of the Utah Rules of Civil
Procedure to certify its judgment as final. 	We have jurisdiction
over this appeal pursuant to Utah Code section 78A-3-
102(3)(j)(2008).
STANDARD OF REVIEW
¶12 	The decision to “grant a motion to dismiss presents a
question of law that we review for correctness.” 	Citizens for
Responsible Transp. v. Draper City, 2008 UT 43, ¶ 8, 190 P.3d
1245. 	In reviewing a district court’s “order of dismissal
entered pursuant to rule 12(b)(6), we ‘accept the material
allegations in the complaint as true and interpret those facts
and all reasonable inferences drawn therefrom in a light most
favorable to the plaintiff as the non-moving party.’” 	Moss v.
Pete Suazo Utah Athletic Comm’n, 2007 UT 99, ¶ 8, 175 P.3d 1042
(quoting Wagner v. State, 2005 UT 54, ¶ 9, 122 P.3d 599).

5 	No. 20070914
¶13 	We review a district court’s denial of a plaintiff’s
motion to amend a complaint for abuse of discretion. 	Swan Creek
Vill. Homeowners Ass’n v. Warne, 2006 UT 22, ¶ 15, 134 P.3d 1122.
“An abuse of discretion may be demonstrated by showing that the
district court relied on an erroneous conclusion of law.”
Kilpatrick v. Bullough Abatement, Inc., 2008 UT 82, ¶ 23, 199
P.3d 957 (internal quotation marks omitted).
ANALYSIS
¶14 	This appeal presents four main issues for our decision.
They are (I) whether the district court erred in dismissing the
Association’s claims of negligence, negligence per se, negligent
misrepresentation, and nuisance under the economic loss rule;
(II) whether the district court erred in dismissing the
Association’s implied warranty claim; (III) whether the district
court erred in dismissing the Association’s contract and express
warranty claims under the merger doctrine; and (IV) whether the
district court abused its discretion in denying the Association’s
Motion to Amend the Complaint and Reinstate Dismissed Claims. 	We
address each issue in turn.
I. 	THE DISTRICT COURT ERRED, IN PART, IN APPLYING
THE ECONOMIC LOSS RULE
¶15 	The Association argues that the economic loss rule
should not apply because: (A) American Towers Owners Ass’n v. CCI
Mechanical, Inc., 930 P.2d 1182, 1189 (Utah 1996), has been or
should be overruled; (B) the unique relationships in this case
make the economic loss rule inapplicable; (C) the alleged damage
here falls within the “other property” exception to the economic
loss rule; or (D) an independent duty exists outside the scope of
the economic loss rule. 	We reject these first three arguments
and then turn to the question of whether an independent duty
should be recognized.
A. 	The Economic Loss Rule Remains in Force
¶16 	In arguing for nonapplication of the economic loss
rule, the Association questions the continuing validity of
American Towers and invites us to overrule this court’s prior
decision. 	We decline to do so.
¶17 	We are aware of the dicta in Grynberg v. Questar
Pipeline Co., 2003 UT 8, 70 P.3d 1, which the Association
emphasizes. 	In Grynberg, we stated, “[W]e do not find American
Towers Owners Ass’n and SME Industries persuasive authority
regarding the current state of the economic loss rule in . . .
Utah.” 	Id. ¶ 49. 	The Association, however, misinterprets this
statement and disregards the development of the economic loss
rule in our subsequent cases.

1 See Yazd v. Woodside Homes Corp., 2006 UT 47, 143 P.3d
283; Hermansen v. Tasulis, 2002 UT 52, 48 P.3d 235; SME Indus.,
Inc. v. Thompson, Ventulett, Stainback & Assocs., Inc., 2001 UT
54, 28 P.3d 669.
2 See Moore v. Smith, 2007 UT App 101, 158 P.3d 562; West v.
Inter-Fin., Inc., 2006 UT App 222, 139 P.3d 1059; Fennell v.
Green, 2003 UT App 291, 77 P.3d 339; Snow Flower Homeowners Ass’n
v. Snow Flower, Ltd., 2001 UT App 207, 31 P.3d 576.
3 Section 78B-4-513 is not at issue on this appeal since the
Association filed its complaint before the legislature enacted
(continued...)
No. 20070914 	6
¶18 	“The economic loss rule is a judicially created
doctrine that marks the fundamental boundary between contract
law, which protects expectancy interests created through
agreement between the parties, and tort law, which protects
individuals and their property from physical harm by imposing a
duty of reasonable care.” 	SME Indus., Inc. v. Thompson,
Ventulett, Stainback & Assocs., Inc., 2001 UT 54, ¶ 32, 28 P.3d
669. 	“[A]bsent physical property damage [i.e., damage to other
property,] or bodily injury,” this doctrine prohibits recovery of
economic losses. 	Am. Towers, 930 P.2d at 1189. 	Economic losses
are defined as:
Damages for inadequate value, costs of repair
and replacement of the defective product, or
consequent loss of profits--without any claim
of personal injury or damage to other
property . . . as well as the diminution in
the value of the product because it is
inferior in quality and does not work for the
general purposes for which it was
manufactured and sold.
Id. (alteration in original)(internal quotation marks omitted).
In American Towers, this court found the economic loss rule to be
“particularly applicable to claims of negligent construction”
based on the construction industry’s use of “detailed and
comprehensive contracts that form” obligations and expectations,
and it accordingly adopted the rule. 	Id. at 1190. 	Since
American Towers, this court has continued to define and limit the
scope and applicability of the economic loss rule in the context
of construction defect cases. 1 	The court of appeals has followed
suit. 2
¶19 	Moreover, even if we were inclined to overrule American
Towers, the Utah Legislature in 2008 codified the economic loss
rule in Utah Code section 78B-4-513. 3 	With this in mind, we

(...continued)
the statute.
7 	No. 20070914
decline the Association’s invitation to overrule American Towers.
The economic loss rule remains in force and should be applied in
accordance with our precedent. 	We next turn to the Association’s
arguments regarding the unique relationships that characterize
this case.
B. 	The Economic Loss Rule Applies Despite Whatever Unique
Relationship Exists Among the Association, Developer,
Builder, and Unit Owners
¶20 	The Association contends that because of the unique
relationships among the Association, Developer, Builder, and Unit
Owners, the economic loss rule does not apply. 	This scheme of
ownership requires the Association, the real party in interest,
to bear the burden of maintenance, repair, and replacement of
common areas, but leaves the Association outside of the
negotiations upon which the economic loss rule is based. 	We are
unpersuaded; this relationship is not unique.
¶21 	More than a decade ago, a condominium association in
American Towers asserted a negligence claim for “problems with
the complex’s plumbing and mechanical systems.” 	930 P.2d at
1184. 	The condominium association alleged that the defendants,
which consisted of subcontractors, developers, and architects,
“negligently failed ‘to design, construct, supervise and/or
inspect the construction, and/or supply materials for the
construction of the Property.’” 	Id. at 1188. 	Nonetheless, this
court applied the economic loss rule. 	Id. at 1189-92. 	In a
similar context, the Association now asks us to create an
exception to the economic loss rule because the Association had
no contract or opportunity to negotiate. 	For the same reasons
this court first adopted and applied the economic loss rule--to
promote the obligations and expectations created by contract and
to preserve the “intrinsic differences between tort and contract
law”--we decline to do so. 	Id. at 1189 (internal quotation marks
omitted).
¶22 	We cannot ignore the contract expectations that exist
among the Unit Owners, the Developer, and the Builder. 	“[T]o
conclude otherwise would essentially impose the plaintiff[’s]
‘economic expectations upon parties whom the [plaintiff] did not
know and with whom [it] did not deal and upon contracts to which
[it was] not a party.’” 	SME Indus., Inc., 2001 UT 54, ¶ 35
(quoting Am. Towers, 930 P.2d at 1192).
¶23 	Furthermore, the Association’s argument erodes the
basis for the existence of the economic loss rule--the

No. 20070914 	8
distinction between tort and contract law. 	Exempting strangers
to a contract from the economic loss rule would convert a
contract cause of action into one for tort. 	For example,
although a purchaser of a home cannot recover economic losses
under a negligence claim against a subcontractor, the logic
behind the Association’s argument would require recovery because
the purchaser had no contract or opportunity to negotiate. 	Any
existing contract action between the purchaser and the contractor
and the contractor and subcontractor would no longer govern if a
tort cause of action for negligence were permitted. 	The nature
of these relationships does not alter the economic loss rule
merely because a plaintiff had no contract or opportunity to
negotiate a contract. 	A contrary rule would frustrate the
economic expectations of the contracting parties and undermine
the intrinsic differences in contract and negligence law.
C. 	Construction Components Integrated into a Finished
Product Do Not Constitute “Other Property”
¶24 	The Association also argues that the economic loss rule
does not apply because the alleged widespread physical damage to
the units and common areas caused by water intrusion through
leaky roofs, foundations, and siding, falls under the “other
property” exception of the economic loss rule. 	Specifically, the
Association asserts the exception applies because components of a
townhome, such as a roof or foundation, retain their separate
characteristics.
¶25 	Where a defect causes physical damage to “other
property,” the economic loss rule will not bar recovery. 	See Am.
Towers, 930 P.2d at 1191. 	Although this court has never
precisely defined what constitutes “other property,” we have
previously decided the specific issue before us. 	Proposing a
similar argument, the condominium association in American Towers
likewise sought the exception of “other property” by alleging
that “its members suffered damage to walls, wall coverings,
carpeting, wall hangings, curtains, and other furnishings.” 	Id.
We rejected this argument because “[t]his deterioration of the
complex does not qualify for the ‘damage to other property’
exception to the economic loss doctrine” where the “‘property’
was the entire complex itself that was constructed as an
integrated unit under one general contract.” 	Id. 	As an
integrated product the owners “bought finished products--
dwellings--not the individual components of those dwellings.
They bargained for the finished products, not their various
components. 	The [allegedly defective component] became an
integral part of the finished product and, thus, did not injure
‘other’ property.” 	Id. (quoting Casa Clara Condo. Ass’n v.
Charley Toppino & Sons, Inc., 620 So. 2d 1244, 1247 (Fla. 1993)).

4 See Yazd, 2006 UT 47, ¶ 35 (holding that a contractor-
seller owes a home purchaser “a duty to disclose information
known to him concerning real property”); Hermansen, 2002 UT 52,
¶¶ 14, 22-23 (imposing an independent duty to disclose “known
material defects” on real estate agents based on their statutory
duty to be “honest, ethical, and competent” and their “direct
relationship” with purchasers); Moore v. Smith, 2007 UT App 101,
¶ 36 (ruling that a contractor-seller owes a duty to disclose
material information to home purchaser); West v. Inter-Fin.,
Inc., 2006 UT App 222, ¶ 22, (finding that real estate
appraisers, similar to real estate agents, have an independent
duty of care to buyers with whom a direct relationship exists).
9 	No. 20070914
¶26 	Likewise, the Unit Owners here did not separately
bargain for and purchase individual components when they acquired
their townhomes. 	Rather, each purchased a finished product,
which included the integral components of the roof, the
foundation, and the siding. 	To contend that these integral
components somehow retain a separate character apart from the
final product of the townhome goes too far. 	The “other property”
exception to the economic loss rule therefore does not apply in
this case.
D. 	The Existence and Scope of Independent Duties
¶27 	Where the economic loss rule is at issue, the “initial
inquiry” becomes “whether a duty exists independent of any
contractual obligations between the parties.” 	Hermansen v.
Tasulis, 2002 UT 52, ¶ 17, 48 P.3d 235. 	If we find that an
independent duty exists under the law, “the economic loss rule
does not bar a tort claim ‘because the claim is based on a
recognized independent duty of care and thus does not fall within
the scope of the rule.’” 	Id. (quoting Town of Alma v. Azco
Constr., Inc., 10 P.3d 1256, 1263 (Colo. 2000)). 	“The question
of whether a duty exists is a question of law” and involves the
“examination of the legal relationships between the parties,” “an
analysis of the duties created by these relationships,” and
“policy judgments applied to relationships.” Yazd v. Woodside
Homes Corp., 2006 UT 47, ¶¶ 15, 17, 143 P.3d 283 (internal
quotation marks omitted).
¶28 	In the context of construction defect cases, Utah
courts have found independent duties in a variety of
relationships. 4 	The Association argues that four independent
duties exist among the parties. 	We address each in turn.

No. 20070914 	10
1. 	Neither the Builder, the Developer, Nor Woolstenhulme, in
Their Respective Expertise and Relationships, Owe the
Nonpurchasing Association an Independent Duty
¶29 	First, the Association asks us to extend and apply the
independent duty that a contractor-seller owes to a home
purchaser. 	Because of the distinctions in expertise and
relationships at issue, we decline to do so.
¶30 	In Yazd, we ruled that a contractor-seller owes an
independent duty to a home purchaser to disclose known material
information regarding the real property. 	2006 UT 47, ¶ 35. 	In
imposing this duty, we identified two important concepts. 	First,
we emphasized that a contractor-seller possesses “a high degree
of knowledge and expertise” compared to a home buyer. 	Id. ¶ 24;
see also Smith v. Frandsen, 2004 UT 55, ¶ 18, 94 P.3d 919 (“[T]he
law imputes to builders and contractors a high degree of
specialized knowledge and expertise with regard to residential
construction.”). 	Second, we recognized a relationship wherein
“the disparity in skill and knowledge” between a home buyer and
contractor-seller leads the home purchaser to rely on the
contractor-seller’s expertise. 	Yazd, 2006 UT 47, ¶ 24. 	Privity
of contract between a contractor-seller and a home purchaser, as
in Yazd, illustrates this relationship. 	Id. 	Nonetheless,
privity of contract is not necessary where a direct relationship
exists. 	See Hermansen, 2002 UT 52, ¶ 14 (ruling that despite the
lack of privity, a real estate agent owes an independent duty to
a purchaser based on the “direct relationship between buyers, a
real estate broker, and his agent”). 	These two concepts applied
to each of the defendants before us reveal that no independent
duty exists between Defendants and the Association.
¶31 	Although we recognize in this case that Defendants
possess a high degree of knowledge and expertise, the defects
alleged limit the relevant knowledge and expertise to the
Builder. 	As in Yazd, the Builder is deemed to have a high degree
of knowledge and expertise. 	The Association argues that the
Developer possesses a similar knowledge and expertise. 	In
Loveland v. Orem City Corp., we imposed a duty of care upon a
developer to disclose to the purchaser latent conditions that
made subdivided lots unsuitable, based on the developer’s expert
knowledge of which lots were suitable for construction. 	746 P.2d
763, 769 (Utah 1987). 	In this case, however, the defects pled
relate to the construction of the townhomes. 	Because the Builder
constructed the townhomes, the Developer cannot be deemed to
possess the degree of knowledge and expertise necessary for an
independent duty.
¶32 	There is, however, the question of the alleged soil
subsidence. 	The Developer allegedly received a report on a geo-
technical survey prior to construction. 	Since this report of

11 	No. 20070914
potential soil subsidence would or should have been taken into
account in the development of the townhomes, these allegations
could establish facts for which the Developer would possess a
high degree of knowledge and expertise necessary for an
independent duty. 	Notwithstanding the alleged knowledge and
expertise of the Builder or the Developer on this question,
however, the Association lacks the requisite relationship with
either.
¶33 	Knowledge and expertise alone do not establish an
independent duty; privity or a direct relationship is also
required. 	The Association has no privity of contract or a direct
relationship that would lead it to rely on any of the Defendants.
Unlike Yazd, the Builder here was not the seller. 	Rather, the
Developer contracted with the Builder to construct the townhomes,
and the Developer sold them. 	Moreover, the Unit Owners, not the
Association, purchased the townhomes from the Developer. 	These
arrangements limit privity of contract to the Builder and the
Developer or to the Unit Owners and the Developer. 	The
Association lacks any kind of relationship with the Builder. 	And
while the Association has a relationship with the Developer and
Woolstenhulme, in that they created and subsequently ran the
Association until the Unit Owners took control, this relationship
presents no reliance based on a disparity of expertise.
Accordingly, no independent duty arises under the expertise and
relationship that a contractor-seller owes a home purchaser.
2. 	The Limited Fiduciary Duty Owed by a Developer in Control of
a Homeowner’s Association Falls Outside the Scope of the Economic
Loss Rule
¶34 	The Association next argues that the district court
erred where it ruled that the Developer and Woolstenhulme owed no
duty or that “any duty the developer had to the homeowners
association would essentially be to itself.” 	The Association
emphasizes that because the Developer and Woolstenhulme
established and initially operated the Association, they owed the
Association a fiduciary duty that lies outside the economic loss
rule. 	We agree to an extent with the Association.
¶35 	We have yet to consider what, if any, duty a developer
owes where it establishes and initially controls a homeowners
association. 	The Association urges us to impose a broad
fiduciary duty under the Utah Revised Nonprofit Corporation Act.
See Utah Code Ann. §§ 16-6a-101 to -1705 (2005). 	The Act
requires directors and officers of a nonprofit corporation to
discharge their duties in good faith, with the care of an
ordinarily prudent person in a like position under similar
circumstances and according to the best interests of the
corporation. 	Id. § 16-6a-822. 	While the Act may serve as a
basis for imposing a broad fiduciary duty in a nonprofit setting,

No. 20070914 	12
the inherent conflict that a developer faces in promoting and
marketing property for a profit, while simultaneously ensuring
the interests of a homeowners association and its members, causes
us to look elsewhere.
¶36 	The Restatement (Third) of Property offers guidance.
It recognizes that a developer owes certain limited duties to an
association and its members. 	Section 6.20 of the Restatement
provides:
Until the developer relinquishes control
of the association to the members, the
developer owes the following duties to the
association and its members:
(1) to use reasonable care and prudence
in managing and maintaining the common
property;
(2) to establish a sound fiscal basis
for the association by imposing and
collecting assessments and establishing
reserves for the maintenance and replacement
of common property;
(3) to disclose the amount by which the
developer is providing or subsidizing
services that the association is or will be
obligated to provide;
(4) to maintain records and to account
for the financial affairs of the association
from its inception;
(5) to comply with and enforce the terms
of the governing documents, including design
controls, land-use restrictions, and the
payment of assessments;
(6) to disclose all material facts and
circumstances affecting the condition of the
property that the association is responsible
for maintaining; and
(7) to disclose all material facts and
circumstances affecting the financial
condition of the association, including the
interest of the developer and the developer’s
affiliates in any contract, lease, or other
agreement entered into by the association.

13 	No. 20070914
Restatement (Third) of Property: Servitudes § 6.20 (2000)
(emphases added). 	We agree with this articulation of the duties
owed in such a relationship and adopt this section of the
Restatement.
¶37 	We also embrace the Restatement’s concept of the fine
line drawn between a typical fiduciary duty and this limited
fiduciary duty. 	This concept arises from the nature of the
developer’s relationship with the association and its members.
The Restatement expounds that “[t]reating the developer and its
appointees to the board as trustees overstates the fiduciary
component of the relationship.” 	Id. cmt. a. 	Given the
developer’s self-interest, “[t]he developer cannot be expected to
act solely in the interests for the association and the
homeowners. 	Conflicts of interest are inherent in the
developer’s role while it retains control of the association.”
Id. 	While the developer thus should not be a fiduciary in the
broadest sense, we are nonetheless convinced that the developer’s
control in this nonprofit association requires certain interests
of the members and the association be protected. 	See id. 	This
is achieved by the limited fiduciary duty.
¶38 	In adopting this limited fiduciary duty, we recognize
that it constitutes a newly-recognized independent duty of care
in Utah. 	This recognition comports with our past treatment of
independent duties. 	For example, we have imposed an independent
duty on real estate agents, who, “though not occupying a
fiduciary relationship,” are “expected to be honest, ethical, and
competent” and have a “direct relationship” with purchasers.
Hermansen, 2002 UT 52, ¶¶ 14, 22-23. 	The limited fiduciary duty
between a developer and an association or its members also
constitutes a type of special relationship that gives rise to an
independent duty. 	See, e.g., Grynberg v. Agri Tech, Inc., 10
P.3d 1267, 1271 (Colo. 2000) (citing to cases wherein fiduciary
relationships, such as attorney-client relationship, physician-
patient relationship, or insurer-insured relationship,
“automatically trigger[ed] independent duties of care”). 	And
despite the recovery of what would otherwise be considered
economic loss damages, claims arising under a fiduciary duty,
similar to fraud claims, lie outside the scope of the economic
loss rule. 	See Town of Alma, 10 P.3d at 1263 (“[S]ome torts are
expressly designed to remedy pure economic loss (e.g.,
professional negligence, fraud, and breach of fiduciary duty).”).
Therefore, because a limited fiduciary duty constitutes an
independent duty of care, tort claims brought under this duty
fall outside the scope of the economic loss rule. 	See Hermansen,
2002 UT 52, ¶ 17.
¶39 	This limited fiduciary duty does not permit any and all
tort claims to be brought. 	Instead, only those tort claims that
stem from this independent, limited fiduciary duty are permitted.

5 We note that the pending action for breach of fiduciary
duty may best resolve those allegations arising under the
negligence and negligent misrepresentation claims. 	These
allegations implicate the limited fiduciary duty that a developer
owes to a homeowners association and its members. 	Where breach
of such a duty is similar to another form of negligence,
duplicative recovery of the economic losses sought should be
avoided. 	Cf. Moore v. Smith, 2007 UT App 101, ¶ 36 n.12, 158
P.3d 562 (“Because the facts required to prove both negligent
misrepresentation and fraudulent concealment are similar, and the
only difference between the two claims is a lesser mental state
for negligent misrepresentation, we conclude that the
[defendants] can be liable for only one or the other regarding
each defect at issue in this case.”).
No. 20070914 	14
Recovery by the Association is therefore restricted to the common
areas. 	The Association may only bring its claims for negligence
and negligent misrepresentation in relation to the Developer’s
and Woolstenhulme’s failures to use reasonable care and prudence
in managing and maintaining the common property, to establish a
sound fiscal basis for the Association by imposing and collecting
assessments and establishing reserves for the maintenance and
replacement of common property, and to disclose all material
facts and circumstances affecting the condition of the property
that the Association is responsible for maintaining. 	See
Restatement (Third) of Property: Servitudes § 	6.20(1)-(2), (6)
(2000). 	Consequently, the claims of negligence per se and
nuisance, which the Association predicated respectively on
noncompliance with the building code and the intrusion of water,
do not arise from the fiduciary duty and are thus precluded by
the economic loss rule.
¶40 	Accordingly, we hold that the Developer and
Woolstenhulme owed an independent duty to the Association, and we
reverse the district court on this point. 	The Association may
bring its claims for negligence and negligent misrepresentation
against the Developer and Woolstenhulme insofar as the claims
stem from the limited fiduciary duty owed. 5 	On remand, certain
factual questions regarding the scope of the fiduciary duty
should be resolved, including when the Developer and
Woolstenhulme relinquished control of the Association, an act
that would mark the termination of the duty owed.
3. 	Utah Does Not Recognize an Independent Duty to Conform to the
Building Code
¶41 	The Association urges us to adopt an independent duty
to build in conformity with the building code. 	Although two
other state courts have adopted a similar duty, we are not
persuaded to do so in Utah.

15 	No. 20070914
¶42 	In Kennedy v. Columbia Lumber & Manufacturing Co., the
Supreme Court of South Carolina held that a builder may be liable
to a home buyer for a negligence claim where the builder violates
an applicable building code. 	384 S.E.2d 730, 737 (S.C. 1989).
Although the court noted that “a violation of a building code
violates a legal duty,” it did so with no analysis. 	Id. 	Instead
it relied on its state court of appeals’ decision in Kincaid v.
Landing Development Corp., 344 S.E.2d 869 (S.C. Ct. App. 1986).
Our review of Kincaid reveals that the court of appeals made no
such mention of a legal duty; rather the court ruled that a trial
court erred in charging a jury that violations of a standard
building code is negligence per se. 	See 344 S.E.2d at 871-72.
In Association of Apartment Owners of Newtown Meadows v. Venture
15, Inc., the Supreme Court of Hawaii adopted the approach of
Kennedy. 	167 P.3d 225, 288 (Haw. 2007). 	That court likewise
noted that “a violation of a building code violates a legal
duty.” 	Id. (internal quotation marks omitted). 	But instead of
undertaking its own analysis, the court relied on Kennedy for the
proposition. 	Id.
¶43 	From our own analysis, we do not believe that building
codes create an independent legal duty for purposes of avoiding
the economic loss rule. 	The inquiry into “the existence and
scope of the duty owed the plaintiff by the defendant,” Yazd,
2006 UT 47, ¶ 11, includes a determination of who owes the duty,
what the duty owed is, and to whom the duty is owed. 	A per se
rule is inappropriate.
¶44 	No common-law duty exists that creates a duty to
conform to building codes. 	Turning to statute, the Uniform
Building Standards Act lays the foundation for building codes.
See Utah Code Ann. §§ 58-56-1 to -20 (2007 & Supp. 2008).
Although section 58-56-8 creates a statutory basis for compliance
with building codes, it does not by itself create the duty argued
for by the Association. 	The plain language of that section
indicates that material violations of the code occur when done
“in a manner to jeopardize the public health, safety, and
welfare.” 	Id. § 58-56-8(2) (2007). 	Consequently, the statute
exists to promote safety, rather than to aid in the recovery of
damages. 	Moreover, assuming a duty is owed under the statute,
that duty is to the public. 	If a statutory duty is to exist that
lies outside the scope of the economic loss rule, we leave it to
the decision of the legislature, as has been done in other
states. 	See Comptech Int’l, Inc. v. Milam Commerce Park, Ltd.,
753 So. 2d 1219, 1221-23 (Fla. 1999) (upholding statutory cause
of action that provides for recovery of damages as the result of
violation of the state building codes). 	Given the paucity of
decisions and the lack of a statutory basis under Utah law, we
decline to rule that an independent duty exists under the

No. 20070914 	16
building code. 	Therefore, the district court properly dismissed
the Association’s claim for negligence per se.
4. 	Utah Does Not Recognize an Independent Duty to Act Without
Negligence in the Construction of a Home
¶45 	The last independent duty the Association asks us to
recognize is a duty to act without negligence in the construction
of a home. 	The district court refused to make the “extraordinary
leap” of adopting this independent duty. 	We likewise decline.
¶46 	In seeking this independent duty, the Association again
misinterprets our case law. 	Once more emphasizing the dicta in
Grynberg v. Questar Pipeline Co. that American Towers is not
“persuasive authority regarding the current state of the economic
loss rule in . . . Utah,” 2003 UT 8, ¶ 49, 70 P.3d 1, and our
adoption in Hermansen of Colorado’s independent duty analysis,
2002 UT 52, ¶ 17, the Association contends that we abandoned the
economic loss rule as set forth in American Towers and expressly
adopted Colorado’s interpretation. 	We have not. 	Although we
have agreed with Colorado regarding the independent duty
analysis, we have not abandoned our own line of cases
interpreting and applying the economic loss rule. 	Nor do we
wholly adopt all of the independent duties recognized by
Colorado.
¶47 	In Town of Alma v. Azco Construction, Inc., the
Colorado Supreme Court adopted the economic loss rule and the
accompanying independent duty analysis. 	10 P.3d 1256, 1264
(Colo. 2000). 	The court then sought to reconcile its previous
line of cases in which negligence claims for property damage had
been allowed. 	Id. at 1265-66. 	In doing so, the court reasoned
that Cosmopolitan Homes, Inc. v. Weller, 663 P.2d 1041 (Colo.
1983), imposed an independent duty on a builder to act without
negligence in the construction of a home. 	Town of Alma, 10 P.3d
at 1265-66. 	This assertion was, however, more a result of post
hoc rationalization to save precedent than anything else. 	See
A.C. Excavating v. Yacht Club II Homeowners Ass’n, 114 P.3d 862,
871 (Colo. 2005) (Kourlis, J., dissenting) (noting that
Cosmopolitan Homes as precedent is similar to a “large, venerable
tree[] allowed to stand in the midst of a new thoroughfare” and
is “inconsistent with the development of the law in this court”).
“[M]easured against the economic loss rule,” see id. at 870, we
cannot adopt this duty. 	While protecting homebuyers may be a
good public policy justification to impose a duty, the parties in
this case simply lack the legal relationship necessary to find a
duty. 	See Yazd, 2006 UT 47, ¶ 15. 	Therefore, we conclude that
the district court properly rejected the independent duty to act
without negligence in the construction of a home.

6 See Am. Towers Owners Ass’n v. CCI Mech., Inc., 930 P.2d
1182, 1193 (Utah 1996); Arnell v. Salt Lake County Bd. of
Adjustment, 2005 UT App 165, ¶¶ 47-48, 112 P.3d 1214; Fennell v.
Green, 2003 UT App 291, ¶ 16, 77 P.3d 339; Snow Flower Homeowners
Ass’n v. Snow Flower, Ltd., 2001 UT App 207, ¶¶ 28-30, 31 P.3d
576; Schafir v. Harrigan, 879 P.2d 1384, 1389 (Utah Ct. App.
1994); Maack v. Res. Design & Constr., Inc., 875 P.2d 570, 582-83
(Utah Ct. App. 1994).
17 	No. 20070914
¶48 	Having analyzed each of the proposed independent
duties, we hold that the district court erred because a limited
fiduciary duty existed, and we thus reverse the district court’s
dismissal of the Association’s negligence and negligent
misrepresentation claims against the Developer and Woolstenhulme.
We, however, affirm the district court’s remaining conclusion
that no other duty existed, and we hold that it properly
dismissed the negligence claims against the Builder and the
negligence per se and nuisance claims against Defendants.
II. 	UTAH RECOGNIZES A CAUSE OF ACTION FOR BREACH OF THE
IMPLIED WARRANTY OF WORKMANLIKE MANNER AND HABITABILITY
¶49 	The Association next asserts that the district court
erred by dismissing the claim for breach of implied warranties.
The district court correctly noted that this court has yet to
recognize such a claim in the sale of a new residence; we do so
now.
¶50 	Utah courts have historically refused to recognize an
implied warranty of workmanlike manner and habitability in the
context of new residential sales. 6 	In American Towers Owners
Ass’n v. CCI Mechanical, Inc., the court explained its refusal:
The main policy reasons behind extending
an implied warranty of habitability to
residential leases are the unequal bargaining
position of the parties and the prospective
tenant’s limited ability to inspect and
repair the property. 	These policy reasons
are not present to the same degree in the
purchase of residential property. 	The
purchaser has the right to inspect the house
before the purchase as thoroughly as that
individual desires, and to condition purchase
of the house upon a satisfactory inspection
report. 	Further, if there are particular
concerns about a home, the parties can
contract for an express written warranty from
the seller. 	Finally, if there are material
latent defects of which the seller was aware,

7 See Carpenter v. Donohoe, 388 P.2d 399, 402 (Colo. 1964);
Schipper v. Levitt & Sons, Inc., 207 A.2d 314, 325-26 (N.J.
1965); Bethlahmy v. Bechtel, 415 P.2d 698, 711-12 (Idaho 1966);
Waggoner v. Midw. Dev., Inc., 154 N.W.2d 803, 809 (S.D. 1967);
Humber v. Morton, 426 S.W.2d 554, 561-62 (Tex. 1968); House v.
Thornton, 457 P.2d 199, 204 (Wash. 1969).
8 See Cochran v. Keeton, 252 So. 2d 313, 314 (Ala. 1971);
Lewis v. Anchorage Asphalt Paving Co., 535 P.2d 1188, 1196
(Alaska 1975); Columbia W. Corp. v. Vela, 592 P.2d 1294, 1299
(Ariz. Ct. App. 1979); Wawak v. Stewart, 449 S.W.2d 922, 926
(Ark. 1970); Pollard v. Saxe & Yolles Dev. Co., 525 P.2d 88, 91
(Cal. 1974); Carpenter v. Donohoe, 388 P.2d 399, 402 (Colo.
1964); Vernali v. Centrella, 266 A.2d 200, 203-04 (Conn. Super.
Ct. 1970); Council of Unit Owners of Breakwater House Condo. v.
Simpler, 603 A.2d 792, 795 (Del. 1992); Gable v. Silver, 258
So.2d 11, 18 (Fla. Dist. Ct. App. 1972); Ass'n of Apartment
(continued...)
No. 20070914 	18
the buyer may have a cause of action in
fraud. 	Therefore, the circumstances
presented to the purchaser of a residence are
not closely analogous to those of a
relatively powerless lessee . . . .
930 P.2d 1182, 1193 (Utah 1996) (omission in original)(quoting
Maack v. Res. Design & Constr., Inc., 875 P.2d 570, 582-83 (Utah
Ct. App. 1994)). 	After reviewing the state of the case law from
around the country, we conclude that our rule has become an
anachronism.
¶51 	During the first half of the twentieth century, the
doctrine of caveat emptor in new residential construction led
courts to reject implied warranties. 	Underlying this almost
universal doctrine was the theory of equal bargaining power in
contract and the ability and opportunity to inspect. 	12 Thompson
on Real Property § 99.06(a)(2) (David A. Thomas ed., 2d Thomas
ed. 2008). 	With the boom in post-World War II construction, the
tide changed. 	Id. 	In the late 1950s, the first American court
recognized an implied warranty in the sale of a new home.
Vanderschrier v. Aaron, 140 N.E.2d 819, 821 (Ohio Ct. App. 1957).
Other courts followed suit in the 1960s. 7 	By the 1980s, the
minority became the majority. 	See Conklin v. Hurley, 428 So. 2d
654, 656 n.2 (Fla. 1983) (citing to thirty-three states that
recognize an implied warranty of habitability of new homes).
¶52 	Today, by common law or statutory law, an overwhelming
majority of jurisdictions recognize an implied warranty in the
purchase of new residential property. 	Forty-five states have
adopted an implied warranty in some form and Hawaii appears to
have done so in dicta. 8 	Forty-three states provide for an

8 (...continued)
Owners of Newtown Meadows v. Venture 15, Inc., 167 P.3d 225, 246-
48 (Haw. 2007); Bethlahmy v. Bechtel, 415 P.2d 698, 711-12 (Idaho
1966); Petersen v. Hubschman Constr. Co., 389 N.E.2d 1154, 1157-
58 (Ill. 1979); Theis v. Heuer, 280 N.E.2d 300, 306 (Ind. 1972);
Kirk v. Ridgway, 373 N.W.2d 491, 496 (Iowa 1985); McFeeters v.
Renollet, 500 P.2d 47, 52-53 (Kan. 1972); Crawley v. Terhune, 437
S.W.2d 743, 745 (Ky. 1969); Indus. Roofing & Sheet v. J.C.
Dellinger Mem’l Trust, 751 So. 2d 928, 939 (La. Ct. App. 1999);
Banville v. Huckins, 407 A.2d 294, 296 (Me. 1979); Loch Hill
Constr. Co. v. Fricke, 399 A.2d 883, 887 (Md. 1979); Albrecht v.
Clifford, 767 N.E.2d 42, 46 (Mass. 2002); Weeks v. Slavik
Builders, Inc., 180 N.W.2d 503, 506 (Mich. Ct. App. 1970);
Robertson Lumber Co. v. Stephen Farmers Coop. Elevator Co., 143
N.W.2d 622, 626 (Minn. 1966); Brown v. Elton Chalk, Inc., 358
So. 2d 721, 722 (Miss. 1978); Smith v. Old Warson Dev. Co., 479
S.W.2d 795, 801 (Mo. 1972); Chandler v. Madsen, 642 P.2d 1028,
1031 (Mont. 1982); Henggeler v. Jindra, 214 N.W.2d 925, 926 (Neb.
1974); Radaker v. Scott, 855 P.2d 1037, 1042 (Nev. 1993); Norton
v. Burleaud, 342 A.2d 629, 630 (N.H. 1975); Schipper v. Levitt &
Sons, Inc., 207 A.2d 314, 325-26 (N.J. 1965); De Roche v. Dame,
75 A.D.2d 384, 392 (N.Y. App. Div. 1980); Hartley v. Ballou, 209
S.E. 2d 776, 783 (N.C. 1974); Mitchem v. Johnson, 218 N.E.2d 594,
597 (Ohio 1966); Jeanguneat v. Jackie Hames Constr. Co., 576 P.2d
761, 764 (Okla. 1978); Yepsen v. Burgess, 525 P.2d 1019, 1022
(Or. 1974); Elderkin v. Gaster, 288 A.2d 771, 777 (Pa. 1972);
Padula v. J.J. Deb-Cin Homes, Inc., 298 A.2d 529, 531 (R.I.
1973); Rutledge v. Dodenhoff, 175 S.E.2d 792, 795 (S.C. 1970);
Waggoner v. Midw. Dev., Inc., 154 N.W.2d 803, 809 (S.D. 1967);
Dixon v. Mountain City Constr. Co., 632 S.W.2d 538, 541-42 (Tenn.
1982); Humber v. Morton, 426 S.W.2d 554, 561-62 (Tex. 1968);
Rothberg v. Olenik, 262 A.2d 461, 467 (Vt. 1970); Seabright v.
Nesselrodt, 4 Va. Cir. 322, 323 (Va. Cir. Ct. 1985); House v.
Thornton, 457 P.2d 199, 204 (Wash. 1969); Gamble v. Main, 300
S.E.2d 110, 114 (W. Va. 1983); Shisler v. Frank, No. 97-2310,
1998 Wisc. App. LEXIS 1546 at *13-14 (Wisc. Ct. App. May 21,
1998); Tavares v. Horstman, 542 P.2d 1275, 1282 (Wyo. 1975).
9 See Council of Unit Owners of Breakwater House Condo., 603
A.2d at 793 (rejecting implied warranty of habitability because
redundant of implied warranty of workmanlike manner that exists
in new residential construction against developer); Moglia v.
McNeil Co., 700 N.W.2d 608, 616-17 (Neb. 2005) (applying implied
warranty of workmanlike performance to subsequent purchasers but
(continued...)
19 	No. 20070914
implied warranty of habitability. 	Besides the four states that
do not recognize any implied warranty, only Delaware, Nebraska,
and Ohio expressly reject the implied warranty of habitability;
yet those three states each provide for an implied warranty of
workmanlike manner. 9 	Out of the four states that have not

9 (...continued)
refusing to do the same with implied warranty of habitability
because “Nebraska has not adopted a cause of action based on
implied warranty of habitability”); Mitchem, 218 N.E.2d at 597
(recognizing an implied warranty for workmanlike manner, but not
for suitability).
10 See Newcum v. Lawson, 684 P.2d 534, 541 (N.M. Ct. App.
1984) (avoiding the question because the contract disclaimed any
warranties); Barnes v. Mitzel Builders, Inc., 526 N.W.2d 244, 246
n.1 (N.D. 1995) (noting that issue was withdrawn from appeal, but
that “[i]n a proper case, an implied warranty of fitness may
apply to the construction of a residential home.”).
11 See Holmes v. Worthey, 282 S.E.2d 919, 926 (Ga. Ct. App.
1981); Am. Towers, 930 P.2d at 1193.
12 Holmes, 282 S.E.2d at 926 (“[W]e hold that while the
buyer of a dwelling in this state presently may have no action
under implied warranty, he does have a cause of action in
negligence against a builder or a builder-seller for defective
construction . . . .”).
No. 20070914 	20
adopted any implied warranty, two states, New Mexico and North
Dakota, have not directly addressed or answered the issue. 10 	The
two remaining states, Georgia and Utah, have expressly rejected
implied warranties. 11 	But Georgia does so because it allows
recovery under negligence theory. 12 	This leaves Utah in a
minority of one.
¶53 	Although the implied warranties adopted by courts “are
known by various names such as ‘habitability,’ ‘quality,’
‘workmanship,’ or ‘fitness,’” 12 Thompson on Real Property
§ 99.06(a)(2)(A) (David A. Thomas ed., 2d Thomas ed. 2008),
courts rely on similar reasons and public policy considerations
in adopting the warranties. 	Courts recognize that “[b]uilding
construction by modern methods is complex and intertwined with
governmental codes and regulations.” 	Tavares v. Horstman, 542
P.2d 1275, 1279 (Wyo. 1975). 	For a builder-vendor or developer-
vendor engaged in the business of selling houses, the
construction and/or sale of a new home is a daily event, whereas
for a buyer the purchase of a new home is a significant and
unique transaction. 	See Bethlahmy v. Bechtel, 415 P.2d 698, 710
(Idaho 1966) (“The purchase of a home is not an everyday
transaction for the average family, and in many instances is the
most important transaction of a lifetime. 	To apply the rule of
caveat emptor to an inexperienced buyer, and in favor of a
builder who is daily engaged in the business of building and
selling houses, is manifestly a denial of justice.”). 	Given
these modern realities and this disparity, “[a] home buyer should
be able to place reliance on the builder or developer who sells

21 	No. 20070914
him a new house.” 	Tavares, 542 P.2d at 1279. 	Some courts reason
that the implied warranty will “inhibit the unscrupulous, fly-by-
night, or unskilled builder and . . . discourage much of the
sloppy work and jerry building that has become perceptible over
the years.” 	Capra v. Smith, 372 So. 2d 321, 323 (Ala. 1979)
(internal quotation marks omitted). 	An implied warranty also
takes into account the equitable consideration that between two
innocent parties, the one in the better position to prevent the
harm ought to bear the loss. 	See Chandler v. Madsen, 642 P.2d
1028, 1031 (Mont. 1982). 	While a builder-vendor certainly has
“the opportunity to notice, avoid, or correct [latent defects]
during the construction process,” Albrecht v. Clifford, 767
N.E.2d 42, 46 (Mass. 2002), a similar opportunity exists for the
developer-vendor. 	As one court reasoned:
Purchasers from a developer-seller depend on
his ability to hire a contractor capable of
building a home of sound structure. 	The
buyers . . . had no control over [the
developer-seller’s] choice of a builder.
[The developer-seller] stood in the best
position to know which contractor could
perform the work adequately. 	The dependent
relationship here between the buyers and [the
developer-seller] is the same as if [it] was
a builder-seller.
Tassan v. United Dev. Co., 410 N.E.2d 902, 908 (Ill. App. Ct.
1980). 	Hence, in protecting the innocent home purchaser by
holding the responsible party accountable, the law has come to
recognize that no longer does the purchaser of a new residence
stand on an equal bargaining position with the builder-vendor or
developer-vendor.
¶54 	Moreover, the concept of an implied warranty is
“consistent with the expectations of the parties.” 	Sloat v.
Matheny, 625 P.2d 1031, 1033 (Colo. 1981). 	“[T]he essence of the
transaction is an implicit engagement upon the part of the seller
to transfer a house suitable for habitation.” 	Yepsen v. Burgess,
525 P.2d 1019, 1022 (Or. 1974). 	If the purchaser expected
anything less, there would be no sale. 	See Sloat, 625 P.2d at
1033. 	The creation of an implied warranty, therefore, causes “no
more uncertainty or chaos than the warranties commonly applied in
sales of personal property.” 	Bethlahmy, 415 P.2d at 707. 	Also,
we are not convinced that an express written warranty provides
sufficient protection where concerns regarding latent defects
exist. 	“A buyer who has no knowledge, notice, or warning of
defects, is in no position to exact specific warranties. 	Any
written warranty demanded in such a case would necessarily be so
general in terms as to be difficult to enforce.” 	Id.

No. 20070914 	22
¶55 	These sound reasons and policy considerations “lead[]
logically to the buyer’s expectation that he be judicially
protected.” 	Tavares, 542 P.2d at 1279. 	Although we rejected an
implied warranty in American Towers, we agree with the following
statement.
The law should be based on current
concepts of what is right and just and the
judiciary should be alert to the never-ending
need for keeping its common law principles
abreast of the times. 	Ancient distinctions
which make no sense in today’s society and
tend to discredit the law should be readily
rejected . . . .
Schipper v. Levitt & Sons, Inc., 207 A.2d 314, 325 (N.J. 1965).
Recognizing that American Towers no longer represents what is
right and just as to implied warranties in the purchase of a new
residence, we now join the overwhelming majority of states.
Under Utah law, in every contract for the sale of a new
residence, a vendor in the business of building or selling such
residences makes an implied warranty to the vendee that the
residence is constructed in a workmanlike manner and fit for
habitation.
¶56 	We recognize that “[t]he expansion of implied
warranties has resulted in a blurring of the ‘distinction, if
any, between an implied warranty of habitability and an implied
warranty of good quality and workmanship . . . in decisional law
throughout the country.’” 	Albrecht, 767 N.E.2d at 45 n.7
(omission in original)(quoting Council of Unit Owners of
Breakwater House Condo. v. Simpler, 603 A.2d 792, 795 (Del.
1992)). 	Some courts define the implied warranty of workmanlike
manner as “‘the quality of work that would be done by a worker of
average skill and intelligence.’” 	Id. (quoting Nastri v. Wood
Bros. Homes, Inc., 690 P.2d 158, 163 (Ariz. Ct. App. 1984)).
Other courts define the implied warranty of habitability in the
sense that if a new residence does not keep out the elements
because of a defect of construction, such a residence is not
habitable or that the new residence must “provide inhabitants
with [a] reasonably safe place to live, without fear of injury to
person, health, safety, or property.” 	Id. (citing Goggin v. Fox
Valley Constr. Corp., 365 N.E.2d 509, 511 (Ill. App. Ct. 1977)).
In Utah, the scope of the implied warranty should be construed
broadly to comport with the public policy considerations.
¶57 	The implied warranty we recognize today arises under
contract law. 	While courts are divided as to whether an implied
warranty arises under tort or contract law, see Lempke v.
Dagenais, 547 A.2d 290, 292 (N.H. 1988), given our adherence to
the economic loss rule and its resulting division between tort

13 The requirement for privity of contract accords with
section 78B-4-513 of the Utah Code, which states, “[a]n action
for defective design or construction may be brought only by a
person in privity of contract.” 	Utah Code Ann. § 78B-4-513(4)
(2008). 	Section 78B-4-513 further states, “Nothing in this
section precludes a person from assigning a right under a
contract to another person, including to a subsequent owner or a
homeowners association.” 	Id. § 78B-4-513(6). 	We also note that
our adoption of an implied warranty further comports with section
78B-4-513 given that the statute limits “an action for defective
design or construction . . . to breach of contract, whether
written or otherwise, including both express and implied
warranties.” 	Id. § 78B-4-513(1) (emphasis added).
23 	No. 20070914
and contract law, the implied warranty we adopt must be based in
contract. 	Privity of contract is required to bring a claim for
breach of the implied warranty. 13
¶58 	We note that this implied warranty is “independent and
collateral to the covenant to convey” and thus survives the
effect of merger. 	Albrecht, 767 N.E.2d at 47; see also Petersen
v. Hubschman Constr. Co., 389 N.E.2d 1154, 1158 (Ill. 1979) (“The
implied warranty does not arise as a result of the execution of
the deed. 	It arises by virtue of the execution of the agreement
between the vendor and the vendee. 	If that agreement would have
contained express covenants concerning the quality of
construction they would not have merged in the deed, but would
have continued as a collateral undertaking.”). 	Nor can the
implied warranty “be waived or disclaimed, because to permit the
disclaimer of a warranty protecting a purchaser from the
consequences of latent defects would defeat the very purpose of
the warranty.” 	Albrecht, 767 N.E.2d at 47.
¶59 	The implied warranty, however, does not require
perfection on the part of the builder-vendor/developer-vendor or
“make them an insurer against any and all defects in a home.”
Id. 	“No house is built without defects,” Bethlahmy, 415 P.2d at
711, and the implied warranty does not “protect against mere
defects in workmanship, minor or procedural violations of the
applicable building codes, or defects that are trivial or
aesthetic.” 	Albrecht, 767 N.E.2d at 47. 	Nor is the implied
warranty intended to alleviate purchasers of their due diligence
and opportunity to inspect a residential construction or the
incentive to negotiate for express warranties.
¶60 	Therefore, to establish a breach of the implied
warranty of workmanlike manner or habitability under Utah law a
plaintiff must show (1) the purchase of a new residence from a
defendant builder-vendor/developer-vendor; (2) the residence
contained a latent defect; (3) the defect manifested itself after

14 See Utah Code Ann. § 78B-4-513(6).
No. 20070914 	24
purchase; (4) the defect was caused by improper design, material,
or workmanship; and (5) the defect created a question of safety
or made the house unfit for human habitation. 	See id.
¶61 	The implied warranty is not infinite. 	A claim for
breach of the implied warranty must be brought in accordance with
Utah Code section 78B-2-225. 	That section imposes periods of
limitation and repose for “all causes of action by or against a
provider arising out of or related to the design, construction,
or installation of an improvement.” 	Utah Code Ann. § 78B-2-
225(2)(e)(2008). 	“An action by or against a provider based in
contract or warranty shall be commenced within six years of the
date of completion of the improvement or abandonment of
construction.” 	Id. § 78B-2-225(3)(a).
¶62 	Finally, we emphasize that this implied warranty does
not abrogate the doctrine of caveat emptor in the sale of
existing or used residences. 	See Utah State Med. Ass’n v. Utah
State Employees Credit Union, 655 P.2d 643, 645 (Utah 1982) (“The
doctrine [of caveat emptor] has eroded in the sale of new
residential housing. 	However, the doctrine appears to prevail in
the sale of used property whether homes or commercial.”).
¶63 	We now turn to the Association’s claim for breach of
the implied warranty. 	We hold that because Utah now recognizes
the implied warranty of workmanlike manner and habitability, the
district court erred in dismissing the Association’s claim for
breach of the implied warranty. 	On remand the Association may
bring its claim for breach of the implied warranty, but it must
show privity of contract with the Developer. 	We do not address
whether privity of contract exists, because the issue is not
before us and claims of breach of contract for a third-party
beneficiary and equitable subrogation are pending before the
district court. 	It is also unclear whether the original unit
owners assigned their rights under their respective contracts
with the Developer to the Association. 14 	Similarly, the
Complaint does not specify the dates necessary to determine
whether the claim for breach of implied warranty was brought in
accordance with the statute of limitations and repose under Utah
Code section 78B-2-225. 	Accordingly, because Utah now recognizes
an implied warranty of workmanlike manner and habitability, we
reverse the district court’s dismissal of the Association’s
claim.

25 	No. 20070914
III. 	THE DISTRICT COURT MISAPPLIED THE COLLATERAL RIGHTS
EXCEPTION OF THE MERGER DOCTRINE TO DISMISS THE
CONTRACT AND EXPRESS WARRANTY CLAIMS
¶64 	Applying the merger doctrine, the district court
dismissed the Association’s claims for breach of contract and
breach of express warranty. 	The district court found that
because the Association had not alleged that the seller was to
perform some act after the delivery of the deed, the contract and
express warranty claims were not collateral to the delivery of
the deed and thus had merged. 	This was error; the district court
failed to consider whether the contract and express warranty
claims were collateral to conveyance of the title, and it
improperly deemed the absence of an act performed after the
delivery of the deed to be conclusive evidence of intent.
¶65 	“The doctrine of merger . . . is applicable when the
acts to be performed by the seller in a contract relate only to
the delivery of title to the buyer.” 	Stubbs v. Hemmert, 567 P.2d
168, 169 (Utah 1977). 	“[O]n delivery and acceptance of a deed
the provisions of the underlying contract for the conveyance are
deemed extinguished or superseded by the deed. 	Thus, the
underlying contract merges into the deed.” 	Secor v. Knight, 716
P.2d 790, 792 (Utah 1986).
¶66 	However, collateral acts to the conveyance of title by
the seller “survive the deed and are not extinguished by it.”
Stubbs, 567 P.2d at 169. 	Our case law looks to two factors to
determine the collateral nature of an act: (1) whether the act
“involve[s] a different subject matter or is collateral to the
conveyance [of title]”; and (2) if the question of the collateral
nature remains, whether the parties intended the act to be
collateral. 	Secor, 716 P.2d at 793 (emphasis added). 	We address
each factor in turn.
A. 	Contract and Warranty Claims Regarding the Quality of
Construction Are Collateral to the Conveyance of Title
¶67 	As to the first factor, we have applied the collateral
rights exception where the act is distinct from the subject
matter of the deed. 	See Spears v. Warr, 2002 UT 24, ¶ 16, 44
P.3d 742 (finding collateral rights exception applied where water
rights were “not necessarily appurtenant to the [sale of two
parcels of real property] but [were] separate rights, distinct
from the subject matter of the deed”). 	But we have refused to
apply the exception where the subject matter of the deed and the
contract were the same or where the contract terms related to the
title conveyed. 	See Dansie v. Hi-Country Estates Homeowners
Ass’n, 1999 UT 62, ¶ 21, 987 P.2d 30 (finding that contract terms
requiring membership in a homeowners’ association were covenants
related to title and encumbrance upon the title and thus related

No. 20070914 	26
to the same subject matter as the deed); Secor, 716 P.2d at 793
(determining that a contract term regarding a basement apartment
merged since it related to title that contained a restrictive
covenant of a single-family dwelling).
¶68 	Here, the district court failed to consider whether the
contract and express warranty claims involved a different subject
matter or were collateral to the conveyance of title. 	The
Defendants argue that the deeds covered the same subject matter
as the antecedent agreements because the deeds conveyed an
ownership interest in a unit rather than a parcel of property
with an edifice constructed upon it. 	But while the deeds and the
antecedent agreements may, at their broadest, involve the same
subject matter, the warranty and contract claims nonetheless
qualify for the exception.
¶69 	Contract terms and warranties regarding the quality of
construction are not necessary for conveyance of the title nor do
they address the quality of the title, encumber the title, or
create covenants relating to the title. 	Consequently,
“[c]ovenants of warranty as to quality and improvements are
collateral to the conveyance and are not merged into nor
satisfied by the deed.” 	11 Thompson on Real Property § 96.11(e)
(David A. Thomas ed., 2d Thomas ed. 2002)
¶70 	The Association claims the Developer warranted that the
project (1) complied with the building code and had been
inspected for such; (2) consisted of high-quality structures;
(3) was in good condition and properly and fully maintained;
(4) had no faulty workmanship; (5) had no water intrusion,
moisture problems, or other material defects; and that (6) the
Association’s budget and the monthly assessments were accurate
and adequate for future maintenance, repair, and replacement.
¶71 	The first five warranties are collateral because they
relate to the quality of construction and are thus independent
and distinct from the conveyance of title. 	Indeed, such claims,
as Defendants themselves pointed out below, “do not relate in any
way to the five warranties that would make up a breach of
warranty deed claim.” 	Rather, the Association’s contract and
express warranty claims go to the quality of construction.
Consequently, the contract and express warranty claims regarding
the quality of construction are collateral and survive the deed.
However, because the warranty regarding the Association’s budget
and the monthly assessments do not directly relate to the quality
of construction, we address the second factor.

15 The Association also asks us to address whether the real
estate purchase contracts are inseverable from the recorded CC&Rs
(continued...)
27 	No. 20070914
B. 	The Absence of an Act After the Delivery of the Deed Is
Not Conclusive Evidence of the Parties’ Intent
¶72 	Under the second factor, the intent of the parties is
considered only when there is a “question of whether a specific
term is or is not collateral.” 	Secor, 716 P.2d at 793. 	“Whether
the terms of the contract are collateral . . . depends to a great
extent on the intent of the parties with respect thereto.”
Stubbs, 567 P.2d at 169. 	In discussing the parties’ intent, this
court has stated,
When [the] seller’s performance is intended
by the parties to take place at some time
after the delivery of the deed it cannot be
said that it was contemplated by the parties
that delivery of the deed would constitute
full performance on the part of the seller,
absent some manifest intent to the contrary.
Id. at 169-70
¶73 	The district court, however, misinterpreted this
statement to mean that for an act to be collateral the seller
must perform some act after the delivery of the deed. 	This is
incorrect. 	An act performed after the delivery of the deed can,
by itself, show the parties intended the contract terms to be
collateral. 	See Stubbs, 567 P.2d at 170 (finding contract terms
that allowed act after delivery of the deed made the terms
collateral). 	Timing is but one consideration in determining the
intent of the parties, however. 	The absence of an act after
delivery does not determine conclusively the parties’ intent that
the act is not collateral. 	Rather, if the question of the
collateral nature of an act remains after consideration of the
first factor, the court should consider all evidence of the
parties’ intent. 	This may include whether the seller was to
perform an act after the delivery of the deed, but that need not
be the only evidence. 	The intent of the parties involves a
question of fact and should be dealt with accordingly.
¶74 	The district court therefore erred by failing to
consider whether the contract and express warranty claims were
collateral to the conveyance of title, and by determining that
the acts were not collateral absent the allegation that
Defendants were to perform some act after the delivery of the
deed. 	We thus reverse the district court’s dismissal of the
Association’s contract and express warranty claims. 15 	On remand,

15 (...continued)
and its obligations and privileges that run with the land. 	Our
review of the record indicates that this issue was not presented
to or ruled on by the district court in the context of the merger
doctrine. 	Instead, the Association presented this argument in
the context of its third-party beneficiary claim. 	We decline to
address this argument on an issue that is still pending before
the district court.
No. 20070914 	28
whether the warranty regarding the Association’s budget and the
monthly assessments is a collateral act depends on the intent of
the parties.
IV. 	THE DISTRICT COURT ABUSED ITS DISCRETION IN DENYING
THE ASSOCIATION’S MOTION TO AMEND THE COMPLAINT AND
REINSTATE DISMISSED CLAIMS
¶75 	Lastly, the Association argues that the district court
abused its discretion in denying the Association’s Motion to
Amend the Complaint and Reinstate Dismissed Claims to include
allegations of soil subsidence problems and reinstate the
dismissed tort claims. 	The Association based its motion on the
then recently published cases of Yazd v. Woodside Homes Corp.,
2006 UT 47, 143 P.3d 283; Smith v. Frandsen, 2004 UT 55, 94 P.3d
919; and Moore v. Smith, 2007 UT App 101, 158 P.3d 562.
¶76 	After reviewing the Defendants’ original motion to
dismiss in light of Smith, Yazd, and Moore, the district court
held that the Association’s reliance on these cases was
misplaced, and it denied the Association’s motion. 	As in its
order granting, in part, the Defendant’s Motion to Dismiss
Complaint, the district court concluded that even with amended
allegations of soil subsidence, the Association’s tort claims
remained barred by the economic loss rule because no independent
duty existed.
¶77 	However, as discussed above, the limited fiduciary duty
owed by the Developer and Woolstenhulme constitutes an
independent duty under which the Association may bring its
negligence and negligent misrepresentation claims. 	Because the
district court relied on an erroneous conclusion of law in
denying the motion, it abused its discretion. 	See Kilpatrick v.
Bullough Abatement, Inc., 2008 UT 82, ¶ 23, 199 P.3d 957. 	The
district court should have granted the Association’s motion as to
these two claims against the Developer and Woolstenhulme and the
allegations regarding soil subsidence insofar as they relate to
these two claims.

16 We note that our decision today, in particular the
adoption of the implied warranty, carries with it the ordinary
effect of retroactive and prospective application. 	See Malan v.
Lewis, 693 P.2d 661, 676 (Utah 1984) (“The general rule . . . is
that the ruling of a court is deemed to state the true nature of
the law both retrospectively and prospectively.”). 	Exercising
our discretion on this question, we conclude that given the
nature, fairness, and limitations of the implied warranty, no
substantial burden results. 	See State Farm Mut. Ins. Co. v.
Farmers Ins. Exch., 493 P.2d 1002, 1003 (Utah 1972). 	Nor does
this court’s historical exclusion of implied warranties upset the
reliance on prior judicial decisions because entering into
contracts for the purchase of a new residence has always been
done with the implied purpose that the residence, at a minimum,
be habitable and built in a workmanlike manner. 	Cf. Loyal Order
of Moose v. County Bd. of Equalization, 657 P.2d 257, 265 (Utah
1982)(applying change in law prospectively because organizations
had relied upon prior law for tax exemptions and retroactive
application would result in an unreasonable burden of back
taxes).
29 	No. 20070914
CONCLUSION
¶78 	We hold that the district court correctly applied the
economic loss rule to dismiss the claims of negligence per se and
nuisance against Defendants and the claim of negligence against
the Builder. 	However, the district court improperly dismissed
the Association’s claims of negligence and negligent
misrepresentation against the Developer and Woolstenhulme because
they owed an independent duty to the Association during their
period of control of the Townhome Owners’ Association. 	We also
hold that the dismissal of the implied warranty claim must be
reversed because Utah now recognizes an implied warranty of
workmanlike manner and habitability. 	Further, we hold that the
district court erred by dismissing the breach of contract and
express warranty claims because warranties related to the quality
of construction are collateral to the conveyance of title, and
the absence of an act after delivery of the deed is not
conclusive evidence of the parties’ intent. 	Finally, we hold
that the district court erred in denying the Motion to Amend the
Complaint and Reinstate Dismissed Claims because it failed to
recognize the duty owed by the Developer and Woolstenhulme to the
Association. 	Accordingly, we affirm in part and reverse in part
the orders of the district court and remand for proceedings
consistent with this opinion. 16
---

No. 20070914 	30
¶79 	Associate Chief Justice Durrant, Justice Wilkins,
Justice Parrish, and Justice Nehring concur in Chief Justice
Durham’s opinion.