PROPERTY CONDITION DISCLOSURE FORMS: HOW THE REAL ESTATE INDUSTRY EASED THE TRANSITION FROM CAVEAT EMPTOR TO "SELLER TELL ALL"

Real Property, Probate and Trust Journal, Summer 2004 by Lefcoe, George

III. FROM CAVEAT EMPTOR TO IMPLIED WARRANTIES FOR HOMEBUILDERS

Only in the sale of newly built homes has caveat emptor been completely supplanted by court and legislature-imposed implied warranties of habitability and workmanship. Homebuilders are responsible for construction defects not only to their buyers but also to their buyers' buyers,52 subject to state-enacted statutes of repose.53 By contrast, homebuyers purchasing used housing from amateur sellers receive the benefit of only those warranties they coax from their sellers or acquire from insurers.

This movement away from caveat emptor in real estate lagged behind a comparable movement in the law of the sale of goods by half a century. The eminent legal historian, Lawrence Friedman, reminds us that in the nineteenth century, caveat emptor was the legal norm for the law of the sale of goods as well as real estate.54 Just after California gained statehood in 1850, a group of San Francisco lawyers petitioned the state legislature to embrace the civil law's pro-consumer stance. In civil law countries (and Louisiana), implied warranties were the norm, predicated on the notion that "[a] sound price requires a sound commodity."55 The judiciary committee of the California Senate adamantly rejected this norm, characterizing it as unmanly because it coddled complaining buyers. The state senators preferred caveat emptor, describing it as "one of the glories of the common law, in contrast to the flabby solicitude of civil law."56 The rule "enhanced the finality of bargains. It made it harder for parties to drag into court their harangues over warranty and quality."57

Yet, by 1900, United States courts were abandoning caveat emptor in favor of implied warranties of merchantability for goods sold by description and not inspected before sale. This exception covered most manufactured goods because buyers often did not have the chance to inspect them before purchase and buyers were forced to accept form contracts without the chance to negotiate warranties. Carmakers were among the first to be held accountable in tort for product defects. Implied warranties of fitness assured buyers the right to insist upon goods being usable for the stated purposes for which they had been marketed.58 The triumph of implied warranties in the law of sales seemed "more consonant with market principles, because it carrie[d] out the reasonable intention of honest parties."59

Schipper v. Levitt & Sons, Inc.60 was the landmark case applying manufacturers' liability to the sale of newly built tract houses.61 Levitt & Sons was an easy real estate target with the precedent of automobile manufacturer's product liability law. The company emulated the efficiency of assembly line production techniques, except that at Ford, the cars traveled along a conveyer belt as each worker performed a specialized task. At a Levitt & Sons site, each specialized trade group moved from house to house to complete its work. Although a few state courts already had rejected caveat emptor and implied a warranty of fitness for use in the sale of tract houses, Schipper started a judicial avalanche that buried caveat emptor for good.62