Chapter Nine. Robert A. Gallagher and Stephen W. Kiefer

Transcription

1 Chapter Nine Breach of Warranty Robert A. Gallagher and Stephen W. Kiefer 9.01 Breach of Express Warranty Implied Warranty Breach of Implied Warranty Fitness for a Particular Purpose Breach of Implied Warranty Workmanlike Manner Breach of Implied Warranty of Habitability Residential Construction Breach of Implied Warranty Materials and Accuracy Breach of Implied Duty to Coordinate Trade Contractors

2 156 Model Jury Instructions: Construction Litigation, 2nd Edition Chapter 9: Breach of Warranty 9.01 Breach of Express Warranty The plaintiff [owner] claims that the defendant [contractor] breached an express warranty. An express warranty is a promise, resulting from the words or actions of the person making the warranty, that his work will comply with the promise. Plaintiff claims that the express warranty in this case was [description]. The plaintiff has the burden to prove that (1) an express warranty existed, (2) the defendant breached that warranty, and (3) the breach of that warranty was the proximate cause of the plaintiff s claimed damages. You must find that the plaintiff proved all three of these elements for plaintiff to prevail on its claim. It is for you, the jury, to determine what the parties said, what they intended, and how a statement by one party was understood. It is not necessary that formal words such as warrant or guarantee be used to create an express warranty. It is also not necessary that the warrantor have a specific intention to create a warranty. See construction l. (MB) and Hunter s Run Stables v. Triple H Construction Co., 938 F. Supp. 166 (W.D.N.Y. 1996), for a general discussion of express warranties. A contractor s express warranties may supersede the implied warranty of the suitability of plans and specifications. Trs. of First Baptist Church of Corinth v. McElroy, 78 So. 2d 138, 141 (Miss. 1955). An express warranty merely against defective materials or workmanship, however, does not typically encompasses a warranty against defects in design. See, e.g., Tull Bros. Inc. v. Peerless Prod. Inc., 2013 U.S. Dist. LEXIS (S.D. Ala. June 18, 2013); Mayor Columbus, Miss. v. Clark-Dietz & Assocs.-Eng rs Inc., 550 F. Supp. 610 (N.D. Miss. 1982). But see Rhone Poulenc Rorer Pharm. Inc. v. Newman Glass Works, 112 F.3d 695 (3d Cir. 1997) (holding that the contractor s express warranties, including that the work would be free

3 Breach of Warranty 157 from faults and defects, overrode the owner s implied warranty of design under the Spearin doctrine because the parties had explicitly allocated that risk to the subcontractor). In Matthews Brothers Construction Co. v. Stonebrook Developments LLC, 854 So. 2d 573, 582 (Ala. Civ. App. 2001), the court found that an express warranty against defects in workmanship and materials was not a guarantee that the job results would be perfect but was instead a guarantee that the work would be done in a workmanlike manner in accordance with the specifications. In Eichberger v. Folliard, 523 N.E.2d 389 (Ill. App. Ct. 1988), the court found that a builder who built a house according to the plans had breached an express warranty to perform in a workmanlike manner by building the foundation as shown in the plans, if the builder knew or should have known that the foundation shown in the plans would be inadequate Implied Warranty Even without an express warranty, construction contracts contain an implied warranty that the construction will be built in a reasonably good and workmanlike manner and that it will be reasonably fit for the intended purpose. An implied warranty guarantees that the construction will be suitable for its intended purpose and is (1) constructed in accordance with applicable law using sound engineering and construction standards in a workmanlike manner and (2) free from defective material. Implied warranties may be excluded from the contract only if the disclaimer is sufficiently clear to call attention to the disclaimer. This instruction was largely adapted from Bullington v. Palangio, 45 S.W.3d 834 (Ark. 2001); Kirk v. Ridgway, 373 N.W.2d 491 (Iowa 1985); and the Uniform Land Transaction Act section (1975). Many states have adopted the theory of implied warranties for construction contracts. See Black & Veatch Corp. v. Modesto Irrigation Dist., 827 F. Supp. 2d 1130

4 158 Model Jury Instructions: Construction Litigation, 2nd Edition (E.D. Cal. 2011); Coker v. Siler, 304 P.3d 689 (Kan. Ct. App. 2013); Thuston v. Nelson, 842 N.W.2d 631 (Neb. Ct. App. 2014). Implied warranties typically require contractors to perform in a workmanlike manner. See Coker, 304 P.3d at 689. Workmanlike is defined as the quality of work performed by a contractor who has the knowledge, training, or experience necessary for the successful practice of a trade or occupation and performs in a manner generally considered proficient by those capable of judging such work. Flying J. Inc. v. Media Inc., 373 S.W.3d 680, 689 (Tex. Ct. App. 2012) Breach of Implied Warranty Fitness for a Particular Purpose In the absence of an express agreement to the contrary, the law implies a promise in building and construction contracts that the building will be reasonably fit for its intended purpose when (1) the contractor held itself out, expressly or by implication, as competent to undertake the contract; (2) the owner had no particular expertise in the kind of work contemplated; (3) the owner furnishes no plans, designs, specifications, details, or blueprints; and (4) the owner tacitly or specifically indicated its reliance on the experience and skill of the contractor after making known the specific purpose for which the building was intended. If you find that these circumstances existed in this case, you then must determine whether the defendant [contractor] breached the warranty and whether such breach was the proximate cause of the plaintiff s [owner s] damage. This instruction was largely adapted from Leno v. K&L Homes Inc., 803 N.W.2d 543 (N.D. 2011) (citing Air Heaters v. Johnson Elec., 258 N.W.2d

5 Breach of Warranty (N.D. 1977)); see also Robertson Lumber Co. v. Stephen Farmers Coop. Elevator Co., 143 N.W.2d 622 (Minn. 1966). In Smith v. Old Warson Development Co., 479 S.W.2d 795 (Mo. 1972), the court noted that an implied warranty of fitness does not guarantee perfection but instead guarantees reasonable fitness for use. Note: Not all jurisdictions recognize an implied warranty of fitness in all construction contracts. Instead, some jurisdictions limit the implied warranty of fitness to certain construction projects or parties. See Chubb Grp. of Ins. Cos. v. C.F. Murphy & Assocs. Inc., 656 S.W.2d 766 (Mo. Ct. App. 1983) (finding that implied warranty does not extend to tenants of building); Grover v. Magnavox Co., 71 F.R.D. 638 (D.C. Pa. 1976) (recognizing implied warranty only for the construction of a new house). See also U.C.C , which may apply to suppliers of building materials. Dugan Meyers Constr. Co. v. Worthington Pump Corp., 746 F.2d 1166 (6th Cir. 1984); Mennonite Deaconess Home & Hosp. Inc. v. Gates Eng r Co., 363 N.W.2d 155 (Neb. 1985) Breach of Implied Warranty Workmanlike Manner In the absence of an express agreement to the contrary, the law implies a promise by a builder that the construction will be performed in a reasonably good and workmanlike manner and in accordance with good usage and accepted trade practices, resulting in a merchantable structure. Good and workmanlike means that quality of work performed by one who has the knowledge, training, or experience necessary for the successful practice of a trade or occupation and performed in a manner generally considered proficient by those capable of judging such work. Workmanlike may also be defined as the degree of care that a skilled workman, in this instance a [contractor], would exercise under like or similar circumstances in the community in which the work is done. To establish that the defendant [contractor] breached this implied warranty, the plaintiff [owner] must prove that the defendant s [contractor s] work failed to meet the workmanlike standard and that this failure was a proximate cause of damages suffered by the plaintiff [owner].

6 160 Model Jury Instructions: Construction Litigation, 2nd Edition For a general discussion, see In re Marshall, 1998 Bankr. LEXIS 515 (M.D.N.C. Mar. 2, 1998); Federal Insurance Co. v. Winters, 354 S.W.3d 287 (Tenn. 2011); Aronsohn v. Mandara, 484 A.2d 675 (N.J. 1984); Henggeler v. Jindra, 214 N.W.2d 925 (Neb. 1974). See also Richards v. Powercraft Homes, 678 P.2d 427 (Ariz. 1984), for the policy considerations relating to this warranty and that of habitability. In George B. Gilmore Co. v. Garrett, 582 So. 2d 387 (Miss. 1991), a builder who should have been aware of a potential subsurface problem and who neither informed the owner nor performed soil tests failed to perform in a workmanlike manner, regardless of his compliance with the plans, the customs of the trade, and Veterans Administration Standards. The court found that [e]ven an entire industry, by adopting such careless methods to save time, effort or money, cannot be permitted to set its own uncontrolled standard. Id. Note: Not all jurisdictions recognize an implied warranty to perform in a good and workmanlike manner in a construction agreement. See Anderson Hay & Grain Co. v. United Dominion Indus. Inc., 76 P.3d 1205 (Wash. Ct. App. 2003). Some jurisdictions permit subsequent purchasers of the property to sue the builder for breach of the implied warranty of workmanlike manner, and others do not. See Speight v. Walters Dev. Co., 744 N.W.2d 108 (Iowa 2008) (collecting cases) Breach of Implied Warranty of Habitability Residential Construction In the absence of an agreement to the contrary, the law implies a promise from the builder of a new residence that he will build a house that will be habitable. A house is habitable when it is free of such defects that would create a question of safety for the inhabitants and their property, rendering the house unfit for human habitation. Thus, to find for the plaintiff [owner], you must find the following: (1) The plaintiff purchased a new home from its builder.

7 Breach of Warranty 161 (2) The builder or developer was aware that the structure was constructed to be occupied as a home. (3) When sold, the home was not suitable for the purpose of being inhabited. (4) At the time of purchase, the buyer was unaware of the defect that renders the home uninhabitable and had no reasonable means of discovering it. (5) By reason of the defective, uninhabitable condition, the buyer suffered damages. For a discussion of the development of the implied warranty of habitability, including the public policy considerations underlying the doctrine and citations to the law of all 50 states, see Davencourt at Pilgrims Landing Homeowners Association v. Davencourt at Pilgrims Landing LC, 221 P.3d 234 (Utah 2009); see also Gross v. Pete Kingsley Bldg. Inc., 543 A.2d 128 (Pa. Super. Ct. 1988) (discussing policy reasons behind the implied warranty of habitability). The implied warranty of habitability appears to be an extension of the general warranty of fitness for a particular purpose. Kirk v. Ridgway, 373 N.W.2d 491 (Iowa 1985). It has been limited to defects that are so substantial that they reasonably preclude use of the dwelling as a residence. See Samuelson v. A.A. Quality Constr., 749 P.2d 73 (Mont. 1988). The warranty is different from a warranty that the work will be done in a reasonably workmanlike manner. See Stuart v. Coldwell Banker Commercial Grp. Inc., 745 P.2d 1284 (Wash. 1987). Obviously, not all work done in an un-workmanlike manner will make the structure uninhabitable. Traditionally, the implied warranty of habitability has been limited to first purchasers with contractual privity, but a number of jurisdictions have extended the protection for defects that manifest themselves within a reasonable period of time to later users and purchasers. See Lempke v. Dagenais, 547 A.2d 290 (N.H. 1988) (collecting cases in which privity requirement has been abolished and discussing policy reasons therefor). Some states hold that the implied warranty of habitability cannot be disclaimed and extend the warranty to developer-sellers as well as buildersellers. See, e.g., Davencourt, 221 P.3d at (citing Albrecht v. Clifford,

8 162 Model Jury Instructions: Construction Litigation, 2nd Edition 767 N.E.2d 42 (Mass. 2002)). But see Bd. of Managers of Vill. Ctr. Condo. Ass n Inc. v. Wilmette Partners, 760 N.E.2d 976 (Ill. 2011) (holding that disclaimer of warranty of habitability is enforceable if it is specific and explicit) Breach of Implied Warranty Materials and Accuracy If the owner provides the contractor with materials and equipment for use on the project, unless otherwise agreed to by the parties in the contract, the owner implicitly warrants the suitability of these materials and equipment for their intended uses. The owner breaches that duty when those materials or equipment are defective or otherwise unsuitable for their intended uses. So, if you find that the materials and equipment provided by the owner are defective or otherwise unsuitable, and that such defective materials and equipment caused the contractor to suffer loss or damage, then you must find that the owner breached the implied warranty. or If the contractor provides materials for use on the project, unless otherwise agreed to by the parties in the contract, the contractor implicitly warrants that they will be new, of good quality, free from all defects, and that the contractor has good title to such materials. The contractor breaches that duty when it provides materials that are not new and of good quality, or are defective, or to which the contractor does not have good title. So, if you find that the contractor provided materials that do not meet any of the foregoing criteria and caused damages to the owner, you must find that the contractor breached the implied warranty of materials. The owner s duty concerning materials is often referenced with the implied warranty of accuracy. For this implied warranty, see Parts 4.09, See also Appeal of C.T. Builders, ASBCA No (Mar. 29, 1999). An implied warranty of accuracy may not arise in some jurisdictions unless the owner made unequivocal affirmative statements which were false or misleading

9 Breach of Warranty 163 or concealed material facts. Green Constr. Co. v. Kan. Power & Light Co., 1 F.3d 1005, 1009 (10th Cir. 1993); Sundt Corp. v. Dep t of Transp., 566 N.W.2d 476 (S.D. 1997). Concerning the contractor s duty to supply adequate materials, see Leisure Resorts Inc. v. Frank J. Rooney Inc., 654 So. 2d 911 (Fla. 1995). Robertson Lumber Co. v. Stephen Farmers Cooperative Elevator Co., 143 N.W.2d 622 (Minn. 1966), found that construction contracts may include implied warranties of fitness, both as to workmanship and materials. An implied warranty may not be applicable if there is an express agreement to the contrary. In Bunch v. Cooper, 1997 WL (Tenn. Ct. App. Sept. 30, 1997), the court held that a one-year express warranty of good workmanship and materials that excluded related implied warranties rendered the implied warranty of good workmanship and materials inapplicable. However, a disclaimer of an implied warranty must be clear and unambiguous. See Bishof v. Yarbrough Constr. Co., 1996 WL (Tenn. Ct. App. Aug. 29, 1996) Breach of Implied Duty to Coordinate Trade Contractors In this case, [the contractor] claims that it encountered delays and increased costs due to [the owner s] failure to coordinate [the multiple prime contractors or subcontractors]. Absent an express disclaimer to the contrary, an owner has an implied duty to coordinate the schedules of [the multiple prime contractors or subcontractors] so as not to cause delay or disruption in their work on the project. Thus, if you find that [the owner] did not expressly disclaim its implied duty to coordinate, that [the contractor] was delayed or disrupted in performing its work, and that the delay or disruption was caused by [the owner s] failure to coordinate the schedules of [the multiple prime contractors or subcontractors], you should find the contractor entitled to additional time caused by such delays or increased costs arising from such lack of coordination.

10 164 Model Jury Instructions: Construction Litigation, 2nd Edition When an owner awards multiple prime contracts, it is the owner s duty to schedule and coordinate those contractors in a way that will avoid delay and disruption. Apac-Ga. v. Dep t of Transp., 472 S.E.2d 97 (Ga. Ct. App. 1996); see also Construction Claims Monthly, Mar. 1995, at 7. A prime or general contractor may owe the same duty to its subcontractors when the general contractor allocates work to subcontractors; it is responsible for dividing and coordinating the work in a way that will avoid delay, disruption, or out-of-sequence work. Thalle Constr. Co. v. Whiting-Turner Contracting Co., 39 F.3d 412 (2d Cir. 1994); see also Construction Claims Monthly, Mar. 1995, at 1. If there are increased costs or delays because an owner or prime contractor breaches this implied duty, it will be held liable. In U.S. Steel Corp. v. Missouri Pacific Railroad Co., 668 F.2d 435 (8th Cir. 1982), an owner awarded separate prime contracts for a bridge substructure and superstructure. The owner was held liable for the delay that resulted when it issued a notice to proceed to the superstructure contractor before the substructure could accommodate the work. Id.; see also Blake Constr. Co. v. C.J. Coakley Co., 431 A.2d 569 (D.C. App. 1981). Owners and prime contractors can expressly disclaim their implied duties to coordinate, leaving other prime contractors or subcontractors responsible for coordinating with each other. See L.K. Comstock & Co. v. United Eng g & Constructors Inc., 880 F.2d 219 (9th Cir. 1989); CIG Contractors Inc. v. Miss. State Bldg. Comm n, 510 So. 2d 510 (Miss. 1987); Broadway Maint. Corp. v. Rutgers, State Univ., 447 A.2d 906 (N.J. 1982). In many jurisdictions, no damage for delay clauses effect the same result. See John E. Green Plumbing & Heating Co. v. Turner Constr. Co., 742 F.2d 965 (6th Cir. 1984); W.C. James Inc. v. Phillips Petroleum Co., 485 F.2d 22 (10th Cir. 1973); Law Co. v. Mohawk Constr. & Supply Co., 702 F. Supp. 2d 1304 (D. Kan. 2010); Teddy Giannopulos Gen. Contractors Inc. v. N.Y. City Hous. Auth., 668 N.Y.S.2d 536 (App. Div. 1999).