WARRANTIES AND CONSTRUCTION DEFECT CASES Jack A. Walters, III Cooper & Scully, P.C. Founders Square 900 Jackson Street, Suite 100 Dallas, Texas 75202 (214) 712-9500 (214) 712-9540 fax www.cooperscully.com [email protected] 2nd Annual Construction January 26, 2007 D/671586.1 TABLE OF CONTENTS I. INTRODUCTION ...................................................................................................1 II. THE TYPES OF TEXAS WARRANTIES .............................................................1 A. Statutory Warranties....................................................................................1 1. Texas UCC.......................................................................................1 2. TRCCA & RCLA ............................................................................1 3. Other Statutes...................................................................................1 B. Common-Law Warranties............................................................................1 C. Express and Implied Warranties ..................................................................2 1. Express Warranties Generally..........................................................2 2. Creation of Express Warranties .......................................................3 3. Implied Warranties...........................................................................4 III. TEXAS UCC WARRANTIES ................................................................................4 A. Texas UCC...................................................................................................4 B. Express Warranty for Goods........................................................................6 C. Implied Warranty of Merchantability ..........................................................6 D. Implied Warranty of Fitness for a Particular Purpose .................................7 IV. COMMON-LAW WARRANTIES FOR SERVICES – GENERALLY.................7 A. Common-law Warranties for Services.........................................................7 B. Express Warranty for Services.....................................................................8 C. Implied Warranty of Good & Workmanlike Performance of Repair or Modification Services ..................................................................................8 D. Professional Services...................................................................................8 E. Transactions involving more than one subject matter .................................9 V. COMMON-LAW & STATUTORY WARRANTIES – RESIDENTIAL CONSTRUCTION...................................................................................................9 A. TRCCA, TRCC, RCLA, and SIRP..............................................................9 1. General Background & Coverage....................................................9 2. Statutory Warranties & Standards .................................................10 3. SIRP ............................................................................................10 B. Implied Warranty of Good & Workmanlike Performance of Residential Construction Services ................................................................................11 C. Statutory Warranties and Standards...........................................................12 D. Implied Warranty of Habitability...............................................................12 E. Statutory Warranty of Habitability ............................................................12 F. The Impact of the New Warranties & Standards on the Common-law Warranties..................................................................................................12 VI. OTHER CONSIDERATIONS...............................................................................13 A. Privity (Who can sue & Who can be sued)................................................13 B. Enforcement under DTPA .........................................................................14 C. Statutes of Limitation.................................................................................14 1. Period ............................................................................................14 2. Accrual & Discovery Rule.............................................................14 3. TRCCA ..........................................................................................15 D. Damages.....................................................................................................15 i D/671586.1 1. Generally........................................................................................15 2. Measure of Actual Damages..........................................................15 3. Proximate Cause............................................................................16 E. Defenses.....................................................................................................16 1. Statute of Limitations.....................................................................16 2. Notice, Cure...................................................................................17 3. Disclaimer......................................................................................17 4. Contractual provisions limiting damages.......................................17 5. Contractual Defenses.....................................................................17 6. Professional Services.....................................................................17 F. Proportionate Responsibility......................................................................18 G. Establishing Breach...................................................................................18 VII. WARRANTY CREATION & AFFILIATION WITH TORT VS. CONTRACT.18 A. Creation of Express Warranties .................................................................18 B. Express or Implied – Grounded in Contract or Tort..................................18 VIII. TEXAS UCC APPLICATION..............................................................................19 A. Entities to which Texas UCC Applies .......................................................19 B. Transactions involving more than one subject matter ...............................19 IX. RESIDENTIAL VS. COMMERCIAL CONSTRUCTION ..................................19 A. Applicable Warranties (Express or Implied) .............................................19 B. Contract vs. Operation of Law...................................................................19 X. PROFESSIONAL SERVICES..............................................................................19 XI. PRIVITY................................................................................................................20 ii D/671586.1 TABLE OF AUTHORITIES CASES American Alloy Steel v. Armco, Inc., 777 S.W.2d 173 (Tex.App.—Houston [14th Dist.] 1989, no writ) .............................14 American Nat'l Pet. Co. v. Transcontinental Gas Pipe Line Corp., 798 S.W.2d 274 (Tex. 1990)........................................................................................16 American Tobacco Co. v. Grinnell, 951 S.W.2d 420 (Tex. 1997)......................................................................3, 4, 6, 14, 15 Archibald v. Act III Arabians, 755 S.W.2d 84 (Tex. 1988)............................................................................................8 Arthur's Garage, Inc. v. Racal-Chubb Sec. Sys., 997 S.W.2d 803 (Tex.App.—Dallas 1999, no pet.).............................................4, 7, 17 Austin Co. v. Vaughn Bldg. Corp., 643 S.W.2d 113 (Tex. 1982)..........................................................................................5 B&H Aircraft Sales, Inc. v. Engine Components, Inc., 933 S.W.2d 653 (Tex.App.—San Antonio 1996, no writ) ..........................................12 Barnett v. Coppell North Texas Court Ltd., 123 S.W.3d 804 (Tex.App.—Dallas 2003, pet. denied)..............................................19 Blackwood v. Tom Benson Chevrolet Co., 702 S.W.2d 732 (Tex.App.—San Antonio 1985, no writ) ............................................7 CBI NA-CON, Inc. v. UOP, Inc., 961 S.W.2d 336 (Tex.App.—Houston [1st Dist.] 1997, writ denied) .........................18 Centex Homes v. Buecher, 95 S.W.3d 266 (Tex. 2002)................................................................................4, 11, 12 Certain-Teed Prods. Corp. v. Bell, 422 S.W.2d 719 (Tex. 1968)........................................................................................14 Chaq Oil Co. v. Gardner Mach. Corp., 500 S.W.2d 877 (Tex.App.—Houston [14th Dist.] 1973, no writ) ...............................6 Chilton Ins. Co. v. Pate & Pate Enters., 930 S.W.2d 877 (Tex.App.—San Antonio 1996, writ denied)......................................3 iii D/671586.1 Chrysler-Plymouth City, Inc. v. Guerrero, 620 S.W.2d 700 (Tex.App.—San Antonio 1981, no writ) ..........................................16 Church & Dwight Co. v. Huey, 961 S.W.2d 560 (Tex.App.—San Antonio 1997, pet. denied) ....................................13 Cocke v. White, 697 S.W.2d 739 (Tex.App.—Corpus Christi 1985, writ ref'd n.r.e.)...........................11 Codner v. Arellano, 40 S.W.3d 666 (Tex.App.—Austin 2001, no pet.) ......................................................20 Compaq Computer Corp. v. Lapray, 135 S.W.3d 657 (Tex. 2004)................................................................................3, 5, 16 Conquest Drilling Fluids, Inc. v. Tri-Flo Int'l,