A warranty is a statement made by one party to another party on which the other party can rely. A guarantee is different because it is a promise to pay for the debt of someone else. Most people and contracts mix these two terms.
Most, if not all, construction contracts contain warranties. Examples of express warranties routinely included in construction contracts are:
• A warranty that work will be performed in a good and workmanlike manner;
• A warranty that materials will be new and of good quality; and
• A warranty that the work will conform to the requirements of the contract documents.
Warranties may be express (written in the contract or stated orally), implied (by the common law) or statutory (set forth in a state’s statutes).
Sometimes courts rule that a contract has an implied warranty just to protect one of the parties where there were no express warranties to do so. The theory is that in some instances although the contract does not expressly identify a warranty, the parties intended a warranty to apply. The warranty of “habitability” that runs from homebuilders to the purchaser of the home is an example of an implied warranty.
Other warranties are set by statute to protect consumers.
Many form contracts (such as the AIA) clearly differentiate between a contractor’s warranty obligations (to build according to the plans and specs) and its one-year correction period (when it has the right and obligation to fix its work if it fails). One difference between the two obligations is the burden of proving why the work failed: If the work fails during the one-year period, the contractor has to fix it, no questions asked (assuming the failure wasn’t due to misuse). After the one-year period, the owner has the burden of proving that the warranty was breached — that the work wasn’t done according to the plans and specs or that the part didn’t last as long as it should have.
A second difference is how long the contractor is on the hook. If a contractor fails or refuses to correct work in the one-year period, the owner must file suit within the statute of limitations which is prescribed by the laws of that state. However, even after the one-year period, the owner can file suit if the work is not up to the industry standards but the law suit has to be filed again within the statute of limitations of that state.
Frequently, we see contracts where someone has called the one-year correction period the “warranty” period and, in fact, goes so far as to say in the real warranty clause that it is for one year (perhaps longer for specific pieces of equipment). Often, even if the warranty clause in the general conditions is clear, there is conflicting language in the front end of a project manual prepared by a designer.
Pay more attention to the exact words used in your contracts to avoid any surprises.
Of course, if the other party will agree to it. Most manufacturers print on their labels and in their literature that they are giving “limited” warranties only, and “disclaiming” all other warranties. Courts will typically enforce disclaimers of implied and statutory warranties as long as the disclaimer is clear and unequivocal. But you have to be careful; a failure to change all warranty language in the contract could end up creating inconsistencies that will take a judge or jury to resolve. It is not enough to draft a clear disclaimer. You also have to make sure that the entire contract is consistent with the disclaimer.
Warranties are a part of every construction contract. Those who take the time to understand how those warranties work will gain an advantage over those who do not in managing risk on their projects. We interpret these languages every day in our work. Call us to help you with your Warranty issue.
August 10, 2021
August 04, 2021
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