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By: Ryan Mayo
Owners, contractors, and subcontractors should be aware of the importance of detailing warranties in construction contract clauses. Failure to clearly state such warranties could result in a party’s liability for violation of implied warranties should litigation occur.
Prior to the U.S. Supreme Court’s decision in United States v. Spearin, 248 U.S. 132 (1918), contractors generally bore all construction risks under the law, subject to two exceptions: (1) express exception made in the contract; or (2) when performance was made impossible by an Act of God or Nature. This remains the general rule today. However, the Spearin Court changed the balance of these risks considerably by imparting an implied warranty on owners under certain circumstances.
In Spearin, a contractor was hired to build a dry dock according to plans and specifications prepared and furnished by the owner, an agency of the federal government. The plans required a relocation of a sewer, and the government did not tell the contractor about a defect in a part of the sewer. After the sewer was relocated, a flood caused the sewer to break, and the dry dock excavation site was flooded. The contractor refused to continue building until the government assumed responsibility for existing and future damages from the sewer. In turn, the government had the project completed by another builder under revised plans. The contractor then sued to recover the amount that he spent on the project and to recover damages for the contract’s annulment.
The Supreme Court affirmed the award by the court of claims in favor of the contractor and found that the government breached its implied warranty that the sewer would be adequate if the contract complied with the government’s specification in relocating the sewer. Specifically, the Court ruled “Where one agrees to do, for a fixed sum, a thing possible to be performed, he will not be excused or become entitled to additional compensation, because unforeseen difficulties are encountered.” Most important for risk allocation, however, the Court ruled “[I]f the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications.”
The Supreme Court of Georgia first interpreted the Spearin Doctrine in Decatur County v. Praytor, Howton & Wood Contracting Co., 165 Ga. 742 (Ga. 1928). In Decatur County, the Court ruled an owner was not liable for breach of contract because it “specifically represented” to the contractor particular adjustments to the piers of a bridge and contained allowances to adjustments in price based on construction changes. Because of the express disclaimer in the parties’ contract, the Court did not find the owner liable.
The Spearin Doctrine has been examined in recent years by multiple courts across the country, and almost all 50 states have interpreted it in some form. In September of 2020, the Washington Court of Appeals in Lake Hills Invs., LLC v. Rushforth Constr. Co., 472 P.3d 337 (Wash. Ct. App. 2020) ruled a jury instruction misstated a contractor’s burden of proving its affirmative Spearin defense, reversing the trial court’s allowance of the instruction. The case is currently being petitioned for review by the Supreme Court of Washington, and an amicus brief submitted in support of the petition argues in part that the appellate court’s decision, if allowed to stand, would have negative effects on contractors’ abilities to use the Spearin Doctrine as a defense.
In Texas, lawmakers recently introduced legislation to realign the state’s law with the majority of states recognizing the Spearin Doctrine. The pending legislation, SB 219 and HB 1418, would largely reverse the law in effect since the Texas Supreme Court’s 2012 decision in El Paso Field Servs., L.P. v. MasTec N. Am., Inc., 389 S.W.3d 802 (Tex. 2012), which held that absent contract language allocating the risk, a contractor may be held liable for defects in the design documents provided by the owner or design professional.
These cases underscore the ongoing importance of assessing and negotiating construction risks on the front ends of projects and intentionally allocating these risks with express warranties. Where possible, contracts should use specific language that addresses individual aspects of projects. Carefully considered contractual language may be viewed favorably by courts in determining whether an express warranty was created before a project began. Parties who take these steps better protect their interests, potentially allowing them to avoid legal battles based on interpretations of Spearin and implied warranty.
For more information, please contact Ryan Mayo at [email protected].