Alert: "Supreme Court of Texas Confirms Implied Warranties Are Not Just for Consumers"
In Nghiem v. Sajib1, the Texas Supreme Court resolved a dispute amongst the Texas Courts of Appeal regarding implied warranty claims…sort of. The court primarily held that a plaintiff is not required to bring a claim for breach of the implied warranty to repair tangible goods or property in a good and workmanlike manner under the Texas Deceptive Trade Practices Act (“DTPA”), a statute applicable to consumers (but not typically applicable to parties to commercial contracts).2 As a result, the court also held that an implied repair warranty claim is not subject to the DTPA’s two-year limitations period if not brought under the DTPA. The court did not, however, answer which limitations period—two years or four years—applies to an implied repair warranty claim not brought under the DTPA.3
Perhaps more importantly, the court’s untethering of implied warranty claims from the DTPA has confirmed that non-consumer plaintiffs may be able to bring implied warranty claims, for example, in the commercial construction context. Specifically, Nghiem leaves open the possibility that an owner of a commercial or industrial facility can make an implied warranty claim against a general contractor—at least with respect to inadequate repairs. As a result, appellate cases extending implied warranties outside the residential context may now have more importance. For example, the Dallas Court of Appeals in Barnett v. Coppell N. Tex. Court, Ltd., 123 S.W.3d 804 (Tex. App.—Dallas 2003, pet. denied)—relying almost exclusively on authority relating to residential construction disputes—affirmed the trial court’s application of the implied warranty of good and workmanlike performance in a commercial construction dispute between an owner and general contractor. The court applied the implied warranty to the general contractor’s work, some of which was left incomplete or had to be corrected.
For those concerned about the expansion of implied warranties, keep in mind that under well settled Texas law, contracting parties can limit exposure to the implied warranty of good and workmanlike repairs. While the warranty cannot be waived or disclaimed,4 it can be replaced with an express repair warranty. The express warranty must describe the manner, performance, or quality of the repair but it can also shorten the period during which a warranty claim must be made. Such a provision, if appropriately drafted, is capable of resolving both the scope of the warranty and the applicable limitations period by contractual agreement, thereby creating more certainty for the parties.
1 No 17-0636, (Tex. Feb. 1, 2019).
2 Under the DTPA, a “Consumer” can be a business consumer “except that the term [Consumer] does not include a business consumer that has assets of $25 million or more, or that is owned or controlled by a corporation or entity with assets of $25 million or more. TEX. BUS. & COM. CODE ANN. § 17.45(4).
3 While not answering this question, the court noted that an implied warranty is “a freak hybrid born of the illicit intercourse of tort and contract” and cited cases where the court had referred to implied warranties as grounded in tort or grounded in contract. This might mean that the facts out of which the implied repair warranty claim arises may determine whether the two-year or the four-year limitations period applies.
4 Melody Home Manufacturing v. Barns, 741 S.W.2d 349, 355 (Tex. 1987).