Standard industry contract forms include warranty clauses that have no time limit. Those standard forms also include “correction of work” clauses requiring the contractor to address problems that arise in the year after project completion. Does that mean the contractor’s warranty is limited to one year, or not? That issue was encapsulated in a dissenting opinion recently penned by a justice of the Michigan Supreme Court:
In my judgment, contrary to the Court of Appeals' conclusion, Articles 12 and 21 are not independent provisions, but rather refer to the same subject matter — "Work" in conformance with the "Contract Documents" — and consequently must be read together to interpret the contract in its entirety. And when read together, these articles provide that the "Contractor," . . . expressly warrants that all "Work" will be in conformance with the "Contract Documents" and that all "Work" that is not in conformance with the "Contract Documents" will be corrected within 18 months following the "date of the Final Certificate of Occupancy." That is, Article 21 imposes an 18-month limitation on the express warranty set forth in Article 12.
The dissent was issued in Spring Harbor Club Condo. Ass'n v. Wright, 2016 Mich. LEXIS 270 (Mar. 4, 2016), available here (Lexis subscription required).
What we can infer from the dissent is that Article 12 in the subject contract was the warranty, and Article 21 was the post-construction remedial work clause. What we can also infer is that the majority of the court concluded that the remedial work clause did not limit the duration of the warranty.
This remains one of the most misunderstood contract issues in the industry. Many contractors signing a standard industry form believe their warranty is limited to one year. (One year is the correction period in most industry standard forms.) And many owners fail to recognize that the contractor could be liable for a breach of warranty over a period of time that extends to the applicable statute of limitations – which varies from state to state but in many states is either four or six years.
The “correction of work” clause is an owner remedy. For the specified post-construction period – typically one year – the owner’s remedy upon discovering a problem is to call the contractor and demand that the contractor fix the problem. Beyond that one-year period, though, the owner’s remedy, if the contractor does not voluntarily answer the call and take action, is to incur the remedial costs up front and then pursue the contractor for recovery under breach of contract or breach of warranty theories. Most practitioners and court decisions on this issue come to the same conclusion: the warranty is not limited by the correction period, unless the warranty is specifically written with that limit. Remember this point.