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The Texas Supreme Court recently ruled that homebuilders can’t contractually disclaim the implied warranty of habitability and offer only express limited warranty coverage to buyers. But in its 7-2 decision, the court held in Centex Homes v. Buecher, et al., that the implied warranty of good workmanship can be disclaimed if the agreement between the builder and buyer provides sufficient detail about how the builder is to perform. In other words, a homebuilder can’t include in a contract clauses requiring the buyer to waive the implied warranty of habitability (which says a home is safe and sanitary), but can reach an agreement with a buyer about what is expected as far as the quality of workmanship and put those details in the contract. “The supreme court reaffirmed several decades of consumer protection law,” says Joe Longley, an attorney for homeowners who brought a class action against Dallas-based Centex in 1999. Longley, a partner in Austin’s Longley & Maxwell, says builders over the years have increased their use of standard contracts containing clauses disclaiming the implied warranties. A buyer receives a warranty provided by the builder and can purchase extended warranties, which Longley alleges do not provide much coverage. San Antonio solo Bryan A. Woods, who also represents the homeowners, alleges that some builders limit their warranties to one year and that extended warranties often have many exclusions on coverage. “Homeowners should have a better warranty than you get when you buy a toaster,” Woods says. According to the Texas Supreme Court’s Aug. 29 opinion, Michael Buecher and other homeowners sued Centex in 1999, alleging fraud, misrepresentation, negligence and violation of the Texas Deceptive Trade Practices Consumer Protection Act in connection with the construction of their homes. The homeowners sought certification of a class action against the builder and an injunction to prevent the builder from asserting that it has no liability for defects after the one-year warranty expires, the opinion said. Brian Woram, Centex’s general counsel, says the homebuilder gives buyers a detailed written warranty that meets the supreme court’s requirements. “We’re comfortable with the decision,” Woram says. “This lets us set reasonable written expectations about workmanship, but the house has to be safe and sanitary.” Gary Javore, an attorney for about 65 homebuilders, views the decision on the workmanlike warranty as positive for the construction industry. “They [the supreme court] have said you can have an objective standard to define good workmanlike construction,” says Javore, a shareholder in San Antonio’s Johnson, Christopher, Javore & Cochran, who is not involved in Centex. In trials, builders’ experts often disagree with buyers’ experts about what constitutes workmanlike construction, leaving juries to decide which experts to believe, Javore says. “What it often comes down to is whom the jury likes better,” he says. Bob Bush, an Arlington, Texas, attorney who often defends homebuilders against buyers’ claims, says the court’s ruling on the implied warranty of habitability “does violence” to 20 years worth of construction contracts. “The bottom line is the court has taken two decades worth of contracts and turned them on their head,” says Bush, a shareholder in Bush & Motes and the retained counsel for the Homebuilders Association of Greater Dallas and Greater Fort Worth Homebuilders Association. Bush is not involved in Centex. HELPS OR HURTS? The implied warranty issue has caused some confusion, partly due to what some see as conflicting opinions from the supreme court. Chief Justice Tom Phillips, writing for the majority, said the court recognized in 1968′s Humber v. Morton that the builder of a new home impliedly warrants that the home is constructed in a good and workmanlike manner and is safe for human habitation. In 1982, the court held in G-W-L Inc. v. Robichaux that the implied warranty could be waived if the intent to do so was clearly expressed in the agreement between the builder and buyer. The Texas Supreme Court’s 1987 ruling in Melody Homes Manufacturing Co. v. Barnes recognized for the first time an implied warranty of good workmanship in repairs and said the warranty could not be waived or disclaimed. That caused some to believe that the warranties recognized in Humber could not be disclaimed, but that’s not the case for the good workmanship warranty, the majority said in Centex. In Centex, the majority distinguishes between an implied warranty of habitability and an implied warranty of workmanlike construction — something that the court failed to do in Robichaux, Phillips said in the opinion. With regard to habitability, the implied warranty covers only defects that make the home unsafe or unsuitable for people to live in it, the opinion said. Justice Nathan Hecht, in a stinging dissent, criticized the court for creating an unwaivable implied warranty of habitability that he said will be “litigated for years at a tremendous cost,” without any evidence that it helps or hurts. “The court knows no more than I do about the subject but does not view judicial ignorance as any hindrance to judicial action,” Hecht said in his dissenting opinion. Justice Craig Enoch joined Hecht in the dissent. Bush says it has been established law since the court’s ruling in Robichaux that homebuilders could disclaim implied warranties. The supreme court’s decision in Centex applies retroactively and will have a major impact, he says. “In my opinion, probably hundreds of thousands of contracts involving billions of dollars relied on Robichaux,” says Bush, who predicts that the decision will lead to a multitude of suits. Longley says the decision could give insurance companies representing policyholders a way to seek damages from builders for mold claims. “That [mold] would render a home uninhabitable,” Longley says. “This is setting the stage for what I fear is going to be an onslaught of entrepreneurial litigation,” Bush says. The supreme court affirmed a March 2000 decision by San Antonio’s 4th Court of Appeals, which had reversed the 224th District Court’s dismissal of the class action allegations. The trial court held that the waiver disclaimer in Centex’s contracts could be enforced. A panel of the 4th Court of Appeals reversed the trial court’s judgment in 1999. After rehearing the case en banc in 2000, the 4th Court of Appeals remanded the case to the trial court on a 5-2 vote. Chief Justice Phil Hardberger wrote the majority’s opinion, and Justices Sarah Duncan and Karen Angelini dissented. The supreme court’s ruling differs with the 4th Court of Appeals, which had held the implied warranty of workmanship could not be waived. Woods says the case goes back to the trial court, where the plaintiffs will press for certification of the class. Woods says the class would include all homeowners who bought a Centex home within a 10-year period.

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