After the stucco system failed and the owners' sued ChemRex, ChemRex argued that the territory manager did not have authority to issue the warranty and that none existed. The Supreme Court of Oregon disagreed and held the branch manager had "apparent authority" to bind ChemRex based on his position as territory manager, his ability to process warranties and communicate with customers regarding warranties on ChemRex letterhead.

http://onlinewsj.com/article/SB122706058287939735.html

The Court first addressed the homeowners' claim for breach of the implied warranty of habitability. In Washington, the doctrine of the implied warranty of habitability protects the first occupants of residential property against the "risk of fundamental defects in the structure of a home." However, in this case, each of the ten plaintiffs were not the original purchasers of homes from Harbour. The homeowners argued their claims were nonetheless valid because each had been assigned the original homeowners' claim. The Court ruled in favor of Harbour and held that the assignment did not cure the fact that the homeowners were not original purchasers.

Harbour next argued that the homeowners' claims for fraud and misrepresentation were barred by the economic loss rule. The economic loss rule applies to hold parties to their contractual remedies when a loss potentially implicates both tort and contract relief. The Court held that the homeowners' fraud and misrepresentation claims were contract based claims and barred by the economic loss rule. [However, the Court recognized that prior case law held that claims for fraudulent concealment were not barred by the economic loss rule].

Harbour was not so successful as to the homeowners' claims for CPA violations. The homeowners' alleged that Harbour's plainly deficient construction of the homes, together with Harbour's affirmative representations of high quality and workmanship, constituted an unfair or deceptive act of practice. The Court held that the homeowners had shown genuine issues of material fact for trial on the CPA claims.

The homeowners also alleged that Harbour had breached it contracts with the owners by violating its duty of good faith and fair dealing. The Court recognized that the duty of good faith and fair dealing obligates the parties to cooperate with each other so each may obtain the full benefit of performance. But, the duty of good faith does not "inject substantive terms into the parties' contract." Rather, it "requires only that the parties perform in good faith the obligations imposed by their agreement." The duty exists only in relation to performance of a specific contract term. In this case, the Court held that Harbour did not breach a specific term of its agreement with the homeowners and therefore their claims for breach of the duty of good faith and fair dealing failed as a matter of law.

The technical requirements of arbitration demands are governed by statute, RCW 7.04A.090. The statute provides that a party initiating an arbitration must give the notice in accordance with the parties' agreement. If there is none, the notice must be sent via certified or registered mail, return receipt requested and obtained, or by service authorized for initiation of a lawsuit (i.e. via process server). The notice must describe the nature of the controversy and the remedies sought. In this case, the developer, Westcott Homes, LLC, sought to initiate an arbitration against homeowners, the Chamnesses. Westcott requested arbitration by email stating that "Westcott is going to want to proceed to arbitrate this dispute between it and the Chamnesses." The email notice did not describe the nature of the controversy or the remedies sought by Westcott. The Court of Appeals held that the email notice did not satisfy the statute, and dismissed Westcott's claim because it did not timely initiate arbitration within the period specified in the parties' agreement.

The lesson to attorneys and clients is that although arbitrations are a less formal procedure for dispute resolution, specificity and proper service is nonetheless required for arbitration demands. It is recommended that you consult an attorney before demanding arbitration.

The implied warranty of habitability applies only to builder-vendors of new residential dwellings. Previous cases had held that the implied warranty of habitability only required that the home be "structurally safe for the buyer's intended purpose of living in it." In this case, the Court of Appeals recognized that "the implied warranty of habitability does not cover alleged defects that involve mere defects in workmanship or aesthetic concerns." However, the Court went on to say that "if the violations present a substantial risk of future danger, the implied warranty of habitability is a viable claim." In this case, the Court of Appeals held that the allegations of mold caused by water intrusion at window sills, water damage that caused decay to decks surfaces, and cracks in the foundation, which may have been indicative of structural problems, constitute sufficient evidence to make a claim for the breach of the implied warranty of habitability.

This case represents the increasing standard in which builders of new residential homes must adhere. It is worth noting that the claim is a breach of the implied warranty of habitability, but is only available to the first purchaser of a home against the seller if the seller is a "builder-vendor" (i.e. in the business of selling homes).

In both decisions, the courts ordered the sureties to pay the claims (regardless of the validity of the claims) based on the sureties' failure to strictly comply with the Paragraph 6 of the Bond. General contractors should be aware of the strict notice requirements contained in their payment bonds with which they, along with their sureties, are expected to comply. The main concern for general contractors arises from the indemnification obligation to the surety that is regularly included in a surety bond. A surety's failure to comply with Paragraph 6 creates significant liability for the general contractor under the indemnification provision, as the general contractor usually agrees to indemnify the surety for any amounts that the surety pays on behalf of the general contractor.

Although there are currently no similar published decisions in Washington, it seems likely that a Washington court would reach the same conclusion as in National Union and Gibson. To avoid being a test case in Washington, general contractors should consider these issues pre-bid and carefully review the language of their payment bonds prior to contracting.

The AIA has recognized the problems created by recent court decisions such as National Union and Gibson, and has published a notice of amendment, recommending modifications to the existing A312 Payment Bond form. The recommendations are only recommendations at this point. Permanent revisions, if any, will likely be made in 2009. At this point, the recommended modifications include:

• Increasing the number of days for the surety's response from 45 days to 60 days
• Adding language stating that "failure to discharge obligations" does not act as a waiver of the surety's defenses but will allow a claimant to seek reasonable attorney's fees as a sanction for such failure.

For a more detailed analysis of these decisions, click here.

http://seattletimes.nwsource.com/cgi-bin/PrintStory.pl?document_id=2008151144&zsection

The Court of Appeals ruled that the Trusts' liens against the bond and retainage were improper. The Court of Appeals was bound by the Washington State Supreme Court's decision in I.B. E.W., Local No. 46 v. Trig Electric Construction Company, 142 Wn.2d 431, 13 P.3d 622 (2000), which held that trust funds, such as those in the Leo Finnegan case, that were created under federal law and governed by the Employee Retirement Income Security Act (ERISA), were governed by federal law that preempted the Trusts' right to recover against the payment bond and retention under Washington state law.

The case demonstrates that until the Trig Electric case is overruled by the Washington Supreme Court, lower Washington courts will hold that trust fund liens against the payment bond and retainage are invalid.