Gallet Dreyer & Berkey, LLP | Contractor’s Liability for Warranties Received From Vendors
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  • Contractor’s Liability for Warranties Received From Vendors

    Warranties are a fact of life in construction.  Virtually every contract requires the contractor to agree to return and replace, or repair defect work for a certain period of time after construction is completed.  Where vendors have supplied equipment or materials, they are often required to warrant the sufficiency of that equipment or material for a term of years.  Usually, they back up that promise in a written warranty which gets transmitted to the contractor and then given to the owner as a part of its close-out package.

    But even assuming that the owner can enforce the vendor’s warranty directly against the vendor, can the owner hold the contractor to the terms of the vendor’s warranty long after the contractor’s own warranty has expired?
    Those are the basic facts presented in HTRF Ventures, LLC v. Permasteelisa North America Corp., a case involving the construction of the IAC building in Manhattan’s Chelsea designed by Frank Gehry.  In that case, HTRF had entered into a construction management agreement with Turner Construction, which then entered into a design-build agreement with Permasteelisa for the unique glass curtain wall façade.  The curtain wall consisted of double-glazed units sealed with a PIB sealant, manufactured by Zadra, and a secondary sealant, manufactured by Dow Corning.  The work was completed in 2006. When the glass started to show drip marks within the double-glazed units, an expert determined that the PIB sealant was defective. HTRF sued Permasteelisa in 2016 to get it to honor its warranties.  The question was, which warranty?  And was the suit timely?

    In its contract, Permasteelisa had agreed to remove, replace and/or repair any defective work discovered “within one (1) year from the date of acceptance of the Project … or for such longer period as may be provided in the … Specifications….”  Clearly, the 1-year period had long passed.  But what was in the Specifications?

    The Specifications required that Permasteelisa “Submit a five (5) year warranty covering materials and labor workmanship of the curtain wall system.”  Clearly, that had long expired as well.  But the Specifications went on: “Provide a Ten (10) year warranty on seal failure of the double glazed units.”  Permasteelisa had provided HTRF with Zadra’s 10-year warranty on the PIB sealant.  Didn’t that fulfill its obligation to HTRF?

    Permasteelisa made several arguments, all of which were given short shrift by the court: 

    • Did the typical 6-year statute of limitations dictate that this action, commenced 10 years from completion, be dismissed?  No.  Warranties can extend the statute of limitations. 

    • Was HTRF even permitted to jump over Turner to sue Permasteelisa directly?  Yes.  HTRF was a “third-party beneficiary” of the Turner-Permasteelisa contract.

    • Was there any distinction to be made between having to “submit” a 5-year warranty on workmanship but to “provide” a 10-year warranty on the PIB sealant?  No.

    • Were Zadra’s and Dow Corning’s warranties merely “pass-through warranties”? No.

    The appellate court held that a contract’s provisions must be read as a harmonious and integrated whole, so as not to render any provision meaningless or without force or effect.  Using this rule of interpretation, it held that the only meaning which could be given to Permasteelisa’s promise to repair its defective work for 1 year or for such longer period as may be provided in the … Specifications… was to hold it liable for repairs for the 10-year term of the Zadra warranty.  Since the lawsuit was commenced just inside the 10-year period, it was held to be timely, and Permasteelisa’s motion to dismiss the complaint was denied.

    The case had a strong dissent which took issue with the majority’s willingness seemingly to glom onto any mention of a longer warranty period—regardless of whether it applied to Permasteelisa or its vendors.  While the dissenting judge agreed that warranties can, by their terms, last beyond the typical 6-year statute of limitations, and also agreed that HTRF had the right to sue Permasteelisa directly, she stated that the 5-year warranty reflected the parties’ true intent.  If Permasteelisa was to be held liable under its 5-year warranty and also a 10-year warranty — both covering a defective seal — it would render one of those provisions superfluous, a result which violates rules of contract interpretation.

    In many construction contracts, a specific warranty (usually designating a term of 1-year from substantial completion) is often accompanied by general language to the effect of “or such other, longer-term as may be provided elsewhere in this agreement.”  Language which, in the past, may have been ignored as unimportant now looms much larger in light of this case.          

    ATTORNEY: Randy J. Heller