Oral Warranties: Are They Enforceable? The Statute of Frauds may bar their enforcement.

Are oral warranties enforceable?  They may not be.  The Statute of Frauds may bar their enforcement.

Warranties are a valuable part of a construction contract.  A multi-year warranty is more valuable than a 1-year warranty.  A contractor’s offer to provide a multi-year warranty may induce an owner to select that contractor and enter into the contract.  Often, multi-year warranties are included in the written contract, or separate written warranty policies are provided at the end of the project.  However, not all construction contracts are written, and contractors don’t always provide a written policy at the end of a project.

Florida’s Statute of Frauds (Section 725.01, Florida Statutes) bars the enforcement of oral agreements that are not to be performed within one year.  Does that mean oral warranties for more than one year are not enforceable?  At least one Florida court has held that warranties for more than one year must be in writing.  See Grovenor House, L.L.C. v. E.I. Dupont de Nemours & Co., No. 09-21698-CIV, 2011 WL 766262, at *5 (S.D. Fla. Feb. 25, 2011).  However, a recent Florida First District Court of Appeals case appears to have opened the door to enforcing oral multi-year warranties.  Loper v. Weather Shield Mfg., 2015 Fla. App. LEXIS 9564 (Fla. 1st DCA June 24, 2015).  This blawg focuses on the Loper holding, as it applies to the Statute of Frauds and oral warranties for more than one year.

In Loper, a homeowner noticed construction defects manifesting and began to work with the contractor to have the defects repaired.  During the warranty period, the contractor took some action to repair the defects, but the defects continued to worsen.  Near the end of the warranty period, the homeowner met with the contractor to discuss final resolution of the defects.  At the meeting, the homeowner and contractor agreed to an oral contract for the contractor to repair the defects and provide a new written 10-year warranty.  In exchange, the homeowner agreed not to hire an attorney or sue the contractor.  Loper, at *1-4.

A few months later, right before the expiration of the original warranty, the contractor told the homeowner that it would not honor the terms of the oral contract; the contractor would not repair the defects or provide the new 10-year warranty.  The homeowner realized he had been misled.  Until that point, the homeowner had relied on the contractor’s oral agreement and had not hired an attorney.  “But now things had changed” so the homeowner hired an attorney and sued the contractor for breach of the oral contract.  Id. at *4-6.

At trial, the jury returned a verdict for the homeowner.  The jury found that:  (a) the homeowner and contractor had entered into an oral contract; (b) the contract terms were that the homeowner would abstain from hiring a lawyer and suing the contractor, and in exchange the contractor would repair the defects and provide a new 10-year warranty; (c) the contractor breached the contract; (d) the homeowner fully performed his responsibilities by abstaining from hiring an attorney and suing the contractor; and (e) the homeowner reasonably relied on the contractor’s representations to his detriment.  However, the trial court entered a directed verdict in favor of the contractor based on the Statute of Frauds, which bars oral contracts that cannot be performed within one year.  The trial court reasoned that the Statute barred enforcement of the oral contract because it would have provided the homeowner with a 10-year warranty.  Id. at *11-13.

The homeowner appealed.  The appellate court reversed; ordering judgment in favor of the homeowner.  There were three independent reasons why the Statute of Frauds did not bar enforcement of the contract.

First, the oral contract to provide a warranty did not fall with the Statute of Frauds because it could have been performed within a year.  An oral contract falls within the Statue if it is apparent that the parties to the contract intended that the contract would not be performed within one year.  Id. at *20.  Only if a contract could not possibly be performed within one year would it fall within the statute. Id. at *23.

Here, the appellate court held that the proper focus is on the oral contract itself, not the 10-year warranty.  The oral contract required the contractor to issue the 10-year warranty.  The contractor could have issued the warranty within a year.  The parties did not intend for the contractor to wait to issue the warranty for more than a year.  The terms of the oral contract did not prevent the contractor from issuing the warranty within one year.  Thus, the oral contract was removed from the Statute of Frauds.  “Because issuance of replacement policy could have, indeed should have, occurred in less than a year, the statute of frauds issue is inapplicable.”  Id. at *20-21.

Second, the oral contract was enforceable because of the “full performance by one party” exception to the Statute of Frauds.  Under this exception, even if an oral contract was required to be performed beyond a year, the Statute is inapplicable if one of the parties fully performed his or her responsibilities under the terms of the contract.  Id. at *25.  Here, the jury found that the homeowner fully performed his responsibilities by abstaining from hiring an attorney or suing the contractor.  Therefore, the Statute of Frauds could not apply to bar the oral contract.  Id. at *25-26.

Third, equitable estoppel prevented the contractor from using the Statute of Frauds.  Under the principals of equitable estoppel, a party who makes a representation to the other party, and the other party relies on that representation to enter the contract to his detriment, may be estopped from contesting the validity of the contract.  Id. at *26.  Here, the jury found that the homeowner relied to his detriment on the contractor’s representation that it would repair the defects and issue the 10-year warranty.  Therefore, the contractor was estopped from applying the Statute of Frauds to negate the contract.  Id.

The Loper case raises a few questions, and appears to provide a few answers.  Does the Loper holding mean that a multi-year warranty included in an oral contract is not barred by the Statute of Frauds?  Is it critical that the Loper contract required the contractor to provide a “written” warranty policy?  Does it make a difference that Loper brought a “breach of contract” claim rather than a “breach of warranty” claim?

Let’s apply Loper to an example scenario.  Owner and contractor agree to an oral contract for a construction project that is scheduled to take 6 months to complete.  The contractor states that he will warrant the project for 5 years (but does not provide a written warranty policy).  The project is completed and the owner makes payment in full.  Defects manifest after 4 years.  Can the owner sue for breach of the 5-year warranty?

Based on Loper, one has three arguments that the warranty is enforceable in this scenario.  First, you focus on the oral contract, not the 5-year warranty.  The contract took less than one year to perform.  Thus, the contract was outside of the Statute of Frauds.  The contractor breached the contract by failing to issue the 5-year warranty.  Had contractor issued the warranty, contractor would have been obligated to repair the defects that arose within the 5-year term of the warranty.  Owner’s damages were caused by contractor’s failure to issue the warranty.  This argument may support a “breach of contract” claim rather than a “breach of warranty” claim.

Second, you assert the “full performance by one party” exception.  The owner fully performed by making payment in full.  Thus, the “full performance by one party” exception applies to prevent the Statute of Frauds from barring enforcement of the oral 5-year warranty.  The warranty, even though it extends past one year, is enforceable.  A “breach of warranty” claim should exist here.

Third, and finally, you assert equitable estoppel.  The owner relied to his detriment on contractor’s representation that the work would be warranted for 5 years.  The contractor should be estopped from using the Statute of Frauds to challenge a “breach of warranty” claim.

Loper is an interesting case.  We look forward to applying its holdings in future cases.