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Zombie Case Law Rises from the Dead to Harm Contractors

Question:  Can a contractor be held liable to an owner for construction defects resulting from defective plans and specifications supplied by this same owner?

Answer:  Yes. Although this is not always true, old case law that most lawyers believed was no longer good law has recently been reaffirmed and can make a contractor liable to an owner for defects from defective plans and specifications even if the plans and specifications were supplied by the owner.

Follow the plans and specifications! Lawyers preach this all of the time to their construction clients. It makes sense, and it is good advice. But sometimes, the situation can be a little more complicated largely because of a case decided by the Texas Supreme Court over 100 years ago.

The Zombie

In 1907, the Texas Supreme Court examined holding a contractor liable for defective plans in the infamous case of Lonergan v. San Antonio Loan & Trust Co.  A contractor agreed to construct a building according to plans and specifications developed by an architect. When the building was almost complete, the building collapsed. The owner sued the contractor. The contractor claimed the plans and specifications that the owner supplied were defective. In a surprising twist, the trial court held that regardless of the defective plans and specifications, the contractor was liable to the owner because he failed to comply with his agreement to construct a finished building as required by the contract. The appellate court agreed with the trial court and affirmed the judgment. The Texas Supreme Court affirmed and held that unless the contract says otherwise, the contractor should bear the risk of defective plans and specifications. The Court reasoned the contractor was in a better position to discover the defects than the owner. Liability attached because the contractor simply failed to complete construction of a building as agreed in the contract.

A New Approach

A few years later, the United Supreme Court faced a similar issue but reached a very different conclusion. In United States v. Spearin, a contractor agreed to build a drydock in accordance with plans provided by a governmental entity that was the owner. A problem with the sewer system, however, caused the drydock to flood before it was completed. The governmental entity knew about problem and was aware of previous flooding issues but never disclosed the problems to the contractor. The contractor refused to continue working on the project until the government fixed the problem, so the contractor was fired. The contractor sued for the balance he was owed under the contract. The court of claims held for the contractor and awarded him damages. The government appealed, and the case made its way to the United States Supreme Court. The Supreme Court held for the contractor and affirmed the award. The Court reasoned that if a contractor is bound to build according to plans and specifications furnished by the owner, then the contractor is not responsible for defects in the plans and specifications. This is very different than the Texas Supreme Court’s reasoning in Lonergan.

Since Spearin, a majority of states have adopted this same approach. The expectation in Texas over the years has been that Lonergan is no longer good law and Spearin represents the new, more enlightened approach. In fact, numerous lower Texas courts over the years have followed Spearin’s approach rather than Lonergan’s. In 2012, however, we learned that Lonergan is far from dead in Texas.

The Zombie Returns

In El Paso Field Services v. Mastec North America, Mastec was a contractor who sued El Paso Field Services for breach of contract and fraud for failing to discover crossings interfering with a pipeline being constructed. Mastec was tasked with constructing a pipeline for El Paso Field Services. El Paso Field Services provided surveys that were supposed to show the locations of all of the crossings for bidding. The crossings increased the cost of constructing the pipeline. During construction, Mastec found significantly more crossings than the survey from El Paso Field Services showed. This greatly increased the cost of the contract. El Paso Field Services, however, refused to pay Mastec’s claim for additional costs from dealing with the unknown crossings.

The trial court granted a judgment in favor of El Paso Field Services finding that the contract allocated the risk of finding all of the crossings to Mastec. The appellate court reversed and found that El Paso Field Services failed to exercise due diligence in finding all of the crossings. The Texas Supreme Court reversed the appellate court and agreed with the trial court that the contract allocated the risk of finding the crossings to Mastec not El Paso. Specific language in the contract that was very favorable to El Paso Field Services allocated the risk of finding the crossings to Mastec. The Court could have simply stopped there and affirmed based on this language in the contract. Instead, however, the Court expressly cited and reaffirmed Lonergan. The Court noted how its ruling is consistent with the Court’s holding in Lonergan since the contractor was held liable for defects in the plans and specifications unless the contract states otherwise.

The Lesson

Since then, Texas courts have been inconsistent in their rulings on this issue. The lesson is not to risk it. Contractors should ensure that their contracts allocate the risk of deficient or defective plans and specifications to the owner, not the contractor. Otherwise, contractors risk a court following Lonergan and holding them responsible for defective plans supplied by the owner.

Scot Pierce, Esq. is a trial lawyer and transactional attorney.  Click on his picture for his profile page.

Disclaimer: This post contains general opinions and analysis, is solely for educational purposes, and should not be treated as advice for any specific case.

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