Potential Exposure for Construction Type Defects or Other Problems with Modular Homes
Since Hurricane Katrina, modular homes are becoming increasingly popular in this region. As a result, it is more than likely that this new form of construction taking shape around the city will create a plethora of unexpected legal issues over the next decade. The purpose of this discussion is to explore those issues which may develop regarding liability for construction type defects in new modular home construction.
I. What is a Modular home?
At first glance, this question seems elementary. But, characterizing a modular home is an important step in evaluating (1) an owner's remedies for defects discovered after purchase, (2) the duties of the seller, manufacturer and "builder", and (3) the limitations on damages that may be available.
Modular homes are seemingly defined by the process in which they are built. According to the Louisiana Attorney General, modular homes generally consist of components or sections that are built off-site, usually in an indoor factory setting, transported to a home site, and then assembled and permanently attached to a slab or foundation.[1] However, this definition appears similar to the certain definition of a mobile home found in the Louisiana Revised Statutes. For example, see 9:5363.1, which defines a "Mobile home" as:
a structure, transportable in one or more sections, ..., designed to be used as a dwelling with our without a permanent foundation...
As a matter of fact, for the purposes of La.R.S. 9:5363.1, "the term 'mobile home' shall include a 'modular home'..."[2]
While "modular homes" and "mobile homes" may have some similarities, for the purposes of determining which law applies, the key issue is whether the home is built according to the International Residential Code, or whether it was built according to Housing and Urban Development standards and codes. Generally, if the structure was built according to the IRC, it will likely be considered a "modular home" and its construction is governed by the Louisiana State Contractors Licensing Board. If the structure was built according to HUD standards and codes, it will likely be considered a "mobile home," and is governed by the Louisiana Manufactured Housing Commission.[3]
Please note that it is not the purpose of this paper to provide an opinion on whether a particular structure is a "mobile home" as opposed to a "modular home". Rather, this paper merely identifies the importance to discern the difference in the event of litigation, or for other reasons.
II. Why is it important to distinguish between a mobile home and a modular home?
The distinction between a "mobile home" and a "modular home" is important for several reasons, including which laws govern the warranties owed by the manufacturer and installer and what remedies are available to an owner in the case of construction type defects. For example, La.R.S. 51:911.25 provides the warranties owed on "mobile homes". Different warranties and provisions of the law apply when the home is not considered a mobile home.
III. What are the warranties owed on a modular home?
This is a difficult issue to address. It will likely depend on (1)who is asserting the claim, (2) the nature of the claim, and (3) who the claim is asserted against. The possible parties in a modular home matter are the owner, the local contractor, the distributor, the designer and the manufacturer.
A. An owner's general rights.
In Louisiana, new home construction is generally governed by the Louisiana New Home Warranty Act, La.R.S. 9:3141, et seq. The New Home Warranty Act ("NHWA") provides, in pertinent part that:
[The Act] provides the exclusive remedies, warranties, and peremptive periods as between the builder and owner relative to home construction and no other provisions of law relative to warranties and redhibitory vices and defects shall apply. . .
The precise warranties, remedies, warranties and peremptive periods are not going to be discussed in this paper. However, the Act is clear with regards to the owner and the builder, in that no other provision of law will apply to claims related to home construction other than those provided by the NHWA.
For purposes of the NHWA, the "owner" is the initial purchaser and any successor in title.[4]
B. A builder's general rights
Under the NHWA, a "builder" is any person or entity "which constructs a home, or addition thereto, including a home occupied initially by the builder as his residence".[5] In the context of modular homes, it has not been determined to what extent a person or entity may be considered the "builder". For example, is the manufacturer of the modular home a "builder" or is the definition of "builder" limited to the local builder who assembles the home at the residence site?
When determining the builder - or the responsibilities of the parties for that matter, it is best to look into the nature of the contract. It is possible that the Courts will interpret the New Home Warranty Act's definition of "builder" to include any person or entity that was involved in the manufacturing or fabrication of the home, as well as the party who assembled the home at the residence site. But, because a modular home is constructed off site and sold in pre-manufactured component parts or sections, it may be necessary to determine whether the purchase of a modular home a contract of sale or a contract to build? This distinction may be important because Louisiana distinguishes between contracts to build and contracts of sale. See for example, the Louisiana Fourth Circuit Court of Appeal's decision in Conmaco, Inc. V. Southern Ocean Corporation, 581 So.2d 365 (La. App. 4 Cir. 1991), which did not involve a new home construction, but distinguished a contract of sale and a contract to build. The distinction was necessary because each type of contract had different elements of proof and different remedies available for breach.
In Conmaco, the buyer-owner purchased a crane. The crane was purchased from one defendant and manufactured according to specifications established by the buyer-owner and subsequently delivered to the owner by another party. After arrival, the owner alleged that the crane was defective and sought to cancel the sale. He also sought damages and attorneys fees. In a contract of sale, attorneys fees are allowed when the thing sold is unfit for its intended use and the defendant is the manufacturer. If the acquisition of the crane was based on a contract to build, then attorney fees would not be allowed.
Generally, Louisiana Courts rely on three major factors used to determine whether a contract is a contract of sale or a contract to build. First, in a contract to build, the buyer generally has some control over the specifications of the object. Second, the negotiations in a contract to build usually take place before the object is constructed. Third, and what is sometimes accepted as most important, "a building contract contemplates not only that one party will supply the materials, but also that the party will furnish his skill and labor in order to build the desired object."[6]
In Conmaco, the Court held that the contract was not a contract to build, but was, in fact, a contract of sale. Even though the Court found that the first two elements favored a finding of a contract to build, it determined that the final element was not met. Specifically, it held that the person who "sold" the crane was not the party supplying the labor and materials to construct the crane. The labor and materials used to construct the crane were supplied by a third party.
With respect to modular homes, the same scenario may occur. The person selling the modular home may not be the same entity providing the labor and materials needed to construct or assemble the components at the home site. In this regard, the entity joining the sections or components of the modular home may also not be the same entity who provided the labor and materials needed to fabricate or manufacture the sections and component parts. Thus, with respect to defining the builder, it may include the manufacturer and the local builder, or just the local builder.
Assuming the local builder is different than the manufacturer, there presents other problems. Although the local builder may generally be responsible under the Louisiana New Home Warranty Act for defects in the construction, Louisiana law provides for certain immunities against liability when the thing was constructed according to the plans and specifications provided by someone other than the contractor. This provision is found in La.R.S. 9:2771, which provides, in pertinent part, that:
No contractor ... shall be liable for destruction or deterioration of or defects in any work constructed, or under construction, by him if he constructed, or is constructing, the work according to plans or specifications furnished to him which he did not make or cause to be made and if the destruction, deterioration, or defect was due to any fault or insufficiency of the plans or specifications.
Thus, if a defect in a modular home was discovered, and the defect would ordinarily be covered by the NHWA, but the defect is in or results from the work prepared by the manufacturer, then the local builder may be able to assert immunity because he did not provide or have control over the manufacturer's work, plans or specifications.
IV. What other laws may apply?
Assuming the manufacturer of a modular home does not meet the definition of a "builder" under the NHWA, it may still be liable for damages in redhibition, breach of contract or breach of expressed warranties.
Redhibition is provided in Louisiana Civil Code Article 2520. It essentially provides that the seller must warrant that the thing sold is fit for its intended purpose. If the thing sold is not fit for its intended purpose, then the buyer is entitled to certain damages which include rescission of the sale, reduction in the purchase price, reasonable expenses occsioned by the sale and for preserving the thing, attorneys fees, and other damages.[7]
Breach of contract and breach of expressed warranties may apply, but this depends entirely on the language of the contract and warranties. La. C.C. article 2769 provides that "if an undertaker fails to do the work he has contracted to do, or if he does not execute it in the manner and at the time he has agreed to do it, he shall be liable in damages for the losses that may ensue from his non-compliance with his contract."
V. Conclusion:
Modular homes are likely to become more common as the City of New Orleans rebuilds. Consequently, it is important that the obligations between the owner, local builder and manufacturer (and distributor) are clearly delineated. Should a problem develop during or after construction, it will be necessary to determine whether the home is considered a "modular home" or "mobile home", and which law applies to each party. This will allow the parties to rectify the problem, evaluate their responsibility to rectify the problem and limit their liability and exposure for problems and defects that may be the responsibility of others.
Written for The Legal Blueprint, 2007, Issue 2.
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[1] La.Atty.Gen.Op.No. 06-0175, September 14, 2006, 2006 WL 3255605.
[2] A similar definition of "mobile home" is also provided in La.R.S. 9:3259.1.
[3] La.Atty.Gen.Op.No. 06-0175 , September 14, 2006, 2006 WL 3255605.
[4] La.R.S. 9:3143(6).
[5] La.R.S. 9:3143(1).
[6] Conmaco, 581 So.2d at 369.
[7] La.C.C. art.2545.
