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# TWE ATTORNEY GENERAL OF TEXAS
Aun-rx~. ?I-RXAS 78711

August 22, 1975

The Honorable Jackie W. St. Clair Commissioner, Texas Department of Labor and Standards Box 12157. Capitol Station Austin, Texas 78711 Opinion No. H- 673 Re: Bonding provisions of

the Texas Mobile Homes Standards Act of 1975.’ Dear Commissioner St. Clair: The 64th Legislature adopted Senate Bill No. 397 (not otherwise published at the date of this opinion) revising ina number of respects, the Texas Mobile Home Standards Act, Acts 1969, 6lst Legislature,Regular Session, Chapter 656 (art. 5221f. V. T. C.S. ). Among other things section 13ofS.B. 397 (hereafter referred to as the Act) requires manufacturers, dealers and salespersons to file abond with your office “to insure compliance with the intent ofthis Act. ” Section 13 oftheAct, entitled “Bond Required” is as follows: (a) As of the effective date ofthis Act and annually thereafter, subject to such a schedule as the department may provide, all mobile home manufacturers, dealers, and salespersons are required to file a performance bond with the commissioner, along with such information the department may deem necessary toinsure compliance with the intent of this Act. (b) The bond shall be a surety bond issued bya company authorized to dobusiness in the state. and shall be in conformity with the Insurance Code. (c) The bond shall be to the state for the use by a consumer, the state, or any political subdivision thereof who establishes liability against a manufacturer, dealer, or salesperson for damages,

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penalties, or expenses, including reasonable attorney’s fees, resulting from a cause ofaction connected with the sale or lease ofamobile home. A consumer, the state, or any political subdivision thereof may recover against the principal or surety jointly and severally for such damages, penalties, or expenses. The bond shall be open to successive claims up to the amount offace value. (d) Any .~manufacturer or dealer who maintains aplace ofbusiness at one or more locations shall file with the department a separate bond for each location. (e) A manufacturer shall be bonded inthe amount of $100,000. A dealer shall be bonded in the amount of $25,000. A salesperson shall be bonded inthe amount of $2,000. (I) The bonding company is required to provide written notification to the department at least 30 days prior, to the cancellation ofany bond required by this Act. Section 14 ofthe Act, entitled “Warranties” provides: (a) After the effective date oftlis, Art, all new mobile homes sold by amanufacturer or dealer to consumers shall be covered by the mobile home warranty set forth inthis Act. (b) The mobile home warranty provided for inthis Act shall apply tothe manufacturer ofthe mobile home as well as to the dealer who sells themobile home to the buyer, except as otherwise provided. (c) The mobile home warranty shall be set forth in a separate written document entitled ‘Mobile Home Warranty’i shall be delivered to the consumer by the dealer at the time the contract of sale is signed; and shall contain, but is not limited to, the following terms: p.2931,

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(1) that the mobile home complies with the code; (2) that thewarranty shall be in effect for a period ofat least one year from date of initial set-up; (3) that the mobile’ home and all appliances and other equipment installed and included therein”~by the manufacturer or dealer are free from defects in materials or workmanship; (4) that set-up and tie-down operations performed onthe mobile home are performed in compliance with this Act, and other applicable state and local requirements, provided that only a dealer, his agent, or amanufacturer selling mobile homes directly to consumers shall be liable for the performance ofthe requirements in this subsection; (5) that the manufacturer or dealer or both shall take appropriate corrective action within a reasonable period oftime ininstances of defects inmaterials or workmanship, or failures to comply with the cade; (6) that the manufacturer and dealer shall be jointly and severally liable to the consumer for the fulfillment ofthe: terms of themobile home warranty, except as provided in Part (4), Subsection (c) ofthis section, and that the consumer may notify either one or both ofthe need for appropriate corrective action in instances of defects ofworkmanship, or failures to comply with the code; (7) that the warranty contains the.address and telephone number ofthe dealer and manufactuber where notices of defects may be given.

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As you state inyour request for our opinion, questions have arisen regarding the nature and interpretation ofthese provisions. You suggest that clarification ofthese provisions by our office would be helpful to the industry in securing the required bonds. Your first question is:

Section 13, subsection (a), states that all manufacturers, dealers and salespersons must file aperformance bond annually. The bond form the Department is using is continuous and contains a clause to the effect that the aggregate liability ofthe Surety may not exceed the penalty stated inthe bond. Is this a cumulative liability or would the maximum liability be limited to the penalty sum ofthe particular bond which covered the conduct that gave rise to the cause ofaction? Ifthere is any discrepancy between the printed terms ofthe bond form and the requirements ofthe Act itwould appear quite obvious that the Act will control and any bond given to fulfill its requirements will have to be interpreted to conform tothe Act. The Act in section 13(a) provides that the bond shall be filed annually. This, coupled with the provision of section 13(c) that the bond “shall be open to successive claims up to the amount offace value,” would surely indicate an intent upon the part ofthe Legislature that bonds be filed annually, each with limits or “face value” as provided in section 13(e). Itis our opinion that the liability under the bond would be limited to the total required during the period ofthe bond; i.e., during any one year the total liability onabond issued toa dealer would be $25,000. to amanufacturer $100,000 and to a salesperson $2,000. Your second question is:

Section 13, subsection (c), states that the bond may be used by a consumer. the state or apolitical subdivision who ‘establishes liability’ against amobile

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home dealer, manufacturer or salesperson. What is meant byestablishing liability through a ‘cause ofaction’ connected with the sale or lease ofa mobile home? Section 13(c), in our opinion, refers toa final judgment being entered against the principal on the bond through judicial process. Your third question is:

Ifa valid claim orjudgment ismade in connection with a particular mobile home at apoint in time after termination of the bond which covered the manufacture or sale of the mobile hbme. would there be liability under that bond or alternatively would there be liability under the bond in force at the time the loss occurred? Section 17(d) dealing with penalties, provides that a contract between a consumer and amobile home salesperson, dealer or manufacturer, is voidable if there was nobond as required by the Act “at the time the contract was consummated. ” Itis our opinion that this evidences a clear intent upon the part ofthe Legislature that the bond towhich recourse may be had by the consumer or dh’ers is the bond which was in effect at the time the sale,was consummated, and notthe bond in force at the time the loss occurred, although the two might be the same in some instances, if notin most. Your fourth question asks: What period oftime must elapse after termination ofthe annual bond when a’claim may nolonger be recovered under that bond? Since the answer tothis question necessarily must turn on the terms ofthe contract of sale with the consumer and ofany express warranty which may be given, it is impossible for us to give an answer. The extent to which a principal may limit his warranties as toduration is an involved question requiring the consideration of several statutes, both state and federal, as well as numerous court decisions. Without being exhaustive,

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we would direct your attention to chapters 2and 17ofthe Texas Business and Commerce Code and especially to sections 2.313 through 2. 318, 2.607, 2. 719, 2.725; and 17. 50; toarticles 5545 and 5546, V. T. C.S.;. tothe recentlyenacted Magnuson-MossWarrantyFederal Trade Commission Improvement Act, Public Law 93-637, 88 Stat. 2138 (1975) tobe codified as 15U.S. C. section 2301; and to the following decisions: Sherwin Williams Company v. Perry Company, 424 S.W. 2d 940 (Tex. Civ. App. --Austin 1968 writ ref’d. n.r. e3, 431 S.W. 2d 310 (Tex. Sup. 1968); Griffin v. H. L. Peterson Company, 427 S.W. 2d 140 (Tex. Civ. App. --Dallas 1968, nowrit); John DesxeCompany of Kansas City v. Tenberg, 445 S.W. 2d 40 (Tex. Civ. App. --Beaumont 1969, nowrit); Lankford v. Rogers Ford Sales, 478 S.W. 2d 248 (Tex. Civ. APP. --El Paso 1962, writ ref’d. n.r. e.); Mobile Housing, Inc. v. Stone, 490 S.W. 2d 611(Tex. Civ. App. --Dallas 1973. nowrit); &Ielody Home Manufacturing Company v. Morrison, 502 S.W. 2d 196 (Tex. Civ. App. -- Houston [lst Dist.] 1973, writ ref’d. n.r. e. ); Brown v. Young, 507 S.W. 2d 600 (Tex. Civ. App. --El Paso 1974, nowrit). Your fifth question asks: Section 14 requires that the mobile home warranty to the consumer provide for joint and several liability. Ifthe surety has bonded only one ofthese parties, for example the dealer, would the surety be liable- under the bond for a violation ofthe statute by the party, e.g. manufacturer whom he had not bonded? - The provision towhich you refer is found in subsection (c)(6) of section 14ofthe Act and requires that the manufacturer and dealer “shall bejointly and severally liable to the consumer for the fulfillment ofthe terms ofthe mobile home warranty. ” Itis conceivable that a bond might be issued fulfilling the bond requirements of section 13as to both the manufacturer and one or more ofits dealers. Your question, we assume, is directed, however, at abond issued to only one principal. For example, if issued toa dealer, itwill cover the liability of the dealer which will include defects built into the mobile home by the manufacturer for which the dealer isjointly liable

p. 2935The Honorable Jackie W. St. Clair, page 7

under section 

# 14(c)(6). A bond issued tothe manufacturer will, to a certain extent, cover faults resulting from failures of the dealer, but notall. It specifically will not be responsible for set-up and tie-down operations performed by a dealer [section 14(c)(4)]. Otherwise, the manufacturer will be responsible for thewarranty ofthe dealer that the mobile homes comply with the code, that the homes and all appliances and other ‘equipment installed and included therein are free from defects inmaterials andworkmanship, even ifthey were installed and included by the dealer and not the manufacturer, and that both the manufacturer and the dealer shall take appropriate corrective action within a reasonable time in instances of defective materials or workmanship or failure to comply with the code. Onthe other hand, there are other penalties assessed against a principal for which there is nojoint liability and for which the surety of one would notbe liable for the breach ofthe other. These would include civil penalties under section 17ofthe Act. We would further call your attention to the obvious fact that both at common law and by agreement, the party secondarily liable may seek indemnification from the one primarily liable. For a discussion ofthis question, see Ford Motor Company v. Russell and Smith Ford Company, 474 S.Gd 549 (Tex. Civ.App. --Houston [14th Dist.] 1971, nowrit). Your sixth question asks:

Ifthe original consumer-purchaser sells themobile home to another within the warranty period applying to that mobile home, does the liability ofthe dealer and/or manufacturer and their respective sureties extend to the new consumer-purchaser? Section 13(c) provides that the bond shall be for the use ofa consumer, the state or any polttical subdivision thereof who establishes liability. The Act, in section 3, defines a consumer tobe “any person who seeks or acquires by purchase of lease a mobile home from a manufacturer, dealer or salesperson. ” Unless aperson purchasing amobile home can

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qualify under this definition, i.e., unless he acquires the mobile home from amanufacturer, dealer or a salesperson as defined, then we cannot see how he is an obligee under the bond, even though under the warranty provisions oftheAct he may have a cause ofaction against the manufacturer, dealer or salesperson for breach ofwarranty. Inanswering these questions, we have done so based upon our construction of section 13that the bond called for is notintended to replace or fulfill the functions ofa liability insurance policy, and, thus would not pay losses established against the manufacturer, dealer or salesperson for personal injury as the result of negligence. We base this conclusion onlanguage of section 13referring to the bond both as a “performance bond” and as a “surety bond, ” language whi~chcertainly speaks more inthe terms of suretyship than ofliability insurance. The legislature, when ithas wanted to require insurance has used that term. See e.g., art. 6701h. sec. 19, V. T. C.S. The Insurance Code, in discussing thejurisdiction ofthe Insurance Board over casualty insurance companies, speaks both interms ofinsurance and surety bonds. Ins. Code. art. 5.13. Thus, even though the dealer or manufacturer may be liable, not only tothe consumer, butto third persons for damages resulting from negligence in the manufacture or installation ofamobile home, we do notbelieve that itwas the intent ofthe Legislature that the bond required by section 13cover that liability except insofar as it grows out of the warranty ofthe manufacturer or dealer. Inany event, the surety onthe bond may minimize any such liability by requiring that its principal carry products liability insurance insuring against any such loss. SUMMARY

With reference to the bond required by section 13 ofarticle 5221f. V. T. C. S., as amended in 1975: (11the bonds are to be filed annually and liability onthem is

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to be limited to the stated penalty as a total for each year: (2) liability ofthe surety onthe bond is fixed only when liability ofthe principal is established by a final judgment; (3) the bond in force during the period when the contract of sale is consummated for a particular mobile home is the bond against which any claim would be filed growing out ofthe sale ofthat home; (4) the period oftime during which a claim may be filed against abond after its termination depends onthe contract of sale and the express warranty, subject to various statutory provisions; (5) to the extent that the manufacturer arrldealer may each be liable inwarranty for the derelictions dalthe’~ otheY,:,the surety onthe bond may also be liable: and (6) liability onthe bond does not extend to purchasers from a consumer./3(ery truly yours,

Attorney General of Texas APPROVED:

DAVID M. KENDALL, First Assistant

ad C. ROBERT HEATH, Chairman Opinion Committee

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