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




                                         August    22,   1975


    The Honorable Jackie W. St. Clair                      Opinion No.   H- 673
    Commissioner,    Texas Department
    of Labor and Standards                                 Re:    Bonding provisions  of
    Box 12157. Capitol Station                                    the Texas Mobile Homes
    Austin, Texas 78711                                           Standards Act of 1975.’

    Dear Commissioner       St. Clair:

         The 64th Legislature   adopted Senate Bill No. 397 (not otherwise pub-
    lished at the date of this opinion) revising in a 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 13 of S. B. 397 (hereafter   referred to as the Act) requires manu-
    facturers,   dealers and salespersons    to file a bond with your office “to
    insure compliance    with the intent of this Act. ”

        Section   13 of the Act,   entitled   “Bond Required”     is as follows:

            (a) As of the effective date of this Act and annually
            thereafter,     subject to such a schedule as the depart-
            ment 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     to insure compliance    with the intent of
            this Act.

            (b) The bond shall be a surety bond issued by a
            company authorized to do business 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 manu-
            facturer,  dealer,   or salesperson    for damages,




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The Honorable   Jackie   W.   St.   Clair,     page 2




       penalties,   or expenses,     including reasonable
       attorney’s   fees,   resulting from a cause of action
       connected with the sale or lease of a mobile home.
       A consumer,      the state, or any political subdivi-
       sion 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 of face value.

       (d) Any .~manufacturer   or dealer who maintains
       a place of business at one or more locations   shall
       file with the department a separate bond for each
       location.

       (e) A manufacturer    shall be bonded in the amount of
       $100,000.   A dealer shall be bonded in the amount of
       $25,000.   A salesperson    shall be bonded in the 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 of any bond required by this
       Act.

   Section   14 of the Act,   entitled       “Warranties”   provides:

       (a) After the effective date of tlis, Art, all new mobile
       homes sold by a manufacturer     or dealer to consumers
       shall be covered by the mobile home warranty set
       forth in this Act.

       (b) The mobile home warranty     provided for in this
       Act shall apply to the manufacturer   of the mobile
       home as well as to the dealer who sells the mobile
       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:

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            The Honorable   Jackie   W.   St.   Clair,    page 3




                            (1) that the mobile          home   complies   with
                            the code;

                            (2) that the warranty shall be in effect
                            for a period of at 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 workman-
                            ship;

                            (4) that set-up and tie-down operations
                            performed    on the mobile home are performed
                            in compliance    with this Act, and other appli-
                            cable state and local requirements,        provided
                            that only a dealer,   his agent, or a manufac-
                            turer selling mobile homes directly to con-
                            sumers shall be liable for the performance
                            of the requirements    in this subsection;

                            (5) that the manufacturer     or dealer or both
                            shall take appropriate   corrective   action within
                            a reasonable  period of time in instances      of
                            defects in materials   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   of the: terms of the mobile
                            home warranty,      except as provided in Part (4),
                            Subsection (c) of this section,     and that the
                            consumer may notify either one or both of the
                            need for appropriate     corrective   action in
                            instances of defects of workmanship,        or
                            failures to comply with the code;

                            (7) that the warranty contains the. address and
                            telephone number of the dealer and manufac-
                            tuber where notices of defects may be given.



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The Honorable       Jackie    W.     St.   Clair.   page 4




     As you state    in your request for our opinion, questions have
arisen regarding      the nature and interpretation     of these provisions.
You suggest that      clarification of these 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 a performance    bond annually.   The bond form
       the Department    is using is continuous and contains
       a clause to the effect that the aggregate    liability
       of the Surety may not exceed the penalty stated
       in the bond.   Is this a cumulative liability or
       would the maximum liability be limited to the
       penalty sum of the particular    bond which
       covered the conduct that gave rise to the cause
       of action?

    If there is any discrepancy   between the printed terms of the bond form
and the requirements    of the Act it would appear quite obvious that the
Act will control and any bond given to fulfill its requirements  will have to
be interpreted  to conform to the 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 of face value,” would surely
indicate an intent upon the part of the Legislature   that bonds be filed
annually,  each with limits or “face value” as provided in section 13(e).

    It is our opinion that the liability under the bond would be limited to
the total required during the period of the bond; i.e.,   during any one
year the total liability on a bond issued to a dealer would be $25,000.   to
a manufacturer    $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 a political
        subdivision who ‘establishes     liability’ against a mobile




                                            p. 2933
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     The Honorable   Jackie     W.    St. Clair,   page 5




             home dealer,   manufacturer   or salesperson.    What
             is meant by establishing  liability through a ‘cause
             of action’ connected with the sale or lease of a
             mobile home?

         Section 13(c), in our opinion, refers to a final judgment   being entered
     against the principal on the bond through judicial process.

         Your third question    is:

                If a valid claim or judgment is made in con-
            nection with a particular mobile home at a point 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 a mobile home salesperson,         dealer or manufacturer,  is
     voidable if there was no bond as required by the Act “at the time the
     contract was consummated.     ” It is our opinion that this evidences a clear
     intent upon the part of the Legislature    that the bond to which 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 not the bond in force at the time the
     loss occurred,   although the two might be the same in some instances,      if
     not in most.

         Your fourth question    asks:

                What period of time must elapse after termina-
             tion of the annual bond when a’claim may no longer
             be recovered   under that bond?

         Since the answer to this question necessarily    must turn on the terms
     of the contract of sale with the consumer and of any 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 to duration 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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The Honorable     Jackie    W.   St.   Clair.   page 6




we would direct your attention to chapters 2 and 17 of the Texas
Business and Commerce       Code and especially       to sections 2.313
through 2. 318, 2.607,   2. 719, 2.725;    and 17. 50; to articles    5545
and 5546, V. T. C. S.;. to the recentlyenacted       Magnuson-MossWarranty-
Federal Trade Commission       Improvement       Act, Public Law 93-637,      88
Stat. 2138 (1975) to be codified as 15 U.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, no writ); John Desxe Company
of Kansas City v. Tenberg,      445 S. W. 2d 40 (Tex. Civ. App. --Beaumont
1969, no writ); 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. no writ); &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, no writ).

    Your   fifth question   asks:

           Section 14 requires that the mobile home
        warranty to the consumer provide for joint and
        several liability.   If the surety has bonded only
        one of these parties,    for example the dealer,
        would the surety be liable- under the bond for a
        violation of the statute by the party, e. g. manu-
        facturer whom he had -not bonded?

     The provision to which you refer is found in subsection    (c)(6) of
section 14 of the Act and requires that the manufacturer   and dealer “shall
be jointly and severally  liable to the consumer for the fulfillment   of the
terms of the mobile home warranty. ”

     It is conceivable  that a bond might be issued fulfilling the bond require-
ments of section 13 as to both the manufacturer      and one or more of its
dealers.     Your question,  we assume,   is directed,   however,  at a bond
issued to only one principal.     For example,    if issued to a dealer,  it will
cover the liability of the dealer which will include defects built into the
mobile home by the manufacturer       for which the dealer is jointly liable




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The Honorable     Jackie   W.   St.   Clair,   page 7




under section    14(c)(6).     A bond issued to the manufacturer        will, to
a certain extent, cover faults resulting from failures of the dealer,
but not all.    It specifically    will not be responsible    for set-up and
tie-down operations performed           by a dealer [section 14(c)(4)].     Other-
wise, the manufacturer         will be responsible    for the warranty of the
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 in materials           and workmanship,     even if they
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.

     On the other hand, there are other penalties assessed   against a
principal for which there is no joint liability and for which the surety
of one would not be liable for the breach of the other.   These would
include civil penalties under section 17 of the 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
of this question,  see Ford Motor Company v. Russell and Smith Ford
Company,    474 S.Gd     549 (Tex. Civ.App.   --Houston  [14th Dist.] 1971,
no writ).

    Your    sixth question   asks:

              If the original consumer-purchaser     sells
         the mobile home to another within the warranty
         period applying to that mobile home, does the
         liability of the 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 of a consumer,
the state or any polttical subdivision thereof who establishes  liability.
The Act, in section 3, defines a consumer to be “any person who seeks
or acquires by purchase of lease a mobile home from a manufacturer,
dealer or salesperson.   ” Unless a person purchasing   a mobile home can




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The Honorable   Jackie   W.   St. Clair.   page 8




qualify under this definition,  i. e., unless he acquires the mobile home
from a manufacturer,    dealer or a salesperson     as defined, then we
cannot see how he is an obligee under the bond, even though under the
warranty provisions   of the Act he may have a cause of action against
the manufacturer,   dealer or salesperson     for breach of warranty.

    In answering these questions,      we have done so based upon our
construction   of section 13 that the bond called for is not intended to
replace or fulfill the functions of a 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 on language of section 13 referring  to the
bond both as a “performance  bond” and as a “surety bond, ” language
whi~ch certainly speaks more in the terms of suretyship  than of liability
insurance.

    The legislature,    when it has wanted to require insurance has used
that term.  See e.g.,    art. 6701h. sec. 19, V. T. C.S.    The Insurance
Code, in discussing    the jurisdiction   of the Insurance Board over
casualty insurance    companies,     speaks both in terms of insurance and
surety bonds.    Ins. Code. art. 5.13.

    Thus, even though the dealer or manufacturer         may be liable,  not
only to the consumer,   but to third persons for damages resulting       from
negligence in the manufacture    or installation   of a mobile home, we do
not believe that it was the intent of the Legislature     that the bond
required by section 13 cover that liability except insofar as it grows
out of the warranty of the manufacturer       or dealer.   In any event, the
surety on the 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
        of article 5221f. V. T. C. S., as amended in 1975: (11 the
        bonds are to be filed annually and liability on them is




                                      p. 2937
The Honorable    Jackie   W.   St.   Clair.    page 9




        to be limited to the stated penalty as a total for
        each year: (2) liability of the surety on the bond
        is fixed only when liability of the 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 of the sale of that
        home; (4) the period of time during which a
        claim may be filed against a bond after its ter-
        mination depends on the contract of sale and
        the express warranty,       subject to various
        statutory provisions;     (5) to the extent that the
        manufacturer     arrldealer may each be liable
        in warranty for the derelictions      dal the’~otheY,:,the
         surety on the bond may also be liable: and
        (6) liability on the 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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