Opinion
For Opinion on Hearing, see 115 Cal.Rptr. 648, 525 P.2d 88.
Opinions on pages 365-408 omitted.
HEARINGS GRANTED
Raymond H. Levy, San Francisco, for appellants.
William J. Bush, Hanson, Bridgett, Marcus & Jenkins, San Francisco, for respondents.
HAROLD C. BROWN, Associate Justice.
The purchasers of apartment units appeal from a judgment in favor of the builder-vendor in a cause of action founded upon an allegation that the buildings were defectively constructed. The complaint was filed more than three years but less than four years after the purchase. The court found that damages were caused by undersized headers (supporting beams). [108 Cal.Rptr. 175] Any cause of action in negligence of strict liability was barred by the statute of limitations covering tort actions for damages to real property. Although the complaint was framed as a cause of action for breach of implied warranties of merchantibility and fitness for use, the court held that a cause of action for breach of such implied warranties does not exist in sale of real property.
It is concluded that the court erred in this decision and that a four-year statute of limitations applicable to actions on a written contract should apply.
In 1960 and 1961, respondent corporation entered into a series of written agreements with a licensed general contractor, M. C. Johnson, for the construction of several apartment buildings to be built in San Jose. The buildings were constructed beginning in 1960 and continuing until the early part of 1962 when the last unit was completed. Upon the completion of each apartment building, respondent took possession and rented the units until such time as each building was sold. On or about February 4, 1963, the appellants purchased by written agreement four of the four-unit apartment buildings and the sole six-unit building constructed by Johnson for the respondent.
The appellants took physical possession of the apartment units on or about April 1, 1963. Appellant Maurice Pollard testified that at the time he purchased the property he noted a ceiling condition which indicated to him a water leak in the roof. Depositions of Mr. Pollard read into the record indicated that he was aware at that time that in one apartment there was leakage, the walls were not straight, the ceiling was buckling, and the sliding door on the deck would not close. During 1963, rentals were lost on two apartments in one building because of the above defects.
A few months prior to February 21, 1964, appellant consulted with a Mr. DeWitt with respect to the problems. Mr. DeWitt testified that he suspected that there was a header problem some time in 1965. Headers are beams installed to support the roof load.
Mr. Johnson, respondent's contractor, testified that the original plans for the building were changed to remove certain center posts and at that time a discussion was held between the contractor and respondents in which it was decided to retain the use of four-by-fourteen wood beams as headers rather than to change to a steel girder. Mr. Robinson, a structural engineer, testified that the substitution of concrete for magnesite on the decks resulted in the overstressing of the four-by-fourteen-inch beams. In his opinion, the maximum amount of deflection had occurred and was permanent. He also felt that the removal of the concrete on the patio decks would relieve the overstress on the headers and that it was not necessary from a structural standpoint to insert steel beams to correct the condition of the units.
The appellants gave no notice to the respondents of the defective condition of the building until January 1967, when appellants' counsel notified respondents by letter. Suit was commenced on February 3, 1967.
The appellants filed their action on two counts--one for fraud in failing to disclose structural defects and a second for breach of an implied warranty of merchantable quality and fitness for use.
The trial court held that the damages to appellants' property were the direct result of the undersized beams which did not comply with the Building Code of Santa Clara County. He also found that the defendants were negligent but that a cause of action based on negligence, as well as any cause of action on the theory strict liability, was barred by the statute of limitations of Code of Civil Procedure section 338(2) which provides that an action for injury to real property must be brought within three years. Appellants did not frame their cause of action on the tort theories of negligence or strict liability but on the contract theory of implied warranties. Obviously, they elected this remedy in order to secure for themselves the benefit of the four-year statute of limitations covering actions founded upon an instrument [108 Cal.Rptr. 176] in writing. (Code Civ.Proc., § 337(1).)
Appellants now challenge the trial court's conclusion that there is no implied warranty of merchantable quality and fitness of purpose in the sale of real property. It is clear after a review of relevant decisions on the liability of vendors of real property that this is an area of developing rather than static law.
In 1932, the court in Murphy v. Sheftel, 121 Cal.App. 533, 9 P.2d 568, stated that the purchaser of real property in the absence of an express stipulation for a well-constructed building takes the risk of quality even when buying from the builder. Since the case of Murphy v. Sheftel, supra, the doctrine of caveat emptor has suffered in California but it has done so largely by the development of the theory of strict liability rather than through the extension of the theory of implied warranties. Perhaps this can be explained by the fact that the leading case in this area was a case in which a contract theory of recovery was precluded by a lack of privity. In Kriegler v. Eichler Homes, Inc., 269 Cal.App.2d 224, 74 Cal.Rptr. 749, a developer was sued for physical damage to a house as the result of the failure of the radiant heating system. Plaintiffs did not buy from the developer, there being an intermediate owner. In a case of first impression, Justice Taylor held that the developer was liable on the basis of strict liability despite a lack of privity. Although speaking of the theory of strict liability, the language used is to some extent that of implied warranties. The court explained that when a vendee buys a development house ". . . he clearly relies on the skill of the developer and on its implied representation that the house will be erected in reasonably workmanlike manner and will be reasonably fit for habitation. . . ." (Kriegler v. Eichler Homes, Inc., supra, at p. 228, 74 Cal.Rptr. at p. 752, citing Schipper v. Levitt & Sons, Inc., 44 N.J. 70, 207 A.2d 314; see also Avner v. Longridge Estates, 272 Cal.App.2d 607, 77 Cal.Rptr. 633, imposing strict liability on the 'manufacturer' of a lot whose defective work caused subsidence.)
Clearly, the relationship of strict liability and implied warranty is close. As one court has recently stated, the warranty formulation adds nothing except the commercial relationship between the vendor and the injured. (Balido v. Improved Machinery, Inc., 29 Cal.App.3d 633, 640, 105 Cal.Rptr. 890.) Where that commercial relationship in fact exists, it would seem that the benefit of a contract theory of recovery should not be denied without an impelling reason.
To support its statement that there is no implied warranty of good construction, the court in Murphy v. Sheftel, supra, 121 Cal.App. at p. 539, 9 P.2d 568, cited no cases but did cite Williston on Contracts for the proposition that the doctrine of implied warranties refers to sales of personal property and not to improved real property. Resort to Williston now reveals the extent to which the law is developing in this area. In the 1963 edition of his work, Williston discussed a case of 'novel impression' in which the court held that where the buyer contracted for the building of a house or purchased a house during construction, there is an implication of law that the house will be reasonably fit for the purpose for which it is required. Williston added the comment that 'It would be much better if this enlightened approach were generally adopted with respect to the sale of new houses for it would tend to discourage much of the sloppy work and jerry-building that has become perceptible over the years.' (7 Williston on Contracts (3d ed. 1963) § 926A, p. 818.) In the supplement of 1971, Williston reports other jurisdictions which have adopted the approach of implied warranties to hold the builderseller liable for faulty construction. (E. G., Sikes v. B & S Supply, Inc. (La.App.), 164 So.2d 81; Waggoner v. Midwestern Development, Inc., 83 S.D. 57, 154 N.W.2d 803; Humber v. Morton (Tex.), 426 S.W.2d 554; Wawak v. Stewart, 247 Ark. 1093, 449 S.W.2d 922; House v. Thornton, 76 [108 Cal.Rptr. 177] Wash.2d 428, 457 P.2d 199; Carpenter v. Donohoe, 154 Colo. 78, 388 P.2d 399; see also 25 A.L.R.3d 372 for discussion of the vendor's liability for defective construction.)
The case of Humber v. Morton, supra, is of particular interest, for Texas, like California, has a code section which provides that certain covenants 'and none other' are implied '[f]rom the use of the word 'grant' in any conveyance . . ..' (Civ.Code, § 1113.) The court in Humber pointed out that this section '. . . does not say that warranties as to fitness and suitability of structures upon land cannot arise unless expressed in the deed of conveyance. The article relates to covenants which may or may not arise from the use of certain specific words in a conveyance, namely, 'grant' and 'convey." (Humber v. Morton, supra, 426 S.W.2d at pp. 555-556.)
The California Supreme Court has extended the doctrine of implied warranties to areas beyond the sale of tangible chattels. In Aced v. Hobbs-Sesack Plumbing Co., 55 Cal.2d 573, 12 Cal.Rptr. 257, 360 P.2d 897, wherein the doctrine was used in he field of contracts for labor and materials, the court pointed out '. . . that for historical reasons warranties have become identified primarily with transactions involving the sale or furnishing of tangible materials but that they are not confined to such transactions. . . .' The court then went on to reason that while the provisions of the Uniform Sales Act with respect to implied warranties would not apply, '. . . similar warranties may be implied in other contracts not governed by such statutory provisions when the contracts are of such a nature that the implication is justified.' (55 Cal.2d at p. 582, 12 Cal.Rptr. at p. 262, 360 P.2d at p. 902.) More recently, the Supreme Court discussed the question of the statute of limitations in attorney malpractice cases and noted that the client could sue on either a tort or a breach of contract theory. The contract action would be founded on the breach of an implied term of the contract to exercise the requisite skill and care and, depending upon whether the contract was oral or written, would be governed by a two-year or four-year statute of limitations. (Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6 Cal.3d 176, 181, 98 Cal.Rptr. 837, 491 P.2d 421.)
It seems from the above that there are two relevant trends in California law: a trend toward extension of the kinds of contracts in which the law will imply warranties and a trend toward imposing liability upon builder-sellers of real property. Combined, these trends lead to the conclusion that a person in California who builder/developer should be permitted to proceed on a contract theory to recover for damages caused by defective construction. As in Aced, the applicable statute of limitations would be the four-year statute of Code of Civil Procedure section 337(1) governing actions founded upon an instrument in writing. (See Aced v. Hobbs-Sesack Plumbing Co., supra, 55 Cal.2d at p. 583, 12 Cal.Rptr. 257, 360 P.2d 897.)
Respondents also argue that appellants are barred by failure to give reasonable notice of a breach of an implied warranty.
In Conclusion of Law No. 7, the court stated: 'That assuming arguendo that there were implied warranties of merchantable quality and fitness of purpose in the sale of real property, plaintiffs are barred from recovery on such a theory because of their failure to give timely notice of the breach of such warranties to defendants.' This conclusion was based on findings that from the time that plaintiffs took possession of the building in 1963, they were aware of defective conditions in the building at 1577 Doyle Road 'where plaintiff noticed (a) that the ceiling in apartment 4 was buckling, (b) that the sliding glass doors of apartments 3 and 4 leading onto the patio of said apartment were sticking, and (c) that water remained on the patio decks of apartments 3 and 4 and would not drain off after a rainfall.' [108 Cal.Rptr. 178] Furthermore, at about this time, the plaintiff received notice from tenants in each of the other four-unit apartment buildings that sliding glass doors were sticking and water remaining on decks after rainfalls. Plaintiffs gave no notice of the existence of these defects until January 1967, when plaintiffs' counsel notified defendants by letter of the conditions.
The requirement that the buyer give notice to the seller of any breach of warranty within a reasonable time after he knows or ought to know of it is found in subsection (3) of section 2607 of the Commercial Code which provides in part as follows: '(1) The buyer must pay at the contract rate for any goods accepted.
'(2) Acceptance of goods by the buyer precludes rejection of the goods accepted and if made with knowledge of a nonconformity cannot be revoked because of it unless the acceptance was on the reasonable assumption that the nonconformity would be seasonably cured but acceptance does not of itself impair any other remedy provided by this division for nonconformity
'(3) Where a tender has been accepted
(a) The buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy; and
(b) If the claim is one for infringement or the like (subdivision (3) of Section 2312) and the buyer is sued as a result of such a breach he must so notify the seller within a reasonable time after he receives notice of the litigation or be barred from any remedy over for liability established by the litigation.'
Division 2 of the Commercial Code, however, applies only to the sale of goods and not to the sale of immovable improvements on real property. (See Com.Code, § 2102 et seq.) It is doubtful that rules peculiar to dealers in goods, and thus presumably familiar to them, should operate outside of that area to defeat an otherwise timely suit.
Furthermore, the findings do not support the conclusion. According to the court, the defect in construction was the undersized beams. The court did not find that the appellant knew of this defect or should have known because he knew of sticking doors and ill-draining patios. The settled statement reveals that Mr. DeWitt, a man apparently consulted by appellant, testified that he suspected that there was a header problem some time in 1965. The settled statement also contains this statement: 'It is not true that Mr. DeWitt did not suspect that the beams were undersized until engineer Long made his report dated November, 1966.' No other reference is made in the settled statement to engineer Long's report which apparently revealed the existence of the undersized headers.
It is concluded that section 2607 of the Commercial Code should not be applied to transactions not involving goods and that, in any event, the findings do not support a conclusion that appellant knew of the structural defects.
The court, having ruled that the action was one in tort and that it was barred by the statute of limitations, did not concern itself with the question of damages. Findings on the issue of damages should therefore be made taking into account, of course, that appellants bought with knowledge of certain of the items. This knowledge would have a bearing on the amount of damages for which the vendor would be liable.
The judgment is reversed and the motion is remanded to the trial court for the taking of such further testimony as is necessary to make findings on the issue of damages.
CALDECOTT, J., concur.
DRAPER, Presiding Justice.
I dissent.
Whatever might be the merit of extending the implied warranty rule to real property when no other remedy exists, that is [108 Cal.Rptr. 179] not the case here. Appellants had a fully adequate remedy either in tort or under strict liability. They slept upon their rights.
The decision largely relied upon by the majority (Aced v. Hobbs-Sesack Plumbing Co., 55 Cal.2d 573, 12 Cal.Rptr. 257, 360 P.2d 897) appears to me to be inapplicable. There the subcontract was one for work and labor. The subcontractor was held liable on the theory that by execution of that agreement, he warranted the materials and his skill in installing them. Here, however, defendant was not a contractor. He did not construct the building, but merely accepted it upon its completion by the general contractor.
Moreover, Aced does not hold notice of defect to be unnecessary. Rather, it avoids that issue by holding that the date of failure of the radiant heating system, rather than the date of completion of the contract, is the critical date. I find it difficult to understand why the analogy to warranty in sale of personal property is valid insofar as it aids plaintiff, but is to be ignored when it would operate against him.
I would affirm the judgment.