Regents of University of California v. Hartford Acc. & Indem. Co.

• Decision Date: 13 July 1978
• Docket Number: S.F. 23522
• Citation: 147 Cal.Rptr. 486,21 Cal.3d 624,581 P.2d 197
• Court: California Supreme Court
• Parties: , 581 P.2d 197 The REGENTS OF the UNIVERSITY OF CALIFORNIA, Plaintiff and Appellant, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendant and Respondent.

Page 486

147 Cal.Rptr. 486

21 Cal.3d 624, 581 P.2d 197

The REGENTS OF the UNIVERSITY OF CALIFORNIA, Plaintiff and Appellant, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendant and Respondent.

S.F. 23522.

Supreme Court of California.

July 13, 1978.

Donald L. Reidhaar, George L. Marchand and Patrick K. Moore, Berkeley, for plaintiff and appellant.

Ottenweller & Pisias, Ottenweller & Seymour, and Thomas G. Ottenweller, San Francisco, for defendant and respondent.

TOBRINER, Justice.

Plaintiff, owner of a married student apartment project, seeks damages because of latent construction defects from the architect who designed the project, the general contractor, and the surety on the contractor's performance bond. The trial court rendered a summary judgment in favor of the surety based on the 10-year limitation of Code of Civil Procedure section 337.15. We hold, however, that a construction surety is not among those parties to a construction project who may claim the protection of section 337.15. Although the general contractor whose performance defendant surety guaranteed does fall within the protection of the statute, that fact does not bar plaintiff's claim against the surety; we adhere to the established principle that the running of a period of limitations on the principal obligation does not exonerate the surety. Rejecting also defendant surety's contention that the terms of the surety bond bar claims against the surety in the circumstances of the present case, we conclude that the summary judgment must be reversed.

1. Summary of facts and contentions.

The following summary is based on the pleadings, the declarations filed in connection with defendant's motion for summary judgment, plaintiff's response to a request for admissions, and plaintiff's response to interrogatories. In April and May of 1960 plaintiff contracted with an architect to design a married students apartment project. On December 8, 1960, plaintiff entered into a construction contract with the general contractor, and on December 19, defendant surety executed a bond guaranteeing the performance of the general contractor. The work of improvement was substantially completed by September 2, 1962.

In January of 1972, about nine and one-half years after completion, plaintiff first discovered that portions of the project's balconies and the structural members supporting them were beginning to deteriorate because of dry rot. Whether any deficiency in the design or construction of the balconies was apparent to reasonable inspection prior to January of 1972 is a disputed factual issue; for the purpose of testing the correctness of the summary judgment we must assume the defect was not reasonably discoverable.

In 1971 the Legislature enacted Code of Civil Procedure section 337.15, effective March 4, 1972. We shall examine the exact terms of that statute later; for the present it is sufficient to note that section 337.15 imposed a 10-year period of limitation, running from the date of substantial completion, on any suit for latent defects against an architect or general contractor. That 10-year period as to plaintiff's apartment project expired September 2, 1972. Plaintiff, however, did not file suit against the architect, general contractor, and surety until July 5, 1974.

Plaintiff's complaint asserted a cause of action against the general contractor based upon negligence, implied warranty, and breach of contract; each of these grounds was also assigned as a basis for recovery from the surety under the performance bond. The court granted defendants' motion for summary judgment based on section 337.15. Plaintiff appeals from the portion of the judgment in favor of defendant surety.

Plaintiff contends, and defendant surety does not dispute, that in the absence of section 337.15 the statute of limitations would not begin to run against plaintiff's action until the plaintiff discovered or would in the exercise of reasonable diligence discover the defect in the buildings. If plaintiff's action against the contractor rests on a breach of a prospective warranty of work or materials furnished under that contract, the appropriate period of limitation is four years (Code Civ.Proc., § 337, subd. 1); if based on a theory of negligent injury to realty, three years (Code Civ.Proc., § 338, subds. 2 and 3); in either case under the allegations of plaintiff's complaint the period begins with the discovery of the defect. (See Aced v. Hobbs-Sesack Plumbing Co. (1961) 55 Cal.2d 573, 583, 12 Cal.Rptr. 257, 360 P.2d 897 (warranty action); cf. Oakes v. McCarthy Co. (1968) 267 Cal.App.2d 231, 254-255, 73 Cal.Rptr. 127 (negligence action).) Since plaintiff filed suit within two and a half years of the alleged date of discovery of the defect, neither section 337 nor section 338 would bar plaintiff's suit against the contractor. Plaintiff's action against defendant surety, based on the written surety bond, is also governed by the four-year period of section 337, subdivision 1 (Gaffigan v. Lawton (1934) 1 Cal.2d 722, 37 P.2d 79; County of Los Angeles v. Security Ins. Co. (1975) 52 Cal.App.3d 808, 817, 125 Cal.Rptr. 701); in accord with the "general rule . . . that the liability of a surety accrues at the same time as that of the principal" (Bloom v. Bender (1957) 48 Cal.2d 793, 799, 313 P.2d 568, 572), plaintiff's suit would also be timely against the surety.

Defendant surety points out, however, that Code of Civil Procedure section 337.15, enacted in 1971, imposed an absolute requirement that a suit against a contractor to recover damages for a construction defect be brought within 10 years of the date of substantial completion of construction, regardless of the date of discovery of the defect. ¹ Subdivision (a) of section 337.15 provides that "No action may be brought to recover damages from any person who develops real property or performs or furnishes the design, specifications, surveying, planning, supervision, testing, or observation of construction or construction of an improvement to real property more than 10 years after the substantial completion of such development or improvement for any of the following: (1) Any latent deficiency in the design, specification, surveying, planning, supervision, or observation of construction or construction of an improvement to, or survey of, real property. (2) Injury to property, real or personal, arising out of any such latent deficiency."

Defendant surety claims that section 337.15 provides it with a defense to the instant action. Defendant advances three contentions to support this claim: (1) that although section 337.15 does not expressly mention sureties, the statute should be interpreted to extend its protection to such defendants; (2) that under California statutes on suretyship the running of the statute of limitations on the principal obligation automatically exonerates the surety; and (3) that under the terms of the surety bond all defenses of the principal inhere to the benefit of the surety. Plaintiff disputes defendant's contentions, and in addition argues that section 337.15 unconstitutionally denies owners of real property the equal protection of the laws and that section 337.15 should not, and cannot constitutionally, be applied retroactively to the present action.

We reject defendant surety's claim that section 337.15 bars plaintiff's action. Accordingly, we do not reach the issues of constitutionality and retroactivity presented by plaintiff.

2. A construction surety is not among those parties protected by the 10-year limitation of section 337.15.

The language of section 337.15 states explicitly the persons who may assert that statute as a defense: persons who develop, design, survey, plan, supervise, test or observe the construction of an improvement to real property. A construction surety does not come within the statutory description. As defendant surety points out, however, the statute also states explicitly those who cannot plead it as a defense: owners, tenants, or other persons in actual possession or control of the realty; again the surety does not come within the description.

In brief, section 337.15 merely describes actions against contractors and other parties as principal obligors, without any reference to the duties or liabilities of a surety. Prior California decisions have clearly established that statutes of limitation so worded do not govern suits against a surety. Two cases illustrate the point. In the early decision of Whiting v. Clark (1861) 17 Cal. 407, the creditor's action against the principal on a book account was barred by the then one-year limitation on such actions; the court nevertheless held the creditor's suit against the surety on a written guarantee was timely. In Gaffigan v. Lawton, supra, 1 Cal.2d 722, 37 P.2d 79, plaintiff brought an action against a contractor on an oral contract to construct a building, suing the surety on a written bond. The court held that even if the suit against the contractor was barred by the two-year limitation of Code of Civil Procedure section 339 governing suits on oral contracts, the action against the surety was timely under the four-year statute governing suits on written contracts. (Code Civ.Proc., § 337.)

Section 337.15, thus, was enacted against a background of established precedent that a statute of limitations which describes only an action against the principal does not bar suits against the surety. Under these circumstances and in the absence of any contrary legislative intent we view the Legislature's failure to mention sureties as among those parties entitled to the protection of section 337.15 as indicating that the section does not govern actions against construction sureties. As with suits against all sureties whose obligation is founded upon a written instrument, actions against construction sureties remain governed by the limitation of section 337, subdivision 1. ² 3. The running of the statute of...