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

• Decision Date: 30 June 1976
• Citation: 59 Cal.App.3d 675,131 Cal.Rptr. 112
• Court: California Court of Appeals Court of Appeals
• Parties: REGENTS OF the UNIVERSITY OF CALIFORNIA, a corporation, Plaintiff and Appellant, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendant and Respondent. Civ. 37480.

Page 112

131 Cal.Rptr. 112

59 Cal.App.3d 675

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

Civ. 37480.

Court of Appeal, First District, Division 1, California.

June 30, 1976.

For Opinion on Hearing, see 147 Cal.Rptr. 486, 581 P.2d 197.

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

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

SIMS, Acting Presiding Justice.

Plaintiff, the owner of a married student apartment housing project, seeks damages because of defects in the finished apartments from the architects who designed the project, the general contractor who constructed the project, and the surety on the latter's performance bond. It has appealed from a summary judgment in favor of the surety company. ¹ The judgment is predicated upon the provisions of section 337.15 of the Code of Civil Procedure ² which prescribes a ten-year period of limitation for an action to recover damages for a latent deficiency in the design or construction of an improvement to real property.

Plaintiff contends that the provisions of section 337.15 are not applicable to its cause of action against the surety because the statute by its terms does not expressly include causes of action which had accrued prior to its effective date, because application of the statute failed to allow plaintiff a reasonable time within which to sue, because the statute by its terms does not include the liability of the surety, and because the obligation of the surety on its bond is severable and independent and is not barred even though an action against the contractor, principal on the bond, may be. It insists that there are triable issues of fact concerning the scope of the surety's obligation under the performance bond, and with respect to the reasonableness of the time under the new statute within which to file an existing cause of action for the recovery of damages caused by latent construction deficiencies. On appeal plaintiff for the first time seeks to attack the provisions of section 337.15 as unconstitutional. These contentions are examined and found wanting. The judgment must be affirmed.

The facts bearing on these issues are contained in the declarations filed in support of and in opposition to the defendants' motions for summary judgment, plaintiff's response to a request for admissions, and plaintiff's response to interrogatories. The following facts are not controverted. In April and May 1960 the owner contracted with the architect. On December 8, 1960, it entered into a contract for the construction of the apartment complex with the general contractor, and on December 19, 1960, the defendant surety company executed the performance bond which is the subject of this proceeding. On September 2, 1962, the work of improvement on the real property described in the complaint was substantially completed. In 1971 (Stats.1971, ch. 1569, § 1, p. 3148) the Legislature added section 337.15 to the Code of Civil Procedure and it became effective March 4, 1972. In January 1972, plaintiff first discovered that portions of the apartment project's balconies and the structural members supporting them were beginning to deteriorate because of moisture infiltration and concentration which resulted in dry rot. For purposes of this appeal it must be assumed that any deficiency in the design or construction of the balconies was not apparent from reasonable inspection prior to that time. On July 5, 1974, the owner filed its action against the architect, the general contractor, and the surety company. So far as is material here, the complaint against the contractor was in three counts based respectively on negligence, ³ implied warranty, ⁴ and breach of contract. Each of these counts is referred to in a separate count seeking recovery from the surety under the provisions of the performance bond. The owner contends, and the surety does not controvert, that in the absence of the application of provisions such as were enacted in section 337.15, the statute of limitations would not commence to run against the contractor until the discovery of the defect. In Aced v. Hobbs-Sesack Plumbing Co. (1961) 55 Cal.2d 573, 12 Cal.Rptr. 257, 360 P.2d 897, the court observed, with respect to failure of tubing used for an embedded radiant heating system, 'We are satisfied . . . that this is a case which could properly be found to come within the operation of the principle that, if a warranty relates to a future event before which the defect cannot be discovered by the exercise of reasonable diligence, the warranty, though accompanied by a representation as to present condition, is prospective in character and the statute of limitations begins to run as of the time of that event. . . . [T]he principle in question has been followed with respect to implied as well as express warranties, and it has long been recognized in this state that the time when the statute of limitations begins to run is the same whether a warranty is express or implied. [Citation]' (55 Cal.2d at pp. 583-584, 12 Cal.Rptr. at p. 262, 360 P.2d at p. 902. See also Mack v. Hugh W. Comstock Associates (1964) 225 Cal.App.2d 583, 589, 37 Cal.Rptr. 466; Presiding bishop v. Cavanaugh (1963) 217 Cal.App.2d 492, 515, 32 Cal.Rptr. 144, and Southern Cal. Enterprises v. Walter & Co. (1947) 78 Cal.App.2d 750, 755, 178 P.2d 785.)

It is generally recognized that where there is a breach of an implied warranty of work or materials furnished under a written contract the period of limitations is the four years found in subdivision 1 of section 337 of the Code of Civil Procedure. (Aced v. Hobbs-Sesack Plumbing Co., supra, 55 Cal.2d 573, 583, 12 Cal.Rptr. 257, 360 P.2d 897; Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654, 662-663, 328 P.2d 198; Benard v. Walkup (1969) 272 Cal.App.2d 595, 603-604, 77 Cal.Rptr. 544; Mack v. Hugh W. Comstock Associates, supra, 225 Cal.App.2d 583, 589, 37 Cal.Rptr. 466; Presiding Bishop v. Cavanaugh, supra, 217 Cal.App.2d 492, 515-516, 32 Cal.Rptr. 144.) An action for negligent injury to property would be governed by the three-year period of section 338 of the Code of Civil Procedure. (See subds. 2 and 3.) (Bradler v. Craig (1969) 274 Cal.App.2d 466, 471, 79 Cal.Rptr. 401; and Mack v. Hugh W. Comstock Associates, supra, 225 Cal.App.2d 583, 589, 37 Cal.Rptr. 466.) Here again, the cause of action would arise when the latent defect first became apparent. (See Oakes v. McCarthy Co. (1968) 267 Cal.App.2d 231, 254-255, 73 Cal.Rptr. 127; and note Warrington v. Charles Pfizer & Co. (1969) 274 Cal.App.2d 564, 566-569, 80 Cal.Rptr. 130.)

'The general rule is that the liability of a surety (in the absence of a different contractual provision) accrues at the same time as that of the principal, or upon default of the principal. [Citations.]' (Bloom v. Bender (1957) 48 Cal.2d 793, 799, 313 P.2d 568, 572. See also part I below.) Therefore, if the new statute does not apply the court erred in granting summary judgment for the surety. (Code Civ.Proc. § 437c; Vesely v. Sager (1971) 5 Cal.3d 153, 169, 95 Cal.Rptr. 623, 486 P.2d 151; Wilson v. Bittick (1965) 63 Cal.2d 30, 34-35 and 36, 45 Cal.Rptr. 31, 403 P.2d 159; Residents of Beverly Glen, Inc. v. City of Los Angeles (1973) 34 Cal.App.3d 117, 127, 109 Cal.Rptr. 724; and Garlock v. Cole (1962) 199 Cal.App.2d 11, 14-16, 18 Cal.Rptr. 393. Cf. Oxford v. Signal Oil & Gas Co. (1970) 12 Cal.App.3d 403, 410, 90 Cal.Rptr. 700.) In that event the plaintiff should have been permitted to offer proof at a trial concerning the alleged negligence, breach of warranty and breach of contract by the general contractor, the damages resulting therefrom, and the fact, as alleged, that said damages were not reasonably ascertainable until within two and one-half years of the time the action was filed.

I

We first address the owner's contention that the surety's liability is independent and severable, and is not discharged by the running of the statute of limitations against its principal. The pertinent provisions of the bond are set forth in the margin. ⁵

In the first place the owner insists that the bond is an indemnity contract. As such it would be subject to the provisions of section 2778 of the Civil Code, which state in pertinent part, 'In the interpretation of a contract of indemnity, the following rules are to be applied, unless a contrary intention appears: . . . 2. Upon an indemnity against claims, or demands, or damages, or costs, expressly, or in other equivalent terms, the person indemnified is not entitled to recover without payment thereof; . . ..' When the obligation is limited to an indemnity for loss, the cause of action against the indemnitor does not arise until the indemnitee has actually suffered the loss. (See Sunset-Sternau Food Co. v. Bonzi (1964) 60 Cal.2d 834, 843-844, 36 Cal.Rptr. 741, 389 P.2d 133 [principal's duty to indemnify agent for liability incurred in performance of the agency agreement]; Oaks v. Scheifferly (1887) 74 Cal. 478, 480-481, 16 P. 252 [principal's and sureties' obligation to indemnify sheriff on attachment bond which covered both liability and loss]; United States Credit Bureau v. Claus (1947) 79 Cal.App.2d 85, 87, 179 P.2d 36 [indemnitor's obligation to a surety on a contractor's bond for payments made by surety to complete work on contractor's default]; and Globe indemnity Co. v. Larkin (1944) 62 Cal.App.2d 891, 894, 145 P.2d 633 [indemnitor's liability to a surety on a broker's bond for payments made to satisfy judgment against broker]. Note also, Thode v. McAmis (1950) 96 Cal.App.2d 833, 836, 216 P.2d 548 [contractor's bond to indemnify owner for loss from mechanics liens]; and Alberts v. American Casualty Co. (1948) 88 Cal.App.2d 891, 898-899, 200 P.2d 37 [insurance against theft, embezzlement, etc. of employee].)

In Globe Indemnity Co. v....