Windham at Carmel Mtn. v. Superior Court

• Decision Date: 17 June 2003
• Docket Number: No. D040584.,D040584.
• Citation: 109 Cal.App.4th 1162,135 Cal.Rptr.2d 834
• Court: California Court of Appeals Court of Appeals
• Parties: WINDHAM AT CARMEL MOUNTAIN RANCH ASSOCIATION, Petitioner, v. The SUPERIOR COURT of San Diego County, Respondent; The Presley Companies et al. Real Parties in Interest.

135 Cal.Rptr.2d 834

109 Cal.App.4th 1162

WINDHAM AT CARMEL MOUNTAIN RANCH ASSOCIATION, Petitioner, v. The SUPERIOR COURT of San Diego County, Respondent The Presley Companies et al. Real Parties in Interest.

No. D040584.

Court of Appeal, Fourth District, Division 1.

June 17, 2003.

Review Denied October 15, 2003.

Epsten, Grinnell & Howell, Douglas W. Grinnell, San Diego, and Luis E. Ventura, El Centro, for Petitioner.

No appearance for Respondent.

Koeller, Nebeker, Carlson & Haluck, Keith D. Koeller and Joseph J. Cullen, Irvine, for Real Parties in Interest.

McDONALD, J.

Plaintiff Windham at Carmel Mountain Ranch Association, a California nonprofit mutual benefit corporation (Association), filed this petition for writ of mandate challenging the trial court's order sustaining without leave to amend the demurrer of defendants The Presley Companies, Presley Homes, Presley CMR, Inc., William Lyon Homes, Inc., Carmel Mountain Ranch, Home Capital Corporation, and Humboldt Financial Services Corporation (collectively Presley) to Association's breach of implied warranty cause of action alleged in its construction defect action against them. Association contends the trial court erred by concluding Association did not have the requisite privity of contract with Presley to state a cause of action for breach of implied warranty. Because Code of Civil Procedure section 383¹ provides Association with the requisite privity, we conclude the trial court erred and grant the petition.

FACTUAL AND PROCEDURAL BACKGROUND²

From about 1994 through 1997, Presley designed, developed, constructed, marketed and sold 120 residential condominiums in a common interest development known as Windham (Project).³ Presley conveyed to each buyer of a Project condominium title to a living unit and an undivided fractional interest in the common areas appurtenant to the living unit. Presley formed Association to manage, maintain, and repair Project's common areas. Presley filed a declaration of covenants, conditions and restrictions (CCR's) that: (1) provides Association with the authority and duty to maintain and repair the common areas; (2) provides Association with an easement over the common areas for the purpose of maintaining and repairing the common areas; (3) prohibits owners from constructing, reconstructing, or refurbishing any part of the common areas, except for exclusive use common areas, without Association's permission; and (4) provides that each owner must be a member of Association and pay assessments to Association for its repair of the common areas.

In February 2002 Association and Bernie Kastner, an owner of a Project condominium, filed a complaint against Presley, alleging causes of action for breach of implied warranty, strict liability, negligence and declaratory relief. The complaint generally alleges: "[P]ursuant to [section] 383 [Association] is the real party in interest to bring any and all causes of action concerning defective construction of the common areas and separate interests integrally related thereto." In the first cause of action for breach of implied warranty, Association alleges: "[Presley] impliedly warranted to [Association] that the condominiums and common areas of [Project] were designed and constructed in a reasonably workmanlike manner; that the condominiums and common areas of [Project] were constructed in accordance with the applicable plans and specifications; and that the condominiums and common areas of [Project] were designed and constructed in accordance with applicable building codes." It alleges that Presley breached those implied warranties, citing a litany of alleged defects in Project's building components and systems, landscaping, and other improvements. It further alleges those defects caused property damage, present health and safety risks to Project's residents, and interfere with the owners' use and enjoyment of their property.

Presley demurred to the first cause of action, arguing the complaint did not allege facts showing Association had the requisite privity of contract with Presley to maintain a cause of action against Presley for breach of implied warranty.⁴ Association opposed the demurrer, arguing it had privity of contract with Presley under section 383 and case law. Presley replied to Association's opposition, arguing, inter alia, that section 383 allows Association to allege only tort causes of action for defective construction and breach of an implied warranty is a contract cause of action.

The trial court sustained without leave to amend Presley's demurrer to the first cause of action for breach of implied warranty, concluding Association did not allege facts showing it had the requisite privity of contract with Presley.⁵

Association filed this petition for writ of mandate, challenging the trial court's order. On August 22 we denied the petition.⁶ On October 16 the California Supreme Court granted Association's petition for review and transferred the matter to us with directions to vacate our order denying the petition and issue an order to show cause. On November 4 we vacated our August 22 order, issued an order to show cause and scheduled oral argument.

DISCUSSION

I Demurrer Standard of Review

"A demurrer tests the legal sufficiency of factual allegations in a complaint. [Citation.]" (Rakestraw v. California Physicians' Service (2000) 81 Cal.App.4th 39, 42 43, 96 Cal.Rptr.2d 354.) In reviewing an order sustaining a demurrer to a cause of action, we exercise independent judgment in determining whether the complaint's factual allegations are sufficient to state a cause of action as a matter of law. (Lazar v. Hertz Corp. (1999) 69 Cal. App.4th 1494, 1501, 82 Cal.Rptr.2d 368.) We treat the demurrer as admitting all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967, 9 Cal.Rptr.2d 92, 831 P.2d 317; Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) However, we do not assume the truth of contentions, deductions, or conclusions of fact or law. (Aubry, supra, at p. 967, 9 Cal.Rptr.2d 92, 831 P.2d 317; Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125, 271 Cal.Rptr. 146, 793 P.2d 479.) We also consider matters that may be judicially noticed. (Rakestraw, supra, at p. 43, 96 Cal.Rptr.2d 354.) If the complaint does not allege facts sufficient to state a cause of action, a trial court nevertheless abuses its discretion by sustaining a demurrer without leave to amend if the plaintiff shows there is a reasonable possibility any defect can be cured by amendment of the complaint. (Aubry, supra, at p. 967, 9 Cal.Rptr.2d 92, 831 P.2d 317; Blank, supra, at p. 318, 216 Cal.Rptr. 718, 703 P.2d 58.)

II Implied Warranties and Privity of Contract Generally

"A warranty is a contractual term concerning some aspect of the sale, such as title to the goods, or their quality or quantity. The warranty may be express [citation] or implied [citation]." (3 Witkin, Summary of Cal. Law (9th ed. 1987) Sales, § 50, p. 46.) Implied warranties are based on implied representations rather than on promises. (18 Lord, Williston on Contracts (4th ed.2001) § 52:35, p. 178.) Implied warranties may be created by statute or case law. (See, e.g., Comm. Code, §§ 2314, 2315; Pollard v. Saxe & Yolles Dev. Co. (1974) 12 Cal.3d 374, 380, 115 Cal.Rptr. 648, 525 P.2d 88.) Pollard established an implied warranty of reasonable workmanship in design and construction that applies to the sale of newly constructed real property. (Id. at pp. 378-380, 115 Cal.Rptr. 648, 525 P.2d 88.) Pollard stated:

"The doctrine of implied warranty in a sales contract is based on the actual and presumed knowledge of the seller, reliance on the sellers skill or judgment, and the ordinary expectations of the parties. [Citation.] [¶] In the setting of the marketplace, the builder or seller of new construction—not unlike the manufacturer or merchandiser of personalty—makes implied representations, ordinarily indispensable to the sale, that the builder has used reasonable skill and judgment in constructing the building. On the other hand, the purchaser does not usually possess the knowledge of the builder and is unable to fully examine a completed house and its components without disturbing the finished product. Further, unlike the purchaser of an older building, he has no opportunity to observe how the building has withstood the passage of time. Thus he generally relies on those in a position to know the quality of the work to be sold, and his reliance is surely evident to the construction industry. [¶] Therefore, we conclude builders and sellers of new construction should be held to what is impliedly represented—that the completed structure was designed and constructed in a reasonably workmanlike manner." (Id. at pp. 379-380, 115 Cal. Rptr. 648, 525 P.2d 88, fn. omitted, italics added.)

"The general rule is that privity of contract [between the plaintiff and defendant] is required in an action for breach of either express or implied warranty and that there is no privity between the original seller and a subsequent purchaser who is [not] a party to the original sale. [Citations.]" (Burr v. Sherwin Williams Co. (1954) 42 Cal.2d 682, 695, 268 P.2d 1041.) "A demurrer is properly sustainable in an action predicated upon a breach of an implied warranty when lack of privity between plaintiff and defendant is disclosed on the fact of the complaint. [Citation.]" (Anthony v. Kelsey-Hayes Co. (1972) 25 Cal.App.3d 442, 448, 102 Cal.Rptr. 113.) Exceptions to the privity requirement have been established in cases involving foodstuffs, drugs and pesticides.⁷ (Ibid.; Klein v. Duchess Sandwich Co., Ltd. (1939) 14 Cal.2d 272, 283-284, 93 P.2d 799; Gottsdanker v. Cutter Laboratories (1960) 182 Cal.App.2d 602, 607, 6 Cal.Rptr. 320; Arnold v. Dow Chemical Co. (2001) 91 Cal.App.4th 698, 720-721, 110 Cal.Rptr.2d 722.) Furthermore, an expansion of the privity concept...