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By James E. Acret
Two California appellate courts have handed down rulings clarifying the application of statutes of limitations when construction defects are alleged and when the limitations can be tolled on the basis of equitable estoppel.
Equitable Tolling
The 10-year statute of repose is not subject to equitable tolling while promises or attempts to repair are pending. Suits to recover for construction defects are subject to limitation periods of 3 or 4 years depending on whether the theory is breach of warranty (Code of Civil Procedure §337, 4 years for an action founded upon an instrument in writing) or tortious injury to property (§338, 3 years for injury to real property). These periods begin to run only when the defect would be discoverable by reasonable inspection.
On the other hand, §337.15 imposes an absolute requirement that suit be brought within 10 years after substantial completion regardless of the date of discovery of the defect. The plain language of §337.15 suggests that the 10-year period is not subject to extension.
The purpose of §337.15 is to protect contractors and other professionals and tradespeople in the construction industry from perpetual exposure to liability for their work. The Legislature meant the generous 10-year period to be firm and final.
The 10-year limit could, however, be subject to equitable estoppel, which would apply if the intentional conduct of a defendant induced the plaintiff to forebear suit. Elements of equitable estoppel are: 1) potential defendant represents that all damage has been or will be repaired, thus making it unnecessary to sue; 2) plaintiff reasonably relies on the representation and refrains from bringing a timely action; 3) representation is false; and 4) plaintiff proceeds diligently once the truth is discovered.
Here, no such facts were alleged. Lantzy v. Centex Homes, 31 Cal.4th 363, 73 P.3d 517, 2 Cal.Rptr.3d 655, 2003 DJDAR 8638 (2003). Accordingly, attempted or promised repairs alone will not toll the statute of limitations, but false representations will.
Notice of Defects
Lori and Robert Mills employed contractor Mike Wunder to build them a house in Jamestown. Wunder purchased hardboard siding manufactured by Forestex from a local retailer. Within a year after construction was completed in 1991, the siding started to warp and buckle. Then, the paint began to peel, and a year or so later, nails started backing out. Manufacturer Forestex inspected the house and claimed that the siding had been installed improperly.
Owners filed suit in 2000 against contractor and manufacturer alleging violation of the Song-Beverly Consumer Warranty Act (Civil Code §1790 et seq.), breach of express warranty, breach of implied warranty and strict products liability. Owners alleged that contractor failed to sheath the house or install a vapor barrier, thus causing the siding to absorb moisture, expand, buckle, warp and separate. The complaint also alleged that decking was defective and that plumbing leaked. The trial court granted summary judgment for both defendants on the ground that applicable statutes of limitations had expired. The Court of Appeal affirmed. Lori Mills v. Forestex Co., 108 Cal.App.4th 625, 134 Cal.Rptr.2d 273, 2003 DJDAR 5078 (2003).
Breach of warranty: Commercial Code §2725 provides a 4-year limitation on an action for breach of a contract for sale. Manufacturer issued a 25-year warranty, so the cause of action for breach of warranty accrued when plaintiffs discovered or should have discovered the breach.
Statutes of repose: Code of Civil Procedure §§337.1 and 337.15 establish 4- and 10-year statutes of repose for patent and latent defects respectively. These statutes apply to contractor but not to manufacturer. These limitation periods start to run upon the substantial completion of the improvement and establish the outside limit for action regardless of when the defect is discovered. Which of the two statutes applies turns on whether the defect is latent or patent. This depends upon whether the defect is apparent by reasonable inspection.
The trial court wrongly held that the 4-year statute (§337.1) applied. The parties argued mainly about when the defect became patent, but this whole discussion wrongly confuses a construction defect with its subsequent manifestations. The absence of an adequate vapor barrier was a latent defect, hidden from view beneath the siding. The subsequent buckling and warping were obvious but did not turn a latent defect into a patent one. Section 337.1 applies only to patent deficiencies existing upon substantial completion and not to defects that become patent thereafter. Here, the defect in the siding was latent at the time of substantial completion and, therefore, was not subject to the 4-year statute but subject to the 10-year statute.
Limitations on actions for breach of warranty and negligence: Discovery of a latent defect within the 10-year limitations period of §337.15 triggers a second, shorter period under either §337 or §338 depending on whether the action rests on breach of warranty (four years from discovery - §337) or negligence (three years from discovery - §338). Here, since the claims against contractor arose from the construction contract, they were subject to the 4-year limitations period of §337 (1).
Strict liability claim: Owners' strict liability claims against contractor and manufacturer are governed by the 3-year statute of limitations in §338 (b) (injury to real property).
Discovery: The notice of completion was recorded on March 20, 1991. Owners first noticed buckling and rippling of the siding in 1991 or 1992. The siding was "certainly buckling" by April 1993. The complaint was filed on September 15, 2000. The discovery rule uses an objective test that looks not to what the particular plaintiff actually knew but to what a reasonable inquiry would have revealed.
The limitations period begins to run when the circumstances are sufficient to raise a suspicion of wrongdoing. Ignorance of the legal significance of known facts or the identity of the wrongdoer will not delay the running of the statute. There is no fiduciary relationship between a contractor and an owner.
Therefore, the siding problem was sufficiently appreciable no later than the summer of 1993 to put owners on notice to pursue their remedies. Thus, the 3- and 4-year statutes started to run in 1993 and expired long before action was filed in 2000.
Equitable tolling: Evidence of negotiations between owners and manufacturer that extended from July 1997 until August 1998, assuming such negotiations would toll the running of the statute, would only have extended the period by 13 months to the late summer of 1997 or 1998. Owners argue that the limitations period was tolled pending resolution of the consumer complaint they filed with the Contractors State License Board. But, the 4-year limitations period had expired the summer before they filed their complaint, and tolling can only suspend the running of a statute that still has time to run.
Estoppel: A defendant will be estopped to assert the statute of limitations if the defendant's conduct, relied upon by the plaintiff, has induced the plaintiff to postpone filing the action until after the statute has run. Owners contend that contractor promised to fix the siding and that they relied on the promises until the end of 1997. But, owners submit no evidence of such representations and promises or that they put off filing suit in reliance. Owners' testimony establishes that they had ceased to rely on contractor's promises in 1996, and at that point a year or more remained when they could have filed a timely action. Therefore, owners cannot claim an estoppel.
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©2004 Howrey LLP
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