{"id":895434,"date":"2019-01-17T15:47:23","date_gmt":"2019-01-17T22:47:23","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=895434"},"modified":"2019-01-17T15:47:30","modified_gmt":"2019-01-17T22:47:30","slug":"general-release-upheld-despite-knowledge-construction-defects","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/general-release-upheld-despite-knowledge-construction-defects\/","title":{"rendered":"General Release of Contractor Upheld Despite Knowledge of Construction Defects"},"content":{"rendered":"\n

Garret Murai | California Construction Law Blog<\/a> | January 14, 2019<\/p>\n\n\n\n

Ah, the elusive\u00a0Lepus Cornutus<\/em>, commonly known as the Jackalope. Rarely seen, we may have one in\u00a0SI 59 LLC v. Variel Warner Ventures, LLC,\u00a0<\/em>Court of Appeals for the Second District, Case No. B285086 (November 15, 2018), an interesting case involving a developer, a contractor, a general release, and Civil Code section 1688.<\/p>\n\n\n\n

SI 59 LLC v. Variel Warner Ventures, LLC <\/em><\/h3>\n\n\n\n

In 2005, Variel Warner Ventures, LLC (Variel Warner) entered into a construction contract with Verdugo Management & Investment, Inc. (Verdugo) to construct improvements at an 85 unit apartment complex. Under the terms of the contract, Verdugo agreed to construction the improvements in a good and workmanlike manner in strict compliance with all drawings and specifications and to comply with all laws. It didn\u2019t. The work was defectively flashed, counterflashed, and waterproofed.<\/p>\n\n\n\n

In the meantime, in December 2007, Sobrato Interests II (Sobrato) entered into a purchase agreement to purchase the property. Pursuant to the purchase agreement, Sobrato was not obligated to close escrow until \u201cFinal Completion,\u201d which was defined as \u201call Improvements hav[ing] been constructed in substantial accordance with all plans and specifications and other applicable provisions of the General Construction Contract.\u201d<\/p>\n\n\n\n

The purchase agreement also contained a general release stating that Sobrato \u201cshall rely solely upon [its] own knowledge of the Property based on its investigation of the Property and its own inspection of the property in determining the Property\u2019s physical condition, except with respect to . . . [the] representations, warranties and covenants [made by Variel Warner].\u201d Under the purchase agreement, Sobrato released Variel Warner and Verdugo, among others, from all claims including construction errors, omissions, or defects.<\/p>\n\n\n\n

In 2008, Sobrato assigned all of its interests in the property to SI XX, LLC. In 2015, SI XX, LLC assigned all of its interests in the property to SI 59 LLC.  SI 59 LLC later observed water leaking from the podium and pool deck into the parking garage and sued.<\/p>\n\n\n\n

In its complaint, SI 59 LLC alleged that Verdugo negligently constructed or inspected the structural concrete slab and slab waterproofing and that Variel Warner negligently managed, inspected and developed the property. SI 59 LLC further alleged that Variel Warner breached the purchase agreement by failing to deliver the property with all improvements having been \u201cconstructed in substantial accordance with all plans and specifications and other applicable provisions of the General Construction Contract.\u201d<\/p>\n\n\n\n

The Trial Court Decision<\/h3>\n\n\n\n

In the trial court, Variel Warner and Verdugo demurred to SI 59 LLC\u2019s complaint on the ground that SI 59 LLC\u2019s claims for negligence and breach of contract were barred by the general release contained in the purchase agreement.<\/p>\n\n\n\n

In response, SI 59 LLC cited Civil Code section 1668 which provides that \u201c[a]ll contracts which have for their object, directly or indirectly, to exempt any one from responsibility for his own fraud, or willful injury to the person or property of another, or violation of law, whether willful or negligent, are against the policy of law.\u201d And, here, because Variel Warner and Verdugo were aware of the construction defects, the general release was void as a matter of law.<\/p>\n\n\n\n

The trial court disagreed and SI 59 LLC appealed.<\/p>\n\n\n\n

The Appellate Court Holding<\/h3>\n\n\n\n

On appeal, the Second District Court of Appeal held that while Civil Code section 1668 clearly \u201cprohibits exculpation for future<\/em> torts\u201d (emphasis added), \u201c[w]hether section 1668 might apply to past<\/em> torts is a slippery question\u201d (emphasis added), but that \u201cthe weight of authority recogniz[es] that section 1668 applies only to concurrent or future torts.\u201d<\/p>\n\n\n\n

However, while recognizing that Civil Code section 1668 only applies to \u201cconcurrent or future torts,\u201d the Court of Appeal also recognized that depending on how a claim is asserted, Section 1668 could potentially<\/em> apply although SI 59 LLC had not and could not adequately plead sufficient facts to have it apply.<\/p>\n\n\n\n

As to SI 59 LLC\u2019s negligence claim, the Court of Appeals held that Verdugo\u2019s defective construction was a past event and that Variel Warner\u2019s failure to properly manage, inspect and develop the property was a breach of a common law duty of care rather than a statutory violation (and, in any event, a past event) precluding application of Civil Code section 1668.<\/p>\n\n\n\n

As to SI 59 LLCs breach of contract claim, the Court of Appeals held that the purchase agreement merely provided that Sobrato was not obligated to close escrow until \u201cFinal Completion,\u201d and that while \u201cFinal Completion\u201d was defined as \u201call Improvements hav[ing] been constructed in substantial accordance with all plans and specifications and other applicable provisions of the General Construction Contract,\u201d the alleged breach that \u2018Final Completion\u201d had not occurred as defined \u201cwas not itself a negligent misrepresentation\u201d triggering Civil Code section 1668.<\/p>\n\n\n\n

The Court of Appeals suggested that if the facts were different, and SI 59 LLC had the ability  to claim that Variel Warner had affirmatively represented that the property was in fact constructed in substantial accordance with all plans and specifications and other applicable provisions fo the General Construction Contract and further that Sobrato reasonably relied on that representation, that a claim for negligent misrepresentation and application of Civil Code section 1668 might be tenable since reliance and damages would have been concurrent.<\/p>\n\n\n\n

Conclusion<\/h3>\n\n\n\n

This is an interesting case. While the Court of Appeal\u2019s decision is straightforward it seems that its decision was grounded primarily on how the purchase agreement was drafted. As described by the Court of Appeals, it sounds like Variel Warner made no representations as to the condition of the property in the purchase agreement (and, without a representation, there can logically be no \u201cmis\u201d-representation). I wonder though, how many purchase agreements are written in a similar manner.<\/p>\n","protected":false},"excerpt":{"rendered":"

Garret Murai | California Construction Law Blog | January 14, 2019 Ah, the elusive\u00a0Lepus Cornutus, commonly known as the Jackalope. Rarely seen, we may have one in\u00a0SI 59 LLC v. Variel Warner Ventures, LLC,\u00a0Court of Appeals for the Second District, Case No. B285086 (November 15, 2018), an interesting case involving a developer, a contractor, a… Continue reading General Release of Contractor Upheld Despite Knowledge of Construction Defects<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[4],"tags":[9895,19,10715],"class_list":["post-895434","post","type-post","status-publish","format-standard","hentry","category-construction-defects","tag-advise-consult","tag-construction-defects-2","tag-general-release","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nGeneral Release of Contractor Upheld Despite Knowledge of Construction Defects - 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