Lead Opinion
Opinion
Buyers brought suit against a home inspector for failing to discover and report certain defects in the house they ultimately purchased. The trial court sustained without leave to amend the inspector’s demurrer to the buyers’ second amended complaint. The court found the one-year statute of limitations specified in the home inspection contract barred all causes of action whether sounding in tort or contract.
We conclude one year from the date of the inspection can be an unreasonably short period of time to discover a home inspector’s breach. Accordingly, we hold a cause of action against a home inspector accrues when the buyer discovers, or through the exercise of reasonable diligence should have discovered, the breach. We also conclude a home inspector is not immune from tort liability. We thus remand to the trial court with directions to vacate the dismissal and to overrule the demurrer.
Facts and Proceedings Below
This is an appeal from a judgment dismissing the buyers’ complaint following the sustaining of the home inspector’s demurrer without leave to amend. For purposes of appeal, we thus accept as true the
In 1998, appellants Armando V. Moreno and Gloria Contreras (sometimes collectively buyers) began looking for a new home. They visited a property at 8671 Enramada Avenue in Whittier. The property was then 49 years old. Between July and August 1998, they visited the property at least six times. The buyers presented an offer to buy the house. The sellers initially accepted their offer. However, the sellers changed their mind once they learned Moreno was an attorney, court commissioner and licensed real estate broker. The buyers threatened suit. In response, the sellers hired counsel. After some negotiation, the parties agreed to a new purchase and sale agreement on August 12, 1998. The contract specified the buyers had seven days after acceptance to inspect the property.
With the signed offer, the buyers received the sellers’ disclosure statement and its one page supplement. As relevant to this appeal, the sellers disclosed “significant defects” with the walls, ceilings, flooding and drainage. The sellers noted, “settling as evidenced by some cracks in the walls and ceilings.” They also noted water had seeped into the basement on several occasions, and that drainage in the northwest comer of the property was limited.
The buyers hired respondent Deric Sanchez, doing business as Aaero Spec Quality Home Inspectors, to inspect the property before their purchase. The inspector asked Moreno to sign and initial two clauses on the preprinted home inspection contract. The first was a liquidated damage clause limiting the inspector’s liability. The second clause provided any lawsuit, sounding in either contract or tort, had to be filed within a year from the date of the inspection. The contract noted, “This time period is shorter than otherwise provided by law.” Moreno negotiated with respondent regarding these clauses. The inspector agreed to strike the liquidated damage clause but would not agree to strike the statute of limitations clause.
The contract specified the home inspection was limited to a visual inspection of the general systems and components of the home to identify “any system or component listed in the report which may be in need of immediate major repair.” The contract described matters, “not exposed to view,” “concealed” or “inaccessible” as outside the scope of inspection. In addition, and as relevant to this appeal, the inspection contract specifically excluded, whether or not concealed, soil conditions and asbestos.
The inspector conducted his inspection between 4:00 and 6:00 p.m. on August 18, 1998. Moreno and one of the sellers accompanied the inspector during the inspection.
In small print on the page discussing the air conditioning and heating system the form inspection report notes “Asbestos materials have been commonly used in heating systems.* Determining the presence of asbestos can ONLY be performed by laboratory testing and is beyond the scope of this inspection.*” The legend on the contract explains the asterisk “signifies items that may warrant attention/repair.”
As a result of inspecting the heating and cooling system, the inspector suggested the buyers contract with a licensed expert to clean out the entire system, including the filters. On the other hand, the inspector
Escrow closed on October 8, 1998. The buyers moved into the property at the end of October or early November. In his original inspection report the inspector stated the foundation had no anchor bolts. In November 1998, he returned to the home to discuss retrofitting the foundation. During this visit the inspector discovered the foundation did in fact have anchor bolts. Moreno and Contreras assert the inspector amended the original inspection report to correct this error.
In December 1998, both buyers began feeling ill. Moreno was ill for one week in December and Contreras was sick for two weeks in December. Thereafter Contreras’s illness became chronic. She began to suffer nosebleeds. In late August or early September 1999, a culture revealed she had a bacterial infection.
In September 1999, the buyers hired licensed engineers to test the air quality of the residence. An environmental firm discovered heating and air conditioning air ducts located in the crawl space in the basement were insulated with asbestos and covered over with another material. According to the complaint, the company noticed pieces of asbestos lying on the basement floor. Laboratory tests of the air quality of the home did not detect any friable asbestos.
The buyers hired another company which specialized in central heating and cooling systems. This firm discovered, among other things, an unsealed air return which permitted the unit to draw dust, dirt and rust into the system. It also discovered dirt, dust and debris in the main return, which permitted dust and dust mites to be distributed through the system and into the home.
In addition to the discovery of asbestos and dust, the buyers learned (1) the northwest yard drain was inoperable, causing water to pond under the structure; (2) 21 windows had been nailed or painted shut; and (3) the property was built on expansive soil, causing interior and exterior walls to crack.
The buyers filed suit on October 19, 1999, against the sellers and the inspector.
In their second amended, and operative, complaint the buyers alleged causes of action against the inspector for breach of contract, negligence and negligent misrepresentation. The inspector demurred, claiming the buyers could not validly transform a breach of contract action into a tort cause of action, and even if they could, all claims whether sounding in contract or tort, were barred by the one-year statute of limitations provided in the home inspection contract.
The buyers filed opposition, arguing among other things, the one-year statute of limitations was unreasonable and thus the discovery rule should apply in this instance.
The inspector countered with a backup argument. Assuming the complaint stated valid causes of action for contract as well as tort, and even if the discovery rule applied, all causes of action were nevertheless barred by the express exemptions in the contract for matters relating to asbestos, soil condition, and air quality.
Ultimately the trial court ruled the one-year statute of limitations was reasonable
The court subsequently granted the inspector’s request for contractual attorney fees and costs as the prevailing party in the action. This appeal followed.
Discussion
I. Standard of Review of a Judgment of Dismissal After the Trial Court Sustains a Demurrer Without Leave to Amend.
Because we are reviewing a judgment of dismissal after the trial court sustained a demurrer to the operative complaint without leave to amend, we “ ‘treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ (Serrano v. Priest (1971)
II. The Delayed Discovery Rule Properly Applies to Actions Against Home Inspectors for Important Policy Reasons.
Under the general rule, a cause of action accrues when the wrongful act is done and not when a plaintiff discovers he
A number of statutes specifically provide for delayed accrual of a cause of action until the discovery, or the opportunity to discover, the facts constituting the cause of action.
Delayed accrual of a cause of action is viewed as particularly appropriate where the relationship between the parties is one of special trust such as that involving a fiduciary, confidential or privileged relationship. Employing this rationale, the discovery rule has been applied, sometimes by statute and sometimes through judicial decisions, to claims against professionals such as trustees,
However, justification for the discovery rule has not been restricted to regulated and licensed professions. Courts have also employed the rule of delayed accrual in cases involving tradespeople who have held themselves out as having a special skill, or are required by statute to possess a certain level of skill.
In Evans v. Eckelman
These two last mentioned decisions are most closely analogous to the situation in the present case. In Seelenfreund v. Terminix of Northern Cal., Inc
Relying on the Supreme Court’s decision in Neel, the Seelenfreund court described the reasons supporting delayed accrual in professional malpractice actions. “First, a professional is bound by a special duty not merely to perform one’s work with ordinary care but to use the skill, prudence and diligence commonly exercised by one’s professional peers. Corollary to this first
The court acknowledged the service contract between the termite inspector and the homeowner did not create a fiduciary relationship.
In Allred v. Bekins Wide World Van Services,
The court found Bekins’s agreement to provide services imposed a duty on Bekins to exercise reasonable care in undertaking the packing and shipping project and that its failure to do so gave rise to a tort cause of action. “The purpose of Bekins’ contract with the employers was the delivery
The court next considered when the employee’s family’s causes of action accrued. Analogizing to the Supreme Court’s decision in Neel, which first adopted the discovery rule for attorney malpractice, the court concluded the discovery rule similarly applied where a defendant held itself out as specially qualified in a trade. “It was incidentally pointed out in Neel v. Magana, etc., supra (6 Cal.3d, p. 188, in. 21), that the same duty of care applicable to a ‘profession’ is required where one undertakes to render services in the practice of a ‘trade.’ (Italics added.) Reference was there made to Restatement Second of Torts section 299A, stating: ‘Unless he represents that he has greater or less skill or knowledge, one who undertakes to render services in the practice of a profession or trade is required to exercise the skill and knowledge normally possessed by members of that profession or trade in good standing in similar communities.’ (And see Roscoe Moss Co. v. Jenkins, supra,
Because Bekins Wide World Services held itself out as “qualified and equipped” to pack and ship articles of personal property around the world, the court concluded the discovery rule applied equally to this service oriented trade as it did to attorney malpractice.
These same considerations are present in the home inspection context as well. For many people, purchasing a residence is the single biggest investment they make in their lives. Most want as much information as possible about a property before purchasing. However, few have the knowledge or experience necessary to fully analyze the quality of a home’s structure, systems or components themselves. Fewer still are also structural engineers, general contractors, electrical contractors or the like. It is precisely because most people lack the necessary skills to recognize potential defects on their own that prospective homeowners hire a home inspection company in the first instance. For a fee they entrust this responsibility to a person who represents he has sufficient knowledge, skill and expertise to discover and report on the material defects in a given property. These potential homeowners look to the professional to guide and inform their choice about a given residence, not only to learn of existing material defects, but also about other potentially serious flaws which require further investigation. However, because most people are ill-equipped to know whether the home inspector in fact discovered and reported
For this reason the Legislature in 1996 adopted legislation to govern the standard of care and practices for the home inspection industry “to assure that consumers of home inspection services can rely upon the competence of home inspectors.”
In short, situations involving home inspectors share many characteristics with those involving other professionals in which delayed accrual has been recognized as appropriate and necessary. Although not as regulated as some fields, the Legislature has recognized the significance of the role home inspectors occupy in this state’s economy,
The delayed discovery rule is founded on important public policy considerations. In fact, these considerations are sufficient to overcome ordinary statutory time limits the Legislature has enacted. That is, the Legislature may have created a one-year statute of limitations for a certain cause of action. But if the courts determine the cause of action arises in circumstances where the delayed discovery rule applies, plaintiffs can file suit years after the expiration of the one-year statutory limitations
This leads to the question whether any court has allowed a contractual provision to defeat the policy behind the discovery rule, that is, to substitute the date of injury for the date of discovery as the accrual date for a cause of action, in circumstances where the discovery rule would ordinarily apply. That question is discussed in the next part.
III. In Those Situations Where the Discovery Rule Applies, No Prior
Case Authority Has Permitted Defendants to Avoid the Rule Through
Contractual Provisions Substituting the Date of the Injury Rather Than
Discovery of That Injury as the Accrual Date for Purposes of the Statute
of Limitations.
Under general California law a person has four years to bring an action on a contract.
As the dissent correctly observes, the Legislature did not itself provide for a rule of delayed discovery when it enacted the four-year outside limitations period for actions against home inspectors. We can attach no special significance to this fact. Legislative adoption of delayed discovery has often come only in response to such judicially created rules. For example, the Legislature enacted Code of Civil Procedure section 340.6 providing for delayed discovery for attorney malpractice actions in 1977, years after the Supreme Court’s decision in Neel v. Magana, Olney, Levy, Cathcart & Gelfand,
It is true California courts have afforded contracting parties considerable freedom to modify the length of a statute of limitations.
However, a contractually shortened limitations period has never been recognized outside the context of straightforward transactions in which the triggering event for either a breach of a contract or for the accrual of a right is immediate and obvious. Moreover, no decision upholding the validity of a contractually shortened limitation period has done so in the context of an action against a professional or skilled expert where breach of a duty is more difficult to detect. Instead, most reported decisions upholding shortened periods involve straightforward commercial contracts plus the unambiguous breaches or accrual of rights under those contracts.
For example, in Tebbets v. Fidelity and Casualty Co.
In Beeson v. Schloss,
Fageol Truck & Coach Co. v. Pacific Indem. Co.
Hubbard v. Matson Nav. Co.
Hambrecht & Quist Venture Partners v. American Medical Internat., Inc.
In short, none of these decisions upholding parties’ “freedom to modify the length of the statute of limitations,”
The dissent asserts a one-year statute of limitations as measured from the date of inspection is “consistent with” Business and Professions Code section 7199, providing time to bring an action for “breach of duty arising from a home inspection report shall not exceed four years from the date of the inspection.” This may be so. However, it also begs the question whether a contractual provision both shortening the statute of limitations otherwise applicable to a home inspector’s breach, and opting out of the discovery rule by measuring accrual from the date of inspection, can ever be consistent with the public policy considerations that call for applying the discovery rule in the first instance.
It is one thing to say a contract can shorten the time period for filing a lawsuit after the lawsuit has accrued. It is quite another to say a contract can redefine when accrual occurs—especially when public policy has defined that triggering event as the plaintiffs discovery of his cause of action—not the date the defendant committed the acts that gave rise to that cause of action.
Indeed if courts were to enforce consumers’ contractual waiver of their rights under the delayed discovery rule in contracts between home inspectors and homebuyers, why not when the contracts are between lawyers and clients, physicians and patients, and in every other professional and trade relationship currently subject to that rule? In all these situations, including home inspection transactions,
In short, no authority exists which sanctions a contractual provision permitting parties to opt out of the benefits of the discovery rule in situations where the discovery rule would otherwise apply. This suggests there exists an implicit consensus that an effective judicial remedy against professionals or skilled crafts people requires accrual occur only upon discovery of the breach and thus the law will not tolerate contractual nullification of that policy.
IV. Case Authority, as Well as Logic and Public Policy, Support the Unenforceability of Contractual Provisions Purporting to Deny Plaintiffs the Benefits of the Delayed Discovery Rule in Situations, Such as House Inspections, Where It Applies.
The foregoing conclusion finds support in the sole reported decision thus far to consider the issue, although in this instance in dicta. In Silver v. Boatwright Home Inspection, Inc.,
“[Wjhile the statute of limitations provision in the instant parties’ contract could validly limit the plaintiffs to a one-year period for filing suit on all causes of action they might have against Boatwright, public policy considerations call into question the enforceability of the portion of that provision, which impliedly requires plaintiffs to waive the benefit of the so-called delayed discovery rule. We have reference to the contractual provision that requires the one-year period of limitation to begin ‘after the date of the subject inspection’ by Boatwright, rather than after plaintiffs discovered or reasonably should have discovered facts that would support any cause of action against defendant. . . .
“[I]t is arguable that the provision is unreasonable in that it assumes a person
Consistent with the Boatwright court, we find the contractual provision waiving the benefits of the delayed discovery rule runs afoul of important public policy considerations. Also, consistent with the Boatwright court, we are unable to find a contractual provision “reasonable” where it only gives homeowners a single year to discover their causes of action against home inspectors. A four-year outside limit on the time permitted for the homeowner to discover the inspector’s negligence and its adverse consequences is clearly “reasonable.” A contractual provision setting a somewhat shorter outside limit conceivably might be “reasonable,” too. But a one-year outside boundary completely vitiates the delayed discovery rule. Indeed, such a provision blatantly substitutes a straight one-year statute of limitations for the delayed discovery rule.
Consistent with the policies behind this rule, we hold the buyers’ causes of action did not accrue under the one-year statute of limitations provided in the home inspection contract until they discovered, or with the exercise of reasonable diligence, should have discovered the home inspector negligently failed to discover, or negligently failed to report, material defects in the home.
V. A Written Contract for Home Inspection Services Does Not Immunize a Home Inspector from Tort Liability.
The inspector argues the buyers are not entitled to tort damages in any event because a breach of the duty of care under a contract is no longer actionable in tort. He cites Freeman & Mills, Inc. v. Belcher Oil Co.
In Freeman, the Supreme Court directed “courts should limit tort recovery in contract breach situations to the insurance area, at least in the absence of violation of an independent duty arising from principles of tort law other than denial of the existence of, or liability under, the breached contract.”
A review of the legislative history of this provision makes clear beyond dispute the Legislature expressly envisioned home inspectors would be liable in tort in the event they failed to discharge their statutory duty of care. For example, a Senate floor analysis prepared for the Senate Rules Committee, states “the purpose of the provision in this bill which establishes a statutory standard of care is to clarify that home inspectors who negligently prepare a home inspection report may be sued for damages arising from the negligent preparation of that report.”
Furthermore, the only published decision that discusses a home inspector’s statutory duty of care confirms the propriety of suing a home inspector in tort for the negligent failure to disclose material defects in a home.
In short, a home inspector may be liable in tort for breach of his common law or statutory duty to exercise due care in preparing a home inspection report.
VI. Disputed Factual Matters Are Not Properly Resolved on Review of a Judgment of Dismissal After a Demurrer Is Sustained Without Leave to Amend.
The inspector argues, even assuming the discovery rule applies in this context, and even if home inspectors can be liable in tort for the negligent breach of their service contract, it is of no moment in this case because the very matters about which the homeowners complain were each expressly excluded as outside the scope of the home inspection contract.
We are mindful of the procedural posture of this case. This court is charged with reviewing a judgment of dismissal after the trial court sustained a demurrer
This court expresses no view on how these issues may ultimately be resolved. However, to resolve factual questions on review from the sustaining of a demurrer would be both improper and impossible when the challenge is only to the sufficiency of the pleadings.
For the same reason we disregard as irrelevant Moreno’s declaration submitted in opposition to the demurrer. In ruling on, or in reviewing a demurrer, “defects of a complaint are properly cured by amendments thereto, not by extraneous factual recitals in ‘response’ to the demurrers.”
Disposition
The judgment is reversed and the cause is remanded to the trial court with directions to vacate the dismissal, to overrule the demurrer, and for further proceedings consistent with this opinion. Appellants are awarded their costs on appeal.
Croskey, J.,
Notes
Thompson v. County of Alameda (1980)
The sellers are not parties to this appeal.
The trial court explained: “My personal feeling is . . . building inspectors really don’t fall in the same public-policy circles as lawyers and doctors, possibly architects, particularly when they are sued for malpractice, and it would be something of an extension, as I see it, to put them there just at the trial court level. [1[] As I say, since it is closer to a policy question than a matter of simply interpreting the legal jurisprudence, I am not in the policy business; I’m just a lower-level county trial judge . . . . So to the extent that the plaintiffs want me to extend the public-policy argument to cover building inspectors, I am just going to stay out of that business. I am not going to do it.”
Blank v. Kirwan (1985)
Berry v. City of Santa Barbara (1995)
Neel v. Magana, Olney, Levy, Cathcart & Gelfand. (1971)
Leaf v. City of San Mateo (1980)
Leaf v. City of San Mateo, supra,
See statutes collected in 3 Witkin, California Procedure (4th ed. 1996) Actions, section 463, pages 583-584.
Code of Civil Procedure section 338, subdivision (d).
See, e.g, Oakes v. McCarthy Co. (1968)
See, e.g. Jolly v. Eli Lilly & Co. (1988)
See, e.g, G. D. Searle & Co. v. Superior Court (1975)
See, e.g, Cain v. State Farm Mut. Auto Ins. Co. (1976)
See, e.g, Allen v. Sundean (1982)
See, e.g, April Enterprises, Inc. v. KTTV (1983)
See, e.g, Cortelyou v. Imperial Land Co. (1913)
See, e.g, Twomey v. Mitchum, Jones & Templeton, Inc. (1968)
See, e.g. Amen v. Merced County Title Co. (1962)
See, e.g. United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970)
See, e.g, Moonie v. Lynch (1967)
See, e.g, Huysman v. Kirsch (1936)
See, e.g, Neel v. Magana, Olney, Levy, Cathcart & Gelfand, supra,
See, e.g. Prudential Home Mortgage Co. v. Superior Court (1998)
Evans v. Eckelman (1990)
Evans v. Eckelman, supra,
Seelenfreund v. Terminix of Northern Cal., Inc., supra,
Seelenfreund v. Terminix of Northern Cal., Inc., supra,
Seelenfreund v. Terminix of Northern Cal., Inc., supra,
Seelenfreund v. Terminix of Northern Cal., Inc., supra,
Seelenfreund v. Terminix of Northern Cal., Inc., supra,
Seelenfreund v. Terminix of Northern Cal., Inc., supra,
Seelenfreund v. Terminix of Northern Cal., Inc., supra,
Allred v. Bekins Wide World Van Services, supra,
Allred v. Bekins Wide World Van Services, supra,
Allred v. Bekins Wide World Van Services, supra,
Allred v. Beldns Wide World Van Services, supra,
Allred v. Bekins Wide World Van Services, supra,
Allred v. Bekins Wide World Van Services, supra,
Allred v. Bekins Wide World Van Services, supra,
Statutes 1996, chapter 338 (Sen. Bill No. 258 (1995-1996 Reg. Sess.)) section 1, statement of legislative intent.
Business and Professions Code section 7196.
In 1996 the California Association of Realtors sponsored the legislation governing home inspection services. At that time the association informed the Legislature more than 500,000 home sales occurred in California each year, representing in excess of $9 billion investment in housing.
See Business and Professions Code sections 7197 (proscribing certain unfair business practices), 7198 (declaring contractual provisions against public policy which purport to waive the inspector’s duty of care or which limit the inspector’s liability to the cost of preparing the report).
Even assuming a homeowner could waive the benefits of the discovery rule, it would have to be a knowing waiver. The contract itself would have to apprise the homeowner of the existence of his or her right to the discovery rule, and what that meant, and required him or her to expressly waive that right. Nothing approaching such a knowing waiver occurred here.
Code of Civil Procedure section 337.1.
Business and Professions Code section 7199 provides the time to bring an action against a home inspector for “breach of duty arising from a home inspection report shall not exceed four years from the date of the inspection.”
Neel v. Magana, Olney, Levy Cathcart & Gelfand, supra,
Code of Civil Procedure section 340.5.
Huysman v. Kirsch (1936)
See, e.g., Hambrecht & Quist Venture Partners v. American Medical Internat., Inc. (1995)
Beeson v. Schloss (1920)
Tebbets v. Fidelity and Casulaty Co. (1909)
Tebbets v. Fidelity and Casualty Co., supra,
Beeson v. Schloss, supra,
Beeson v. Schloss, supra,
Fageol Truck & Coach Co. v. Pacific Indem. Co. (1941)
Hubbard v. Matson Nav. Co. (1939)
Capehart v. Heady (1962)
Capehart v. Heady, supra,
Hambrecht & Quist Venture Partners v. American Medical Internat., Inc., supra,
Hambrecht & Quist Venture Partners v. American Medical Internat., Inc., supra,
See cases collected in 3 Witkin, California Procedure, supra, Actions, section 437, pages 549-552 (“As a practical matter these provisions are found only in contracts habitually drawn by the obligor, such as bills of lading, warehouse receipts, and insurance policies.”); 43 California Jurisprudence Third (1978) Limitations of Actions, section 9, page 24, Validity of Agreement Prescribing Shorter Period Than Statute (citing no cases involving professionals or skilled trades people); Annotation, Validity of Contractual Time Period, Shorter Than Statute of Limitations, for Bringing Action (1966)
Silver v. Boatwright Home Inspection, Inc. (2002)
Silver v. Boatwright Home Inspection, Inc., supra, 91 Cal.App.4th 443, 451-452, footnote 7, italics in original.
Freeman & Mills, Inc. v. Belcher Oil Co. (1995)
Freeman & Mills, Inc. v. Belcher Oil Co., supra,
See, e.g., Allred v. Bekins Wide World Van Services, supra,
Senate Rules Committee, Office of Senate Floor Analyses, analysis of Senate Bill No. 258 (1995-1996 Reg. Sess.) July 12, 1996, page 6.
Senate Judiciary Committee, Report on Senate Bill No. 258 (1995-1996 Reg. Sess.) June 13, 1995, page 8.
Leko v. Cornerstone Building Inspection Service (2001)
Leko v. Cornerstone Building Inspection Service, supra,
Blank v. Kirwan, supra,
Allred v. Bekins Wide World Van Services, supra,
In light of our conclusion the judgment must be reversed, the trial court’s award of attorney fees and costs to the inspector as the prevailing party must be reversed as well.
Associate Justice of the Court of Appeal, Second Appellate District, Division Three, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Dissenting Opinion
Two home buyers filed a lawsuit for negligence and breach of contract against a home inspector 14 months after the inspector allegedly failed to competently inspect the house they had agreed to purchase. The contract signed by the home buyers required any legal action against the home inspector, “including those sounding in tort or contract,” to be initiated within one year from the date of the inspection. I respectfully disagree with the majority’s conclusion that this express, written agreement to shorten the limitations periods otherwise applicable to the home buyers’ causes of action to one year from the date of inspection is unreasonable as a matter of law.
Under the terms of their agreement to purchase a 49-year-old house in Whittier, appellants Armando V. Moreno and Gloria Contreras had the right to have the property inspected and to approve the inspection results as a condition to the close of escrow. They hired respondent Deric Sanchez to conduct the inspection and agreed to pay him a $250 inspection fee.
On the date of the inspection, Sanchez gave Moreno a preprinted home inspection contract to sign. In addition to signing the agreement, Moreno was asked to initial two clauses in the preprinted form contract. The first clause was a liquidated damages provision limiting the liability of the home inspector. The second clause was a modification of the limitations periods governing claims against the home inspector. It provided, “No legal action or proceeding of any kind, including those sounding in tort or contract, can be commenced against Inspector/Inspection Company, or its officers, agents or employees more than one year after the date of the subject inspection. Time is expressly of the essence herein. This time period is shorter than otherwise provided by law.”
Moreno, who is a lawyer, a Los Angeles Superior Court commissioner and a licensed real estate broker, requested that Sanchez eliminate both provisions. After some discussion, Sanchez agreed to strike the liquidated damages clause but refused to delete the limitations clause. Moreno then signed the agreement and initialed the limitations clause.
2. An Agreement to Shorten the Applicable Limitations Period Should Be Enforced Unless Unreasonable as a Matter of Law
Under California law parties may agree to a provision shortening the statute of limitations, “qualified, however, by the requirement that the period fixed is not in itself unreasonable or is not so unreasonable as to show imposition or undue advantage. [Citations.]” (Capehart v. Heady (1962)
In the case at bar, the one-year limitations provision was clearly stated in the parties’ contract; cautioned that it imposed a time period for filing suit that “is shorter than is otherwise provided by law”; was unambiguous in its application to both contract and tort claims; was the subject of negotiation between Moreno and the home inspector; and, after Moreno failed to obtain the inspector’s agreement to delete the provision, was separately initialed by Moreno. There is no dispute the provision was reasonable in those respects.
The majority, however, concludes the parties’ agreement is unreasonable as a matter of law because it impliedly required Moreno to waive the benefit of the nonstatutory delayed discovery rule first recognized earlier in its opinion. I respectfully disagree.
No statute prohibits the parties to a hpme inspection contract from agreeing to a shortened limitations period. (Hambrecht & Quist Venture Partners v. American Medical Internat., Inc., supra,
The Legislature in 1996 adopted legislation to regulate practices for the home inspection industry “to assure that consumers of home inspection services can rely upon the competence of home inspectors.” (Stats. 1996, ch. 338, § 1.) Business and Professions Code section 7196
In adopting standards for the home inspection industry, the Legislature prohibited certain contractual provisions contained in inspection agreements it considered “contrary to public policy”: “Contractual provisions that purport to waive the duty owed pursuant to Section 7196 [requiring ‘the degree of care that a reasonably prudent home inspector would exercise’], or limit the liability of the home inspector to the cost of the home inspection report, are contrary to public policy and invalid.” (§§ 7198, 7196.) However, the Legislature did not adopt proposed language in section 7198 that would have broadened this provision to prohibit as contrary to public policy all contractual provisions that “unreasonably limit the liability of the home inspector,” thus reserving to the parties the right to define their contractual duties and responsibilities except as specifically prohibited by statute. (Compare Sen. Bill No. 258 (1995-1996 Reg. Sess.) § 2, as amended June 12, 1995, with Sen. Bill No. 258 (1995-1996 Reg. Sess.) § 2, as amended June 20, 1995, and Stats. 1996, ch. 338, § 2.) The majority’s refusal to enforce Moreno’s agreement to a shortened limitations provision is squarely at odds with this legislative recognition of the parties’ freedom to contract.
Moreover, while imposing a duty of reasonable care on home inspectors in section 7196, the Legislature itself did not provide for a rule of delayed discovery, as it did, for example, when establishing the limitations period for professional malpractice actions against health care providers (Code Civ. Proc., § 340.5) and attorneys (Code Civ. Proc., § 340.6, subd. (a)) and actions for damages suffered as a result of domestic violence (Code Civ. Proc., § 340.15, subd. (a)(2)). Rather, section 7199, adopted in 1996, specifies a maximum time period within which a lawsuit must be filed measured from the date of the inspection itself: “The time for commencement of a legal action for breach of duty arising from a home inspection report shall not exceed four years from the date of the inspection.”
The absence of a statutory provision for delayed discovery and the presence of a maximum limitations period measured from the date of the inspection belie the assertion that the parties’ own agreement to a limitations period commencing with the inspection rather than discovery of an alleged breach of duty by the home inspector somehow offends important public policy considerations. Similarly, the Legislature’s election not to prescribe what the limitations period is for a legal action for breach of duty arising from a home inspection report but only to define what it is not (that is, it is not to “exceed four years
4. Public Policy Does Not Compel Invalidation of Contractual Limitations Provisions Simply Because the Delayed Discovery Rule Might Otherwise Apply
Whether or not the delayed discovery rule should be applied to negligence claims against a home inspector in an appropriate case, the majority advances no compelling reason to disregard the parties’ express contractual agreement to limit the home buyers’ right to sue to a one-year period measured from the date of inspection. Indeed, the primary ground advanced for invalidating the parties’ agreement is simply the absence of authority enforcing such a provision, which the majority suggests indicates “an implicit consensus” that such contractual limitations provisions are invalid. Other than dicta in Justice Croskey’s recent opinion for Division Three of our court in Silver v. Boatwright Home Inspection, Inc. (2002)
The majority does express concern that enforcing a home buyer’s agreement to shorten the limitations period in a contract for a home inspection report would require the courts to enforce similar provisions in retainer agreements between lawyers and their clients or physicians and their patients. Such angst seems unnecessary. Instances in which the Legislature has mandated a delayed discovery rule—as is the case for both lawyers and health care providers—are easily distinguishable from routine commercial agreements with contractors and tradespeople. (See Hambrecht & Quist Venture Partners v. American Medical Internat., Inc., supra,
To be sure, in some situations a previously undetected defect in the house may not be discovered within the time provided by the parties in their agreement—the public policy emphasized by the majority and in the Silver v. Boatwright Home Inspection, Inc., supra,
Viewed in retrospect, of course, the one-year provision might work an unfairness to the home buyer in a particular case, as could a two-year or three-year period, as well. However, that hypothetical possibility does not make the provision to which these parties agreed unreasonable as a matter of law. (See Hedging Concepts, Inc. v. First Alliance Mortgage Co. (1996)
Because no statute restricts the right of the parties to a home inspection agreement to contract for a shorter limitations period, I believe the parties’ “substantial freedom to modify the length of the statute of limitations” (Hambrecht & Quist Venture Partners v. American Medical Internat., Inc., supra,
Respondent’s petition for review by the Supreme Court was denied July 23, 2003. Brown, J., did not participate therein. Chin, J., was of the opinion that the petition should be granted.
I agree Freeman & Mills, Inc. v. Belcher Oil Co. (1995)
As the majority observes, the leading cases recognizing the parties’ right to shorten the limitations period for filing a lawsuit involve contract-based claims. It is, of course, not surprising that cases enforcing contractual provisions to shorten the limitations period invariably involve duties arising from contract—as does the case at bar. However, contractual limitations clauses have also been applied to bar tort claims based on an alleged breach of duty arising from contract. (E.g., CBS Broadcasting Inc. v. Fireman’s Fund Ins. Co. (1999)
The limitations provision in the inspection agreement obviously did not advise Moreno of his inchoate right to the delayed discovery rule—a right not recognized prior to the decision in this case. However, Moreno was expressly informed that the one-year limitations period to which he agreed was “shorter than is otherwise provided by law.” I fail to understand how the majority can conclude this was anything but a “knowing waiver” by Moreno, who is not only a lawyer but also a real estate broker. (Maj. opn., ante, at p. 1429, fn. 45.)
All further statutory references are to the Business and Professions Code unless otherwise indicated.
Significantly, this is not such a case. Moreno’s second amended complaint alleged that “several months after the purchase of the subject property"—that is, well within the contractually agreed one-year limitations period—Moreno “learned that the house contained the following defects: The air conditioning system in the basement contained asbestos; one of the air conditioning ducts was [improperly] vented . . . causing dust, debris, and mites to enter the air supply; a northwest yard drain was inoperable, causing water to pond under the structure; and the property was built on expansive soil causing interior and exterior walls to crack. Additionally, 21 windows were nailed and/or painted shut, thereby preventing plaintiffs from opening them to get rid of the dust, debris, and mite problems.” Although Moreno also alleges that the full extent of the problems at the house was not discovered until a new inspection of the residence found asbestos in September 1999, it is simply not correct, as the majority suggests, that the limitations clause in the parties’ agreement required Moreno’s lawsuit to be filed “prior to any accrual of a cause of action.”