In affirming, we hold that section 1668 negates a contractual clause exempting a party from responsibility for fraud or a statutory violation only when all or some of the elements of the tort are concurrent or future events at the time the contract is signed. Contrariwise, we hold that section 1668 does not negate such a clause when all the elements are past events. Regarding the element of damages, which is necessary for tort liability, this means that at least some form of economic or physical damage has occurred.
FACTS
The SAC
The SAC alleged: Variel Warner, Variel Builders, Troxler and Troxler Venture are affiliated with each other. The precise nature of their affiliation is unknown. Verdugo is a general building contractor.
In 2005, Variel Warner entered into a general construction contract with Verdugo to construct improvements at an 85-unit apartment complex (Property). Under the terms of the general construction contract, Verdugo agreed to construct the improvements in a good and workmanlike manner in strict compliance with all drawings and specifications. Verdugo also agreed to
The City of Los Angeles issued a Certificate of Occupancy for the Property on December 6, 2007.
On December 17, 2007, Sobrato Interests III (Sobrato) entered into an agreement (Purchase Agreement) to acquire the Property from Variel Warner. Per the Purchase Agreement, Sobrato was not obligated to close escrow until "Final Completion," which was defined to mean, among other things: "(i) all Improvements have been constructed in substantial accordance with all plans and specifications and other applicable provisions of the General Construction Contract ... and [Sobrato] has been notified that completion of construction has occurred, ... [and] (v) all requirements in the General Construction Contract for final completion to have occurred
The Purchase Agreement contained a general release stating that Sobrato "shall 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's physical condition, except with respect to ... [the] representations, warranties and covenants [made by Variel Warner in the Purchase Agreement]. ..." Sobrato released, inter alia, Variel Warner, Variel Builders, Troxler, Troxler Venture, and Verdugo (except to the extent of Verdugo's general contractor warranty) from all claims arising out of any condition of the Property, including construction errors, omissions or defects. Excluded from the release were any claims that Sobrato may have against Variel Warner for breach of the representations, warranties and covenants in the Purchase Agreement or for fraud.
Prior to escrow, Variel Warner "represented to Sobrato that final completion of construction had occurred and that all requirements of the General Construction Contract for final completion had been satisfied." Variel Warner knew or should have known the representations were untrue. Sobrato reasonably relied on these representations by proceeding with the close of escrow.
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 appellant. SI XX, LLC and appellant observed water leaking from the podium and pool deck into the parking garage and causing damage.
The negligence cause of action posited that Verdugo negligently constructed or inspected the structural concrete slab and slab waterproofing, and that Variel Warner, Variel Builders, Troxler and Troxler Venture negligently managed, inspected and developed the Property. Because the negligence cause of action incorporated the SAC's general allegations, it included the allegation that Variel Warner made a negligent representation.
The breach of contract cause of action alleged that Variel Warner, Variel Builders, Toxler and Troxler Venture breached the Purchase Agreement by failing to deliver the Property with all improvements having been "constructed in substantial accordance with all plans and specifications" and "the General Construction Contract."
Finally, the SAC sought a declaration that section 1668 renders the general release unenforceable because it purports to exempt respondents from responsibility for their statutory violations and fraud.
Trial Court Proceedings
Respondents demurred to the negligence and breach of contract causes of action on the ground they were barred by the general release, and to the declaratory relief cause of action based on the absence of a present controversy regarding the application of section 1668.
At the hearing, sua sponte, the trial court raised two cases it believed were controlling: Lingsch v. Savage (1963)
Also sua sponte, the trial court raised the issue of whether Sobrato's fraud cause of action was assignable and whether it had, in fact, been assigned.
During the hearing, the trial court recognized that it had raised issues without notice, and that it should allow appellant to supplement its papers. At one point, the trial court gave the parties an opportunity to read Lingsch and Orlando and then argue them. Regarding the assignment issue, it stated, "[I]t might mean that [appellant] would have to go and get an assignment from their seller of all claims ..., but that would come with leave to amend because the [trial court] has interjected these issues by giving you [ Lingsch and Orlando ]." Then the trial court stated that the parties needed to shepardize Lingsch and Orlando , adding, "I'll give you a chance to have a further hearing on this point[.]" According to the trial court, it planned to be guided by Lingsch . Nonetheless, it explained that it would take the matter under submission for 10 days, and said, "File whatever you want. And if I don't hear anything from anybody, then I'm going to make a ruling[.]"
Neither party filed supplement briefs.
The trial court sustained the demurrer without leave to amend and "dismissed the action without prejudice to [appellant] seeking reconsideration if appropriate within the time frame provided by law." The minute order explained that appellant failed to plead facts showing a knowing and intentional failure to disclose existing negative conditions at the time of the general release, as required by Lingsch and Orlando . It added that "[t]hese cases ... rely upon the element of fraud as a necessary factor to be proven before the elimination of the efficacy [of the general release] can be established[.]" Last, it averred that appellant failed to show that a fraud claim can be or has been assigned.
Appellant appealed the judgment.
Attorney Fees
The trial court awarded $81,420.25 in attorney fees to Variel Warner, Variel Builders, Troxler and Troxler Venture.
Appellant appealed the award.
I. Standard of Review.
We apply de novo review to an order sustaining a demurrer. A trial court's decision to deny leave to amend will be left undisturbed unless we conclude that there was an abuse of discretion. ( Aubry v. Tri-City Hospital Dist. (1992)
II. Section 1668.
Section 1668 provides: "All contracts which have for their object, directly or indirectly, to exempt anyone 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 the law."
The statute prohibits exculpation from future torts. In fact, multiple cases state that the statute applies only if a future tort is involved. ( Health Net of California, Inc. v. Department of Health Services (2003)
Whether section 1668 might apply to past torts is a slippery question. It has been applied to negate exemption clauses that would otherwise proscribe liability for fraudulent inducement of the very contracts with the exemption clauses. ( Blankenheim v. E. F. Hutton & Co. (1990)
Appellant suggests that Halliday v. Greene (1966)
Halliday offers appellant no assistance. Although the negligent construction of the stairway preceded the hold harmless clause, there was a continuing dangerous condition. More importantly, that dangerous condition did not cause harm to the plaintiffs until after the hold harmless clause was executed. Thus, for purposes of section 1668, the negligence in Halliday was a future tort because the causation and damages elements were future events.
III. Sufficiency of the Negligence Allegations.
The negligence cause of action contains two claims, one for negligence and one for negligent misrepresentation. As we discuss below, the negligence claim is barred by the general release and the negligent misrepresentation claim is not pleaded with the requisite specificity. Consequently, the demurrer was properly sustained.
A. Negligence .
Based on the allegations, Variel Warner was economically damaged when Verdugo and the subcontractors negligently constructed and waterproofed the structural concrete slab by failing to comply with the building
The alleged negligence of Variel Warner, Variel Builders, Troxler and Troxler Venture in failing to inspect, manage and develop the property was, if anything, a breach of a common law duty of care rather than a statutory violation. As a matter of public policy, there is a difference between Verdugo and the subcontractors directly violating the law versus Variel Warner, Variel Builders, Troxler and Troxler Venture failing to detect that violation. Therefore, as to this alleged negligence, the general release is enforceable.
Appellant suggests that it can sue Verdugo because it obtained an assignment of rights that came from Variel Warner through Sobrato and SI XX, LLC. This argument is a non sequitur. The general release limits Verdugo's liability to its general contractor warranty.
B. Negligent Misrepresentation .
Negligent misrepresentation requires an assertion of fact, falsity of that assertion, and the tortfeasor's lack of reasonable grounds for believing the assertion to be true. It also requires the tortfeasor's intent to induce reliance, justifiable reliance by the person to whom the false assertion of fact was made, and damages to that person. ( B.L.M. v. Sabo & Deitsch (1997)
Contrary to what the trial court concluded, section 1668does apply to nullify the general release of the negligent misrepresentation cause of action. ( Blankenheim , supra , 217 Cal.App.3d at pp. 1471-1473,
Though respondents suggest to the contrary, the SAC alleges an assertion of fact. Because "Final Completion" was defined in the Purchase Agreement
But there are several problems for appellant. Number one, the cause of action was not alleged with sufficient particularity because it did not identify, among other things, who made the representation on behalf of Variel Warner. ( Charnay v. Cobert (2006)
IV. Breach of Contract.
Based on section 1668, appellant argues that the general release does not bar the breach of contract claim because the breach was accompanied by a negligent misrepresentation that there was final completion. But the alleged breach-failure to deliver the Property in compliance with the plans, specifications and the requirements of the general construction contract-was not itself a negligent misrepresentation. Thus, section 1668 is not triggered in this context. It was appropriate for the trial court to sustain the demurrer.
V. Declaratory Relief.
Given that the negligence and breach of contract claims are defective, and given that the SAC does not establish that the general release is unenforceable, appellant was not entitled to declaratory relief in its favor. Moreover, the trial court was not required to issue a declaration that the general release is, in fact, enforceable. ( Collins v. Collins (1957)
We conclude that the demurrer was properly sustained as to declaratory relief.
VI. Denial of Leave to Amend.
Appellant suggests the trial court abused its discretion when it declined to allow appellant to amend its pleading. The suggestion does not prevail.
We note that appellant informs us that, given a chance, it would allege that on
Another problem is the justifiable reliance element. In the Purchase Agreement, Variel Warner expressly disclaimed "Knowledge of any material default" by Variel Warner, thereby disclaiming any knowledge of the condition of the Property. The Purchase Agreement also expressly tasked Sobrato with conducting its own investigation and inspection in determining the physical condition of the Property. Thus, even if Variel Warner misrepresented final completion, appellant has not established-by argument or by authority on point-that its reliance could be justified in the face of the foregoing provisions. We need not analyze this issue further because "[i]t is not our responsibility to develop an appellant's argument." ( Alvarez v. Jacmar Pacific Pizza Corp. (2002)
VII. Due Process.
According to appellant, the trial court denied it due process when it sustained the demurrer based solely on cases and issues raised sua sponte by the trial court at the demurrer hearing. ( Traverso v. People ex rel. Dept. of Transportation (1993)
VIII. Attorney Fees.
Given that we are affirming the judgment of dismissal, the issue of attorney fees is moot.
The judgment is affirmed. Respondents shall recover their costs on appeal.
We concur:
CHAVEZ, J.
HOFFSTADT, J.
Notes
All further statutory references are to the Civil Code unless otherwise indicated.
Section 1668 establishes that a contract that exempts anyone from responsibility for his or her own fraud or violation of the law is against public policy.
The parties do not dispute that the Purchase Agreement provided for an "as is" sale.
Lingsch and Orlando analyzed the scope of " 'as is' " clauses in real estate transactions and interpreted them so as not to conflict with the policy embodied in section 1668. (Lingsch , supra ,