with written notice requesting that Owner file such notice(s) of completion for the Work
as may be established by any applicable laws. If Owner objects to such notice(s) being
filed, it shall notify Contractor within ten (10) days of its receipt of Contractor's written
notice, whereupon the parties shall promptly meet to resolve such objections."
The project architect signed the Certificate of Substantial Completion on May 24,
2007. The Certificate stated, "The Work performed under this Contract has been
reviewed and found, to the Architect's best knowledge, information and belief, to be
substantially complete. Substantial Completion is the state in the progress of the Work
when the Work or designated portion is sufficiently complete in accordance with the
Contract Documents so that the Owner can occupy or utilize the Work for its intended
use." In accordance with the contract, a list of items to be completed or corrected
("punchlist" items) was attached to the Certificate. It included the entry canopy glass, the
rooftop handicap lift, the security system, four streetlights, mail box lock, spa-elevator
lift, and "[l]ighting at BBQ." A Hensel Phelps representative signed the certificate,
agreeing that "[t]he Contractor will complete or correct the Work on the list of items
attached hereto within Sixty (60) days from the above date of Substantial Completion."
6
An owner's representative also signed the certificate, stating that "[t]he Owner accepts the
Work or designated portion as substantially completed and will assume full possession at
8:00 a.m. on July [__], 2007."3
On the same date as the Certificate of Substantial Completion, Hensel Phelps, the
owner, and a Smart Corner representative wrote to the City of San Diego and requested a
temporary certificate of occupancy "in order that we may complete the following items,
none of which are fire, life, health safety, or disabled access features[:] [¶] 1. Residential
Unit Flooring [¶] 2. Residential Unit Appliances." The City granted temporary
occupancy for 30 days.
The City of San Diego continued to perform required inspections of the project.
The project only partially passed its final fire inspection in early June 2007. The project
fully passed in late June, with final alarm, sprinkler, and underground approvals. The
project passed several structural inspections, but in early July it failed a rough framing
inspection. Similarly, the project failed its final structural inspection twice in July. It did
not pass the final structural inspection until July 17, 2007. The project also failed its final
electrical inspections in early July.
The owner recorded a notice of completion on July 10, 2007. The City of San
Diego issued a certificate of occupancy for around two dozen individual condominiums
3 The date in the document is handwritten and difficult to discern based on the papers submitted to this court. Hensel Phelps contends the date is July 5; Smart Corner responds that the date is July 25. We need not address this factual dispute in this proceeding. 7
and the common areas on July 6, 2007. The City issued a certificate of occupancy for the
project generally on July 17, 2007. For some time thereafter, the City continued to issue
certificates of occupancy for individual condominiums.
On July 6, 2017, Smart Corner provided notice to Hensel Phelps of its
construction defect claim. The notice identified numerous alleged defects in the project's
windows, doors, railings, private decks, waterproofing, concrete, bathtubs and showers,
plumbing, venting, roof, and parking structure. Hensel Phelps declined to participate in
prelitigation dispute resolution, and Smart Corner filed this lawsuit. The operative
complaint alleges a single cause of action for construction defects under the Right to
Repair Act (§ 895 et seq.).
After a year of litigation, Hensel Phelps filed its motion for summary judgment.
As relevant here, Hensel Phelps contended that Smart Corner's construction defect claim
was barred by the 10-year statute of repose in section 941. Hensel Phelps argued that the
statute began to run on May 24, 2007, when the project architect issued its Certificate of
Substantial Completion and the provisions for substantial completion under the contract
were satisfied. In its opposition, Smart Corner disputed that Hensel Phelps could apply
its contractual definition of substantial completion to the statute. Even if it did apply,
Smart Corner argued that there were triable issues of fact whether the contractual
definition was satisfied on the date identified by Hensel Phelps. Smart Corner pointed
out that the project had not passed a number of important City inspections by that date,
including several structural inspections, several fire inspections, and two electrical
inspections. Smart Corner also pointed out that the vast majority of the individual
8
residential units did not have appliances or complete flooring and the City's temporary
certificate of occupancy lapsed for a period before the City began issuing permanent
certificates of occupancy. Under these circumstances, in Smart Corner's view, a
reasonable trier of fact could find that the project was not substantially complete under
the statute.
In a written order, the trial court denied Hensel Phelps's motion for summary
judgment. The court found, as an initial matter, that Hensel Phelps had not provided any
authority to support its argument that its contractual definition of substantial completion
should apply to the statute. But, even assuming that the contractual definition applied,
the court found that Hensel Phelps had not established an absence of triable issues of
material fact. To support its assertion that substantial completion occurred on May 24,
2007, Hensel Phelps had cited several pieces of evidence, but not the Certificate of
Substantial Completion. The court therefore found the assertion unsupported. The court
also determined there were triable issues of fact whether the temporary certificate was
issued without "material conditions" because several important inspections had not yet
been completed.
As noted, Hensel Phelps challenged the court's order by petition for writ of
mandate in this court, we issued an order to show cause, and these proceedings followed.
9
DISCUSSION
I
Summary Judgment Standards
"The purpose of the law of summary judgment is to provide courts with a
mechanism to cut through the parties' pleadings in order to determine whether, despite
their allegations, trial is in fact necessary to resolve their dispute." (Aguilar v. Atlantic
Thus, based on both the plain meaning and legislative intent, this court previously held
that "it is clear the intent [of subdivision (g)] was to define what event triggered the
10-year period . . . . When the work of improvement meets one of the four criteria of
[Code of Civil Procedure] section 337.15, subdivision (g), the 'improver'—whether an
architect, engineer, subcontractor, contractor, or developer—is entitled to raise the
provisions of [Code of Civil Procedure] section 337.15, subdivision (g), as a bar to an
action which seeks damages for latent defects after the 10-year period has passed."
(Schwetz, at p. 308.) Other courts have also interpreted the four triggering events in
subdivision (g) as defining "substantial completion" for purposes of the statute. (See,
e.g., Gundogdu v. King Mai, Inc. (2009) 171 Cal.App.4th 310, 317.)
By contrast, the court in Nelson v. Gorian & Associates, Inc. (1998)
61 Cal.App.4th 93, 96 (Nelson), held that "substantial completion" could occur on a date
other than the four triggering events in Code of Civil Procedure section 337.15,
subdivision (g). The plaintiffs in Nelson purchased an empty, graded residential lot.
(Nelson, at p. 95.) After they experienced soil subsidence, the plaintiffs filed suit against
the lot's developer and several professionals, including a civil engineer, a soils engineer,
and a grading subcontractor. (Ibid.) Grading at the lot was completed by
December 1985. (Ibid.) Several months later, the soils engineer filed a final report and
certificate. (Ibid.) Plaintiffs purchased the lot in 1988 and filed suit in 1996. (Ibid.)
16
"The trial court ruled that the action was time-barred because the engineering and
grading work was substantially completed in 1985." (Nelson, supra, 61 Cal.App.4th at
p. 95.) The reviewing court affirmed. It explained, "The trial court correctly ruled that
'substantial completion' was the controlling date and that subdivision (g) 'does not define
[subdivision a]. In other words, these four conditions do not define substantial
completion . . . .' " (Id. at p. 96.) "The trial court correctly ruled that the notice of
completion date ([Code Civ. Proc.,] § 337.15, subd. (g)(2)) did not control if the
improvement was substantially completed at an earlier date. . . . Because [the lot] was
substantially completed in December 1985, we look to the last sentence of
subdivision (g), which states that '[t]he date of substantial completion shall relate
specifically to the performance . . . of construction or construction services by each
profession or trade rendering services to the improvement.' " (Nelson, at p. 97.)
Against this historical backdrop, the Legislature enacted Civil Code section 941.
As noted, that statute incorporates the phrase "substantial completion," but it identifies
only a single triggering event. It states, "Except as specifically set forth in this title, no
action may be brought to recover under this title more than 10 years after substantial
completion of the improvement but not later than the date of recordation of a valid notice
of completion." (Civ. Code, § 941, subd. (a).) The Legislature recognized that existing
law established a 10-year statute of repose based on "substantial completion" under Code
of Civil Procedure section 337.15. (Assem. Com. on Judiciary, Analysis of Sen. Bill
No. 800 (2001-2002 Reg. Sess.) as amended Aug. 26, 2002.) Explaining the new statute,
the Legislature stated, "The bill specifies one, two and four-year periods for the filing of
17
claims for alleged violations of certain standards. Unless a shorter period is specified, no
action may be brought to recover for alleged violations more than 10 years after
substantial completion, as defined in [Code of Civil Procedure section] 337.15(g)(2)."
(Ibid.; accord, Sen. Rules Com., Off. of Sen. Floor Analyses, Sen. Bill No. 800 (2001-
2002 Reg. Sess.) as amended Aug. 28, 2002.)4
The Legislature explicitly identified Code of Civil Procedure section 337.15 and
its triggering event in subdivision (g)(2) as the basis for new Civil Code section 941.
However, there are two important differences. The new statute omits the remaining three
triggering events in Code of Civil Procedure section 337.15, subdivisions (g)(1), (g)(3),
and (g)(4). The new statute also omits language narrowing the relevant scope of work for
the date of substantial completion to the specific tasks undertaken by each profession or
trade rendering services to the improvement under Code of Civil Procedure
section 337.15, subdivision (g). Authorities interpreting the older statute are therefore
relevant, but they may not be dispositive in all circumstances.
4 We previously informed the parties that we intended to take judicial notice, on our own motion, of certain legislative history materials related to the enactment of section 941. (See Evid. Code, §§ 455, subd. (a), 459, subd. (c); Hogen v. Valley Hosp. (1983) 147 Cal.App.3d 119, 125.) Having reviewed the parties' responses, we conclude judicial notice is proper. (See Evid. Code, § 452; Doe v. City of Los Angeles (2007) 42 Cal.4th 531, 544, fn. 4.) We will therefore take judicial notice of the materials identified in the text above, as well as (1) Assem. Floor Analysis, 3d reading analysis of Sen. Bill No. 800 (2001-2002 Reg. Sess.) as amended Aug. 28, 2002; and (2) Sen. Com. on Judiciary, Analysis of Sen. Bill No. 800 (2001-2002 Reg. Sess.) as amended Aug. 28, 2002. 18
III
Contractual and Statutory Concepts of Substantial Completion
As noted, Hensel Phelps contends that the statute adopts the concept of substantial
completion as determined by the parties to its construction contract. It claims that the
contracting parties' agreement on a date of substantial completion is "conclusive" and
cannot be disputed in later litigation—except perhaps upon a showing of forgery, duress,
or similar invalidity.
The legal basis for Hensel Phelps's contention is unclear. Hensel Phelps does not
cite any legislative history, case authority, or secondary sources that support its
interpretation. It cites commentary on form contracts published by the American Institute
of Architects (AIA) for the proposition that substantial completion is an important
concept in private construction contracts. Hensel Phelps notes that AIA form contracts
are widely used and respected in the construction industry. In particular, Hensel Phelps
points out that the AIA has created a standard form, the Certificate of Substantial
Completion, to certify when substantial completion has occurred in a construction
project. It asserts that the AIA Certificate of Substantial Completion has been in use in
one form or another since 1963.
Other than noting these facts, Hensel Phelps does not explain why we should
interpret section 941 as incorporating the date of substantial completion as determined by
the parties to Hensel Phelps's private construction contract. The statute itself does not
provide any indication that it has adopted any AIA standards or the specific
determination of private parties under a construction contract. The available legislative
19
history does not mention the AIA in connection with substantial completion. Numerous
California authorities have interpreted the phrase "substantial completion" since it was
first used, but none of these authorities references the AIA's discussion of substantial
completion. Given the decades-long history of these statutes, and the decades-long use of
AIA forms, the absence of any legal authority connecting the two is striking.5
Outside California, courts have rejected the contention that the legal or statutory
concept of substantial completion must conform to the date of substantial completion as
determined by private parties to a contract. In Holy Family Catholic Congregation v.
Stubenrauch Associates, Inc. (1987) 136 Wis.2d 515 (Holy Family), the Court of Appeals
of Wisconsin considered the same dispute at issue here, albeit in a somewhat different
procedural posture. The plaintiff, a religious congregation, sued an architect and general
contractor for construction defects in a new church building. (Id. at p. 517.) The
architect and general contractor argued that the congregation's suit was untimely under
Wisconsin's former statute of repose, which barred any action brought " 'more than
6 years after the substantial completion of construction,' " because the congregation held
its first service in the building more than six years prior to bringing suit. (Id. at pp. 517-
518 & fn. 1, quoting former Wis. Stat. § 893.89.) The trial court agreed and granted
5 Hensel Phelps correctly points out that AIA form contracts serve as a kind of surrogate commercial code for contracting parties. (See Brisbane Lodging, L.P. v. Webcor Builders, Inc. (2013) 216 Cal.App.4th 1249, 1259 (Brisbane).) But it acts as a surrogate commercial code only to the extent its contractual provisions apply. Smart Corner is not a party to the contract, and its claim is not based on an AIA contractual provision. 20
summary judgment. (Id. at p. 519.) In the congregation's subsequent appeal, the
architect argued that the statutory phrase "substantial completion" should be interpreted
in light of the construction contract, which empowered the architect to determine the date
of substantial completion. (Id. at pp. 521-522.) The appellate court rejected this
argument. It explained, "Without explicit statutory direction, we cannot imply a
legislative intent to empower one party to trigger the six-year limitation period by its
unilateral actions." (Id. at p. 522.) "For purposes of the statutory limit, it is the court, not
the architect, who determines the date of substantial completion. Thus, while the date of
an architect's certificate of substantial completion may be persuasive in determining the
statutory date of substantial completion, we conclude that the dispositive event in this
case was Holy Family's occupation of the building for its intended purpose." (Id. at
pp. 524-525.)
Similarly, in Allen v. A&W Contractors, Inc. (La.App. 1983) 433 So.2d 839, the
Louisiana Court of Appeal held that an arbitrator did not exceed his powers by
determining a date of substantial completion that differed from the date determined by
the parties to a contract. It explained, "We acknowledge, as we must, that the contract
under consideration provides for execution by the owner's architect of a certificate of
substantial completion which 'shall establish the Date of Substantial Completion . . . .'
We do not consider this provision to be sacrosanct if the facts show substantial
completion at a date earlier than that certified by the owner's architect. In the instant
case, the arbitrator concluded, after a two day hearing, that the project was substantially
21
complete on March 2, 1981. We feel that the power to arbitrate the dispute between the
parties included the authority to make this determination." (Id. at p. 841.)
We reject Hensel Phelps's argument for similar reasons. The date of substantial
completion is an objective fact about the state of construction of the improvement, to be
determined by the trier of fact. It is a statutory standard, not a contractual one. The
parties to a construction contract may not arrogate to themselves the ability to
conclusively determine when the statutory limitations period begins to run.
Hensel Phelps claims that adopting the substantial completion date determined by
the contracting parties is consistent with the legislative purpose of tying the statute of
repose to an "objectively determined and verifiable event, i.e., the date of substantial
completion of the improvement." (Inco, supra, 131 Cal.App.4th at p. 1020.) It is not
necessary to adopt Hensel Phelps's proposed substantial completion date to provide an
objectively verifiable standard. The statutory standard of substantial completion is
objectively determined and verifiable; the facts supporting a showing of substantial
completion can be ascertained and are within the knowledge of contractors and
developers. The focus on an objectively determined and verifiable standard contrasts
with traditional concepts of claim accrual, which may depend in part on a plaintiff's
subjective awareness. "Unlike these statutes of limitations which begin to run only when
the defect was or should have reasonably been discovered, the 10-year period in [Code of
Civil Procedure] section 337.15 imposes an 'absolute requirement' that a lawsuit to
recover damages for latent defects be brought within 10 years of substantial completion
of the construction, whether or not the defect was or even could have been discovered
22
within that period." (Id. at p. 1020.) The statutory standard of substantial completion
ensures that contractors and developers can, on the basis of evidence available to them,
determine with reasonable certainty when their liability for construction defects will end.
Hensel Phelps, however, appears to demand absolute certainty. It argues, "[Smart
Corner's] position and [the trial court's] conclusion effectively writes the substantial
completion language out of the statute and will make it impossible for a general
contractor to ever have an objectively determined and verifiable commencement date for
the ten-year statute of repose to commence based on a substantial completion date."
Hensel Phelps does not explain how it would be "impossible" for the general contractor
to determine whether its own project is substantially complete without the aid of the
contractual Certificate of Substantial Completion. While reasonable minds may differ
over the exact date of substantial completion under the statute, such a disagreement does
not make it impossible for a general contractor to know with reasonable certainty when
its liability will end. A statutory standard is often subject to factual disputes; that is the
nature of our adversarial legal system. The fact that some uncertainty may remain under
the statutory standard is not a reason to adopt a date simply because it appears on a
contemporaneous certificate. And where, as here, the developer has recorded a notice of
completion, that provides further notice of the outside date when liability will end under
section 941 because the notice of completion is specifically identified in the statute as a
triggering event (assuming it is valid, see Scott, Blake & Wynne v. Summit Ridge Estates,
Inc. (1967) 251 Cal.App.2d 347, 357).
23
Moreover, we note several additional difficulties in simply adopting a contractual
concept of substantial completion as the statutory standard. First, of course, Smart
Corner did not agree to the concept of substantial completion in Hensel Phelps's contract.
It would be unfair to hold Smart Corner to a standard it did not agree to in the absence of
any indication the Legislature intended to adopt it by statute.6 Second, it is unclear how
courts would apply a contractual concept in practice. Does the statute embody an AIA
form contract (and, if so, which version)? Or does the statute embody whatever contract
governs the project at issue, regardless of its content? In its narrow focus on the
"conclusive" nature of the contractual determination here, Hensel Phelps does not address
these issues.7
Viewed as a whole, the contractual concept of substantial completion is an
imperfect fit for the standard of substantial completion under the statute. As Hensel
Phelps emphasizes, the date of substantial completion under the contract is the product of
an agreement between the owner and general contractor (and to some extent the
6 We note that parties may, by contract, alter the statutory limitations period for claims between them. (See Brisbane, supra, 216 Cal.App.4th at pp. 1253-1254 ["[P]ublic policy principles applicable to the freedom to contract afford sophisticated contracting parties the right to abrogate the delayed discovery rule by agreement."].) The contract here had such a provision, but it cannot apply to Smart Corner because Smart Corner did not agree to it.
7 At the summary judgment hearing in the trial court, Hensel Phelps admitted that a contractual provision that established substantial completion as the date the contractor begins the project would not be sufficient under the statute to trigger the running of the limitations period. This admission illustrates the principle that a statutory, not contractual, standard must govern substantial completion for purposes of the statute.
24
architect). The contract lays out a procedure by which the parties determine—through
negotiation—whether to deem the project substantially complete. The contractor notifies
the owner and architect that it believes the work is substantially complete, and a series of
inspections occur. The owner may request additional work be conducted before
substantial completion. Only once the owner accepts the project as substantially
complete does the architect prepare a Certificate of Substantial Completion.
Indeed, the contractual standard of substantial completion depends, in part, on the
judgment and discretion of the owner. For example, contract states, "Minor corrective or
deficient Work . . . , or minor incomplete Work, shall not be deemed a cause for asserting
that the Work has not achieved Substantial Completion, provided, however, that the
conditions requiring such corrective, deficient or incomplete Work are not such as would
render any portion of the Work unsuitable for occupancy or use by Owner or any
prospective purchaser of a condominium unit, or would result in the inclusion in any
temporary certificate of occupancy of any condition not acceptable to Owner in its
reasonable discretion. . . . In general, the only remaining Work shall be minor in nature,
so that the Owner could occupy the building on that date and the completion of the Work
by the Contractor would not materially interfere or hamper the Owner's . . . normal
business operations." (Italics added.)
Our review of the contractual standard makes clear that the agreed-upon date of
substantial completion under the contract may be different for different parties
considering the same state of actual construction. Hensel Phelps admits, in its briefing,
that substantial completion under the contract is "based on the status of the project and
25
the terms and conditions in the contract between the general contractor and owner."
(Italics added.) This circumstance makes sense, of course, in the context of the
commercial transaction between the owner and general contractor. Substantial
completion is an important contractual milestone. The parties will approach the date of
substantial completion with different interests and incentives, which they will pursue in
their negotiations to reach agreement. The provisions of the contract create enforceable
rights and responsibilities if the parties are unable to agree. But precisely because the
determination of contractual substantial completion involves interactions and negotiations
between the parties, based on the terms and conditions of the contract, it would be
inappropriate to simply adopt them (or their results) as conclusively establishing the date
of substantial completion under section 941. Industry custom and practice as embodied
by common construction contract provisions may be relevant to the statutory standard,
but the statute does not simply adopt the parties' private agreement regarding whether
those provisions have been satisfied.
What matters, instead, is the actual state of construction of the improvement and
whether it is substantially complete. We agree with the reasoning in Nelson, supra,
61 Cal.App.4th at page 97, that the plain meaning of the statute compels the conclusion
that a recorded notice of completion is not the only way to trigger the running of the
statute. Substantial completion of the improvement, based on the actual state of
construction, also begins the limitations period. (§ 941, subd. (a).) The agreed-upon date
of substantial completion (and the Certificate of Substantial Completion) may be
26
persuasive indirect evidence of the state of construction, depending on the circumstances
(see Holy Family, supra, 136 Wis.2d at pp. 524-525), but it is not conclusive.
The foregoing discussion is sufficient to dispose of Hensel Phelps's petition.
Hensel Phelps requests "a bright line rule that, if an AIA Certificate of Substantial
Completion is issued and all the provisions of the Certificate have been complied with,
then the issuance of the Certificate of Substantial Completion conclusively establishes the
date of Substantial Completion for purposes of the commencement of the ten-year statute
of repose." Such a bright line rule is not supported by the language of the statute, its
legislative history, or previous authorities. The proposed rule improperly confers on
private parties the ability to determine when the limitations period begins to run on
another party's claim. We therefore decline to adopt it. Substantial completion under the
statute is a factual issue, to be determined by the trier of fact based on competent
evidence concerning the actual state of construction of the improvement. We leave
further explication of the statutory standard to future cases. Hensel Phelps has not shown
the court erred by denying its motion for summary judgment.8
8 Smart Corner's request, in its return, that we discharge the order to show cause and direct the trial court to hear a motion for sanctions is denied. 27
DISPOSITION
The petition is denied. The stay issued August 29, 2019 is vacated. Smart Corner
is awarded its costs. (Cal. Rules of Court, rule 8.493(a).)
GUERRERO, J.
WE CONCUR:
O'ROURKE, Acting P. J.
DATO, J.
28
AI Brief
AI-generated · verify before citing
Holding. The court held that a private construction contract's definition of "substantial completion" does not conclusively establish the date for the 10-year statute of repose under Civil Code section 941.
Issues
Whether a private contract's definition of "substantial completion" conclusively establishes the date for the 10-year statute of repose under Civil Code section 941.
Whether the trial court erred in denying summary judgment when triable issues of fact existed regarding the date of substantial completion.
Disposition. affirmed
Quotations verified verbatim against the opinion
“Hensel Phelps offers no authority for the novel proposition that certain parties may, by contract, conclusively establish the date when a limitations period begins to run on another party's cause of action.”
“it is clear that the statute does not simply adopt the date determined by private parties to a contract for their own purposes as the date of substantial completion.”