Gilbert Financial Corp v. Steelform Contracting Co.

Citations: 82 Cal. App. 3d 65; 145 Cal. Rptr. 448; 82 Cal. App. 2d 65; 1978 Cal. App. LEXIS 1652Docket: Civ. 51729

Court: California Court of Appeal; June 23, 1978; California; State Appellate Court

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An appeal was made by Gilbert Financial Corporation against Steelform Contracting Company regarding a judgment favoring Steelform. Gilbert had contracted Sheldon Appel Construction Company to build a bank records storage facility in El Monte, California, which subcontracted roof-related work to Steelform. After substantial completion in January 1972, the building experienced water leaks, damaging both its contents and structure. Appel attempted to remedy the issues from 1972 to 1975 without success, prompting Gilbert to hire other contractors who identified defective workmanship as the cause of the leaks. Gilbert's second amended complaint included two counts against Steelform: one for negligence and another for breach of implied warranty. The court dismissed the negligence claim, citing the statute of limitations, as Gilbert was deemed to have been aware of the defects since January 1972. The breach of warranty claim was dismissed due to lack of contractual privity. Gilbert argued that Appel's representations about repairing defects should toll the statute of limitations, referencing an ambiguous clause in the contract suggesting Appel's responsibility for correcting subcontractor defects.

Ambiguity in the matter allows for evidence regarding its meaning or application. Gilbert has a substantial burden of proof but is entitled to present it. The court made an error by dismissing Gilbert's breach of warranty claim against Steelform, which alleged failure to provide proper materials and workmanship. The trial court dismissed the claim due to a lack of privity between Gilbert and Steelform. However, Gilbert argues that privity is no longer essential, citing case law that has eliminated the necessity of privity in negligence or strict liability cases, though it remains relevant in contract actions.

The current case does not require a definitive ruling on privity. Under California Civil Code section 1559 and relevant case law, Gilbert is deemed a third-party beneficiary of the contract between Appel and Steelform, allowing him to sue for breach of the implied warranty of fitness. California permits third parties to bring actions if they are more than incidentally benefited by a contract. The interpretation of "expressly" in section 1559 has evolved to mean the opposite of "incidentally," allowing for broader recognition of intended beneficiaries.

Gilbert qualifies as an intended beneficiary under existing decisional law and the Restatement of Contracts. Historical cases support this classification, establishing Gilbert as a creditor beneficiary. The contractor Appel was obligated to provide materials and labor for the construction, while Steelform was contracted to supply these for the roof, indicating that Steelform understood it was fulfilling Appel's obligations, benefiting Gilbert as the building owner. The distinction between creditor and donee beneficiaries is increasingly blurred in court interpretations, allowing for a more expansive application of beneficiary rights.

Restatement Second of Contracts has revised its terminology by removing "creditor-donee" references. The opinion focuses on specific issues rather than broader concepts, directing readers to a relevant commentary regarding contract beneficiaries' rights. The court's judgment is reversed, with concurrence from Kaus, P.J. and Stephens, J. 

Specific allegations against Steelform, a roofing contractor, claim negligence in construction and inspection, resulting in structural unsoundness and water leakage in the building. Additionally, an implied warranty was asserted, stating that the construction was not fit for its intended purpose due to inferior workmanship and defective materials, leading to cracking and other damages. 

The contract specifies that the contractor must correct any non-conforming work and remedy defects within one year post-completion, applicable to both subcontractors and direct employees. Civil Code section 1559 allows a third-party beneficiary contract to be enforced before rescission by the parties involved. Some jurisdictions recognize third-party beneficiary status to establish "privity," although this approach is deemed unnecessary by the authors.