J'Aire Corp. v. Gregory
24 Cal.3d 799, 157 Cal.Rptr. 407, 598 P.2d 60 (1979)
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Rule of Law:
A contractor who has a contract with a property owner owes a duty of care to the property's lessee to avoid negligently causing purely economic losses, such as lost profits, when the lessee's injury is a reasonably foreseeable consequence of the contractor's conduct.
Facts:
- J’Aire Corporation operated a restaurant in premises leased from the County of Sonoma.
- The lease required the County to provide heat and air conditioning for the restaurant.
- In 1975, the County of Sonoma contracted with a general contractor, Gregory, to perform improvements on the restaurant premises, including renovating the heating and air conditioning.
- The construction contract did not specify a completion date.
- Gregory allegedly failed to complete the work within a reasonable time, despite J'Aire's requests for prompt completion.
- As a result of the delay, J'Aire's restaurant was forced to operate without heat and air conditioning for a period and to close entirely for a month, causing a loss of business and profits.
Procedural Posture:
- J’Aire Corporation sued Gregory in trial court, alleging causes of action for breach of contract as a third-party beneficiary and for negligence.
- Gregory filed a demurrer to the complaint, arguing it failed to state facts sufficient to constitute a cause of action.
- The trial court sustained the demurrer without leave to amend.
- The trial court entered a judgment of dismissal in favor of Gregory.
- J'Aire Corporation, as appellant, appealed the dismissal of its second cause of action for negligence.
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Issue:
Does a contractor owe a duty of care to a lessee of a property to avoid causing purely economic losses through negligent delay in completing a construction project, even when there is no contractual privity between the contractor and the lessee?
Opinions:
Majority - Bird, C. J.
Yes. A contractor owes a duty of care to the tenant of a building undergoing construction to prosecute that work in a manner which does not cause undue injury to the tenant’s business where such injury is reasonably foreseeable. The court determined this duty exists by applying the six-factor test from Biakanja v. Irving, which balances: (1) the extent the transaction was intended to affect the plaintiff, (2) the foreseeability of harm, (3) the certainty of the plaintiff's injury, (4) the closeness of connection between the defendant's conduct and the injury, (5) the moral blame attached to the conduct, and (6) the policy of preventing future harm. Here, the construction was intended to directly affect J'Aire's business; it was clearly foreseeable that delays would cause lost profits; J'Aire certainly suffered injury; the injury was directly caused by the delay; and public policy disfavors unnecessary construction delays. An injury to economic interests should not go uncompensated merely because it was not accompanied by physical injury to person or property, especially when the risk of harm is foreseeable.
Concurring - Clark, J., and Richardson, J.
Concurred in the judgment without a separate written opinion.
Analysis:
This case significantly expanded tort liability in California by allowing recovery for negligent interference with prospective economic advantage where no contractual privity exists between the parties. It moved away from a rigid rule requiring physical harm or a direct contractual relationship for a negligence claim, focusing instead on a multi-factor foreseeability analysis. This decision established a key precedent, opening the door for third parties who are the foreseeable victims of economic loss to sue for negligence, thereby blurring the traditional line between tort and contract law.
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