J'Aire Corp. v. Gregory

• Decision Date: 13 August 1979
• Docket Number: S.F. 23983
• Citation: 24 Cal.3d 799,157 Cal.Rptr. 407,598 P.2d 60
• Parties: , 598 P.2d 60 J'AIRE CORPORATION, Plaintiff and Appellant, v. Craig A. GREGORY, Defendant and Respondent
• Court: California Supreme Court

Page 407

157 Cal.Rptr. 407

24 Cal.3d 799, 598 P.2d 60

J'AIRE CORPORATION, Plaintiff and Appellant, v. Craig A. GREGORY, Defendant and Respondent.

S.F. 23983.

Supreme Court of California

Aug. 13, 1979.

Timothy J. Crowley, Santa Rosa, and Judith A. Jones, Calistoga, for plaintiff and appellant.

James C. Monroe and Harry A. Allen, Santa Rosa, for defendant and respondent.

BIRD, Chief Justice.

Appellant, a lessee, sued respondent, a general contractor, for damages resulting from the delay in completion of a construction project at the premises where appellant operated a restaurant. Respondent demurred successfully and the complaint was dismissed. This court must decide whether a contractor who undertakes construction work pursuant to a contract with the owner of premises may be held liable in tort for business losses suffered by a lessee when the contractor negligently fails to complete the project with due diligence.

I

The facts as pleaded are as follows. Appellant, J'Aire Corporation, operates a restaurant at the Sonoma County Airport in premises leased from the County of Sonoma. Under the terms of the lease the county was to provide heat and air conditioning. In 1975 the county entered into a contract with respondent for improvements to the restaurant premises, including renovation of the heating and air conditioning systems and installation of insulation.

As the contract did not specify any date for completion of the work, appellant alleged the work was to have been completed within a reasonable time as defined by custom and usage. (Civ.Code, § 1657.) Despite requests that respondent complete the construction promptly, the work was not completed within a reasonable time. Because the restaurant could not operate during part of the construction and was without heat and air conditioning for a longer period, appellant suffered loss of business and resulting loss of profits.

Appellant alleged two causes of action in its third amended complaint. The first cause of action was based upon the theory that it was a third party beneficiary of the contract between the county and respondent. The second cause of action sounded in tort and was based upon negligence in completing the work within a reasonable time. Damages of $50,000 were claimed.

Respondent demurred on the ground that the complaint did not state facts sufficient to constitute a cause of action. (Code Civ.Proc., § 430.10 subd. (e).) The trial court sustained the demurrer without leave to amend and the complaint was dismissed. On appeal only the sustaining of the demurrer to the second cause of action is challenged.

II

In testing the sufficiency of a complaint, a reviewing court must assume the truth of all material allegations in the complaint (Serrano v. Priest (1971) 5 Cal.3d 584, 591, 96 Cal.Rptr. 601, 487 P.2d 1241), including the allegations of negligence and cause in fact. The only question before this court is whether a cause of action for negligent loss of expected economic advantage may be maintained under these facts.

Liability for negligent conduct may only be imposed where there is a duty of care owed by the defendant to the plaintiff or to a class of which the plaintiff is a member. (Richards v. Stanley (1954) 43 Cal.2d 60, 63, 271 P.2d 23.) A duty of care may arise through statute or by contract. Alternatively, a duty may be premised upon the general character of the activity in which the defendant engaged, the relationship between the parties or even the interdependent nature of human society. (See Valdez v. J. D. Diffenbaugh Co. (1975) 51 Cal.App.3d 494, 505, 124 Cal.Rptr. 467.) Whether a duty is owed is simply a shorthand way of phrasing what is " 'the essential question whether the plaintiff's interests are entitled to legal protection against the defendant's conduct.' " (Dillon v. Legg (1968) 68 Cal.2d 728, 734, 69 Cal.Rptr. 72, 76, 441 P.2d 912, 916, quoting from Prosser, Law of Torts (3d ed. 1964) pp. 332-333. See also Prosser, Law of Torts (4th ed. 1971) pp. 324-327; Fleming, An Introduction to the Law of Torts (1967) pp. 43-50.)

This court has held that a plaintiff's interest in prospective economic advantage may be protected against injury occasioned by negligent as well as intentional conduct. For example, economic losses such as lost earnings or profits are recoverable as part of general damages in a suit for personal injury based on negligence. (Connolly v. Pre-Mixed Concrete Co. (1957) 49 Cal.2d 483, 489, 319 P.2d 343; Neumann v. Bishop (1976) 59 Cal.App.3d 451, 462, 130 Cal.Rptr. 786.) Where negligent conduct causes injury to real or personal property, the plaintiff may recover damages for profits lost during the time necessary to repair or replace the property. (Reynolds v. Bank of America (1959) 53 Cal.2d 49, 50-51, 345 P.2d 926.)

Even when only injury to prospective economic advantage is claimed, recovery is not foreclosed. Where a special relationship exists between the parties, a plaintiff may recover for loss of expected economic advantage through the negligent performance of a contract although the parties were not in contractual privity. Biakanja v. Irving (1958) 49 Cal.2d 647, 320 P.2d 16; Lucas v. Hamm (1961) 56 Cal.2d 583, 15 Cal.Rptr. 821, 364 P.2d 685 and Heyer v. Flaig (1969) 70 Cal.2d 223, 74 Cal.Rptr. 225, 449 P.2d 161 held that intended beneficiaries of wills could sue to recover legacies lost through the negligent preparation of the will. (See also Prosser, Law of Torts (4th ed. 1971) p. 952.)

In each of the above cases, the court determined that defendants owed plaintiffs a duty of care by applying criteria set forth in Biakanja v. Irving, supra, 49 Cal.2d at page 650, 320 P.2d 16. Those criteria are (1) the extent to which the transaction was intended to affect the plaintiff, (2) the foreseeability of harm to the plaintiff, (3) the degree of certainty that the plaintiff suffered injury, (4) the closeness of the connection between the defendant's conduct and the injury suffered, (5) the moral blame attached to the defendant's conduct and (6) the policy of preventing future harm. (See also Connor v. Great Western Sav. & Loan Assn. (1968) 69 Cal.2d 850, 865, 73 Cal.Rptr. 369, 447 P.2d 609.) ¹

Applying these criteria to the facts as pleaded, it is evident that a duty was owed by respondent to appellant in the present case. (1) The contract entered into between respondent and the county was for the renovation of the premises in which appellant maintained its business. The contract could not have been performed without impinging on that business. Thus respondent's performance was intended to, and did, directly affect appellant. (2) Accordingly, it was clearly foreseeable that any significant delay in completing the construction would adversely affect appellant's business beyond the normal disruption associated with such construction. Appellant alleges this fact was repeatedly drawn to respondent's attention. (3) Further, appellant's complaint leaves no doubt that appellant suffered harm since it was unable to operate its business for one month and suffered additional loss of business while the premises were without heat and air conditioning. (4) Appellant has also alleged that delays occasioned by the respondent's conduct were closely connected to, indeed directly caused its injury. (5) In addition, respondent's lack of diligence in the present case was particularly blameworthy since it continued after the probability of damage was drawn directly to respondent's attention. (6) Finally, public policy supports finding a duty of care in the present case. The wilful failure or refusal of a contractor to prosecute a construction project with diligence, where another is injured as a result, has been made grounds for disciplining a licensed contractor. (Bus. & Prof. Code, § 7119.) ² Although this section does not provide a basis for imposing liability where the delay in completing construction is due merely to negligence, it does indicate the seriousness with which the Legislature views unnecessary delays in the completion of construction.

In light of these factors, this court finds that respondent had a duty to complete construction in a manner that would have avoided unnecessary injury to appellant's business, even though the construction contract was with the owner of a building rather than with appellant, the tenant. It is settled that a contractor owes a duty to avoid injury to the person or property of third parties. (See Stewart v. Cox (1961) 55 Cal.2d 857, 862-863, 13 Cal.Rptr. 521, 362 P.2d 345.) As appellant points out, injury to a tenant's business can often result in greater hardship than damage to a tenant's person or property. Where the risk of harm is foreseeable, as it was in the present case, an injury to the plaintiff's economic interests should not go uncompensated merely because it was unaccompanied by any injury to his person or property.

To hold under these facts that a cause of action has been stated for negligent interference with prospective economic advantage is consistent with the recent trend in tort cases. This court has repeatedly eschewed overly rigid common law formulations of duty in favor of allowing compensation for foreseeable injuries caused by a defendant's want of ordinary care. (See, e. g., Dillon v. Legg, supra, 68 Cal.2d at p. 746, 69 Cal.Rptr. 72, 441 P.2d 912 (liability for mother's emotional distress when child killed by defendant's negligence); Rowland v. Christian (1968) 69 Cal.2d 108, 119, 70 Cal.Rptr. 97, 443 P.2d 561 (liability of host for injury to social guest on premises); cf. Brown v. Merlo (1973) 8 Cal.3d 855, 106 Cal.Rptr. 388, 506 P.2d 212 (liability of automobile driver for injury to nonpaying passenger); Rodriguez v. Bethlehem Steel Corp. (1974) 12 Cal.3d 382, 115 Cal.Rptr. 765, 525 P.2d 669 (liability for loss of consortium).) Rather than traditional notions of duty, this court has focused on foreseeability as the key component...