J'Aire Corp. v. Gregory

Supreme Court of California · Torts

TortsNegligenceEconomic lossDutynegligenceeconomic lossprospective economic advantageduty of care

Facts

J'Aire Corporation operated a restaurant in premises leased from Sonoma County, and under the lease the county was to provide heat and air conditioning. The county contracted with Gregory, a general contractor, to improve the restaurant premises, including renovating the heating and air conditioning systems and installing insulation. J'Aire alleged that although the contract had no completion date, the work was required to be completed within a reasonable time, and despite repeated requests for prompt completion, Gregory did not finish within a reasonable time. J'Aire alleged that the restaurant could not operate during part of the construction and lacked heat and air conditioning for a longer period, causing loss of business and profits.

Issue

Whether a contractor performing construction work under a contract with a property owner may be liable in tort to the owner's lessee for business losses when the contractor negligently fails to complete the work with due diligence. More specifically, the question was whether the complaint stated a cause of action for negligent loss of expected economic advantage.

Rule

A contractor owes a duty of care to a tenant of a building undergoing construction to prosecute the work in a manner that does not cause undue injury to the tenant's business where such injury is reasonably foreseeable. In determining duty for negligent interference with prospective economic advantage absent privity, courts apply the Biakanja criteria: (1) the extent to which the transaction was intended to affect the plaintiff, (2) foreseeability of harm, (3) certainty of injury, (4) closeness of the connection between the conduct and the injury, (5) moral blame, and (6) the policy of preventing future harm. Recovery is limited to cases where the harm is foreseeable and closely connected to the defendant's conduct, damages are not wholly speculative, and the injury is not part of the plaintiff's ordinary business risk.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Sacramento, Olivia Chen leases a bakery space in a municipal market. The market owner hires Sierra Forge Builders to replace the bakery’s ventilation and electrical systems, and the contractor repeatedly ignores requests to finish on schedule even after Olivia warns that prolonged closures will wipe out her holiday sales; the bakery closes for three weeks and loses documented orders.

If Olivia sues Sierra Forge Builders in negligence for lost profits, which is the strongest argument that the contractor owed her a duty despite the absence of privity?

Explanation. The majority held that a contractor may owe a tort duty to a tenant for foreseeable business losses caused by negligent delay when the Biakanja factors support duty. Here, the work was on the very premises Olivia used, the delay foreseeably harmed her business, the injury is concrete, and the connection is direct. The opinion rejected both an absolute privity requirement and an absolute bar on negligent economic-loss recovery. (Derived from J'Aire Corp. v. Gregory (n.d.).)