J'Aire Corp. v. Gregory

In J'Aire Corp. v. Gregory (1979) 24 Cal.3d 799. the plaintiff alleged it ran a restaurant on premises leased from Sonoma County. The county contracted with the defendant for the latter to renovate the heating and air conditioning systems. Defendant negligently performed the contract in that the work was not completed in a reasonable time and appellant suffered loss of business. A demurrer was sustained by the trial court. ( Id., at pp. 802-803.) The Supreme Court reversed the judgment of dismissal. In doing so the court held that though no privity of contract existed between the contractor and the lessee-restaurant owner, the contractor owed a duty to the lessee and the lessee could recover from the contractor for loss of prospective economic advantage in the form of lost profits caused by negligent delay in completion of the contract. ( Id., at pp. 804-805.) The court noted that focusing judicial attention "on the foreseeability of the injury and the nexus between the defendant's conduct and the plaintiff's injury" by applying the factors set forth in the landmark case of Biakanja v. Irving (1958) 49 Cal.2d 647 320 P.2d 16, 65 A.L.R.2d 1358 would effectively limit recovery for negligent interference with prospective economic advantage to situations where a duty of care was reasonably owed and breached. ( J'Aire Corp. v. Gregory, supra, 24 Cal.3d at p. 808.) The California Supreme Court recognized a cause of action for negligent interference with prospective economic advantage in those cases "where the risk of harm is foreseeable and is closely connected with the defendant's conduct, where damages are not wholly speculative and the injury is not part of the plaintiff's ordinary business risk." There, the court permitted the operator of a restaurant, which was leasing the premises from the County, to state a cause of action for negligent interference against a contractor hired by the County to improve the restaurant's premises where the contractor "failed to complete the project with due diligence" and the restaurant operator suffered a corresponding loss of profits. (24 Cal.3d at pp. 802, 804-805.) The court in J'Aire reasoned that "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." ( Id. at p. 804.) According to the court, whether such a special relationship exists depends on the following factors: (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. (Ibid.) The question before the court was whether plaintiff could maintain a cause of action for negligent loss of expected economic advantage. ( J'Aire Corp. v. Gregory, supra, 24 Cal.3d at p. 803.) The court noted that liability for negligence may be imposed only when there is a duty of care owed by the defendant to the plaintiff. (Ibid.) Such a duty may be imposed by statute or by contract. (Ibid.) In the alternative, a duty may be imposed based "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. 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."' " (Ibid.) Where the claimed damage is economic only, e.g., a loss of expected economic advantage, without doubt liability may be imposed based on a breach of contract. Moreover, even in the absence of contractual privity, such liability may be imposed on the basis of a special relationship between the parties, creating a duty of care. ( J'Aire Corp. v. Gregory, supra, 24 Cal.3d at p. 804.) The factors to be considered in determining whether a special relationship creating a duty of care exists 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." (Ibid.) Analyzing these factors, the Supreme Court concluded a duty of care should be imposed on defendant. ( J'Aire Corp. v. Gregory, supra, 24 Cal.3d at pp. 804, 808.) The defendant's renovation of the heating could not be completed without affecting plaintiff's business. This made it foreseeable that delay in completing the renovation would harm the business. Plaintiff alleged a loss of business due to the lack of heating and air conditioning, caused by defendant's delay in the renovation. Defendant's conduct was blameworthy, in that it continued to delay even after it became aware of the likelihood of damage. Finally, the court concluded, public policy supported the imposition of a duty, in that, by statute, the willful failure of a contractor to proceed with diligence causing injury to another is grounds for discipline. This demonstrated "the seriousness with which the Legislature views unnecessary delays in the completion of construction." ( Id. at pp. 804-805.) The Court held that a lessee restaurant operator could recover for business losses suffered when a contractor negligently delayed completion of a construction project, even though the construction contract was with the building owner, not the restaurant operator. The court reasoned that the contractor had a duty to complete the construction without unnecessary injury to the plaintiff's business and, hence, a cause of action existed for negligent interference with prospective economic advantage. (J'Aire, supra, 24 Cal.3d at p. 805.) In so holding, the court distinguished Fifield Manor v. Finston (1960), pointing out that Fifield involved a different tort: "Respondent cites Fifield . . . for the proposition that recovery may not be had for negligent loss of prospective economic advantage. Fifield concerned the parallel tort of interference with contractual relations . . . . The critical factor of foreseeability distinguishes Fifield from the present case. . . . The nexus between the defendant's conduct and the risk of the injury that occurred to the plaintiff in Fifield was too tenuous to support the imposition of a duty owing to the retirement home. " ( J'Aire, supra, at pp. 806-807.) In sum in J'Aire Corp. v. Gregory, the court had before it the claim of a plaintiff lessee who had no contractual relationship with the defendant contractor hired by the lessor but whose injury from the defendant's negligence was reasonably foreseeable. The plaintiff sued the defendant for damages resulting from the delay in completion of a construction remodel of the leased premises at the Sonoma County Airport where the plaintiff operated its restaurant. The plaintiff's lessor, the County of Sonoma, had entered into a construction contract with the defendant to make certain improvements to the restaurant premises. The contract did not specify a completion date and thus the defendant contractor was required to complete it within a reasonable time. He negligently failed to do so and, as a result, the plaintiff suffered a loss of business and profits. The plaintiff filed suit alleging that the defendant was liable to the plaintiff for the negligent performance of his contract with the lessor. Applying the Biakanja factors, the court held that these circumstances established a "special relationship" between the plaintiff and the defendant and, even though they were not in contractual privity, the defendant did owe the plaintiff a duty of care. ( Id. at pp. 803-804.)