## Facts

- J’Aire Corporation operated a restaurant at the Sonoma County Airport under a lease from the County of Sonoma.
- The lease required the County to provide heating and air conditioning for the premises.
- The County hired contractor Craig A. Gregory to improve the restaurant premises, including renovation of the heating and air-conditioning systems and installation of insulation.
- The construction contract did not set a completion date; J’Aire alleged the work therefore had to be completed within a reasonable time.
- J’Aire alleged Gregory failed to complete the work with due diligence despite repeated requests, causing periods when the restaurant could not operate and longer periods without heat and air conditioning.
- J’Aire claimed resulting economic damages, including loss of business and lost profits.
- J’Aire sued Gregory asserting (1) a third-party beneficiary contract theory and (2) a negligence claim seeking economic loss damages.
- The trial court sustained Gregory’s demurrer without leave to amend and dismissed the action; on appeal, J’Aire challenged only dismissal of the negligence cause of action.

## Issues

1. Whether a contractor who contracts with a property owner owes a duty in negligence to a noncontracting lessee for foreseeable business losses caused by negligent delay in completing the work.
2. Whether purely economic losses (lost profits) may be recovered in negligence absent physical injury or property damage when the harm is direct and foreseeable.

## Decision

- The California Supreme Court reversed the dismissal and held the complaint stated a cause of action for negligence.
- The Court held a contractor may owe a duty of care to a lessee whose economic interests are foreseeably and directly affected by the contractor’s performance.
- The case was remanded for further proceedings on the negligence claim.

## Legal Principles

- Duty in negligence is determined largely by foreseeability and the relationship between the parties, not solely by contractual privity.
- Purely economic damages may be recoverable in negligence when the injury is sufficiently certain and not remote, speculative, or contingent.
- Whether to impose tort liability for negligent performance of a contract affecting a third party depends on a multi-factor test considering:
  - the extent the transaction was intended to affect the plaintiff;
  - the foreseeability of harm to the plaintiff;
  - the degree of certainty the plaintiff suffered injury;
  - the closeness of the connection between the defendant’s conduct and the injury;
  - the moral blame attached to the defendant’s conduct; and
  - the policy of preventing future harm.
- Negligent performance of a contractual undertaking can support tort liability to nonparties when the defendant’s work is directed at premises or operations in a manner that makes third-party economic harm predictable and direct.

## Conclusion

The court recognized a negligence claim for a lessee’s lost profits against a contractor hired by the lessor, holding that foreseeable and direct economic harm can support a duty of care under a six-factor analysis even without physical injury or property damage.


J’Aire Corp. v. Gregory, 24 Cal. 3d 799 (1979)