At the Border of Contract and Torts in Construction Disputes | California Construction Law Blog

The trial court agreed and granted the Peter firm’s motion for summary judgment. The Lynchs appealed.

The Appellate Decision

On appeal, the 4th District Court of Appeal noted that on appeal from an order granting summary judgment, the Court conducts “an independent review to determine whether there are triable issues of material fact and whether the moving party is entitled to judgment as a matter of law.” In doing so, stated the Court, “[w]e apply the same standards as the trial court” whereby “the moving party’s evidence is strictly construed and the opposing party’s evidence liberally construed.”

As to the Lynch’s professional negligence claim the Court of Appeals explained:

It is axiomatic that liability for negligence in any scenario must be premised on a duty of care, and “[t]he existence and scope of a defendant’s duty is an issue of law to be decided by the court.” When professional negligence is alleged, the plaintiff must show the defendant had a duty “to use such skill, prudence and diligence as other members of the profession commonly possess and exercise.” In times past, “it was generally accepted that … there was no liability for negligence committed in the performance of a contract in the absence of privity.” However, as our Supreme Court recognized as far back as 1958 in Biakanja [v. Irving, 49 Cal.2d 647 (1958)], “the rule has [since] been greatly liberalized, and the courts have permitted a plaintiff not in privity to recover damages in many situations for the negligent performance of a contract.”

Under Biakanja, courts evaluate six factors to determine whether duty exists absent privity:

1. The extent to which the transaction was intended to affect the plaintiff,

2. The foreseeability of harm,

3. The degree of certainty the plaintiff suffered injury,

4. The closeness of connection between conduct and injury,

5. The moral blame of the conduct,

6. The policy of preventing future harm.

The court emphasized that these factors are context-dependent and may be applied more stringently or flexibly depending on the profession and nature of the harm. For instance, the court contrasted its more guarded approach in auditor liability (Bily v. Arthur Young & Co., 3 Cal.4th 370 (1992)) with the broader duties imposed on construction professionals.

In contrast to auditors, explained the Court of Appeal, “California cases dealing with negligence by construction professionals often take a harder line in general than those in the accounting and audit space”:

Four years before Biakanja, in fact, the state Supreme Court in Gagne v. Bertran (1954) 43 Cal.2d 481 affirmed a judgment against a soils consultant who plaintiff hired to test for fill on a property he was buying for purposes of building an apartment complex. The consultant, who failed to mention he was neither a geologist nor a soils engineer, gave his blessing for plaintiff to begin trenching for the foundation; but upon doing so, it was discovered the fill required a much deeper foundation than originally expected. Our high court’s assessment was scathing. “The services of experts are sought because of their special skill. They have a duty to exercise the ordinary skill and competence of members of their profession, and a failure to discharge that duty will subject them to liability for negligence. Those who hire such persons are not justified in expecting infallibility, but can expect only reasonable care and competence. They purchase service, not insurance.” It went on: “Defendant’s duty of care in performing the soil test was established by his contract with plaintiffs . . . had defendant made his test with due care, he would have discovered the true extent of the fill. . . . Defendant’s repeated assertion that he was not qualified to test for soil fill, contrary to the finding that he so held himself out, and the testimony of his expert witness that laboratory tests were necessary, also indicate that defendant did not exercise the ordinary skill and competence of those in the business of soil testing.

While acknowledging that the parties in Gagne were in contractual privity unlike the Peter firm and the Lynchs, the Court of Appeal nevertheless stated: “[W]e cannot help but note the similarities between Gagne and this case in terms of the faulty work alleged to have been done. Appellant too claims the Peter firm would have been able to render an accurate opinion on the load the soil could bear had it performed an adequate investigation.” “Indeed,” continued the Court, “the language of Gagne supports a duty of care owed by the Peter firm to at least Grover because of their contract. Is it so speculative to think the Peter firm could owe the same duty to the direct and intended beneficiaries of the work to be performed under the contract, i.e., the Lynch[‘]s? We think not.”

As to the limitations contained in the contract between the Peter firm and Grover, the Court of Appeal, citing M. Miller Company v. Dames & Moore, 198 Cal.App.2d 305 (1961), simply stated that “these provisions were not necessarily binding on the [Lynchs].”

On appeal the Peter firm leaned heavily on Weseloh Family Ltd. Partnership, where an engineering firm was found not liable to a property owner for a retaining wall failure. But the Court of Appeal distinguished Weseloh on multiple grounds:

• Weseloh involved a commercial project, while this case concerned a residence—a fundamental distinction that raised the stakes for foreseeability and moral blame.

• Unlike Weseloh, Peter’s report was addressed directly to the homeowners, demonstrating an intent to affect them.

• Peter’s scope exclusions, while extensive, arguably removed the very analyses required to conduct a meaningful inspection.

• Finally, the court pointed out that Peter presented no affirmative evidence showing that its inspection met professional standards.

The Court of Appeal also pointed out that in the 10 years since Weseloh was decided, the California Supreme Court decided Beacon Residential Community Association v. Skidmore, Owings & Merrill LLP, 59 Cal.4th 568 (2014)], finding liability despite a lack of privity: 

Another reason to diverge from Weseloh is because, 10 years after we published the opinion, the state high court handed down Beacon. Albeit a case decided on a demurrer, Beacon looms large because the court was willing to deviate from the Bily line of cases and take a different view of residential construction professionals. In Beacon, the court held a principal architect owes a duty of care to future homeowners of a residential building site, even without any contractual privity. Beacon distinguished Bily‘s policy concerns about limitless liability, and noted that, unlike the audit firm in Bily, the principal architect defendant had “played a lead role not only in designing” the defective homes, “but also in implementing the Project design.” To be sure, Beacon indicates the high court is far more likely to sanction a professional duty of care in residential construction.

Based on these evolving line of cases, held the Court of Appeal, the burden was on the Peter firm to address the Biakanja factors, “which it failed to do.” “Instead,” held the Court, the Peter firm focused on aligning itself with Weseloh and distinguishing itself from Beacon, and its analysis of the factors essentially came down to one phrase: “the $360 contract with Grover Construction was to inspect one footing[.]” “Our analysis,” held the Court, “is quite different.”

The Court of Appeal held that all six Biankanja factors supported the existence of a duty:

• Intent: The report was directed to the Lynchs, not just Grover.

• Foreseeability: Peter knew it was inspecting a home built on potentially unstable soil.

• Injury: The structural damage was real and ongoing.

• Connection: The collapse directly followed Peter’s soil approval.

• Moral blame: Peter disclaimed key duties yet rendered a definitive opinion.

• Public policy: Recognizing a duty promotes careful performance in residential construction.

The Peter firm also contended it could not be liable for nuisance because it was only on the property once. The Court of Appeal disagreed. Under Civil Code § 3479, a nuisance is anything that interferes with the use or enjoyment of property. The Lynchs alleged continuing damage from slope failure –   arguably triggered by Peter’s conduct. Whether Peter’s limited presence absolved it of liability was a factual question the court held should go to a jury.

Conclusion

As most lawyers are aware there is a difference between breach of contract claims and those sounding in tort like negligence or, as in the case, nuisance. While we lawyers consider these to be distinct legal concepts with different focuses and remedies, and they are in fact, the application of these claims to the facts has become more and more blurred particularly as it applies to construction disputes.

The Lynch decision reinforces that construction professionals, particularly in residential settings, can be held liable for negligent services even without a direct contract with the homeowner. While privity remains relevant, it is no longer a shield.

The case also illustrates how standard disclaimers and limitations clauses may not insulate construction professionals from tort claims, particularly where courts find those disclaimers at odds with the professional’s actual role or the foreseeable consequences of their work.

For lawyers—and design professionals—Lynch is a cautionary tale. The boundaries between contract and tort liability are continuing to blur, especially in construction law. And when homeowners suffer tangible harm, courts appear increasingly willing to extend the reach of professional duty to ensure accountability.