S058073, Opinion — Abraham v. T. Henry Construction, Inc.

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Argued and submitted November 8, 2010, decision of Court of Appeals affirmed;
judgment of circuit court reversed, and case remanded to circuit court
for further proceedings March 10, 2011
Richard ABRAHAM
and Janice Abraham,
husband and wife,
as trustees for the
Richard D. Abraham and Janice M. Abraham Trust,
Respondents on Review,
U.

T. HENRY CONSTRUCTION, INC.,
an Oregon corporation;
Stelmen Plastering, Inc.,
an Oregon corporation;
Northwest Gutter Service, Inc.,
an Oregon corporation;
Milgard Manufacturing, Inc.,
a Washington corporation;
Steve Pfenning Construction, Inc.,
an Oregon corporation;
David Farwell,
an individual,

dba David Farwell Masonry and David Oregon Farwell;
One Cut Carpentry, LLC,
fka One Cut Carpentry, Inc.,
aka Herold's Carpentry;
and Maddox Enterprise, Inc.,
an Oregon corporation,
Defendants,
and

Keith A. LUCAS,
an individual, dba Keith Lucas Development Properties,
Petitioner on Review,
and

Kevin G. MAYO,
an individual,
dba KGM Construction,
Petitioner on Review.

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Keith A. LUCAS,
dba Keith Lucas Development Properties,
Third-Party Plaintiff,
U.
ENERGY PRODUCTS, INC.,
an Oregon corporation,
dba NW Builders Wholesale;
Ronald L. Hardy,
dba Hardy Plumbing & Heating;
JB Insulation, Inc.,
an Oregon corporation;
Kirk's Construction Unlimited,
an Oregon corporation;
Milwaukie Plumbing Co.,
an Oregon corporation,
dba MP Plumbing Co .;
Tom Pacheco,
fka Tom D. Pacheco Masonry;
and Mel Wielrich,
Third-Party Defendants.
(CC CV06060031; CA A136228;
SC S058073 (Control), S058101)
249 P3d 534

Plaintiffs hired defendants to build their house and later discovered property
damage resulting from defendants' alleged construction defects. Plaintiffs brought
an action alleging breach of contract and negligence. Held: As between contracting
parties, a negligence claim for property damage that would exist in the absence of
the contract will continue to exist unless the parties define their respective obliga-
tions and remedies in the contract to limit or foreclose such a claim.

The decision of the Court of Appeals is affirmed. The judgment of the circuit
court is reversed, and the case is remanded to the circuit court for further
proceedings.

On review from the Court of Appeals .*

Matthew J. Kalmanson, Hoffman, Hart & Wagner, LLP,
Portland, argued the cause for petitioners on review and filed
the briefs for petitioner on review Keith A. Lucas. With him
on the briefs was Janet M. Schroer. Kenneth L. Walhood,

\* Appeal from Clackamas County Circuit Court, Robert D. Herndon, Judge.
230 Or App 564, 217 P3d 212 (2009).

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Blunck & Walhood, LLC, West Linn, filed the briefs for peti-
tioner on review Kevin G. Mayo.

Maureen Leonard, Portland, argued the cause and filed
the brief for respondents on review. With her on the brief
were Robert K. Udziela, Portland, and Lisa T. Hunt,
Portland.

Cody Hoesly, Larkins Vacura LLP, Portland, and Travis
Eiva, Corson & Johnson Law Firm, Eugene, filed the brief for
amicus curiae Oregon Trial Lawyers Association.

Jon Chandler, Salem, filed the brief for amici curiae
Oregon Home Builders Association and The National
Association of Home Builders.

Before De Muniz, Chief Justice, and Durham, Balmer,
Kistler, Walters, and Linder, Justices .**

BALMER, J.

The decision of the Court of Appeals is affirmed. The judg-
ment of the circuit court is reversed, and the case is
remanded to the circuit court for further proceedings.

** Gillette, J., retired December 31, 2010, and did not participate in the deci-
sion of this case. Landau, J., did not participate in the consideration or decision of
this case.

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BALMER, J.

This case requires us to address an issue left open in
Harris v. Suniga, 344 Or 301, 313, 180 P3d 12 (2008):
Whether a claim for property damage arising from construc-
tion defects may lie in tort, in addition to contract, when the
homeowner and builder are in a contractual relationship.
Plaintiffs hired defendants1 to build their house. Plaintiffs
eventually discovered extensive water damage to the house.
Plaintiffs then brought this action for breach of contract and
negligence, alleging that the damage was caused by defen-
dants' faulty work and failure to comply with the Oregon
Building Code. Defendants moved for summary judgment on
the grounds that the contract claim was barred by the statute
of limitations and that plaintiffs could not bring a negligence
claim because plaintiffs did not have a "special relationship"
with defendants that implicated a standard of care independ-
ent of the contract. The trial court granted defendants'
motions. On appeal, the Court of Appeals held that plaintiffs'
contract claim was barred by the statute of limitations but
that their negligence claim could go forward because the
building code provided a standard of care independent of the
terms of the contract. Abraham v. T. Henry Construction,
Inc., 230 Or App 564, 217 P3d 212 (2009). We affirm the deci-
sion of the Court of Appeals, although we do so on somewhat
different grounds.

We take the facts from the Court of Appeals opinion
and the summary judgment record. Plaintiffs hired defen-
dant Keith Lucas to be general contractor for the completion
of their house, after substantial work had been done by other
contractors. Plaintiffs signed a contract with Lucas that
required him to perform all work "in a workmanship like
manner and in compliance with all building codes and other
applicable laws." Plaintiffs also contracted with defendant
Kevin Mayo to do the framing for the house.2 Plaintiffs' house
was substantially complete by January 1998. More than six

1 Plaintiffs brought this action as trustees of a trust that owns the house.
Plaintiffs named 11 defendants-other contractors and subcontractors-but only
defendants Lucas and Mayo are parties to this appeal.

2 Plaintiffs' contract with Mayo is not in the record. The parties, however, have
treated that contract as containing the same terms as the Lucas contract, at least
as relevant to the issues on appeal.

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years later, plaintiffs discovered extensive water damage,
including rotting sheathing and framing, which they claim
resulted from defects in defendants' work.3

Plaintiffs filed this action alleging breach of contract
and negligence. Plaintiffs' negligence claim presented three
overlapping grounds for relief. Plaintiffs claimed that defen-
dants were liable (1) under common law negligence for caus-
ing reasonably foreseeable harm to plaintiffs' property;
(2) under a heightened standard of care created by the "spe-
cial relationship" between plaintiffs and defendants, which
defendants had failed to meet; and (3) under a theory of neg-
ligence per se for violating the building code. Plaintiffs sought
money damages for the physical damage to the house, as well
as for its diminution in value. Defendants moved for sum-
mary judgment, arguing that plaintiffs' contract claim was
barred by the six-year statute of limitations contained in
ORS 12.080(1). Regarding each of plaintiffs' negligence theo-
ries, defendants argued that a "special relationship"-such
as the one between a doctor and a patient or an attorney and
a client-was required to bring a tort claim and that plain-
tiffs had failed to demonstrate that such a relationship
existed. In a letter opinion, the trial court held that plaintiffs'
contract claim was barred by the statute of limitations. The
court also held that plaintiffs' negligence claim was barred by
Jones v. Emerald Pacific Homes, Inc., 188 Or App 471, 71 P3d
574, rev den, 336 Or 125 (2003), where the Court of Appeals,
on similar facts, required a "special relationship" between the
contracting parties for a plaintiff to bring a negligence claim
and determined that such a relationship did not exist
between a homeowner and a building contractor.

Plaintiffs appealed, and the Court of Appeals
affirmed the trial court's judgment on the contract claim and
reversed on the negligence claim.4 First, the court surveyed

3 The statute of limitations for contract actions is six years. ORS 12.080(1).
Tort claims arising out of the construction of a house must be brought within two
years of the date that the cause of action accrues, but, in any event, within 10 years
of the house being substantially complete. ORS 12.110; ORS 12.135. Tort claims
ordinarily accrue when the plaintiff discovers or should have discovered the injury.
Berry v. Branner, 245 Or 307, 311-12, 421 P2d 996 (1966).

4 Plaintiffs ask this court to review the Court of Appeals decision that plain-
tiffs' contract claims are barred by the statute of limitations. We decline to do so.

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the law governing tort claims between contracting parties
and determined that plaintiffs could not bring a common law
negligence action without establishing a standard of care
independent of the terms of the contract. That standard of
care could arise from a "special relationship" between the
parties or it could be expressed in a statute or administrative
rule. Abraham, 230 Or App at 569. The court stated that,
when a contract imposes only the general obligation to take
reasonable care to avoid foreseeable risks, that standard of
care does not impose a tort duty independent of the contract
and therefore cannot be the basis for a negligence claim. Id.
at 568 n 2 (citing Jones, 188 Or App at 477).

The court then examined whether plaintiffs had
shown that they were in a "special relationship" with defen-
dants that established a standard of care independent of the
contract. The court noted that parties are in a "special rela-
tionship" when one party delegates to the other the authority
to make decisions for her benefit, such as a client's relation-
ship with her attorney. The court determined that plaintiffs
had not established that they had delegated responsibility to
defendants to make independent decisions on behalf of plain-
tiffs and in plaintiffs' interest. Rather, plaintiffs had entered
into an arm's-length transaction with defendants in which
each party acted for its own benefit. Id. at 572. Accordingly,
the Court of Appeals agreed with the trial court that plain-
tiffs and defendants were not in the kind of "special relation-
ship" that imposed on defendants a heightened duty, the
breach of which could be the basis for a tort action.

The Court of Appeals, however, did agree with plain-
tiffs that a statute or administrative rule could establish a
standard of care independent of the contract and that plain-
tiffs' allegations that defendants had failed to comply with
the building code, thereby causing damage to plaintiffs' prop-
erty, were sufficient to state a negligence claim under that
theory.5 Id. at 573. The court also held that plaintiffs had

5 Plaintiffs characterized their claim based on defendants' failure to comply
with applicable building codes as "negligence per se." As the Court of Appeals cor-
rectly noted, however, negligence per se is not a separate claim for relief, but is sim-
ply shorthand for a negligence claim in which the standard of care is expressed by
a statute or rule. See Shahtout v. Emco Garbage Co., 298 Or 598, 601, 695 P2d 897
(1985) (so stating).

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demonstrated that there was a genuine issue of material fact
by providing an affidavit from their counsel stating that she
had retained experts who would testify in support of the fore-
going allegations. The Court of Appeals therefore reversed
summary judgment on plaintiffs' tort claim and remanded
the case to the trial court.

On review, defendants argue that the Court of
Appeals erred by holding that the building code created a
standard of care independent of the contract between the
parties.6 In defendants' view, a party to a contract may bring
a tort claim arising out of the breach of that contract only
when the parties are in a "special relationship" that impli-
cates a standard of care independent of the terms of the con-
tract. For the reasons set out below, we conclude that neither
a special relationship nor a statutory standard of care, such
as the building code, is necessary to bring a negligence claim
here. In our view, plaintiffs stated a common law negligence
claim based on defendants' alleged failure to exercise reason-
able care to avoid foreseeable harm to plaintiffs' property.
That negligence claim is not foreclosed by their contract with
defendants, because the terms of the contract do not purport
to alter or eliminate defendants' liability for the property
damage plaintiffs claim to have suffered.

This case requires us to examine the circumstances
in which harm to a person's property, caused by another, may
be the basis for a contract claim or a tort claim-or both. Con-
tract obligations are "'based on the manifested intention of
the parties to a bargaining transaction,'" whereas tort obli-
gations are " 'imposed by law-apart from and independent
of promises made and therefore apart from the manifested
intention of the parties-to avoid injury to others.'" Conway
v. Pacific University, 324 Or 231, 237, 924 P2d 818 (1996)
(quoting Prosser and Keeton on the Law of Torts, § 92, 655-56
(W. Page Keeton, ed., 5th ed 1984) (emphasis in Conway).
Because tort liability is imposed by common law negligence

6 Defendant Lucas also argues that the Court of Appeals erred in holding that
the affidavit submitted by plaintiffs' counsel was sufficient to establish a genuine
issue of material fact and therefore preclude summary judgment. We reject that
argument without discussion.

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principles, that responsibility exists unless altered or elimi-
nated by a contract or some other source of law. In Fazzolari
v. Portland School Dist. No. 1J, 303 Or 1, 734 P2d 1326
(1987), this court made that point with respect to common
law negligence:

"[U]nless the parties invoke a status, a relationship, or a
particular standard of conduct that creates, defines, or lim-
its the defendant's duty, the issue of liability for harm actu-
ally resulting from defendant's conduct properly depends
on whether that conduct unreasonably created a foreseea-
ble risk to a protected interest of the kind of harm that
befell the plaintiff."

Id. at 17. Thus, Fazzolari lays out a framework to address
whether a common law negligence claim is legally cognizable
even when there is a contractual relationship between the
parties. In answering that question, we first consider
whether plaintiffs alleged that defendants unreasonably cre-
ated a foreseeable risk of harm to a protected interest, result-
ing in injury to plaintiffs. If so, we must determine whether
the contract between the parties altered or eliminated defen-
dants' common law duty to avoid harming plaintiffs. If it did
not, then the contract does not bar plaintiffs from bringing a
negligence action against defendants.

Plaintiffs assert that contractors are subject to the
common law negligence standard of care. See Harris, 344 Or
at 307 ("[A] person whose negligent conduct unreasonably
creates a foreseeable risk of harm to others and causes injury
to another ordinarily is liable in damages for that injury."). In
Harris, the defendant contractor had built an apartment
building for a third party, which the plaintiff later purchased.
The plaintiff discovered extensive water damage caused by
the defendant's faulty work and brought a negligence claim.
This court concluded that physical injury to a building caused
by construction defects was property damage, rather than a
purely economic loss, and thus actionable in negligence. Id.
at 312.

Defendants do not dispute that plaintiffs' alleged
injury is property damage and not a purely economic loss.
Defendants, however, assert that Harris has no bearing on
the present case because the parties in that case were not in

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a contractual relationship. Although we agree that one differ-
ence between Harris and this case is plaintiffs' contract with
defendants, that difference simply means that Harris is not
dispositive; it does not make Harris irrelevant. Harris pro-
vides at least some support for plaintiffs' argument, because
in that case this court recognized a negligence claim against
a builder for the same type of injury alleged by plaintiffs-
damage to property resulting from construction defects.
Because Harris recognized the same sort of negligence claim
that plaintiffs now allege, under Fazzolari, the question here
is whether plaintiffs' contract with defendants "creates,
defines, or limits" that negligence claim.

The contract's reference to performing the work "in a
workmanship like manner and in compliance with all build-
ing codes and other applicable laws" simply reiterated the
common law negligence standard that would have applied to
defendants' work in the absence of a contract. It did not "cre-
ate" or "define" any duty defendants did not already have.
The question then is whether that reference "limited" plain-
tiffs' claims against defendants.

Nothing in this court's cases suggests that, by enter-
ing into a contract, a party necessarily waives tort claims
against another party to the contract. See Estey v. Mackenzie
Engineering Inc., 324 Or 372, 376, 927 P2d 86 (1996) (" '[A]
contract will not be construed to provide immunity from the
consequences of a party's own negligence unless that inten-
tion is clearly and unequivocally expressed.'") (quoting
Transamerica Ins. Co. v. U.S. Nat'l Bank, 276 Or 945, 951,
558 P2d 328 (1976)). Indeed, this court has long recognized
that tort and contract remedies may coexist. See Ashmun v.
Nichols, 92 Or 223, 235, 180 P 510 (1919) (so stating);
Newman v. Tualatin Development Co. Inc., 287 Or 47, 49, 597
P2d 800 (1979) (certifying class action against contractor by
plaintiffs alleging contract and tort claims arising from con-
struction defects). In Georgetown Realty v. The Home Ins.
Co., 313 Or 97, 831 P2d 7 (1992), this court summarized the
case law discussing the choice between tort and contract
remedies:

"When the relationship involved is between contracting
parties, and the gravamen of the complaint is that one

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party caused damage to the other by negligently perform-
ing its obligations under the contract, then, and even
though the relationship between the parties arises out of the
contract, the injured party may bring a claim for negligence
if the other party is subject to a standard of care independent
of the terms of the contract. If the plaintiff's claim is based
solely on a breach of a provision in the contract, which itself
spells out the party's obligation, then the remedy normally
will be only in contract, with contract measures of damages
and contract statutes of limitation. That is so whether the
breach of contract was negligent, intentional, or otherwise."

# Id. at 106 (emphasis added).

The parties disagree as to whether Georgetown
allows common law negligence principles to provide the
"independent standard of care" that must be identified for
one party to bring a tort claim against the other, when the
parties are in a contractual relationship. In defendants' view,
Georgetown requires a "special relationship" to exist between
contracting parties before the negligent performance of con-
tract obligations can be the basis for a tort claim. According to
defendants, it is the nature of the relationship between the
parties-such as the responsibility of one party to act for the
other's benefit-that implicates an independent standard of
care. Plaintiffs respond that Georgetown requires only that
there be some applicable standard of care independent of the
terms of the contract, and they argue that such a standard
can derive from a "special relationship" or from some other
source of law, including the common law duty to use reason-
able care to avoid injury to others.

Defendants read Georgetown too broadly. Georgetown
was a negligence action by an insured against its insurance
carrier seeking economic damages that the insured had sus-
tained because of the carrier's failure to use reasonable
care in defending the insured. Because the plaintiff was seek-
ing economic damages, it was required to demonstrate a
special relationship" in which the defendant agreed to act in
the plaintiff's fiduciary interest. Id. at 110-11. However,
Georgetown's general statements about the intersection of
contract and tort claims, quoted above, do not turn on
whether a special relationship exists, but rather require only

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a standard of care that is independent of the terms of the con-
tract. See id. at 110 ("[T]he pivotal question * * * is whether
the allegedly negligent party is subject to a standard of care
independent of the terms of the contract."). That standard
could be "independent" of the contract either because a "spe-
cial relationship" imposes a heightened standard of care (as
in Georgetown) or because the common law, statutes, or
administrative rules impose liability regardless of the con-
tractual relationship between the parties. See Boyer v.
Salomon Smith Barney, 344 Or 583, 595, 188 P3d 233 (2008)
("[O]utside source[s] of law" such as "industry standards,
statutes, or regulations, could * * * provide a basis in law for
liability" in a negligence action.). Furthermore, this court's
case law is clear that economic losses, such as the ones suf-
fered by the plaintiff in Georgetown, are recoverable in neg-
ligence only if the defendant is subject to a heightened stan-
dard of care, such as one arising out of a special relationship.
See, e.g., Onita Pacific Corp. v. Trustees of Bronson, 315 Or
149, 160-61, 843 P2d 890 (1992) (so holding). For physical
damage to real property, however, "this court's cases gener-
ally permit a property owner to recover in negligence."
Harris, 344 Or at 310-11.

For those reasons, we agree with plaintiffs that
Georgetown and earlier cases support the conclusion that
common law negligence principles apply-notwithstanding a
contractual relationship-as long as the property damage for
which the plaintiff seeks recovery was a reasonably foresee-
able result of the defendant's conduct. Thus, a negligence
claim for personal injury or property damage that would exist
in the absence of a contract will continue to exist unless the
parties define their respective obligations and remedies in
the contract to limit or foreclose such a claim. Parties may
limit tort remedies by defining their obligations in such a way
that the common law standard of care has been supplanted,
see Fazzolari, 303 Or at 17 (so stating), or, in some circum-
stances, by contractually limiting or specifying available
remedies. See K-Lines v. Roberts Motor Co., 273 Or 242, 248,
541 P2d 1376 (1975) (illustrating proposition).

Defendants argue that this approach undermines
the distinction between contract and tort and would permit

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every breach of contract to be brought as a tort claim. Defen-
dants are incorrect. An example will help demonstrate the
difference between actions taken in the performance of a con-
tract that can be the basis for a contract claim only, and those
that may also provide a basis for a tort claim. If an individual
and a contractor enter into a contract to build a house, which
provides that the contractor will install only copper pipe, but
the contractor installs PVC pipe instead (assuming both
kinds of pipe comply with the building code and the use of
either would be consistent with the standard of care expected
of contractors), that failure would be a breach of contract
only.7 That is so because the contract defined the contractor's
obligation to use a particular material (and no other), which
the contractor then failed to do. See Georgetown, 313 Or at
106 (stating principle).8 If the failure to install the copper
pipe caused a reduction in the value of the house, the plaintiff
would be able to recover that amount in an action for breach
of contract. That would be a claim that, as this court stated in
Georgetown, "is based solely on a breach of a provision in the
contract[.]" 313 Or at 106 (emphasis added).

On the other hand, if the contractor installed the
PVC pipe in a defective manner and those pipes therefore
leaked, causing property damage to the house, the home-
owner would have claims in both contract and tort. The
homeowner could recover in contract both for the failure to
install copper pipe and for the failure to perform the contract
in a reasonably skillful manner. See Cabal v. Donnelly, 302
Or 115, 121-22, 727 P2d 111 (1986) (illustrating contract
claim). The homeowner also would have a tort claim for prop-
erty damage to the house caused by the leaking pipes if the
homeowner could prove that the contractor's failure to meet
the standard of care caused the property damage. See id.
(" 'We see no reason to preclude a [home buyer] from claiming

7 In Securities-Intermountain v. Sunset Fuel, 289 Or 243, 259 n 9, 611 P2d 1158
(1980), this court identified other situations in which a breach of contract would not
give rise to tort liability, even in the context of medical malpractice, because the
breach did not "fall[ ] short of generally applicable professional standards of skill
and care."

8 Whether the contractor's failure to install the contractually specified pipe
was intentional or was the result of negligence, the action would, in any event, be
for breach of contract. See Georgetown, 313 Or at 106 (so stating).

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damages [from the home builder] in contract and in tort.'")
(quoting Woodward v. Chirco Construction Co., 141 Ariz 514,
515-16, 687 P2d 1269, 1271 (1984)). In those circumstances,
the obligation to install copper instead of PVC pipe is purely
contractual; the manner of installing the pipe, however,
implicates both contract and tort because of the foreseeable
risk of property damage that can result from improperly
installed pipes.

We now return to the terms of the contract here to
determine whether plaintiffs' claim sounded in common law
negligence and, if so, whether the parties' contract altered or
eliminated defendants' common law obligation to avoid
reasonably foreseeable harm to plaintiffs' property or modi-
fied the remedies available to plaintiffs.

The contract here provides: "All work shall be com-
pleted in a workmanship like manner and in compliance with
all building codes and other applicable laws." The Court of
Appeals apparently viewed that promise as implicitly incor-
porating the common law standard of care into the contract.
In rejecting plaintiffs' argument that common law negligence
principles provide an "independent standard of care," the
court stated, "When a contract expressly or implicitly incor-
porates the general 'duty' to take reasonable measures to
avoid foreseeable risks, that standard of care is not consid-
ered to impose an independent tort duty." Abraham, 230 Or
App at 568 n 2. That determination, however, is inconsistent
with this court's clear statement that if a contract "merely
incorporates by reference or by implication a general stan-
dard of skill and care to which the defendant would be bound
independent of the contract, and the alleged breach would
also be a breach of this noncontractual duty," then a claim for
negligence will lie. Securities-Intermountain v. Sunset Fuel,
289 Or 243, 259, 611 P2d 1158 (1980).

As noted, in the absence of a contractual relation-
ship, defendants here would be subject to a common law neg-
ligence claim by plaintiffs. See Harris, 344 Or at 312 (contrac-
tor liable in negligence to nonprivity owner for property
damage caused by construction defects). By merely reciting
the obligation to build plaintiffs' house in a reasonably skilled
manner and in accordance with the building code-and, by

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implication, in such a way as to avoid foreseeable harm to
plaintiff-defendants did nothing to supplant the common
law standard of care. Nor did the terms of the contract pur-
port to limit the type or amount of plaintiffs' damages. See
Estey, 324 Or at 376 (tort remedies not waived absent express
intent). Common law negligence principles remain an appli-
cable standard of care, independent of the terms of the
contract.

For the foregoing reasons, we conclude that plain-
tiffs' allegations of property damage against defendants state
a claim for negligence.

The decision of the Court of Appeals is affirmed. The
judgment of the circuit court is reversed, and the case is
remanded to the circuit court for further proceedings.