Filed: March 10, 2011

IN THE SUPREME COURT OF THE STATE OF OREGON

RICHARD ABRAHAM
and JANICE ABRAHAM,
husband and wife,
as trustees for the
Richard D. Abraham and Janice M. Abraham Trust,

Respondents on Review,

v.

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.

KEITH A. LUCAS,
dba Keith Lucas Development Properties,

Third-Party Plaintiff,

v.

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)

On review from the Court of Appeals.*

Argued and submitted November 8, 2010.

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, Blunck & Walhood, LLC, West Linn, filed the briefs for petitioner 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 judgment of the circuit court is reversed, and the case is remanded to the circuit court for further proceedings.

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

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

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 construction defects may lie in tort, in addition to contract, when the homeowner and builder are in a contractual relationship. Plaintiffs hired defendants(1) 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 defendants' 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 independent 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 decision 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 defendant 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 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 defendants were liable (1) under common law negligence for causing reasonably foreseeable harm to plaintiffs' property; (2) under a heightened standard of care created by the "special relationship" between plaintiffs and defendants, which defendants had failed to meet; and (3) under a theory of negligence 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 summary 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 theories, 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 plaintiffs 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 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 defendants that established a standard of care independent of the contract. The court noted that parties are in a "special relationship" when one party delegates to the other the authority to make decisions for her benefit, such as a client's relationship 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 plaintiffs 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 plaintiffs and defendants were not in the kind of "special relationship" 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 plaintiffs that a statute or administrative rule could establish a standard of care independent of the contract and that plaintiffs' allegations that defendants had failed to comply with the building code, thereby causing damage to plaintiffs' property, were sufficient to state a negligence claim under that theory.(5) Id. at 573. The court also held that plaintiffs had 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 foregoing 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 implicates a standard of care independent of the terms of the contract. 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 reasonable 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. Contract obligations are "'based on the manifested intention of the parties to a bargaining transaction,'" whereas tort obligations 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,