### No.81-159 IN THE SUPREME COURT OF THE STATE OF MONTANA 1981

GLENN HAWTHORNE,d/b/a HAWTHORNE STEEL et al., Plaintiff and Appellant,

KOBER CONSTRUCTION COMPANY, INC., et al., Defendant and Respondent.

Appeal from: District Court of the Thirteenth Judicial District, In and for the County of Yellowstone Honorable William J. 

### Speare, Judge presiding. Counsel of Record: For Appellant: Jardine, Stephenson,Blewett & 

### Weaver, Great Falls,

Montana Jack Lewis argued, Great Falls,Montana For Respondent: Crowley, Haughey, Hanson, Toole & 

### Dietrich, Billings,

Montana Cynthia Ford argued, Billints, Montana Cebull & 

### Jones,Billings,Montana

Submitted: December 4, 

### 1981 Decided:cB 

### If 

### p~ +I# ;.r. 

# .3 'I!'! 

### Filed:Mr. Justice Frank B. Morrison, Jr., delivered the Opinion of the Court.

This action

### was institutedby Glenn Hawthorne, d/b/a Hawthorne Steel (Hawthorne), against the prime contractor Kober Construction Co., Inc. (Kober) and against PittsburghDesMoines SteelCompany (PDM), a steel supplier. The trial court entered partial summary judgment against Hawthorne and infavor of PDM. Hawthorne appeals following certification by the trial court that the order was an appealable one. Kober contracted tobuild theMetra building inBillings, Montana, and on January 2, 1974, entered into a contract with PDM by which PDM agreed to furnish 

### steel for the construction of the building. On January 11, 1974, Kober entered into a subcontractwith Hawthorne by which Hawthorne agreed to 

### erect the steel. On March 25, 1974, Hawthorne and his son, Jack, 

### met with officials of PDM inDes Moine, Iowa, todiscuss arrangements for the delivery of steel. A delivery date for the steel

was not specifically discussed atthismeeting, but a delivery date of May 1, 1974, had been discussed between the parties

on prior occasions. Hawthorne, by affidavit, stated that he mobilized his employees tocommence erection of structural steel inJune, 1974. On March 

### 4, 1974, PDM had received a directive from the United States Government to ship steel to the government on

orbefore April 17, 1974. The contract existing between PDM and the United States for the delivery of steelpre-existed the contractbetween Kober and Hawthorne. Hawthorne was not told of the contract's existence. PDM did not deliver steel inMay or June of 1974, and

on August 9, 1974, PDM acknowledged by letter to~oberConstruction that it was having schedule problems inmeeting 

### its commitments tocustomers because of the directive it had received from the United States Government on March 

### 4, 1974. Apparently Kober did not transmit this information toHawthorne. It was not until the latter part of October, 1974, that Hawthorne received any shipments and then, according to Hawthorne, 

### it did not receive the steel shipments in the sequence promised by PDM. On June 2, 1975, Hawthorne attended a meeting inBillings, atwhich PDM's representative was in attendance. Atthis 

### time, Hawthorne was shown the directive from the United States Government issued toPDM. Hawthorne's affidavit, which forpurposes of summary judgment, would have tobe taken as true, provided: "At no time during our meeting with Mr. Davis inMarch, 1974, did he make any mention of the directive 

### letter from the U.S. Department of Commerce; atno time was I or anyone inmy business advised of the directive letter from the U.S. Department of Commerce until the meeting I attended with Mr. Davis inBillings, Montana, on or about June 2, 1975." By way of complaint filed inthe DistrictCourt, Hawthorne alleged that the delay indelivery of steelcaused him tobe unable to finishhis work until about January of 1976. He alleged that as a consequence of the delay sustained, he suffered financial losses. PDM did not dispute that it failed todeliver steel. PDM alleged that 

### it had no contractual relationship with Hawthorne and because of the lack of privity, Hawthorne could not maintain an action against PDM. The trial court agreed and partial summary judgment in favor of PDM resulted. The following issues arepresented on appeal: (1) Can Hawthorne maintain an action against PDM based upon negligence?(2) If privity of contract 

### is required, did Hawthorne have privity with PDM on the basis of their interaction? (3) Can Hawthorne prevail on the basis of implied or quasi-contract? (4) 

### Is the action barred by the statuteof limitations? We hold thatprivity of contract is not required to maintain an action grounded innegligence. Therefore, we need not discuss a contention thatprivity existed or that this action can be maintained on the basis of implied or quasi-contract. further find that the action is not barred by the statuteof limitations. The principle issue tobe determined iswhether Hawthorne

can maintain an action for negligence inthe performance of duties growing out of contract, where no privity of contract existed. Wehave examined the authorities and find a division toexist. The California Supreme Court resolved a similar question indetermining whether a contractor who undertook construction work pursuant toa contractwith an owner of premises, could be held liable in tort forbusiness losses sufferedby a lessee where the lessee alleged the contractor negligently failed tocomplete the project with due diligence. In J'Aire Corporation v. Gregory (1979), 157 Cal.Rptr. 407, 598 P.2d 60, the California Supreme Court said: 

# ".

. .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." The Oregon Supreme Court has denied recovery on the basis of lack of privity. InMandal v. Hoffman Construction Co. (1974), 270 Or. 248, 527 P.2d 387, the 

### City of Salem had contracted with a landscaping firmwhich inturn sub-contractedthework tothe plaintiff. In a totally separate contract, the cityhired the defendant to do 

### site development work. The plaintiff subcontractor alleged thatbecause of negligence

on the part of the 

### sitedeveloper, plaintiff was unable to complete 

### itswork within prescribed 

### time and thereby suffered damage. In deciding for defendant, the Oregon Supreme Court said: "The question is whether non-intentional conduct of thisnature 

### willconstitute a breach of duty, within the framework of the law of torts, toa person in the position of plaintiff inthis case. We hold that there 

### is no such duty where the only negligence charged 

### is the failure toperform a contract with a thirdparty." The philosophy of the Oregon court was, atone 

### time, the established rule. There 

### is a trend of authority, represented by the California Supreme Court, moving away from privity as a requirement inthis type of action. This Courtwas a pioneer inabolishing privity asa requirement for recovery ina personal injury orwrongful death case. Brandenburger v. Toyota (1973), 162Mont. 506, 513 P.2d 268. Wehave not feltpermanently bound to archaic legal concepts no matter how deeply rooted they may be. We view privity tobe a concept having proper application in the area of contract law. There 

### seems tobe no sound public policy argument for extending 

### its application to tort. Plaintiff's action sounds in tort. The action 

### is one for negligence inthe performance of a contractual duty. With respect to such an actionProfessor Prosser, Law of Torts, 4th Ed., Section 93, says: 

# ".

.

# . by entering into a contract with A, the defendant may place himself in such a relation toward B that the law willimpose upon him an obligation, sounding in tort and not incontract, to actin such a waythat B willnot be injured. The incidental factof the existence of the contract with A does not negative the responsibility of the actorwhen he enters upon a course of affirmative conduct which may be expected toaffect the interests of another person. 

# ".

. . there are situations inwhich themaking of the contract creates a relation between the defendant and the promisee, which 

### is sufficientto impose a tortduty of reasonable care. By the same token, there are situations inwhich themaking of a contract with A may create a relation between the defendant and B, which willcreate a similar duty toward B, and may result in liability for failure to act." The facts of this case speak strongly infavor of adopting the rule enunciated by Prosser. A 

### trier of fact could determine, from the record before the trial court here, that PDM had reason toknow that Hawthorne was relying upon PDM todeliver steel for erection inJune of 1974. Likewise, that trier of fact could find that PDM could foresee damage to Hawthorne arising from failure of PDM to honor 

### its contract commitment to Kober. Thus, toparaphrase Prossor, by entering into a contractwith Kober, PDM has placed itself in such a relation toward Hawthorne, that the law 

### willimpose upon PDM an obligation, sounding intort, to act in such a way thatHawthorne 

### willnot be injured. Wedo not intend to indicate a breach of duty on the part of PDM. If there arematerial issues of genuine fact, those factsmust be determined. We simply hold that, viewing the facts ina lightmost favorable to Hawthorne, against whom summary judgment was entered, a sufficient case is presented toforeclose the entry of summary judgment. This case isgoverned by the three year statuteof limitations applicable tonegligence cases. Section 27-2- 202(3), MCA. Hawthorne's claim for negligence 

### is rooted inthe failure of PDM tohonor a contract commitment for the delivery 

### of steel inMay of 1974. The statute of limitations could not run before that time. Hawthorne's complaint was filed inApril of 1977, within the three year period of limitations. Accordingly, it 

### was timely. Partial summary judgment in favor of Pittsburgh-Des Moines SteelCompany 

### isvacated. The cause is remanded to the

### District Court toproceed

WeConcur:

Chief Justice -