Present: All the Justices
DUNN CONSTRUCTION COMPANY, INC., ET AL.
OPINION BY
v. Record No. 081741 JUSTICE LAWRENCE L. KOONTZ, JR.
September 18, 2009
RICHARD M. CLONEY
FROM THE CIRCUIT COURT OF MECKLENBURG COUNTY
Leslie M. Osborn, Judge
This appeal arises from a contract dispute between a
building contractor and a property owner involving the
construction of a new house. During the construction of the
house the contractor made allegedly fraudulent representations
concerning certain repairs made by the contractor to the
foundation wall of the house. Ultimately at the trial of the
case, in addition to a breach of contract claim, the circuit
court permitted the property owner’s claim for compensatory
and punitive damages based on fraud to be submitted to the
jury. The dispositive issue we consider with regard to the
jury’s award of punitive damages is whether the fraudulent
representations arose out of the contract or constituted an
independent tortious breach of a common law duty.
BACKGROUND
On September 12, 2005, Billy G. Dunn, part owner and as
president of Dunn Construction Company, Inc. (collectively,
“Dunn”), and Richard M. Cloney entered into a contract for the
partial construction of a house in Mecklenburg County for
$172,106. Dunn was to perform all of the major construction,
leaving some of the interior finishing to be done by Cloney or
another contractor. The contract stated that “[a]ll work
[was] to be completed in a workmanlike manner according to
standard practices.” The contract further stated that because
Dunn was not completing the house, only a partial certificate
of occupancy permit could be obtained when the contract was
completed. The contract provided a schedule of specific
progress payments and further provided that “any balance left
on this contract will be paid” when the work specified in the
contract was completed.
It is not disputed that Dunn initially failed to properly
construct the front foundation wall in accord with standards
required by the applicable Virginia building code. As a
result, while the house was still under construction, cracks
appeared in the wall and a portion of it bowed out several
inches. Dunn undertook remedial efforts to repair the wall,
adding additional steel reinforcing bars, commonly called
“rebar,” into the interior of the wall, which was constructed
of concrete two-celled masonry units, commonly called
“cinderblocks.” Dunn placed the rebar in one cell of each
cinderblock along the face of the wall, approximately every 16
inches, and filled these cells with concrete to the level of
where the wall had cracked.
2
After Dunn performed these repairs, Dunn told David Hash,
the Mecklenburg County building inspector, that “the wall had
been filled with concrete and rebar” but did not specify the
amount of concrete or placement of rebar within the wall.
During his post-repair inspection Hash identified a new
hairline crack in the repaired foundation wall and directed
that a structural engineer inspect the foundation and prepare
a report as a condition of obtaining a temporary certificate
of occupancy.
After completing repairs to satisfy various other
conditions of obtaining the temporary certificate of
occupancy, Dunn presented Cloney with a final bill. Cloney
disputed certain items in the bill and indicated that he would
prefer to place any final payment in escrow until after the
inspection of the foundation wall. A heated exchange between
Dunn and Cloney ensued, with Dunn insisting that he had
completed the contract and was entitled to be paid.
Eventually, Cloney gave Dunn a check for the amount Dunn
claimed was due, and Dunn gave Cloney a written statement
guaranteeing the wall’s stability for ten years and averring
that the wall had been repaired by placing rebar in every cell
of the cinderblocks and filling the wall to its top with
concrete.
3
When Dunn refused to pay for the inspection Hash had
called for, Cloney hired Leon Morris, a structural engineer,
who determined that the wall had not been filled with
reinforced concrete or adequately reinforced with rebar, as
Dunn had represented to Hash and Cloney. Morris found that
between one-third to one-half of the cells had no
reinforcement and that, as a result, the wall, both as
originally constructed and following the attempted repair, did
not meet the requirements of the building code. In Morris’
opinion, the defect in the foundation wall could cause the
house to collapse because this wall was “a candidate for a
catastrophic failure.”
On August 21, 2006, Cloney filed a complaint in the
Circuit Court of Mecklenburg County against Dunn seeking
damages under theories of breach of contract, negligence, and
fraud. 1 Cloney alleged that the total cost to repair the
foundation wall was $31,813.27 and that an additional $2,225
would be required to complete other obligations Dunn had
1
Dunn also filed actions against Cloney by warrant in
debt in the Mecklenburg County General District Court and by a
complaint in the circuit court. Although the three cases
ultimately were consolidated, the appeal before us does not
involve issues arising from the claims made by Dunn against
Cloney.
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neglected to perform under the contract. Thus, for the
alleged breach of the contract, Cloney claimed damages of
$34,038.27. Likewise, Cloney sought to recover the same
amount as compensatory damages for the alleged negligence and
fraud. 2 Additionally, Cloney sought $100,000 in punitive
damages for the alleged fraud. Dunn filed an answer admitting
the general factual allegations of the complaint, but denying
liability to Cloney under any theory of recovery.
A jury trial was held in the circuit court beginning on
April 7, 2008 at which evidence in accord with the above-
recited facts was received. At the conclusion of the
evidence, the court reviewed the proffered instructions
including instructions 21, 23 and 24 addressing the
availability of punitive damages. Instruction 21 read, in
relevant part:
If you find that Richard M. Cloney is entitled
to be compensated for his damages, and if you
further believe by clear and convincing evidence
that Billy G. Dunn and Dunn Construction Co., Inc.
acted with actual malice toward Richard M. Cloney or
acted under circumstances amounting to a willful and
wanton disregard to Richard Cloney’s rights, then
you may also award punitive damages to Richard M.
2
Cloney conceded at trial that he was entitled to only
one recovery of compensatory damages regardless of the theory
of recovery under which the award might be made, and the jury
was so instructed.
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Cloney to punish Billy G. Dunn and Dunn Construction
Co., Inc. for their actions and to serve as an
example to prevent others from acting in a similar
way.
Instruction 23 informed the jurors that they “may only
award punitive damages if [they] believe by clear and
convincing evidence that there was a fraudulent
misrepresentation regarding the repair to the foundation wall
made by” Dunn. Instruction 24 stated that “[t]he burden is on
the party charging fraud to prove it by clear and convincing
evidence.”
Counsel for Dunn noted his objections to “Instruction 21
in the sense that I don’t believe there was any evidence . . .
that [the misrepresentations] arose through malice or
intentional or willful fraud . . . . [L]ikewise, on
Instruction 23, it makes reference to punitive damages and I
object to that on the same grounds.” The circuit court then
noted that Dunn “had [made] a general objection earlier to any
punitive damages.”
The jury returned its verdict for Cloney, awarding him
$33,838.27 in compensatory damages, $200 less than he had
claimed, and $25,000 in punitive damages. The jury also
awarded interest on the compensatory damages of 6% from August
21, 2006 until the judgment was paid. Dunn objected to all
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aspects of the verdict and made a motion that it be set aside,
which motion the circuit court overruled.
Prior to entry of a final order confirming the jury’s
verdict, Dunn filed a motion for reconsideration. As relevant
to the issues raised in this appeal, Dunn contended that the
award of punitive damages was impermissible because “any
misrepresentation, if any were demonstrated, arose out of
contract, not tort.” This was so, Dunn contended, because
there was no evidence that Dunn did not intend to fulfill the
obligations of the contract, but only that there may have been
a misrepresentation as to the manner of performance. By
permitting the jury to award punitive damages for fraud, Dunn
contended that the circuit court impermissibly permitted
Cloney to convert his breach of contract action into a tort
action.
On June 2, 2008, the circuit court entered final judgment
in favor of Cloney on the jury’s verdict. In doing so, the
court did not expressly address the assertions raised in the
motion for reconsideration. We awarded Dunn this appeal. 3
3
Dunn did not assign error to the jury’s award of
compensatory damages and, accordingly, that aspect of the
circuit court’s judgment is not before us in this appeal.
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DISCUSSION
The dispositive issue in this appeal is whether the
circuit court erred in determining that there was sufficient
evidence to permit the jury to find that Dunn had committed an
act of fraud independent of the contractual relationship
between Dunn and Cloney such that Cloney could maintain an
action both for breach of contract and fraud. Cloney concedes
that he was entitled to only one award of compensatory
economic damages whether the jury premised that award upon a
finding of breach of contract, negligence, fraud, or some
combination of those theories and that the jury’s award of
punitive damages could only be premised on the claim for
fraud. Cloney, as the prevailing party in a jury trial, is
entitled to a review of the evidence in the light most
favorable to his position. See, e.g., Williams v. Dominion
Tech. Partners, L.L.C., 265 Va. 280, 283, 576 S.E.2d 752, 753
(2003). Nonetheless, even under this most favorable standard
of review, we conclude that there was insufficient evidence of
an independent act of fraud and, for the reasons that follow,
we hold that the circuit court erred in permitting the jury to
consider awarding punitive damages to Cloney.
“ ‘As a general rule, damages for breach of contracts are
limited to the pecuniary loss sustained.’ ” Kamlar Corp. v.
Haley, 224 Va. 699, 705, 299 S.E.2d 514, 517 (1983)(quoting
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Wright v. Everett, 197 Va. 608, 615, 90 S.E.2d 855, 860
(1956)); accord Sunrise Continuing Care, LLC v. Wright, 277
Va. 148, 156, 671 S.E.2d 132, 136 (2009). However, a single
act or occurrence can, in certain circumstances, support
causes of action both for breach of contract and for breach of
a duty arising in tort, thus permitting a plaintiff to recover
both for the loss suffered as a result of the breach and
traditional tort damages, including, where appropriate,
punitive damages. Foreign Mission Bd. v. Wade, 242 Va. 234,
241, 409 S.E.2d 144, 148 (1991). To avoid turning every
breach of contract into a tort, however, we have consistently
adhered to the rule that, in order to recover in tort, “the
duty tortiously or negligently breached must be a common law
duty, not one existing between the parties solely by virtue of
the contract.” Id. (citing Spence v. Norfolk & W. R. Co., 92
Va. 102, 116, 22 S.E. 815, 818 (1895)).
Our decision in Richmond Metropolitan Authority v.
McDevitt Street Bovis, Inc., 256 Va. 553, 507 S.E.2d 344
(1998), exemplifies the application of this rule in
construction cases and, thus, is instructive to the resolution
of the present case. In Richmond Metropolitan Authority a
municipal corporation entered into an agreement with a
building contractor for the construction of a baseball
stadium. Id. at 555, 507 S.E.2d at 345-46. During the course
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of work, the contractor submitted progress payment requests
falsely stating that it had completed the construction work
according to the design specifications set forth in the
contract. Id. at 555-56, 507 S.E.2d at 345. The contractor’s
deception was discovered more than five years after the
completion of the work, barring a claim for breach of
contract. The Authority filed an action against the
contractor, alleging, inter alia, claims for actual and
constructive fraud based on the false statements made to
obtain progress payments. Id. at 556, 507 S.E.2d at 345-46.
The circuit court entered summary judgment for the contractor
on the fraud claims, finding that the contractor’s alleged
misrepresentations only breached duties assumed by contract
and that nothing demonstrated the breach of any duty that was
separate and independent from the contract. Id. at 557, 507
S.E.2d at 346.
On appeal, the Authority contended that the contractor’s
misrepresentations about its compliance with the contract and
its “false applications under oath to induce payments” were
“separate and independent wrongs that [went] beyond [the]
contractual duties” and supported causes of action for actual
and constructive fraud. Id. Affirming the judgment of the
circuit court, we explained that the determination whether a
cause of action sounds in contract or tort depends on the
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source of the duty violated. Id. at 557-58, 507 S.E.2d at
346-47. Because “each particular misrepresentation by [the
contractor] related to a duty or an obligation that was
specifically required by the [c]ontract,” we concluded that
the contractor’s misrepresentations did not give rise to a
cause of action for actual fraud. Id. at 559, 507 S.E.2d at
347. Likewise, because the record failed to show that the
contractor did not intend to fulfill its contractual duties
when it entered into the agreement with the Authority, we held
there was no claim for fraud in the inducement. Id. at 560,
507 S.E.2d at 348.
Cloney contends that the present case can be
distinguished from Richmond Metropolitan Authority because the
guarantee given by Dunn in exchange for Cloney making the
final payment on the contract was used to procure a novation
to the original contract and the false statement in the
guarantee that the foundation wall had been properly repaired
constituted a fraudulent inducement violative of a common law
duty separate and apart from any duty arising under the
contract. We disagree.
Under the contract, Dunn had a duty to construct the
foundation wall “in a workmanlike manner according to standard
practices.” Clearly, the original wall was not constructed in
accord with this duty, and Dunn was required to make repairs
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to bring the wall in compliance with the applicable building
code under that same duty. Dunn’s false representation that
he had made adequate repairs thus related to a duty that arose
under the contract. The fact that the representation was made
in order to obtain payment from Cloney does not take the fraud
outside of the contract relationship, because the payment
obtained was also due under the original terms of the
contract. In this respect, the present case is
indistinguishable from Richmond Metropolitan Authority.
Dunn’s conduct in failing to properly construct the wall
initially could be attributed to negligence. His subsequent
misrepresentations to Cloney and Hash regarding the repairs
undertaken, however, were unquestionably deliberate and false.
We do not condone such misrepresentations. Nonetheless, as in
Richmond Metropolitan Authority, 256 Va. at 560, 507 S.E.2d at
348, we cannot permit “turning every breach of contract into
an actionable claim for fraud” simply because of
misrepresentations of the contractor entwined with a breach of
the contract. 4
4
Because we have determined that the fraud did not arise
from the violation of a common law duty independent of the
contract, we need not consider Dunn’s further argument that
there was insufficient evidence that Dunn’s conduct was so
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CONCLUSION
For these reasons, the judgment of the circuit court
confirming the award of punitive damages for fraud will be
reversed and final judgment for Cloney limited to the award of
compensatory damages with interest from August 21, 2006 will
be entered here.
Reversed in part
and final judgment.
wanton, oppressive or malicious as to warrant the imposition
of punitive damages.
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