Present: All the Justices
NAJLA ASSOCIATES, INC.
OPINION BY JUSTICE LEROY R. HASSELL, SR.
v. Record No. 960604 January 10, 1997
WILLIAM L. GRIFFITH & COMPANY OF VIRGINIA, INC.
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY
Gerald Bruce Lee, Judge
The dispositive issue in this appeal is whether a
corporate plaintiff that recovered consequential damages for
breach of contract presented sufficient evidence that those
damages were within the contemplation of the contracting
parties at the time they executed the contract.
NAJLA Associates, Inc., a District of Columbia
corporation, executed a contract with William L. Griffith &
Company of Virginia, Inc., a general contractor, to
construct a shopping center known as Willow Run. David W.
Peacock, president of Griffith, learned that NAJLA intended
to finance the construction without a loan from an
institutional lender. Griffith and its bonding company were
concerned about this financial arrangement because, if NAJLA
experienced financial problems, Griffith might not be paid
for its work and materials.
Therefore, Griffith and NAJLA executed an escrow
agreement creating an identifiable source of money to secure
NAJLA's payment obligations to Griffith under the terms of
the construction contract. The escrow agreement required
NAJLA to maintain an escrow account in the amount of
$130,000 from which Griffith could obtain payments if NAJLA
failed to pay timely any construction progress payment.
Generally, NAJLA was required to make prompt reimbursement
to the escrow account for any sum paid to Griffith from that
account.
Griffith submitted payment applications totaling
$103,262 to NAJLA toward the end of the completion of
construction which NAJLA refused to pay because of its claim
that Griffith was not entitled to that full amount. Unknown
to Griffith, the escrow agent paid this sum to Griffith from
the escrow account, and when Griffith learned the escrow
agent had done so, Griffith demanded that NAJLA reimburse
the escrow account. NAJLA refused to reimburse the account.
Thereafter, Griffith commenced an arbitration proceeding
against NAJLA under the provisions of the construction
contract to recover the full amount of its payment
applications. The arbitrator awarded Griffith damages, and
the trial court entered judgment on the arbitrator's award.
Subsequently, Griffith initiated this action by filing
a motion for judgment seeking recovery of damages against
*
NAJLA and others. Griffith alleged that it suffered
damages because of NAJLA's breach of the escrow agreement,
*
Griffith also named as defendants: Samir Qreitem,
president of NAJLA; John F. Pitrelli and Hugh Cregger, Jr.,
lawyers allegedly involved in the management or
establishment of the escrow account; Eskovitz, Lazans,
Pitrelli & Cregger, a law firm that allegedly managed and
controlled the remaining defendant, E.L.P. Title & Escrow
Co. The jury returned a verdict in favor of Griffith
against these defendants, and Griffith's claims against
these defendants were ultimately settled.
as distinguished from damages for breach of the construction
contract.
Griffith presented the following evidence at trial in
support of its claim for damages. Generally, project
developers, including NAJLA, require that general
contractors, such as Griffith, acquire performance and
payment bonds as a condition of obtaining construction
contracts. Griffith obtained its performance and payment
bonds from the Aetna Casualty and Surety Company.
Aetna established a "work program" for Griffith in the
total amount of $2,500,000. The "work program" is the total
volume of bonded business that a bonding company permits a
contractor to perform. Aetna would not provide any bonds
for Griffith for new projects if Griffith's work in progress
exceeded $2,500,000.
Aetna evaluated Griffith's capital, including its
liquid assets, to establish the amount of Griffith's "work
program." Certain accounts receivable were deemed liquid
assets and, thus, were included in Griffith's capital base.
Accounts receivable that were disputed or outstanding for
more than 90 days were excluded from consideration of
Griffith's capital base. Thus, Aetna did not consider the
account receivable that NAJLA owed to Griffith,
approximately $100,000, as a part of Griffith's liquid
assets, and Griffith's "work program" was reduced by
$1,000,000.
Peacock testified that Griffith lost profits during its
dispute with NAJLA because Griffith was unable to submit
bids on certain projects due to its reduced "work program."
Griffith also presented evidence that it incurred damages
because certain subcontractors, who had performed work for
it before the Willow Run project, were no longer willing to
work for Griffith because it was delinquent in paying them
for their work on that project. Peacock testified that in
the future, Griffith would have to use subcontractors who
were more expensive than its former subcontractors. Peacock
also testified that Griffith incurred damages because its
dispute with NAJLA caused Griffith to experience "cash flow"
problems.
NAJLA moved to strike Griffith's evidence, asserting,
among other things, that its purported damages were not
reasonably contemplated at the time Griffith and NAJLA
executed the escrow agreement. The trial court denied the
motion and submitted the case to the jury which returned a
verdict in favor of Griffith against NAJLA in the amount of
$175,000. The trial court entered a judgment confirming the
jury's verdict, and we awarded NAJLA an appeal.
NAJLA asserts that Griffith's damages were not
reasonably foreseeable at the time the escrow agreement was
executed and, therefore, are not recoverable as a matter of
law. Griffith argues that NAJLA understood the importance
of Griffith's relationship with its bonding company and that
"the manipulation of the escrow account would significantly
impair that relationship to Griffith's detriment." We agree
with NAJLA.
In Roanoke Hospital v. Doyle and Russell, 215 Va. 796,
801, 214 S.E.2d 155, 160 (1975), we stated the following
principles which are pertinent here:
"There are two broad categories of damages ex
contractu: direct (or general) damages and
consequential (or special) damages. Washington &
Old Dominion R.R. Co. v. Westinghouse Co., 120 Va.
620, 627, 89 S.E. 131, 133 (1916). See also
Sinclair v. Hamilton & Dotson, 164 Va. 203, 209,
178 S.E. 777, 779 (1935). Direct damages are
those which arise 'naturally' or 'ordinarily' from
a breach of contract; they are damages which, in
the ordinary course of human experience, can be
expected to result from a breach. Consequential
damages are those which arise from the
intervention of 'special circumstances' not
ordinarily predictable. If damages are determined
to be direct, they are compensable. If damages
are determined to be consequential, they are
compensable only if it is determined that the
special circumstances were within the
'contemplation' of both contracting parties.
Whether damages are direct or consequential is a
question of law. Whether special circumstances
were within the contemplation of the parties is a
question of fact."
Accord Duggin v. Williams, 233 Va. 25, 29-30, 353 S.E.2d
721, 723-24 (1987).
Here, Griffith's purported damages are consequential
and, therefore, Griffith was required to prove that its
purported damages were within the contemplation of both
contracting parties at the time they executed the escrow
agreement. Griffith presented no evidence which would
permit the jury to find that when the contracting parties
signed the escrow agreement, they contemplated that had
NAJLA breached that agreement, such breach would have
restricted Griffith's "work program," thereby preventing
Griffith from bidding on projects. Griffith did not present
any evidence that NAJLA was even aware of Griffith's "work
program" when the escrow agreement was executed.
Likewise, Griffith presented no evidence that either
party to the contract contemplated that Griffith's future
costs for subcontractors would increase as a result of
NAJLA's breach of the escrow agreement. Finally, Griffith
failed to produce evidence that the parties contemplated at
the time they signed the escrow agreement that NAJLA's
breach of that agreement would cause Griffith to experience
cash flow problems.
Accordingly, we will reverse the judgment of the trial
court and enter final judgment here in favor of NAJLA.
Reversed and final judgment.