Gerald M. Moore and Son, Inc. v. Drewry

Present: All the Justices

GERALD M. MOORE AND SON, INCORPORATED

v. Record No. 951365 OPINION BY JUSTICE ELIZABETH B. LACY
March 1, 1996
JOSEPH S. DREWRY, JR., AND
DREWRY AND ASSOCIATES, INCORPORATED

UPON A QUESTION OF LAW CERTIFIED BY THE UNITED STATES
COURT OF APPEALS FOR THE FOURTH CIRCUIT

Pursuant to our Rule 5:42, the United States Court of

Appeals for the Fourth Circuit certified a question of Virginia

law to this Court which we accepted by order entered September

22, 1995. The question involves the application of the economic

loss doctrine to an award of damages for negligent performance of

a contract in the absence of privity.
The following facts are set forth in the Court of Appeals'

order of certification. Gerald M. Moore and Son, Inc. (Moore)

owns and operates an industrial plant in Nassawadox, Virginia.

In 1990, Moore entered into a contract with an engineering firm,

Drewry and Associates, Inc. (D&A), to engineer, design, and

furnish a reduction furnace for Moore's use in the process of

thermal remediation of petroleum contaminated soil. The contract

was signed by Joseph S. Drewry, Jr., as president of D&A. Drewry

performed all the engineering work required by the contract.

The reduction furnace provided by D&A did not work properly

because of design and engineering defects. Moore filed suit

against D&A alleging breach of contract, breach of warranties,

and negligence. By amended complaint, Moore added Drewry as a

defendant in the negligence count. D&A was found liable for

breach of contract and both D&A and Drewry were found liable for
negligence. Moore was awarded damages of $107,182.70, based

entirely on its economic loss. D&A and Drewry were held jointly

and severally liable for the judgment amount.

In considering Drewry's appeal, the Court of Appeals

certified the following question to us and stated that the

resolution of the issue will be determinative of the proceeding

in that court:
Whether Drewry, the president of D&A, as the engineer
who performed the work for which the contract between
D&A and Moore called, is liable for the purely economic
losses resulting from the negligent performance of that
contract.

The Court of Appeals also suggested that in answering the

question we may need to consider the following issues:
A. Does the economic loss doctrine bar recovery
for negligence where the defendant, Drewry, was not a
party to the contract?
B. Under Miller v. Quarles, 242 Va. 343, 410
S.E.2d 639 (1991), did Drewry's position as D&A's
licensed engineer on the project create a liability for
negligent acts performed as an agent for D&A, even
though solely economic loss was involved?

Although not specifically stated in the certified question,

the issues suggested by the Court of Appeals indicate that Drewry

was not a party to the contract between Moore and D&A.

Therefore, our response to the certified question assumes that

there is no privity between Drewry and Moore.

As recognized by the Court of Appeals, under Virginia law,

an agent can be held liable for negligent performance of a

contract to which he is not a party, but to which his principal

is a party. Allen Realty Corp. v. Holbert, 227 Va. 441, 450, 318

S.E.2d 592, 597 (1984). However, even if the agent's negligence
is established, absent privity of contract, Virginia's economic

loss doctrine precludes the recovery of damages based on economic

loss alone. Sensenbrenner v. Rust, Orling & Neale, 236 Va. 419,

425, 374 S.E.2d 55, 58 (1988); Blake Constr. Co. v. Alley, 233

Va. 31, 34-36, 353 S.E.2d 724, 726-27 (1987).

Our recent case of Miller v. Quarles, 242 Va. 343, 410

S.E.2d 639 (1991), does not alter the privity requirement for

recovery of purely economic loss damages in negligence actions.

In Miller, Commonwealth Capital Corporation agreed to arrange
financing for Colonial Electric Company, Inc. to purchase and

develop property. At the request of Fred H. Quarles, a vice-

president of Commonwealth Capital, Colonial Electric delivered an

escrow deposit to Quarles. Quarles subsequently gave a portion

of the deposit, $50,000, to a third party who never secured the

financing and absconded with the funds. Assignees of Colonial

Electric sued Commonwealth Capital and Quarles individually for

breach of contract and negligent performance of the contract.

242 Va. at 344-45, 410 S.E.2d at 640-41.

Quarles was held liable for his negligent performance of the

contract between Commonwealth Capital and Colonial Electric. In

accepting the escrow deposit, Quarles and Commonwealth Capital

assumed a common law duty of reasonable care in safeguarding

Colonial Electric's property. Quarles breached this duty when he

gave the funds to the third party. Id. at 347, 410 S.E.2d at

641-42. The damages sought and recovered against Quarles,

although stated in terms of dollars, reflected the direct loss of

specific property, the escrow deposit, not an economic loss
suffered by Colonial Electric. Miller did not involve recovery

of economic loss damages and, therefore, is inapposite to the

certified question presented here.

Accordingly, in the absence of privity, a person cannot be

held liable for economic loss damages caused by his negligent

performance of a contract, and the certified question is answered

in the negative.
The certified question is
answered in the negative.