NAJLA Associates, Inc. v. William L. Griffith & Co.

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.