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RICHMOND METROPOLITAN AUTHORITY v. MCDEVITT STREET BOVIS, INC.


RICHMOND METROPOLITAN
AUTHORITY

v.

MCDEVITT STREET BOVIS, INC.


November 6, 1998
Record No. 980081

RICHMOND METROPOLITAN AUTHORITY

v.

McDEVITT STREET BOVIS, INC.

Theodore J. Markow, Judge
Present: All the Justices

OPINION BY JUSTICE CYNTHIA D. KINSER
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND


This appeal involves claims for actual and
constructive fraud arising out of a construction contract.
Because any duty breached in this case exists solely by reason of
the contract between the parties, we will affirm the judgment of
the circuit court dismissing the causes of action for fraud.

I.

On August 31, 1984, Richmond Metropolitan
Authority (RMA) entered into an "Agreement for Design-Build
Construction, New Parker Field Stadium" (Design-Build
Contract) with McDevitt Street Bovis, Inc., (McDevitt) for
construction of the Diamond Baseball Stadium (the Diamond) in
Richmond. The Diamond’s design criteria included 32
pre-cast/post-tensioned concrete structural members known as
"bents" for its cantilevered roof and upper concourse
seating. Each bent was to have had hollow conduits containing
steel tendons/bars. After insertion and tensioning of the steel
tendons/bars, the design criteria required the injection of grout
into each conduit. The grout was to be injected through
protruding grout tubes. When the grout had set, the tubes were to
be cut off flush with the surface of the bents and sealed. The
purpose of the grout was to strengthen the bents, prevent
corrosion of the steel tendons/bars, and enhance the structural
integrity of the Diamond.

McDevitt built the Diamond during the winter of
1984-1985. In order to receive progress payments during the
construction, McDevitt submitted "APPLICATION AND
CERTIFICATE FOR PAYMENT" forms to RMA. Each such application
contained a sworn statement by McDevitt that "[t]he
undersigned Contractor certifies that to the best of the
Contractor’s knowledge, information and belief the Work covered
by this Application for Payment has been completed in accordance
with the Contract Documents . . . ." McDevitt
presented other documents to RMA, including "as-built"
drawings, an Application for Final Payment, and an Affidavit of
Payment and Certificate of Substantial Completion, in which
McDevitt represented that it had constructed the Diamond in
accordance with the design criteria set forth in the Design-Build
Contract.

Around February 1996, RMA discovered that many
of the conduits contained no grout or insufficient grout and
that, as a result, the steel tendons/bars in the conduits had
corroded. According to RMA, McDevitt had sealed the empty tube
openings with grout, thus giving the false impression that the
conduits were filled with grout. RMA also learned that three
conduits contained no steel tendons/bars. As a result of
McDevitt’s failure to construct the Diamond in accordance with
the design criteria, RMA claims that the Diamond fails to meet
applicable building code requirements and that the durability and
strength of the structure are impaired.

On February 10, 1997, RMA filed suit against
McDevitt.
[1] In its motion for judgment, RMA alleged that McDevitt
breached the Design-Build Contract (Count I) and committed actual
and constructive fraud (Counts II and III, respectively). RMA
based its allegations of fraud on McDevitt’s misrepresentations
in the construction documents submitted to RMA and on McDevitt’s
physical concealment of its noncompliance with the design
criteria.

McDevitt filed a plea in bar asserting that the
statute of limitations contained in Code Sect. 8.01-246(2)
[2] bars Count I and that the statute of repose, Code
Sect. 8.01-250,
[3] precludes all three counts. On May 6, 1997, the circuit
court sustained McDevitt’s plea as to Count I of the motion for
judgment and dismissed it. The court, however, overruled the plea
in bar as to Counts II and III.

Thereafter, McDevitt moved for summary judgment
on RMA’s claims for actual and constructive fraud.
[4] On October 27, 1997, the court entered
an order sustaining the motion and granting judgment for
McDevitt. In a letter opinion, the court explained that
"[t]he particular instances of misrepresentation are duties
and obligations specifically required by the contract," and
that nothing "establishes that the duty breached is separate
and independent from the contract." The court further
stated:

McDevitt promised to inject the grout, promised
to submit accurate certificates for progress payments, promised
to submit an accurate certificate of final completion and
"as built" drawings, and promised to fill the grout
tubes before cutting them off and sealing the tubes. McDevitt’s
failure to perform each and every one of these promises was a
breach of its contract, not fraud . . . .

RMA appeals the circuit court’s judgment with
regard to Counts II and III.
[5] McDevitt assigns cross-error to the
circuit court’s ruling that Counts II and III are not time-barred
by Code Sect. 8.01-250.

II.

RMA asserts that McDevitt’s misrepresentations
that the Diamond was constructed in accordance with the criteria
in the Design-Build Contract and its physical concealment of its
noncompliance with the design criteria give rise to common law
actions for constructive and actual fraud. Conceding that mere
failure to inject grout into the conduits would constitute only a
breach of contract, RMA asserts that McDevitt’s false
applications under oath to induce payments and its sealing the
empty tube openings with grout are separate and independent
wrongs that go beyond McDevitt’s contractual duties. We do not
agree.

A plaintiff asserting a cause of action for
actual fraud bears the burden of proving by clear and convincing
evidence the following elements: "(1) a false
representation, (2) of a material fact, (3) made intentionally
and knowingly, (4) with intent to mislead, (5) reliance by the
party misled, and (6) resulting damage to the party misled."
Evaluation Research Corp. v. Alequin, 247 Va. 143, 148,
439 S.E.2d 387, 390 (1994) (citing Bryant v. Peckinpaugh,
241 Va. 172, 175, 400 S.E.2d 201, 203 (1993)). Constructive fraud
requires proof, also by clear and convincing evidence, "that
a false representation of a material fact was made innocently or
negligently, and the injured party was damaged as a result of
. . . reliance upon the misrepresentation." Mortarino
v. Consultant Eng’g Serv.
, 251 Va. 289, 295, 467 S.E.2d 778,
782 (1996) (citing Alequin, 247 Va. at 148, 439 S.E.2d at
390).

In determining whether a cause of action sounds
in contract or tort, the source of the duty violated must be
ascertained. In Oleyar v. Kerr, Trustee, 217 Va. 88, 90,
225 S.E.2d 398, 399-400 (1976) (quoting Burks Pleading and
Practice Sect. 234 at 406 (4th ed. 1952)), we
distinguished between actions for tort and contract:

If the cause of complaint be for an act of
omission or non-feasance which, without proof of a contract to do
what was left undone, would not give rise to any cause of action
(because no duty apart from contract to do what is complained of
exists) then the action is founded upon contract, and not upon
tort. If, on the other hand, the relation of the plaintiff and
the defendants be such that a duty arises from that relationship,
irrespective of the contract, to take due care, and the
defendants are negligent, then the action is one of tort.

We have acknowledged that a party can, in
certain circumstances, show both a breach of contract and a
tortious breach of duty. Foreign Mission Bd. v. Wade, 242
Va. 234, 241, 409 S.E.2d 144, 148 (1991). However, "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.R. Co.
, 92 Va. 102, 116, 22 S.E.2d 815, 818 (1895)).

In Foreign Mission Bd., the plaintiffs
alleged that the defendant had failed to use ordinary care to
protect them from continued sexual abuse. There was an oral
contract between the parties; however, the plaintiffs brought
suit not only for breach of contract but also for negligence. We
affirmed the trial court’s dismissal of the negligence count
because the plaintiffs sought to "establish a tort action
based solely on the negligent breach of a contractual duty with
no corresponding common law duty." 242 Va. at 241, 409
S.E.2d at 148.

With the principles enunciated in Oleyar
and Foreign Mission Bd. in mind, we first address RMA’s
claim for constructive fraud. The essence of constructive fraud
is negligent misrepresentation. See Mortarino, 251
Va. at 295, 467 S.E.2d at 782. In the present case, RMA’s
allegations of constructive fraud are nothing more than
allegations of negligent performance of contractual duties and
are, therefore, not actionable in tort. A tort action cannot be
based solely on a negligent breach of contract.

Turning to the claim for actual fraud, we agree
with the circuit court that each particular misrepresentation by
McDevitt related to a duty or an obligation that was specifically
required by the Design-Build Contract. McDevitt contracted to
inject grout into the conduits, to fill the grout tubes before
cutting them off and sealing them, to submit accurate
applications for payments, and to present an accurate certificate
of substantial completion and "as-built" drawings.
McDevitt may have breached each one of these contractual duties,
but its actions do not give rise to a cause of action for actual
fraud, albeit McDevitt misrepresented its compliance with the
design criteria.

Even on the concealment issue, RMA conceded
during oral argument that the Design-Build Contract required that
the ends of the grout tubes be cut off and sealed. Thus, this
step was part of the construction process and not an action
undertaken by McDevitt solely to hide its failure to inject grout
into the conduits. In short, RMA has alleged only McDevitt’s
breach of contractual obligations "because no duty apart
from contract to do what is complained of exists." Oleyar,
217 Va. at 90, 225 S.E.2d at 399. The source of any duty breached
in this case is solely from the Design-Build Contract between the
parties.

Citing the decision of the United States Court
of Appeals for the Fourth Circuit in Flip Mortgage Corp. v.
McElhone
, 841 F.2d 531 (4th Cir. 1988), RMA,
nonetheless, contends that McDevitt’s submission of applications
for payment containing misrepresentations constitutes actionable
fraud. In Flip, allegations of fraud were based, in part,
on the submission of false revenue reports almost from the
beginning of the contractual relationship. Id. at 537. The
Court of Appeals based its finding of actionable fraud, arising
out of a contractual relationship, upon the fact that there was
fraud in the inducement. The court viewed the false revenue
reports as circumstantial evidence of the intent never to abide
by the terms of the contract. Id. The court concluded that
Flip Mortgage had alleged a cause of action for fraud based on
the principles enunciated by this Court in Colonial Ford Truck
Sales v. Schneider
, 228 Va. 671, 325 S.E.2d 91 (1985). In Colonial
Ford
, we held that "the promisor’s intention
. . . [w]hen he makes the promise, intending not to
perform . . . is a misrepresentation of present
fact . . . [that] is actionable as an actual
fraud." Id. at 677, 325 S.E.2d at 94.

The present case is not one of fraud in the
inducement. Nothing in the record suggests that McDevitt did not
intend to fulfill its contractual duties at the time it entered
into the Design-Build Contract with RMA. Therefore, RMA’s
reliance on Flip is misplaced. We are likewise not
persuaded by the rationale of the court in Vanguard Military
Equip. Corp. v. David B. Finestone Co., Inc.
, 979 F. Supp.
401 (E.D. Va. 1997), a case relied upon by RMA.

In ruling as we do today, we safeguard against
turning every breach of contract into an actionable claim for
fraud. The appropriate remedy in this case is a cause of action
for breach of contract, which unfortunately is time-barred.

For these reasons, we will affirm the judgment
of the circuit court.
[6]

Affirmed.

 

 

FOOTNOTES:

[1] RMA also named an engineering firm hired to monitor
construction of the Diamond as a defendant in the suit. RMA
subsequently nonsuited the counts against that firm.

[2] Code Sect. 8.01-246(2) establishes a five-year
statute of limitations for an action on any written contract.

[3] Code Sect. 8.01-250 provides, in part, as follows:

No action to recover for any injury to
property, real or personal, or for bodily injury or wrongful
death, arising out of the defective and unsafe condition of an
improvement to real property, nor any action for contribution or
indemnity for damages sustained as a result of such injury, shall
be brought against any person performing or furnishing the
design, planning, surveying, supervision of construction, or
construction of such improvement to real property more than five
years after the performance of furnishing of such services and
construction.

[4] For purposes of the motion for summary
judgment, McDevitt asked the court to accept as true the
allegations in RMA’s motion for judgment and its answers to
McDevitt’s interrogatories.

[5] RMA does not assign error to the
circuit court’s dismissal of its breach of contract claim.

[6] In light of our decision, we do not
reach the parties’ other arguments or the assignments of
cross-error.

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