Fraud and Construction Contracts- Like Oil and Water?

Originally posted 2010-08-09 09:00:22.

Construction ContractWe have discussed the interaction of fraud and breach of contract actions on occasion here at Construction Law Musings.  In most cases the two do not mix.  Between the economic loss rule and the general desire of Virginia courts to keep contract actions and tort actions separate, most of the time it is impossible to make a fraud action relating to a contract stick in a construction context.

The Virginia Supreme Court recently confirmed this fraud/contract distinction.  As discussed in the Virginia Real Estate Land Use & Construction Law blog (Thanks Heidi!), Station No. 2, LLC v. Lynch, et. al. strongly re-states the Virginia courts’ strong reluctance to allow a breach of contract turn into a claim for fraud.  Without re-iterating the great discussion of the facts of the case found in the post by Heidi Meizner, suffice it to say that certain contractual promises between and among the parties were not fulfilled much to Station 2, LLC’s detriment.

However, in its pleadings, Station 2, LLC did not plead that any of the defendants meant to break their promises at the time that they were made.  In fact, the pleadings stated that any determination to breach the promises was made among the defendants and after the original contract.  In short, all of the facts plead in relation to the fraud claim flowed from the original (and now unfulfilled) contract.  Therefore, no fraud in the inducement claim can follow.

The take away from this case is that, despite the seeming unfairness, fraud in the inducement is a difficult claim to plead and prove in the Commonwealth of Virginia.  Only certain circumstances will allow even the most evil sounding facts relating to a construction contract rise to a claim for fraud.  Contractors, subcontractors and business owners should thoroughly discuss the facts and circumstances of their potential fraud claims with a knowledgeable construction attorney to determine the best course of action in enforcing rights in circumstances where a seeming fraud induced them into a contract that was later unfulfilled.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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15 Responses to Fraud and Construction Contracts- Like Oil and Water?
  1. build2sustain (Build2Sustain)
    August 9, 2010 | 9:05 AM

    Twitter Comment


    Fraud and Construction Contracts- Like Oil and Water?: We have discussed the interaction of fraud and breach of co… [link to post]

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  2. […] Fraud and Construction Contracts- Like Oil and Water … […]

  3. […] Construction Law Musings- Richmond, VA […]

  4. Heidi Meinzer
    August 18, 2010 | 6:17 PM

    Thanks for the plug, Chris! Hope all is well in Richmond.
    Heidi Meinzer recently posted..Virginia Constitutional Amendments Slated for November 2nd General ElectionMy Profile

  5. Christopher G. Hill
    Twitter:
    August 18, 2010 | 6:19 PM

    Glad to do it. Thanks for the great post.

  6. […] at Construction Law Musings, I have discussed the interaction between fraud and contracts on many occasions.  Recently, I got to put my advice into action.  I am counsel for the plaintiff […]

  7. More on Fraud, Opinions and Contracts
    May 11, 2011 | 7:15 AM

    […] at Construction Law Musings, I have discussed the interaction between fraud and contracts on many occasions.  Recently, I got to put my advice into action.  I am counsel for the […]

  8. […] most circumstances, even in a case such as this where fraud could have been alleged, the claims against the principal of the company would not have worked out for the plaintiff.  […]

  9. […] takeaway?  While sometimes tort and contract are like oil and water, proper phrasing of a complaint against the right defendant can help get around this sharp […]

  10. […] construction law cases.  This is because almost all construction contract cases are exactly that: contract cases.  Between the economic loss rule and the Virginia Courts’ almost (though not completely) […]

  11. […] construction law cases.  This is because almost all construction contract cases are exactly that: contract cases.  Between the economic loss rule and the Virginia Courts’ almost (though not completely) […]

  12. […] On first blush, this case seems to be one in a long line of cases where the Virginia courts refused to find fraud in a construction contract case.  However, unlike many of the cases that preceded this one, this one involved actions by the […]

  13. […] the “economic loss rule” generally renders claims of fraud and construction contracts like oil and water. This is true in most states, including […]

  14. […] have discussed how hard it is in the Commonwealth of Virginia to make out a claim for fraud when a construction contract is involved.  On limited exception is […]

  15. […] have discussed how hard it is in the Commonwealth of Virginia to make out a claim for fraud when a construction contract is involved. On limited exception is […]

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About Musings

I am a construction lawyer in Richmond, Virginia, a LEED AP, and have been nominated by my peers to Virginia's Legal Elite in Construction Law on multiple occasions. I provide advice and assistance with mechanic's liens, contract review and consulting, occupational safety issues (VOSH and OSHA), and risk management for construction professionals.

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