Thoughts on construction law from Christopher G. Hill, Virginia construction lawyer, LEED AP, mediator, and member of the Virginia Legal Elite in Construction Law

Sometimes Fraud and Construction Contracts Mix

As I have discussed at Musings on several occasions, the general rule in Virginia is that fraud and construction contracts do not mix. In other words, most of the time, even where a contractor clearly misrepresents the work performed, an owner can only recover in contract, and not for fraud with its potential for punitive damages and the like.

However, the recent case of Brin v. A Home Come True, Inc, et. al. reminds us all that an exception to this general rule exists. In Brin, the Fairfax, VA Circuit Court upheld damages for fraud against one of two contractors who allegedly conspired to defraud a homeowner. Brin is a case where A Home Come True misstated the class level of its contractor’s license. Another contractor agreed to let A Home Come True use its license and therefore was a part of the conspiracy. The Court held that such “fraud in the inducement” is actionable outside of the contract. The court, like others before it, reasoned that unlike false or misleading statements as to the quality of work done under the contract, fraud used to get an owner to enter into the contract in the first place is in fact actionable.

On a side note, the particular defendant, Mr. Gierlinger, did not respond to the initial lawsuit and was therefore held in default. The Court was therefore less than sympathetic to his claims.

Two lessons from this case. One, if you get sued, hire a lawyer and make sure that you show up for court. Two, if you are a contractor, make sure that your advertising and sales statements (particularly relating to your license) are accurate. If you make statements that are untrue, you could be held liable for fraud should one of your subcontractors or even your employees do something to keep you from fulfilling your contract.

UPDATE: This case is under appeal to the Virginia Supreme Court. I’ll keep you posted on the results.

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

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14 Responses to Sometimes Fraud and Construction Contracts Mix

  1. Too funny, I have not read this case in a while. I had a couple cases against A Home Come True.

    Do you know if the license argument against the builder was fraud in the inducement? The opinion is unclear. It appears the judge finds in this opinion that he has already ruled against A Home Come True on fraud by default judgment. It also appears the judge holds in this opinion that the default judgment against A Home Come True is automatically binding against Gierlinger. Am I reading this right?

    If I am reading this right, suffice it to say I think the logic of this opinion is suspect and that folks should not expect this decision to get a lot of persuasive traction, but strangers things have happened.

    The big take away point for me is that even starting with black letter law (which is rare in Virginia), there are still nooks and crannies to argue, and there is still the ever present chance that two judges may view the world very differently. Definitely a very interesting case and a great post as always Chris!!
    .-= Timothy R. Hughes´s last blog post ..Green, Sustainability and the Need for Third Party Validation =-.

  2. Thanks as always for your comments Tim. I don’t necessarily read the case that default against the company is default against Gerlinger, though it could be that they are the same and both defaulted when Gerlinger did. Like you I can’t tell.

    The best I can tell, it is fraud in the inducement because the Court found that the license issue was the reason for the contract and no contract would have occurred but for the misrepresentation. Of course, when in default, a party has few if any good arguments so this case may just be a one time anomaly. I’ll keep up with it as best I can.

  3. Chris, what I did not see in the Opinion letter were any mention of punitive damages (one of the things your post suggests is a potential consequence), nor an award of attorney costs, expert costs, court costs, etc.

    Absent award of Plaintiff’s costs or punitive damages it would appear the money spent chasing the case likely exceeded the award – leaving the Plaintiff with a ‘win’ on merits but a lose/lose as to damages experienced bottom line.

    Can you comment further on this?

  4. Howard,

    I read the case to say that in some instances, there can be fraud in the inducement. The court does not go into why there is no mention of punitives, etc. so I can’t speculate on the possibilities in this case.

    Of course cost is always an issue with construction cases and should always be discussed in my opinion.

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