A Good Read on Fraud versus Contract

Repairs and Improvements in Construction

A Good Read on Fraud versus Contract

Here at Construction Law Musings, I have discussed the interwoven issues of fraud, contract, and the Virginia Consumer Protection Act (VCPA) on several occasions.  In most cases, the three simply don’t mix, acting more like oil and water than parallel causes of action.  There are exceptions however so these three are always worth exploring in most (particularly residential) construction matters.

A recent case out of the 4th Circuit Court of Appeals lays out a good roadmap for a properly pled, and properly tried in this case, VCPA, fraud, and contract matter.  That case is Harrell v. Deluca and I recommend it to your reading.

In Harrell, the Court considered a case where the Harrells entered into a residential sales contract to purchase property from DeLuca.  After that sales contract, the parties entered into an addendum for a list of improvements that DeLuca was to make to the property as part of the sale.  After that, the parties entered into a construction contract for the completion of certain uncompleted improvements by August 15, 2019.  Needless to say (or this wouldn’t be a blog post at a construction law blog) things did not go well and the Harrells sued Deluca for fraud, constructive fraud, breach of contract, and violation of the VCPA.  Unsurprisingly, and after a 9-day bench trial, the district court found in DeLuca’s favor on the fraud claims (actual and constructive) and the VCPA claim.  It found for the Harrells on the breach of contract claim and awarded $181,762.87.

Upon the Harrells appeal (and somewhat surprisingly), the 4th Circuit vacated the district court’s judgment and remanded the case back to the district court to make explicit findings as to each of the claims.  In doing so, the Court considered certain statements made by DeLuca (I won’t set all of them out here, but they are set out in the linked opinion), and set out the elements of a fraud claim in Virginia as follows:

Under Virginia law, to prevail on an “actual fraud” claim, a plaintiff must prove: (1) a false representation, (2) of a material fact, (3) made intentionally and knowingly, (4) with intent to mislead, (5) reliance by the party mislead, and (6) resulting damage to the party misled. Virginia also recognizes a claim for constructive fraud, which “differs only in that the misrepresentation of material fact is not made with the intent to mislead, but is made innocently or negligently.

It then went on to state that there were additional proceedings necessary to determine if the statements made were promises to perform certain acts that were later not performed or if the statements were false when made.  The former being barred by the source of duty rule, and the latter being actionable.  These matters had been decided with general statements after summary judgment motions were filed.  In short, the Court essentially said that the district court had to at least examine the facts of the case and make findings thereon before it would sustain its judgment.

This case is a good primer on where the various lines between contract, fraud, and VCPA claims blur and move.  I have not set out every statement made and every specific finding of the 4th Circuit so I commend the case for your reading.  I also recommend that you get counsel from an experienced Virginia construction attorney to explore the possibilities and interactions of these legal claims.

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

I am a construction lawyer, arbitrator, and mediator in Richmond Virginia

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top