Case Title: Nichols Construction Corp. v. Virginia Machine Tool Co.

Citation: 

Docket Number: 071553

State: virginia

Court: Virginia Supreme Court

Date: 2008-06-06T00:00:00Z

Document:
Present:  All the Justices 
 
NICHOLS CONSTRUCTION CORPORATION 
 
 
 
OPINION BY 
v.  Record No. 071553  
JUSTICE LAWRENCE L. KOONTZ, JR. 
 
 
 
June 6, 2008 
VIRGINIA MACHINE TOOL COMPANY, LLC 
 
FROM THE CIRCUIT COURT OF HENRY COUNTY 
David V. Williams, Judge 
 
This appeal arises from a dispute between the owner of an 
industrial building and a roofing contractor involving a breach 
by the contractor of a construction contract between those 
parties for the installation of a new roof on the building.  We 
consider whether the amount of the damages awarded by the 
circuit court was excessive as a matter of law.  We also 
consider whether the circuit court erred in failing to offset 
the amount of the damages awarded to the owner by the amount the 
owner still owed the contractor under the contract. 
BACKGROUND 
According to well settled principles, we recite the 
relevant facts in the light most favorable to the plaintiff, 
Virginia Machine Tool Company, LLC, the prevailing party in the 
circuit court.  Davis v. Holsten, 270 Va. 389, 398, 621 S.E.2d 
101, 106 (2005).  Moreover, because the appellant does not 
contest the findings that it breached the contract and is liable 
to the plaintiff, we will restrict our summary to those facts 
necessary to decide the issues before us.  See Union of 
Needletrades v. Jones, 268 Va. 512, 514, 603 S.E.2d 920, 922 
(2004). 
In July 2002, Virginia Machine Tool purchased approximately 
three and a half acres of land in Bassett, Virginia with an 
existing industrial building, along with certain equipment and 
other fixtures, for between $180,000 and $200,000.  The 
industrial building, which Virginia Machine Tool intended to use 
for its business, had a flat roof that was in a state of 
disrepair at the time of the purchase.  Consequently, Virginia 
Machine Tool sought proposals and bids from roofing contractors, 
including Nichols Construction Corporation, to repair or replace 
the existing roof.  Sheldon Nichols, owner of Nichols 
Construction, recommended the installation of a metal, standing 
seam roof, also known as a “rafter system” roof, over the 
existing flat roof and estimated that installing this roof would 
cost approximately $165,000.  After Virginia Machine Tool 
advised Nichols Construction that it had received a lower bid 
from a competitor, Nichols Construction was permitted to submit 
a lower bid. 
In April 2003, Virginia Machine Tool entered into a 
contract with Nichols Construction, prepared by Sheldon Nichols 
on a standard American Institute of Architects form, for the 
installation of the roof, including reinforcement of the 
building’s structural walls as necessary to support the new 
 
2
roof, and to perform additional renovation of the building.  The 
contract specifically called for Nichols Construction to install 
a prefabricated roofing system manufactured by Varco Pruden 
International.  Sheldon Nichols is a registered dealer for Varco 
Pruden.  The parties agree that the portion of the contract 
price related to the installation of the roof and the support 
reinforcement, including subsequent minor changes in the 
specifications, was approximately $140,000.  The parties further 
agree that the contract precluded the recovery of consequential 
damages in the event of a breach of the contract. 
As work progressed on the installation of the roof, 
Virginia Machine Tool became dissatisfied with the quality of 
the work performed by Nichols Construction.  Even before the 
work was complete, it became evident that the roof was sagging 
and that water was not properly draining from it.  
Representatives of Varco Pruden inspected the roof installation 
and recommended corrective measures which Virginia Machine Tool 
agreed to and Nichols Construction effectuated.  Nevertheless, 
problems persisted with the roof.  Varco Pruden ultimately 
conceded that the ridge caps of the roof were defective.  
Although Nichols Construction continued its remedial efforts for 
a time, the roof continued to sag and leak.  Virginia Machine 
Tool ultimately barred Nichols Construction from completing the 
 
3
final phase of the construction, refused to allow any further 
remedial efforts, and withheld final payment on the contract. 
On February 11, 2005, Virginia Machine Tool filed a motion 
for judgment in the Circuit Court of Henry County against 
Nichols Construction alleging breach of contract.1  Contending 
that the roof installed by Nichols Construction was defective 
both in design and as a result of improper installation, 
Virginia Machine Tool asserted that the sole remedy for the 
breach was removal of the roof and replacement with a new roof.  
Virginia Machine Tool sought $500,000 in damages to cure the 
breach.2  Nichols Construction filed grounds of defense generally 
denying the allegations of the motion for judgment. 
The circuit court conducted a three-day bench trial 
beginning on February 1, 2007.  The majority of the evidence 
adduced during the trial was directed to whether, and to what 
extent, Nichols Construction breached the contract.  As noted 
above, Nichols Construction does not challenge the circuit 
                     
1 This case was filed before we amended our rules, effective 
January 1, 2006, to provide that a civil action, which includes 
legal and equitable causes of action, is commenced by filing a 
“complaint.”  Rules 3:1 and 3:2; see also Ahari v. Morrison, 275 
Va. 92, 96 n.2, 654 S.E.2d 891, 893 n.2 (2008). 
 
2 Virginia Machine Tool subsequently filed an amended motion 
for judgment adding claims for breach of express and implied 
warranties.  The amended motion for judgment did not materially 
alter the breach of contract claim, and Virginia Machine Tool 
ultimately abandoned the breach of warranty claims. 
 
4
court’s finding that it breached the contract.  Accordingly, we 
will summarize the evidence in that regard by reciting the 
express findings from an opinion letter issued by the circuit 
court and adopted by reference in its final order.  The court 
found 
by a preponderance of the evidence that [Nichols 
Construction] breached the contract by (1) failing 
to maintain a 1/4”x12” slope [of the roof]; (2) 
failing to maintain two foot roof panel modulation; 
(3) failing to maintain acceptable beam deflection; 
(4) failing to use specified materials (24 gauge 
galvalume); (5) failing to reinforce the center 
wall; (6) failing to provide continuous water run-
off; (7) failure to properly install the ridge cap; 
and (8) failure to provide or design sufficient 
ventilation for the roof.[3] 
 
As relevant to the issues raised in this appeal, the 
circuit court heard expert testimony on the measure of damages 
from Charles R. Howard, a licensed professional engineer doing 
business as Metal Roof Consultants.  Virginia Machine Tool 
employed Howard to inspect the roof installed by Nichols 
Construction and to make recommendations for its repair or 
replacement.  Howard testified that in his opinion, a rafter 
system roof was “definitely not the right choice for this 
building.”  Rather, Howard indicated that he would have 
recommended a “post and purlin[] system” roof. 
                     
3 Galvalume refers to an aluminum/zinc/silicone coating 
applied to sheet steel to prevent oxidation. 
 
5
Howard testified that regardless whether the defective roof 
were to be replaced with a new rafter system roof or a post and 
purlin system roof, the existing roof would have to be removed 
at a cost of $60,800.4  Howard prepared estimates for the 
installation of either a rafter system roof or a post and purlin 
system roof, the former being $426,850 and the latter $370,900.5 
Nichols Construction did not present any expert testimony 
with respect to damages.  Sheldon Nichols testified that the 
rafter system roof that Howard recommended as one of the two 
replacement options was “the same system” as the Varco Pruden 
roof Nichols Construction had installed, although Howard’s 
estimate included a ventilation system, which Nichols 
Construction’s bid had not originally called for, and included 
slightly more insulation and different placement of the 
insulation.  Sheldon Nichols also testified that he did not 
recommend a post and purlin system roof because, unlike the 
                     
4 The principal distinction between a rafter system and a 
post and purlin system is the manner in which the weight of the 
roof is distributed over the building. 
5 Howard also prepared an estimate of $72,869 for remedial 
measures to repair the existing roof.  Howard testified, 
however, that this estimate did not include the cost of 
replacing the roofing panels, which would also be required if 
the existing roof were to be retained.  The circuit court found 
that the roof would have to be removed and replaced.  Nichols 
Construction has not assigned error to this finding and, 
accordingly, we will not consider the cost of repair estimate as 
a viable alternative to the other estimates in considering the 
appropriate measure of damages in this case. 
 
6
rafter system roof, installation of a post and purlin system 
roof likely would have required removal of asbestos, which he 
believed was present in the existing flat roof.  Howard’s 
estimate for the post and purlin system roof did not include the 
cost of asbestos removal. 
Following conclusion of the evidence, the parties submitted 
written post-trial memoranda to the circuit court in lieu of 
closing arguments.  In its memorandum, Virginia Machine Tool 
asserted that “the only way to bring this roof within contract 
specifications is to remove it and replace it.”  Accordingly, 
citing Lambert v. Jenkins, 112 Va. 376, 381, 71 S.E. 718, 720 
(1911) and Kirk Reid Co. v. Fine, 205 Va. 778, 787, 139 S.E.2d 
829, 835 (1965), Virginia Machine Tool contended that the proper 
measure of its damages should be the cost of removal of the 
defective roof and replacing it with a properly installed rafter 
system roof.  Virginia Machine Tool contended that only this 
measure of damages would put it in the same position it would 
have been if the contract had been properly performed. 
Nichols Construction responded in its post-trial memorandum 
that at best Virginia Machine Tool was entitled to recover only 
the value of the original contract, contending that Howard’s 
estimate for replacing the defective roof with a new rafter 
system roof was inaccurate.  Measuring the damages by this 
estimate, Nichols Construction contended, would result in a 
 
7
windfall to Virginia Machine Tool in that it “had contracted for 
a Chevy of a roof but wants that replaced with a Cadillac of a 
roof.”  In making its argument, however, Nichols Construction 
did not cite any relevant authority and did not identify any 
evidence in the record that rebutted the accuracy of Howard’s 
estimate or established that the proposed replacement roof was 
markedly superior to the contracted-for Varco Pruden standing 
seam roof. 
In its opinion letter, the circuit court, after having 
found Nichols Construction to be in breach of the contract, 
determined that “the only way to fix the [defective] roof is to 
remove and replace it.  There is no evidence that the cost of 
repairs exceeds the economic value of the building.”  
Implicitly, the court determined that the appropriate measure of 
damages was the cost to provide Virginia Machine Tool with the 
intended benefit of the contract, that is, to provide it with a 
properly installed, non-defective rafter system roof.  
Accordingly, the court ruled that Virginia Machine Tool was 
entitled to damages for the cost of removing the defective roof 
and replacing it with a new rafter system roof in accord with 
Howard’s estimate.  After making adjustments for sales tax, 
profit and the cost of a performance bond, the circuit court 
determined that Virginia Machine Tool’s damages were $450,842.  
 
8
The court further ruled that Nichols Construction was not 
entitled to an offset for the balance due on the contract. 
Prior to entry of a final order confirming the judgment, 
Nichols Construction acquired new counsel and filed a motion 
seeking, among other things, reconsideration of the circuit 
court’s ruling or remittitur of the damages awarded.  Nichols 
Construction essentially contended that the circuit court’s 
award of damages was “grossly disproportionate” to the original 
value of the contract and that the court should award “a lesser 
amount,” which Nichols Construction contended should not exceed 
the value of the original contract and the cost of removing the 
defective roof.  Nichols Construction also contended that the 
court erred in not allowing it an offset for the balance due on 
the contract.  The circuit court denied Nichols Construction’s 
motion without comment. 
In a final order dated April 23, 2007, the circuit court 
entered judgment of $450,842 for Virginia Machine Tool along 
with pre-judgment interest running from November 29, 2005 in 
accord with the views expressed in its opinion letter, the 
rationale of which it adopted into the order by reference.  We 
awarded Nichols Construction this appeal. 
DISCUSSION 
Unless specific performance is sought and available, the 
proper measure of unliquidated damages for breach of a contract 
 
9
“is the sum that would put [the plaintiff] in the same position, 
as far as money can do it, as if the contract had been 
performed.”  Taylor v. Flair Property Assocs., 248 Va. 410, 414, 
448 S.E.2d 413, 414 (1994).  The parties do not dispute this 
principle, rather they dispute how to calculate the sum that 
would put Virginia Machine Tool in the same position as if the 
contract had been performed. 
While a plaintiff has the burden to establish its damages 
with reasonable certainty, id. at 415, 448 S.E.2d at 416, 
“[d]amages need not be established with mathematical certainty.  
Rather, a plaintiff is required only to furnish evidence of 
sufficient facts to permit the trier of fact to make an 
intelligent and probable estimate of the damages sustained.”  
Id. at 414, 448 S.E.2d at 416.  Accordingly, the determination 
of damages for a breach of contract will always be fact 
specific, and no single method exists for calculating the amount 
necessary to place the plaintiff in the position he would have 
occupied had the breach not occurred.  See Appalachian Power Co. 
v. John Stewart Walker, Inc., 214 Va. 524, 535, 201 S.E.2d 758, 
767 (1974). 
This Court has long recognized two methods of determining 
monetary damages in breach of construction contract cases, which 
were potentially implicated in the present case.  These have 
come to be commonly designated as the “cost rule” which is “the 
 
10
cost of correcting the defects in the [construction] and making 
it conform to the terms of the contract” and the “value rule” 
which is “the difference between the value of the [structure] 
properly completed according to the contract and the value of 
the defective structure.”  Mann v. Clowser, 190 Va. 887, 903, 59 
S.E.2d 78, 85-86 (1950). 
We have also observed that “cost of correction or 
completion rather than loss in property value ordinarily affords 
the proper basis for measuring the damages which result to the 
owner from the breach of a building or construction contract, or 
other contract to change the condition of real property.  The 
propriety of applying such measure of damages is especially 
clear where correction or completion would not involve 
unreasonable destruction of work done by the contractor and the 
cost thereof would not be grossly disproportionate to the 
results to be obtained.”  Green v. Burkholder, 208 Va. 768, 773, 
160 S.E.2d 765, 768 (1968).  In this context, we have further 
observed that “[t]he cost measure [of damages] is appropriate 
unless the cost to repair . . . would involve unreasonable 
economic waste.”  Lochaven Co. v. Master Pools by Schertle, 
Inc., 233 Va. 537, 543, 357 S.E.2d 534, 538 (1987); see also 
Klaiber v. Freemason Assocs., 266 Va. 478, 488, 587 S.E.2d 555, 
560 (2003); Kirk Reid Co., 205 Va. at 789, 139 S.E.2d at 837. 
 
11
On appeal, the thrust of Nichols Construction’s assertions, 
consistent with its post-trial memorandum, is that the award of 
damages in this case places Virginia Machine Tool in a better 
position than it would have enjoyed had the contract been 
performed as expected.  Nichols Construction maintains that 
under either the cost measure of damages or the value measure of 
damages the award of damages in this case is excessive as a 
matter of law.  In support of this contention, Nichols 
Construction first points out that the contract called for the 
installation of a $140,000 roof and excluded the recovery of 
consequential damages.  Second, Nichols Construction maintains 
that the contract specifically provided for the installation of 
a “Varco Pruden” roof and Virginia Machine Tool was not awarded 
damages for a Varco Pruden roof but, rather, damages for a 
different roof system.  Lastly, Nichols Construction contends 
that Virginia Machine Tool was awarded the cost of replacement 
of the defective roof rather than the cost of repair and the 
amount so awarded was more than two times the value of the 
building, including land and equipment, purchased just five 
years earlier. 
While the considerable disparity between the contract price 
for the roof and the amount of damages awarded to Virginia 
Machine Tool is, initially at least, facially compelling 
evidence in support of Nichols Construction’s position that the 
 
12
award results in a betterment or windfall to Virginia Machine 
Tool, we are not persuaded that such is actually the case.  The 
record clearly supports the circuit court’s conclusion that the 
defective roof would need to be removed and replaced with a new 
roof.  Repair of the defective roof was not established as a 
reasonable option to replacement with a new roof. 
At trial, Nichols Construction offered no evidence to rebut 
the accuracy or reasonableness of Howard’s testimony regarding 
the cost to remedy Nichols Construction’s breach of the 
contract.  The new roof was not shown to be a different or 
superior roof system than that of the contracted-for Varco 
Pruden standing seam roof.  Moreover, no evidence was presented 
as to what the reasonable cost for a Varco Pruden standing seam 
roof would have been in 2007 when the circuit court was called 
upon to determine the amount of the damage award. 
Finally, Nichols Construction offered no evidence of the 
current value of Virginia Machine Tool’s building.  Moreover, 
the record establishes that Virginia Machine Tool purchased the 
property with full knowledge that the existing roof was in a 
state of disrepair.  Accordingly, it is a matter of speculation 
that the 2002 vague purchase price of approximately $180,000 to 
$200,000 reasonably reflects the value of the property with a 
properly installed roof in 2007.  Indeed, the circuit court’s 
ruling on this point was not that the value of the building 
 
13
exceeded the cost of replacing the defective roof, but that 
there had been no evidence presented by Nichols Construction 
regarding this point. 
In this case, Nichols Construction was required to proffer 
competent evidence either that the cost of replacement of the 
roof was less than Virginia Machine Tool contended, or that an 
award of cost damages would be grossly disproportionate and 
result in economic waste.  In the absence of such evidence, the 
circuit court as the trier of fact would have been required to 
resort to speculation and conjecture in order to find that cost 
damages in accord with Howard’s estimate was not the appropriate 
remedy.  Cf. Carr v. Citizens Bank & Trust Co., 228 Va. 644, 
652, 325 S.E.2d 86, 90 (1985).  Nichols Construction failed to 
produce sufficient evidence on either ground to overcome 
Virginia Machine Tool’s prima facie case regarding damages and, 
accordingly, we hold that the circuit court did not err in 
awarding damages for the breach of the contract based upon a 
cost measure as reflected in Howard’s estimate for the removal 
of the defective roof and replacement with a new rafter system 
roof, which was the object of the original contract. 
Nichols Construction also contends that the circuit court 
erred in not allowing it an offset for the amount it claimed 
remained due under the contract.  In rejecting Nichols 
Construction request for an offset, the circuit court cited Kirk 
 
14
 
15
Reid Co.  However, as Nichols Construction notes on brief in 
this appeal, Kirk Reid Co. actually stands for the proposition 
that a contractor is entitled to recover the balance due on a 
contract as an offset in the absence of evidence that the breach 
of the contract was caused by bad faith or a willful departure 
from the contract.  205 Va. at 789-90, 139 S.E.2d at 837.  There 
is no assertion or evidence in the record that Nichols 
Construction’s breach of the contract was willful or the result 
of deliberate bad faith.  Accordingly, we hold that the circuit 
court erred in failing to award Nichols Construction an offset 
for the amount due to it on its contract with Virginia Machine 
Tool. 
CONCLUSION 
For these reasons, we will affirm the judgment in favor of 
Virginia Machine Tool for $450,842, but we will reverse that 
portion of the judgment denying Nichols Construction an offset 
for any balance due on the April 2003 contract.  We will remand 
the case to the circuit court for a calculation of the amount of 
the offset against the judgment and a recalculation of the pre-
judgment interest due on the adjusted award of damages. 
 
Affirmed in part, 
reversed in part, 
 
 
 
 
   and remanded.