Title: NAJLA Associates Inc. v. William L. Griffith & Co.

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  All the Justices 
 
NAJLA ASSOCIATES, INC. 
 
OPINION BY JUSTICE LEROY R. HASSELL, SR. 
v.   Record No. 960604         January 10, 1997 
 
WILLIAM L. GRIFFITH & COMPANY OF VIRGINIA, INC. 
 
 
FROM THE CIRCUIT COURT OF FAIRFAX COUNTY 
 
Gerald Bruce Lee, Judge 
 
 
The dispositive issue in this appeal is whether a 
corporate plaintiff that recovered consequential damages for 
breach of contract presented sufficient evidence that those 
damages were within the contemplation of the contracting 
parties at the time they executed the contract. 
 
NAJLA Associates, Inc., a District of Columbia 
corporation, executed a contract with William L. Griffith & 
Company of Virginia, Inc., a general contractor, to 
construct a shopping center known as Willow Run.  David W. 
Peacock, president of Griffith, learned that NAJLA intended 
to finance the construction without a loan from an 
institutional lender.  Griffith and its bonding company were 
concerned about this financial arrangement because, if NAJLA 
experienced financial problems, Griffith might not be paid 
for its work and materials.   
 
Therefore, Griffith and NAJLA executed an escrow 
agreement creating an identifiable source of money to secure 
NAJLA's payment obligations to Griffith under the terms of 
the construction contract.  The escrow agreement required 
NAJLA to maintain an escrow account in the amount of 
$130,000 from which Griffith could obtain payments if NAJLA 
failed to pay timely any construction progress payment.  
Generally, NAJLA was required to make prompt reimbursement 
to the escrow account for any sum paid to Griffith from that 
account.   
 
Griffith submitted payment applications totaling 
$103,262 to NAJLA toward the end of the completion of 
construction which NAJLA refused to pay because of its claim 
that Griffith was not entitled to that full amount.  Unknown 
to Griffith, the escrow agent paid this sum to Griffith from 
the escrow account, and when Griffith learned the escrow 
agent had done so, Griffith demanded that NAJLA reimburse 
the escrow account.  NAJLA refused to reimburse the account. 
 Thereafter, Griffith commenced an arbitration proceeding 
against NAJLA under the provisions of the construction 
contract to recover the full amount of its payment 
applications.  The arbitrator awarded Griffith damages, and 
the trial court entered judgment on the arbitrator's award.  
 
Subsequently, Griffith initiated this action by filing 
a motion for judgment seeking recovery of damages against 
NAJLA and others.
*  Griffith alleged that it suffered 
damages because of NAJLA's breach of the escrow agreement, 
                     
     
*Griffith also named as defendants:  Samir Qreitem, 
president of NAJLA; John F. Pitrelli and Hugh Cregger, Jr., 
lawyers allegedly involved in the management or 
establishment of the escrow account; Eskovitz, Lazans, 
Pitrelli & Cregger, a law firm that allegedly managed and 
controlled the remaining defendant, E.L.P. Title & Escrow 
Co.  The jury returned a verdict in favor of Griffith 
against these defendants, and Griffith's claims against 
these defendants were ultimately settled.   
as distinguished from damages for breach of the construction 
contract.   
 
Griffith presented the following evidence at trial in 
support of its claim for damages.  Generally, project 
developers, including NAJLA, require that general 
contractors, such as Griffith, acquire performance and 
payment bonds as a condition of obtaining construction 
contracts.  Griffith obtained its performance and payment 
bonds from the Aetna Casualty and Surety Company.   
 
Aetna established a "work program" for Griffith in the 
total amount of $2,500,000.  The "work program" is the total 
volume of bonded business that a bonding company permits a 
contractor to perform.  Aetna would not provide any bonds 
for Griffith for new projects if Griffith's work in progress 
exceeded $2,500,000.   
 
Aetna evaluated Griffith's capital, including its 
liquid assets, to establish the amount of Griffith's "work 
program."  Certain accounts receivable were deemed liquid 
assets and, thus, were included in Griffith's capital base. 
 Accounts receivable that were disputed or outstanding for 
more than 90 days were excluded from consideration of 
Griffith's capital base.  Thus, Aetna did not consider the 
account receivable that NAJLA owed to Griffith, 
approximately $100,000, as a part of Griffith's liquid 
assets, and Griffith's "work program" was reduced by 
$1,000,000.   
 
Peacock testified that Griffith lost profits during its 
dispute with NAJLA because Griffith was unable to submit 
bids on certain projects due to its reduced "work program." 
 Griffith also presented evidence that it incurred damages 
because certain subcontractors, who had performed work for 
it before the Willow Run project, were no longer willing to 
work for Griffith because it was delinquent in paying them 
for their work on that project.  Peacock testified that in 
the future, Griffith would have to use subcontractors who 
were more expensive than its former subcontractors.  Peacock 
also testified that Griffith incurred damages because its 
dispute with NAJLA caused Griffith to experience "cash flow" 
problems.   
 
NAJLA moved to strike Griffith's evidence, asserting, 
among other things, that its purported damages were not 
reasonably contemplated at the time Griffith and NAJLA 
executed the escrow agreement.  The trial court denied the 
motion and submitted the case to the jury which returned a 
verdict in favor of Griffith against NAJLA in the amount of 
$175,000.  The trial court entered a judgment confirming the 
jury's verdict, and we awarded NAJLA an appeal.   
 
NAJLA asserts that Griffith's damages were not 
reasonably foreseeable at the time the escrow agreement was 
executed and, therefore, are not recoverable as a matter of 
law.  Griffith argues that NAJLA understood the importance 
of Griffith's relationship with its bonding company and that 
"the manipulation of the escrow account would significantly 
impair that relationship to Griffith's detriment."  We agree 
with NAJLA. 
 
In Roanoke Hospital v. Doyle and Russell, 215 Va. 796, 
801, 214 S.E.2d 155, 160 (1975), we stated the following 
principles which are pertinent here: 
 
 
"There are two broad categories of damages ex 
contractu:  direct (or general) damages and 
consequential (or special) damages.  Washington & 
Old Dominion R.R. Co. v. Westinghouse Co., 120 Va. 
620, 627, 89 S.E. 131, 133 (1916).  See also 
Sinclair v. Hamilton & Dotson, 164 Va. 203, 209, 
178 S.E. 777, 779 (1935).  Direct damages are 
those which arise 'naturally' or 'ordinarily' from 
a breach of contract; they are damages which, in 
the ordinary course of human experience, can be 
expected to result from a breach.  Consequential 
damages are those which arise from the 
intervention of 'special circumstances' not 
ordinarily predictable.  If damages are determined 
to be direct, they are compensable.  If damages 
are determined to be consequential, they are 
compensable only if it is determined that the 
special circumstances were within the 
'contemplation' of both contracting parties.  
Whether damages are direct or consequential is a 
question of law.  Whether special circumstances 
were within the contemplation of the parties is a 
question of fact." 
 
Accord Duggin v. Williams, 233 Va. 25, 29-30, 353 S.E.2d 
721, 723-24 (1987). 
 
Here, Griffith's purported damages are consequential 
and, therefore, Griffith was required to prove that its 
purported damages were within the contemplation of both 
contracting parties at the time they executed the escrow 
agreement.  Griffith presented no evidence which would 
permit the jury to find that when the contracting parties 
signed the escrow agreement, they contemplated that had 
NAJLA breached that agreement, such breach would have 
restricted Griffith's "work program," thereby preventing 
Griffith from bidding on projects.  Griffith did not present 
any evidence that NAJLA was even aware of Griffith's "work 
program" when the escrow agreement was executed.   
 
Likewise, Griffith presented no evidence that either 
party to the contract contemplated that Griffith's future 
costs for subcontractors would increase as a result of 
NAJLA's breach of the escrow agreement.  Finally, Griffith 
failed to produce evidence that the parties contemplated at 
the time they signed the escrow agreement that NAJLA's 
breach of that agreement would cause Griffith to experience 
cash flow problems.   
 
Accordingly, we will reverse the judgment of the trial 
court and enter final judgment here in favor of NAJLA.   
 
Reversed and final judgment.