Opinion ID: 1225148
Heading Depth: 1
Heading Rank: 1

Heading: the original motion for judgment

Text: Ward assigns two errors on appeal, one addressed to the original motion for judgment and the other to the motion as amended. First, he asserts that [t]he lower court erred in granting the Defendant's Demurrer to the Motion for Judgment because Virginia law does not require privity of contract for a party to maintain a breach of contract or negligence action for accountant malpractice. As phrased on brief, one of the questions presented by this assignment is whether this Court [should] adopt the approach in Restatement (Second) of Torts § 552 (1977) to allow a third party to maintain a cause of action for accountant malpractice in either contract or tort, even without privity of contract? In both the statement of the first assignment of error and in the definition of the first question presented by that assignment, Ward seems to suggest that an action for breach of contract should be treated the same as an action for negligence. His argument on brief, however, focuses upon the requirement of privity of contract... to maintain a cause of action in tort against an accountant and an accountant's duty to a non-contractual party for professional negligence. We will maintain that focus in our analysis of the issues related to the trial court's ruling granting the demurrer to Ward's original motion for judgment. We accord due respect to the views of courts in the 18 jurisdictions that have adopted the Restatement rule. [1] We decline, however, to carve out and apply against accountants an exception to the rule we have consistently applied in actions seeking damages for an economic loss resulting from negligent performance of a contractual commitment brought by a non-party to the contract. In four recent cases, we have held that privity of contract is an essential element of such an action at law. In Blake Construction Co. v. Alley, 233 Va. 31, 353 S.E.2d 724 (1987), a general contractor on a construction project sued the architects, demanding damages resulting from negligence in the performance of their duties under their contract with the owner. The general contractor had a bilateral contract with the owner but none with the architects. The architects filed a demurrer, relying on the common-law rule that a party not in privity may not recover damages where there is no physical injury to person or property. Id. at 33, 353 S.E.2d at 725. The trial court entered judgment granting the demurrer, and we affirmed the judgment. On appeal, the general contractor invoked Code § 8.01-223 which provides that where recovery of damages for injury to person, including death, or to property resulting from negligence is sought, lack of privity between the parties shall be no defense. The general contractor argued that this statute was intended to overrule the common-law privity requirement, irrespective of the nature of the loss for which recovery is sought. Citing the doctrine that statutes in derogation of the common law are to be strictly construed, and noting that the statute in issue is addressed solely to actions claiming damages for injuries to person or property, we held that [w]e cannot impute to the General Assembly an intent to abrogate by implication the privity requirement in cases where no such injury is alleged, thereby allowing negligence actions for solely economic loss. Id. at 34, 353 S.E.2d at 726. Explaining that negligence is actionable only for violation of a duty to protect the safety of the person or property of another, we applied the principle that `where mere deterioration or loss of bargain is claimed, the concern is with a failure to meet some standard of quality. This standard of quality must be defined by reference to that which the parties have agreed upon.' Id. at 35, 353 S.E.2d at 726 (quoting Crowder v. Vandendeale, 564 S.W.2d 879, 882 (Mo. 1978) (emphasis in original)). In Sensenbrenner v. Rust, Orling & Neale, 236 Va. 419, 374 S.E.2d 55 (1988), we reaffirmed and applied the rule in Blake against landowners. In that case, the landowners brought a negligence action against an architect and a swimming pool subcontractor engaged by a general contractor employed by the landowners. Next, in Rotonda Cond. Owners v. Rotonda Associates, 238 Va. 85, 380 S.E.2d 876 (1989), this Court held that a condominium owner's association had no standing to bring a suit to enforce the rights of individual condominium owners against a developer for failure to make appropriate repairs of structural defects in the common elements. At the foot of the opinion, we acknowledged that the holding on that issue subsumes the Association's final assignment of error, which asserts that the trial court erred in dismissing its count for `negligent repairs.' Id. at 90, 380 S.E.2d at 879. Yet, invoking the rule applied twice before, we noted that the Association sought only to recover damages for the economic losses associated with the cost of repairing the defects in the common elements. Such economic losses are not recoverable in tort; they are purely the result of disappointed economic expectations. The law of contracts provides the sole redress for such claims.[ [2] ] Id. (citation omitted). Our most recent application of the rule requiring privity of contract in order to recover damages for economic loss under a negligence theory is found in Copenhaver v. Rogers, 238 Va. 361, 384 S.E.2d 593 (1989). In Copenhaver, the remaindermen named in a failed testamentary trust brought an action for legal malpractice against the trustors' attorney, claiming damages for loss of their interest in half the residuary share. Citing Blake and Sensenbrenner in an opinion affirming the trial court's decision to sustain the attorney's demurrer, we said: This is not a case involving personal injury or property damage, areas in which the common-law privity rules have been modified by statute. See, e.g., §§ 8.01-223 and 8.2-318. Instead, this is a case involving a claim solely for economic losses. It is settled in the Commonwealth that no cause of action exists in such cases absent privity of contract.[ [3] ] Id. at 366, 384 S.E.2d at 595 (citations omitted). In our view, it is conceptually impossible to distinguish Ward's claim from the plaintiffs' claims in these four cases. All sought damages for economic losses sustained as a result of services performed under contracts to which the plaintiffs were not parties. Lacking privity, each attempted to convert his breach of contract cause of action into a negligence cause of action. Urging us to adopt an exception to the privity requirement when the alleged tortfeasor is an accountant, Ward argues that [a]ccountants can be differentiated from attorneys and architects in several ways. He reasons that Certified Public Accountants... by being certified ... are vouching for the reliability and accuracy of their work; that they are inviting the public to rely on ... their work; and that it is foreseeable that third parties ... will rely on the accountants' work.... We find no merit in these arguments. While attorneys and architects are not certified, they are licensed to invite the public to rely on their professional competence, and they are regulated and disciplined in the performance of services to those who accept their invitation. With respect to his foreseeability argument, Ward overlooks the fact that, although it was predictable that the general contractor in Blake and the landowners in Sensenbrenner would rely on the work of the architects and contractors in those cases, this Court declined to exempt the plaintiffs from the rule requiring privity of contract. In a second question raised by his first assignment of error, Ward inquires: In any event, did William Ward sustain property losses and not economic losses such that privity is not required? In support of his view that the loss he suffered was a property loss within the intendment of Code § 8.01-223, Ward cites Code § 8.8-102(1)(a) (security is a share... or other interest in property); Commonwealth v. Morris, 196 Va. 868, 872, 86 S.E.2d 135, 138 (1955) (sale of stock is taxable property transaction); Va. Public Service Co. v. Steindler, 166 Va. 686, 695, 187 S.E. 353, 356 (1936) (stock is property... subject to depreciation as well as appreciation in value); Iron City Bank v. Isaacsen, 158 Va. 609, 628, 164 S.E. 520, 526 (1932) ([a] share of stock of a corporation is intangible personal property partaking of the nature of a chose in action....). Since both the Virginia courts and the legislature recognize corporate stock as personal property, Ward reasons, the amount received from the sale of [his] stock is a personal property loss. Consequently, he insists, lack of privity of contract is no defense to his negligence action. While the interest represented by a stock certificate is, indeed, an intangible personal property right, we do not agree that Ward's loss was an injury ... to property resulting from negligence within the intendment of Code § 8.01-223. Our decision is controlled by the distinction we drew between property losses and economic losses in Sensenbrenner v. Rust, Orling & Neale, 236 Va. 419, 374 S.E.2d 55 (1988). There, the landowners contracted with a builder for construction of a house with a swimming pool. The builder engaged an architect and a pool subcontractor. The landowners had no contract with either. After the project was completed, the landowners discovered that the pool, constructed on fill dirt, had settled and that water seeping from broken pipes had caused a crack in the bottom of the pool and in the foundation of the house. Alleging negligence in the design and installation of the pool and in supervision of the project, the landowners filed suit in the United States District Court for the Eastern District of Virginia against the pool subcontractor and the architect. The district court granted the defendants' motions to dismiss on the ground that the landowners, lacking privity of contract, had suffered only an economic loss. On appeal to the United States Court of Appeals for the Fourth Circuit, the landowners argued that their loss was property damage and that, under Code § 8.01-223, privity was not required. Responding to a question certified to us, we agreed with the ruling of the district court. Defining a test for the classification of the character of a loss, we said: The controlling policy consideration underlying tort law is the safety of persons and propertythe protection of persons and property from losses resulting from injury. The controlling policy consideration underlying the law of contracts is the protection of expectations bargained for. If that distinction is kept in mind, the damages claimed in a particular case may more readily be classified between claims for injuries to persons or property on one hand and economic losses on the other. The plaintiffs here allege nothing more than disappointed economic expectations. They contracted with a builder for the purchase of a package. The package included land, design services, and construction of a dwelling. The package also included a foundation for the dwelling, a pool, and a pool enclosure. The package is alleged to have been defectiveone or more of its component parts was sufficiently substandard as to cause damage to other parts. The effect of the failure of the substandard parts to meet the bargained-for level of quality was to cause a diminution in the value of the whole, measured by the cost of repair. This is a purely economic loss, for which the law of contracts provides the sole remedy. Id. at 425, 374 S.E.2d at 58. Borrowing from this language, we think that the services of Ernst & Young were intended to meet a certain bargained-for level of quality. Ward's reliance upon the substandard professional services rendered by Ernst & Young induced him to make the warranties and to execute the escrow indemnity covenant that became the foundation of his liability to Chem Waste. His liability was measured by the diminution in the value of the whole stock package, i.e., the difference between the sale price of his stock fixed in reliance upon the bargained-for services and the value determined by a correct accounting formula. In effect, Ward allege[s] nothing more than disappointed economic expectations. His loss, then, was a purely economic loss. Because Ward, lacking privity of contract with Ernst & Young, sought to recover damages for economic loss under negligence principles, we hold that the trial court did not err in granting the demurrer to the original motion for judgment.