GERALD M. MOORE AND SON, INC. v. DREWRY

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Docket Number

Record No. 951365

Attorney(S)

Brian N. Casey (Taylor Walker, on briefs), for appellant. John S. Wilson (Walter D. Kelly, Jr.; Willcox Savage, on brief), for appellee.

Judges

Elizabeth B. Lacy

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Smart Summary

Factual and Procedural Background

Gerald M. Moore and Son, Inc. (Moore), a corporation owning and operating an industrial plant, contracted with Drewry and Associates, Inc. (DA), an engineering firm, to design and furnish a reduction furnace for thermal remediation of petroleum-contaminated soil. The contract was signed by Joseph S. Drewry, Jr., president of DA, who personally performed all engineering work. The furnace malfunctioned due to design defects, leading Moore to sue DA for breach of contract, breach of warranties, and negligence, and to add Drewry individually in the negligence count. The trial court found DA liable for breach of contract and both DA and Drewry liable for negligence, awarding Moore damages based solely on economic loss. DA and Drewry were held jointly and severally liable. Drewry appealed, and the United States Court of Appeals for the Fourth Circuit certified to the Supreme Court of Virginia the question of whether Drewry, as an engineer and non-party to the contract, could be held liable for purely economic losses resulting from negligent contract performance.

Legal Issues Presented

Whether the economic loss doctrine bars recovery for negligence where the defendant, Drewry, was not a party to the contract.
Whether Drewry's role as DA's licensed engineer and agent creates liability for negligent acts performed on behalf of DA despite the absence of privity and the involvement of only economic loss.

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Allen Realty Corp. v. Holbert, 227 Va. 441, 318 S.E.2d 592 (1984)	Agent liability for negligent performance of a contract to which the principal is a party but the agent is not.	The court acknowledged that under Virginia law, an agent can be held liable for negligent contract performance even without direct privity.
Sensenbrenner v. Rust, Orling Neale, 236 Va. 419, 374 S.E.2d 55 (1988)	Economic loss doctrine precludes recovery of damages for purely economic loss absent privity.	The court applied this doctrine to preclude recovery of economic loss damages against the agent without privity.
Blake Constr. Co. v. Alley, 233 Va. 31, 353 S.E.2d 724 (1987)	Reinforcement of the economic loss doctrine barring recovery for economic loss absent privity.	Supported the court’s conclusion that economic loss damages cannot be recovered without privity.
Miller v. Quarles, 242 Va. 343, 410 S.E.2d 639 (1991)	Agent's liability for negligent performance involving direct loss of specific property, not economic loss.	The court distinguished this case as inapplicable because it involved loss of specific property, not economic loss, thus not altering the privity requirement.

Court's Reasoning and Analysis

The court began by assuming no privity existed between Drewry and Moore, as Drewry was not a party to the contract. It acknowledged that under Virginia law, an agent may be liable for negligent performance of a contract to which his principal is a party. However, the court emphasized that the economic loss doctrine bars recovery of purely economic loss damages in negligence claims absent privity of contract. The court examined the precedent set in Miller v. Quarles, noting that it involved direct loss of specific property rather than economic loss and thus did not affect the privity requirement for economic loss claims. Consequently, the court concluded that Drewry, as an agent without privity, could not be held liable for purely economic losses resulting from negligent contract performance.

Holding and Implications

The certified question is answered in the negative.

The court held that, under Virginia law, in the absence of privity of contract, a person—even an agent who performed the work—cannot be held liable for economic loss damages caused by negligent performance of a contract. The direct effect is that Drewry is not personally liable for Moore's economic losses arising from the negligent engineering work. This decision does not establish new precedent beyond reaffirming the economic loss doctrine's application in the context of agents and contract negligence without privity.

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GERALD M. MOORE AND SON, INCORPORATED v. JOSEPH S. DREWRY, JR., AND DREWRY AND ASSOCIATES, INCORPORATED

Contracts — Privity — Torts — Negligence — Economic Loss Doctrine — Damages

In the absence of privity, a person cannot be held liable for economic loss damages caused by his negligent performance of a contract and a question of Virginia law involving the application of the economic loss doctrine to an award of damages for negligent performance of a contract certified from the United States Court of Appeals for the Fourth Circuit is answered in the negative.

Plaintiff, a corporation which owns and operates an industrial plant, entered into a contract with defendant engineering firm to design and furnish a furnace for thermal remediation of petroleum contaminated soil. The contract was signed by the president of the firm, who performed all of the engineering work on the project. When the furnace did not function properly because of design defects, the plaintiff filed suit alleging breach of contract, breach of warranties, and negligence. The individual engineer was added as a defendant in the negligence count. The firm was found liable for breach of contract and both the firm and the engineer were found liable for negligence. The corporation was awarded damages based on its economic loss and the firm and the engineer were held jointly and severally liable for the entire amount. In considering the engineer's appeal, the Court of Appeals certified the question:

Whether the president of the firm, as the engineer who performed the work for which the contract between the parties called, is liable for the purely economic losses resulting from the negligent performance of the contract.

1. The response to the certified question assumes that there is no privity between the engineer and the plaintiff corporation.

2. Under Virginia law, an agent can be held liable for negligent performance of a contract to which he is not party, but to which his principal is a party.

3. However, even if the agent's negligence is established, absent privity of contract, Virginia's economic loss doctrine precludes the recovery of damages based on economic loss alone.

4. In another case the damages sought and recovered against an agent, although stated in terms of dollars, reflected the direct loss of specific property, not an economic loss suffered by the plaintiff and that case is inapposite to the certified question here.

5. In the absence of privity, a person cannot be held liable for economic loss damages caused by his negligent performance of a contract and the certified question is answered in the negative.

JUSTICE LACY delivered the opinion of the Court.

Pursuant to our Rule 5:42, the United States Court of Appeals for the Fourth Circuit certified a question of Virginia law to this Court which we accepted by order entered September 22, 1995. The question involves the application of the economic loss doctrine to an award of damages for negligent performance of a contract in the absence of privity.

The following facts are set forth in the Court of Appeals' order of certification. Gerald M. Moore and Son, Inc. (Moore) owns and operates an industrial plant in Nassawadox, Virginia. In 1990, Moore entered into a contract with an engineering firm, Drewry and Associates, Inc. (DA), to engineer, design, and furnish a reduction furnace for Moore's use in the process of thermal remediation of petroleum contaminated soil. The contract was signed by Joseph S. Drewry, Jr., as president of DA. Drewry performed all the engineering work required by the contract.

The reduction furnace provided by DA did not work properly because of design and engineering defects. Moore filed suit against DA alleging breach of contract, breach of warranties, and negligence. By amended complaint, Moore added Drewry as a defendant in the negligence count. DA was found liable for breach of contract and both DA and Drewry were found liable for negligence. Moore was awarded damages of $107,182.70, based entirely on its economic loss. DA and Drewry were held jointly and severally liable for the judgment amount.

In considering Drewry's appeal, the Court of Appeals certified the following question to us and stated that the resolution of the issue will be determinative of the proceeding in that court:

Whether Drewry, the president of DA, as the engineer who performed the work for which the contract between DA and Moore called, is liable for the purely economic losses resulting from the negligent performance of that contract.

The Court of Appeals also suggested that in answering the question we may need to consider the following issues:

A. Does the economic loss doctrine bar recovery for negligence where the defendant, Drewry, was not a party to the contract?

B. Under Miller v. Quarles, 242 Va. 343, 410 S.E.2d 639 (1991), did Drewry's position as DA's licensed engineer on the project create a liability for negligent acts performed as an agent for DA, even though solely economic loss was involved?

Although not specifically stated in the certified question, the issues suggested by the Court of Appeals indicate that Drewry was not a party to the contract between Moore and DA. Therefore, our response to the certified question assumes that there is no privity between Drewry and Moore.

As recognized by the Court of Appeals, under Virginia law, an agent can be held liable for negligent performance of a contract to which he is not a party, but to which his principal is a party. Allen Realty Corp. v. Holbert, 227 Va. 441, 450, 318 S.E.2d 592, 597 (1984). However, even if the agent's negligence is established, absent privity of contract, Virginia's economic loss doctrine precludes the recovery of damages based on economic loss alone. Sensenbrenner v. Rust, Orling Neale, 236 Va. 419, 425, 374 S.E.2d 55, 58 (1988); Blake Constr. Co. v. Alley, 233 Va. 31, 34-36, 353 S.E.2d 724, 726-27 (1987).

Our recent case of Miller v. Quarles, 242 Va. 343, 410 S.E.2d 639 (1991), does not alter the privity requirement for recovery of purely economic loss damages in negligence actions. In Miller, Commonwealth Capital Corporation agreed to arrange financing 280 Gerald M. Moore and Son, Inc. v. Drewry for Colonial Electric Company, Inc. to purchase and develop property. At the request of Fred H. Quarles, a vice-president of Commonwealth Capital, Colonial Electric delivered an escrow deposit to Quarles. Quarles subsequently gave a portion of the deposit, $50,000, to a third party who never secured the financing and absconded with the funds. Assignees of Colonial Electric sued Commonwealth Capital and Quarles individually for breach of contract and negligent performance of the contract. 242 Va. at 344-45, 410 S.E.2d at 640-41.

Quarles was held liable for his negligent performance of the contract between Commonwealth Capital and Colonial Electric. In accepting the escrow deposit, Quarles and Commonwealth Capital assumed a common law duty of reasonable care in safeguarding Colonial Electric's property. Quarles breached this duty when he gave the funds to the third party. Id. at 347, 410 S.E.2d at 641-42. The damages sought and recovered against Quarles, although stated in terms of dollars, reflected the direct loss of specific property, the escrow deposit, not an economic loss suffered by Colonial Electric. Miller did not involve recovery of economic loss damages and, therefore, is inapposite to the certified question presented here.

Accordingly, in the absence of privity, a person cannot be held liable for economic loss damages caused by his negligent performance of a contract, and the certified question is answered in the negative.

The certified question is answered in the negative.