13.2 Election of Remedies

• Library: Contract Law in Virginia (Virginia CLE) (2019 Ed.)

13.2 ELECTION OF REMEDIES

13.201 Tort Versus Contract. Virginia law has carefully guarded against the "more or less inevitable efforts of lawyers to turn every breach of contract into a tort," ² by denying a recovery in tort, including punitive damages, where the source of the breach of duty complained of lies in contract. The distinction between causes of action sounding in contract and those sounding in tort was described in Oleyar v. Kerr: ³

If the cause of complaint be for an act of omission or nonfeasance which, without proof of a contract to do what was left undone, would not give rise to any cause of action (because no duty apart from contract to do what is complained of exists) then the action is founded upon contract, and not upon tort. If, on the other hand, the relation of the plaintiff and the defendants be such that a duty arises from that relationship, irrespective of contract, to take due care, and the defendants are negligent, then the action is one of tort. ⁴

In 1988, the Virginia Supreme Court explained the distinction more succinctly in Sensenbrenner v. Rust, Orling & Neale, Architects, Inc.: ⁵

Tort law is not designed, however, to compensate parties for losses suffered as a result of a breach of duties assumed only by agreement. That type of compensation necessitates an analysis of the damages which were within the contemplation of the parties when framing their agreement. It remains the particular province of the law of contracts.

In some instances, where personal injury or property damage is involved, a plaintiff may be able to assert causes of action in both tort and

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contract. ⁶ But where "the only duties allegedly violated . . . emanate exclusively from the parties' preexisting contractual relationship," the plaintiff cannot pursue recovery in tort. ⁷ Accordingly, in the "typical" breach of contract case in which the plaintiff alleges a breach of a duty imposed by the contract entitling the plaintiff to some remedy, the action can be pursued only in contract.

The Virginia Supreme Court has recognized that a plaintiff alleging breach of contract may pursue recovery on a tort theory if the plaintiff alleges a willful, independent tort in a count separate from the count that alleges a breach of contract. ⁸ However, the mere breach of a contractual duty, regardless of the motives underlying the breach, cannot serve as a basis for a tort cause of action. ⁹ Again, the duty breached must be a common law duty, not one existing between the parties solely by virtue of the contract. ¹⁰

The distinction between tort and contract causes of action has significant implications in cases in which the plaintiff seeks recovery of purely economic losses. ¹¹ Where economic losses (without damage to persons or other property) are alleged by reason of faulty performance under a contract, the plaintiff, if a party to that contract, is limited to his or her contract remedy

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and may not seek recovery in tort. ¹² Although Virginia recognizes an exception to the contract limitation for economic loss damages in cases of fraud in the inducement, ¹³ the exception does not apply when the complaint is simply that the defendant represented that he or she had complied with the contract when he or she had not.

13.202 Law Versus Equity. In some instances, the plaintiff will have a choice whether to seek money damages for breach or to seek specific performance or some other non-monetary equitable remedy. In such cases, counsel's choice may turn more on practical than on legal considerations. ¹⁴

Effective January 1, 2006, changes to the Virginia Code and the Rules of the Virginia Supreme Court created a single form of civil action in which both legal and equitable claims can be joined in a single action. ¹⁵ Although a distinction still exists between legal and equitable claims, all such claims can be asserted and litigated in the same proceeding. These statutory amendments did not repeal section 8.01-422 of the Virginia Code, however, which

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expressly permits the defendant to plead equitable defenses in response to a plaintiff's breach of contract claim seeking money damages.

Virginia's adoption of the UCC has been held not to have altered the maxim that specific performance is inappropriate where damages are recoverable and adequate. ¹⁶ It should be noted, however, that Virginia adopted the Official Comment to section 2-716 of the UCC, which states that the section "seeks to further a more liberal attitude" toward the granting of specific performance of sales contracts and to weigh the "uniqueness" of the goods involved "in terms of the total situation which characterizes the contract." ¹⁷

Counsel, therefore, should focus on whether a monetary remedy for breach is truly an "adequate" remedy under the circumstances. For instance, monetary damages for breach may be inadequate if the contract involves goods for which the defendant has a patent or other exclusive right, making true substitute performance unavailable. ¹⁸

13.203 Cases Decided Under Former Bifurcated System of Law and Equity.

A. Equitable Remedies in Actions at Law. Section 8.01-422 expressly permits the defendant to plead equitable defenses in response to a plaintiff's breach of contract claim seeking money damages:

[i]n any action on a contract, the defendant may file a pleading, alleging any matter which would entitle him to relief in equity, in whole or in part, against the obligation of the contract; or, if the contract be by deed, alleging any such matter arising under the contract, existing before its execution, or any such mistake therein, or in the execution thereof, or any such other matter as would entitle him to such relief in equity; and in either case alleging the amount to which he is entitled by reason of the matters contained in the pleading. If the amount claimed by the defendant exceed the amount of

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the plaintiff's claim the court may, in a proper case, give judgment in favor of the defendant for such excess. ¹⁹

These defenses are set up by way of a special plea and under the statute are denominated as defenses rather than as counterclaims. ²⁰ Cummings v. Fulghum ²¹ held that because the statute specifically denominates the matters as defenses and does not contain any language subjecting the equitable pleas to the statute of limitations applicable to actions at law, the pleas are not subject to a statute of limitations defense. Although the decision in Cummings, by its terms, deals only with a plea of recoupment, the court's reasoning is equally applicable to any defense permitted under section 8.01-422.

B. Legal Remedies in Suits in Equity. Virginia law clothes a chancellor in equity with broad power to achieve justice between the parties to the suit. "When a court of equity acquires jurisdiction of a cause for any purpose, the court may retain the entire cause to accomplish complete justice between the parties. Thus, the chancellor may hear legal claims and enforce legal rights by applying remedies available only at law." ²² The chancellor may, but is not required to, cede authority over the law claims and permit the parties to pursue their legal remedies before a jury. ²³ If the chancellor decides to retain jurisdiction of the matter to adjudicate the legal claims, and no party asserts its right to have the claims heard by a jury, then Virginia law deems the chancellor to act "as a substitute for a court of law." ²⁴

As a practical matter, this means that the court may grant legal (monetary) relief that is deemed to be ancillary to the equitable claims. It appears that even if the court denies equitable relief entirely, it may still award legal relief if that appears to be the just outcome. ²⁵

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Counsel should be particularly careful, therefore, in...