The Sources of Duty Rule: A Critical Analysis for Construction and Business Litigation

 Posted on May 16, 2025 in Business

In the complex field of construction and business litigation, understanding the principles that govern liability is essential. One such principle is the "Source of Duty" rule, a key concept in Virginia law that plays a pivotal role in determining whether a claim should be pursued as a tort or as a breach of contract. This blog will explore the Source of Duty rule in depth, referencing key cases and applying this rule to common scenarios encountered in construction disputes. For the attorneys at Fox & Moghul, based in Fairfax, VA, specializing in real estate and business litigation, a thorough understanding of this rule is crucial to securing favorable outcomes for their clients.

What is the Source of Duty Rule?

The Source of Duty rule helps determine whether a claim in construction litigation should be classified as a tort or a breach of contract. The distinction is critical because the remedies available in tort and contract law differ significantly, impacting the litigation strategy. Essentially, the rule states that if the duty breached arises solely from the contractual agreement, the claim must be pursued as a breach of contract. Conversely, if the duty exists independently of the contract, the claim may be actionable in tort.

Case Law Supporting the Source of Duty Rule

One of the leading cases in Virginia that illustrates the Source of Duty rule is Sensenbrenner v. Rust, Orling & Neale, Architects, Inc., 236 Va. 419 (1988). In this case, the plaintiffs sought damages against architects and contractors for faulty construction, which led to substantial damage to their property. The court ruled that because the plaintiffs' claims were based on duties arising from the contract, they could not pursue a tort claim. The Virginia Supreme Court underscored that when a party’s rights are defined by a contract, the remedies must be sought under contract law, not tort law.

This principle was further clarified in Filak v. George, 267 Va. 612 (2004), where the court noted that "the law of torts provides redress only for the violation of certain common law and statutory duties involving the safety of persons and property, which are imposed to protect the broad interests of society." This case reinforced the importance of the Source of Duty rule in determining the proper legal framework for construction-related claims.

Application in Construction and Business Litigation

For a law firm like Fox & Moghul, specializing in construction litigation, the Source of Duty rule is crucial in crafting a legal strategy. To better understand how this rule applies, consider the following example.

Imagine a scenario where a developer hires a contractor to build a commercial office building. The contract specifies that the contractor must use materials that meet specific quality standards. However, after completion, the building experiences significant structural issues due to substandard materials, causing delays and additional costs for repairs.

The developer decides to sue the contractor. The key question is whether the claim should be pursued as a breach of contract or as a tort.

Applying the Source of Duty Rule:

According to the Source of Duty rule, the developer’s claim for the use of substandard materials would be based on the contractor’s failure to meet the obligations outlined in the contract. Therefore, the appropriate course of action would be a breach of contract claim because the contractor’s duty to use quality materials arises directly from the contract.

However, suppose the use of substandard materials leads to a catastrophic failure of the building’s structure, causing damage to adjacent properties or injury to individuals. In that case, the developer could argue that the contractor had a broader, independent duty to ensure the safety and structural integrity of the building—a duty that exists outside the contractual relationship. This would allow the developer to pursue a tort claim for negligence in addition to the breach of contract claim.

By leveraging the Source of Duty rule, Fox & Moghul can guide clients in determining the most effective legal approach, whether through contract remedies for financial losses or tort-based damages for broader harm.

Example Scenario:

Imagine a situation where a property developer hires a construction company, Reliable Builders, to construct a new office building in Northern Virginia. The contract specifies that Reliable Builders must use high-quality, industry-standard materials. However, the contract does not detail the specific brands or grades of materials to be used, nor does it explicitly state that the construction must adhere to all customary industry practices.

During the bidding process, Reliable Builders submits the lowest bid, claiming that they have exclusive access to top-tier materials and a special discount arrangement with a major supplier. Impressed by the cost savings and confident in the company's assurances, the developer awards the contract to Reliable Builders.

Unbeknownst to the developer, Reliable Builders cuts corners by using substandard materials that are not sourced from the mentioned supplier and fails to follow standard construction practices. Shortly after the project is completed and payments are made, significant structural issues arise, including cracks in the foundation and water leakage due to improper sealing. The cost to repair the damage is estimated at $100,000, and the developer faces additional financial losses due to project delays and potential litigation from tenants who have leased space in the building.

Key Question: Can the developer file suit against Reliable Builders for breach of contract, fraud, negligence, or all three?

Why It Matters:

The developer's total losses from the structural defects amount to $100,000. The contract includes a Limitation of Damages Clause, which restricts the developer's recovery to the amount paid to Reliable Builders—$50,000. If the developer can only pursue a breach of contract claim, recovery will be limited to $50,000, leaving the developer with substantial unrecovered losses.

However, if the developer can also pursue claims for fraud or negligence, the potential recovery could cover all actual losses and possibly additional consequential or punitive damages. For instance, a fraud claim could be based on Reliable Builders' false representations about the quality of materials and their exclusive supplier relationship. A negligence claim could arise from Reliable Builders' failure to adhere to industry standards in constructing the building.

By applying the Source of Duty rule, the attorneys at Fox & Moghul can determine the best legal strategy to maximize the developer’s recovery. If the duties breached by Reliable Builders exist independently of the contract, such as the duty not to engage in fraudulent behavior or the general duty of care in construction practices, tort claims for fraud and negligence may be pursued alongside or instead of a breach of contract claim.

In Sensenbrenner, the court stated, "No tort claim will lie for a purely economic loss sustained by the owner of the product," highlighting the need to distinguish between contractual and tort duties. Similarly, in Filak v. George, the Virginia Supreme Court noted, "The law of torts provides redress only for the violation of certain common law and statutory duties involving the safety of persons and property."

Conclusion

The Source of Duty rule is a cornerstone of Virginia law, especially in the context of litigation. For attorneys at Fox & Moghul, understanding and effectively applying this rule can make the difference between winning and losing a case. By ensuring that claims are properly categorized as either contract or tort, the firm can strategically navigate the legal landscape to achieve the best possible outcomes for its clients.

For more information on how the Source of Duty rule might impact your construction-related case, or to consult with an experienced attorney, visit Fox & Moghul’s website at www.moghullaw.com