source of duty Tag Archives — The Virginia Business Litigation Blog

May 27, 2026

Malfeasance Alone Insufficient to Escape Source-of-Duty Rule

Virginia courts apply the “source of duty” rule to distinguish contract claims from tort claims. A contracting party may recover in tort only if the breached duty arises independently under common law, not merely from the parties’ contract. If the duty exists only because of the contract, the plaintiff is limited to contract remedies. A persistent question in Virginia commercial litigation is whether a defendant’s affirmative wrongdoing (e.g., a lie or a forged invoice) transforms what would otherwise be a breach of contract into an independent tort. Surely fraud, by its nature, lies outside the contract, the plaintiff’s argument typically goes. The Court of Appeals of Virginia took up this question earlier this month in Precision & Performance Auto Care, LLC v. James River Petroleum, Inc. Affirmative wrongdoing is necessary to escape the source-of-duty rule, it held, but wrongdoing alone is not sufficient to avoid application of the source-of-duty rule. The wrongdoer’s state of mind matters, but so does the source of the duty he violated. Tort claims will generally be barred unless the plaintiff can point to a common-law duty independent of the contract, a special relationship between the parties, fraudulent inducement (not just fraudulent breach), or damages that differ in kind from contract damages.

The facts of the opinion describe the following scheme. James River Petroleum, a fuel distributor, issued WEX-backed credit cards to commercial customers. Two cardholders used their cards to “buy” goods and services from SS&B Distributor, LLC, an entity owned by Sharon Britt, and from a separate auto dealership Britt also owned. The relationships among the players were close: Britt jointly owned a residence with one of the cardholders, and she lived on the same street as the other. By late 2023, monthly nonfuel charges across James River’s customer base had spiked from a few thousand dollars to roughly half a million, with the two cardholders responsible for approximately 99 percent of those charges. Fuel purchases showed identical gallon counts at identical per-gallon prices across multiple dates (a forensically improbable pattern given that fuel prices fluctuate). The cardholders ultimately defaulted on more than half a million dollars in card balances.

June 13, 2020

Source-of-Duty Rule May Apply to Bar Fraud Claim Inextricably Entwined with Contractual Duties

by Lee E. Berlik

If you sue someone for fraud, you can win punitive damages in addition to regular compensatory damages. If you’re suing only for breach of contract, punitive damages are a no-go. As punitive damages can add up to $350,000 to the value of the plaintiff’s claim, plaintiffs naturally try to add fraud claims to their breach-of-contract lawsuits whenever possible. The “source of duty” rule, however, limits the circumstances under which plaintiffs can pursue such a strategy. The rule provides that tort claims (like fraud) can only be pursued if the source of the duty allegedly breached is the common law and not a contract entered into between the parties. The Virginia Supreme Court has clarified in recent years that if a fraudulent misrepresentation is made within a contract, the plaintiff is limited to contract remedies, but if a misrepresentation is made for the purpose of inducing another party to enter into a contract, a separate fraud claim can be pursued.

If a fraudulent misrepresentation is made before a contract even comes into existence, it’s a pretty good bet that you’re dealing with a separate fraud claim and won’t be limited to contract remedies. After a contract is formed, however, it can be tricky to determine the source of the duty violated. One reason for this is that courts have applied the source-of-duty rule to exclude fraud claims when they are based on misrepresentations that are closely related to promises made within the contract, even if the misrepresentations are not made expressly therein. (See Tingler v. Graystone Homes, Inc., 834 S.E.2d 244, 257–58 (Va. 2019) (noting that “a putative tort can become so inextricably entwined with contractual breaches that only contractual remedies are available)). If a fraudulent act “arises out of” a contractual relationship and the damages caused by the fraud also arise out of that relationship, that can be enough for application of the source-of-duty rule.

December 19, 2019

Fraudulent Inducement Claims Not Covered by Source-of-Duty Rule

by Lee E. Berlik

Many lawyers pursuing business litigation on behalf of their clients will file a whole panoply of claims rather than content themselves with a single count for breach of contract. As the law generally permits a wider range of remedies (and higher damages awards) for tort claims like fraud and tortious interference, plaintiffs seeking to enforce contract rights in court will often sue for various tort claims in addition to breach of contract. Sometimes this works and sometimes it doesn’t. Courts are guided by various principles to help them weed out contract-based claims disguised as tort claims. One such principle is known as the “source of duty” rule.

When a plaintiff alleges that the defendant violated some duty owed to him, the court will examine the source of the duty allegedly violated. If the source of the duty is a contract entered into by the parties, as opposed to common law or some provision of the Virginia or United States Code, the court will treat the claim as one for breach of contract and limit remedies accordingly. Of course, there are circumstances in which a defendant can both breach a contract and commit a tort by violating a common-law duty. It is up to the court, however, to dismiss any tort claims based on the alleged violation of a duty that exists solely by virtue of a contractual agreement. (See Preferred Sys. Sols., Inc. v. GP Consulting, LLC, 284 Va. 382, 408 (2012)).