Contractor's Construction Fraud Implied

It is not unusual for a contractor to obtain an advance for construction work or materials. While that is done more often with residential construction, it is also done on some commercial projects or with individual subcontractors. What if they don't then follow through? Virginia makes "construction fraud" a crime, and in the recent appellate decision of Dennos v. Commonwealth of Virginia, 63 Va.App. 139, 754 S.E.2d 913 (2014), [version available to lexis.com subscribers], the Virginia Court of Appeals discussed the state's burden of proof and the application of the single larceny doctrine.

First, what does the construction fraud statute say? Here's the text, [version available to lexis.com subscribers]:

§ 18.2-200.1. Failure to perform promise for construction, etc., in return for advances.
If any person obtain from another an advance of money, merchandise or other thing, of value, with fraudulent intent, upon a promise to perform construction, removal, repair or improvement of any building or structure permanently annexed to real property, or any other improvements to such real property, including horticulture, nursery or forest products, and fail or refuse to perform such promise, and also fail to substantially make good such advance, he shall be deemed guilty of the larceny of such money, merchandise or other thing if he fails to return such advance within fifteen days of a request to do so sent by certified mail, return receipt requested, to his last known address or to the address listed in the contract.
First, regarding proof of the construction fraud:

- The court confirmed that fraudulent intent can be inferred from conduct and representations of the contractor. In that case, the defendant fraudulently promised to do certain work (he took money but then never bought materials or performed work) and also fraudulently misrepresented the required work scope (telling the owner the roof needed replacement when it only needed repair).

- The court discussed that while the fraudulent intent must have existed at the time the contractor made the misrepresentations (in that case took the advance), circumstances were sufficient to imply the fraud, including the subsequent failure to perform the work, the failure to use the advanced funds to purchase supplies or hire needed labor and the refusal to return the advanced funds.

The court reviewed the evidence presented and found "ample evidence from which a rational factfinder could conclude that [the contractor] committed construction fraud . . . ,"

Second, regarding the single-larceny doctrine:

- The court noted the continuing applicability of that "common law" doctrine, as being one of the principles older than the Commonwealth itself, and which for some cases benefits prosecutors and for others defendants.

- The court held that the standard for applying the doctrine required that the series of larcenous acts have been done pursuant to a single impulse and in execution of a general fraudulent scheme; and so the doctrine does not apply to larcenous acts that are part of a general scheme but not individually the product of a single impulse.

The court reviewed the evidence and, giving the required deference to the factfinder, concluded that the contractor in that case committed at least two larcenous acts that were not done pursuant to a single impulse and execution of a general fraudulent scheme. Specifically, the contractor procured two separate advances on two separate dates involving two different promises. Thus, he could probably be charged and convicted respecting both.

The Virginia construction industry is overall extremely professional, but there are some "bad seeds" with any group as big as the contractor community; and this lesson provides guidance regarding the ramifications for fraudulent construction, and associated rights of the public.

These articles are meant to bring awareness to these topics and are not intended to be used as legal advice.

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