October 22, 2026
For many people, a custom home build, large addition or whole house remodel is the most expensive and complicated transaction they will personally handle in their lifetime. Choosing a contractor and a design takes considerable time and carries high stakes. Most projects see at least one breach or accusation. Most homeowners, even those who can afford a major construction project, are not familiar enough with construction law to know for certain what course of action is necessary in the event of a breach. This post covers three issues from a 2026 Court of Appeals of Virginia decision: the first material breach rule, the cost vs. value measure of damages, and email change orders.
What Is the First Material Breach Rule in Virginia Construction Cases?
Under Virginia law, the party who commits the first “material” breach cannot enforce the contract. But a “minor” breach, one that does not “go to the root of the contract,” does not excuse the other party’s performance. Virginia appellate courts are generally averse to applying the rule strictly in construction cases unless there is bad faith. This is especially true when both sides have offsetting claims for payment and defect correction.
On June 23, 2026, the Court of Appeals of Virginia decided Inviting Structures, Inc. v. Royal in an unpublished opinion. The dispute arose from a $232,180 contract to install an outdoor spa tub, a stone outdoor living space, and landscaping. Each side claimed the other breached the contract first.
Royal claimed the contractor started off on the wrong foot by installing plants in locations that did not match the design. When told of the problem, the contractor stopped work and met with the homeowner. At trial, the court awarded $12,471.60 in damages for landscaping defects. The Court of Appeals held that the misplaced plantings were a breach, but not one that triggered the first material breach rule.
The contractor claimed Royal breached first by seeking damages for a project Royal had not paid for in full. The draw schedule required a $40,000 payment upon delivery of the spa tub. Royal did not make that payment and later claimed in the lawsuit that the tub was defective. The Court of Appeals held that this did not bar Royal’s recovery. Royal had paid $192,170 of the $232,180 contract price, and the court found that withholding the $40,000 payment was not material and not in bad faith.
As this case shows, the “first material breach rule” is something of a misnomer. A breach may be “material” enough to entitle the other party to payment, an offset, or a damages award. Sums of $12,000 to $40,000 are not trivial, even on an expensive project. Courts are still reluctant to apply the rule in such cases because excusing the other party from all further performance is an extraordinary, drastic result. It can derail a project that would otherwise resolve itself through corrective work, substantial completion, and reasonable payment for work received. The takeaway — be circumspect about canceling or terminating a construction contract and immediately suing without first consulting counsel. Many contracts spell out what gives rise to a right of termination for cause and what the effect of a termination without cause would be.
How Are Construction Defect Damages Measured? Cost Rule vs. Value Rule:
The Inviting Structures, Inc. case also addresses how courts measure damages for defective construction work. Under Virginia law, there are two alternative measures of awarding damages for defective work, the “cost rule” and the “value rule.” The cost rule awards the cost one would incur to correct the defects proven. The cost rule is the measure that the courts ordinarily apply and is thus more familiar to judges, attorneys and experts. The cost measure is used unless it would be “grossly disproportionate” to the results, would involve “unreasonable economic waste,” or the cost of remedying the defect is unreasonable compared with the benefit that would be achieved. The value rule considers the difference between the value of the construction if it was properly completed versus the value of the defective work that the purchaser received.
In the Inviting Structures, Inc. case, the Royals complained that the contractor installed a spa tub in their backyard that showed visible corrosion on its exterior. They wanted the court to award them the cost to purchase and install a new spa tub. The Court of Appeals concurred with the Circuit Court’s determination that to do so would give the Royals a windfall, essentially two tubs for the price of one. The trial judge found that the corrosion to the tub was minor, cosmetic, and localized to certain areas.
In other cases, the Supreme Court of Virginia suggests that if the property owner puts on evidence of the breach and the cost to repair, then the burden shifts to the contractor to rebut the accuracy of the cost claim with evidence of the current value, depreciation or betterment. This is consistent with the principle that the defendant bears the burden of proving mitigation of damages. In the Inviting Structures, Inc. case, the record showed that it was the Royals’ own expert who characterized the damage to the tub as “localized” to certain areas.
Are Unsigned or Email Change Orders Enforceable?
Virginia courts will enforce provisions in contracts that require any change orders to be made in writing and signed. The law ordinarily enforces contracts as written. This rule is subject to the defense that such provisions may be expressly or implicitly waived in particular instances. But waiver would have to be proven. In the Inviting Structures, Inc. case, the contractor sought payment for additional work that the homeowner informally agreed to purchase as add-on work. The contractor argued that this established liability under a “course of dealing” manner of doing business. The Court of Appeals agreed with the contractor, but on a different ground — the contract’s change order clause itself allowed change orders by email. The parties had agreed to the changes by email exchanges. Those emails were enforceable without a physical signature or formal e-signature.
Legal Authority:
Lee v. Bell, 237 Va. 626 (1989).
Nichols Constr. Corp. v. Va. Mach. Tool Co., LLC, 276 Va. 81 (2008).
Note that the photo used with this blog post does not depict any of the property at issue in the case discussed in this article. It shows a different spa tub.
