C. Robert Schaub, Esq.
Schaub Law Offices, L.C.
Huntington, West Virginia
Attorney for Plaintiff Below, Appellant
Randall L. Trautwein, Esq.
Lamp, O'Dell, Bartram, Levy & Trautwein
Huntington, West Virginia
Jarrell D. Wright, Esq.
Eckert Seamans Cherin & Mellott, L.I.
Attorneys for Defendant Below, Appellee
CHIEF JUSTICE MAYNARD delivered the Opinion of the Court.
JUSTICE STARCHER and JUSTICE MCGRAW dissent and reserve the right to file dissenting opinions.
1. In a contract of suretyship the obligation of the principal and his
surety is original, primary, and direct, and the surety is liable for the debt, default, or
miscarriage of his principal. Syllabus Point 3, in part, U.S. Fidelity and Guar. Co. v.
Hathaway, 183 W.Va. 165, 394 S.E.2d 764 (1990).
2. As a general rule, the liability of the surety is coextensive with that of the principal.
3. The liability of a surety is a legal as distinguished from a moral one. The surety's obligation arises out of positive contract, and the contract generally measures the extent of the surety's liability.
4. The surety on a building construction contract is bound only in the manner and to the extent provided in the instrument.
Maynard, Chief Justice:
The appellant, Gateway Communications, Inc., appeals from the October 18,
1999 order of the Circuit Court of Cabell County which dismissed the appellant's action
against the appellee, Insurance Company of North America, on the ground that the action
was barred by the time limitation contained in the performance bond on which the action
The appellant, Gateway
Communications, Inc., (hereinafter Gateway or appellant)
owns and operates WOWK-TV, a commercial television broadcast station. In 1983,
the appellant contracted with John R. Hess, Inc. (hereinafter Hess),
a Pennsylvania corporation, for the construction of a new broadcast facility
in Huntington, West Virginia. The facility was constructed in accordance with
plans prepared by Stieglitz, Stieglitz, Tries, P.C., Architects/Planners (hereinafter
Stieglitz). Hess executed a performance bond with the appellee,
Insurance Company of North America (hereinafter INA or appellee),
a Pennsylvania corporation, whereby INA became surety for Hess's completion
of the contract. The performance bond provides that [a]ny suit under this
bond must be instituted before the expiration of two (2) years from the date
on which final payment under the Contract falls due. The construction
of the new broadcast facility was completed in 1985, and Hess was paid all amounts
owed to it by the appellant.
On April 10, 1990, the appellant
filed an action in the Circuit Court of Cabell County against Hess, Stieglitz,
and INA, in which it alleged damage to the facility as a result of water leakage
which was discovered in 1989. According to the appellant, the water leakage
was caused by Hess's failure to construct underground drainage facilities in
accordance with the contract. In its complaint, the appellant claimed breach
of contract, breach of express and implied warranties, and negligence against
Hess, and breach of contract against Stieglitz. In addition, the appellant sought
a declaratory judgement as to the duties owed to it by INA, as surety, under
the performance bond.See footnote 1
Stieglitz eventually reached a settlement with the appellant and was dismissed
from the action. In October 1991, during the pendency of the proceedings, Hess filed a
petition for Chapter 7 bankruptcy which automatically stayed the appellant's action against it.See footnote 2 In March 1997,
INA moved to dismiss the appellant's action on the ground that it was untimely
under the express provisions of the performance bond. The circuit court agreed
and by order of October 18, 1999 dismissed the appellant's complaint. The appellant
challenges this dismissal.
This case was dismissed by the circuit court during the pleading stage
because, in its view, the appellant's action was untimely. We have said that [a]ppellate
review of a circuit court's order granting a motion to dismiss a complaint is de novo.
State ex rel. McGraw v. Scott Runyan Pontiac-Buick, 194 W.Va. 770, 775, 461 S.E.2d
516, 521 (1995) (citation omitted). With this standard as our guide we now consider the
issue before us.
The appellant asserts that the time limitation for bringing
an action contained in the performance bond is voided by the unambiguous
language of W.Va. Code § 33-6-14 (1957)See
footnote 3which states in pertinent part:
No policy delivered or issued for delivery in West Virginia and covering a subject of insurance resident, located, or to be performed in West Virginia, shall contain any condition, stipulation or agreement . . . limiting the time within which an action may be brought to a period of less than two years from the time the cause of action accrues. . . . Any such condition, stipulation or agreement shall be void[.]
The appellant reasons that its cause of action accrued in 1989 when it discovered the defect in the construction of the facility. Accordingly, the performance bond provision limiting the bringing of the action to within two years from the date of final payment under the contract is void.
To determine what actions
were brought under the performance bond, and when those actions accrued, we
look to the actions the appellant brought against Hess arising from Hess's construction
of the broadcast facility. As surety under the performance bond executed by
INA and Hess, INA generally shares Hess's liability for any default under the
construction contract. This is because the performance bond is a contract of
suretyship and [i]n a contract of suretyship the obligation of the principal
and his surety is original, primary, and direct, and the surety is liable for
the debt, default, or miscarriage of his principal. Syllabus Point 3,
in part, U.S. Fidelity and Guar. Co. v. Hathaway, 183 W.Va. 165, 394
S.E.2d 764 (1990). We have recognized that [a]s a general rule, the liability
of the surety is coextensive with that of the principal. State ex rel.
Mayle v. Aetna Casualty & Surety Co., 152 W.Va. 683, 687, 166 S.E.2d
133, 136 (1969) (citations omitted). It must be remembered, however, that [t]he
liability of a surety is a legal as distinguished from a moral one. His obligation
arises out of positive contract, and the contract . . . generally measures the
extent of [the surety's] liability. 74 Am.Jur.2d Suretyship, §
24, p. 27 (1974) (footnotes omitted). Accordingly, INA's liability as surety
is limited by the obligations it undertook in the performance bond. We now proceed
to examine the causes of action that the appellant brought against Hess, the
accrual dates of the causes of action, and the potential liability of INA, as
Hess's surety, under the performance bond.
In the first two counts of its complaint, the appellant alleges breach of contract and breach of express and implied warranties against Hess. [T]he statute of limitations begins to run [and these contract actions accrue] when the breach of the contract occurs or when the act breaching the contract becomes known. McKenzie v. Cherry River Coal & Coke Co., 195 W.Va. 742, 749, 466 S.E.2d 810, 817 (1995). It has also been said that a right of action upon a contract does not accrue and the statute of limitations does not begin to run until the agreement is to be performed or payment becomes due. 51 Am Jur 2d, Limitation of Actions, § 160, p. 555 (2000) (footnote omitted). Generally, the statute of limitations begins to run, when a construction contract is involved, when the work is completed[.] 54 C.J.S., Limitations Of Actions, § 131, p. 175 (1987) (footnote omitted).
Applying these rules to the
instant facts, we conclude that the appellant's contract actions against Hess
accrued either in 1984 when the work was completedSee
footnote 5 or in 1985See
footnote 6 when the appellant made its
final payment on the construction project. Although the appellant alleges that
it did not discover the breach of contract until 1989, this Court has not expressly
held that the discovery rule tolls the running of limitation periods in actions
arising from breaches of construction contracts.See
footnote 7 INA would obviously be liable,
under the performance bond, for Hess's breach of the construction contract.
However, the performance bond limits the institution of an action under the
bond to within two years from the date on which final payment under the contract
fell due which, we have determined, is also the last date on which the appellant's
contract action could have accrued. Therefore, the performance bond does not
limit the time within which an action may be brought to a period of less
than two years from the time the cause of action accrued in violation of
W.Va. Code § 33-6-14. Accordingly, the circuit court did not err in dismissing
the appellant's contract actions on the performance bond as untimely.
In count three of its complaint, the appellant alleged that Hess negligently
performed its acts of duty and obligation in the construction of the . . . project, which this
Court construes as an action in tort. In Syllabus Point 4, in part, of Sewell v. Gregory,
179 W.Va. 585, 371 S.E.2d 82 (1988) we held that [a] builder is under a common law
duty to exercise reasonable care and skill in the construction of a building[.] Therefore,
we believe that the appellant could properly bring a tort action against Hess for negligent
construction. The next question is whether the appellant can hold INA, as surety under
the performance bond, liable for Hess's alleged negligent construction.
As noted above, INA's liability
as Hess's surety arises out of the performance bond and is limited by the provisions
of that instrument. Further, this Court has recognized that the purpose of a
performance bond is to guarantee that the contractor will perform the construction
contract. See Middle-West Concrete v. General Ins. Co., 165 W.Va. 280,
283 n. 2, 267 S.E.2d 742, 745 n. 2 (1980) (A performance bond guarantees
that the contractor will perform the contract and usually provides that if the
contractor defaults and fails to complete the contract, the surety can itself
complete the contract or pay damages up to the limit of the bond). Conversely,
the purpose of a performance bond is not to insure against the negligent acts
of the contractor unless the performance bond so provides.
The performance bond at issue is titled The American Institute Of Architects Performance Bond (AIA Document A311). Under the terms of the bond, Hess and INA are held and firmly bound unto the appellant, as obligee, in the amount of $1,899,000 for the payment whereof Contractor and Surety bind themselves, their heirs, executors, administrators, successors and assigns, jointly and severally[.] The construction contract between the appellant and Hess is by reference made a part of the performance bond. The bond further provides:
NOW, THEREFORE, THE CONDITION OF THIS OBLIGATION is such that, if Contractor shall promptly and faithfully perform said Contract, then this obligation shall be null and void; otherwise it shall remain in full force and effect.
The Surety hereby waives notice of any alteration or extension of time made by the Owner.
Whenever Contractor shall be, and declared by Owner to be in default under the Contract, the Owner having performed Owner's obligations thereunder, the Surety may promptly remedy the default, or shall promptly
1) Complete the Contract in accordance with its terms and conditions, or
2) Obtain a bid or bids for completing the Contract in accordance with its terms and conditions, and upon determination by Surety of the lowest responsible bidder, or, if the Owner elects, upon determination by the Owner and the Surety jointly of the lowest responsible bidder, arrange for a contract between such bidder and Owner, and make available as Work progresses (even though there should be a default or a succession of defaults under the contract or contracts of completion arranged under this paragraph) sufficient funds to pay the cost of completion less the balance of the contract price; but not exceeding, including other costs and damages for which the Surety may be liable hereunder, the amount set forth in the first paragraph hereof. The term balance of the contract price, as used in this paragraph, shall mean the total amount payable by Owner to Contractor under the Contract and any amendments thereto, less the amount properly paid by Owner to Contractor.
Any suit under this bond must be initiated before the expiration of two (2) years from the date on which final payment under the Contract falls due.
No right of action shall accrue on this bond to or for the use of any person or corporation other than the Owner named herein or the heirs, executors, administrators or successors of the Owner.
By the plain terms of the bond, INA's obligation
as surety commences only when the contractor is in default under the Contract.
The words default under the Contract clearly limit INA's liability
to breaches of the construction contract committed by Hess, and not to Hess's
tortious conduct. To hold that INA is liable for Hess's negligent acts in the
construction of the broadcast facility would transform INA into Hess's liability
insurer, a result that clearly is not contemplated in the terms of the performance
bond. Therefore, we conclude that INA's obligation as Hess's surety under the
performance bond does not extend to negligent acts committed by Hess in its
performance of the construction contract.
We also believe that this conclusion does not reach an inequitable result in the present case. When the appellant contracted with Hess for the construction of its new facility, it demanded that Hess execute a performance bond to guarantee the performance of the contract. According to INA, the appellant specifically requested the AIA performance bond. Further, the appellant received a copy of the performance bond and was aware that INA guaranteed Hess's completion of the contract, and that any suit brought under the performance bond must be brought within two years from the final payment on the contract. The appellant cannot now complain about the provisions of the performance bond when it was aware of these provisions from the beginning.
In summary, we have decided that any action brought by the appellant against INA under the performance bond is limited to a contract action. W.Va. Code § 33-6-14 says that an insurance policy shall not limit the time for bringing an action to less than two years from the time the cause of action accrues. The appellant's contract actions against Hess, and INA as Hess's surety, accrued either in 1984 when the work was completed or in 1985 when the appellant made its final payment on the construction project. Therefore, the performance bond does not impermissibly limit the time within which the appellant can bring an action to less than two years from the date the cause of action accrues because the date on which final payment under the contract fell due is also the last date on which the appellant's contract action could have accrued for the purpose of W.Va. Code § 33-6-14. Because the appellant did not bring its contract action under the bond until 1990, approximately five years from the date on which final payment under the construction contract fell due, and its cause of action accrued, the appellant's contract action against INA is untimely.See footnote 8
For the foregoing reasons, the final order of the circuit court dismissing the appellant's action against INA, as Hess's surety, as untimely is affirmed.
No action, whether in contract or in tort, for
indemnity or otherwise, nor any action for contribution
or indemnity to recover damages for any deficiency in
the planning, design, surveying, observation or
supervision of any construction or the actual
construction of any improvement to real property, or,
to recover damages for any injury to real or personal
property . . . may be brought more than ten years
after the performance or furnishing of such services or
construction. . . . The period of limitation provided
in this section shall not commence until the
improvement to the real property in question has been
occupied or accepted by the owner of real property,
whichever occurs first.