Gateway Communications v. John Hess, Inc.

• Decision Date: 06 November 2000
• Docket Number: No. 27778.,27778.
• Citation: 541 S.E.2d 595,208 W. Va. 505
• Court: West Virginia Supreme Court
• Parties: GATEWAY COMMUNICATIONS, INC., a Corporation, Plaintiff Below, Appellant v. JOHN R. HESS, INC., a Corporation; Insurance Company of North America, a Corporation; and Stieglitz, Stieglitz, Tries, P.C., Architects/Planners, a Corporation, Defendants Below Insurance Company of North America, a Corporation, Defendant Below, Appellee.

541 S.E.2d 595

208 W. Va. 505

GATEWAY COMMUNICATIONS, INC., a Corporation, Plaintiff Below, Appellant v. JOHN R. HESS, INC., a Corporation; Insurance Company of North America, a Corporation; and Stieglitz, Stieglitz, Tries, P.C., Architects/Planners, a Corporation, Defendants Below

Insurance Company of North America, a Corporation, Defendant Below, Appellee.

No. 27778.

Supreme Court of Appeals of West Virginia.

Submitted October 4, 2000.

Decided November 6, 2000.

Dissenting Opinion of Justice Starcher January 11, 2001.

C. Robert Schaub, Schaub Law Offices, L.C., Huntington, for Plaintiff Below, Appellant.

Randall L. Trautwein, Lamp, O'Dell, Bartram, Levy & Trautwein, Huntington, and Jarrell D. Wright, Eckert Seamans Cherin & Mellott, L.I., Pittsburgh, PA, for Defendant Below, Appellee. 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 was brought.

I.

FACTS

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.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.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.

II.

STANDARD OF REVIEW

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.

III.

DISCUSSION

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)³ which 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.

The appellee responds that according to W.Va.Code § 55-2-6a (1983),⁴ an action, such as the instant one, to recover damages for deficiencies in construction and improvements to real property accrues when the real property is occupied or accepted by its owner, whichever occurs first. Because the appellant's acceptance of the new facility occurred on June 7, 1985, upon final payment, the appellant's action accrued at that time and had to be brought no later than June 7, 1987. Therefore, avers the appellant, the time limitation in the performance bond is entirely consistent with W.Va.Code § 33-6-14. The appellant also contends that this Court has declined to extend the discovery rule to actions brought under W.Va.Code § 55-2-6a. Citing Cart v. Marcum, 188 W.Va. 241, 423 S.E.2d 644 (1992) and Shirkey v. Mackey, 184 W.Va. 157, 399 S.E.2d 868 (1990).

The sole issue in this case is whether the performance bond's limitation period for bringing an action to within two years from the due date of the final payment of the construction contract is void under W.Va. Code § 33-6-14 which says that an insurance policy issued in this State shall not limit the time for bringing an action to less than two years from the time the cause of action accrues. In order to resolve this issue, it is necessary to determine when the causes of action brought under the bond accrued. If any of these causes of action accrued later than the due date of the final payment of the construction contract, the bond's limitation period is void as it relates to that specific cause of action.

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 completed⁵ or in 1985⁶ 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.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...