Ribeira & Lourenco Concrete Const., Inc. v. Jackson Health Care Associates

• Decision Date: 16 February 1989
• Citation: 231 N.J.Super. 16,554 A.2d 1350
• Parties: RIBEIRA & LOURENCO CONCRETE CONSTRUCTION, INC., Plaintiff-Appellant, v. JACKSON HEALTH CARE ASSOCIATES; John J. Michaels Developers, Inc.; Michael Castoro; Green Cast Enterprises, Inc.; Condor Company, Inc., and Howard Lowy, Defendants, and Indemnity Insurance Company of North America, Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 16

231 N.J.Super. 16

554 A.2d 1350

RIBEIRA & LOURENCO CONCRETE CONSTRUCTION, INC., Plaintiff-Appellant, v. JACKSON HEALTH CARE ASSOCIATES; John J. Michaels Developers, Inc.; Michael Castoro; Green Cast Enterprises, Inc.; Condor Company Inc., and Howard Lowy, Defendants and Indemnity Insurance Company of North America, Defendant-Respondent.

Superior Court of New Jersey Appellate Division.

Argued Dec. 6, 1988.

Decided Feb. 16, 1989.

Ronald Horowitz argued the cause for plaintiff-appellant (Rubin, Rubin & Malgran, attorneys; Ronald Horowitz, Piscataway, of counsel and on the brief).

Peter V. Koenig argued the cause for defendant-respondent (Napodano & Raffo, attorneys; Peter V. Koenig, Edison, of counsel and on the brief).

Before Judges MICHELS, LONG and MUIR, Jr.

The opinion of the court was delivered by

MICHELS, P.J.A.D.

Plaintiff Ribeira & Lourenco Concrete Construction, Inc., appeals from a summary judgment of the Law Division entered in favor of defendant Indemnity Insurance Company of North America (North America) in this action to recover under a labor and material payment bond guaranteeing the claims of subcontractors and suppliers employed in the construction of the Jackson Health Care Center in Jackson, New Jersey. The pivotal issue posed by this appeal is whether plaintiff's action was barred by the bond provision that limited the time in which to bring suit on the bond to one year after the principal had ceased work on the project.

The facts essential to the resolution of this issue are uncontroverted. On July 12, 1984, defendant Jackson Health Care Associates (Jackson) and defendant John J. Michaels Developers, Inc. (Michaels), entered into a contract pursuant to which Michaels, as developer and general contractor, would build the Jackson Health Care Center. A rider to the prime contract required that Michaels furnish a performance bond naming Jackson as obligee. On October 9, 1984, Michaels subcontracted the construction of the project to defendant Green Cast Enterprises, Inc. (Green Cast). The subcontract incorporated both the prime contract and the rider to the prime contract. In conjunction with the subcontract, North America, as surety, executed a labor and material payment bond that guaranteed claims for labor and material used in the performance of the subcontract between Michaels and Green Cast. The bond named Green Cast as principal and Jackson as obligee.

Green Cast subcontracted with defendant Condor Company, Inc. (Condor), and its agent, defendant Howard Lowy (Lowy) as well as various other companies. In turn, Condor and Lowy subcontracted with plaintiff for masonry work. Green Cast guaranteed payment to plaintiff under the subcontract.

Plaintiff commenced its work under the subcontract. By early 1985 plaintiff was experiencing difficulty obtaining payment from either Condor or Green Cast. After repeated requests for payment of sums totalling $77,268.30, plaintiff had received only one payment, totalling $25,000. On January 5, 1985, with approximately 96% of its work completed, plaintiff left the work site.

Michaels scheduled a meeting with all the subcontractors on the project regarding the status of the project. At the meeting on February 13, 1985, Michaels, through its president, defendant Michael Castoro (Castoro), informed the subcontractors that it had "terminated the services of [Green Cast] effective immediately." Green Cast thereupon ceased work and left the project. Michaels negotiated with plaintiff and the other subcontractors that had worked for Green Cast. Plaintiff agreed to return to the job, but did not sign a contract with Michaels. Michaels, however, paid plaintiff $25,000 that had originally been marked for payment to Lowy, leaving plaintiff with an outstanding balance of $27,268.30.

Plaintiff returned to the job and in March 1985 completed its work. Plaintiff thereupon submitted to Michaels a final bill in the sum of $30,768.30, which included $3500 in costs incurred after plaintiff had returned to the project. Michaels referred plaintiff to either Green Cast, Lowy or Condor in order to obtain payment on the final bill. The bill was not paid. The project was completed in early 1986, after Michaels had been replaced as general contractor.

On August 11, 1985, plaintiff instituted this action against Jackson, Michaels, Castoro, Green Cast, Condor and Lowy to recover the unpaid balance due it for services rendered and material furnished in connection with the project. On September 9, 1986, Jackson filed an answer and joined defendant as a third-party defendant. Shortly thereafter, on October 20, 1986, plaintiff amended its complaint to include a direct claim against defendant as surety for Green Cast on the bond.

Following completion of discovery, North America moved for summary judgment on the ground that the action against it was barred by the bond provision that limited the time in which to bring suit on the bond to one year after the principal had ceased work on the project. Judge Mannion in the Law Division found the time limitation provision of the bond to be valid and enforceable. Since Green Cast, the principal, ceased work on the project on February 13, 1985, and plaintiff did not commence suit against North America, the surety, until October 20, 1986, more than a year later, the trial court held that plaintiff was barred from bringing suit. Summary judgment was entered in favor of North America, and plaintiff's motion for reconsideration was denied. This appeal followed.

Plaintiff contends that the summary judgment should be reversed and the matter remanded for a plenary trial because the trial court erred in finding the one-year time limitation in which to institute suit on the bond to be enforceable. We disagree. Plaintiff's standing to sue North America arises solely by virtue of its status as a third-party beneficiary under the bond issued by Green Cast, as principal, and North America, as surety, to Jackson, as obligee. See 17 Am.Jur.2d, Contractors' Bonds, § 16 at 201-202. It is well-settled that "[a] third-party beneficiary's rights depend upon, and are measured by, the terms of the contract between the promisor and the promisee." Roehrs v. Lees, 178 N.J.Super. 399, 409, 429 A.2d 388 (App.Div.1981). See also 17 Am.Jur.2d, Contracts, § 315 at 743; 2 Williston, Contracts (3 ed. 1959), § 364A at 873; 4 Corbin On Contracts, § 820 at 278. Moreover, a surety is chargeable only according to the strict terms of its undertaking, and its obligation cannot be extended either by implication or by construction beyond the confines of its contract. Monmouth Lumber Co. v. Indemnity Insurance Co. of North America, 21 N.J. 439, 452, 122 A.2d 604 (1956).

Here, the pertinent provision of the bond reads as follows:

3. No suit or action shall be commenced hereunder by any claimant: ...

(b) After the expiration of one (1) year following the date on which Principal ceased Work on said Contract, it being understood, however, that if any limitation embodied in this bond is prohibited by any law controlling the construction hereof such limitation shall be deemed to be amended so as to be equal to the minimum period of limitation permitted by such law. [Emphasis added].

It is undisputed that the principal, Green Cast, ceased work on the project on or about February 13, 1985. Plaintiff's action against North America on the bond was not instituted until October 20, 1986, more than one year and eight months later. Thus, the one-year limitation period contained in the bond barred plaintiff's claim.

Contrary to plaintiff's argument, a one-year limitation period in a bond, such as the one under review, is valid, reasonable and enforceable. See V. Petrillo & Son, Inc. v. American Const. Co., 148 N.J.Super. 1, 371 A.2d 799 (App.Div.1977), certif. den., 75 N.J. 4, 379 A.2d 235 (1977); John M. Kelley Contracting Co. v. U.S. Fidelity & Guaranty Co., 278 F. 345 (3d Cir.1922). Although there does not appear to be any reported decision precisely on point in New Jersey, there is persuasive authority elsewhere that the one-year limitation period bars any action filed after the one-year period even though the claimant, such as plaintiff here, had no knowledge of such bond provision. See Sanders v. American Casualty Co. of Reading, Pa., 269 Cal.App.2d 306, 74 Cal.Rptr. 634 (1969); Rumsey Electric Co. v. University of Delaware, 358 A.2d 712 (Del.1976).

Additionally, we emphasize that the one-year limitation period contained in the bond is not against public policy or prohibited by New Jersey law simply because N.J.S.A. 2A:14-1 provides for a six-year statute of limitations upon a contractual claim. As stated previously, our courts have held such provisions to be valid and enforceable. See V. Petrillo & Son, Inc. v. American Const. Co., supra, 148 N.J.Super. 1, 371 A.2d 799 (App.Div.1977); A.J. Tenwood Assoc. v. Orange Sr. Citizens Housing Co., 200 N.J.Super. 515, 523-525, 491 A.2d 1280 (App.Div.1985), certif. den., 101 N.J. 325, 501 A.2d 976 (1985). See also John M. Kelley Contracting Co. v. U.S. Fidelity & Guaranty Co., supra, 278 F. 345 (3d Cir.1922). In an analogous context, our former Court of Errors and Appeals in Weinroth v. New Jersey Manufacturers Association Fire Ins. Co., 117 N.J.L. 436, 189 A. 73 (E. & A.1937), discussed whether a shorter period of limitation provided in an insurance policy was prohibited by law. The Court noted:

In determining whether any provision of an insurance contract conflicts with the general laws of this state, the test should be whether the terms provide for, or permit, that which the statute forbids and prohibits. We are unable to observe any conflict, as the statute provides, in effect, that no suit can be instituted after six years, but does not make it unlawful for parties to agree by contract that the limitation shall be for a lesser period. The courts in this state have held on many occasions that a clause in an...