Wellington Power Corp. v. Cna Sur. Corp.

• Decision Date: 16 May 2005
• Docket Number: No. 31870.,No. 31869.,31869.,31870.
• Citation: 614 S.E.2d 680
• Court: West Virginia Supreme Court
• Parties: WELLINGTON POWER CORPORATION, a Pennsylvania Corporation, Plaintiff v. CNA SURETY CORPORATION, dba CNA Commercial Insurance, a Delaware Corporation, Defendant and W.G. Tomko, Incorporated, a Pennsylvania Corporation, Plaintiff v. CNA Surety Corporation, dba CNA Commercial Insurance, a Delaware Corporation, Defendant.

Page 680

614 S.E.2d 680

WELLINGTON POWER CORPORATION, a Pennsylvania Corporation, Plaintiff v. CNA SURETY CORPORATION, dba CNA Commercial Insurance, a Delaware Corporation, Defendant and W.G. Tomko, Incorporated, a Pennsylvania Corporation, Plaintiff v. CNA Surety Corporation, dba CNA Commercial Insurance, a Delaware Corporation, Defendant.

No. 31869.

No. 31870.

Supreme Court of Appeals of West Virginia.

Submitted March 8, 2005.

Decided May 16, 2005.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

James Bryan Edwards, Cranston & Edwards, Morgantown, and Roy S. Cohen, John A. Greenhall, Cohen, Seglias, Pallas, Greenhall & Furman, Philadelphia, PA, for Wellington and Tomko.

Billy Atkins, Atkins & Oblak, P.L.L.C., Morgantown, and Kevin P. Lucas, James R. Walker, Manion, McDonough & Lucas, P.C., Pittsburgh, PA, for CNA.

MAYNARD, Justice:

This Court is called upon to answer the following certified question from the Circuit Court of Monongalia County:

In a public building project in West Virginia, does a "pay if paid" condition precedent clause violate West Virginia public policy, as articulated in the West Virginia Public Bond Statute (W.Va.Code § 38-2-39), so as to entitle a subcontractor to proceed with a claim against a contractor's surety bond, despite the terms of its subcontract that the contractor itself is not liable for payment to the subcontractor because of the failure of the same "pay if paid" condition precedent clause?

For the reasons that follow, we answer the question in the negative.

I. FACTS

Plaintiffs Wellington Power Corp. (hereafter "Wellington") and W.G. Tomko, Inc. (hereafter "Tomko"), contracted with the Dick Corporation (hereafter "Dick") to provide various services on the construction of the West Virginia University Life Sciences Building in Morgantown. Specifically, Dick contracted with Wellington for electrical work and with Tomko for mechanical and plumbing work. These contracts contain the following "pay-if-paid" provision:

Contractor [Wellington and Tomko] agrees and acknowledges that payment of the Contract Sum shall be made only form [sic] funds which are due from [WVU] that [Dick] has actually received in hand from [WVU] and designated by [WVU] for disbursement to Contractor. Contractor agrees to look solely to such funds for payment. Contractor understands and agrees that [Dick] shall have no liability or responsibility for any reason whatsoever for any amounts due or claimed to be due to Contractor except to the extent that [Dick] has actually received funds from [WVU] that are due from [WVU] specifically designated for disbursement to Contractor.

Similar language appears in the Bid Package General Conditions. These General Conditions also require that any dispute or claim that is related to the actions of West Virginia University (hereafter "WVU") or its architect must be prosecuted and resolved in accordance with the dispute resolution procedures set forth in Dick's Construction Management Agreement with WVU. In addition, according to the Supplementary General Conditions applicable to this Agreement, any and all claims against WVU must be filed in the West Virginia Court of Claims.

Because the construction of the Life Sciences Building was a public project, Dick obtained a Labor and Material Payment Bond from Defendant CNA Surety Corporation¹ (hereafter "CNA") as mandated by W.Va.Code § 38-2-39 (2004).² The bond named Dick as principal and WVU as obligee. Pursuant to the bond's terms, CNA and Dick bound themselves jointly and severally to assure the payment by Dick of the claims of certain persons supplying labor and materials for the project.

Wellington and Tomko ultimately sued CNA under the payment bond in the Circuit Court of Monongalia County. In their separate complaints, Wellington and Tomko alleged that Dick owed them monies including retainage, change order, and directed overtime work, as well as damages resulting from delays, disruptions, and inefficiencies on the construction project. Wellington alleges in its brief that it is currently owed $929,913.67, and Tomko alleges that it is currently owed $304,631.32. In both cases, CNA filed motions to dismiss Plaintiffs' complaints, based on the pay-if-paid provision, which were both denied. Wellington, Tomko, and CNA then filed separate motions for certification. Pursuant to W.Va.Code § 58-5-2 (1998), the circuit court certified the question set forth above to this Court and answered it in the affirmative. We now proceed to answer the certified question.

II. STANDARD OF REVIEW

"The appellate standard of review of questions of law answered and certified by a circuit court is de novo." Syllabus Point 1, Gallapoo v. Wal-Mart Stores, Inc., 197 W.Va. 172, 475 S.E.2d 172 (1996).

III. DISCUSSION

First, we note that Plaintiffs are challenging the unambiguous provisions of a valid contract. "The fundamentals of a legal `contract' are competent parties, legal subject-matter, valuable consideration, and mutual assent. There can be no contract, if there is one of these essential elements upon which the minds of the parties are not in agreement." Syllabus Point 5, Virginian Export Coal Co. v. Rowland Land Co., 100 W.Va. 559, 131 S.E. 253 (1926). It is not disputed that the agreements that Dick executed with Plaintiffs contain the essential elements of a valid contract. We also have held that "[a] valid written instrument which expresses the intent of the parties in plain and unambiguous language is not subject to judicial construction or interpretation but will be applied and enforced according to such intent." Syllabus Point 1, Cotiga Development Co. v. United Fuel Gas Co., 147 W.Va. 484, 128 S.E.2d 626 (1962). In framing its certified question, the circuit court recognized, and this Court agrees, that the contractual provision at issue is an unambiguous "pay-if-paid" condition precedent clause. Our law provides that "[u]nder the broad liberty of contract allowed by law, parties may make performance of any comparatively, or apparently, trivial and unimportant covenant, agreement, or duty under the contract a condition precedent, and, in such case, the contract will be enforced and dealt with as made." Syllabus Point 2, Watzman v. Unatin, 101 W.Va. 41, 131 S.E. 874 (1926). Therefore, Plaintiffs bear a heavy burden in urging the non-enforcement of their contracts with Dick in their action against Dick's surety in light of the fact that these are valid, unambiguous agreements.

Plaintiffs posit several arguments in their challenge to the pay-if-paid clause at issue. First, they argue that application of the pay-if-paid condition precedent clause to their action against the CNA surety bond violates the State's public policy found in the public bond statute, W.Va.Code § 38-2-39, the purpose of which is to protect suppliers of labor and material to public construction projects and to give them a remedy other than a mechanic's lien which cannot attach to public property. According to Plaintiffs, several courts have found pay-if-paid condition precedent clauses unenforceable as a contravention of public policy expressed in both mechanic's lien statutes and public bond statutes.³

We begin our analysis with the proposition that the freedom to contract is a substantial public policy that should not be lightly dismissed. Several courts have recognized the public policy of freedom of contract. See e.g., Massachusetts Mut. Life Ins. Co. v. Woodall, 304 F.Supp.2d 1364, 1371 (S.D.Ga.2003) (stating that "Georgia public policy favors freedom of contract"); McMillan v. Allstate Indem. Co., 135 N.M. 17, 21, 84 P.3d 65, 69 (2003) (opining that "New Mexico public policy favors freedom to contract and enforces contracts that do not violate law or public policy"); Green v. Safeco Life Ins. Co., 312 Ill.App.3d 577, 581, 245 Ill.Dec. 140, 143, 727 N.E.2d 393, 396 (2000) (noting that "[p]ublic policy strongly favors the freedom to contract"); Nationscredit Commercial v. Grauel Ent., 703 N.E.2d 1072, 1079 (Ind.Ct.App.1998) (explaining that "[o]ur Supreme Court has recently reiterated the well-established public policy of this state which favors the freedom of contract between private parties"). Likewise, this State's public policy favors freedom of contract which is the precept that a contract shall be enforced except when it violates a principle of even greater importance to the general public. In the case of State v. Memorial Gardens Development Corp., 143 W.Va. 182, 101 S.E.2d 425 (1957), we quoted the following language with which we still strongly agree:

[Y]ou are not to extend arbitrarily those rules which say that a given contract is void as being against public policy, because if there is one thing which more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts, when entered into freely and voluntarily, shall be held sacred, and shall be enforced by courts of justice. Therefore, you have this paramount public policy to consider, — that you are not lightly to interfere with this freedom of contract.

143 W.Va. at 191, 101 S.E.2d at 430, quoting Baltimore & Ohio Southwestern Railway Co. v. Voigt, 176 U.S. 498, 20 S.Ct. 385, 387, 44 L.Ed. 560 (1900). We have further opined that,

Moreover, as a general rule, this Court enforces private agreements between parties, to the extent that such agreements do not conflict with the applicable law.

Where parties contract lawfully and their contract is free from ambiguity or doubt, their agreement furnishes the law which governs them. It is the duty of the court to construe contracts as they are made by the parties thereto and to give full force and effect to the language used, when it is clear, plain, simple and unambiguous. 4B Michie's Jurisprudence Contracts § 40, at 56 (Repl. Vol. 1986) (footnotes omitted).

Rollyson v. Jordan, 205 W.Va. 368, 376, 518 S.E.2d 372, 380 (1999).

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