In Keepe, the Supreme Court of Virginia held that the question of whether there had been an oral modification of a written contract must be established by evidence.Summary of this case from In re James River Coal Co.
43896 Record No. 780069.
November 21, 1979
Present: All the Justices.
Proper parties plaintiff in suit for property damage are those with interest in injured property; applicable statute of limitations depends upon survivability of cause of action.
(1) Pleading and Practice — Standing — Interest in Injured Property Necessary.
(2) Pleading and Practice — Corporations — Stockholders — Cannot Sue in Own Right for Injury to Corporation.
(3) Pleading and Practice — Parties — Guarantor and Employee Not Proper Parties.
(4) Limitations of Actions — Applicable Statute — Depends Upon Survivability of Action.
As stated in the pleadings, no evidence being taken, Shell contracted with PSI for work at one of its service stations. This station had been leased to Chowney who had assigned the lease to Good Car Keeping, Inc. (the corporation). Chowney and Max Keepe, Chowney's guarantor, were stockholders and employees of the corporation. Joy Keepe was a stockholder. Chowney, Max and Joy Keepe and the corporation brought this action against Shell, PSI and others on 6 Jan. 1977 alleging that during two months preceding 16 Jan. 1975, PSI had negligently broken a water main; allowed tools to be vandalized; connected pipes that leaked; rewired a tank that caught fire, destroying gasoline; and had also put up barriers that rendered some of the facilities of the station inoperable. The first count alleged that the damage was caused by PSI's negligence, that Shell was responsible for this negligence, and that the business ceased to make a profit, the accounts with Shell could not be paid and the lease was cancelled, so that the stockholders lost their investments and the employees their salaries. The second count alleged negligent failure by Shell to supervise and require timely performance of the project. The third count alleged intentional disruption of the business by Shell. The fourth count alleged conspiracy by Shell and PSI to injure the business in violation of Code Sec. 18.2-499 and claimed treble damages under Code Sec. 18.2-500. Plaintiffs did not allege that Shell gave written consent to the assignment by Chowney as required by the lease hut contend the corporation conducted the business "with the knowledge and consent of Shell". The Trial Court held the corporation and the Keepes were not proper parties because without a property interest in the lease. The damages to the water main and the damages causing a loss of gasoline were held direct damages and the action for these not barred by the one-year limitation of Code Sec. 8-24. The remaining damages were held "consequential" and barred by this statute. Chowney's claim for property damages was continued on the docket. The corporation and the Keepes appeal.
1. Shell, being taken to have waived the requirement of written consent of the assignment of the leasehold estate from Chowney to the corporation, if plaintiff's allegation that the business was conducted with Shell's knowledge and consent is established by the evidence, the Trial Court erred in holding that the corporation was not a proper party plaintiff. To have standing to sue for damages for tortious injury to property, a plaintiff must have an interest in the property injured and here the leasehold was alleged to be an asset of the corporation.
2. The Keepes, as stockholders, were not proper parties plaintiff. The corporation is a separate legal person and the cause of action belongs to it. A stockholder has no standing to sue in his own right for an injury to the corporation which caused a depreciation in the value of his stock.
3. Max Keepe, as guarantor, has no standing because he had no property interest in the damaged property and is not a proper party plaintiff. Nor does he have standing as an employee. Employees may not sue for loss of earnings resulting from a tort committed by a third party against the employer.
4. Under Code Sections 8-24 and 64.1-145, as well as under the case law, the test for determining the applicable limitation upon an action is not whether the damages are direct or consequential but whether the action, by its nature, was one which survived. Here all damages claimed flowed from injury to property interests rather than injury to the person. Therefore, the causes of action in the motion for judgment survive and the Trial Court erred in sustaining the plea of the statute of limitations. Mumpower v. City of Bristol, 94 Va. 737, 27 S.E. 581 (1897) and Winston v. Gordon, 115 Va. 899, 80 S.E. 756 (1914) discussed.
Appeal from a judgment of the Circuit Court of the City of Alexandria. Hon. Franklin P. Backus, judge presiding.
Affirmed in part, reversed in part, and remanded.
Thomas J. Stanton for appellants.
C. Torrence Armstrong; Francis J. Prior (Robert L. Ellis; Boothe, Pritchard Dudley; Siciliano, Ellis, Sheridan Dyer, on briefs), for appellees.
Aside from the questions posed by the rulings on these pleas, the legal sufficiency of the causes of action alleged is not at issue on appeal.
On January 6, 1977, plaintiffs Anthony Chowney, Max Keepe, Joy Keepe, and Good Car Keeping, Inc., filed a motion for judgment against defendants Shell Oil Company (Shell), Petroleum Specialists, Inc., (PSI), Gerald O'Neil, and Vernon Oberholtz. Plaintiffs claimed damages allegedly incurred during the two months preceding January 16, 1975.
No evidence was taken, and we review the facts stated in the pleadings. Chowney leased an automobile service station from Shell. Max Keepe was the lessee's guarantor. Good Car Keeping, Inc. (hereinafter, the corporation), was formed to operate the station, and the lease became "an asset of the corporation". Plaintiffs do not allege that Shell gave written consent to an assignment as required by the lease, but they aver that the corporation "conducted the business with the knowledge and consent of Shell". Chowney and Max Keepe were stockholders and employees of the corporation, and Joy Keepe was a stockholder.
Shell contracted with PSI to make certain alterations in the underground gasoline storage and distribution system. While the work was in progress from November 19, 1974 until January 16, 1975, a water main was broken, tools left unguarded were vandalized, pipes connected by PSI leaked, a tank rewired by PSI caught fire, and $3000 worth of gasoline was destroyed. In addition, "barriers were put up by PSI blocking the entrances . . . and . . . throughout this period either some or all of the facilities of the service station were unoperable [sic]."
These facts, alleged in the first 10 paragraphs of the motion for judgment, were incorporated in each of four separate counts. The first count was based upon allegations that the property damage was caused by PSI's negligence; that Shell was responsible for PSI's negligence; that the business "ceased to make a profit", "fell into debt", and became unable "to pay [its] accounts with Shell"; and that, as a result, the lease was cancelled and the stockholders lost their investments and the employees their salaries.
The second count claimed that Shell was liable for the damages alleged in the first count because of its negligent "failure to properly supervise PSI" and to require timely performance of the work project.
Under the third count, plaintiffs claimed the same damages on the ground that Shell "intentionally caused and encouraged the extended disruption of Plaintiffs' business" so that Shell could acquire and operate the premises "as a company-run station".
In the fourth count, plaintiffs charged that Shell and PSI "wilfully, maliciously, separately and in concert with one another" conspired to injure plaintiffs' business in violation of Code Sec. 18.2-499 and claimed treble damages as provided in Code Sec. 18.2-500.
By final order entered October 18, 1977, the trial court held that the corporation and the Keepes were not proper parties-plaintiff because they had no "property interest in the lease" and dismissed them from the case. Finding that the "damages to the water main and the amount of gasoline loss" were direct damages but that all other damages claimed in all four counts were "consequential to the wrong and not direct damages to property", the court ruled that the latter damages were "barred by the one-year period of limitations prescribed by the Code of Virginia Sec. 8-24". Pending appeal by the corporation and the Keepes, Chowney's claim for property damages was continued on the docket.
We consider first the ruling on the plea of misjoinder of parties. To have standing to sue for damages for tortious injury to property, a plaintiff must have an interest in the property injured. 59 Am.Jur.2d Parties Sec. 29 (1971); cf. Cemetery Cons. v. Tidewater Fun. Dir., 219 Va. 1001, 254 S.E.2d 61 (1979) (private party with no interest in contract may not sue on contract to question the validity of contractual provisions).
Under the lease, Chowney acquired the right, for a one-year term, to use Shell's "land . . . buildings, improvements, and equipment" for the "operation of the automobile service station" and the right to market Shell's products. The leasehold estate was one of the property interests allegedly damaged by defendants' wrongful acts, and plaintiffs alleged that this interest was an asset of the corporation formed to operate the business contemplated by the lease. In support of the trial court's ruling, defendants argue that the corporation could acquire no property interest in the leasehold because the lease provided that Chowney could not assign his interest without Shell's written consent, "which consent was neither alleged, proved, nor given." Plaintiffs alleged, however, that the corporation had "conducted the business with the knowledge and consent of Shell", and the assignment clause provided that written "consent shall not be unreasonably withheld". If plaintiffs' allegation is established by evidence, Shell will be taken to have waived the requirement of written consent. See McGhee v. Cox, 116 Va. 718, 721-22, 82 S.E. 701, 702 (1914); Restatement (Second) of Property Sec. 15.2, Comment f (1977); cf. Zurich Accident Ins. Co. v. Baum, 159 Va. 404, 409, 165 S.E. 518, 519 (1932) (provision prohibiting unwritten modification of contract may be orally modified). We are of opinion, therefore, that the trial court erred in ruling that the corporation was not a proper party-plaintiff.
It is unclear from the pleadings what business assets other than the leasehold estate the corporation may have owned, and we do not consider whether the corporation may have had standing to sue based upon a property interest in such assets.
The Keepes argue that they have legal standing because, as stockholders of the corporation, they are actual owners of the business and all its assets, including the leasehold estate, good will, and the right to earn profits. We reject this argument. The corporation is a legal person, separate and distinct from the persons who own it, and the corporation, as the alleged owner and operator of the business, is the person entitled to its profits and the person injured by the wrongs alleged in the motion for judgment. Moreover, a stockholder has no standing to sue in his own right for an injury to the corporation on the ground the injury caused a depreciation in the value of his stock. 13 W. Fletcher, Cyclopedia of the Law of Private Corporations Sections 5911-13 (rev. vol. 1970). The cause of action belongs to the injured corporation, and a stockholder's remedy by derivative suit does not lie in this case. See Koch v. Realty Corporation, 205 Va. 65, 70-71, 135 S.E.2d 131, 134-35 (1964). Accordingly, we agree with defendants that the Keepes, as stockholders, have no standing to assert any of the claims stated in the motion for judgment.
The trial court's ruling that Chowney, also a stockholder, has standing to assert the claim for direct property damages was not challenged by assignment of cross error.
Nor does Max Keepe have standing as guarantor of Chowney's obligations under the lease. That status gave him no property interest in the leasehold or the business conducted thereunder, and there is no allegation that he incurred any damage as conditional obligor.
Max Keepe was also an employee of the corporation. The motion for judgment alleged that defendants' wrongful acts caused the employees to lose their earnings when the lease was cancelled. Plaintiffs have cited no case, and our research has revealed none, which holds that an employee has standing to sue for loss of earnings resulting from a tort committed by a third party against his employer.
We hold, therefore, that the Keepes were not proper parties-plaintiff and, as to them, the trial court's ruling was correct.
We turn now to the ruling on the plea of the statute of limitations.
The relevant statutes in effect at the time of trial, Code Sections 8-24 and 64.1-145, made survivability of the cause of action relevant to the determination of the applicable limitation.
"Sec. 8-24. Of actions not before specified. — Every action for personal injuries shall be brought within two years next after the right to bring the same shall have accrued. Every personal action, for which no limitation is otherwise prescribed, shall be brought within five years next after the right to bring the same shall have accrued, if it be for a matter of such nature that in case a party die it can be brought by or against his representative; and, if it be for a matter not of such nature, shall be brought within one year next after the right to bring the same shall have accrued. The amendment extending the period within which an action for personal injuries may be brought under this section to two years shall not apply to any cause of action arising prior to July one, nineteen hundred fifty-four.
"Sec. 64.1-145. Action for goods carried away, waste, or damage to estate of or by decedent. — An action at law for money damages may be maintained by or against a personal representative for the taking or carrying away of any goods or for the waste or destruction of, or damage to, any estate of or by his decedent."
We observe that at common law most actions ex contractu survived the death of the contracting parties, and most actions sounding in tort abated upon the death of either party. But tort actions which, like contract actions, affected property interests survived, while tort actions affecting primarily the person, e.g., slander, libel, and malicious prosecution, did not.
The interplay of survivability and the period of limitation was first considered in Mumpower v. City of Bristol, 94 Va. 737, 27 S.E. 581 (1897). There, the city obtained an injunction in the trial court restraining Mumpower from using a stream to propel his grist mill. This Court vacated the injunction, and Mumpower brought an action for damages against the city alleging that, by reason of the city's prosecution of its case, "he was greatly injured in his business . . . and was deprived of great profits and gains". 94 Va. at 738, 27 S.E. at 581. The sole question on appeal was whether the action was time-barred under former Code Sections 2927 and 2655 (antecedents of the statutes at bar). Noting that "[t]he wrongful act . . . alleged . . . consisted in maliciously and without probable cause suing out an injunction against the plaintiff", 94 Va. at 739-40, 27 S.E. at 581-82, the Court continued:
"It is quite obvious that this injunction did not operate to take or carry away the goods of the plaintiff, nor cause the waste or destruction of, or inflict any damage upon, the estate of the plaintiff. It is true that the language of the statute is comprehensive and embraces damage of any kind or degree to the estate, real or personal, of the person aggrieved; but the damage must be direct, and not the consequential injury or loss to the estate which flows from a wrongful act directly affecting the person only."
94 Va. at 740, 27 S.E. at 582. The Court ruled that "such a right of action does not survive, and that it is barred by the limitation of one year." Id.
In a later case, the Court had occasion to scrutinize its language in Mumpower. The plaintiff in Winston v. Gordon, 115 Va. 899, 80 S.E. 756 (1914), sought damages for financial loss resulting from negligent mismanagement by bank directors. Although the damages and the wrongful act alleged in Winston were no more directly related to each other than those alleged in Mumpower, the Winston court held that the cause of action was one which survived and, as such, was governed by the five-year limitation.
The opinions in these two cases were written by the same author. His opinion in the second case explicated that in the first and reconciled what otherwise might have appeared to be inconsistent conclusions. Noting again that Mumpower's "action was brought for maliciously and without probable cause suing out an injunction against the plaintiff", the Winston court said that "there is no . . . injury to the person in this case" and that "[t]he wrong . . . was to rights of property". 115 Va. at 916-17, 80 S.E. at 763. Manifestly, the wrong to Mumpower's business was as much a wrong to property rights as the financial loss sustained in Winston. Thus, Winston makes clear that the decision in Mumpower was based upon the author's conclusion that Mumpower's cause of action was one for malicious prosecution, that his injury was one "which [flowed] from a wrongful act directly affecting the person" rather than an injury flowing from a wrongful act affecting property rights, and that such a personal action did not survive.
Hence, as we perceive it, the Mumpower — Winston test for determining the applicable limitation of an action was not whether the damages claimed were direct or consequential but simply whether the action, by its nature, was one which survived. This definition accords with the express mandate of the statute of limitations. Survival was the only test prescribed by the legislature; Code Sec. 8-24 did not require an inquiry whether damages were directly related to the wrongful act. If the plaintiff sought to recover for "damage to any estate", the action survived; Code Sec. 64.1-145 made no distinction between direct and consequential damages. Under the statutes, as at common law, the nature of the cause of action, not the proximity of the wrongful act to the resulting damages, determined survivability.
By amendment to Code Sec. 64.1-145, effective October 1, 1977, the General Assembly made clear that causes of action survive "whether . . . damage be direct or indirect". Acts 1977, c. 624. Under Code Sec. 8.01-25 enacted at the same session, "[e]very cause of action whether legal or equitable, which is cognizable in the Commonwealth of Virginia" now survives. Acts 1977, c. 617.
As thus defined, the Mumpower — Winston test was applied in Worrie v. Boze, 198 Va. 533, 95 S.E.2d 192 (1956). There, the plaintiffs sought damages for loss of business profits flowing from the defendants' breach of a covenant not to compete. The defendants argued that "the plaintiffs' action [was] not for direct damage to their property or estate" and, for that reason, "would not survive". 198 Va. at 536, 95 S.E.2d at 196. Rejecting that argument and citing the same statutory provisions considered in Mumpower and Winston, this Court said that the right to reap profits is a property right and that "under [the plaintiffs'] allegations, the wrong done and damage done are directed to the estate or property of the plaintiffs and not to them personally". 198 Va. at 536-37, 95 S.E.2d at 196.
Making no reference on brief to Winston or Worrie, Shell and PSI interpret Mumpower to hold that an action claiming damages to property rights is subject to the one-year limitation unless those damages are the direct result of the wrongful act. Citing Carva Food Corporation v. Dawley, 202 Va. 543, 118 S.E.2d 664 (1961), and Housing Authority v. Laburnum Corp., 195 Va. 827, 80 S.E.2d 574 (1954), they say that Code Sec. 64.1-145 has been consistently construed to such effect. As we have said, neither this section nor Code Sec. 8-24 makes any distinction between direct and consequential damages. We think those cases lay undue emphasis upon the direct and consequential damage aspect of the issue and thus are not controlling here.
Here, all the damages claimed flowed from injury to property interests, and no cause of action is based on injury to the person. Applying the Mumpower — Winston test as we have defined it, we hold that all the causes of action for all the damages claimed in the motion for judgment survive and that the trial court erred in sustaining the plea of the statute of limitations.
Accordingly, the judgment will be affirmed in part and reversed in part, and the case will be remanded for further proceedings consistent with this opinion.
Affirmed in part, reversed in part, and remanded.