Chetopa State Bancshares, Inc. v. Fox

• Decision Date: 15 May 1981
• Docket Number: No. 51887,51887
• Citation: 6 Kan.App.2d 326,628 P.2d 249
• Parties: CHETOPA STATE BANCSHARES, INC., a Kansas Corporation, Plaintiff-Appellant, v. George A. FOX, Individually; Lillian M. Fox, George A. Fox, Trustee for Kathy Morrison, Timmy Lamb and David Lamb, Fox Investment Company, Inc., Cathy J. Lamb, Amy Jones, Miles Falkenstein, Frank Albertini, Glen Jones and Jack Rorschach, Defendants-Appellees.
• Court: Kansas Court of Appeals

Page 249

628 P.2d 249

6 Kan.App.2d 326

CHETOPA STATE BANCSHARES, INC., a Kansas Corporation Plaintiff-Appellant, v. George A. FOX, Individually; Lillian M. Fox, George A. Fox Trustee for Kathy Morrison, Timmy Lamb and David Lamb, Fox Investment Company, Inc., Cathy J. Lamb, Amy Jones, Miles Falkenstein, Frank Albertini, Glen Jones and Jack Rorschach Defendants-Appellees.

No. 51887.

Court of Appeals of Kansas.

May 15, 1981.

Review Denied June 12, 1981.

Syllabus by the Court

1. Absent statutory authorization, an indemnitee cannot recover attorney fees in a suit to enforce the indemnity contract unless the terms of the contract so provide.

2. An indemnity contract is to be construed by the rules that cover the construction of contracts generally. The rule of most importance is: A court should determine the intent of the parties and give effect to it if legally possible.

3. The filing of a timely notice of appeal is jurisdictional. The same rule applies to a notice of cross-appeal.

4. In an action to enforce a covenant of indemnity, it is held : Under the terms of the contract plaintiff is entitled to be reimbursed for its attorney fees in this suit, including fees attributable to this appeal.

Randy S. Stalcup, of Kidwell & Williamson, Chartered, Wichita, for plaintiff-appellant.

Charles F. Forsyth, Erie, for defendants-appellees.

Before FOTH, C. J., Presiding, TERRY L. BULLOCK, District Judge, and FREDERICK WOLESLAGEL, District Judge Retired, Assigned.

WOLESLAGEL, District Judge Retired, Assigned:

As parts of a contract for the sale of the stock of the Chetopa State Bank, the defendants, as stockholder sellers, provided two indemnity clauses in favor of the purchaser who assigned his rights to the plaintiff.

The first provision related to claims or debts then existing, "or growing out of this Stock Purchase Agreement."

The second provision related to expense "at any time after the date hereof, arising from, or as a result or in respect of, the breach of any warranty, representation or covenant made by Sellers" in the agreement.

Two lawsuits and one tax claim, each based on earlier conduct of the bank, were resisted by plaintiff. When the defendants refused to reimburse the plaintiff for its attorney fees in connection with those existing claims, this suit was brought to enforce plaintiff's rights under the contract.

The trial court granted judgment to reimburse plaintiff for the fees in regard to the three existing claims. It denied plaintiff recovery of attorney fees in this suit brought to enforce its claimed indemnification rights under the contract.

In appealing from this denial, the plaintiff lists one issue: Is the indemnitee entitled to recover attorney fees in the action establishing its right to indemnification wherein such recovery is specifically provided for by contract? Perhaps the issue is a bit too simply stated, as there is a necessary underlying factual determination to be made: Did the contract provide for recovery of attorney fees relative to an indemnity suit? Believing an affirmative answer to that question, as well as to plaintiff's stated question, is indicated by the record, we reverse.

This appears to be a case of first impression in this state. Most reported decisions from other states hold, as did the trial court here, that attorney fees are not recoverable in suits to enforce an indemnity contract. See 42 C.J.S., Indemnity § 13d, p. 587. Under these circumstances, the contractual clauses of the contract and the trial judge's essential findings should be set forth in detail. The contractual provisions are as follows:

"3.8 Indemnity.

"(i) Sellers agree to indemnify, save and hold Stuckey and the Bank and its successors and assigns, and each of them, free and harmless of and from all demands, claims, actions or causes of actions, assessments, lawsuits, damages and attorney's fees by reason of any claim, obligations, debts, demands or liabilities existing against the Bank prior to and including the date of the Closing or thereafter coming into being by reason of any state of facts existing prior to and including the date of Closing, or arising or growing out of this Stock Purchase Agreement, except to the extent that the same have been set forth in said financial statements or except from the operation of the Bank's business since December 31, 1973, if such has been operated in accordance with the terms and provisions of this Agreement, namely that the business of the Bank will not be conducted other than in the ordinary course of business." (Emphasis added.)

"5.1 Indemnity. Subject to the limitations set forth herein, and where no insurance coverage is applicable, Sellers agree to indemnify and hold Stuckey harmless from and against any loss, damage, deficiency or expense (including reasonable attorney's fees) suffered or incurred by Stuckey at any time after the date hereof, arising from, or as a result or in respect of, the breach of any warranty, representation or covenant made by Sellers or any of them in this Agreement, including specifically but not limited to the warranties made by Sellers with respect to taxes, undisclosed liabilities, net worth and net income of the Bank. Notice of any claim hereunder, or of any facts which might reasonably give rise to a claim hereunder shall be given by Stuckey to Sellers with reasonable promptness after learning thereof; provided, however, Sellers shall have no liability under the foregoing indemnity unless such notice shall have been given by Stuckey to Sellers on or before the 2nd day of January, 1979. In case a claim is asserted against Stuckey or the Bank that might give rise to a claim hereunder, such underlying claim may but need not be contested or defended by Stuckey or the Bank, and Sellers shall have the right to participate therein, or otherwise to contest or defend such underlying claim by counsel of their own choice at their own expense. If within thirty (30) days after notice of such underlying claim shall have been given as above provided, Sellers do not undertake to contest or defend such underlying claim and thereafter diligently prosecute such contest or defense, any such underlying claim may be paid, settled or otherwise disposed of as Stuckey or the Bank may deem advisable, without further notice to or consent of Sellers, and without releasing Sellers from their liability under the foregoing indemnity." (Emphasis added.)

The trial court's Journal Entry of December 21, 1978, included the following:

"1. That on the 6th day of September, 1973, the defendants (hereinafter referred to as 'defendants' or as 'Sellers') entered into a Stock Purchase Agreement with Louis N. Stuckey, Jr. (hereinafter referred to as 'Stuckey') for the purpose of selling to Stuckey all of the stock of Chetopa State Bank and Trust Company.

"2. That said Stock Purchase Agreement contained indemnity provisions which are applicable to the facts and issues in this action and which indemnity provisions are set out in full in paragraphs 3.8(i) and 5.1 of said Agreement as attached to the pleadings; and that thereafter on or about January 2, 1974, Stuckey assigned his interest in the Stock Purchase Agreement to Chetopa State Bancshares, Inc., the plaintiff in this action.

"3. That on December 27, 1974, an action was filed in the United States District Court for the Northern District of Oklahoma (Case No. 74-C-620-B) naming George A. Fox and the Chetopa State Bank and Trust Company as defendants; that defendant Fox was later dismissed from said action by the plaintiffs therein and the suit was continued as against the defendant, the Chetopa State Bank and Trust Company.

"4. That defendant George A. Fox entered his appearance in said action in the Northern District of Oklahoma and defended the same in his own name individually and on his own behalf only.

"5. That on December 30, 1974, Stuckey gave notice of said action to the Sellers in accordance with the terms of the Stock Purchase Agreement.

"6. That none of the named defendants in this action (neither George A. Fox nor the other Sellers under the Agreement) defended said action on behalf of the Chetopa State Bank and Trust Company; that said defendants in this action did not retain legal counsel nor enter any appearance nor file any pleadings in the United States District Court for the Northern District of Oklahoma on behalf of the Chetopa State Bank and Trust Company who was a named party defendant in that action.

"7. That Chetopa State Bancshares, Inc., was required to employ legal counsel and incur expenses in defense of the action in the United States District Court for the Northern District of Oklahoma on behalf of the Chetopa State Bank and Trust Company on the failure of defendants Fox and the other Sellers to do so under the provisions of the Stock Purchase Agreement.

"8. That as a result of an audit of the Chetopa State Bank and Trust Company by the Internal Revenue Service in 1975, tax deficiencies were assessed against Chetopa State Bank and Trust Company with regard to its 1972 and 1973 taxable income.

"9. That on September 5, 1975, Stuckey gave notice of the claim for tax deficiencies being asserted by the Internal Revenue Service to the Sellers in accordance with the terms of the Stock Purchase Agreement.

"10. That none of the defendants (neither George A. Fox nor the other Sellers under the Agreement) took any action in regard to the Internal Revenue Service claim for tax deficiencies for the years 1972 and 1973 against the Chetopa State Bank and Trust Company.

"11. That Chetopa State Bancshares, Inc., was required to employ legal counsel and incur expenses in settling and paying the 1972 and 1973 tax deficiencies with the Internal Revenue Service on failure of any of the defendants so to do.

"12. That on July 1, 1976, an action was commenced in the United States District Court for the District of Kansas (Case No. 76-300-C6) naming the Chetopa...