Knebel v. Capital Nat. Bank in Austin

• Decision Date: 11 December 1974
• Docket Number: No. B--4546,B--4546
• Citation: 518 S.W.2d 795
• Parties: Herbert KNEBEL et al., Petitioners, v. The CAPITAL NATIONAL BANK IN AUSTIN et al., Respondents.
• Court: Texas Supreme Court

Page 795

518 S.W.2d 795

Herbert KNEBEL et al., Petitioners, v. The CAPITAL NATIONAL BANK IN AUSTIN et al., Respondents.

No. B--4546.

Supreme Court of Texas.

Dec. 11, 1974.

On Denial of Rehearing March 5, 1975.

Charles G. Trenckmann, Russell J. Horn, Byron Lockhart, Austin, for petitioners.

Sneed, Vine, Wilkerson & Selman, Louis Scott Wilkerson, Clark, Thomas, Harris, Denius & Winters, Richard T. McCarroll, Hart, Keahey and Hart, James P. Hart, Austin, for respondents.

STEAKLEY, Justice.

This is another stage in proceedings adjudicated in part in 7--Up Bottling Company of Austin, Inc. v. Capital National Bank in Austin, Independent Executor of The Estate of Edmund Perry Knebel, Deceased, 505 S.W.2d 624 (Tex.Civ.App.1974, writ ref'd, n.r.e.). The problems here involve claims for attorneys' fees. The current opinion from which this appeal is taken is reported as Herbert Knebel, et al. v. Capital National Bank of Austin, 505 S.W.2d 628.

A narration of the facts and circumstances reviewed in detail in the two opinions of the Court of Civil Appeals will pose the matters now at hand.

Edmund Perry Knebel died September 5, 1965. At that time he was a fifty per cent stockholder in the 7--Up Bottling Company of Austin, Inc. The other fifty per cent of the stock was held by Henry H. Kuempel, et al., who are Respondents here. Prior to incorporation Knebel had done business as a sole proprietor. In November 1962 he entered into a contract with the corporation by the terms of which the corporation was given an option to purchase the stock of a deceased stockholder at its book value. Knebel's will executed under date of November 1, 1955 named the Capital National Bank in Austin and Henry H. Kuempel as Independent Co-executors. The residuary clause of the will created a testamentary trust upon the termination of which forty-eight per cent of his residuary estate is to be divided among eight named relatives and the remaining fifty-two per cent is to be divided among ten other named persons indicated as being Knebel's general manager and employees. The trust was upheld in Knebel v. Capital National Bank in Austin, 469 S.W.2d 458 (Tex.Civ.App.1971, writ ref'd, n.r.e.).

In time after Knebel's death the corporation sought to acquire Knebel's stock by exercise of the option provided in the 1962 contract mentioned above. The Bank as an Independent Co-executor of Knebel's estate determined the book value of the stock to be $43,394.60 and notified the devisee-beneficiaries that the stock would be sold to the corporation for the option price thus determined. Thereafter the Bank accepted a cash payment of one-fourth of the purchase price and a note for the balance and delivered the Knebel stock to the corporation.

In the meanwhile, several of the devisee-beneficiaries expressed dissatisfaction with the price paid for the stock and in November 1966 the Bank filed suit for construction of the option agreement and for a determination of the book value of Knebel's stock in the corporation. Herbert Knebel, et al., the Petitioners here, a group of the devisee-beneficiaries who were defendants in the suit filed by the Bank, filed a motion for partial summary judgment grounded on the contention that the exercise of the option and subsequent sale was void because of the dual relationship of Henry H. Kuempel, i.e., as an officer, director and stockholder in the corporation and as an Independent Co-executor of Knebel's estate. The trial court in February 1969 rendered partial summary judgment declaring the transaction to be null and void Ab initio and ordered restoration of the status quo. This is the judgment that was affirmed in 7--Up Bottling Company, Inc., et al. v. Capital National Bank in Austin, Supra.

In March 1972, Henry H. Kuempel resigned as Independent Co-executor of the estate of Knebel and in May 1972 the Bank filed an amended petition in the original suit for determination of the question, among others, of whether the option to purchase the stock belonging to the Knebel estate could then be exercised. Herbert Knebel, et al., by way of a cross-action, sought an award of attorney's fees from the Knebel estate, and from the executors, as later noticed in more detail.

After trial to the court in January 1973, a final judgment was 'signed and filed' under date of March 20, 1973. This is the judgment which is the subject of the stage of the proceeding now at hand and which, as stated, was affirmed by the Court of Civil Appeals.

The judgment made final the previous partial summary judgment, the effect of which has been stated above, and decreed that the stockholders in question were not then entitled to exercise the option to purchase the stock belonging to the Knebel estate. The judgment recited that the Bank in its capacity as Independent Executor of the estate had just cause to petition the court for the declaratory relief sought and the sums of $4,176.00 and $3,586.00 were awarded to the attorneys for the Bank for their services rendered in the various stages of the proceeding, the payment of which was directed to be out of the assets of the estate of Edmund Perry Knebel, deceased, and as an expense of administration.

With respect to the cross-action of Herbert Knebel, et al., it was further decreed in the judgment that attorneys' fees should not be awarded or adjudged to be paid out of the assets of the estate of Knebel or from the executors. ¹ Findings of fact and conclusions of law were not filed by the trial court and there was no request therefor by any party.

Separate applications for writ of error were filed in the names of those individuals represented by different attorneys who comprise the group of devisee-beneficiaries we have identified as Herbert Knebel, et al. However, they make common cause in points of error respectively attacking the judgment of the trial court as affirmed by the Court of Civil Appeals that (a) denied them a recovery of attorneys' fees from the Knebel estate; (b) denied a recovery of such fees against the executors for the benefit of the Knebel estate as a surcharge for damages caused the estate by their actions; (c) awarded attorneys' fees to the Bank to be paid by the Knebel estate.

Writ of error was granted on the points asserting error in the denial of the claim for attorney's fees from the Knebel estate, (a), above. The Court of Civil Appeals tacitly overruled the points as to (b) but did not write; we will consider this later. As to (c), we are in agreement with the writing of the Court of Civil Appeals affirming the award of attorney's fees to the Bank to be paid by the Knebel estate and will pretermit discussion of this.

Our views with respect to the claims of Herbert Knebel, et al., for attorney's fees from the Knebel estate differ from those of the Court of Civil Appeals and the writing that immediately follows will consider this problem; and for the reasons to be stated, we will reverse the judgment of the Court of Civil Appeals and remand the cause to that court.

Based on their successful litigation in nullifying the stock redemption sale and the claimed benefit to the estate and its beneficiaries therefrom, Herbert Knebel, et al., invoked the rule of the 'common fund' doctrine. They sought reimbursement from the Knebel estate for the fees they are contractually bound to pay their attorneys under their contingent fee contracts, and an additional recovery for the use and benefit of their attorneys.

The rule thus invoked rests in equity and not in contract in charging a common fund with expenses, including attorneys' fees. The equitable objective is that of distributing the burden of such expenses among those who share in an accomplished benefit. The rule has been recognized with approval in Texas and elsewhere, particularly in federal jurisdictions. The court wrote in Brand v. Denson, 81 S.W.2d 111 (Tex.civ.App.1935, writ dism'd):

. . . In the language of the authorities, a court of equity will allow reasonable attorney's fees to a complainant who at his own expense has maintained a successful suit or proceeding for the preservation, protection, or increase of a common fund. . . . The rule is founded upon the principle that one who preserves or protects a common fund works for others as well as for himself, and the others so benefited should bear their just share of the expenses, including a reasonable attorney's fee; and that the most equitable way of securing such contribution is to make such expenses a charge on the fund so protected or recovered.

The court cited the Annotation in 49 A.L.R. 1149, 1170, 1171; this Annotation, which has been supplemented in 107 A.L.R. 749, states the rule as follows:

The rule is that a court of equity, or a court in the exercise of equitable jurisdiction, will, in its discretion, order an allowance of counsel fees, or, as it is sometimes said, allow costs as between solicitor and client, to a complainant (and sometimes directly to the attorney) who at his own expense has maintained a successful suit for the preservation, protection, or increase of a common fund, or of common property, or who has created at his own expense, or brought into court, a fund in which others may share with him. (49 A.L.R. 1150)

See Mitchell v. Mitchell, 151 Tex. 1, 244 S.W.2d 803 (1951); Thornhill v. Elskes, 412 S.W.2d 73 (Tex.Civ.App.1967, no writ); Adler v. Brooks, 375 S.W.2d 544 (Tex.Civ.App.1964, writ ref'd n.r.e.); Modern Optics, Inc. v. Buck, 336 S.W.2d 857 (Tex.Civ.App.1960, writ ref'd n.r.e.); American National Bank of Beaumont v. Biggs, 274 S.W.2d 209 (Tex.Civ.App.1954, writ ref'd n.r.e.); Brand v. Denson, 81 S.W.2d 111 (Tex.Civ.App.1935, writ dism'd); Thurber Construction Co. v. Kemplin, 81 S.W.2d 103 (Tex.Civ.App.1935, writ dism'd); Texon Oil & Land Co. of Delaware v. Hanszen, 292 S.W. 563 (Tex.Civ.App.1927, no writ); Byrne v. First National Bank of Lake Charles, 20 Tex.Civ.App. 194, 49 S.W. 706 (1899, writ ref'd). Also cf. Hall v. Cole, 412...