Kuper v. Schmidt

• Decision Date: 05 October 1960
• Docket Number: No. A-7457,A-7457
• Citation: 161 Tex. 189,338 S.W.2d 948
• Parties: C. H. KUPER et al., Petitioners, v. L. J. SCHMIDT et al., Respondents.
• Court: Texas Supreme Court

Page 948

338 S.W.2d 948

161 Tex. 189

C. H. KUPER et al., Petitioners, v. L. J. SCHMIDT et al., Respondents.

No. A-7457.

Supreme Court of Texas.

Oct. 5, 1960.

Carl M. Shinn, Lamar, Colo., Simpson, Adkins, Fullingim & Hankins, Amarillo, for L. J. Schmidt et al.

R. C. Hamilton, Amarillo, for Earline Kuper et al.

Fike & Hunter, Dalhart, Brown & Brown, Council Grove, Kan., for C. H. Kuper.

WALKER, Justice.

On the first question presented by this appeal, we hold that where one of two joint owners of a negotiable instrument brings suit thereon after placing the same in the hands of attorneys for collection and is required to and does join the other owner as an involuntary plaintiff, the former is entitled to recover the full attorney's fees stipulated in the note if their reasonableness is not questioned by the defendants and it appears that the involuntary plaintiff has incurred no legal expense in the prosecution of the action. The present suit was brought by C. H. Kuper, plaintiff, on two promissory notes, one for $7,148 payable to the plaintiff's order and the other for $62,709.28 payable to the order of C. H. Kuper or Earline Kuper. Both notes were executed by L. J. Schmidt and L. W. Schmidt, defendants, in 1953 and matured twelve months after date. Each bears interest from date at the rate of five per cent per annum and provides for ten per cent attorney's fees if the note is placed in the hands of an attorney for collection.

Earline Kuper was the wife of C. H. Kuper at the time the notes were executed. They were divorced prior to the institution of this suit, and under the terms of their property settlement became joint and equal owners of the two notes. Earline Kuper is the sister of and refused to join in the suit against the defendants. She was made an involuntary plaintiff, and an answer was filed in her behalf by the attorneys representing the defendants. Summary judgment was granted by the trial court awarding to C. H. Kuper and Earline Kuper each one-half of the principal and accrued interest, and to C. H. Kuper the entire ten per cent attorney's fees, on the two notes. This judgment was reformed by the Court of Civil Appeals so as to allow C. H. Kuper attorney's fees only on his one-half interest in the notes and was otherwise affirmed. Tex.Civ.App., 324 S.W. 2d 307.

Since all parties have filed applications for writs of error, each will be referred to by name or as designated in the trial court. Plaintiff contends that the judgment of the district court should be affirmed, while his former wife argues that she is entitled to attorney's fees on her one-half interest in the notes. The defendants insist that the summary judgment was not properly granted because the record shows a material issue of fact with respect to their liability on the larger note.

It is now settled that as between the legal owner and holder of a promissory note and those who are obligated to pay the same, the former is prima facie entitled to recover the attorney's fees stipulated therein upon the happening of the contingency which makes the same payable. In the absence of an issue affirmatively tendered by the defendant, it is not necessary for the plaintiff to prove an agreement to pay such fee to an attorney or that the same is reasonable. The usual attorney's fee clause is, however, in the nature of a contract of indemnity and cannot be regarded as providing for liquidated damages or a penalty. Upon a proper showing the holder will be limited to an amount which is reasonable under the circumstances, and may be denied any recovery where it appears that no expense has been incurred as a result of the maker's default. First Nat. Bank of Eagle Lake v. Robinson, 104 Tex. 166, 135 S.W. 372; Lanier v. Jones, 104 Tex. 247, 136 S.W.255; Ehlinger v. Clark, 117 Tex. 547, 8 S.W.2d 666; De Lara v. Furnish, Tex.Civ.App., 46 S.W.2d 402 (wr. ref.); Amuny v. Seaboard Bank & Trust Co., Com.App., 23 S.W.2d 287.

Ordinarily the collection costs agreed upon by the parties to the instrument are awarded to those who are entitled to recover, and are adjudged against those who are obligated to pay, the principal and interest owing thereon, but this is not an invariable rule. It has been held, for example, that an indorser who makes the suit necessary by refusing to pay his part of the note should be required to pay all of the attorney's fees. Liberty Oil & Sulphur Co. v. City Nat. Bank of Beaumont, Tex.Civ.App., 45 S.W.2d 782 (wr. ref.). The court there reasoned that it would be inequitable to permit the person who had caused the suit to be brought to escape liability at the expense of those who had done all required of them to prevent the action. It seems equally clear that a plaintiff who must bear the entire legal expense of prosecuting an action for the benefit of the joint owners of a note is entitled to recover the attorney's fees provided therein when no issue of reasonableness is raised by the defendants.

Upon Mrs. Kuper's refusal to join in the action, plaintiff was entitled to bring suit on the notes and make her an involuntary plaintiff. Rule 39(a), Texas Rules of Civil Procedure. Since the period of limitation was about to expire, prompt action was necessary to protect the legal rights of both owners. He accordingly placed the notes in the hands of his attorneys, who have borne the entire burden of preparing the case, instituting suit and establishing defendants' liability. Mrs. Kuper was entitled to recover only her one-half of the principal and accrued interest, because she had incurred no legal expense in connection with the case at the time it was decided by the trial court. The defendants made no contention, however, that the stipulated fee is unreasonable. Their answer simply alleges that the notes are jointly owned by the plaintiff and his former wife, and that the plaintiff is entitled to recover only one-half of the principal, interest and attorney's fees. It is fair to assume then that the plaintiff will be required to pay his attorneys at least the amount provided in the notes as compensation for their services in collecting the same and that such fee is reasonable. Under these circumstances and since the stipulation for attorney's fees is essentially a contract of indemnity, the trial court was authorized to enter judgment against the defendants for the amount they had agreed to pay as collection costs and award the same to the plaintiff.

Defendants do not deny owing the $7,148 note, but they argue that the record discloses a material issue of fact as to whether the other instrument was delivered conditionally or for a special purpose. Their answer alleges that they entered into a cattle venture with the plaintiff in 1953, that after the cattle were sold plaintiff informed then that a loss of $94,081.77 had been sustained and requested that they execute the $62,709.28 note for their share so an income tax return could be made, and that the note was executed and delivered to be effective only when and if plaintiff furnished them records substantiating such loss, which he had failed and refused to do. There are also unverified pleas of lack of consideration, failure of consideration and fraud in the inducement, but defendants do not...