National Surety Corporation v. United States

• Decision Date: 21 February 1964
• Docket Number: No. 20603.,20603.
• Citation: 327 F.2d 254
• Parties: NATIONAL SURETY CORPORATION, Appellant, v. UNITED STATES of America for the Use and Benefit of OLMOS BUILDING MATERIALS COMPANY, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

327 F.2d 254 (1964)

NATIONAL SURETY CORPORATION, Appellant, v. UNITED STATES of America for the Use and Benefit of OLMOS BUILDING MATERIALS COMPANY, Appellee.

No. 20603.

United States Court of Appeals Fifth Circuit.

January 13, 1964.

Rehearing Denied February 21, 1964.

Dayton G. Wiley, Green, Green & Wiley, San Antonio, Tex., for appellant.

William P. Dobbins, Dobbins & Howard, San Antonio, Tex., for appellee.

Before TUTTLE, Chief Judge, GEWIN, Circuit Judge, and BREWSTER, District Judge.

GEWIN, Circuit Judge:

The cause of the controversy in this suit is the allowance of attorneys' fees in a suit by the supplier of materials against the prime contractor and its surety.

The contract under consideration was primarily between Madden Company, Inc., as prime contractor, and the United States of America, which provided for the improvement and rehabilitation of certain properties at Kelly Air Force Base in Bexar County, Texas. The use plaintiff, Olmos Building Materials Company, furnished materials used in the prosecution of the work. National Surety Corporation was surety on the bond of Madden Company, Inc., as principal, by the terms of which the principal and the surety bound themselves jointly and severally for the amount of the bond conditioned as follows:

"that if the principal shall promptly make payment to all persons supplying labor and materials in the prosecution of the work provided for in said contract and any and all duly authorized modifications of said contract, then said obligation shall be void, otherwise to remain in full force and virtue."¹ (emphasis added.)

Without question the bond was accepted and approved; Olmos furnished materials to Madden on open account, which materials were used in the prosecution of the work to be done pursuant to the contract; Madden unqualifiedly promised and agreed to pay Olmos the sums charged for the materials; and after the allowance of all just and lawful offsets, payments and credits, the sum of $2,295.24 was past-due and unpaid when plaintiff filed suit; and Madden had failed and refused to pay any part of said sum.

The last delivery date of the building materials and products involved was made by Olmos to Madden on May 14, 1962, over 90 days prior to but less than one year before suit was filed. On September 13, 1962, Olmos filed a written proof of claim with National Surety in which clear notice of the default on the part of Madden was given. Olmos made demand for payment on Madden and on National Surety, which demand was ignored for more than 30 days after it was made. At the time the proof of claim, notice of default, and demand for payment were made, attorneys for Olmos made the following statement in the letter transmitting the same:

"* * * However, if this claim is paid promptly, no suit will be filed and, therefore, no attorneys\' fees nor costs of Court will be added to the claim. By promptly, we mean at least within thirty days from ths (sic) date." (emphasis added.)

National Surety failed and refused to make payment, whereupon Olmos employed counsel, obligated itself for attorneys' fees and filed suit on October 25, 1962.

National Surety filed an answer on November 15, 1962. On January 11, 1963, National Surety tendered into the registry of the court the above mentioned sum of $2,295.24 plus interest and court costs, making a total payment of $2,355.68. The tender was made shortly before pre-trial hearing. A pre-trial order was entered on January 29, 1963. The Clerk was directed to pay the sum tendered to Olmos without prejudice to the right of Olmos to prosecute its claim for reasonable attorneys' fees incurred, and to be incurred on appeal, and without prejudice of National Surety to contest its obligation to pay attorneys' fees. The principal, Madden Company, Inc., defaulted.²

The trial court found that Olmos has employed competent counsel to file suit and had agreed to pay reasonable attorneys' fees for services to be rendered; that up to the time of the entry of judgment, counsel for Olmos had spent approximately 40 hours in the preparation of prosecution of the claim; that the evidence showed that such services were valued at the rate of $25.00 per hour; and that approximately half of such time was devoted to the case up until November 15, 1962, when National Surety filed its answer,³ and half of such time was devoted subsequent to that date. The court concluded that Olmos was entitled to recover jointly and severally from Madden, as principal, and National Surety, as surety, reasonable attorneys' fees, including attorneys' fees on appeal if incurred; and the court fixed as reasonable attorneys' fees the sum of $750.00 "* * * for attorneys' services up to and including entry of judgment." Jurisdiction was reserved to fix attorneys' fees to which Olmos "* * * is entitled should this case be appealed until a reasonable time after all appellate action has terminated and the mandate of the appellate court filed herein." The record further discloses that the reasonableness of the fee awarded by the court is not questioned by National Surety.

On this appeal, National Surety contends that it is not liable for attorneys' fees because there is no Texas statute specifically authorizing the same, and that the contract between the parties does not authorize such fees. It is further contended that even if such fees are allowable, the trial court erred in allowing fees for services "* * * up to and including entry of judgment"; that no fee should be allowed for services rendered after it admitted liability and tendered principal and interest into the registry of the court; and further, that attorneys' fees for services rendered on appeal are not authorized.

Olmos and National Surety are directly opposed in their contentions as to the proper interpretation of Article 2226, Vernon's Ann.Civ.Stats.,⁴ the former claiming that the statute authorizes attorneys' fees and the latter claiming that it does not. Both parties cite numerous Texas decisions, each contending that the decisions are favorable to their diametrically opposed contentions. There seems to be little dispute as to the rule that the principal contractor, in this case Madden, is liable for attorneys' fees under the above mentioned statute. The dispute arises as to whether such fees are recoverable against the surety of the principal contractor.

No useful purpose would be served in undertaking to analyze every Texas case cited; or in drawing the fine distinctions which seem to be necessary in order to reconcile all of the opinions involved in the varied fact situations presented by the cases. It is sufficient to say that none of the cases cited is directly and exactly in point, and the fact situations presented by the Texas cases are not sufficiently similar in the essential and controlling factual details here under consideration to be conclusive.

In addition to numerous other cases, National Surety relies heavily on Mundy v. Knutson Construction Co., 156 Tex. 211, 294 S.W.2d 371; and F & C Engineering Co. v. Moore, 300 S.W.2d 323, (Tex.Civ.App.1957) err. ref'd, n. r. e. The Mundy case asserts the general principle that a surety is not liable for attorneys' fees unless provided for by statute or by contract between the parties. It should be observed however that there was no express provision to pay attorneys' fees in the contract under consideration in the Mundy case, but the performance bond contained an agreement to "* * * repay all costs and expenses * * *" incurred in the prosecution of any suit maintained against the principal for breach of contract or for breach of the surety bond. The court interpreted the language to include attorneys' fees and concluded:

"Since the wording of our bond expressly provides for payment of `all costs and expenses\' incurred in the prosecution of a suit or suits on a breach of the construction contract, or on that very bond, we feel attorneys\' fees so incurred was a proper measure of recovery by Knutson. An attorneys\' fee for the prosecution of a suit is an `expense\' incurred."

In Mundy the court further reviewed other cases which allowed attorneys' fees in suits against sureties where there was no direct, express agreement to pay attorneys' fees, but where there were provisions to pay all damages, costs, charges or expenses. In the F & C Engineering case, the court held the general contractor liable for attorneys' fees because the general contractor made a direct, special promise to the materialman that it would be responsible for and guarantee "* * payments for all material delivered to the subcontractor." The court concluded that the promise was made to induce the delivery of the material, and that such delivery would not have been made without the promise. Article 2226, Vernon's Ann.Civ.Stats. was held applicable and attorneys' fees were awarded against the general contractor. The court held the surety not to be liable and used only the following language with respect to the subject:

"These

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