Old Republic Surety Co. v. Cross, 04-99-00689-CV

• Decision Date: 24 May 2000
• Docket Number: No. 04-99-00689-CV,04-99-00689-CV
• Citation: 27 S.W.3d 35
• Parties: (Tex.App.-San Antonio 2000) OLD REPUBLIC SURETY COMPANY, Appellant v. Rodney CROSS, Temporary Conservator, Appellee Delivered and Filed:
• Court: Texas Court of Appeals

Page 35

27 S.W.3d 35 (Tex.App.-San Antonio 2000)

OLD REPUBLIC SURETY COMPANY, Appellant v. Rodney CROSS, Temporary Conservator, Appellee

No. 04-99-00689-CV

Court of Appeals of San Antonio, Texas

Delivered and Filed: May 24, 2000

Rehearing Overruled June 27, 2000

Rehearing En Banc Overruled August 14, 2000

From Probate No. 2, Bexar County, Texas Trial Court No. 84-PC-3374 Honorable Sandee Bryan Marion, Judge Presiding

Sitting: Tom Rickhoff, Justice; Alma L. Lopez, Justice; Paul W. Green, Justice

OPINION

Opinion by: Alma L. Lopez, Justice

Years ago, Donald Schillings contracted with Northwestern National Casualty Company to procure a surety bond in the amount of $60,000.00 for faithful performance of duties as administrator of the estate of Annabelle Wright. The appellant, Old Republic Surety Company (Old Republic), is the present obligor on the bond. In a prior appeal, we determined that Old Republic was liable to the appellee, Rodney Cross, for actual damages for Schillings's failure to perform his duties as administrator in the full amount of the surety bond, prejudgment interest, post-judgment interest, and attorney's fees. See Cross v. Old Republic Surety Co., 983 S.W.2d 771, 777-78 (Tex. App.-San Antonio 1998, writ denied). We remanded the case to the probate court to determine the amounts of prejudgment interest and attorney's fees, if any. Id. at 778. The probate court then rendered a judgment awarding Cross $60,000.00; post-judgment interest at the rate of 10%; prejudgment interest at the rate of 10%; and $35,000.00 in attorney'sfees. Old Republic appeals that judgment in this appeal.

Attorney's Fees

In its first issue, Old Republic argues that the probate court erred by awarding attorney's fees in excess of the penal sum of its bond. Old Republic maintains that its bond was a statutory bond that obligated it for damages resulting from the failure of Donald Schillings to properly perform his duties as administrator, but only to the extent of the bond, and that no separate basis exists for Cross to recover attorney fees. In response, Cross relies on section 38.001 of the Texas Civil Practice and Remedies Code which provides, in applicable part, for the recovery of attorney's fees if the claim is for "an oral or written contract." Because the damages and the attorney's fees here total more than the amount of the bond, we will first determine whether a surety can be held liable for more than the penal sum of its bond so as to permit the recovery of attorney's fees.

The Supreme Court of Texas considered an analogous situation in Great American Insurance Company v. North Austin Municipal Utility District, 908 S.W.2d 415 (Tex. 1995). In that case, the surety on a performance bond challenged the trial court's award of attorney's fees in excess of the penal sum of its bond. See Great American Ins., 908 S.W.2d at 418. Relying on the general rule that "a surety's liability on an underlying contract is limited to the penal sum of the bond," the Court determined that the surety was not liable for attorney's fees assessed against the principal in excess of the bond amount. Id. at 427. Although Great American Insurance involved a performance bond, rather than an administrator's bond, we find that the general rule is equally applicable here. Old Republic's bond clearly indicates that the surety was "held . . . in the sum of . . . $60,000.00." The bond does not provide for attorney's fees in addition to this amount. As a result, the terms of the bond does not provide Cross witha basis for recovering attorney's fees incurred when Schillings failed to perform his duties as administrator. As a result, Cross cannot recover his attorney's fees on the basis of the bond. Having decided that Old Republic cannot be held liable for more than the penal sum of its bond, we next examine whether a separate basis exists for Cross to recover attorney's fees.

Section 38.001 of the Texas Civil Practice and Remedies Code allows a party to recover reasonable attorney's fees for a valid claim on an oral or written contract. Tex. Civ. Prac.& Rem. Code. Ann. 38.001 (Vernon 1997). Section 38.005 further provides that this provision is to be liberally construed. Id. 38.005. Even with liberal construction, however, we do not find that section 38.001 provides a basis for Cross to recover attorney's fees.

To recover attorney's fees under section 38.001, Cross's claim against Old Republic must constitute a claim on a written contract. Old Republic's bond is the only written contract that could serve as the basis for Cross's claim. Although Cross is not a party to that contract, he can recover on the contract "if the parties [to the contract] intended to secure some benefit to that third party, and only if the contracting parties entered into the contract for the third party's benefit." See MCI Telecommunications Corp. v. Texas Utilities Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999). "To qualify as one for whose benefit the contract was made, the third party must show that he is either a donee or creditor beneficiary of, and not one who is benefited [sic] only incidentally by the performance of, the contract." MCI Telecommunications, 995 S.W.2d at 651. A court, however, may not create a third-party beneficiary contract by implication. See id. at 651. "The intention to contract or confer a direct benefit to a third party must be clearly and fully spelled out or enforcement by the third party must be denied." Id.(explaining that a presumption exists that parties contracted for themselves unless it "clearly appears" that they intended a third party to benefit from the contract).

In the instant case, the bond does not clearly and fully spell out that the parties to the bond-Schillings, the surety, and the judge of the probate court-intended to confer a direct benefit upon Cross. Although requiring a bond certainly implies that the contract was intended to protect potential creditors of Annabelle Wright's estate in the event Schillings failed to "faithfully perform all the duties required of him" as administrator of the Annabelle Wright's estate, we are not...