Ranger Const. Co. v. Prince William County School Bd.

• Citation: 605 F.2d 1298
• Decision Date: 03 August 1979
• Docket Number: 78-1242,Nos. 78-1241,s. 78-1241
• Parties: RANGER CONSTRUCTION COMPANY, Appellant, v. PRINCE WILLIAM COUNTY SCHOOL BOARD, Appellee, v. The TRAVELERS INDEMNITY COMPANY, Appellant. RANGER CONSTRUCTION COMPANY, Appellee, v. PRINCE WILLIAM COUNTY SCHOOL BOARD, Appellant, v. The TRAVELERS INDEMNITY COMPANY, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)

Page 1298

605 F.2d 1298

RANGER CONSTRUCTION COMPANY, Appellant, v. PRINCE WILLIAM COUNTY SCHOOL BOARD, Appellee, v. The TRAVELERS INDEMNITY COMPANY, Appellant.

RANGER CONSTRUCTION COMPANY, Appellee, v. PRINCE WILLIAM COUNTY SCHOOL BOARD, Appellant, v. The TRAVELERS INDEMNITY COMPANY, Appellee.

Nos. 78-1241, 78-1242.

United States Court of Appeals Fourth Circuit.

Argued March 5, 1979.

Decided Aug. 3, 1979.

Peter M. D'Ambrosio, Washington, D. C. (Paul J. Walstad, Vienna, Va., Michael B. Rosenberg, Joseph H. Kasimer, Washington, D. C., Walstad, Wickwire, Peterson Gavin & Asselin, P. C., Vienna, Va., on brief), for appellants in No. 78-1241, and appellees in No. 78-1242.

Lloyd T. Smith, Jr. and Melvin E. Gibson, Jr., Charlottesville, Va. (Tremblay & Smith, Charlottesville, Va., on brief), for appellee in No. 78-1241, and appellant in No. 78-1242.

Before RUSSELL and WIDENER, Circuit Judges, and DUMBAULD, Senior District Judge for the Western District of Pennsylvania, Sitting by Designation.

DONALD RUSSELL, Circuit Judge:

This appeal concerns a construction contract under which the appellant-cross-appellee Ranger Construction Company (hereafter Ranger), with its co-appellant The Travelers Indemnity Company (hereafter Travelers) as surety on its performance bond, agreed to erect a senior high school in Manassas, Virginia, for the appellee-cross-appellant Prince William County School Board (hereafter School Board). Controversy developed between Ranger and the School Board in connection with performance under the contract. Ranger filed an action against the School Board alleging breaches in the contract by the latter, and the School Board, bringing in Travelers as a third-party, answered and counterclaimed against Ranger and its surety Travelers for certain breaches claimed in turn by it against Ranger. Ranger did not, however, discontinue performance under the contract with the commencement of its action but proceeded to perform until the School Board notified it of the contract's termination, alleging justification by reason of the failure of performance in various particulars by Ranger.

The issues in the case at this point became the propriety of the termination of the contract by the School Board, and, if proper, the damages to which the School Board was entitled therefor. These two issues were separated for trial. The validity of the contract's termination by the School Board was tried first before a jury and resulted in a verdict upholding termination. Judgment was duly entered on that verdict and the district court then by order of reference appointed a Special Master to hear testimony and to make findings of fact on the issue of damages. Extensive hearings were had before the Special Master, who filed his Report stating the damages to which he found the School Board entitled. Exceptions were filed to this Report and were heard by the district judge. In his decision on the exceptions, the district judge affirmed some of the findings of the Special Master and modified or reversed others. Ranger, Travelers and the School Board have all appealed. The appeal of the parties is confined solely to the propriety of the damage claim asserted by the School Board due to the termination of the contract.

Claims of error by Ranger and Travelers in the district court's allowance of damages are directed at four items. These items are:

1. The allowance of attorney's fees in favor of the School Board for representation in connection with the establishment of liability against Travelers under the performance bond;

2. Failure to allow Ranger credit against the damages found against it for materials paid for and on hand at time of the termination of the contract by the School Board;

3. Denial of a credit for sales taxes charged against them as damages under the contract;

4. Inclusion in the damages of a hypothetical value of the warranty due the School Board under the contract, and the value of an assumed cost of repairing some nonconforming work done by a subcontractor of Ranger prior to the termination of the contract.

In its cross-appeal the School Board, on the other hand, would fault the district judge for his failure to allow as delay damages, after termination of the contract, "interest at the legal rate from the date of termination (of the contract) until substantial completion of amounts paid Ranger and on amounts paid others for completion work and for owner-furnished equipment and site improvements." It, also, contends that the district judge erred in reducing its claim for attorney's fees by $111,567.50 and its claim of legal costs and expenses by $30,415.74.

We shall consider separately these several claims of the respective parties, beginning with the claims of error by Ranger and Travelers.

Ranger and Travelers attack first the award of attorney's fees and expenses to the School Board against Travelers for legal services rendered in establishing liability under its performance bond. Since this is a diversity case, the right to such attorney's fees is controlled by Virginia law. It is the settled law of Virginia that, "in the absence of any contractual or statutory liability therefor, attorneys' fees and expenses incurred by the plaintiff in the litigation of his claim against the defendant, aside from the usual taxed court costs, are not recoverable as an item of damages in actions Ex contractu." Hiss v. Friedberg (1960) 201 Va. 572, 112 S.E.2d 871 at 875. ¹ There is, of course, an exception to this general rule to the effect that "where a breach of contract has forced the plaintiff to maintain or defend a suit with a third person, he may recover the counsel fees incurred by him in the former suit provided they are reasonable in amount and reasonably incurred." ²The court in that case reiterated, however, quoting from 5 Corbin on Contracts, § 1037, that this exception "does not deal with the cost of litigation with the defendant himself." ³ This rule has been consistently applied in suits under both performance and indemnity bonds or contracts. Continental Realty Corporation v. Andrew J. Crevolin Co. (S.D.W.Va.1974) 380 F.Supp. 246, 256; General Electric Company v. Mason & Dixon Lines, Inc. (W.D.Va.1960) 186 F.Supp. 761, 765.

Manifestly, then, under controlling Virginia law attorney's fees incurred by the School Board in establishing a breach of contract by Ranger, absent some specific provision in the contract between the parties or statutory authority for such a grant, could not be recovered against Ranger. The School Board concedes there is no specific provision in the contract for such an award and it points to no Virginia statute giving a right to such an award. In fact, the School Board seems to assume it has no such right of recovery as against Ranger; it would base its right to recover for such attorney's fees on the performance bond given by Travelers. The performance bond given by Travelers, however, makes no provision for the recovery of such fees. It is just what its designation signifies; it is a bond specifically conditioned on the performance by Ranger of its obligations under the contract with the School Board. The obligation of the Surety Travelers is accordingly to be measured by the promises and specific liabilities of its principal Ranger, and those obligations can be no broader or more extensive than those of its principal. Federal Surety Co. v. Basin Construction Co. (1931) 91 Mont. 114, 5 P.2d 775, 778; Al Smith's Plumbing & Heating Service, Inc. v. River Crest, Inc. (Ct.App.La.1979) 365 So.2d 1122, 1127. Since, as we have seen, Ranger is not liable for attorney's fees incurred by the School Board in litigating its liability for breach of the contract, it would seem A fortiori the Surety Travelers cannot be liable.

There was some suggestion at argument that perhaps certain language in the bond might be construed to include by implication a right thereunder to recover attorney's fees. The language relied on for this suggestion appears in the provision of the bond dealing with the situation where the Owner (the School Board) has declared the Contractor (Ranger) in default. In that event, the bond gives the Surety the right to complete the contract in accordance with its terms by either contracting with others to complete the project or, in conjunction with the Owner, contracting with an agreed low bidder to complete the project. In completing the contract under those circumstances, the Surety obligated itself to "make available as Work progresses * * * sufficient funds to pay the cost of completion less the balance of the contract price; But not exceeding, including other costs and damages for which the Surety may be liable hereunder, the amount set forth in the first paragraph hereof." (Italics added) The italicized language, the School Board intimated, might be considered to enlarge the Surety's liability to include attorney's fees as an element of damages in a suit to establish breach of the contract by the Contractor.

It would seem, however, to be sufficient answer to this suggestion of the School Board for an implied right under the bond to attorney's fees that neither the School Board nor Travelers proceeded under the provision of the performance bond relied on to support this contention of the School Board. Travelers never agreed that Ranger had breached the contract and never undertook to complete the project under the terms of its performance bond relied on by the School Board. Nor for that matter did the School Board rely on this provision for the actions it took; it terminated the contract and took over the completion of the project based on the rights given it by Section 14.2.1 of the contract between it and Ranger. This section authorized the School Board as Owner to terminate, under certain conditions, the contract and to "take possession of the site and of all materials, equipment, tools, construction equipment and machinery thereon owned by the...