Opinion ID: 1288894
Heading Depth: 1
Heading Rank: 1

Heading: Liability of Surety to Plaintiff.

Text: The judgment appealed from awarded plaintiff judgment against the surety for plaintiff's $935 claim, plus interest and an attorney's fee. But plaintiff sued to foreclose Mechanic's Lien No. 61, which was filed against the owners' property on February 26, 1963, after an affidavit of publication of notice of completion of contract was filed pursuant to R.L.H. 1955, § 193-42, the mechanic's lien law, on January 14, 1963. Plaintiff sought personal judgment against the contractor and surety on the bond if it should be adjudged that the lien was not valid, or if a deficiency should remain after sale of the property and application of the proceeds to the lien. There has been no adjudication of invalidity of the lien. Nor has there been an ascertainment of a deficiency or provision for ascertainment thereof, if any. Judgment has been entered in favor of the plaintiff against the surety on the bond without foreclosure of the lien. We note that by its decision the court ruled, not only that judgment should be rendered against the surety, but also that: As to Defendants Felix, the remedy against them is for the enforcement of lien. However, no provision for enforcement of the lien was made in the judgment entered on the decision. The surety's amended specification of error 4(b) [1] presents the contention that plaintiff should not have had judgment against it by reason of the trial court having found that plaintiff had a valid lien on the property. Amended specifications 4( l ) and 5 (g) attack the judgment rendered in favor of plaintiff against the surety for $935, court costs and an attorney's fee of $500. The owners conceded in their brief in this court that in its Decision filed on July 14, 1964, the Trial Court did grant the Materialman's prayer for foreclosure. This was in connection with the surety's argument that plaintiff's primary allegation is for the foreclosure of lien, and that plaintiff having a valid lien, the lien should have been foreclosed. The owners made no contention in their brief that the lien was not valid  their contention was that the surety had been benefited by the property not having been sold on foreclosure, as that would have cost the surety that much more in costs and attorneys' fees constituting damages [allowed the owners]    under the Decision and Judgment   . [2] Plaintiff has joined in the owners' argument. Plaintiff contends that it has a right of action on the bond as a third party beneficiary. The argument goes further, and presents the position that materialmen and suppliers of labor can recover against the surety on such a bond as third party beneficiaries irrespective of any act or omission of the obligees, the owners, the contention being that defenses of the surety good against the owners, are not good against the materialmen and suppliers of labor [3] even though only a private construction contract is involved. Plaintiff cites 17 Am.Jur.2d, Contractors' Bonds, § 16; [4] 72 C.J.S., Principal and Surety, § 126 at 612; Pennsylvania Supply Co. v. National Casualty Co., 152 Pa. Super. 217, 31 A.2d 453. However, plaintiff while endeavoring to support its judgment against the surety contends at the same time that the trial court properly allowed it a $500 attorney's fee on its $935 claim. At this point it is necessary to review the provisions of the several statutes providing for attorneys' fees. This is the subject of amended specifications 4( l ) and 5(g) We are of the opinion that a $500 fee could not be allowed the plaintiff in an action on the bond, as distinguished from an action for foreclosure of the lien. If the action were on the bond, R.L.H. 1965, § 219-14, would be applicable. Allied Amusements v. Glover, 40 Haw. 92. Section 219-14 provides that in all actions of assumpsit there shall be taxed as attorneys' fees, in addition to the attorneys' fees otherwise taxable by law, a fee according to a schedule there set out, amounting in this case to about $32 if computed on the amount of the present judgment. If the action were on the bond and this section applied, what attorney's fees would be otherwise taxable by law? R.L.H. 1955, § 219-16.5, as amended (Supp. 1965), would not apply as the bond contained no provision for an attorney's fee, other than the provision for holding the owners harmless from damages, [5] which obviously was not for the benefit of materialmen or suppliers of labor. Moreover, since the amendment made by S.L. 1933, c. 38, introducing into what is now section 219-14 a provision that attorneys' fees allowed pursuant to the provisions of a promissory note or other evidence of indebtedness, i.e., under section 219-16.5, shall preclude the taxation of fees under section 219-14, the principal source of dual allowance of attorneys' fees in an assumpsit action has been wiped out. R.L.H. 1955, § 193-45, a provision of the mechanic's lien law, was cited by the court in awarding the $500 fee. It reads in pertinent part as follows:    In addition to costs of the suit the judge may allow any fee or fees for legal services rendered by the attorneys for any of the parties, and apportion the same as costs for payment by and between the parties or any of them, all as to the judge seem equitable in the light of the services performed and the benefits derived therefrom by the parties respectively. This provision must be read with the other provisions of the section of which it is a part; it has to do with suits provided for by that section. Despite the breadth of the section in respect of parties and procedure, suits under it are limited to (a) foreclosure of liens provided for by the mechanic's lien statute, and (b) claims based on contracts, express or implied, between parties. The point designated (b) is derived from the next to the last sentence of section 193-45. This contains a limiting proviso that a writ of execution (as distinguished from an equitable decree of foreclosure) shall only issue where the claim upon which the motion therefor is based is upon a contract, express or implied, between such parties, the parties referred to being the party moving for issuance of the writ and the party against whose property it is sought to direct the writ. No third party beneficiary claims are provided for by section 193-45. This is clear from the words between such parties. It is evident that the legislature thereby intended to continue the policy expressed in the section as it read prior to the revision made by S.L. 1949, c. 241, which enacted the present provisions. Before this revision the section, then R.L.H. 1945, § 8773, being the original enactment as amended by S.L. 1933, c. 143, provided that attachment of property other than that subject to the lien might be made in case the contract for services or material upon which the lien has accrued shall have been directly with the owner of the property   . Throughout, third party beneficiaries seeking relief under this section have been limited to their liens. See S.L. 1888, c. 21, § 5. Under the present Hawaii Rules of Civil Procedure, a claim upon the bond, if allowable, of course can be joined with a claim for foreclosure of a mechanic's lien, but a claim upon the bond as a third party beneficiary will not serve as the foundation for an attorney's fee in any amount larger than that provided for by R.L.H. 1955, § 219-14, supra, R.L.H. 1955, § 219-16.5 being inapplicable. It is manifest that there is an error in the judgment, which has awarded an attorney's fee under section 193-45 when that section was not put into effect by the judgment. [6] No cross-appeal was taken demanding modification of the judgment to provide for foreclosure of the lien. But since the surety, appellant herein, has specified as error the failure of the judgment to provide for foreclosure of the lien, [7] we think that consideration of this specification (amended specification No. 4(b)) is called for together with the specifications attacking the allowance of the attorney's fee (amended specifications Nos. 4( l ) and 5(g); that the judgment should have provided for foreclosure of the lien; and that the judgment when recast in proper form will permit of the allowance of an attorney's fee for services of plaintiff's attorney in an appropriate amount. The record calls for the result above reached. Upon study of the record, it becomes evident that plaintiff's intention in its complaint was to stand on its lien and to sue on the bond only if there was a deficiency. The record is more fully reviewed below in connection with the question of a deficiency judgment. At this time we note that the prayer for relief may be looked to in pointing up the issues, [8] even though under H.R.C.P., Rule 54(c), the judgment shall grant the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in his pleadings. The prayer was for foreclosure of the lien, and for judgment against the surety for any deficiency which might remain after the sale of the property. And the pre-trial order, set out in Part II, did not change the posture of the case. The surety's argument against the allowance of the attorney's fee falls when its contention that the judgment should have provided for foreclosure of the lien is sustained. The argument rested on the form of the judgment, i.e., that it was a personal judgment against the surety. Upon remand the judgment will no longer so provide. However, the surety further contends that the amount of the fee was unreasonable and excessive. In fixing the amount the court did not confine its attention to the services in connection with the foreclosure of the lien. Therefore the amount of the fee requires redetermination. Upon remand of the case it will be the duty of the court, at the appropriate time, to provide for foreclosure of the lien with interest thereon and an attorney's fee confined to the services in foreclosing the lien. [9] Whether the entire amount of the fee of plaintiff's attorney may be recovered over on the owners' claim against the surety is a matter not before us and on which we do not rule. [10] We now consider the relationship of plaintiff's claim to the other issues in the case. On remand, the court may determine pursuant to H.R.C.P., Rule 54(b), that there is no just reason for delay, and may expressly direct the entry of plaintiff's judgment then and there in accordance with this opinion. If this is done, then under H.R.C.P., Rule 62(h), the court is empowered to stay enforcement of the judgment so entered until disposition of other issues in the case. Alternatively, the court may withhold entry of judgment on remand of the case until all issues have been disposed of. Even if judgment of foreclosure is entered on remand without delay, the question of plaintiff's right on the bond directly against the surety as a third party beneficiary for any deficiency that may arise shall be reserved for disposition when and if a deficiency is ascertained. As we hold in Part II of this opinion, the surety is or may be liable on the bond to the owners. It is a question of striking a balance between the parties. The amount of the surety's liability must be redetermined because of the manner in which the case was tried. The surety's liability to the owners includes indemnification against plaintiff's claim and others like it, [11] less such recoupment as the surety may be entitled to as more fully developed in Part II. Even if the surety's recoupment should wipe out its liability and foreclosure ultimately be carried out, there might be no deficiency. The lien in this suit involves only a $935 claim, there having been no consolidation of the several lien suits though the court found that there were others. In short, the case has been tried in such a way that we have before us only part of the picture. In the interest of sound judicial administration we should not anticipate and pass upon the matter of a deficiency judgment at this time. We direct that the point be reserved by the court below. Until and unless a deficiency is ascertained the question of the liability of the surety directly to the plaintiff will lie in the background. Cf., Waterhouse Trust Co. v. King, 33 Haw. 1, 25-26. Plaintiff is not entitled to have this question of direct liability of the surety to it determined now. The principal reason for doing so would be to cut through the surety's defenses, assuming but not deciding that those defenses would not be good against plaintiff as plaintiff contends. But plaintiff did not adequately present this contention in the court below. Plaintiff did not move under H.R.C.P., Rule 12(f), to strike as insufficient against it the surety's fifth defense, which was that the surety had been released from its obligation on the bond by acts of the owners who, it was alleged, altered and breached the building contract, and made payments contrary to the assignment and power of attorney executed [to the surety]   . Under H.R.C.P., Rule 12(h), absence of such a motion did not preclude plaintiff from asserting the insufficiency of the defense at the trial. However, in the pre-trial order the court while listing the fifth defense as one of the basic questions raised by the surety, did not set out any contention on plaintiff's part that the defense was not good against it. The contention had been asserted in an earlier memorandum in the form of a quotation submitted in support of the general contention that there was a right to sue on the bond, and should have been pointed up in the pre-trial order if plaintiff intended to insist upon it. At the trial, the evidence as to the owners' acts came in without any objection on the part of plaintiff that this was irrelevant as to it. We think that such contention lay in the background and did not come to the fore. Finally, in a memorandum submitted after trial plaintiff did contend that the surety's defenses even if established are insufficient as a matter of law to defeat the plaintiff's claim, but this came at a time when the surety had no opportunity to reply. The court did not rule on the matter because the court did not sustain any of the surety's defenses even against the owners. Upon this review of the record we conclude that the present case is not one in which an appellate court is called upon to advance into a point on which the court below has not ruled. Even if such a point tends to support the judgment, the appellate court should not rule on it unless it is made clear beyond doubt that this could not prejudice the rights of the plaintiff in error. Peck v. Heurich, 167 U.S. 624, 629. Cf., Waterhouse v. Capital Investment Co., 44 Haw. 235, 240, 353 P.2d 1007, 1012. Tied in with the surety's liability in the present case are its rights of subrogation, [12] and we are by no means satisfied that the surety would not be prejudiced were we to rule at this point on the question of its direct liability to the plaintiff. A case of this kind is one in which the issues should be made crystal clear before trial, in order that each party may plan its strategy.