The opinion of the court was delivered by: BYERS
The Court is required to decide the question of the right of a Surety, under performance and completion bonds, to recover special counsel fees incurred by it in litigation between the subcontractor for whom the bonds were given, and his contractor.
By consent the subject was withdrawn from consideration by the jury at the outset of the trial, since the other issues were sufficiently complicated.
Salenius, the subcontractor sued Triangle Engineering Corporation, the contractor, for breach of contract for carpentry work in connection with a housing development, concerning the latter's obligation to pay for extras. The contract had been more than 80% completed when the dispute assumed such an aspect that Salenius withdrew from the job, asserting that Triangle had breached the contract, and he brought an action for damages based upon the reasonable value of the work, labor, services performed, and the materials furnished. That suit was in the Supreme Court of New York, and was removed by the defendant to this Court because of diversity of citizenship.
The Triangle then sued the Travelers separately on one of the bonds which it had written for Salenius. The latter was called upon to defend that action by the Surety and agreed to do so. Then the Travelers vouched Salenius into the second suit, for the purpose of procuring therein, from him, the amount of any recovery which Triangle might establish under the bond. The position of Travelers was not so equivocal as it might seem; it asserted that Salenius was entitled to recover against Triangle, but, to avoid circuity, sought to protect itself in the event that Salenius should be found at fault.
I can see no difference in the Travelers' rights, between what they would have been if the cases had not been consolidated for trial as they were, and what they would have been otherwise. If the cases had been tried separately, the verdict in the first would have determined the outcome of the second, for if Salenius had prevailed in his cause (as he did) it would follow that the Triangle had no cause against the Travelers, since Salenius would then not have been in default under his contract. A contrary verdict, however, would have resulted in Triangle's having a prima facie cause against the Travelers for whatever sum Salenius' default was liquidated at by the jury. The third-party complaint by Travelers in the second cause merely avoided the necessity for a separate action against Salenius based upon his indemnity agreement.
Thus it seems clear that the Surety must stand or fall upon the terms of the indemnity agreement, and that the procedural complexities above recited have no bearing upon the rights and liabilities of the parties.
The presently material part of the contract is: 'III. That the Indemnitor * * * will at all times indemnify and save the Company harmless from and against every claim, demand, liability, cost, charge, counsel fee (including fees of special counsel whenever by the surety deemed necessary) * * * and in case the Indemnitor requests the Company to join in the prosecution or defense of any legal proceeding, the Indemnitor will, on demand of the Company, place it in funds sufficient to defray all expenses and all judgments that may be rendered therein.'
The foregoing is too plain to admit of discussion concerning the liability of Salenius to pay the charges for counsel fee involved in the conduct of legal proceedings arising out of the giving of the bond issued pursuant to the indemnity agreement, so far as the issues between the Travelers and the Triangle are concerned.
The contentions for Salenius are:
(1) That the Travelers waived its right to be held harmless by Salenius, by demanding that he defend the Company in the suit brought by Triangle.
The demand relied upon is as follows:
'The Travelers Indemnity Company