John Hartman v. Ernest R. Utley, Trustee in Bankruptcy of the Estate of Schroeder & Company, Etc., Bankrupt

I

Schroeder & Company furnished a surety bond to the State of California, pursuant to California Government Code, §§ 4200-4208, to guarantee payment of laborers and materialmen on a public works project for which Schroeder was contractor. Founders Insurance Company, appellant's assignor, executed the bond. In return, Schroeder agreed, among other things, to indemnify Founders against “all loss, costs, damages, expenses and attorneys’ fees” incurred in consequence of its execution of the bond. Nonetheless, Founders’ claim for reasonable attorneys' fees necessarily incurred in satisfying its obligation under the bond after Schroeder’s bankruptcy was disallowed by the bankruptcy court.

There is nothing in the character of an agreement to pay attorneys’ fees that renders it suspect in bankruptcy. If the agreement is valid under local law, a claim based upon it is provable in bankruptcy if it satisfies the requirements of section 63 of the Bankruptcy Act, 11 U.S.C.A. § 103 . Security Mortgage Co. v. Powers, 278 U.S. 149, 154 , 49 S.Ct. 84 , 73 L.Ed. 236 (1928).

A debtor’s undertaking to reimburse his surety’s reasonable expenditures for attorneys’ fees is enforceable in California.…