Charles R. Shepherd, Inc., and United States Casualty Company, Appellants, v. United States of America for the Use and Benefit of Sullivan, Long & Hagerty, Inc., Appellee, 292 F.2d 146 (5th Cir. 1961)

This is an action on a Miller Act¹  bond by a subcontractor (Long) against a general contractor (Shepherd) and his surety. Long's subcontract provided for payment in ten installments, each payment to be made "within five days after receipt by Shepherd from the contracting officer of payment for the work performed by Long." As work under the subcontract progressed, the dates between the times Shepherd was paid and when he in turn paid Long became progressively longer. The final payment by the Government to Shepherd for Long's work, amounting to $35,470.60, was released to Shepherd on October 20, 1958. Shepherd turned over less than half this sum to Long on August 3, 1959, almost nine months after its payment was due. Its patience tried to the breaking point, Long filed this action on October 2, 1959. Long claimed an amount equal to the principal payments which were due and unpaid, plus interest on all principal payments which were made after the dates on which they were due. The district court granted summary judgment for Long in the amount of $25,640. This appeal is concerned solely with what Shepherd treats as the interest component of that judgment.

Liability for interest in a suit under the Miller Act is determined by state law. See United States for Use and Benefit of Caldwell Foundry & Machine Co. v. Texas Construction Co., 5 Cir., 1955, 237 F.2d 705, 707. The law of Alabama provides that interest begins to run against the surety from the day it begins to run against his principal. See Union Indemnity Co. v. State, 1930, 221 Ala. 1, 127 So. 204.

Shepherd contends that by accepting the payments of principal, even though late, Long's claim to interest was extinguished. The general principle on which Shepherd relies is well stated in an annotation in 100 A.L.R. 105:

"The general rule is also well settled that where the contract is silent as to interest so that, if it can be recovered at all, it is an incident of the debt sued for and only as damages to make good to the creditors the loss he has sustained by reason of breach or default, an action to recover it cannot be maintained after the payment of the principal, as such interest cannot exist without the debt, and the debt being extinguished the right to claim interest must necessarily be extinguished also."

We think this principle is inapplicable to the case at bar for two reasons: (1) In none of the cases which have adopted Shepherd's theory has the claim for interest been based on a statute. Here, Long's claim for interest is based on Title 9, Code of Alabama, Section 62, which provides: "All contracts, express or implied, for the payment of money * * * bear interest from the day such money * * * should have been paid * * *." No case cited by Shepherd holds that a claim for interest based on a statute, which claim has not been clearly waived, is extinguished by the acceptance of payment of the principal amount. In such a case, there is no conceptual difficulty in saying that the debt for interest exists independently of the principal obligation.²  (2) Under the law of Alabama, the principal indebtedness has not been paid, and legally no part of the judgment consists of interest. This is so by virtue of Title 9, Code of Alabama, Section 64,³  which provides: "When partial payments are made, the interest due is first to be paid, and the balance applied to the payment of the principal."

The final point with which we must deal is Long's claim that ten per cent damages be assessed against Shepherd pursuant to Title 7, Code of Alabama, Section 814.⁴  While we have held that, "* * * in suits under the Miller Act, the recovery of interest, costs and attorney's fees is governed by the state law,"⁵  we did not intend that damages such as Long prays we assess should be encompassed by the term "costs," as there used. Nor do we consider that the practice in affirmances by this Court has been settled in Gordon v. Third Nat. Bank, 5 Cir., 1893, 56 F. 790, 796, or in White v. Bruce, 5 Cir., 1901, 109 F. 355, 365, 366. For the following reasons, we think that the "ten percent damages" provided by this Section should not be allowed upon affirmance of a judgment under the Miller Act.⁶  First, Section 814 and the succeeding two sections, 815 and 816, seem to be tailored to fit the several kinds of supersedeas bonds provided for in Alabama by Sections 793, 794, and 795 of the same Title, and, hence, not to be in accord with appellate procedure in the federal courts. Second, as the terms are ordinarily used, this Court has broad discretion in apportioning delay "damages" and "costs."⁷  Under the Alabama statute, there is no provision for apportioning the ten per cent addition and therefore no room is left for the exercise of discretion by this Court.⁸  Third, costs are usually considered to be allowances for the purpose of reimbursing the "successful party for expenses incurred in prosecuting or defending an action * * *."⁹  Here appellee has made no expenditure for which it claims reimbursement. Fourth, the Alabama Supreme Court has noted that "* * * this statute * * * [§ 814] was evidently intended to penalize frivolous or delay appeals * * *."¹⁰  That this ten per cent penalty is not a proper item to be included in "costs" is made clear in Weiner v. Swales, 1958, 217 Md. 123, 141 A.2d 749, 750, where the Court said, "costs * * * are given by law as an indemnity and not imposed as a punishment upon one who pays them * * *."¹¹ 

Under Rule 30, subd. 2 of this Court, quoted in note 7, supra, this Court exercises a discretion in imposing damages at a rate not exceeding ten per cent when the appeal appears to have been sued out merely for delay. We think that this appeal was taken and prosecuted in good faith, and that no such damages should be awarded.

The judgment of the district court is therefore

Affirmed.