Will the prevailing-party fee clause in our contract actually get our fees paid in Ohio?
Ohio follows the American rule: a prevailing party in a civil action may not recover attorney fees as part of the costs of litigation, and fees may be awarded when a statute or an enforceable contract specifically provides for the losing party to pay the prevailing party's attorney fees, or when the prevailing party demonstrates bad faith on the part of the unsuccessful litigant (Wilborn). Where the right to fees comes from a contractual stipulation, the rationale permitting recovery is the fundamental right to contract freely with the expectation that the terms of the contract will be enforced, and the characteristics of an agreement entered into freely are the presence of equal bargaining power and the lack of indicia of compulsion or duress (Wilborn, citing Nottingdale).
The trap
Two limits sit inside the very decision that states the rule. Wilborn holds that an agreement to pay attorney fees in a contract of adhesion, where the party with little or no bargaining power has no realistic choice as to terms, is not enforceable; and that a stipulation for attorney fees on the default of a debt obligation - a mortgage or promissory note enforced after default, including a foreclosure taken to judgment - is void and unenforceable, because it operates as a penalty on the defaulting party and encourages litigation. The clause Wilborn upheld survived only because reinstating a loan is not enforcing the debt, and the judgment was reversed as to the one borrower whose fees were incurred in enforcing it. Nottingdale, the decision that opened the door, is also narrower than it is usually cited for. It was 'a case of first impression requiring us to determine whether two parties, in a noncommercial transaction, may lawfully contract to require, in a suit between them, the payment by the unsuccessful party of the prevailing party's attorney fees', and its holding is expressly limited to provisions in a declaration of condominium ownership or condominium by-laws making a defaulting unit owner responsible for the association's fees in a collection or foreclosure action. Even there the fees are enforceable only 'so long as the fees awarded are fair, just and reasonable as determined by the trial court upon full consideration of all of the circumstances of the case', so a clause that fixes a percentage or a formula does not take that determination away from the judge.
10 authorities
The words that state the rule
However, there are exceptions to this x-ule. Attorney fees may be awarded when a statute or an enforceable contract specifically provides for the losing party to pay the prevailing party’s attorney fees, Nottingdale, 33 Ohio St.3d at 34 , 514 N.E.2d 702 , or when the prevailing pax-ty demonstrates bad faith on the part of the unsuccessful litigant, Pegan v. Crawmer (1997), 79 Ohio St.3d 155, 156
The words that state the rule
The presence of equal bargaining power and the lack of indicia of compulsion or dux-ess are characteristics of agreements that *549 are entered into freely.
The words that state the rule
Accordingly, we hold that provisions contained within a declaration of condominium ownership and/or condominium by-laws requiring that a defaulting unit owner be responsible for the payment of attorney fees incurred by the unit owners’ association in either a collection action or a foreclosure action against the defaulting unit owner for unpaid common assessments are enforceable and not void as against public policy so long as the fees awarded are fair, just and reasonable as determined by the trial court upon full consideration of all of the circumstances of the case. We, therefore, reverse the judgment of the court of appeals and reinstate the judgment of the trial court. Judgment reversed.
The words that state the rule
Ohio has long adhered to the “American rule” with respect to recovery of attorney fees: a prevailing party in a civil action xnay not recover attorney fees as a part of the costs of litigation.
The words that state the rule
When the right to recover attox-ney fees arises from a stipulation in a contract, the rationale permitting recovery is the “fundamental right to contract freely with the expectation that the tex-ms of the contract will be enforced.”
The words that state the rule
This is a case of first impression requiring us to determine whether two parties, in a noncommercial transaction, may lawfully contract to require, in a suit between them, the payment by the unsuccessful party of the prevailing party’s attorney fees.
The words that state the rule
In contrast, agreements to pay attorney fees in a “contract of adhesion, where the party with little or no bargaining power has no realistic choice as to terms,” are not enforceable.
The words that state the rule
Similarly, contracts for the payment of attorney fees upon the default of a debt obligation are void and unenforceable. In the context of foreclosure actions, we stated in Leavans v. Ohio Natl. Bank (1893), 50 Ohio St. 591 , 34 N.E. 1089 , syllabus:
The words that state the rule
In other words, a provision in a mortgage or promissory note that awards attorney fees upon the enforcement of the lender’s rights when the borrower defaults, such as a foreclosure action that has proceeded to judgment, is unenforceable. The rationale for this rule as articulated in Leavans , and reaffirmed in Miller , is that “the stipulation to pay attorney fees operates as a penalty to the defaulting party and encourages litigation to establish either a breach of the agreement or a default on the obligation.”
The words that state the rule
Based on the foregoing, we hold that a provision in a residential-mortgage contract requiring a defaulting borrower to pay a lender’s reasonable attorney fees as a condition of terminating pending lender-initiated foreclosure proceedings on a defaulted loan and reinstating the loan is not contrary to Ohio statutory or decisional law or against Ohio public policy. {¶ 46} The judgment of the court of appeals is reversed as to appellant Wilborn and is affirmed in all other aspects.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.