Elson Development Co. v. Arizona Sav. & Loan Ass'n, 8457

• Decision Date: 18 November 1965
• Docket Number: No. 8457,8457
• Parties: ELSON DEVELOPMENT CO., an Arizona corporation, Appellant, v. ARIZONA SAVINGS AND LOAN ASSOCIATION, an Arizona corporation in receivership, Appellee.
• Court: Arizona Supreme Court

Page 930

407 P.2d 930

99 Ariz. 217

ELSON DEVELOPMENT CO., an Arizona corporation, Appellant, v. ARIZONA SAVINGS AND LOAN ASSOCIATION, an Arizona corporation in receivership, Appellee.

No. 8457.

Supreme Court of Arizona, In Banc.

Nov. 18, 1965.

Rehearing Denied Dec. 21, 1965.

Stockton & Hing, Phoenix, for appellant.

David J. Perry and Ralph G. Smith, Jr., Phoenix, for appellee.

McFARLAND, Justice.

Appellee, the Arizona Savings and Loan Association, an Arizona corporation in receivership, hereinafter designated as Arizona Savings, brought suit against the Elson Development Company, an Arizona corporation, as principal defendant, hereinafter designated as Elson, and others to recover the balance due on a note, in the principal sum of $2,086,808.32--together with various items of interest, cost of suit, foreclosure search, taxes, and $88,000 in attorney's fees--and to foreclose a realty mortgage given by Elson to secure the payment of the money due on the note.

Elson filed an answer and counterclaim. Arizona Savings moved for a summary judgment on Elson's answer and counterclaim. The court granted the motion and entered judgment. It is from the judgment and the decree of foreclosure that Elson appeals.

The principal amount of the promissory note, dated April 9, 1959, secured by the mortgage, was in the sum of $2,700,000. The note provided that the entire unpaid balance should be due and payable on or before April 9, 1961. In September 1963, Elson being in default on payment of both principal and interest, entered into a supplemental agreement with Arizona Savings which provided, inter alia: that if Elson did not perform on or before December 15, 1963, certain obligations, to-wit--payment of certain interest, taxes and expenses--it would abandon the property. The material parts of the agreement are as follows:

'* * * will immediately abandon the property which is subject to the lien of the mortgage owned by ARIZONA, and immediately after being served with process in a foreclosure action to be filed by ARIZONA in the Superior Court of Maricopa County, Arizona, ELSON will cause its attorney to prepare and file an answer in the said action on behalf of ELSON:

'(a) Admitting that ELSON has abandoned the property subject to the said mortgage and admitting that the said property is not used for agricultural or grazing purposes.

* * *

* * *

'(d) Admitting that ARIZONA is entitled to judgment against ELSON in the sums set forth hereinabove together with additional sums as interest for the period commencing December 1, 1963, plus the cost of a foreclosure search, court costs, taxes paid by ARIZONA, and a reasonable sum (not less than three (3%) per cent nor more than four (4%) per cent of the amount found by the court to be due and payable by ELSON to ARIZONA) as and for attorneys' fees. * * *'

Elson did not perform in accordance with the supplemental agreement, and Arizona Savings filed its foreclosure action on January 10, 1964, seeking judgment for the sum of $2,086,808.32 plus six per cent interest from April 23, 1963, to August 31, 1963, and eight per cent interest from September 1, 1963, until the principal sum is paid; $88,000 as reasonable attorneys' fees; $21,688.26 as taxes; and various other sums. The complaint alleged that the premises, the subject of the mortgage, had been abandoned.

Elson, in its answer, denied that $88,000 was a reasonable attorneys' fee, and that any sum in excess of $1,000 would be reasonable; also specifically denied that the premises described in plaintiff's complaint had been abandoned by Elson. Elson also filed a counterclaim alleging that the agreement entered into in September 1963 was invalid for the reason that the directors did not have authority to enter into the same in that it, in effect, disposes of all the property of the corporation, and specifically alleged that the agreement to abandon the property was against public policy.

The bases for the assignments of error of Elson are that there were issues to be determined by a trial, and that for this reason the court erred in granting Arizona Savings's motion for summary judgment.

The lower court, in a motion for summary judgment, does not try issues of fact, but only determines whether the same are genuine and in good faith disputed. Perez v. Tomberlin, 86 Ariz. 66, 340 P.2d 982. A motion for summary judgment is granted erroneously if on an examination of the entire record it is found that any disputed fact issue exists which could, if true, affect the final judgment. Arizona Coffee Shops v. Phoenix Downtown Park. Ass'n, 95 Ariz. 98, 387 P.2d 801; Sarti v. Udall, 91 Ariz. 24, 369 P.2d 92.

Elson contends 'that a genuine issue of fact to be tried existed by reason of the allegation * * * that $88,000 was a reasonable attorneys' fee to be recovered by the plaintiff in the foreclosure action * * *, and the denial * * * that a reasonable fee for plaintiff's attorneys amounts to the sum of $88,000.00 or any sum in excess of $1,000.00.' The supplemental agreement of September 1963 provided for 'a reasonable sum (not less than three (3%) per cent nor more than four (4%) per cent of the amount found by the court to be due and payable be ELSON to ARIZONA) as and for attorneys' fees.' The judgment ¹ in the instant case allowed an attorneys' fee of $88,000. $88,000 is more than the three per cent minimum provided in the agreement but is slightly under the maximum of four per cent of the amount found by the court to be due and payable.

This court has long recognized the right of parties to a note to agree on the amount of attorney's fees, by providing that the same shall be fixed at a reasonable amount. ² --a definite percentage of the amount recovered, or a specific amount. ³

In the instant case Arizona Savings sought judgment for attorneys' fees in an amount more than the minimum of three per cent and slightly less than the maximum of four per cent. The denial of Elson that the amount alleged as reasonable in Arizona Savings's complaint put this question at issue to be determined by the court. In Crouch v. Pixler, 83 Ariz. 310, 320 P.2d 943, we stated:

'* * * the courts generally hold that to justify a finding of reasonable attorney's fees there must be evidence in support of such finding. * * *

'We therefore hold that where an action is brought upon a written contract as in the present case, which provides that the defaulting party agrees to pay reasonable attorney's fees without specifying the amount, that it is error for the court to fix the amount of attorney's fees or submit the issue to a jury in the absence of proof determining what is a reasonable fee.' 83 Ariz. at 315, 320 P.2d at 946.

The agreement in the instant case which provided for a reasonable sum--not less than three per cent nor more than four per cent--was indefinite as to the exact amount between three and four per cent which would be reasonable. Under the holding of this court in Crouch v. Pixler, supra, evidence was required to determine the amount of a reasonable attorney's fee.

There is also the question raised by Elson's answer, which denies any attorneys' fees over a thousand dollars is reasonable, as to whether the court, in fixing the attorney's fees, should fix it within the limits of three to four per cent. In the case of Owens v. Conelly, supra, we said:

'By Assignment No. 3 it is claimed that the note is usurious because it contains this clause:

"In case counsel is employed I agree to pay as counsel fees an amount equal to 10% of the amount found to be due at the date of collection.'

* * *

* * *

'We quote from Citizens Nat. Bank of Orange, Va. v. Waugh [4 cir.], 78 F.2d 325, 329, 100 A.L.R. 939:

"We come, then, to the question as to whether the provision for a 10 per cent. attorney's fee for collection in case of default in the payment of a promissory note is to be condemned as contrary to the policy of the law; and we think that this question, nothing else appearing, must be answered in the negative. Of course, if it should appear that a particular provision were used as a mere cloak for usury or that the provision were for so large an amount or were of such a character as to show an intention to provide a mere penalty for nonpayment, a different question would be presented, and it might well be condemned as in conflict with the well-settled policy of the law. But, where the provision is reasonable in amount and legal services are required and are actually rendered in the collection of the instrument, we can think of no consideration of public policy which should condemn it. * * *" 77 Ariz. at 354, 272 P.2d at 348.

The case of Citizens National Bank of Orange, Virginia v. Waugh, 4 Cir., 78 F.2d 325, 100 A.L.R. 939, from which we quoted with favor in the Owens case, supra, also passed upon the question in the instant case, as follows:

'In the light of these decisions and the overwhelming weight of authority in the state courts, we hold the rule to be (1) that a provision in a promissory note for the payment of attorneys' fees for services actually rendered in collection is not to be condemned as contrary to public policy, if reasonable in amount and not used as a cloak for usury or other forbidden transaction; (2) that such a provision is enforced as a contract of indemnity and the amount stipulated therein is not absolutely binding on the parties or on the court, but will be enforced to the extent that it provides for a reasonable attorneys' fee for services actually rendered in accordance with its terms; and (3) that, where services have been rendered and the amount stipulated is not obviously excessive, the stipulation as to the amount should govern.' 78 F.2d at 331.

While one line of authorities holds that the amount stipulated in the note is valid and binding in regard to attorney's fees, there is another line of cases holding that while they are valid they are nevertheless enforceable only to the extent that the...