Nottingdale Homeowners' Ass'n, Inc. v. Darby

• Decision Date: 14 October 1987
• Docket Number: No. 86-1518,86-1518
• Citation: 514 N.E.2d 702,33 Ohio St.3d 32
• Parties: NOTTINGDALE HOMEOWNERS' ASSOCIATION, INC., Appellant, v. DARBY et al., Appellees.
• Court: Ohio Supreme Court

Page 32

33 Ohio St.3d 32

514 N.E.2d 702

NOTTINGDALE HOMEOWNERS' ASSOCIATION, INC., Appellant, v. DARBY et al., Appellees.

No. 86-1518.

Supreme Court of Ohio.

Oct. 14, 1987.

Syllabus by the Court

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.

In 1978, appellees, Keith A. and Ollie M. Darby, purchased a condominium unit in the Nottingdale Condominium development located in Warren County, Ohio. Appellant, the Nottingdale Homeowners' Association, Inc. ("homeowners' association"), is a non-profit corporation organized under Ohio law and pursuant to Section 1.3, Article I of the Nottingdale Condominium's "Declaration of Condominium Ownership." The homeowners' association was formed to "administer" the condominium property and receive payment of all assessments, income, rents, profits, receipts and revenues from the common area as well as pay the common expenses. The homeowners' association includes as members the owners of all condominium units in the Nottingdale Condominium development.

From 1978 until February 1983, appellees paid monthly common assessments which provided for services such as snow removal, trash removal, lawn mowing and maintenance, landscaping, water and sewer service, exterior painting and the payment of liability insurance premiums. Subsequent to that time period, but while continuing to accept the benefits provided by the homeowners' association, appellees stopped making their monthly common assessment payments because, initially, they believed that appellant's board of trustees was illegally elected by less than a quorum of unit owners as is required by the condominium by-laws, and, additionally, because they felt that the persons who assumed the trustees' responsibilities invalidly increased the monthly assessments above those amounts permitted by the condominium declaration.

In September 1983, an updated lien ¹ was recorded by appellant against appellees' condominium unit for the then unpaid portion of the common assessments. On October 7, 1983, appellant filed a foreclosure action against appellees, the Auditor and Treasurer of Warren County and Eagle Savings Association. Appellees counterclaimed, alleging that both the claimed amounts and the liens were improperly authorized, assessed and filed.

At the time of trial, appellees owed $2,464.82 in unpaid monthly assessments and $145 in late fees for nonpayment of monthly assessments. In addition, appellant filed a motion for attorney fees at the conclusion of the trial. ² This motion was based upon certain provisions within the Declaration of Condominium Ownership and condominium by-laws which provide for the payment of attorney fees by a condominium unit owner in the event of a successful collection or foreclosure action against such condominium owner by the homeowners' association. ³

On August 9, 1985, the trial court entered judgments in favor of appellant on both its complaint and its motion for attorney fees. The trial court found against appellees on their counterclaim and also denied appellees' motion for a new trial. Upon appeal, the court of appeals affirmed the trial court's decision on the merits, but reversed the decision of the trial court relating to the award of attorney fees on the basis that attorney fees in Ohio are recoverable only where statutorily mandated or where the opponent acts in bad faith.

The cause is now before this court upon the allowance of a motion to certify the record.

Barron & Peck and Daniel M. Bennie, Cincinnati, for appellant.

Howard F. Breitholle, Cincinnati, for appellees.

DOUGLAS, Justice.

This is a case of first impression requiring us to determine whether two parties, in a non-commercial transaction, may lawfully contract to require, in a suit between them, the payment by the unsuccessful party of the prevailing party's attorney fees. We hold that they may do so and, accordingly, reverse the decision of the court of appeals.

A majority of state supreme courts currently recognize and follow the "American Rule" regarding the recovery of attorney fees by the prevailing party in a civil action. This rule provides " * * * that attorney's fees are not ordinarily recoverable in the absence of a statute or enforceable contract providing therefor." (Emphasis added.) Fleischmann Distilling Corp. v. Maier Brewing Co. (1967), 386 U.S. 714, 717, 87 S.Ct. 1404, 1406, 18 L.Ed.2d 475. See, also, Alyeska Pipeline Service Co. v. Wilderness Society (1975), 421 U.S. 240, 257, 95 S.Ct. 1612, 1621, 44 L.Ed.2d 141, and Comment d to Section 356 of the Restatement of the Law 2d, Contracts (1981) 160, which provides in part: "Although attorneys' fees are not generally awarded to the winning party, if the parties provide for the award of such fees the court will award a sum that it considers to be reasonable." ⁴

Contrary to this majority position, appellees argue, and the court of appeals found, that in Ohio attorney fees are not to be awarded to a successful litigant absent statutory authorization or bad faith by the unsuccessful litigant. In support of their contention that "fee-shifting" agreements are unenforceable in this state, appellees cite case law which stands for the proposition that attorney fees are not taxable as costs against an unsuccessful litigant in the absence of statute. In so doing, appellees ask us to ignore the facts of this case and stand the law of contracts on its proverbial head. We decline to do so.

Appellees rely upon the following cases for support: State, ex rel. Kabatek, v. Stackhouse (1983), 6 Ohio St.3d 55, 6 OBR 73, 451 N.E.2d 248; State, ex rel. Grosser, v. Boy (1976), 46 Ohio St.2d 184, 75 O.O.2d 228, 347 N.E.2d 539; and Sorin v. Bd. of Edn. (1976), 46 Ohio St.2d 177, 75 O.O.2d 224, 347 N.E.2d 527. None of these cases, however, supports the conclusion that parties may not contract under circumstances like those of this case for the payment of attorney fees.

Neither Kabatek, Grosser nor Sorin involved a contract providing for the payment of attorney fees. In Kabatek, the issue involved back pay and civil service benefits--no contract. Grosser was a mandamus action to obtain copies of high school records--once again, no contract. Finally, Sorin involved the termination of employment, and appeal therefrom, of a superintendent of a board of education. ⁵ Still no contract.

As further support for their position, appellees cite Coe v. Columbus, Piqua & Indiana Ry. Co. (1859), 10 Ohio St. 372; Gates v. Toledo (1897), 57 Ohio St. 105, 48 N.E. 500; and Miller v. Kyle (1911), 85 Ohio St. 186, 97 N.E. 372. We find appellees' reliance upon these cases equally misplaced.

Neither Coe, supra, nor Gates, supra, involved a contract or stipulation to assume the attorney fees of the other party. In fact, contrary to appellees' assertion, the court, in Gates, expressly recognized the contract exception to the general rule regarding attorney fees when it stated at 114, 48 N.E. at 502:

" 'If counsel fees are to be allowed as part of the damages in a case of this kind [breach of contract], where there has been no contract between the parties which provides therefor, we would not know where to draw the line, or say in what cases they should not be allowed * * *.' " (Citation omitted.) (Emphasis added.)

Accordingly, neither Coe nor Gates supports appellees' position that contracts to allocate attorney fees are unenforceable.

Although Miller, supra, does involve a stipulation to pay attorney fees, the case more specifically deals with a commercial transaction and a promissory note containing an attorney fee stipulation. Thus, Miller is factually a far cry from the case now before us which involves a specific contractual provision that was assented to in a non-commercial setting by competent parties with equal bargaining positions and under neither compulsion nor duress. Therefore, Miller, like Coe, Gates, Kabatek, Grosser and Sorin, provides no support for appellees' position that contracts providing for the payment of attorney fees in a non-commercial setting are unenforceable.

Appellees, absent any showing of misunderstanding, deception or duress, ask us to disregard the explicit terms of the condominium declaration and condominium by-laws by which they agreed to be bound. As shown above, the law in Ohio does not compel such a result nor are we prompted by appellees' arguments to institute such a rule.

It has long been recognized that persons have a fundamental right to contract freely with the expectation that the terms of the contract will be enforced. This freedom "is as fundamental to our society as the right to write and to speak without restraint." Blount v. Smith (1967), 12 Ohio St.2d 41, 47, 41 O.O.2d 250, 253, 231 N.E.2d 301, 305. Government interference with this right must therefore be restricted to those exceptional cases where intrusion is absolutely necessary, such as contracts promoting illegal acts. No such necessity exists in this case.

Appellees, when they purchased a unit in Nottingdale Condominium, freely agreed to be bound by the terms of the condominium declaration. The declaration provides that in any action for foreclosure or to collect delinquent assessments, reasonable attorney fees incurred by the homeowners' association shall be paid by the defaulting unit owner. The matter which prompted this litigation was appellees' continued refusal to pay the monthly sum required of each unit owner for necessary services. While refusing each month to pay the amount...