Stillwell Enterprises, Inc. v. Interstate Equipment Co., 92

• Decision Date: 03 June 1980
• Docket Number: No. 92,92
• Citation: 266 S.E.2d 812,300 N.C. 286
• Parties: STILLWELL ENTERPRISES, INC. v. INTERSTATE EQUIPMENT COMPANY, Original Defendant and Third-Party Plaintiff, v. The TRAVELERS INDEMNITY COMPANY and Robert D. Kelly, Third-Party Defendant.
• Court: North Carolina Supreme Court

Page 812

266 S.E.2d 812

300 N.C. 286

STILLWELL ENTERPRISES, INC. v. INTERSTATE EQUIPMENT COMPANY, Original Defendant and Third-Party Plaintiff, v. The TRAVELERS INDEMNITY COMPANY and Robert D. Kelly,

Third-Party Defendant.

No. 92.

Supreme Court of North Carolina.

June 3, 1980.

Raymer, Lewis, Eisele & Patterson by Douglas G. Eisele, Statesville, for defendant-appellant and third-party plaintiff-appellant.

Smith, Currie & Hancock by Bert R. Oastler, Atlanta, Ga., for plaintiff-appellee.

Coward, Coward, Jones & Dillard by Roger L. Dillard, Jr., Sylva, for Robert D. Kelly, third-party defendant-appellee.

EXUM, Justice.

The sole question presented by this appeal is whether a contract for the lease of specific goods may be deemed "evidence of indebtedness" within the meaning of G.S. 6-21.2. We hold that it may and reverse the decision of the Court of Appeals to the contrary.

The original plaintiff, Stillwell Enterprises, Inc., instituted this action against original defendant Interstate Equipment Co., on 22 July 1976, seeking damages alleged to have resulted when a pushloading road scraper leased by Equipment Co. to Stillwell broke in two. Defendant Equipment Co. filed answer denying liability to Stillwell and asserting an affirmative counterclaim for the recovery of rental arrearages, sales taxes, repair charges, and attorneys' fees allegedly due under the terms of the lease agreement. By way of third-party action defendant sought also to recover from third-party defendant Robert Kelly on a guaranty executed by Kelly for Stillwell's performance under the lease. Defendant dismissed its action against the other third-party defendant, the Travelers Indemnity Company, before the matter was heard in the trial court.

After reviewing the express terms of the lease and the affidavits submitted by defendant, the trial court entered summary judgment dismissing plaintiff's claims and allowing defendant's counterclaim for a total of $24,804.68, including an amount of $2,929 for attorneys' fees. Summary judgment was also entered for a lesser amount against third-party defendant Robert Kelly. On appeal, the Court of Appeals affirmed the trial court's decision in all respects except for the entry of the award for defendant's attorneys' fees. Defendant's appeal to this Court challenges the validity of that decision.

Defendant first contends that since plaintiff failed to address or argue the issue of attorneys' fees in its brief to the Court of Appeals, the Court of Appeals erred in disallowing ex mero motu defendant's recovery thereof. Rule 28(a) of the North Carolina Rules of Appellate Procedure clearly specifies that the scope of appellate review "is limited to questions . . . presented in the several briefs." (Emphasis supplied.) Thus under this Rule plaintiff's failure to present and argue in its brief the propriety of the trial court's judgment as to attorneys' fees precluded plaintiff from obtaining relief on this point in the Court of Appeals as a matter of right. State v. McMorris, 290 N.C. 286, 225 S.E.2d 553 (1976); Love v. Pressley, 34 N.C.App. 503, 239 S.E.2d 574 (1977). Nevertheless, the Court of Appeals, in the exercise of its general supervisory powers under G.S. 7A-32(c) or pursuant to App.R. 2, ¹ could consider on its own initiative the question of the attorneys' fees award and give relief as a matter of appellate grace. The Court of Appeals having considered the question, it is now properly before this Court by virtue of our further review and the arguments directed to the issue in the parties' new briefs. App.R. 16.

The lease contract provided for monthly rental payments by plaintiff lessee to defendant lessor in the amount of $7,000. Paragraph 21 of the contract further provided that "(t)he lessee further agrees to pay to lessor a reasonable attorney's fee if the obligation evidenced hereby be collected by an attorney at law after maturity." Based upon this provision, Judge Thornburg's entry of summary judgment against plaintiff on defendant's counterclaim for past due lease payments included an award for attorney's fees. The Court of Appeals vacated this award on the grounds that the lease was not the type of agreement which would entitle defendant to recover for attorneys' fees under the general provisions of G.S. 6-21.2. We disagree.

As was stated by Chief Judge (now Justice) Brock in Supply, Inc. v. Allen, 30 N.C.App. 272, 276, 227 S.E.2d 120, 123 (1976), "(t)he jurisprudence of North Carolina traditionally has frowned upon contractual obligations for attorney's fees as part of the costs of an action." Certainly in the absence of any contractual agreement allocating the costs of future litigation, it is well established that the non-allowance of counsel fees has prevailed as the policy of this state at least since 1879. See Trust Co. v. Schneider, 235 N.C. 446, 70 S.E.2d 578 (1952); Parker v. Realty Co., 195 N.C. 644, 143 S.E. 254 (1928). Thus the general rule has long obtained that a successful litigant may not recover attorneys' fees, whether as costs or as an item of damages, unless such a recovery is expressly authorized by statute. Hicks v. Albertson, 284 N.C. 236, 200 S.E.2d 40 (1972). Even in the face of a carefully drafted contractual provision indemnifying a party for such attorneys' fees as may be necessitated by a successful action on the contract itself, our courts have consistently refused to sustain such an award absent statutory authority therefor. Howell v. Roberson, 197 N.C. 572, 150 S.E. 32 (1929); Tinsley v. Hoskins, 111 N.C. 340, 16 S.E. 325 (1892).

In Tinsley v. Hoskins, supra, this Court held void and unenforceable a stipulation in a promissory note awarding the promisee "the usual collection fee" in the event of collection of the note by legal process. The opinion in Tinsley indicated that the Court viewed such a provision as an oppressive penalty, a shield for usury, and a device which tended to promote litigation. The Tinsley rationale was subsequently applied in Brisco v. Norris, 112 N.C. 671, 16 S.E. 850 (1893) (promissory note); Williams v. Rich, 117 N.C. 235, 23 S.E. 257 (1895) (deed of trust; "Such stipulations are in the nature of forfeitures and encourage litigation."); Turner v. Boger, 126 N.C. 300, 35 S.E. 592 (1900) (deed of trust; such a provision provides an "opportunity for oppression"); Finance Co. v. Hendry, 189 N.C. 549, 127 S.E. 629 (1925) (promissory note); and Howell v. Roberson, supra, (promissory note). Furthermore, although Tinsley and its progeny represent cases adjudicating the validity of attorneys' fees provisions incorporated in promissory notes or security instruments, statements from more recent case law clearly indicate that such provisions are generally deemed unenforceable without regard to the type of instrument in which they appear. Thus, the Court of Appeals in Credit Corp. v. Wilson, 12 N.C.App. 481, 183 S.E.2d 859 (1971), aff'd 281 N.C. 140, 187 S.E.2d 752 (1972), cited Tinsley for the proposition that "provisions calling for a debtor to pay attorney's fees incurred by a creditor in the collection of a debt were contrary to public policy and, therefore, unenforceable" and concluded that "(i)t is our view . . . that sound public policy continues to bar the enforcement of such provisions unless the same are clearly and expressly authorized by statute." 12 N.C.App. at 482, 483, 183 S.E.2d at 859, 860. See also Construction Co. v. Development Corp., 29 N.C.App. 731, 225 S.E.2d 623, cert. denied, 290 N.C. 660, 228 S.E.2d 459 (1976), expressly rejecting the argument that the common law of this state permitted the contractual allocation of attorneys' fees (in contracts other than notes or security instruments) that may be required by litigation based on the contract.

We conclude, therefore, that the provision in Paragraph 21 of the lease contract between plaintiff and defendant, allowing the lessor reasonable attorneys' fees should the lease obligation be collected by an attorney after maturity, can be enforced only to the extent that the same is expressly allowed by statute. The question before us, then, is whether the lease contract sub judice is the type of agreement contemplated within the terms of G.S. 6-21.2. That statute provides in pertinent part:

"Obligations to pay attorneys' fees upon any note, conditional sale contract or other evidence of indebtedness, in addition to the legal rate of interest or finance charges specified therein, shall be valid and enforceable, and collectible as part of such debt, if such note, contract or other evidence of indebtedness be collected by or through an attorney at law after maturity, subject to the following provisions:

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(2) If such note, conditional sale contract or other evidence of indebtedness provides for the payment of reasonable attorneys' fees by the debtor, without specifying any specific percentage, such provisions shall be construed to mean fifteen percent (15%) of the 'outstanding balance' owing on said note, contract or other evidence of indebtedness.

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(4) As to conditional sale contracts and other such security agreements which evidence both a monetary obligation and a security interest in or a lease of specific goods, the 'outstanding balance' shall mean the 'time price balance' owing as of the time suit is instituted by the secured party to enforce the said security agreement and/or to collect said debt.

(5) The holder of an unsecured note of other writing(s) evidencing an unsecured debt, and/or the holder of a note and chattel mortgage or other security agreement and/or the holder of a conditional sale contract or any other such security agreement which evidences both a monetary obligation and a security interest in or a lease of specific goods, or his attorney at law, shall, after maturity of the obligation by default or otherwise, notify the maker, debtor, account debtor, endorser or party sought to be held on said obligation that...