TF James Co. v. Vakoch

• Decision Date: 08 June 2001
• Docket Number: No. 20010021.,20010021.
• Citation: 2001 ND 112,628 N.W.2d 298
• Parties: T.F. JAMES COMPANY, an Iowa Corporation, Plaintiff and Appellant, v. Luella VAKOCH, individually, and doing business as New Images, Defendant and Appellee.
• Court: North Dakota Supreme Court

628 N.W.2d 298

2001 ND 112

T.F. JAMES COMPANY, an Iowa Corporation, Plaintiff and Appellant, v. Luella VAKOCH, individually, and doing business as New Images, Defendant and Appellee.

No. 20010021.

Supreme Court of North Dakota.

June 8, 2001.

Edmund G. Vinje II, Vinje Law Office, Fargo, ND, for plaintiff and appellant.

Lawrence P. Kropp, Kropp Law Offices, Jamestown, ND, for defendant and appellee.

SANDSTROM, Justice.

[¶ 1] T.F. James Company ("James") appeals from the district court's amended judgment denying James' request for attorney fees. We reverse and remand, concluding the district court abused its discretion by denying attorney fees. On remand, we direct the district court to award James reasonable attorney fees consistent with this opinion.

I

[¶ 2] James owns and operates the Jamestown Mall in Jamestown, North Dakota. Luella Vakoch leased space in the mall for her salon, New Images. Vakoch abandoned the lease, and James sued. At trial, the district court concluded Vakoch had breached the lease. The court held in favor of James on all claims, but the court determined the lease agreement was usurious. James appealed to this Court. We reversed, concluding the lease agreement was not usurious. T.F. James Co. v. Vakoch, 2000 ND 9, ¶ 1, 604 N.W.2d 459.

[¶ 3] In the lease, Vakoch agreed to pay James' attorney fees if she breached terms of the lease. Discussing the issue of attorney fees in the earlier appeal, we said:

James argues the district court should have awarded attorney's fees as provided in the lease. According to the lease, Vakoch was to pay for any expenses including attorney's fees expended in litigation by James if a breach by Vakoch was established. The district court declined to award James the attorney's fees for four reasons: 1) There was a legitimate issue regarding whether James may have breached the lease by allowing a third beauty shop to come into the mall; 2) the lease was usurious; 3) the fact the lease provided for recovery by the landlord if the tenant breached, but did not provide for recovery by the tenant if the landlord breached; 4) the totality of the circumstances demonstrated recovery of attorney's fees would result in an inequitable and absurd recovery by James when the court has found James subject to usury laws.

Id. at ¶ 11. We concluded, "On remand, the district court is to reconsider its decision not to award James attorney fees in light of the fact the lease is not usurious." Id. at ¶ 12. On remand, the district court denied fees, and James now appeals.

[¶ 4] The district court had jurisdiction under N.D.C.C. § 27-05-06. This Court has jurisdiction under N.D. Const. art. VI, § 6, and N.D.C.C. § 28-27-01.

II

[¶ 5] On remand, the district court applied N.D.C.C. § 28-26-04 to the lease agreement to conclude the contract provision for attorney fees violated public policy and was therefore void. A district court's decision regarding attorney fees will not be set aside on appeal, absent an abuse of discretion. Fode v. Capital RV Center, Inc., 1998 ND 65, ¶ 34, 575 N.W.2d 682. A district court abuses its discretion when it acts in "an arbitrary, unreasonable, or unconscionable manner, or when it misinterprets or misapplies the law." Berg v. Berg, 2000 ND 37, ¶ 10, 606 N.W.2d 903.

A

[¶ 6] Generally, parties may freely enter into an agreement for payment of attorney fees in a civil action. N.D.C.C. § 28-26-01(1). In some cases, agreements to pay attorney fees are void and against public policy. Representative is N.D.C.C. § 28-26-04, which provides:

Attorney's fee in instrument void. Any provision contained in any note, bond, mortgage, security agreement, or other evidence of debt for the payment of an attorney's fee in case of default in payment or in proceedings had to collect such note, bond, or evidence of debt, or to foreclose such mortgage or security agreement, is against public policy and void.

Relying on this statute, the district court concluded the lease agreement was "other evidence of debt" and therefore void. In reaching its conclusion, the district court stated:

The document in question in this case is a commercial lease of real property. It is a very detailed lease, consisting of 53 different paragraphs and 28 pages. The lease provides the legal basis for which rents and other amounts due become payable. The lease provides a basis for specific payments from the tenant to the landlord in return for the landlord providing the property to the tenant. The lease provides for a minimum rent in ¶ 3 on an annual basis payable in equal monthly installments. It further provides for a contracted rate of interest when the tenant fails to pay when due any rent or additional rent. In addition, the lease provides for other payments, including common area and common expense charges in ¶ 9. That provision also provides for late fees and interest if not paid when due. Clearly the lease agreement is an instrument which is the landlord's evidence that there is a debt from the tenant. The tenant is agreeing to pay certain amounts of money and the landlord is now using that instrument as evidence of debt to collect the debt including late fees and interest at a contracted rate. This is similar to the purpose of notes, bonds, mortgages, and security agreements. Black's Law Dictionary, 7th Edition, defines a debt to be a liability on a claim; a specific sum of money due by agreement or otherwise. In this case, there is no dispute that the lease constitutes "evidence of a debt" which the tenant must pay in full or be in breach of the lease.

N.D.C.C. § 28-26-04 rather than 28-26-01(1) is controlling since the Court finds the lease in this case constitutes "evidence of debt". Thus, the provision in the lease providing for the payment of attorney's fees in case of default in payment is against public policy and void. Accordingly, the Court on reconsideration declines to award James attorney's fees in this case since an award of attorney's fees would be a violation of N.D.C.C. § 28-26-04.

[¶ 7] This Court has evaluated N.D.C.C. § 28-26-04 in numerous contexts. See Principal Residential Mortgage, Inc. v. Nash, 2000 ND 21, ¶ 26, 606 N.W.2d 120

(mortgages); Production Credit Ass'n v. Obrigewitch, 462 N.W.2d 115, 118 (N.D.1990) (loan agreements); Commercial Bank of Mott v. Stewart, 429 N.W.2d 402, 403 (N.D.1988) (retail installment contract); Farmers Union Oil Co. v. Maixner, 376 N.W.2d 43, 48-49 (N.D.1985) (personal guarantee); and Hartford Accident and Indemnity Co. v. Anderson, 155 N.W.2d 728, 735-36 (N.D.1968) (indemnity agreement). Although this Court has never decided whether a commercial lease constitutes evidence of a debt, we find instructive the interpretations of "evidence of debt" or similar language in other jurisdictions. Some jurisdictions have concluded a lease is evidence of debt, but their conclusions allowed, rather than disallowed, attorney fees. See, e.g., Holmes v. Bogino, 219 Ga.App. 858, 467 S.E.2d 197, 198-99 (1996) (commercial lease was evidence of indebtedness allowing enforcement of agreement to pay attorney fees); Stillwell Enterprises, Inc. v. Interstate Equip. Co., 300 N.C. 286, 266 S.E.2d 812, 817-18 (1980) (lease agreement was evidence of indebtedness allowing imposition of attorney fees); see also Squyres Constr. Co., Inc. v. Chemical Bank, 596 S.W.2d 283, 284 (Tex.Civ.App.1980) (a lease is evidence of debt for purposes of transacting business under the Texas corporations code). We, however, are guided by the majority of decisions providing a narrower rather than a more expansive interpretation of what constitutes evidence of debt.

[¶ 8] In Columbus & Southern Ohio Elec. Co. v. Peck, 161 Ohio St. 73, 118 N.E.2d 142, 145 (1954), the Ohio Supreme Court concluded personal leases do not fall within the same general classification as "bonds, certificates of indebtedness, debentures and notes; certificates of deposit,... and other similar evidences of indebtedness." In its decision the court stated:

The enumerated items are clearly property, of an intangible nature, in which money is invested and from which a return in money is received. Under the familiar rule of ejusdem generis the words, "and other similar evidences of indebtedness," must be construed as including only items of intangible property of the same class, kind or nature.

A lease of one's own personal property to another for a stipulated rental is not of the same class, kind or nature as any of the enumerated items of intangible property. The lessor does not part with money. He does not transfer title. He continues to own his property and pay property taxes thereon. A lease of personal property is not an "evidence of indebtedness" similar to those enumerated above.

Id.

[¶ 9] In Hiller v. Olmstead, 54 F.2d 5, 7 (6th Cir.1931), the court interpreted Michigan law allowing creation of an estate by the entireties in "all bonds, certificates of stock, mortgages, promissory notes, debentures, or other evidences of indebtedness." At issue was whether an insurance contract, after a fire, was converted into evidence of indebtedness. The court stated:

The argument presented is that immediately upon the happening of loss the policy of insurance was converted from a simple contract into an "evidence of indebtedness".... Not only would the happening of an event which created contract liability not convert such contract into an "evidence of indebtedness" if it had not such character before, thus changing its very nature, but it is manifest that the words "evidence of indebtedness," as used in the statute, refer only to instruments of the same general nature as bonds, mortgages, notes, and debentures with which they are associated. The maxim noscitur a sociis applies.

Id. Noscitur a sociis is "[a] canon of construction holding that the meaning of an unclear word or phrase should be determined by the words immediately surrounding it." Black's Law Dictionary 1084 (7th ed.1999).

[¶ 10] In ...