United Medical Corp. of Tennessee, Inc. v. Hohenwald Bank and Trust Co.

• Decision Date: 20 January 1986
• Citation: 703 S.W.2d 133
• Parties: UNITED MEDICAL CORPORATION OF TENNESSEE, INC., Appellant, v. HOHENWALD BANK AND TRUST COMPANY, Provident Life and Accident Insurance Company, and Farmers Home Administration, Appellees.
• Court: Tennessee Supreme Court

Page 133

703 S.W.2d 133

UNITED MEDICAL CORPORATION OF TENNESSEE, INC., Appellant, v. HOHENWALD BANK AND TRUST COMPANY, Provident Life and Accident Insurance Company, and Farmers Home Administration, Appellees.

Supreme Court of Tennessee at Nashville.

Jan. 20, 1986.

Samuel D. Lipshie, Boult, Cummings, Conners & Berry, Nashville, for appellant.

W.C. Keaton, Wm. Landis Turner, David D. Peluso, Hohenwald, for appellees.

OPINION

COOPER, Chief Justice.

The issue in this case is the fee due an attorney for services rendered in the collection of two promissory notes. The deed of trust securing the payment of the two notes provides that, in event of default, the debtor would be liable for:

All costs of collecting, including an amount as attorneys' fees not to exceed ten percent (10%) of the principal and interest to be collected.

Giving due notice to the appropriate factors to be used as guides in fixing a reasonable attorney's fee, see Disciplinary Rule 2-106 of the Rules of the Supreme Court, the chancellor determined that a reasonable fee for services rendered by counsel for the creditor would be $139,480.82, the maximum amount allowed under the terms of the deed of trust, and entered a judgment for that amount. Considering the same factors, the majority of the Court of Appeals found the fee award to be excessive and reduced the judgment to $72,000.00. The third member of the court panel would have reduced the fee even more. On reviewing the record, we find ourselves in substantial agreement with the majority of the Court of Appeals as to what constitutes a reasonable fee under the circumstances of this case.

The record shows that in July, 1979, the appellant, United Medical Corporation of Tennessee, Inc., (U.M.C.), entered into an agreement with the defendants and the Third National Bank for a construction loan from Third National Bank in the amount of $1.5 million dollars to be followed by permanent financing in the same total amount by Hohenwald Bank and Trust Company ($150,000), and Provident Life and Accident Insurance Company ($1,350,000). Interest was to be 10.25%. The permanent financing was to be 90% guaranteed by the Farmers Home Administration.

In accordance with their agreement, on July 19, 1979, the parties executed a Term Loan Agreement, and U.M.C. executed two promissory notes totaling $1.5 million dollars and a deed of trust on hospital property to secure payment of the notes.

At the closing of the permanent financing on December 4, 1980, a Loan Note Guarantee and a Lender's Agreement were executed, the two notes payable to Third National Bank were endorsed to the order of the Hohenwald Bank and Trust Company, and it, in turn, endorsed the larger note to the order of Provident Life and Accident Insurance Company without recourse.

In March, 1981, a dispute arose between the bank and U.M.C. over a $9,000.00 commitment fee allegedly due the bank in connection with the permanent financing arranged for U.M.C. After consulting its counsel, Mr. Dave Peluso, the bank setoff the alleged debt against U.M.C.'s checking account, and had counsel write U.M.C. of its action and request financial information due under the loan agreements.

In October, 1981, the bank received an audited financial statement from U.M.C., which indicated possible violations of the loan agreements. Being the servicing agent for the loan and having the responsibility of enforcing compliance with the loan agreements, the bank had its counsel draft a letter giving U.M.C. formal notice of the apparent violations and calling upon it to bring itself into compliance with the loan agreements. After several meetings with officers of U.M.C. and others, the bank concluded that U.M.C. was in default and instructed counsel to foreclose on the security for the notes and collect the balance due on the notes. Counsel's fee for services rendered in connection with the loan default was to be contingent on his success in collecting the notes, and was subject to the basis provided in the notes and agreements, that is, a reasonable fee not to exceed ten percent of the principal and interest collected.

In February, 1982, counsel drafted a letter formally notifying U.M.C. of violations of the loan agreements and calling upon it to correct the violations within thirty days, or foreclosure would be sought.

The Lender's Agreement between Hohenwald Bank and Trust Company and the Farmers Home Administration, of which U.M.C. was a third party beneficiary, provided:

XI. Defaults by Borrower.

* * *

* * *

B. The Lender will negotiate in good faith in an attempt to resolve any problem and to permit the Borrower to cure a default, where reasonable.

Before the expiration of the 30-day notice period, U.M.C. filed the present action denying being in default, and charging that the defendants had "utterly refused to negotiate in good faith in an attempt to resolve any problems and [had] no intention of permitting the borrower to cure any of the pretended defaults," despite section XI of the Lender's Agreement; that defendants' attempt to foreclose was an effort to force plaintiff to refinance at a higher rate of interest or to pay off the 10.25% loans. U.M.C. sought a declaration that it was not in default under the loan agreements, and to enjoin foreclosure. Counsel filed an answer and counterclaim on behalf of the defendant bank, and sought to have the restraining order dissolved.

On April 13, 1982, after a hearing, the chancellor entered an order denying U.M.C. the injunctive relief sought and dismissed the action. U.M.C. appealed. In an opinion dated December 6, 1982, the Court of Appeals affirmed the chancellor's action in dissolving the restraining order and allowing foreclosure, but remanded the case so that U.M.C. could amend its pleadings and be given the opportunity to prove that the foreclosure was wrongful, in which event U.M.C. would be entitled to damages from the lenders. In the meantime, in September, 1982, the Hohenwald Bank was closed by the Tennessee Commissioner of...