All collection costs” does not mean attorney fees
Date: Sat, 03/25/2006 - 05:23
Found this interesting article at isba.org/sections/Generalpractice/1-2-06.html while looking for information on restrictive endorsements. This site belongs to the Illinois State Bar Association, so check your own state laws to see what the specifics maybe in your state.
[quote]All collection costs†does not mean attorney fees
By H. Allen Yow
Attorneys drafting promissory notes, contracts and other written instruments must clearly articulate the rights, obligations and liabilities of the parties involved. Imprecise language, as the Fourth District Appellate Court reminds us, can result in unintended consequences. In the recent decision of Negro Nest, LLC v. Mid-Northern Management, Inc., 839 N.E.3rd 1083, 298 Ill.Dec. 436 (Ill.App. 4 Dist. 2005), the appellate court reversed an award of attorney fees because the written contract did not expressly provide for their recovery.
By way of background, in February 2002, the Plaintiff, Negro Nest, LLC, doing business as Servpro of Springfield (hereinafter “Servpro), entered into a contract with Mid-Northern Management, Inc. by which Servpro was to perform cleaning and restoration services on a multiunit apartment complex. The contract was prepared by Servpro and included a provision stating, “if the undersigned fails to pay for services rendered and collection efforts become necessary, the undersigned agrees to be responsible for all collection costs incurred.†Plaintiff performed the contract and sent an invoice for $7,860.66. When the Defendant failed to pay the bill, suit was filed. Eventually, the parties settled on the principal amount owed, but reserved for the Court's determination the issue of awarding interest, attorney fees and costs. After a hearing, the trial court concluded that attorney fees were encompassed within “all collection costs†and awarded Plaintiff attorney fees of $12,668.75. On appeal, the Fourth District reversed the award of attorney fees.
In its decision, the appellate court notes that Illinois follows the “American Rule,†which provides that absent statutory authority or a contractual agreement, each party must bear its own attorney fees and costs. Attorney's fees and costs cannot be recovered unless expressly authorized by statute or agreement using specific language. Estate of Downs v. Webster, 307 Ill.App.3d 625, 240 Ill.Dec. 309, 716 N.E.2d 1256 (1999).
The appellate court devotes significant discussion to decisions from other jurisdictions. Depending on the State and the facts presented, “costs of collection†may or may not include attorney fees. Many jurisdictions have concluded that imprecise language, such as “costs of collection,†does include attorney fees. The Fourth District, however, held that contractual fee shifting provisions must be strictly construed and note that prior Illinois Courts have refused to read attorney fees into imprecise language. While noting that the majority of jurisdictions presented with the issue have taken an expanded view of such contractual language, the Fourth District stated that it is taking a narrower reading of statutory and contractual costs and fees shifting provisions. The court wrote that,
[t]he American Rule dictates that attorney fees are not recoverable absent express statutory or contractual language. Downs, 307 Ill.App. 3d at 70, 240 Ill.Dec. 309, 716 N.E.2d at 1260. The contract in this case provided for “all costs of collection,†and no evidence was presented on the parties' meaning of this phrase. The contract did not specifically provide for attorney fees as required. … Contracting parties must make clear their desire to deviate from the rule so the parties have notice of their potential liability when entering into or disputing contracts. Expressly stating that “attorney fees†are recoverable is the clearest and easiest way to do this.
Since Servpro drafted the contract, it had a responsibility to clearly apprise Mid-Northern Management, Inc. of its potential liability. Since the contract failed to do so, Servpro could not recover its attorney fees.
The result reached in this case could easily have been avoided had the contract simply included “attorney fees†as an element of recovery. All practitioners need to make sure that the remedies provision of a promissory note, contract or other written instrument clearly specifies the recoverable damages.
About the Author: Allen Yow is a shareholder in the law firm of Rammelkamp Bradney, P.C., which has offices in Jacksonville, Springfield and Winchester. Mr. Yow concentrates his practice in general litigation, family law and municipal law. He is a member of the ISBA General Practice, Solo & Small Firm Section Council.[/quote]
[quote]All collection costs†does not mean attorney fees
By H. Allen Yow
Attorneys drafting promissory notes, contracts and other written instruments must clearly articulate the rights, obligations and liabilities of the parties involved. Imprecise language, as the Fourth District Appellate Court reminds us, can result in unintended consequences. In the recent decision of Negro Nest, LLC v. Mid-Northern Management, Inc., 839 N.E.3rd 1083, 298 Ill.Dec. 436 (Ill.App. 4 Dist. 2005), the appellate court reversed an award of attorney fees because the written contract did not expressly provide for their recovery.
By way of background, in February 2002, the Plaintiff, Negro Nest, LLC, doing business as Servpro of Springfield (hereinafter “Servpro), entered into a contract with Mid-Northern Management, Inc. by which Servpro was to perform cleaning and restoration services on a multiunit apartment complex. The contract was prepared by Servpro and included a provision stating, “if the undersigned fails to pay for services rendered and collection efforts become necessary, the undersigned agrees to be responsible for all collection costs incurred.†Plaintiff performed the contract and sent an invoice for $7,860.66. When the Defendant failed to pay the bill, suit was filed. Eventually, the parties settled on the principal amount owed, but reserved for the Court's determination the issue of awarding interest, attorney fees and costs. After a hearing, the trial court concluded that attorney fees were encompassed within “all collection costs†and awarded Plaintiff attorney fees of $12,668.75. On appeal, the Fourth District reversed the award of attorney fees.
In its decision, the appellate court notes that Illinois follows the “American Rule,†which provides that absent statutory authority or a contractual agreement, each party must bear its own attorney fees and costs. Attorney's fees and costs cannot be recovered unless expressly authorized by statute or agreement using specific language. Estate of Downs v. Webster, 307 Ill.App.3d 625, 240 Ill.Dec. 309, 716 N.E.2d 1256 (1999).
The appellate court devotes significant discussion to decisions from other jurisdictions. Depending on the State and the facts presented, “costs of collection†may or may not include attorney fees. Many jurisdictions have concluded that imprecise language, such as “costs of collection,†does include attorney fees. The Fourth District, however, held that contractual fee shifting provisions must be strictly construed and note that prior Illinois Courts have refused to read attorney fees into imprecise language. While noting that the majority of jurisdictions presented with the issue have taken an expanded view of such contractual language, the Fourth District stated that it is taking a narrower reading of statutory and contractual costs and fees shifting provisions. The court wrote that,
[t]he American Rule dictates that attorney fees are not recoverable absent express statutory or contractual language. Downs, 307 Ill.App. 3d at 70, 240 Ill.Dec. 309, 716 N.E.2d at 1260. The contract in this case provided for “all costs of collection,†and no evidence was presented on the parties' meaning of this phrase. The contract did not specifically provide for attorney fees as required. … Contracting parties must make clear their desire to deviate from the rule so the parties have notice of their potential liability when entering into or disputing contracts. Expressly stating that “attorney fees†are recoverable is the clearest and easiest way to do this.
Since Servpro drafted the contract, it had a responsibility to clearly apprise Mid-Northern Management, Inc. of its potential liability. Since the contract failed to do so, Servpro could not recover its attorney fees.
The result reached in this case could easily have been avoided had the contract simply included “attorney fees†as an element of recovery. All practitioners need to make sure that the remedies provision of a promissory note, contract or other written instrument clearly specifies the recoverable damages.
About the Author: Allen Yow is a shareholder in the law firm of Rammelkamp Bradney, P.C., which has offices in Jacksonville, Springfield and Winchester. Mr. Yow concentrates his practice in general litigation, family law and municipal law. He is a member of the ISBA General Practice, Solo & Small Firm Section Council.[/quote]
I would be interested to see if the same applies in other states
I would be interested to see if the same applies in other states. Thanks Clay!
~Mary
