by R. Russell O’Rourke, Esq
Chair, Construction Law Practice
On July 1, 2015, the 4th District Court of Appeals for Highland County, Ohio reaffirmed that not only are attorney’s fees provisions in contracts enforceable, but also (if they are contained) in the credit application. This applies as well to guarantors who sign personally on behalf of the company. In the case 2-J Supply, Inc. v. Garrett & Parker, LLC., the Court held that the language of the Personal Guarantee which was a part of the credit application and read, “I hereby absolutely and unconditionally PERSONALLY GUARANTEE the FULL and punctual payment of any obligation of the company and I hereby bind myself to pay you on demand any sum, including all cost of collection and reasonable attorney’s fees…” was fully enforceable against both guarantors. It would have been enforceable against the company, too, but, after the lawsuit was filed, the company filed for bankruptcy protection.
Generally, in the U.S., courts use the “American Rule” which says that a prevailing party cannot recover attorney fees from the loser, subject to three exceptions, where: 1) a statute permits it; 2) an enforceable contract provides for it; or 3) the prevailing party demonstrates bad faith on the part of the loser. In construction, we know that in addition to other statutes, the Ohio Consumer Sales Practices Act and Home Solicitation Sales Act (ORC 1345.01 to 1345.09 and 1345.21 to 1345.28) permit it, as do the Private Project Mechanic’s Lien Statute when a property is sold at foreclosure (ORC 1311.16) and the Ohio Prompt Pay Act for non-residential construction projects (ORC 4113.61).
The 2-J Supply case fits into the second exception where the payment of attorney’s fees is authorized by an enforceable contract clause. In 1987 the Ohio Supreme Court changed how Ohio applies the Rule to include the second exception in the case, Nottingdale Homeowners’ Association v. Darby, when it held for the first time that a contractual provision to pay the other party’s attorney’s fees is enforceable when the parties are competent, have equal bargaining positions and are not under duress or compulsion.
Be careful here—Ohio courts have found that there is an unequal bargaining position between a homebuilder and a homebuyer in many circumstances. Before you re-write your contract(s), particularly if your customer is a homeowner or buyer, contact your construction lawyer to review your contract(s) to make sure that your documents are up to date and are enforceable and do not violate any other Ohio construction laws.