Collection Made Easy

 Does this sound like any job you’ve had?

Tim Clancey’s Indiana home needed repairs. Clancey signed a contract with Terry’s Discount Windows to do the work. On completion, Clancey had some complaints and refused to make the final payment -- $13,530. When Terry’s demanded payment in full, it got ugly. Clancy, the homeowner, filed suit, claiming fraud, negligence, breach of contract, and non-compliance with Indiana’s Home Improvement Fraud Act, Home Improvement Contract Act, and Indiana Consumer Protection Act.

To collect the last payment, Terry’s had no choice. He filed a counter-claim for $13,530. At this point, Terry’s contract with Clancy took center stage.

After a jury trial, Terry's won. Clancy got nothing. But the trial court denied Terry’s post-trial motion for attorney fees and interest. True, the signed contract included a clause on attorney fees and interest on the delinquent account. But the trial court judge didn’t see it that way. Terry’s counsel considered that a mistake. And it made a big difference. Attorney fees and interest were far more than the $13,530 awarded at trial. Terry’s appealed. And here’s where Terry’s contract saved the day.

Most state courts won't award attorney fees if there is no written contract -- or if the written contract doesn’t cover the subject. So, what did Terry’s contract say?

In the event that Terry's is required to so initiate legal proceedings, Terry's shall additionally be entitled to recover all costs and attorney fees incurred in connection with such collection proceedings, as well as interest on the contract balance outstanding and unpaid at the rate of 1% per month.

A clause like this raises the stakes when there’s a dispute. An owner with frivolous claims or a weak defense has reason to pay up without a fuss. But every state has different law on the award of attorney fees. For example:

California -- The right to collect attorney fees is reciprocal. If a contractor can collect attorney fees after winning a contract dispute, an owner has the same right. California Civil Code § 1717.

Arizona -- Courts can award "reasonable" attorney fees to the successful party in any contract dispute. Arizona Revised Statutes § 12-341.01

Connecticut -- If a contractor has the right to collect attorney fees, a homeowner is given the same right. Connecticut General Statutes § 42-150bb.

Georgia – Better to leave attorney fees out of the contract. Official Code of Georgia Annotated § 13-11-8 gives contractors the right to collect attorney fees if the dispute is over delinquent payment.

Appellate Court Decision

Earlier this week the Indiana Appellate Court came to Terry’s rescue.

1. Parties to litigation pay their own attorney fees unless their contract says otherwise.
2. Terry’s contract provided for an award of fees and interest on the money owed.
3. A trial court judge has an obligation to rule on the award of attorney fees.
4. Judges, not juries, decide what constitutes a reasonable attorney fee.

The appellate court sent the case back to the trial court to calculate attorney fees and interest due. Conclusion: Terry’s was saved by a good contract.

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