Trull v. Central Carolina Bank & Trust

EAGLES, Judge.

The general rule in North Carolina has long been that a party cannot recover attorneys’ fees “unless such a recovery is expressly authorized by statute.” Enterprises, Inc. v. Equipment Co., 300 N.C. 286, 289, 266 S.E.2d 812, 814 (1980). N.C.G.S. 6-21.2 allows an award of attorneys’ fees in actions to enforce obligations owed under “an evidence of indebtedness” that itself provides for the payment of attorneys’ fees. RC Associates v. Regency Ventures, Inc., 111 N.C. App. 367, 372, 432 S.E.2d 394, 397 (1993). N.C.G.S. 6-21.2 provides, in pertinent part:

Obligations to pay attorneys’ fees upon any note, conditional sale contract or other evidence of indebtedness, in addition to the legal rate of interest or finance charges specified therein, shall be valid and enforceable, and collectible as part of such debt, if such note, contract or other evidence of indebtedness be collected by or through an attorney at law after maturity . . .

The promissory note here provides for the payment of “reasonable attorneys’ fees incurred by the holder in enforcing the agreements of the Borrower(s).” Because the note provides for “reasonable attorneys’ fees” without referring to any specific percentage of fees to be paid, N.C.G.S. 6-21.2(2) applies. N.C.G.S. 6-21.2(2) provides:

(2) If such note, conditional sale contract or other evidence of indebtedness provides for the payment of reasonable attorneys’ fees by the debtor, without specifying any specific percentage, such provision shall be construed to mean fifteen percent (15%) of the “outstanding balance” owing on said note, contract or other evidence of indebtedness.

I.

Plaintiff contends that the trial court’s award of attorneys’ fees was improper. Plaintiff first argues that, despite the language in the note, CCB is not entitled to attorneys’ fees under the statute because CCB was unsuccessful in its deficiency action against Trull. G.S. 6-21.2 does not require that a party seeking attorneys’ fees under the statute qualify as a “prevailing party” in litigation. Although the General Assembly included this requirement in other statutes providing for attorneys’ fees, the text of G.S. 6-21.2 does not state this requirement. (N.C.G.S. 75-16.1 (1994) limits recovery of attorneys’ fees to the “prevailing party”). The Court “may not, under the guise of judicial interpretation, interpolate provisions which are wanting in the statute and thereupon adjudicate the rights of the parties thereunder.” Simmons v. Wilder, 6 N.C. App. 179, 181, 169 S.E.2d 480, 481 (1969). Furthermore, the purpose of G.S. 6-21.2 is to allow the debtor a last chance to pay his outstanding balance and avoid litigation, not to reward the prevailing party with the reimbursement of his costs in prosecuting or defending the action. RC Associates v. Regency Ventures, Inc., 111 N.C. App. 367, 373- 374, 432 S.E.2d 394, 398 (1993). To limit the operation of G.S. 6-21.2 to successful litigants would require this court to judicially amend the existing statute. We believe that to do so would improperly invade the province of the General Assembly.

Trull also contends that G.S. 6-21.2 should not apply to this action because the statute requires that the attorneys’ fees be “collectible as part of such debt” and that CCB’s failure in its deficiency action precludes the collection of a debt under the statute. CCB’s counterclaim for the deficiency was an ancillary action to the actual foreclosure proceeding. It is undisputed that as of 8 April 1993 Trull owed a debt of $672,168.48 to CCB. CCB’s legal actions were in pursuit of payment of the debt evidenced by the same Promissory Note which contained the provision for “reasonable attorneys’ fees.”

Plaintiff Trull further contends that the trial court’s award of attorneys’ fees should be precluded by the Supreme Court’s decision in Merritt v. Edwards Ridge which held that the anti-deficiency statute applying exclusively, to purchase money notes, N.C.G.S. 45-21.38 (1991), precludes the recovery of attorneys’ fees under G.S. 6-21.2. 323 N.C. 330, 372 S.E.2d 559 (1988). The decision in Merritt follows the legislative intent behind G.S. 45-21.38, “to protect a vendor’s assignee, who would not know the nature of the transaction.” Childers v. Parker’s Inc., 274 N.C. 256, 263, 162 S.E.2d 481, 486 (1968). It is well established that under this anti-deficiency statute, the purchase money creditor is strictly limited upon foreclosure and sale to the proceeds which stand in place of the land. Merritt, 323 N.C. at 336, 372 S.E.2d at 563. Significantly, the note at issue here is not a purchase money note. Trull defended CCB’s action for the deficiency under G.S. 45-21.36, using the reasonable value defense, not under G.S. 45-21.38. In fact, Trull’s obligation to CCB arose from a commercial land transaction. Expanding the decision in Merritt to this non-purchase money, commercial transaction would “deprive [s] the [defendants] of the benefits of a bargain, fairly and properly entered, which violates no established public policy.” Merritt, 323 N.C. at 338, 372 S.E.2d at 564 (Whichard, J., dissenting).

II.

Plaintiff next contends that the trial court’s calculation of attorneys’ fees was improper and contrary to law. We disagree. When the trial court determines an award of attorneys’ fees is appropriate under the statute, the amount of attorneys’ fees awarded lies within the discretion of the trial court. Coastal Production v. Goodson Farms, 70 N.C. App. 221, 226, 319 S.E.2d 650, 655 (1984). Therefore, the award of attorneys’ fees is conclusive absent an error of law or abuse of discretion by the trial court. Id.

N.C.G.S. 6-21.2(2) expressly authorizes an award of attorneys’ fees of 15% of the “outstanding balance” in suits to collect any “evidence of indebtedness,” when such evidence of indebtedness is collected “by or through an attorney at law after maturity.” The term “evidence of indebtedness” refers to “any printed or written instrument, signed or otherwise executed by the obligor(s), which evidences on its face a legally enforceable obligation to pay money.” Enterprises, Inc. v. Equipment Co., 300 N.C. 286, 294, 266 S.E.2d 812, 817 (1980). The promissory note involved here fits that description.

The term “outstanding balance” is defined by N.C.G.S. 6-21.2(3) as “the principal and interest owing at the time suit is instituted to enforce any security agreement securing payment of the debt and/or to collect said debt.” N.C.G.S. 6-21.2(3) (1986) (emphasis added). CCB retained an attorney to collect and enforce the debt on 16 April 1993, instituted foreclosure proceedings on the Wake County real property on 30 April 1993, and liquidated Trull’s personal property collateral between 1 June and 24 June 1993. The actual deficiency action was ancillary to CCB’s other actions to enforce the debt. The trial court calculated the attorneys’ fees by applying the statutory percentage to the balance of the note on 8 April 1993. That valuation date falls within twenty two days of the commencement of foreclosure proceedings. We find no abuse of the trial court’s discretion in awarding attorneys’ fees at 15% of the value of the note, on this date.

Plaintiff also contends that the court erred in calculating attorneys’ fees in this case by including fees incurred in the foreclosure action. In prior decisions regarding the application of N.C.G.S. 6-21.2, this Court has stated that “when other actions are reasonably related to the collection of the underlying note sued upon, attorneys’ fees incurred therein may properly be awarded under G.S. 6-21.2.” Coastal Production v. Goodson Farms, 70 N.C. App. 221, 227-28, 319 S.E.2d 650, 655 (1984). In Coastal, this Court determined that attorney fees incurred in bankruptcy, receivership, and foreclosure actions were sufficiently connected to the collection of the note to satisfy the statutory requirement that the fees be “collected by or through an attorney at law.” 70 N.C. App. at 228, 319 S.E.2d at 656; N.C.G.S. 6-21.2 (1986). We noted that in some cases ancillary claims may be necessary to collect and enforce the note and that fees incurred in pursuing those ancillary claims would not be barred by the statute. 70 N.C. App. at 228, 319 S.E.2d at 656. “Reasonableness, not arbitrary classification of attorney activity, is the key factor under all our attorneys’ fees statutes.” Id. Fees incurred by CCB’s attorneys in the foreclosure proceeding or in any action “connected” with the collection of the debt owed by Trull are permissible under the statute.

Plaintiff additionally argues that an award of attorneys’ fees to CCB under these circumstances amounts to a windfall, in that the statutory 15% exceeds the actual attorneys’ fees incurred by CCB. The promissory note at issue in this case provides for “reasonable attorneys’ fees” and is therefore subject to the provisions in G.S. 6-21.2 subsection (2), not subsection (1). Under subsection (1) an award of attorneys’ fees must be supported by evidence and findings of fact supporting the reasonableness of the award, however, subsection (2) has predetermined that 15% is a reasonable amount. Barker v. Agee, 93 N.C. App. 537, 544, 378 S.E.2d 566, 570 (1989); RC Associates v. Regency Ventures, Inc., 111 N.C. App. 367, 373, 432 S.E.2d 394, 397 (1993). G.S. 6-21.2(2) expressly provides that when a contract authorizing attorneys’ fees does not specify the fee percentage then it shall be construed to mean 15% of the “outstanding balance” owed on the instrument. Nucor Gorp. v. General Bearing Corp., 103 N.C. App. 518, 520-521, 405 S.E.2d 776, 778 (1991). In this case, the trial court did not err by calculating the fee awarded in accordance with the statutory mandate.

Affirmed.

Judge McGEE concurs. Judge WALKER concurs in part and dissents in part.