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e. Provision for Attorney Fees.
1. When Impairs Negotiability.-Not a few courts have taken the position that a clause in a promissory note providing for the payment of attorney's fees in case suit is brought to enforce the collection of the note, renders the instrument non-negotiable, on the ground that such a provision creates uncertainty, especially in the amount payable: First Nat. Bank v. Babcock, 94 Cal. 96, 28 Am. St. Rep. 94, 29 Pac. 415; Kendall v. Parker, 103 Cal. 319, 42 Am. St. Rep. 117, 37 Pac. 401; Findlay v. Potts, 131 Cal. 385, 63 Pac. 694; Garretson v. Purdy, 3 Dak. 178, 14 N. W. 100; Cayuga County Nat. Bank v. Purdy, 56 Mich. 6, 22 N. W. 93; Altman v. Rittershofer, 68 Mich. 287, 13 Am. St. Rep. 341, 36 N. W. 74; Altman v. Fowler, 70 Mich. 57, 37 N. W. 708; McCoy v. Green, 83 Mo. 626; First Nat. Bank v. Gay, 63 Mo. 33, 21 Am. Rep. 430; Clark v. Barnes, 58 Mo. App. 667; Johnston v. Speer, 92 Pa. 227, 37 Am. Rep. 675. Some of the courts that have come to this conclusion have been influenced by an express statutory provision that an instrument is not negotiable which contains "any condition not certain of fulfillment": Adams v. Seaman, 82 Cal. 636, 23 Pac. 53, 7 L. R. A. 224; Stadler v. First Nat. Bank, 22 Mont. 190, 74 Am. St. Rep. 582, 56 Pac. 111; Cotton v. John Deere Plow Co., 14 Okl. 605, 78 Pac. 321.
In denying the negotiability of notes containing this provision for attorney's fees the court in Roads v. Webb, 91 Me. 406, 64 Am. St. Rep. 246, 40 Atl. 128, used this language: "It is said that if the note should be paid at maturity there would be no attorneys' fees. This is true. But a note which, by its terms, is negotiable under the rules of law, does not lose that characteristic until merged in a judgment. The only infirmity attending its negotiation after maturity is that the indorser takes it subject to the same defense that the maker could have made against the original payee. A note cannot be negotiable before maturity and not negotiable after that, by reason of the terms of the note itself. After these notes were dishonored and had been placed in an attorney's hands, his fees commenced to run. How much they would amount to depended upon the service then rendered and to be rendered. But, until merged in judgment, they were still negotiable, if negotiable at any time after their creation. Hence, arose an uncertainty in the amount due. That uncertainty attached to the notes in their inception, although attorney's fees would not accrue until after dishonor. The notes provided for the payment of such uncertain fees, in case they should acerue, and thus rendered the amount the makers were liable to pay in one event uncertain. This infirmity destroyed the negotiable quality of the notes."
Another leading and oft-cited case is Woods v. North, 84 Pa. 407, 24 Am. Rep. 201, wherein it is held that a note is not negotiable which contains a promise to pay a certain sum of money" and five per cent collection fee if not paid when due." In the course of its opinion the court remarked: "In the paper now in question there
enters as to the amount an undoubted element of uncertainty. It is a mistake to suppose that if the note was unpaid at maturity, the five per cent would be payable to the holder by the parties. It must go into the hands of an attorney for collection. It is not a sum necessarily payable. The phrase "collection fee' necessarily implies this. Not only so, but this amount of percentage cannot be arbitrarily determined by the parties. It must be only what would be a reasonable compensation to an attorney for collection. . . . . Interest and costs of protest after nonpayment at maturity are necessary legal incidents of the contract, and the insertion of them in the body of the note would not affect its negotiability. Neither does a clause waiving exemption, for that in no way touches the simplicity and certainty of the paper. But a collateral agreement as here, depending too as it does upon its reasonableness, to be determined by the verdict of a jury, is entirely different. It may be well characterized, like an agreement to confess a judgment was by Chief Justice Gibson, as luggage,' which negotiable paper, riding as it does on the wings of the wind, is not a courier able to carry. If this col. lateral agreement may be introduced with impunity, what may not be? It is the first step in the wrong direction which costs. These instruments may come to be lumbered up with all sorts of stipulations, and all sorts of difficulties, contentions and litigation result.”
A provision for a "reasonable" attorney's fee in case suit is brought for collection has been held to destroy its negotiability: Strawberry Point Bank v. Lee, 117 Mich. 122, 75 N. W. 444; Jones v. Radatz, 27 Minn, 210, 6 N. W. 800; Samstag v. Conley, 64 Mo. 476; First Nat. Bank v. Laughlin, 4 N. D. 391, 61 N. W. 473; Lippincott v. Rich, 22 Utah, 196, 61 Pac. 526; Peterson v. Stoughton State Bank, 78 Wis. 113, 47 N. W. 368. So has a provision for a fee of ten dollars: Clowers v. Snowben (Okl.), 96 Pac. 596; and a provision for a fee of ten dollars and ten per cent of the amount collected: Cotton v. John Deere Plow Co., 14 Okl. 605, 78 Pac. 321; and a provision to pay as an attorney's fee and ten per cent for collection: First Nat. Bank v. Gay, 71 Mo. 627; Creasy v. Gray, 88 Mo. App. 454; First Nat. Bank v. Larsen, 60 Wis. 206, 19 N. W. 67, 57 Am. Rep. 365. A note payable with collection charges has been declared non-negotiable: Smith v. First Nat. Bank, 95 Minn. 496, 104 N. W. 369; Buck v. Harris, 125 Mo. App. 365, 102 S. W. 640; so has a note payable "with all expenses, if suit be instituted for collection”: Smith Sons Gin etc. Co. v. Badham (S. C.), 61 S. E. 1031; and so has a note with a provision to pay all costs and charges for collecting it: Maryland Fertilizing etc. Co. v. Newman, 60 Md. 584, 45 Am. Rep. 750. A provision in a note for costs and expenses of collection including ten per cent of the amount collected as attorney's fees has been held non-negotiable: Green v. Spires, 71 S. C. 107, 50 S. E. 554; and so has a note payable with counsel fees and expenses of collection if sued on or placed in the hands of an attorney for collection: First Nat. Bank v. Bynum, 84 N. C. 24, 37 Am. Rep. 604; Morgan v. Edwards, 53 Wis. 599, 40 Am. Rep. 781, 11 N. W. 21. A provision for costs in a certain sum with attorney fees and "other costs, in case the holder is obliged to enforce payment at law," was held to destroy negotiability in Johnson v. Schar, 9 S. D. 536, 70 N. W. 838; Baird v. Vines, 18 S. D. 52, 99 N. W. 89; and a note with power of attorney to confess judgment thereon for such sum as might be unpaid, together with costs and attorney's fees, was held non-negotiable in Law v. Crawford, 67 Mo. App. 150.
A provision for attorney fees in a mortgage in case of foreclosure was held to destroy the negotiability of the note to secure which the mortgage was given in Meyer v. Weber, 133 Cal. 681, 65 Pac. 1110, where the note and mortgage were a part of the same transaction and therefore were to be construed together. The weight of authority, however, is to the effect that a stipulation in a note for attorney's fees does not affect its negotiability, and in those jurisdictions where this rule prevails, it would seem clear that a provision in a mortgage for attorney's fees in the event of foreclosure does not destroy the negotiability of the secured note: Hamilton v. Fowler, 99 Fed. 18, 40 C. C. A. 47.
2. When does not Impair Negotiability.-A majority of the courts take the view that a provision in a bill of exchange or in a promissory note for the payment of an attorney's fee in the event of suit being brought to enforce collection does not impair the negotiability of the instrument: First Nat. Bank v. Slaughter, 98 Ala. 602, 39 Am. St. Rep. 88, 14 South. 545; Trader v. Chidester, 41 Ark. 242, 48 Am. Rep. 38; Cowing v. Cloud, 16 Colo. App. 326, 65 Pac. 417; Stapleton v. Louisville Banking Co., 95 Ga. 802, 23 S. E. 81; Nickerson v. Sheldon, 33 Ill. 372, 85 Am. Dec. 280; Dorsey v. Wolff, 142 Ill. 589, 34 Am. St. Rep. 99, 32 N. E. 495, 18 L. R. A. 428; Lauferty v. Johnson 17 Il. App. 549; Gehlbach v. Carlinville Nat. Bank, 83 Ill. App. 129; Stoneman v. Pyle, 35 Ind. 103, 9 Am. Rep. 637; Proctor v. Baldwin, 82 Ind. 370; Sperry v. Horr, 32 Iowa, 184; Shenandoah Nat. Bank v. Marsh, 89 Iowa, 273, 48 Am. St. Rep. 381, 56 N. W. 458; Seaton v. Scoville, 18 Kan. 433, 21 Am. Rep. 212, 26 Am. Rep. 779; Gilmore v. Hirst, 56 Kan, 626, 44 Pac. 603; Gaar v. Louisville Banking Co., 74 Ky. (11 Bush) 180, 21 Am. Rep. 209; Deitrich v. Bayhi, 23 La. Ann. 767; Clifton v. Bank of Aberdeen, 75 Miss. 929, 23 South. 394; Commerce Bank v. Fuqua, 11 Mont. 285, 28 Am. St. Rep. 461, 28 Pac. 291, 14 L. R. A. 588; Roberts v. Snow, 27 Neb. 425, 43 N. W. 241; Stark v. Olsen, 44 Neb. 646, 63 N. W. 37; Benn v. Kutzschan, 24 Or. 28, 32 Pac. 763; Baird v. Vines, 18 S. D. 52, 99 N. W. 89; Hamilton Gin etc. Co. v. Sinker, Davis & Co., 74 Tex. 51, 11 S. W. 1056; Wright v. Morgan (Tex. Civ. App.), 37 S. W. 627; Elmore v. Rugely (Tex. Civ. App.), 107 S. W. 151; Howenstein v. Barnes, 5 Dill. 482, Fed. Cas. No. 6786; Wilson Sewing-Maehine Co. v. Moreno, 6 Saw. 35, 7 Fed. 806; Adams v. Addington, 4 Woods, 389, 16 Fed. 89; Farmers' Nat. Bank v. Sutton Mfg. Co., 52
Am. St. Rep., Vol. 125-14
Fed. 191, 3 C. C. A. 1, 17 L. R. A. 595. Likewise a provision for the payment of costs of collection in case of default in payment has been held not to destroy negotiability: Montgomery v. Crossthwait, 90 Ala. 553, 24 Am. St. Rep. 832, 8 South. 498, 12 L. R. A. 180; Nicely v. Winnebago Nat. Bank, 18 Ind. App. 30, 47 N. E. 476; Schlesinger v. Arlin, 31 Fed. 648. A stipulation to pay an attorney fee of ten per cent is held not to impair the negotiability of a note in White v. Harris, 69 S. C. 65, 104 Am. St. Rep. 791, 48 S. E. 41; Salisbury v. Stewart, 15 Utah, 308, 62 Am. St. Rep. 934, 49 Pac. 777.
Various reasons are advanced to sustain the proposition that a provision for attorney's fees is not fatal to negotiability. First, such a stipulation is said not to render the amount payable uncertain, for the law-merchant aims not at mathematical certainty but at commercial certainty; second, the agreement is said to be a collateral stipulation as distinct from the principal agreement as though written on a separate paper; third, the stipulation does not become operative until after maturity, and after maturity all commercial paper loses in any event its peculiar character of negotiability. Probably the soundest of these reasons is the first, that is to say, that a stipulation for attorney's fees does not, within the meaning of the law-merchant, render the amount payable uncertain. To quote from Cudahy Packing Co. v. State Nat. Bank, 134 Fed. 538, 67 C. C. A. 662: "The decisions which sustain the negotiability of notes containing a provision for the payment of attorney's fees have, in the main, been justified upon the ground that prior to the maturity of the note, and while it was current in the business world, the provision was inoperative; that it did not take effect until after the dishonor of the note, so that in any case the transferee would take subject to all the defenses existing between the original parties.” This reasoning cannot be applied to provisions for the payment of exchange, and upon that ground notes containing such provisions have by many courts been held to be non-negotiable: Hughitt v. Johnson, 28 Fed. 865. We believe that the whole subject might well be rested on safer and more fundamental grounds. Judge Mitchell, in writing the opinion of the supreme court of Minnesota in the case of Hastings v. Thompson, 54 Minn. 184, 40 Am. St. Rep. 315, 55 N. W. 968, 21 L. R. A. 178, indicated the correct doctrine when he said: “The reason and purpose of the rule that the sum to be paid must be certain is that the parties to the instrument may know the amount necessary to discharge it without investigating facts. not within the general knowledge of everyone, and which may be subject to more or less uncertainty, or more or less under the influence or control of one or other of the parties to the instrument.” The rule requiring certainty in commercial paper was a rule of commerce before it was a rule of law. It requires commercial, not mathematical, certainty. An uncertainty which does not impair the functions of negotiable instruments in the judgment of business men ought not to be regarded by the courts. The fine phrase of Chief
Justice Gibson in the case of Overton v. Tyler, 3 Pa. 346, 45 Am. Dee. 645, that a negotiable instrument 'is a courier without lug. gage,' has been made to do much service in the discussion of this subject. The real question, however, is, Who shall determine what constitutes luggage'—the business world, or the judge in his li. brary "
The supreme court of Washington in holding that the negotiability of a promissory note is not affected by a stipulation therein for the payment of an attorney's fee in the event of suit to enforce colleetion, used this language: "It is only upon the conditions of such note being broken, and the promise to pay violated, that this condition has any force whatever; and even then it has no force until an action has been brought to enforce the liability growing out of such violation of the conditions of the note. After maturity a note without any such condition loses the protection awarded to negotiable paper by the rules of the law-merchant. Therefore, such condition, after it becomes effective, does not materially change the rights and obligations of the parties interested in such note. It seems illogical to hold that the force of a positive promise to pay a definite sum at a definite time shall be at all affecteå by a condition that, in ease of the violation of such promise, a penalty may be imposed upon the promisor. The contingency that, upon the violation of his promise, the maker of a note may be called upon to pay an amount over and above that which he had promised to pay, ought not to have any effect upon such promise. We think it would be more logical to hold, if it was necessary so to do to preserve the integrity of the absolute promise contained in the note, that the additional sum to be paid upon the bringing of suit was an incident to the suit, rather than to the note itself; that the condition should be held to be in the nature of a stipulation that the law, as to costs of court, should be deemed to be such that in that particular case it should include either the definite sum provided for as an attorney's fee, as in the note in question, or such a reasonable sum as the court might allow, as is often provided in notes of this kind. The real object of such con. dition is to enable the holder of the note, if he is obliged to bring suit thereon, to recover such a sum by way of costs or attorneys' fees as will reimburse him in whole or in part for the expenses which he may incur by reason of being compelled to go into court to collect such note. Such being the case, it seems to us that penalties. of this kind may logically be considered as part of the costs incident to the action, and as being as far separated from the principal promise to pay contained in the note as are the costs which are allowed by the statute to the prevailing party”: Second Nat. Bank of Colfax v. Anglin, 6 Wash. 403, 33 Pac. 1056.
"Upon a careful review of the authorities,” to quote from Oppenheimer v. Farmers' etc. Bank, 97 Tenn. 19, 56 Am. St. Rep. 778, 36 S. W. 705, 33 L. R. A. 767, "We can perceive no reason why a note, otherwise endowed with all the attributes of negotiability, is rendered,