In a recent case of first impression, the Appellate Division of the New Jersey Superior Court has interpreted a provision in a loan agreement that the borrower would pay "the lender's costs of collection, including reasonable attorney's fees", to be limited to include only those attorney's fees incurred by the lender prior to the entry of a judgment against the debtor. The Court refused to permit the lender to amend its judgment after it was entered, to include additional attorney's fees incurred by the lender in attempting to enforce and collect the judgement.
The Court felt that it was required to narrowly construe the attorney's fee provision that would seem, on its face, to encompass all attorneys' fees incurred by the creditor in attempting to collect the indebtedness, regardless of when the fees were incurred. The Court then concluded that there was nothing to suggest that the parties had intended to have the agreement include attorney's fees incurred after a judgment had been entered. In reaching this conclusion, the Court seems to have assumed that the losing party in a collection case can be expected to voluntarily pay the amount of a judgment as soon as it is entered. The reality is, of course, that an attorney attempting to collect a judgment typically spends more time after it is entered, than is spent in obtaining the judgment in the first place.
The Court pointed out that a number of other jurisdictions limit attorney's fees in the same fashion. The Court raised the possibility that an attorney's fee provision could be worded in such a way that the Court would permit it to include post-judgment attorney's fees, but declined to say whether such an agreement would be enforceable. The Court indicated that there are public policy reasons that favor requiring the successful party to bear its own attorney's fees following the entry of a judgment. The reasons cited seem to be based on a misunderstanding of the practical realities associated with collection litigation.
This important decision obligates businesses that lend money or extend credit in New Jersey to scrutinize the language in their documents that provides for a recovery of collection costs. In order for there to be even a possibility that attorney's fees incurred after the entry of judgment can be added to the amount to be recovered, most guarantees will need to be revised to specifically provide for this.
Questions regarding the Court's decision in Hatch v. T&L Associates should be directed to Thomas A. Clark, Esquire.