I Want My Attorney Fees!

A number of my clients ask the same question regarding the enforcement of contracts, particularly the collection of debt. The question is, “Can I get my attorney fees and cost of collection.” A recent Eleventh Appellate district case, the court discussed this topic in a succinct manner.

The case Somerset Synfuel No. 1, L.L.C. v. Resource Recovery International Corp, 188 Ohio App.3d 368, involved a number of convoluted issues one of which was the defendant’s failure to pay the attorney fees to the successful party in a promissory note issue. In its opinion, the court stated:

As a general rule, the costs and expenses of litigation, other than the usual court costs, are not recoverable under Ohio law, Freeman v. Crown City Mining, Inc., 90 Ohio App.3d 546, 630 N.E.2d 19. Ohio has long adhered to the “American rule” with respect to recovery of attorney fees. A prevailing party in a civil action may not recover attorney fees as part of the costs of litigation, Wilborn v. Bank One Corp., 121 Ohio St.3d 546, 2009-Ohio-306. However there are exceptions to this rule. Attorney fees may be awarded when a statute or an enforceable contract specifically provides for the losing party to pay the prevailing party’s attorney fees, Nottingdale Homeowners’ Assoc., Inc. v. Darby, 33 Ohio St.3d 32, 514, N.E.2d 702.

O.R.C. 1301.21(B) authorizes the award of attorney fees regarding contracts of indebtedness if 1) the contract includes the commitment to pay attorneys’ fees and2) if the contract is enforced through judicial proceedings.

Therefore, in order to obtain attorney fees or other costs of litigation, you must:

1. Have a written agreement authorizing the payment of attorney fees, etc. in the event of default, and

2. Be successful in enforcing the contract.

Winning Your Case – The Importance of Properly Authenticated Documentation

A recent Second Appellate District decision highlights the importance of properly supported documentation in support of one’s claim. The case, SFJV 2005, LLC v. Ream, 187 Ohio App. 3d 715, involved the admissibility of certain documents in support of the foreclosure of the defendant’s property.

As is usual in today’s home financing world, the loan originally signed by the defendants transferred hands from the original financing institutions to other financing companies and administrators resulting in a myriad of assignments and other documents requiring the introduction of evidence showing the proper and legal transfer of interest between the entities. Of course, the person testifying at the trial did not have first hand knowledge of all the transfers but merely testified and presented documents that were either notarized or recorded. The defendant objected to the admissibility of these documents claiming they were “hearsay” and, therefore, inadmissible.

The Ohio Rules of Evidence define hearsay and, in the interest of the speedy adjudication, outline certain exceptions to the hearsay rule. As stated by the court, "Proving the contents of a writing presents problems with hearsay, authentication, and the best evidence rule," the three issues confronting the admissibility of any document. The court’s analysis was as follows:

Evid.R. 801(C) defines hearsay as a "statement, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted." A "statement," as included in the definition of hearsay, is an oral or written assertion or nonverbal conduct of a person if that conduct is intended by him as an assertion. Evid.R. 801(A). "Evid.R. 802 mandates the exclusion of hearsay unless any exceptions apply. The relevant exceptions to the hearsay rule include business records, public records, and records of documents affecting an interest in property. Evid.R. 803(6), (8), (14).

Documents must be authenticated or identified prior to their admission into evidence. Evid.R. 901. This requirement is satisfied "by evidence sufficient to support a finding that the matter in question is what its proponent claims." Extrinsic evidence of authenticity is not required for certain documents to be admitted. Evid.R. 902. For example, certified copies of public records, commercial paper, and acknowledged documents are self-authenticating. Evid.R. 902(4), (8), and (9).

Although the defendants claimed that the documents being admitted were merely duplicates, the court stated, "Duplicates" are admissible to the same extent as an original unless (1) a genuine question is raised as to the authenticity of the original or (2) in the circumstances, it would be unfair to admit the duplicate in lieu of the original. Evid.R. 1003.”

The defendant further asserted that the documents were inadmissible as their authenticity had not be certified. The court countered this argument by saying “[Each document bore] a notation of the book and page in which the document was recorded. Moreover, each of the exhibits has a page consisting of an acknowledgment by a notary. Documents acknowledged by [a notary] are self-authenticating, Lorain Cty. Bar Assn. v. Kennedy, 95 Ohio St.3d 116, 2002 Ohio 1943, 766 N.E.2d 151; Evid. R. 902(8).

The defendants then argued that certain documents recorded with the Secretary of State were inadmissible as there was no testimony from the Secretary of State regarding their authenticity. Responding to that argument the court again referred to the Ohio Rules of Evidence, “[The documents] are public records and, thus, admissible under an exception to the hearsay rule. Evid.R. 803(8). Furthermore, the documents include a certificate by the Ohio Secretary of State that it has custody of these specific business records and that the business records show the recording and filing of these documents; the certification is signed by the Ohio Secretary of State and includes the seal of the Office of the Secretary of State. This certification is sufficient to meet the self-authentication requirements of Evid.R. 902.”

What can be drawn from this analysis?

1. As long as a document can be authenticated, it will be admitted as long as it meets one of the criteria for inclusion under the Ohio Rules of Evidence.

2. The direct testimony of a witness to the signing, recording or certification of a document is not required as long as the admission of the document does not violate a hearsay exception outlined in the Ohio Rules of Evidence.

3. Although documents may be admissible someone must testify as the method in which the documents are authenticated.

Credit Card Liability - Dispelling Two Myths

A recent Medina County Court case provides dictum regarding two myths regarding credit cards. The case, Citibank v. Kovach, 157 Ohio Misc.2d 24 involved the use of a credit card issued by Citibank to the defendant. Three pertinent facts were established: 1) The defendant did not sign any agreement or contract with the bank, 2) he did use the credit card to the tune of $20,569.06 and 3) the bank attached to its complaint a complete itemization of charges, payments and credits. The two myths dispelled by the case are:

Myth No. 1: The plaintiff must establish that the defendant executed a contract or credit agreement with credit card company to establish liability. This is untrue. Under Ohio law, a cardholder becomes liable for charges made on a credit card by using the credit card itself, Chase Bank USA v. Lopes, 8th Appellate Dist No. 91480, 2008 Ohio 6000, 2008 WL 4950985. In fact, the use of the credit card subjects the card holder to the terms of the credit card agreement, Am. Express v. Silverman, 10th Dist. No. 06AP-338, 2006 Ohio 6374, WL 3491741.

Myth No. 2: The creditor need only produce a summary account attached to its complaint to establish a prima facie case of liability. This is also untrue. In order to establish a prima facie case for money owed on an account, “an account must show the name of the party charged and contain: (1) a beginning balance (zero, or a sum that can qualify as an account stated, or some other provable sum); (2) listed items, or an item, dated and identifiable by number or otherwise, representing charges, or debits, and credits; and (3) summarization by means of a running or developing balance, or an arrangement of beginning balance and items which permits the calculation of the amount claimed to be due." Gabriele v. Reagan (1988), 57 Ohio App.3d 84, 87, 566 N.E.2d 684

Use of the Internet Subjects Non-Residents to Jurisdiction in Ohio Courts

American jurisprudence has long held that a state courts fail to obtain jurisdiction against a non-resident unless certain “minimum contents” occur that subjects that non-resident to jurisdiction in Ohio courts. In other words, a person residing outside of Ohio can not be sued in Ohio courts unless they’re actions meet the “minimum contacts” required.

Personal jurisdiction, or the right to sue a person in The State of Ohio, is defined in Ohio’s long-arm statute, R. C. 2307.382. Determining whether an Ohio trial court has personal jurisdiction over a nonresident defendant involves a two-step analysis: (1) whether the long-arm statute and the applicable rule of civil procedure confer jurisdiction, and if so, (2) whether the exercise of jurisdiction would deprive the nonresident defendant of the right to due process of law under the Fourteenth Amendment to the United States Constitution, U.S. Sprint Communications Co. Ltd. Partnership v. Mr. K's Foods, Inc. (1994) 68 Ohio St.3d 181, 183-184, 1994 Ohio 504, 624 N.E.2d 1048.

Civ.R. 4.3 allows service of process on nonresidents in certain circumstances and mirrors the long-arm statute:

"(A) Service of process may be made outside of this state, as provided in this rule, in any action in this state, upon a person who, at the time of service of process, is a nonresident of this state or is a resident of this state who is absent from this state. 'Person' includes an individual * * * who, acting directly or by an agent, has caused an event to occur out of which the claim that is the subject of the complaint arose, from the person's: ...

"(3) Causing tortious injury by an act or omission in this state, including, but not limited to, actions arising out of the ownership, operation, or use of a motor vehicle or aircraft in this state;...

"(9) Causing tortious injury in this state to any person by an act outside this state committed with the purpose of injuring persons, when the person to be served might reasonably have expected that some person would be injured by the act in this state."

With the advent of the Internet a conundrum arises because parties are from different parts of the country and, therefore, courts must determine if cases are properly before them. A recent Ohio Supreme Court case address this problem, at least in defamation cases. The case Kauffman Racing Equip. V. Roberts, 126 Ohio St. 3d 81, involved a defamation case brought by Kauffman, an Ohio supplier of engine blocks against Scott Roberts a resident of Virginia. The defendant purchased an engine block from the Plaintiff over the internet. Roberts was never physically in Ohio at the time of the purchase nor at any time during the events that gave rise to the lawsuit.

After the purchase, Roberts became dissatisfied claiming Kauffman sold him a defective engine block and posted numerous rancorous criticisms of Kauffman over the internet. As a result, Kauffman brought an action for defamation against Roberts in The Knox County Common Pleas Court. The trial court granted Robert’s motion to dismiss for lack of personal jurisdiction. Kauffman appealed and the Fifth District Court of Appeals reversed the trial court’s judgment. Roberts appealed to The Ohio Supreme Court.

In its analysis the court cited the U.S. Sprint case using the case as a foundation for its findings. In its opinion, the court stated the following:

“Roberts contends that Ohio's long-arm statute does not confer personal jurisdiction because he did not direct the alleged tortious statements to Ohio or publish them here. Despite the fact that Roberts's publication of his comments did not emanate from Ohio, those comments were received in Ohio. KRE submitted evidence that at least five Ohio residents had seen the comments posted by Roberts. In Fallang, 40 Ohio St.3d 106, 532 N.E.2d 117, paragraph one of the syllabus, this court held, Civ.R. 4.3(A)(3) authorizes assertion of personal jurisdiction over a nonresident defendant in a defamation action when publication of the offending communication occurs in Ohio. In Fallang, the defendant had written an allegedly defamatory letter and had sent it to a person in Ohio. The tort of libel occurs in the locale where the offending material is circulated (published) by the defendant to a third party. Keeton v. Hustler Magazine, Inc. (1984), 465 U.S. 770, 777, 104 S.Ct. 1473, 79 L.Ed.2d 790. In the instant case, [the defamatory] letter was published in Ohio by virtue of its receipt through the mail. Thus, under the principle announced in Keeton, supra, the tort was committed in Ohio. Fallang, 40 Ohio St.3d at 107, 532 N.E.2d 117.”

The court went on to say, “Roberts contends that Ohio's long-arm statute does not confer personal jurisdiction because he did not direct the alleged tortious statements to Ohio or publish them here. Despite the fact that Roberts's publication of his comments did not emanate from Ohio, those comments were received in Ohio. ... In Fallang, 40 Ohio St.3d 106, 532 N.E.2d 117, paragraph one of the syllabus, this court held, Civ.R. 4.3(A)(3) authorizes assertion of personal jurisdiction over a nonresident defendant in a defamation action when publication of the offending communication occurs in Ohio. In Fallang, the defendant had written an allegedly defamatory letter and had sent it to a person in Ohio. The tort of libel occurs in the locale where the offending material is circulated (published) by the defendant to a third party. Keeton v. Hustler Magazine, Inc. (1984), 465 U.S. 770, 777, 104 S.Ct. 1473, 79 L.Ed.2d 790. In the instant case, [the defamatory] letter was published in Ohio by virtue of its receipt through the mail. Thus, under the principle announced in Keeton, supra, the tort was committed in Ohio." Fallang, 40 Ohio St.3d at 107, 532 N.E.2d 117.

“Roberts posted his allegedly defamatory statements on the Internet, ostensibly for the entire world to see. How much of the world saw the comments is unknown; but we do know that at least five Ohioans saw Roberts's statements. The comments were thus published in Ohio. Because Roberts's allegedly defamatory statements were published in Ohio, his alleged tort was committed in Ohio, and he falls within the grasp of R.C. 2307.382(A)(3) and Civ.R. 4.3(A)(3).”

Finally, the court stated, “But even if Roberts did not publish or circulate his statements within the territorial boundaries of Ohio, he is not shielded him from the reach of Ohio's long arm. R.C. 2307.382(A)(6) and Civ.R. 4.3(A)(9) permit a court to exercise personal jurisdiction over a nonresident defendant and provide for service of process to effectuate that jurisdiction if the cause of action arises from a tortious act committed outside Ohio with the purpose of injuring persons, when the nonresident defendant might reasonably have expected that some person would be injured thereby in Ohio, Clark v. Connor (1998), 82 Ohio St.3d 309, 313, 1998 Ohio 385, 695 N.E.2d 751.

Since Roberts published his comments on a medium for all the world to see, it was reasonable for Roberts to expect that the comments would be read in Ohio and thereby injure an Ohio resident.

The question, is how far will this decision go? This case involves defamation. Will this case be used to expand the reach of Ohio courts in breach of contract issues and other non-tortious issues? Only time will tell.

The Need for Unambiguity and an Underlying Agreement

A recent Ohio Court of Appeals case exemplifies the need to strive for contract terms with little ambiguity and the requirement to generate an underlying agreement in support of a promissory note.

The case, Cranberry Fin., LLC v. S&V P'ship, 186 Ohio App. 3d 275, involved a dispute regarding the terms of a promissory note. The debtor entered into a promissory note and subsequently argued that the terms of the underlying agreement were different from the note.

The court, in its opinion, stated, “A promissory note is a contract and rules of contract interpretation apply to the interpretation of promissory notes. If a contract is clear and unambiguous, then its interpretation is a matter of law and there is no issue of fact to be determined. If, however, an ambiguity is present such that parole evidence is necessary to resolve the ambiguity, a factual determination of intent or reasonableness may be necessary to supply the missing term. The fact-finder may also examine the surrounding circumstances of the transaction to determine the parties' intent. Further, it is axiomatic that contracts -- including promissory notes -- are construed against the drafter. The rule is well established that where there is doubt or ambiguity in the language of a contract it will be construed strictly against the party who prepared it. In other words, he who speaks must speak plainly or the other party may explain to his own advantage.”

But the court went further, “When a party voluntarily places his signature upon a note or other writing within the Ohio Statute of Frauds, and where that party's sole defense to an action brought upon the writing is that a different set of terms was orally agreed to at that time, such defense shall not be countenanced at law regardless of the theory under which such facts are pleaded. In such event, the writing alone shall be the sole repository of the terms of the agreement.”

In this case, the Sixth Appellate Court, merely restated what is known in the law as the “Parole Evidence” rule. Basically, the rule imparts that oral testimony may not be introduced into evidence to alter the terms of a written agreement. Only if the terms of the agreement have ambiguities, may the court entertain testimony to interpret the ambiguous portions of the agreement. Therefore, if the terms in an agreement are unambiguous, the court will not permit testimony that would alter those terms.

In this case, the court deemed the terms of the promissory to be unambiguous. Therefore, the party could not introduce evidence in derivation of those terms.

Most promissory notes are fairly simple and do not set forth underlying agreements relating to the note. Therefore, it is vitally important that the parties enter into an agreement setting forth the terms underlying the note and that agreement be referenced as part of the covenants set forth in the note.

The Use of Limited Liability Companies in Ohio

The use of LLCs have become very prevalent by business in Ohio. LLCs are popular because they combine the limited liability features of a corporation with the flexibility of a partnership. Under prior law, the only way to limit one’s liability for the misdeeds of others in your organization was to form a corporation. But, the use of a corporation also required s ver structured adherence to certain rules required by Ohio’s corporation law, plus a bifurcated tax structure that, sometimes, resulted in double tax to the owner of the company.

A Brief History

Corporations are “artificial” entities that are permitted under Ohio law. As a business entity became larger, with attendant increased liability issues, the use of a corporation permitted a business owner to shield himself from personal liability for the debts of the corporation and a shield from personal liability in the event of some catastrophic event that was not covered by liability insurance.

Of course the use of a corporation also presented structuring requirements that necessitated mandated meetings of directors and shareholders. In addition, the use of a corporation necessitated the filing of a separate corporate tax return, aside from the individual return filed by the owner of the company.

The consequence in failing to follow these rules was the possibility of piercing the corporate veil and holding the shareholders personally liable for the debts and liabilities of the corporation.

A number of years ago, Congress recognized the unfair nature of a tax structure that resulted in the double taxation of small businesses and permitted such corporations to make an “election” to be taxed as an individual. This became the so-called “Sub-chapter S corporation.” After the election, instead of filing a corporate tax return, the corporation filed an informational return with the IRS, but distributed what were called K-1s that distributed the income of the corporation (both distributed and undistributed) between the shareholders based upon the numbers of share they owned. But this election failed to address the underlying issues involving the mandated meetings and other structured requirements of a corporation.

Recently, a number of states, including Ohio recognized this problem and introduced the concept of the Limited Liability Company. The establishment of an LLC permits the benefits inherent with the limited liability of a corporation combined with the flexibility and lower tax burden of a partnership or individual.

The LLC in Ohio

Ohio’s law incorporates this philosophy of limited personal liability while allowing lower tax consequences. Forming an LLC is quite simple in Ohio. As in the established of any artificial entity, there are forms that need to be completed. But once executed, the LLC becomes a self-perpetuating entity requiring little structuring as is required of a formal corporation.

NEXT Blog - Is an LLC good for me?

New EPA Lead Paint Regulations Take Effect April 22, 2010

A number of years ago the EPA established regulations relating to the disclosure of lead-based paint in residential housing built prior to 1978. The regulations required the landlord to provide a lead-based paint disclosure form to prospective tenants. Only certain types of housing were exempt including those that had been certified lead-free by a certified inspector.

On April 22 new EPA regulations take affect that apply to any renovations of pre-1978 housing. The new “EPA Renovation, Repair and Painting Rule” applies to all “renovations performed for compensation in target housing and child occupied structures.” Target housing is defined as housing constructed prior to1978, with the exception of housing for seniors or the disabled, unless a child under 6 is expected to reside, and 0-bedroom (studio) apartments. “Renovation” is defined as “the modification of any existing structure that results in the disturbance of painted surfaces. To qualify, more than 6 square feet per room of interior painted surface must be disturbed or 20 square feet of exterior painted surface.

These rules call for the contractor to use lead dispersal prevention techniques when performing renovations - much like those required of asbestos abatement firms.

Housing which is tested and determined to be lead-free in accordance with the regulations are not subject to the provisions. Also exempt is work done by an owner in an owner-occupied home where there is no child under 6 and no pregnant women.

The regulations require that the entity performing the work must be EPA certified. If the owner is performing the work personally, they must become certified. The EPA accredits training providers.

The rules regarding lead-based paint disclosure by landlords has not changed. A disclosure statement must be given to all prospective tenants prior to their tenancy unless a certified inspector has declared the structure to be lead free. But any contractors or owners performing renovations of housing built prior to 1978 must now comply with the new construction rules.

Know Your Rights When Your Loan or Account Is Sold

In recent years loans and retail accounts have been bought and sold much like any other product. Most of us know that our mortgage is rarely owned by the company who originally executed the loan documents. Today, a “book” of loans are placed on the market by a bank or retail loan company hoping to reap instant cash. The originator’s profits are made from origination fees and loan document fees that are added to the mortgage. The same can be said for credit card accounts. The card producer packages a “book” of accounts for sale, eventually selling them to a liquidation company at a discounted fee.

Ordinarily, you pay on these loans and accounts not knowing that you are actually paying a third party who, by assignment, has become your creditor. But what happens when these loans become overdue? Collection procedures become very complicated due to the assignment of these “securities.”

A recent Third District case highlights the problems inherent to purchasers of these accounts. The case, Retail Recovery Serv. of NJ v. Conley, 2010 Ohio 1256, involved the attempted recovery by the Plaintiff of monies owed on a credit card. The balance included interest, and “recovery” and other fees that were added to the account.

Retail Recovery Services is a company who purchases accounts at discount and then liquidates the account seeking to recover the discount it paid the retailer plus other interest and fees. In this case it attempted to recover an account owed by the Defendant.

Pertinent facts included the following:

1. Although the Plaintiff attached bills of sale and assignments detailing a chain of custody to it, none of these documents itemized the Defendant’s account as part of those sales, and

2. The Plaintiff failed to produce a signed contract showing the Defendant agreed to the terms of interest and other fees the Retail Recovery was attempting to collect.

The court’s opinion stated, “In Natl. Check. Bur. v. Ruth, 9th Dist. No. 24241, 2009 Ohio 4171, the Ninth Appellate District reversed a trial court's grant of summary judgment to a creditor on the basis that it had failed to establish a clear chain of title, partly based on the fact that the bill of sale purporting to demonstrate chain of title indicated the seller bank was conveying to the purchaser bank "accounts described [an exhibit] attached hereto,” where no such exhibit was attached to the bill of sale in the record.”

Further, citing Minster Farmers Coop. Exchange Co., Inc. v. Meyer, 117 Ohio St.3d 459, 2008 Ohio 1259, the court opined, “a plaintiff-creditor cannot prove an interest rate merely by producing account statements reciting an interest rate, where it does not demonstrate that the interest rate was a term assented to by the parties in the written contract, such as by producing the terms of the underlying cardholder agreement.”

The court went on, and “[found] that the plaintiff-creditor had not shown that the specific fees were terms of a contract between it and the defendant-debtor.”

The court reversed and remanded the case ordering the lower court to review its findings in light of the appellate court’s decision.

Disclosure of Principal Vital in Avoiding Personal Liability

A recent Eight Appellate District case exemplifies the importance of definitively identifying an agency relationship to a third person with whom your are dealing. A failure to do so could result in personal liability.

The case, Independent Furniture Sales, Inc. vs. Dan Martin, dba, Martin's Appliance, 2009 Ohio 5697 involved the failure of the operating manager of a corporate buyer to disclose his agency relationship to the Plaintiff.

As stated by the court, “To avoid personal liability, an agent must demonstrate that he disclosed to a third party: (1) the agency relationship; and (2) the identity of the principal. If this disclosure is not made, then the agent may be personally liable for contracts entered in his own name...A corporate officer has a responsibility to clearly identify the capacity in which he is dealing in a specific transaction. The failure to comply with this rule will expose the corporate officer to individual liability on the resulting contract.”

In this instance, even the issuance of two checks on the corporate account was insufficient disclosure that Mr. Martin was the agent of the corporation. As occurred in this matter, the Defendant continually failed to disclose the principal-agency relationship over a ten year period. Although two checks were drawn over the decade from the corporate account, this was insufficient evidence to put the Plaintiff on notice that the Defendant was the agent for the corporation

Therefore, I advise clients as follows:

1. Any communications with third parties should be made on a document clearly citing the name and address of the principal.

2. When one signs any communication with the third party, that person’s title and relationship should be clearly set forth on the signature line or immediately underneath.

3. Never pay for a corporate debt using a personal credit card or personal check.

4. Never execute a personal guarantee or surety agreement unless required to do so to obtain credit for the corporation.

Carefully Drafted Agreements are a Paramount Necessity

When drafting an agreement it is vitally important that the goal is to set forth language that is indisputable. While this may be an impossible goal, careful drafting of the terms can limit expensive costs of collection.

A good example of the issue occurred in the recent case of Cranberry Fin. v. S&V P'ship, 2010 Ohio 464. In that case the parties entered into a promissory note and mortgage. The mortgages recited three properties as collateral for the notes. Sometime after the agreements were drafted the notes and mortgages were rewritten. One of the properties was mistakenly omitted from the subsequent agreements. But, the second agreement contained the following language:

"COLLATERAL. Borrower acknowledges this Agreement is secured by a Mortgage dated April 27, 2001, to Lender on real property located in Huron County, State of Ohio, all the terms and conditions of which are hereby incorporated and made part of this Agreement.”

"CONTINUING VALIDITY. Except as expressly changed by this Agreement, the terms of the original obligation or obligations, including all agreements evidenced or securing the obligation(s), remain unchanged and in full force and effect. * * *."

The Plaintiff sought judgment on the notes and foreclosure of all three properties against the Defendant and two individuals that were personal guarantors. The guarantors claimed the omission of the one property precluded the Plaintiff from foreclosing on that property.

While the court ultimately sided in favor to Plaintiff, due to the terms quoted above, one can only imagine the cost of litigation in having to try and appeal this matter because the drafter of the second agreement was not careful in their rewrite of the agreement.

Proper drafting is a key to limiting the cost of litigation. As this court stated:

“A promissory note is a contract and rules of contract interpretation apply to the interpretation of promissory notes...If a contract is clear and unambiguous, then its interpretation is a matter of law and there is no issue of fact to be determined...If, however, an ambiguity is present such that parol evidence is necessary to resolve the ambiguity, a factual determination of intent or reasonableness may be necessary to supply the missing term. The fact-finder may also examine the surrounding circumstances of the transaction to determine the parties' intent...It is axiomatic that contracts -- including promissory notes -- are construed against the drafter... The rule is well established that where there is doubt or ambiguity in the language of a contract it will be construed strictly against the party who prepared it...In other words, he who speaks must speak plainly or the other party may explain to his own advantage."

Luckily for the Plaintiff, there was sufficient language in the subsequent agreement to protect its secured interest in the omitted property. But, the failure to carefully draft the subsequent agreement severely increased their cost of collection.

Can I Charge Interest

Many clients ask if they can charge interest to customers if invoices or statements are not paid within the time period set forth on the statement or invoice. The simple answer is yes. But when you can charge and how much you can charge is the question.

Simply saying a “a service charge on unpaid balances” is insufficient. ORC 1343.03(A) provides that a creditor is entitled to interest at the "legal rate" of interest on any money due on an account "unless a written contract provides a different rate of interest...." Under Ohio law, the annual rate of interest is determined each year by the Ohio Tax Commissioner. The creditor is permitted to charge this rate of interest unless the contract entered into between the creditor and their customer calls for a greater rate of interest.

So, for example, if your invoices state you will charge interest at the rate of 1½ percent per month (18% per annum) on any unpaid balance, a court will not enforce this rate unless the original contract calls for that interest rate. Otherwise, a court will only permit the interest rate prescribed by the Ohio Tax Commissioner. This year the rate is 4%.

So, if you intend to charge interest on the unpaid balance owed by customers, the maximum rate you can charge is the rate set by the Ohio Tax Commissioner each year. If you wish to charge a higher rate, you must set that rate in your contract with the customer.

This brings us to the discussion of compound interest. The rate set by the tax commissioner is simple interest. Therefore, you are not permitted to charge interest on the interest previously added to the balance unless your contract states otherwise.

The recent case of Mayer v. Medancic, 124 Ohio St. 3d 101, is a perfect example of this issue. In that case three creditors foreclosed on a debtor’s home and charged compound interest on the promissory notes signed by the debtor. None of the notes stated that the interest rate would be compounded.

In its opinion the court stated, “Simple interest is calculated only on principal and not on accumulated interest. Compound interest, on the other hand, is paid both on the principal and the previously accumulated interest. In other words, simple interest does not merge with the principal and thus does not become part of the base on which future interest is calculated.”

The court went on to say, “Because R.C. 1343.02 does not provide for it, compound interest is not available upon a default on a written instrument absent agreement of the parties or another statutory provision expressly authorizing it. However, upon a default on a written instrument, simple interest accrues on the entire amount owed, which includes both the principal and interest due and payable at that time.

Therefore, if your statement or invoice states a given rate of interest will be charged on the unpaid balance:

1. The interest rate can not be more than the simple interest rate set annually by the tax commissioner unless it is set forth in the contract between you and your customer, and

2. Can not be compounded unless it is set forth in the contract between you and your customer.

The Use of Arbitration in Ohio

For a number of years, arbitration was used primarily in commercial trade disputes, and later in labor and trade union disputes. More recently, however, arbitration clauses have made their way into ordinary consumer contracts and transactions, oftentimes vis-a-vis fine print contained in consumer loans, insurance policies, and garden variety purchase agreements. Today, arbitration clauses are now being used in credit card transactions. What is little known by many is that the use of arbitration in Ohio results from provision in Ohio law that must be complied with in order to benefit from arbitration provisions in contracts.

Arbitration in Ohio is governed by Title 2711 of the Ohio Revised Code. Initially, the law states, “A provision in any written contract...to settle by arbitration...shall be valid, irrevocable, and enforceable, except upon grounds that exist at law or in equity for the revocation of any contract (ORC 2711.01(A)). The exceptions to this statute relate to certain real estate issues.

Any party can seek a stay of any legal proceeding if a valid arbitration provision is contained in the contract (ORC 2711.02). The succeeding party may petition the court to enforce the arbitration reward within one year (ORC 2711.09). When a motion is made.. to confirm an arbitration award, a court must grant the motion unless a timely motion for modification or vacation has been made and cause to modify or vacate is shown. Absent such a challenge to the arbitration award, the court does not have discretion under § 2711.09 to deny the application to confirm the award, MBNA Am. Bank, N.A. v. O'Brien, 168 Ohio App. 3d 137.

Any application to enforce an arbitration award must contain the following:

1. The agreement, the selection or appointment, if any, of an additional arbitrator or umpire, and each written extension of the time within which to make the award;

2. The award;

3. Each notice, affidavit, or other paper used upon an application to confirm, modify, or correct the award, and a copy of each order of the court upon such an application

There are rare instances when a court will not enforce an arbitration provision. To avoid controversy, many courts demand that such provisions comply with standard American Arbitration Association clauses such as the following :

“Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.”

The reader is cautioned that additional arbitration provisions apply in medical disputes.

When is an Attorney in Conflict of Interest

Many times client ask an attorney or his firm to represent them in a legal dispute bewteen fellow shareholders or partners where the attorney or firm had rendered legal representation in the past.

While the general ethical rule states that an attorney may not represent a party if there the possibility of a conflict of interest, the issue is a bit more complicated. The complication arises in defining the term “conflict of interest.”

Ohio has adopted the three-part test for disqualification of counsel due to a conflict of interest set forth in Dana Corp. v. Blue Cross & Blue Shield Mut. Of N. Ohio., (C.A.6, 1990), 900 F.2d 882. Also see Morgan v. N. Coast Cable Co. (1992), 63 Ohio St.3d 156, 586 N.E.2d 88; Hollis v. Hollis (1997), 124 Ohio App.3d 481, 485, 706 N.E.2d 798; Kitts v. U.S. Health Corp. of S. Ohio (1994), 97 Ohio App.3d 271, 275, 646 N.E.2d 555. The test is as follows:

(1) a past attorney-client relationship must have existed between the party seeking disqualification and the attorney he or she wishes to disqualify;

(2) the subject matter of the past relationship must have been substantially related to the present case; and

(3) the attorney must have acquired confidential information from the party seeking disqualification.

In determining whether corporate counsel should be disqualified from representing any of the corporation's officers in a later suit, the trial court is required to find all three factors enumerated in the Dana test before ordering disqualification, Legal Aid Soc. of Cleveland v. W & D Partners I, L.L.C., 162 Ohio App.3d 682, 2005 Ohio 4130, 834 N.E.2d 850.

Even though an attorney has served as counsel for a corporation, Ohio does not require the immediate disqualification of the attorney from serving as personal counsel for a shareholder or officer in a suit involving the corporation, Phillips v. Haidet (1997), 119 Ohio App.3d 322, 325, 695 N.E.2d 292; A.G. Financial, Inc. v. LaSalla, Cuyahoga App. No. 84880, 2005 Ohio 1504; Maloof v. Benesch, Friedlander, Coplan & Aronoff, Cuyahoga App. No. 84006, 2004 Ohio 6285.

In Ohio, pursuant to Rule 1.13(a) of the Ohio Rules of Professional Conduct, corporate counsel represents the interests of the corporation and not those of individual officers:

"(a) A lawyer employed or retained by an organization represents the organization acting through its constituents. A lawyer employed or retained by an organization owes allegiance to the organization and not to any constituent or other person connected with the organization. The constituents of an organization include its owners and its duly authorized officers, directors, trustees, and employees."

Therefore, in order for there to be a conflict of interest the following must be proven:

1. There was a past attorney-client relationship between the lawyer and the individual. Just because an attorney represented the corporation, that does not assume he presented the individual shareholders or partners too. Even if the attorney met with the members of a closely held corporation to discuss corporate business does not, in and of itself, arise to an attorney-client relationship with the individual shareholder or partner, and

2. Even if there was an attorney-client relationship, the subject matter of that relationship must be related to the present case for which the attorney is being retained, and

3. The attorney must have acquired confidential information from the party.

Note, all three of these requirements must be met before the conflict will arise. They are not mutually exclusive but a three-part requisite.

The “Statutes of Limitation”

From time to time, I receive telephone calls from clients who want to know how long they have to take action against someone. Ohio, as do all states, set time limitations by which you must file legal action. This is known in legal jargon as the “Statute of Limitations.” While this term is somewhat descriptive, it fails to completely describe some of the dates of which you should be aware. The Ohio Revised Code provide a series of statutes for this purpose. There are some dates set forth by which you must file an action. There are other dates that are dates of expiration. Allow me to explain.

Statute of Limitations

The State of Ohio sets, by statute, time limits by which you must file an action. Failure to file by that time nullifies any action. Some of the important dates are:

• Injury to person - If you or your employee is hurt in some type of accident (other than those injuries covered by statute such as injuries on the job) you have two years from the time you incurred the injury or discovered the injury. For example, if you are injured in an automobile accident, you have two years to file an action.

• Professional Malpractice - If you were injured as a result of negligence by a professional, you have one year from the time or the injury or when you discovered the injury to file an action. Giving a medical professional the appropriate notice can extend the time limit by 180 days in certain circumstances. If, for example, you incur bodily injury due to a doctor’s negligence and do not discover that injury for some time, you, generally, have one year from the date you discovered that injury to file an action.

• Contracts - If the contract is in writing, you have 15 years to file an action for breach of contract. If the contract was not in writing (known as an “oral contract”), you have only 6 years. Remember my adage - Always get it in writing!

• Collection on Account - If you keep running accounts, you have 6 years to file an action. You will note this is the same as your time limit for an oral contract. Therefore, it is important to obtain a written contract setting balance limits, guarantees or other issues relating to the sales of goods and/or services.

• Dishonored checks and drafts - There is a three year limitation. Note, this does not apply to the bank where you presented the check or the bank upon which the check was drawn. The bank’s liability is set forth by separate statute that outlines limitations on their liability.

• Judgments - Judgments are valid for 21 years.

• Embezzled funds - Although any resolution of criminal action may require reimbursement, the civil limitation is one year.

Federal statutes also contain limitations relating to issues involving federal projects, jobs and other issues.

Time Limits

While not exactly statutes of limitation, Ohio and the US Government do put limitations on the enforcement of certain liens and judgment.

• Mortgages - A mortgage that has not been released but has been of record for 21 years past it due date is deemed to be of no effect.

• Mechanic’s Lien - This type of lien is valid for 6 years. The lien is not renewable. Therefore, you must take action to foreclose within 6 years or lose your rights related to that realty.

• Judgment Liens - A judgement lien must be renewed every 5 years. This lien will only be enforceable as long as the judgment is in force. Note, although a judgment is valid for 21 years, a lien recorded pursuant to that judgment must be renewed every 5 years.

• Federal Tax Liens - This type of lien must be renewed every 10 years. Note, this type of lien attaches to after acquired property. A federal tax lien runs with the person, not the land. Therefore, if a federal tax lien is placed upon you and you subsequently purchase realty, that lien attaches to the newly acquired property.

• Federal Judgment Lien - This lien is effective for 20 years and is renewable.

• Ohio State Liens - This type of lien is valid for 15 years and is renewable if the renewal is filed within 6 months of the expiration of the lien.

• Condominium Lien - Liens by condominium association for CAM or other charges are valid for 5 years unless renewed prior to expiration.

• Child Support Lien - Liens upon property resulting from support issues have no expiration date and attach to after acquired property.

• UCC Financing Statements - Also known as “chattel mortgages,” these are valid for 5 years unless renewed prior to expiration or the term of the mortgage if filed as security along with the mortgage.

Also note that dower rights (rights of a spouse relating to property owned by the other spouse) attach to all property owned by a husband or wife. Also be aware that various state and federal laws may alter these date limitations in specific instances such as workers compensation, subcontractor rights on federal projects, etc.

Restrictive Covenants in Employment Contracts

A recent Ohio case brought to mind the ever changing status of covenants not to compete. The case, Murray v. Accounting Center & Tax Services, Inc., while not the most controversial or ground breaking case, does evoke thought regarding the tentative nature of covenants not to compete in employment contracts.

Murray v. Accounting Center & Tax Services, Inc.

The case involves an accountant who was employed by the bookkeeping service. She had signed a covenant not to compete for a period of two years after her termination. Other facts pertinent to the case were that: 1) She was a bookkeeper and had a private practice providing tax return services prior to her employment, and 2) the agreement was signed AFTER she was employed.

Consideration

Historically, Ohio courts were resolute that any covenant not to compete had to include additional consideration (usually an increase in pay or bonus) if the covenant was entered into after employment began. If an employer demanded an employee sign such an agreement after their employment began and additional monies or other consideration was not paid, the covenant was unenforceable.

In the last few years this principle has eroded and several courts in Ohio have abandoned this theory of law. The Eighth Appellate District (Cuyahoga County) has completely reversed this historical precedent by stating that continued employment is sufficient consideration for such a covenant. Many other courts have follows this ruling and, today, the courts of Ohio are split regarding this issue. The Ohio Supreme Court has yet to rule on this legal conflict.

Modification by Court Order

The other issue this case presents is the power of the court to limit the restrictions of such covenants. Typically, restrictive covenants set forth limitations as to time and distance. Such restrictions are characterized by such terms as ..”for a period of two years and 500 miles.” This meant the employee could not work in the same field for two years within 500 miles of the employer’s address.

Once again, historically, the courts are allowed to reduce these limitations if they are too restrictive. In the Murphy case, the court stated,

“ A covenant restraining an employee from competing with his former employer upon termination of employment is reasonable if the restraint is no greater than is required for the protection of the employer, does not impose undue hardship on the employee and is not injurious to the public.”

If the covenant not to compete is unreasonable, courts are empowered to modify the terms of the covenant to create reasonable constraints. Some the factors taken into consideration are:

1. Absence or presence of limitations as to time and space.

2. Whether the employee represents the sole contact with the customer.

3. Whether the employee is possessed of confidential information or trade secrets.

4. Whether the covenant seeks to eliminate competition which would be unfair to the employer or merely seeks to eliminate ordinary competition.

5. Whether the covenant seeks to stifle the inherent skill and experience of the employee.

6. Whether the benefit to the employer is disproportionate to the detriment of the employee.

7. Whether the covenant operates as a bar to the employee’s sole means of support.

8. Whether the employee’s talent was developed during the employee’s term of employment.

9. Whether the forbidden employment is merely incidental to the main employment.

For example, lets assume the covenant read,...”shall not be employed as an accountant for a period of two years within 500 miles...” This covenant would obviously be subject to modification. It bars the employee from obtaining any employment in their chosen profession. The benefit to the employer far outweighs the detriment to the employee and, finally, it operates to bar the employee’s sole means of support.

Now, let’s modify the covenant to read, “...shall not be employed as an accountant for a bookkeeping service to widget manufacturers for a period of two years within 50 miles...” The difference is obvious. The covenant does not totally restrict the employee from obtaining employment in their profession and the restriction appears only to protect the vertical market serviced by the employer. In this instance the court might maintain the covenant as is.

Conclusion

Nonetheless, the employer should be mindful of the fluidity of these type of restrictions. They should be aware of where they are located and determine whether the court in their jurisdiction will enforce the covenant and/or modify it. It requires the employer to be somewhat creative in the way the covenant is written. Most importantly it requires the employer to be aware that courts, generally, will side with the employee when the court feels the employer is treating its employee unfairly.

The Case for Putting it in Writing

In prior blogs, I’ve emphasized the need to get any agreement in writing. A recent court of appeals case, shows what happens when you reply on oral agreements.

The case, Catz Enters. v. Valdes, 2009 Ohio 4962, involved two checks given by one party to the other totaling $20,000. The checks were written on July 8, 1991. As alleged by the creditor, the payments were a loan to the debtors. He continued to demand payment, writing several letters to the debtors demanding payment through April 7, 2006 when the he finally filed suit. The creditor claimed there was an oral agreement calling for the debtors to repay the loan by September 6, 1991. He further alleged that the statute of limitations for filing suit was extended by his oral and written demands for payment. The debtors denied there was a loan.

Written in Ohio statutes are various “statutes of limitation” setting forth the time by which a party must take action against another for any alleged wrongdoing. For example, an action based on negligence (a car accident, for example) must be filed within two years. In the case of contracts, the statute of limitations on a written contract is 15 years. The statute of limitations on an oral contract is 6 years.

As stated by the court, “the statute of limitations on oral contracts is six years and ...The six year statute of limitations may be extended [only] if there is a writing, signed by the charged party, acknowledging the debt or promising to pay it, O.R.C. 2305.08.”

Since the creditor could produce no written document signed by the debtors acknowledging the debt or extending the terms of the agreement, the statute of limitations ran on September 6, 1997 (6 years from the date the loan was allegedly due). Therefore, the creditor could not enforce the debt because the statute of limitation had run.

So, we have a prime example of the consequences in relying upon an oral agreement. What is also apparent is the fact that the debtors denied there was even a loan. Therefore, the terms of the alleged agreement were even in controversy. Had the creditor obtained a document, signed by the debtors acknowledging the loan, the outcome may have been different.

The obvious – get any agreement in writing, signed by both parties.

Let the Sub-Contractor Beware

A recent decision of Franklin County Court of Appeals (10th District) should give sub-contractors fair warning that giving estimates without proper restrictions could result in general contractor’s making use of the sub’s time and energy without compensation.

In the case of Complete General Construction Co. v. Kard Welding, Inc., 182 Ohio App.3d 119, Complete submitted an estimate to Kard for supplying steel highway ramp components. Kard used these estimates when it submitted its bid to the Ohio Department of Transportation. Kard won the bid, but used another supplier to supply the components.

In trial Complete argued that by using the estimate, Kard is estopped from using another supplier and the court should impose a contract upon Kard and award damages to Complete for breach of contract. The trial court ruled in favor of Kard saying there was no contract and, therefore, no breach. The evidence presented at the time of trial included testimony that certain terms of Complete’s bid were not acceptable and the covenants required by Complete were subject to renegotiation. Consequently, the court found that there was no acceptance of the offer by Kard.

Complete appealed the court’s decision and the appellate court sustained the lower court’s findings. In summary, the court stated:

“A subcontractor who makes a "bid" or "quote" which constitutes an offer to a general contractor, who submits a bid in reliance upon such offer, is bound to perform in accordance with the terms of that offer when the general contractor (1) is awarded the contract and (2) within a reasonable time thereafter notifies the subcontractor that the offer is accepted. Under such circumstances the subcontractor is liable in damages to the general contractor for failure to perform.”

“A general contractor's mere use of a subcontractor's quote in formulating a bid for a general contract does not constitute acceptance of the subcontractor's offer.”

Apparently, the court was looking for some memorandum or other documentation between the parties implying an acceptance of the offer by Kard given the disputed terms. The court obviously concluded that an element of contract was not met - a meeting of the minds - and, therefore, there could be no breach from which damages would arise.

The jurisdiction of this court of appeals is only Franklin County (Columbus area) but I would warn those reading this blog that the 10th Appellate Court is very influential and other courts tend to follow their opinions.

So what does one do to protect its work product? First, know whom you are dealing with. If this is the first time you are submitting a bid seek out the contractor’s reputation for “bid-shopping.” Second, work with your attorney to determine language in the bid that protects you from this type of contractor. Finally, be sure you have, in writing from the contractor, some memorandum of understanding that in the event its bid is accepted using your estimate, that your estimate is deemed a consummated contract for the purpose of performing the work or supplying the material set forth in your estimate.

Contracts and Equitable Relief

How to you solve the issue of payment when you can’t prove you have an express contract? If you’ve read this blog, you know I stress to my clients the necessity to enter into WRITTEN contracts. But for those who still rely on the “handshake” take heart. The courts do permit relief.

A typical example of this issue was discussed in the recent case of Bldg. Industry Consultants v. 3M Parkway, 182 Ohio App.3d 39, arising from the Ninth Appellate District of Ohio (Lorain). In that case the parties never entered into a formal contract. There were communications, letters and memorandums exchanged, the plaintiff did perform some services, but the parties never formally agreed on a price or for that matter an agreement outlining the contractual obligations of each party. As the court stated, the elements of a formal express contract were not present - “...offer, acceptance, contractual capacity, consideration, a manifestation of mutual assent and legality of object and consideration.”

The court went on to say, “To constitute a valid contract, both parties to a contract must assent to its terms; there must be a meeting of the minds of the parties with respect to the essential terms of the contract, which terms are also definite and certain.”

Even though there is no express contract, a court does have the power to compensate an aggrieved party under the theories of “unjust enrichment” or “quantum meruit.” In other words, the court can impose an implied or constructive contract using these theories of equitable relief. As is obvious from the term, “equitable relief” is available if it is proven that a party obtains a unjust benefit through another’s actions.

To be success ful, the aggrieved party must prove that: “... (1) a benefit has been conferred by a plaintiff upon a defendant, (2) the defendant had knowledge of the benefit, and (3) the defendant retained the benefit under circumstances where it would be unjust to do so without payment,” Bldg. Industry Consultants, v. 3M Parkway, Supra.

So even though parties do not enter into a formal written contract, given the proper evidence, a court will award payment. In this case the court did award the plaintiff payment for work the plaintiff did perform in furtherance of the project notwithstanding the fact that the plaintiff was unable to prove a formal express contract.

The Use of Cognovit Notes in Ohio

Historically, the use of cognovit notes was prevalent in Ohio. The use of this type of promissory note allowed the creditor to obtain a judgment against the debtor without the need to file legal proceedings. Based upon the terms of such a note, the creditor merely obtained the signature of any attorney who confessed judgment against the debtor for the amount owed - no lawsuit, no court proceedings and no need for presentation of evidence.

Identifying the perceived dangers in such a note, the legislature passed O.R.C. 2323.13. Entitled “Warrant of attorney to confess,” the statute sets forth certain restrictions in the use of a cognovit note.

First and foremost, a cognovit note can not be used for any transaction arising out of a “consumer loan” or “consumer transaction.” These terms are defined in the code as follows:

“(1) Consumer loan means a loan to a natural person and the debt incurred is primarily for a personal, family, educational, or household purpose. The term "consumer loan" includes the creation of debt by the lender's payment of or agreement to pay money to the debtor or to a third party for the account of the debtor; the creation of a debt by a credit to an account with the lender upon which the debtor is entitled to draw; and the forbearance of debt arising from a consumer loan.”

“(2) Consumer transaction means a sale, lease, assignment, award by chance, or other transfer of an item of goods, a service, franchise, or an intangible, to an individual for purposes that are primarily personal, family, educational, or household.”

Additionally, any note containing a confession of judgment feature (a cognovit note) must contain the following verbiage:

"Warning -- By signing this paper you give up your right to notice and court trial. If you do not pay on time a court judgment may be taken against you without your prior knowledge and the powers of a court can be used to collect from you regardless of any claims you may have against the creditor whether for returned goods, faulty goods, failure on his part to comply with the agreement, or any other cause."

This language must be in “...such type size or distinctive marking that it appears more clearly and conspicuously than anything else on the document...”

Case law has also restricted the use of cognovit notes. In a recent Pickway County case, Onda v. Johnson, 2009 Ohio 4727, the court found that the use of a cognovit note will be strictly construed not only as to the requirements of ORC 2323.13 but as to the provisions on Ohio’s Uniform Commercial Code, ORC 1301.01 et seq. The court wrote, “...[if] the cognovit note is facially insufficient, the trial court lacked subject matter jurisdiction and its judgment on the note is void ab inito.” In other words, if the terms of the note fail to meet the requirements of a promissory note as required by 1301.01, et seq., the note will be void.

While, cognovit notes are still valid for commercial transactions, it is incumbent upon the maker of the note to ensure that the note strictly complies with the edicts of ORC 2323.13 and 1301.01, et seq.

Is a Spouse Liable for the Debts of the Other Spouse?

In “Contracts 101" all law students are taught that a spouse can be held liable for the “necessities” of the other spouse. This tenant has been promulgated in Ohio in O.R.C. 3103.03. The statute states in part:

“(A) Each married person must support the person's self and spouse out of the person's property or by the person's labor. If a married person is unable to do so, the spouse of the married person must assist in the support so far as the spouse is able...

"If a married person neglects to support the person's spouse in accordance with this section, any other person, in good faith, may supply the spouse with necessaries for the support of the spouse and recover the reasonable value of the necessaries supplied from the married person who neglected to support the spouse unless the spouse abandons that person without cause.”

Historically, “necessities” have included medical care, sustenance, and housing. In the event a spouse fails to provide these necessities, the spouse or a third party may take action against the non-supporting spouse to pay for these necessities.

But what happens when the spouse is able, but fails, to pay? A recent of Ohio case, Brown v. Williamson, 2009 Ohio 4579, took up this issue. In this case, the husband failed to pay rent and the landlord sued both spouses for the back rent even though the wife did not sign the lease. The lower court found in favor of the landlord stating, in fact, the wife is liable for necessitates, which includes housing.

The appellate court disagreed, in part. The court, citing Ohio State Univ. Med. Center v. Calovini, 2002 Ohio 5756,, in part, stated, “...we agree with the trial court that housing, like medical care, qualifies as a ‘necessary’ and is a component of a spouse's support obligation under R.C. § 3103.03. But even if the statute is applicable here, [the wife is not liable] for her husband's rent obligation unless he is unable to pay the debt and she is able to aid in his support by paying it herself...”

Therefore, the court set forth the following criteria before a spouse can held liable for the debt of their spouse:

1. The debt must be for a “necessity, i.e. medical, food or housing, etc.

2. The spouse must be unable to pay for the necessity themselves, and

3. The spouse has the ability to aid in that support obligation.

As a result, it appears any creditor must exhaust all efforts against one spouse before pursuing the other spouse. And, in pursuing the other spouse, the creditor must show the other spouse has the financial means to pay the obligation.