Case ID: ohio-st_78/html/0256-01.html
Source: Caselaw Access Project
Author: {"author": "Davis, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Davy et al., Partners, v. The Fidelity & Casualty Insurance Company.
    
      Contract for fee of attorney — Contingent upon amount recovered— Valid — Provision against compromise by .client — Invalid—■ Vitiates entire contract.
    
    1. While a contract for an attorney’s fee contingent upon the amount to be recovered by judgment or settlement is ordinarily valid, yet when such contract contains a stipulation that the client shall not compromise or settle his claim without the consent of the attorney, it is champertous and voidable at the option of the client, and its illegality will avail as a defense in any action against a third party which is based on the contract.
    2. In such case the illegal stipulation cannot be ignored and the other provisions of the contract enforced.
    (No. 10094
    Decided June 9, 1908.)
    Error to the Circuit Court of Miami county.
    
      The plaintiffs in error were plaintiffs below, and on the 22d day of October, 1904, filed their petition setting forth that they are partners engaged in the general practice of the law in Miami county, Ohio; that the defendant is a corporation engaged in the accident and life insurance business; that on and after the 14th day of December, 1903, one Margaret R. Slagle had a cause of action against the defendant growing out of a policy issued to her husband, Jacob Slagle, insuring him against disability or death resulting from accident, and while said policy was in force her said husband was injured in a railroad accident, from which injury he died; that the plaintiffs at the request of said Margaret R. Slagle prepared proofs of the sai'd death, loss and claim and examined into the facts incident to the injury and death of her said husband, advised her as to her rights, and, on the 23d day of July, 1904, entered into, a contract in writing with her whereby she employed the plaintiffs as her attorneys to prosecute suit against the defendant to recover for the said death loss under the said policy, and in consideration of the services which the plaintiffs had already performed for her concerning the said death loss, and the further agreement on the part of the plaintiffs to bring suit against the defendant for sajd Margaret R. Slagle to recover from the defendant the said death loss of ten thousand dollars, or so much thereof as should be found due her by the verdict of a jury or decision of the court, and further agreement to prosecute the case through all the courts to which it might be carried, said Margaret R. Slagle agreed that forty per cent, of the amount realized from the defendant in said case, either by judgment or settlement, should be paid to the plaintiffs for their services, and the said Margaret R. Slagle thereby made an equitable assignment to the plaintiffs of an undivided two-fifths interest in said cause of action and of the proceeds to be realized therefrom either by settlement or judgment; that the plaintiffs began such an action against the defendant, and that on or about the i6th day of August, 1904, they entered a notice on the appearance docket in said cause and likewise gave a notice in writing to the defendant of their agreement with the plaintiff ánd of the terms thereof; that on the 14th day of October, 1904, the said Margaret R. Slagle, without the knowledge and consent of the plaintiffs, made a settlement of said cause of action with the defendant and presented to the clerk of the court an entry setting forth that said cause had been settled and dismissed and caused said entry to be approved by the court and said cause thereby dismissed; that no part of plaintiffs’ compensation for said services have been paid, and that said Margaret R. Slagle is insolvent, and that by reason of the premises the defendant is indebted to the plaintiffs for the amount of. the compensation due them under their contract with the said Margaret R. Slagle. The plaintiffs further set forth as a second cause of action, after adopting all of .the allegations and statements of fact contained in the first cause of action, that in the written notice given by the plaintiffs to the defendant of their said contract with Margaret R. Slagle the plaintiffs also made a demand that the defendant retain from • any settlement it might make with Margaret R. Slagle of said cause of action the said forty per cent, due the plaintiffs under their contract, and that the same should be paid directly to the plaintiffs; that the defendant, on or about the 14th day of October, 1904, paid to the said Margaret R. Slagle a large sum of money to settle said cause of action and dismiss said cause, the exact amount being unknown to the plaintiffs, but said defendant failed and neglected to account for and pay to plaintiffs the share due to them under their contract with' Margaret R. Slagle, or any part of it; wherefore plaintiffs pray the court to decree said settlement as to the plaintiffs to be collusive, fraudulent and void and that a discovery be had of the amount paid by the defendant to said Margaret R. Slagle under said collusive settlement, either directly or indirectly, for the alleged settlement and dismissal of said case, and that the court decree the defendant a trustee for said two-fifths of said cause of action or the proceeds thereof and that an accounting be had and the court ascertain the amount due to the plaintiffs from the defendant and render a judgment in plaintiffs’ favor and against the defendant for the amount so found due, and, further, that the court grant to the plaintiffs all other and further relief to which they may be entitled under the premises.
    The defendant answered, and after sundry denials of allegations of the petition, admits that said Margaret R. Slagle and the plaintiffs entered into a written contract employing the plaintiffs to prosecute the said claim under said policy against this defendant in consideration of forty per cent, of the amount recovered against this defendant, but the defendant avers that the said contract was contrary to public policy, illegal and void, and sets out a copy of said contract, which is as follows “Troy, Ohio, July 23, 1904. This memoranda made this 23d day of July, 1994, by and between Margaret R. Slagle, of the first part and J. A. Dar^y and L. E. St John, of the firm of Davy & St. John, of the second part, Witnesseth: That the said Margaret R. Slagle does hereby retain and employ said Davy & St. John as her attorneys to prosecute her two certain and separate actions for money due her, on contract, one ag'ainst the Aetna Life Insurance Company, of Hartford, Conn., for $10,000, and one against the Fidelity & Casualty Company, of New York, for $10,000, for the loss of life of Dr. Jacob Slagle by reason of accident or caused by accident occurring' to him on December 14, 1903, said companies having insured the said Dr. Jacob Slagle against loss of limb or life
    “Said attorneys are to prosecute and agree to prosecute the said separate causes of action through all the courts beginning with the court of common pleas of Miami county, Ohio, on behalf of the said Margaret R. Slagle, and do and perform for her and on her behalf all that is necessary to be done in prosecution of said actions against said companies.
    “Said attorneys are to employ such other and additional help and counsel as to them seems necessary.
    
      “Said attorneys receipt to the said Margaret R. Slagle for $100 retainer fee received herein and it is agreed by the parties hereto that the compensation of said counsel and attorneys shall be contingent upon their success in the prosecution of said causes of action against said companies or compromise of the said claim against the said companies. It is agreed by the parties hereto that for the services already rendered and to be rendered on behalf of the said attorneys in prosecution of said causes of action against said companies through all the courts as above specified, that said attorneys shall receive for their compensation forty per cent, of any and all sums recovered against said companies by the said Margaret R. Slagle either at the end of a judgment and execution, or at the end of a more voluntary payment, or if said causes of action shall be compromised and settled; that said Margaret R. Slagle shall receive sixty per cent, of the amount so recovered and the said attorneys for their compensation shall receive forty per cent, of the same. This forty per cent, to include the compensation of any and all counsel employed by Davy & St. John to assist them.
    “It is agreed by the parties that in the taking of depositions or in attending court at Columbus, Ohio, or in performing other labor or services in said cause, said attorneys shall pay their own personal expenses as a part of their duty in this matter. But the payment of a notary and witness fees and for printing of records and briefs, such expense shall be paid by the said Margaret R. Slagle.
    
      “Said attorneys further hereby agree to furnish the said Margaret R. Slagle any and all information at all times in reference to the said cause of action that she or her agents may call or ask for, and to give their very best service and attention and legal ability in the prosecution of said cause, and that all of the parties hereto hereby agree that all propositions of settlement or compromise shall be first submitted by one to the other before any action or agreement shall be taken thereto. And that it is understood that said counsel and said Margaret R.- Slagle shall not compromise or settle the cases without the approval and consent of the others. Witness our hands.
    “(Signed) “Margaret R. Slagle.
    “Davy & St. Joi-in.
    “J. A. Davy.
    “Troy, Ohio, July 23, 1905.”
    This contract was not denied in the reply, but therein the plaintiffs admit that said contract contained a provision that all propositions of settlement or compromise received by either party to said contract should be submitted to the other party to said contract before any action is taken or agreement made and no compromise to be made without the approval and consent of the parties; that said provisions are separable and the provision in relation to settlement was a mere incident to the main provisions of said contract relating to plaintiffs’ employment and their compensation; and that neither the defendant nor said Margaret R. Slagle acted under said provisions relating to settlement, but on the contrary settled said litigation as though no such provision was in said contract.
    Thereupon, on the 29th day of June, 1905, the defendant moved the court for judgment in its favor upon the facts appearing upon the face of the pleadings, and the cause coming on for hearing upon said motion, and the court, being fully advised in the premises and having .heard argument by counsel, rendered judgment in favor of the defendant and against the plaintiffs. Said judgment was afterwards affirmed by the circuit court.
    
      Mr. William H. Gilbert and Mr. Leonard H. Shipman, for plaintiffs in error.
    Parties may settle without consulting their attorneys unless it is done for the purpose of depriving the attorney of his fees. Honest settlements between parties to litigation are commendable and to be encouraged. Collusive and fraudulent settlements made for the purpose - of taking advantage of attorneys are reprehensible and when made the attorney may recover of the defendant. 4 Cyc., 1019 and 1020; Randall v. Van Wagenen, 115 N. Y., 527, 12 Am. St. Rep., 828; Aspinwall v. Sabin, 22 Neb., 73, 3 Am. St. Rep., 258; Coughlin v. Railroad Co., 71 N. Y., 443, 27 Am. St. Rep., 75; Talcott v. Bronson, 4 Paige, 501; Pickard v. Yencer, 21 Plun, 403; Wilber v. Baker, 24 Hun, 24; Coleman & Newsome v. Ryan, 58 Ga., 132; Jones v. Morgan, 39 Ga., 310, 98 Am. Dec., 458; Carpenter v. Myers, 90 Mich., 209.
    
      The cause of action in favor of Slagle arose on a contract in the form of the. insurance policy. This cause of action was in itself assignable. The owner could assign and create equitable interests in such cause of action to her attorneys and the interest must be respected by those having' notice. Reece v. Kyle, 49 Ohio St., 484; Cameron v. Boeger, 93 Am. St. Rep., 173.
    If we concede, for the purpose of argument, that the stipulation with respect to compromise and settlement is illegal it does not, in our view, change the result. All other parts of the contract are legal and constitute a complete contract between the parties. If the legal part can be separated from the part claimed to be illegal, then the legal part of it should be carried out irrespective of the illegal provisions.
    A contract between an attorney and a client that the latter will not compromise any suit without consent and approval of the former is not against public policy. Lipscomb v. Adams, 193 Mo., 530, 112 Am. St. Rep., 500.
    
      Mr. A. F. Broomhall, for defendant in error.
    An attorney can acquire no interest in a cause of action before judgment which will prevent the parties from settling the case without indemnifying the attorney.
    The law recognizes the interest of an attorney in a judgment which he has assisted in obtaining for his client; but this is quite a different proposition. When a judgment is rendered, the litigation is at an end. Before it is rendered it is the policy of the law that it should end. It certainly would not have that tendency, if litigants were permitted to settle their cases only when the attorney, who had a pecuniary interest in the litigation, gave his consent. Key v. Vattier, 1 Ohio, 132.
    The law tolerates no lien, in or out of the legal profession, which will prevent litigants from compromising controversies. Weakley v. Hall, 13 Ohio, 167; Stewart v. Welch, 41 Ohio St., 483.
    The court has never failed where it has found a provision in a contract between attorney and client, that the case could not be settled without the attorney’s consent, to declare the contract void and refuse the attorney all relief based upon it. Pennsylvania Co. v. Lombardo, 48 Ohio St., 1; Brown v. Ginn, 66 Ohio St., 316; Emslie v. Glass Co., 1 C. C, N. S., 603.
    All other authorities which apparently modify the severity of the early rule as to contingent fees, leave untouched the proposition, that a provision against compromise, vitiates a contract, except to emphasize the fact that the court will not tolerate such transactions.
   Davis, J.

The theory upon which this action is based is that an attorney may not only contract with his client for a contingent fee, but that he may at the same time and upon the same consideration acquire such an interest in his client’s cause of action before judgment as to prevent the latter from settling his case without consent of the attorney. If this theory is sound the motion for judgment on the pleadings should have been overruled; otherwise it was properly sustained.

It is, beyond question, the law in this state that attorney and client may lawfully agree upon compensation to the attorney contingent upon the amount to be recovered, either by settlement or by judgment; and it is also settled that such contract may be a valid consideration for an assignment of an interest in a judgment already obtained, such as might be enforced in equity, P. C. C. & St. L. Ry. Co. v. Volkert et al., 58 Ohio St., 362; but as we remarked recently, Pennsylvania Co. v. Thatcher, ante, 175, an attorney’s lien before judgment has not been heretofore distinctly recognized in this state and it has hitherto remained an open question, and one of much doubt, whether an attorney may before judgment acquire such an interest in the subject-matter of his client’s claim or cause of action as that the defendant to such claim or cause of action is bound to take notice of it. The questionable character of such a proposition arises from two considerations. First, an interest in a cause of action would seem to imply the right to be consulted in negotiations for settlement and the right to prevent a settlement which might be acceptable to the client. Second, an interest in the proceeds of a settlement is an interest in a fund which has no existence until the settlement is agreed upon and the money paid over, and therefore the attorney’s interest is in the fund in the hands of the client. In the case in hand, although the plaintiffs aver in their petition that their client “thereby,”- that is by the contract in writing, “made an equitable assignment to the plaintiffs of an undivided two-fifths interest in said cause of action and of the proceeds to be realized therefrom, either by settlement or judgment” ; yet it appears from the contract itself, which is set out in full in the defendant’s answer, that there was no express assignment of an interest in the cause of action or of the proceeds to be realized therefrom, but that, there was an express agreement that the client should not coiyipromise or settle the cases without the approval and consent of the others.

It appears, therefore, that whatever may be the form of the contract, whether it contains an express assignment of an interest in the subject-matter of the client’s claim, or an implied assignment thereof, or no assignment at all, the really vital question in all of these cases is this: Does the contract contain an express or implied limitation upon the right of the client to compromise and settle his claim with his adversary. without the consent of'anybody else? When such a limitation appears in the contract, the contract is voidable at the option of the client and its illegality may be pleaded as a defense in any action founded on the contract; and the defendant to the suit concerning which the contract was made.'may, with or without notice of the contract, compromise with the plaintiff without the knowledge or consent of the plaintiff’s attorney and will not be liable to the attorney for his part. North Chicago St. R. R. Co. v. Ackley, 171 Ill., 100, reversing the judgment of the Appellate Court in the same case, 58 Ill., 572; Boardman & Brown v. Thompson, 25 1a., 487.

This court has spoken on this subject so frequently and definitely that there ought to have been no misunderstanding of its position. Key v. Vattier, 1 Ohio, 132, resulted in a judgment for the defendant upon a demurrer to the declaration. The plaintiff declared upon a contract in which the plaintiff agreed to prosecute suits for the recovery of property, to pay the costs and be compensated by a part of the property to be recovered and it was further stipulated between the parties “that if any compromise should be effected, the same should be the joint act and consultation of the parties to said indenture.” At the conclusion of the opinion is the following clear and unmistakable statement:

“The stipulation in the contract, on which the opinion and judgment of the court are chiefly predicated, and to which they have directed it to be confined, is that which prevents Vattier from compromising and settling the matters in controversy, without the consent and concurrence of the other contracting parties. This point being considered sufficient the court forbear to give an opinion on any other. As the provision on the subject of cost is not set out in the declaration, and the defendant has demurred without oyer, that feature in the contract has not been considered.”

So that Key v. Vattier is a decision upon the precise question now under review. The court was equally explicit in Weakly v. Hall, Exr., 13 Ohio, 167, when it said:

“It is unnecessary, perhaps, to say anything in reference to the lien which is set up in the replication, and which, it is insisted, could not be discharged by the release of Weakly to Hall. But we take this occasion" to say that the law of Ohio will-tolerate no lien in or out of the profession, as a general rule, which will prevent litigants from compromising, or settling their controversies, or which, in its tendencies, encourages, promotes or extends litigation. We think the replication is bad, and the demurrer is sustained. Judgment for defendant.”

The question was again before this court in Lewis v. Lewis, Admx., 15 Ohio, 715, and it was again said that:

“A contract with an attorney to prosecute a suit containing a stipulation, that the party should not have the privilege to settle or discontinue it, without the assent of the attorney, would be so much against good policy, that the court would not enforce it. Much less will a court raise an implied contract, in order to encourage and foster litigation.”

In Brown v. Ginn, Trustee, 66 Ohio St., 316, the court, Spear, J., delivering the opinion, said:

“Again, if this paper effected the object, and was a real transfer of these accounts to the attorney, the several parties of the second part thus parted with all right to control the litigation or to compromise it without the consent of the attorney, and this inability was made doubly so by the fact that no one of the second parties had any sort of interest in the portion of the demand which rested upon the services of any other. Upon all the authorities such an arrangement _is champertous, and will not be maintained by the courts. * * * So that if the agreement vested in the attorney the legal title to the accounts so as to constitute him the real party in interest, and thus enable him to bring an action in his own name, such action cannot be maintained because against public policy, while, if he is not, within the meaning of section 4993, the real party in interest, the case would fail for that reason.”

We have brought together these quotations from former decisions in order to present a conspectus, which demonstrates that this court has always maintained a consistent and unambiguous attitude in regard to contracts of the kind which we have in this case. Some further instructive illustration may be -found in Pennsylvania Company v. Lombard, 49 Ohio St., 1, opinion by Minshall, J., 5-6; Stewart v. Welch, 41 Ohio St., 483; and remarks of Okey, J., in Diehl v. Friester, 37 Ohio St., 477.

These cases also show that the illegal stipulation renders the whole contract illegal and indivisible; and that whenever the illegal stipulation was inserted, it so far tainted the whole contract that no relief whatever was granted upon the contract. It could not well be otherwise. If the plaintiffs may waive the clause as to consent, ratify the compromise made by the client and recover from the defendant, when both parties to the compromise have acted on the theory that the contract is illegal and voidable, then the doctrine of the cases which we have cited, means nothing in practice; for it may be evaded in every case. If notwithstanding the illegal restriction upon the right to compromise, an attorney may nevertheless acquire such an interest in his client’s cause of action that the defendant thereto is answerable over to him after a compromise effected with the client, the real party in interest, then the doctrine of the cases is a mere figment and may as. well be ignored; for the attorney will thereby have gained as much as if the veto on his client’s right to compromise had been sustained. It does not seem to us that the contention of the plaintiffs is supported by law or considerations of justice. 15 Am. & Eng. Ency. Law (2 ed.), 988 and note 4.

Affirmed.

Price, C. J., Shauck, Crew, Summers and Spear, J. J., concur..