When a court enforces an agreement of the kind under consideration and awards what it finds to be the actual, reasonable and necessary expense of the aggrieved party in maintaining the action as part of his general damages, it is not allowing a counsel fee, at least not in the sense intended and contemplated by the rules of court. It is merely adjudicating damages for breach of contract, albeit including therein an item which, as a matter of public policy entirely apart from the rules of court, would not be compensable were it not for the voluntary advance agreement of the parties that it should be so compensable as part of the general damages. That agreement itself is not against public policy unless a statute, rule of court or judicial determination declares it so to be.
Early in 1954 plaintiffs and other homeowners in the Borough of Fair Lawn brought an action to enjoin the defendant corporations from erecting certain buildings and from conducting certain commercial operations on their premises as allegedly in violation of the local zoning ordinance and as constituting a nuisance. Defendants countered with an action against plaintiffs and the others for malicious prosecution and abuse of process. The litigation was "settled" by the parties' entry on June 10, 1954 into the agreement which is the subject of the present action. Under that agreement plaintiffs would withdraw objections to a pending application by defendants for a variance from the zoning ordinance and defendants would refrain from violation of the ordinance, would make no other applications for variances, and would take certain specific steps in regard to the operation of their business and as to certain physical appurtenances on their property, all to the apparent end of reducing the harmful effect of defendants' business on plaintiffs' enjoyment of their homes as residences.
Paragraph 21 of the agreement was as follows: "21. It is agreed between the parties that if the parties of the first part shall be successful in any suit for damages for breach of this agreement or to enforce this agreement or to enjoin the Fair Lawn Dairies and/or Farmland-Fair Lawn from violating this agreement, the parties of the first part shall be entitled to recover as part of their damages their reasonable counsel fees for bringing and maintaining any such action. In the event that the parties of the first part shall be unsuccessful in such a suit for the violation of this agreement, the Fair Lawn Dairies and/or Farmland-Fair Lawn Dairies shall be entitled to recover as part of their damages from the parties of the first part their reasonable counsel fees in defending any such action."
May a party to a written agreement bind himself, by express stipulation therein, to liability to the other for the reasonable legal expense of maintaining an action for breach of the agreement as part of the recoverable damages in the event of such breach?
The court sustained the validity of the agreement which was negotiated at arms' length between parties of presumably equal bargaining power, and which provided that if one party was forced to bring a lawsuit in order to redress a breach of the contract by the other, they would be allowed to recover as damages reasonable legal counsel expenses in the same manner that the law allowed recovery of other losses fairly attributable to the breach. The court held that plaintiffs were required to provide plenary proof of the damages in respect to the legal expenses, and the amount and reasonableness of the actual services could not be proved merely by ex parte affidavit. The cause was remanded for a hearing on the legal counsel expenses.