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First Morris Bank and Trust v. Roland Offset Service Inc.

357 N.J. Super. 68, 813 A.2d 1260 (App. Div. 2003)

LOANS; DEFAULTS; ATTORNEYS FEES—A twenty percent collection fee set out in a commercial loan agreement is not per se unreasonable and it is a breach of a court’s discretion to invalidate the fee just because the actual costs of collection turn out to be much less.

A bank obtained a default judgment in a dispute arising from a borrower’s breach of a commercial loan agreement. The complaint sought, and the default judgment included, a twenty percent collection fee. The borrower paid the judgment and moved to vacate the portion of the judgment that awarded the collection fee. The lower court judge vacated the collection fee under R. 4:50-1(f), which permits a court to vacate a judgment for any other reason justifying relief. The lower court reasoned that, while a twenty percent collection fee was not per se unreasonable, the collection fee was unreasonable because the judgment was paid quickly and the bank’s attorneys were not required to spend a great deal of time and effort to prosecute the case. The Appellate Division reversed, holding that the lower court abused its discretion in vacating the judgment. A court should vacate a judgment only in truly exceptional circumstances in order to avoid a grave injustice. Here, the Court noted that although the lower court might have been correct in its belief that the fee was high in relation to the amount of legal work done, this was not a truly exceptional circumstance warranting relief. It also noted that twenty percent collection fees are commonplace in commercial loan transactions.

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