Majority
Opinion
Plaintiff appeals from judgment awarding defendants $80,500 attorney’s fees. We reverse.
I. Availability of Attorney’s Fees
In January 1973, Turner, with TMI as indorser, executed and delivered two promissory notes in the aggregate principal amount of $60,794.12. The notes provided for recovery of collection costs, including attorney’s fees limited to 15 percent of the principal amount of the notes, in the event of default.
In 1973, Turner and TMI became insolvent and bankruptcy proceedings commenced. Plaintiff, having extended credit of $823,231.48 to Turner, filed a creditor’s claim in the proceedings. Plaintiff also brought this suit seeking to hold defendants personally liable for the debts owed plaintiff by Turner and TMI, claiming defendants were “alter egos” of the two bankrupt companies. Trial proceeded on three causes of action, two on common count and the third upon the two unpaid promissory notes.
After lengthy trial, the court rejected the “alter ego” theory advanced by plaintiff, absolving defendants from personal liability for the obligations of Turner and TMI. In addition, the trial court granted defendants $80,500 in attorney’s fees.[1]
The court awarded defendants 100 percent of their legal fees incurred in attachment proceedings, 75 percent of their fees incurred from the commencement of the lawsuit until certain tort causes of action were dismissed, and 100 percent of their remaining fees.
Unless authorized by either statute or agreement, attorney’s fees ordinarily are not recoverable as costs. (Code Civ. Proc., § 1021; D’Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1 , 24-27 [ 112 Cal.Rptr. 786 , 520 P.2d 10 ]; Freeman v. Goldberg (1961) 55 Cal.2d 622 , 625 [ 12
1 Defendant Alperson sought to recover $39,445 in attorney’s fees and was awarded $38,500. Defendant Blivas sought $51,597.50 and was awarded $42,000.
Civil Code section 1717 provides in part: “In any action on a contract, where such contract specifically provides that attorney’s fees and costs, which are incurred to enforce the provisions of such contract, shall be awarded to one of the parties, the prevailing party, whether he is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees in addition to costs and necessary disbursements.”[2] (Italics added.)
The language of the statute is unclear as to whether it shall be applied to litigants who like defendants have not signed the contract. The section refers to “any action on a contract” thus including any action where it is alleged that a person is liable on a contract, whether or not the court concludes he is a party to that contract. Nevertheless the terms “parties” and “party” are ambiguous. It is unclear whether the Legislature used the terms to refer to signatories or to litigants.
Section 1717 was enacted to establish mutuality of remedy where contractual provision makes recovery of attorney’s fees available for only one party (International Industries v. Olen (1978) 21 Cal.3d 218 , 223 [ 145 Cal.Rptr. 691 , 577 P.2d 1031 ]; System Inv. Corp. v. Union Bank (1971) 21 Cal.App.3d 137 , ,163 [ 98 Cal.Rptr. 735 ]; Review of Selected 1968 Code Legislation (Cont.Ed.Bar) pp. 35-36), and to prevent oppressive use of one-sided attorney’s fees provisions. (Coast Bank v. Holmes (1971) 19 Cal.App.3d 581 , 596-597 [ 97 Cal.Rptr. 30 ].)
Its purposes require section 1717 be interpreted to further provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney’s fees should he prevail in enforcing the contractual obligation against the defendant.
Attorney’s fees were awarded pursuant to section 1717 to a person found not to be a signatory to a contract in Babcock v. Omansky (1973) 31 Cal.App.3d 625 , 633-634 [ 107 Cal.Rptr. 512 ]. The defendant prevailed following the plaintiff’s allegation she was liable as a coventurer or partner with another defendant who had executed a promissory note
2 Section 1717 also provides: “Attorney’s fees provided for by this section shall not be subject to waiver by the parties to any contract which is entered into after the effective date of this section. Any provision in any such contract which provides for waiver of attorney’s fees is void, [f] As used in this section ‘prevailing party’ means the party in whose favor final judgment is rendered.”
II. The Amount
Arnold v. Browne (1972) 27 Cal.App.3d 386 , 398-399 [ 103 Cal.Rptr. 775 ] and Sain v. Silvestre (1978) 78 Cal.App.3d 461 , 476 [ 144 Cal.Rptr. 478 ] are disapproved insofar as they are inconsistent with our holding here.
Had plaintiff prevailed on its cause of action claiming defendants were in fact the alter egos of the corporation (Kohn v. Kohn (1950) 95 Cal.App.2d 708 , 718 [ 214 P.2d 71 ]), defendants would have been liable on the notes. Since they would have been liable for attorney’s fees pursuant to the fees provision had plaintiff prevailed, they may recover attorney’s fees pursuant to section 1717 now that they have prevailed.
Where a cause of action based on the contract providing for attorney’s fees is joined with other causes of action beyond the contract, the prevailing party may recover attorney’s fees under section 1717 only as they relate to the contract action. (McKenzie v. Kaiser-Aetna (1976) 55 Cal.App.3d 84 , 88-90 [ 127 Cal.Rptr. 275 ]; see Schlocker v. Schlocker, supra, 62 Cal.App.3d 921 , 923.) Describing the attorney’s fees provision, section 1717 specifically refers to fees “incurred to enforce the provisions of [the] contract.” A litigant may not increase his recovery of attorney’s fees by joining- a cause of action in which attorney’s fees are not recoverable to one in which an award is proper. In this case, the two promissory notes contained contract provisions for attorney’s fees, but no such provision existed in the general line consignment agreement. Accordingly, attorney’s fees incurred solely for defending causes of action based on the latter agreement and defending against the tort causes of action are not recoverable.
Conversely, plaintiff’s joinder of causes of action should not dilute its right to attorney’s fees. Attorney’s fees need not be apportioned when incurred for representation on an issue common to both a cause of
Because the promissory notes contained provision limiting attorney’s fees to 15 percent of the amount of the notes ($60,794.12), recovery of fees under section 1717 must be similarly limited. As we have seen, the section establishes a reciprocal right to attorney’s fees, and the statutory right should be no greater than the contractual right. The statute refers to “reasonable attorney’s fees,” and reasonable falls within the fundamental principle of reciprocity.
The trial court erred in failing to observe the 15 percent limitation.
The judgment is reversed for redetermination of attorney’s fees.
Bird, C. J., Tobriner, J., Mosk, J., Richardson, J., Manuel, J., and Newman, J., concurred.
Cases cited
- D'Amico v. Board of Medical Examiners 11 Cal.3d 1 at 24-27 p. 127
- Freeman v. Goldberg 55 Cal.2d 622 at 625 p. 127
- Young v. Redman 55 Cal.App.3d 827 at 834-835 p. 128
- International Industries, Inc. v. Olen 21 Cal.3d 218 at 223 p. 128
- System Investment Corp. v. Union Bank 21 Cal.App.3d 137 p. 128
- Coast Bank v. Holmes 19 Cal.App.3d 581 at 596-597 p. 128
- Babcock v. Omansky 31 Cal.App.3d 625 at 633-634 p. 128
- Pas v. Hill 87 Cal.App.3d 521 at 533-536 p. 129
- Canal-Randolph Anaheim, Inc. v. Wilkoski 78 Cal.App.3d 477 at 486 p. 129
- Schlocker v. Schlocker 62 Cal.App.3d 921 at 923 p. 129
- Boliver v. Surety Co. 72 Cal.App.3d Supp. 22 at 29 p. 129
- Arnold v. Browne 27 Cal.App.3d 386 at 398-399 p. 129
- Sain v. Silvestre 78 Cal.App.3d 461 at 476 p. 129
- Kohn v. Kohn 95 Cal.App.2d 708 at 718 p. 129
- McKenzie v. Kaiser-Aetna 55 Cal.App.3d 84 at 88-90 p. 129