Majority
Opinion
Introduction
Republic Bank leased space in an Irvine office building from the Roll Company. The lease had an attorney fee clause, which provided that if any lawsuit arose between the two parties, the “successful” party would recover its attorney fees.
Marine failed to pay rent on its sublease, so Republic sued and prevailed. But the trial court did not award Republic attorney fees, reasoning that the sublease did not “specifically” provide for attorney fees under Civil Code section 1717,[1] and to award fees would improperly “bootstrap” the attorney fee provision in the master lease onto the sublease agreement.
The trial court erred. The phrase “incorporation by reference” makes the document referred to part of the contract as if it were recited verbatim. So incorporated, the sublease thus “specifically" provided for attorney fees. Marine’s alternative definitions of the words “incorporation by reference” are not reasonable.
Facts
The facts are undisputed. On January 29, 1982, Republic entered into a 25-year master lease with Koll Center Irvine for the ground floor of an office building located at 18401 Von Karman in the City of Irvine. On August 9, 1983, Republic subleased slightly under one-half of the Von Karman ground floor office space to Marine.
The master lease between Republic and Koll had an attorney fee clause in section 15.08, which provided: “[I]n the event of any action at law or in equity between Landlord and Tenant to enforce any of the provisions and/or rights hereunder, the unsuccessful party to such litigation covenants and agrees to pay to the successful party all costs and expenses, including reasonable attorney’s fees incurred therein by such successful party, which shall be included in and as part of such judgment.”
The “incorporation by reference” language in the sublease between Republic and Marine is set forth in section 1.02 of that document: “[A] copy of the Master Lease is attached hereto as Exhibit ‘C’ and incorporated herein by this reference. Sub-Tenant agrees not to violate, cause to be violated, or cause Sub-Landlord to be in violation of, the terms, covenants and conditions of the Master Lease and further agrees that the terms of this Lease shall be subject and subordinate to the Master Lease.”
1 Civil Code section 1717, subdivision (a), provides in part: “In any action on a contract, where the contract specifically provides that attorney’s fees and costs . . . shall be awarded either to one of the parties or to the prevailing party, then the party who is determined to be the party prevailing on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney’s fees. . . .” (Italics added.)
As it turned out, when the case came to trial Marine conceded liability, so the entire trial centered on the attorney fee issue. On that point Republic lost. The court ruled that Republic should not recover attorney fees because the sublease did not specifically contain an attorney fee provision; the court was unwilling to use a “bootstrap approach” to incorporate the attorney fee provision of the master lease into the sublease. Republic now appeals from the subsequent order denying attorney fees.
Discussion
The phrase “incorporation by reference” is almost universally understood, both by lawyers and nonlawyers, to mean the inclusion, within a body of a document, of text which, although physically separate from the document, becomes as much a part of the document as if it had been typed in directly. To “incorporate,” after all, literally means to put into a body. A standard layperson’s dictionary, Webster’s Third New International (1981) even has a separate entry for “incorporation by reference.” Webster defines the phrase as a “doctrine in law” where “the terms of a contemporaneous or earlier writing, instrument, or document capable of being identified can be made an actual part of another writing, instrument, or document by referring to, identifying, and adopting the former as a part of the latter.” (Webster’s Third New Intemat. Diet. (3d ed. 1981) p. 1145, italics added.) Likewise, the more specialized Black’s Law Dictionary (5th ed. 1979) page 690, defines the phrase to mean “[t]he method of making one document of any kind become a part of another separate document by referring to the former in the latter, and declaring that the former shall be taken and considered as a part of the latter the same as if it were fully set out therein.” (Italics added.)
As one might expect, courts have not deviated from the dictionary definition. In Nevin v. Salk (1975) 45 Cal.App.3d 331 [ 119 Cal.Rptr. 370 ], appellant received two promissory notes in partial payment for the sale of his business. The notes contained provisions for the payment of attorney fees to the prevailing party in the event of suit. Although the sale agreement did not provide for attorney fees, the agreement specified that the $146,000 promissory note was “incorporated therein by reference.” (Id. at p. 338.) The
Similarly, in King v. Larsen Realty, Inc. (1981) 121 Cal.App.3d 349 , 357 [ 175 Cal.Rptr. 226 ], the court held that appellants were bound by the bylaws of their real estate board, including a duty to arbitrate as set forth in an arbitration manual which was “incorporated” in the bylaws by reference. The court said that “[a] secondary document becomes part of a contract as though recited verbatim when it is incorporated into the contract by reference provided that the terms of the incorporated document are readily available to the other party.” (Ibid:, see Chan v. Drexel Burnham Lambert, Inc. (1986) 178 Cal.App.3d 632 , 641-642 [ 223 Cal.Rptr. 838 ]; Bell v. Rio Grande Oil Co. (1937) 23 Cal.App.2d 436 , 440 [ 73 P.2d 662 ] [“A written agreement may, by reference expressly made thereto, incorporate other written agreements; and in the event such incorporation is made, the original agreement and those referred to must be considered and construed as one.”]; see also Beedy v. San Mateo Hotel Co. (1915) 27 Cal.App. 653 , 660-661 [ 150 P. 810 ]; Holbrook v. Fazio (1948) 84 Cal.App.2d 700 , 701 [ 191 P.2d 123 ].)
Against such a host of authority—ordinary dictionary meaning and case law—one is hard pressed to suppose how Marine can possibly contend the terms of the master lease between Republic and Koll were not made an actual part of the sublease. After all, if the phrase does not mean that, what does it mean?
Marine is not quite clear on the answer to the latter question. There are two alternative meanings suggested in Marine’s brief. They are: (1) “The incorporation by reference of the Master Lease serves the practical function of certifying that the Sub-tenant’s acknowledgment of the subordinate status of the Sublease to the Master Lease is a knowing and informed acknowledgment.” (2) “When referring to a document extraneous to the contract in which they appear, they [the words, “incorporation by reference”] metaphorically grasp the referenced document and place it, for reference purposes, within the contract in which they appear."
To cut through the “metaphorical”[2] haze, these alternative definitions may be translated as follows: (1) the master lease was attached to the sublease to make sure that the sublease was “subordinate” to it; and (2) attaching the master lease to the sublease was a nice convenient way to refer to it.
2 One might well ask, “what metaphor?” Few phrases outside of the Internal Revenue Code are more stolid and less metaphorical than “incorporation by reference."
The absence of any meaningful alternative definition of the phrase incorporation by reference disposes of Marine’s ambiguity argument. “ ‘A contract is ambiguous when on its face it is capable of two different reasonable interpretations .’ ” (Atchison, T.& S.F. Ry. Co. v. Brotherhood R.R. Trainmen (1964) 229 Cal.App.2d 607 , 614 [ 40 Cal.Rptr. 489 ], citing Pederson v. Fiksdal (1960) 185 Cal.App.2d 30 , 34 [ 7 Cal.Rptr. 874 ].) Marine’s proffered alternatives are not reasonable.
Marine also misses the point in contending that the cases cited by Republic in its opening brief involving relationships other than sublessor-sublessee or contracts other than leases are inapposite. Since the language used governs a contract’s interpretation (Civ. Code, § 1638), it is the relevant language, not the relationship between the parties, that is critical.[3]
Marine finally points to the provisions in the sublease which differ from corresponding provisions in the master lease, and the fact the master lease has an integration clause. From these items Marine asks us to draw the conclusion that the parties did not intend “that their relationship be governed as if they were also parties to the Master Lease.”
The fallacy here is false dichotomy. Marine assumes that it is an all-or-nothing proposition as to whether any provisions of the master lease could
3 For example, in Boys Club of San Fernando Valley, Inc. v. Fidelity & Deposit Co. (1992) 6 Cal.App.4th 1266 [ 8 Cal.Rptr.2d 587 ], a youth group entered into a contract with a construction company to construct a recreation facility. The contract contained an arbitration clause requiring arbitration of disputes between the contractor and owner. The contractor obtained a performance bond from a surety company. Although the bond did not include an arbitration agreement, it incorporated the contract by reference. In a dispute between the youth club and the contractor, the youth club filed a demand for arbitration and subsequently named the surety as an additional party to the arbitration. The surety resisted, claiming that it was not a party to the contract and did not sign an agreement to arbitrate. Reversing the trial court’s denial of the petition to compel arbitration, the court said that “[a]n agreement need not expressly provide for arbitration, but may do so in a secondary document which is incorporated by reference. . . .” (Id. at p. 1271, citations omitted.) The court held that the language in the bond incorporating the contract bound the surety to the arbitration clause, even though the surety was not a party to the original contract. (Id. at p. 1273; cf. Pacific Employers Ins. Co. v. City of Berkeley (1984) 158 Cal.App.3d 145 , 152 [ 204 Cal.Rptr. 387 ].)
The trial court was not concerned with the relationship between Koll and Republic spelled out in the master lease, but what Marine and Republic had agreed to in the sublease. The fact that there were overlapping terms might be of interest if the case had turned on one of those terms, but, as Marine reminds us, there was no attorney fee clause in the sublease. There was thus nothing in the sublease to cast any doubt on the nature of the attorney fee clause in the master lease. Under such circumstances, and in light of the incorporation by reference language, whatever else the combined sublease/ master-lease package may have provided for, it certainly provided for attorney fees as delineated in the relevant clause in the master lease.
The trial court’s determination that Civil Code section 1717 did not require an award of attorney fees was predicated on the assumption that the sublease did not incorporate the master lease’s attorney fee provision. As we have shown, that assumption was in error: as it turns out, the sublease did “specifically” provide for attorney fees. The judgment is reversed. Republic is to recover its costs on appeal.
Wallin, J., and Rylaarsdam, J., concurred.
Cases cited
- Nevin v. Salk 45 Cal.App.3d 331 p. 922
- King v. Larsen Realty, Inc. 121 Cal.App.3d 349 at 357 p. 923
- Chan v. Drexel Burnham Lambert, Inc. 178 Cal.App.3d 632 at 641-642 p. 923
- Bell v. Rio Grande Oil Co. 23 Cal.App.2d 436 at 440 p. 923
- Beedy v. San Mateo Hotel Co. 27 Cal.App. 653 at 660-661 p. 923
- Holbrook v. Fazio 84 Cal.App.2d 700 at 701 p. 923
- Atchison, Topeka & Santa Fe Railway Co. v. Brotherhood of Railroad Trainmen 229 Cal.App.2d 607 at 614 p. 924
- Pedersen v. Fiksdal 185 Cal.App.2d 30 at 34 p. 924