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C.A.: Civil Code §1717 Broadens Attorney Fee Provision to Apply to ‘Entire Contract’
Party Entitled to Seek Attorney Fees in Rescission Suit Even Though Agreement Only Provided for Attorney Fees in a Foreclosure Action
By Kimber Cooley, Staff Writer
Div. One of the Fourth District Court of Appeal has held that Civil Code §1717 operated to broaden provisions allowing for attorney fees in a judicial foreclosure action under a loan agreement to apply to “the entire contract” and not be limited to foreclosure proceedings under the contract–even where the lawsuit was seeking rescission of the contract based on fraud.
The opinion, filed Tuesday, was authored by Justice William S. Dato. It reverses an order by San Diego Superior Court Judge Blaine K. Bowman denying fees and remands the case to the trial court to determine if the appellant qualified as a “prevailing party” under the code.
SanJuana Andrade filed suit against the Western Riverside Council of Governments after a lien was placed on her home and property tax assessments were increased, alleging that contractors forged her signature on the PACE loan agreements with the council. Andrade sought rescission of the loan agreements, restitution, damages and declarations that the agreements were unenforceable.
Relief Afforded
After an investigation confirmed fraud, the council released its assessment and lien on the property, and reimbursed her for property tax payments.
Andrade filed for a judgment of dismissal and sought attorney fees and costs, relying in her motion on §1717.
Bowman denied her motion. Dato explained:
“Although the court agreed this was an action ‘on a contract’ for purposes of section 1717, it concluded that the contractual fee provisions were limited in scope and did not entitle Andrade to attorney’s fees because they concerned fees for ‘a judicial foreclosure action.’ The court found that the Council had not pursued judicial foreclosure and that Andrade ‘ha[d] not set forth a clear case that [Council] even could pursue judicial foreclosure.’ Accordingly, the court denied the request for fees under section 1717.”
Civil Code §1717
Sec. 1717 provides:
“(a) In any action on a contract, where the contract specifically provides that attorney’s fees and costs, which are incurred to enforce that contract, 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 in addition to other costs. Where a contract provides for attorney’s fees, as set forth above, that provision shall be construed as applying to the entire contract, unless each party was represented by counsel in the negotiation and execution of the contract, and the fact of that representation is specified in the contract.”
Dato explained that the trial court was correct to reject the council’s argument that the suit was not an “action on a contract” under §1717 since Andrade was seeking to “invalidate the contract rather than enforce it.” Quoting from the 1995 California Supreme Court decision Hsu v. Abbara, he wrote:
“But it has long been ‘settled that a party is entitled to attorney fees under section 1717 “even when the party prevails on grounds the contract is inapplicable, invalid, unenforceable or nonexistent, if the other party would have been entitled to attorney’s fees had it prevailed.’ ” ”
Dato further rejected the Council’s claim that §1717 only applies to breach of contract actions, explaining that this argument not only is inconsistent with the “weight of California authority,” but also “conflicts with the plain language of section 1717, which merely requires an ‘action on a contract,’ not an action for breach of contract.”
Entire Contract
The attorney fee provision in the agreements provided:
“The Property Owner [Andrade] acknowledges that if any Assessment Installment is not paid when due, the Authority [Council] has the right to have such delinquent Assessment Installment and its associated penalties and interest stripped off the secured property tax roll and immediately enforced through a judicial foreclosure action that could result in a sale of the Property for the payment of the delinquent installments, associated penalties and interest, and all costs of suit, including attorneys’ fees.”
The trial court held that the fee provisions in the loan agreements did not apply to Andrade’s case because they only discuss fees in a judicial forfeiture action, which was not initiated here.
Dato disagreed, saying that “[u]nder section 1717, subdivision (a), however, a fee provision must ‘be construed as applying to the entire contract.”
That portion of the statute, he said, was added by the Legislature in response to a 1992 opinion from Div. Three of the Fourth District Court of Appeal decision in Harbor View Hills Community Association v. Torley which says that contracting parties may “limit an attorney’s fee clause to specific provisions of the agreement or a certain type of action.” He said the purpose, according to a Senate Committee on the Judiciary analysis, “was to clarify to ‘either party to any contract that provided for attorney’s fees’ that they may not ‘limit the forms of action to which attorney’s fees are applicable.’”
Distinguishing this case from cases in which §1717 was not at issue, the jurist noted that Andrade was seeking fees under §1717 and was in fact seeking to invalidate the contract to avoid potential default and foreclosure proceedings. He wrote:
“The loan agreements do not specify that Andrade was represented by counsel in negotiating the contract. As a result, section 1717 operates to extend the mutual right to obtain attorney’s fees to the entire contract. If Andrade ‘is determined to be the party prevailing on the[se] contract[s]…[she] shall be entitled to reasonable attorney’s fees” without regard to the purported limitation to judicial foreclosure proceedings.”
Prevailing Party
Although Bowman found Andrade to be the “prevailing party” under the Civil Code section governing the recovery of costs, Dato found that he did not “determine that Andrade was ‘the party prevailing on the contract’ for purposes of section 1717.”
Noting that “Andrade did not obtain all the relief she sought,” the court remanded for the trial court to conduct an inquiry into whether or not she qualified under §1717.
The case is Andrade v. Western Riverside Council of Governments, 2024 S.O.S 643.
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