Fee Clause in Voidable Contract Gets Defendants Fees under CC § 1717

Cal.-Am. Water Co. v. Marina Coast Water Dist., No. A146166 (D1d1 Dec. 15, 2017)

Defendants won this breach of contact case by successfully arguing that the contract at issue was void under Government Code § 1090. The contract contained a provision that awarded attorneys’ fees to the prevailing party, and the Defendants won a fee award from with the trial court. But again, the contract was voided. So the question before the Court of Appeal is: “How can an attorney fees provision in a contract govern the parties’ fees obligations when the contract itself is deemed to have been void from its inception?” The answer is Civil Code § 1717.

Section 1717 exists to ensure mutuality of remedy in contractual attorney fee provisions. One way it does so is that when a contract that says only one party can get fee, under § 1717, any prevailing party can. And the other way is that when a defendant prevails by arguing that the contract the plaintiff seeks to enforce is inapplicable, invalid, nonexistent, or unenforceable, the defendant can nonetheless recover its fees.

There’s a different rule when subject of the contract is itself illegal. Section 1717 wouldn’t permit a prevailing defendant to recover a fee were an attorneys’ fee clause to appear in, for instance, a gambling contract. But the contract here wasn’t illegal—its subject matter concerned the operation of a desalination plant. It was voidable and ultimately voided because a public entity that was party to it had a conflict of interest. That’s not enough to take the issue out of § 1717.

Affirmed.