In a recent court decision, the California Court of Appeal highlighted an important aspect of contract law, particularly relating to attorney fees provisions in contracts deemed void or unenforceable.
In the case of California-American Water Company v. Marina Coast Water District (2017), the court examined a controversial point about the enforcement of attorney fees provisions in void contracts. The Court's decision reaffirmed that such provisions may still be enforced, under certain conditions, even if the overall contract is declared void.
To put it in perspective, Marina Coast Water District ("Marina") questioned a trial court’s decision to award attorney fees and costs to the California-American Water Company. The contention was based on the argument that these contracts were void, and thus, California Civil Code section 1717, which typically authorizes a fee award in cases involving an "action on contract," shouldn't apply.
Section 1717 (a) allows the recovery of attorney fees for the party prevailing on the contract. This holds true regardless of whether that party is specifically named in the contract or not. However, the key question here revolved around whether this section applies to void contracts.
While Marina's argument seemed plausible at first glance, the court concluded it to be unpersuasive. They based their decision on a precedent set by Santisas v. Goodin (1998), which aimed to ensure mutuality of remedy for attorney fee claims under contractual attorney fee provisions. The Santisas ruling ensured that both parties to a contract could recover attorney fees under two circumstances:
When only one party is expressly given the right to attorney fees in the contract.
When a party defending a litigation based on a contract (that contains a provision for attorney fees) successfully argues against the applicability, validity, enforceability, or existence of the said contract.
In simpler terms, if Marina had successfully enforced the contracts, their entitlement to attorney fees wouldn't be disputed. But since the respondents successfully proved the contracts were void, they were allowed to recover their attorney fees, ensuring the doctrine of mutuality of remedy.
However, it’s important to note that different rules apply if a contract is deemed unenforceable due to illegality. In the case of Marina, though, this was not a concern as their contracts were not centered around illegal activities.
To sum up, the California-American Water Company case serves as a crucial reminder to all parties entering a contract in California. It emphasizes that an attorney fees provision in a contract can survive even when the contract itself is declared void, unless it is due to illegality. This emphasizes the need for parties to consider legal representation when drafting or entering into contracts.
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Keywords: California law, contract law, attorney fees provision, void contract, California-American Water Company v. Marina Coast Water District, California Civil Code section 1717, Santisas v. Goodin, mutuality of remedy, enforceable contracts, legal representation.