In a case that will have impacts on claims for attorney's fees based on contract, the Court of Appeal, Fourth Appellate District ruled in Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc. (2012) 211 Cal.App.4th 230 (“Barnhart Case”) that a party which prevails on a claim for breach of contract but loses on a related claim for promissory estoppel is still entitled to recover attorney's fees when the alleged contract provides that the prevailing party in any dispute on the contract is entitled to the recovery of fees.
The facts of the Barnhart Case are routine enough. In the Barnhart Case, a general contractor in preparing a bid for the construction of a municipal library, Douglas E. Barnhart, Inc. (“Barnhart”), solicited bids from subcontractors for certain decorative metal work. In response, CMC Fabricators, Inc. (“CMC”) submitted a bid for the decorative metal work dated November 5, 2005. CMC’s bid provided that the bid would “remain in force for thirty days from the above date unless accepted by [Barnhart] or withdrawn by [CMC],” and contained a space for Barnhart to indicate acceptance by signature. Although Barnhart never signed CMC’s bid, it used CMC’s bid price in preparing its own bid for the subject library project.
On December 14, 2005, Barnhart sent CMC a letter of intent that included price and scope of work terms that differed from those set forth in CMC’s November 5, 2005 bid. Six days later, Barnhart sent CMC a proposed subcontract containing these altered terms. CMC did not immediately respond but, some months later, sent its own proposed subcontract to Barnhart with terms consistent with those set forth in CMC’s original November 5, 2005 bid. Barnhart refused to sign CMC’s proposed subcontract and, with the municipality’s permission, substituted a new subcontractor to do the decorative metal work for the library at a greater price.
Barnhart then sued CMC for $66,110 on theories of breach of contract and promissory estoppel (the amount sought being the amount in excess of CMC’s bid that Barnhart had to pay to the substitute subcontractor for the decorative metal work). By way of its breach of contract claim, Barnhart alleged that CMC offered to perform the decorative metal work for the price specified in its November 5, 2005 bid, that Barnhart accepted the offer, that a contract resulted and that CMC refused to perform the work. In the promissory estoppel cause of action, Barnhart alleged that CMC submitted the November 5, 2005 bid to perform the decorative metal work, that Barnhart forseeably and reasonably relied on the bid and obligated itself to construct the municipal library, that CMC refused to honor the bid, and injustice could be avoided only by enforcing the bid. Barnhart attached a copy of CMC’s November 5, 2005 bid to the Barnhart Complaint and incorporated its terms by reference for both the breach of contract and promissory estoppel claims. Barnhart also included a cause of action to recover on CMC’s contractor bond.
Following a bench trial, the Trial Court found Barnhart and CMC never entered into a contract and, on that basis, rejected Barnhart’s breach of contract and contractor's bond claims. The Trial Court also found that Barnhart “relied to its detriment on CMC’s proposal, submitted its bid to the [Municipality] and suffered actual damages compensable under the principles of promissory estoppel.” The Trial Court then awarded $21,111 on its promissory estoppel claim and entered judgment accordingly. Thereafter, CMC moved for an award of $150,484.77 in attorney's fees based on a provision in its November 5, 2005 bid that provided:
“In the event of any dispute that arise[s] between the parties, prevailing party shall recover, in addition to any other damages, its attorney’s fees and costs incurred in litigating or otherwise settling or resolving such dispute”.
CMC argued that, under Civil Code Section 1717, because it defeated Barnhart’s breach of contract claim, it was “the party prevailing on the contract” and was therefore entitled to recover attorney's fees as a matter of law. Barnhart opposed the request for attorney's fees arguing that CMC was not entitled to attorney's fees because, among other things, Barnhart, having been awarded monetary relief on its promissory estoppel claim, was the party prevailing on the contract. The Trial Court denied CMC’s motion for attorney's fees. In its order, the Trial Court found that Barnhart had prevailed on its promissory estoppel claim and therefore received a net monetary recovery and achieved its objectives in the litigation. The Trial Court further found that Barnhart’s promissory estoppel claim was based on CMC’s bid and therefore was an action that involved the contractual terms of the bid. Based thereon, the Trial Court ruled that Barnhart
was the party prevailing on the contract, and CMC could not recover attorney's fees.
On appeal, the Court of Appeal reversed the Trial Court’s order denying the request for attorney's fees by CMC. In its opinion, the Court of Appeal ruled that CMC was a party prevailing on the contract due to the language in the November 5, 2005 bid and based on principles of reciprocity. The Court of Appeal also ruled, very importantly, that Barnhart could not be considered to have been the prevailing party based on its victory on its promissory estoppel claim because the promissory estoppel action was not “an action on a contract” within the meaning of Civil Code Section 1717. In that regard, the Court of Appeal ruled that promissory estoppel is distinct from contract for purposes of the attorney fee statute found in Civil Code Section 1717.
The Court’s decision in the Barnhart Case is significant in that it provides published case law that a claim for promissory estoppel will come outside of an action on contract for purposes of the attorney fee statute found in Civil Code Section 1717.
About the Authors: Edward F. Morrison, Jr. is the founding partner and Larry A. Schwartz is Of Counsel to The Morrison Law Group, a professional corporation. Their biographies can be viewed at www.morrisonlawgroup.com.
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