This blog entry provides an analytical metric for double-checking assumptions about application of Civil Code section 1717 and contractual attorney fee awards. As the case law demonstrates, it is easy to misapprehend how and when the statute actually operates.
Section 1717(a) states that “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 prevailing party on the contract, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney fees in addition to other costs.” Section 1717(b)(1) states that “[T]he party prevailing on the contract shall be the party who recovered a greater relief in the action on the contract.” And section 1717(b)(2) states that “Where an action has been voluntarily dismissed or dismissed pursuant to a settlement of the case, there shall be no prevailing party for purposes of this section.”
It sounds straight forward and if section 1717 applied to every single suit involving a contractual attorney fee provision, it would be. But of course, it’s not that simple. A two-step analysis of attorney fee provisions in contracts may be helpful in determining the applicability and reach of section 1717.