Summary
explaining rule and holding that, because the trial court did not rescind the parties' contract, the defendant was entitled — despite having asserted a counterclaim for rescission — to recover attorney fees in successfully defending an action to enforce the contract
Summary of this case from Desmarais v. the StayersOpinion
Nos. (CC 9412-08281; CA A91803; SC S45507).
Argued and submitted March 8, 1999.
Filed: August 5, 1999.
On review from the Court of Appeals.
Appeal from Multnomah County Circuit Court, Linda L. Bergman, Judge. 154 Or. App. 397, 961 P.2d 883 (1998).
The decision of the Court of Appeals is reversed in part and affirmed in part. The case is remanded to the Court of Appeals for further proceedings.
Charles A. Ringo, Beaverton, argued the cause for petitioners on review. With him on the briefs was Doris J. Brock, Portland.
Jonathan M. Radmacher, of McEwen, Gisvold, Rankin, Carter Streinz, LLP, Portland, argued the cause for respondent on review. With him on the briefs was Leo B. Frank, Portland.
En Banc
The issue in this contract action is whether the trial court erred in awarding attorney fees to defendants under the parties' contract and ORS 20.096(1) after the trial court entered judgment in defendants' favor. The Court of Appeals reversed the award of attorney fees. Bennett v. Baugh, 154 Or. App. 397, 961 P.2d 883 (1998). We reverse and remand the case to that court for further proceedings.
Defendants filed a cross-appeal. They do not seek review of the Court of Appeals' disposition of their cross-appeal. We therefore affirm the decision of the Court of Appeals as to the cross-appeal.
Defendants, owners of Gerald Baugh Construction Corporation, retained plaintiff, an attorney, to represent the corporation in a series of disputes arising out of construction contracts for two state highway projects. Defendants gave plaintiff a $1,000 retainer fee. When plaintiff had depleted the retainer, he and defendants orally agreed that plaintiff would continue to represent the corporation.
Several months later, defendants gave plaintiff a promissory note for $16,124.16 to secure payment of his legal fees. The note obligated defendants personally for the debt by making them jointly liable with the corporation. The note contained the following attorney fees provision:
"In event of suit or action to enforce payment of this note, promisor shall be liable for attorney fees and costs incurred in commencement and prosecution of such action or suit."
The construction disputes went to trial. During trial, defendants gave plaintiff a second promissory note in the amount of $35,000 for unpaid legal services. The second note contained a similar attorney fees provision.
Plaintiff subsequently demanded payment on the notes, but defendants refused to pay. Plaintiff brought this action on the notes for breach of contract and for collection of attorney fees on an open account. Plaintiff thereafter abandoned his claim on the second promissory note. At trial, defendants conceded that they had not paid plaintiff and that their failure to do so had breached the parties' contract. Defendants raised three affirmative defenses to justify their failure to pay: estoppel, undue influence, and rescission. The jury returned a general verdict in favor of defendants, and the trial court entered judgment in favor of defendants on plaintiff's breach of contract claim. The trial court then awarded attorney fees to defendants.
Defendants filed counterclaims for breach of fiduciary duty, negligence, and violation of ORS 646.639, the Unlawful Debt Collection Act. Before trial, defendants voluntarily dismissed the negligence and unlawful debt collection claims. At the beginning of the trial, plaintiff confessed judgment on defendants' breach of fiduciary duty counterclaim. The trial court awarded defendants $200 in damages on that claim.
Plaintiff appealed. The Court of Appeals reversed the award of attorney fees, reasoning that, although defendants were the prevailing party, they "lost their right to attorney fees under the contract by succeeding on their recission defense." Bennett, 154 Or. App. at 402. The Court of Appeals based its decision on Pickinpaugh v. Morton, 268 Or. 9, 519 P.2d 91 (1974). The Court of Appeals did not address plaintiff's other assignment of error.
On review, defendants argue that they are entitled to an award of attorney fees under ORS 20.096(1), because they were the prevailing party, even though they defended against plaintiff's claim, in part, on a rescission theory. In the alternative, defendants contend that, because the judgment did not rescind the parties' contract, they are entitled to an award of attorney fees under the parties' contract. Plaintiff responds that, under ORS 20.096(1) and this court's case law, an award of attorney fees is not available if a party rescinds the contract that contains the source of authority for an award of attorney fees.
Generally, a party is not entitled to an award of attorney fees unless the award is authorized by statute or by a specific contractual provision. Wilkes v. Zurlinden, 328 Or. 626, 631, 984 P.2d 261 (1999); Mattiza v. Foster, 311 Or. 1, 4, 803 P.2d 723 (1990). As noted, the contract at issue here contains an attorney fees provision that purports to entitle only plaintiff to an award of attorney fees. Under ORS 20.096(1), when a contract specifically provides that attorney fees shall be awarded to one of the parties, such fees shall be awarded to the prevailing party in an action on the contract. McMillan v. Golden, 262 Or. 317, 321, 497 P.2d 1166 (1972).
Under the parties' contract, plaintiff would have been entitled to an award of attorney fees if he had prevailed on his claim for breach of contract. However, defendants successfully defended against plaintiff's claim and, thus, they are the prevailing party. See Wilkes, 328 Or. at 632 ("if a plaintiff takes nothing on its claim, then the defendant is the prevailing party under ORS 20.096"); American Petrofina v. D L Oil Supply, 283 Or. 183, 199, 583 P.2d 521 (1978) (same). Accordingly, under ORS 20.096(1), defendants are entitled to an award of attorney fees, unless for some other reason they are barred from receiving such an award. Plaintiff contends, and the Court of Appeals held, that defendants are not entitled to an award of attorney fees because they succeeded in rescinding the contract.
It is well established that a party that successfully rescinds a contract is barred from relying on that contract for an award of attorney fees. See Pickinpaugh, 268 Or. at 17-18 (so holding); see also Niedermeyer v. Latimer, 307 Or. 473, 475, 769 P.2d 771 (1989) (same); Bodenhamer v. Patterson, 278 Or. 367, 378, 563 P.2d 1212 (1977) (same). However, those cases are inapposite here because, contrary to the assertion of the Court of Appeals, the judgment in this case did not rescind the parties' contract. After the jury returned a verdict for defendants on plaintiff's claim, the trial court entered judgment for defendants against plaintiff. That judgment does not declare that the parties' contract was rescinded. Thus, defendants are entitled to an award of attorney fees under the contract and ORS 20.096(1).
Because of its disposition, the Court of Appeals did not address plaintiff's contention that the trial court erred in awarding attorney fees to defendants for time spent on noncontractual claims and in failing to limit the award of attorney fees to those reasonably allocable to the claim for which defendants had a right to recover fees. We remand the case to the Court of Appeals to consider those issues.
The decision of the Court of Appeals is reversed in part and affirmed in part. The case is remanded to the Court of Appeals for further proceedings.