Contractor Who Lost on Promissory Estoppel Claim But Wins on Breach of Contract Claim, Entitled to Attorney’s Fees

Plastic army manThere are battles and then there are wars.  If you win enough battles (or, sometimes, the battle) you will win the war; but simply winning a battle (or, in some cases, even many battles) will not  guarantee you victory.  Just ask George Washington, who lost far more battles than he won, but ultimately won independence for the United States after a decisive victory at the Battle of Yorktown in 1871.

In a recent case,  Douglas E. Barnhart, Inc. v. CMC Fabricators, Inc., Case No. D060849 (November 20, 2012), one contractor who won “a” battle, but lost “the” battle, found the spoils of victory yanked from its grasp.  In Barnhart, Douglas E. Barnhart, Inc. (“Barnhart”), a general contractor on a municipal library project, solicited bids for decorative metal work.  CMC Fabricators, Inc. (“CMC”) submitted a bid for the project and Barhart used CMC’s bid to prepare its own bid for the project.

After winning the bid, Barnhart sent CMC a subcontract that included price and scope of work terms that differed from those contained in CMC’s  bid.  CMC refused to sign the subcontract and sent its own proposed subcontract with terms consistent with its bid, however, Barnhart refused to sign CMC’s subcontract and substituted another subcontractor for CMC.

Barhart then sued CMC for breach of contract and promissory estoppel based on its reliance on CMC’s bid, seeking $66,110, the difference between CMC’s bid and what Barnhart had to pay the substitute subcontractor.  At trial, the trial court rejected Barnhart’s breach of contract claim because only competing subcontracts had been exchanged between Barnhart and CMC and neither had been agreed to.  However, the trial court found that Barnhart had prevailed on its promissory estoppel claim and awarded Barnhart $21,110 because Barnhart had relied on CMC’s bid when it  submitted its own bid to the owner and then had to hire a higher priced replacement subcontractor when a subcontract with CMC could not be agreed upon.

Following trial, and although Barnhart was the only party with a monetary recovery, CMC filed a motion for an award of attorney’s fees in the amount of $150,484.77 based on an attorney’s fee provision contained in its bid.  The trial court denied CMC’s motion on the ground that Barnhart had prevailed on its promissory estoppel claim and had “therefore received the net monetary award and achieved its objecti[ve]s in litigation.”  CMC appealed.

On appeal, CMC argued that because it had defeated Barnhart’s breach of contract claim – and the attorney’s fee provision contained in its bid was the only basis for the recovery of attorney’s fees  – that it was entitled to recover its attorney’s fees even though it lost on the promissory estoppel claim.  The Court of Appeals for the Fourth District agreed.

Although the trial court found that no contract existed between the parties, explained the Court of Appeals, when a party prevails on a breach of contract claim by establishing that the contract is “invalid, inapplicable, unenforceable nonexistent,” Civil Code  section 1717 permits that party to recover its attorney’s because the opposing party “would have been entitled to attorney fees under the contract had they prevailed.” (emphasis added).  Thus, because Barnhart would have been entitled to recover its attorney’s fees had it prevailed on its breach of contract claim, CMC was entitled to recover its attorney’s fees by showing that there was no contract between the parties.

Moreover, held the Court of Appeals, although this was a mixed decision, with CMC defeating Barnhart’s breach of contract claim, and Barnhart prevailing on its promissory estoppel claim, “the determination of the party prevailing on the contract for purposes of awarding fees under section 1717 must be made independently of the determination of the party prevailing in the overall action.”  (emphasis added).  Thus, even though Barnhart prevailed on its promissory estoppel claim, because attorney’s fees were only recoverable on its breach of contract claim, CMC was entitled to recover its attorney’s fees because it had defeated the breach of contract claim.

Finally, the Court of Appeals held that Barhart’s promissory estoppel claim was not “on the contract” because, while promissory estoppel claims bear some similarities to to breach of contract claims (e.g., they both involve promises – breach of contract claims involve a breach of a promise and promissory estoppel claims involve reliance on a promise), they are distinct and mutually exclusive theories of recovery because unlike breach of contract claims, promissory estoppel does not require that there be any formal agreement between the parties.

6 Responses to “Contractor Who Lost on Promissory Estoppel Claim But Wins on Breach of Contract Claim, Entitled to Attorney’s Fees”

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