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Court of Appeal, First District, Division 2, California.

Ray HOSKING, Plaintiff and Respondent, v. CARRIER CORPORATION, Defendant and Appellant.

No. A073183.

Decided: November 25, 1996

David R. Sidran, Brenda M. Lillington, Boornazian, Jensen & Garthe, Walnut Creek, for Defendant and Appellant. Stuart A. Safine and Lawrence W. Cantwell, Concord, for Plaintiff and Respondent.

Respondent, the owner of a condominium complex, prosecuted a construction defect case against appellant, the general contractor who built the complex.   The complaint contained causes of action for breach of contract and negligence pertaining to the installation of air conditioning units.   On the day of trial, respondent dismissed his complaint with prejudice.   Appellant thereafter sought and was denied an award of attorney fees pursuant to a provision in a written contract expressly allowing such fees.1

 Initially we address appellant's contention that the trial court committed reversible error by “relying on Civil Code section 1717” (section 1717) in refusing to award attorney fees.   Regrettably, the record on appeal affords no basis for divining the basis for the trial court's ruling.   The trial court's written order articulates no legal basis for the refusal and the reporter's transcript is similarly bereft of any articulated rationale.   With or without the benefit of the trial court's reasoning, our task is to determine de novo the appropriateness of a grant or denial of attorney fees.  (Bussey v. Affleck (1990) 225 Cal.App.3d 1162, 1165–1166, 275 Cal.Rptr. 646;  Honey Baked Hams, Inc. v. Dickens (1995) 37 Cal.App.4th 421, 424, 43 Cal.Rptr.2d 595, review den.  (Honey Baked Hams );  see 9 Witkin, Cal. Procedure (3d ed. 1985) Appeal, § 259, p. 266.)

Section 1717, which establishes a mutuality of remedy when a contract makes the recovery of attorney fees available only to one party, provides in subdivision (b)(2) that “[w]here an action has been voluntarily dismissed ․ there shall be no prevailing party for purposes of this section.”   Accordingly, were section 1717 controlling, appellant would have no tenable basis for appeal.

 However, in relying on section 16.8 of the contract, appellant invoked Code of Civil Procedure section 1021 (section 1021), which provides:  “Except as attorney's fees are specifically provided for by statute, the measure and mode of compensation of attorneys and counselors at law is left to the agreement, express or implied, of the parties;  but parties to actions or proceedings are entitled to their costs.”   This statute provides a substantially broader basis for an award of fees than does section 1717.   Under section 1021, “the allocation of attorney fees is left to the agreement of the parties.   There is nothing in the statute that limits its application to contract actions alone.   It is quite clear from the case law interpreting Code of Civil Procedure section 1021 that parties may validly agree that the prevailing party will be awarded attorney fees incurred in any litigation between themselves, whether such litigation sounds in tort or in contract.  [Citations.]”  (Xuereb v. Marcus & Millichap, Inc. (1992) 3 Cal.App.4th 1338, 1341, 5 Cal.Rptr.2d 154, review den.  (Xuereb ).)

In Xuereb, the purchasers in a real estate transaction brought suit against the broker and sellers.  “At the conclusion of testimony, [the purchasers] submitted their case to the jury on the theories of negligence, breach of fiduciary duty, concealment and misrepresentation, but not on the breach of contract cause of action.”  (Xuereb, supra, 3 Cal.App.4th at p. 1341, 5 Cal.Rptr.2d 154.)   After a defense verdict, the defendants sought attorney fees pursuant to the purchase agreement which included the following provision:  “ ‘Attorneys' Fees:  If this Agreement gives rise to a lawsuit or other legal proceeding between any of the parties hereto, including Agent, the prevailing party shall be entitled to recover actual court costs and reasonable attorneys' fees in addition to any other relief to which such party may be entitled.’ ”  (Id. at p. 1340, 5 Cal.Rptr.2d 154.)

“The critical question,” said the court, was whether, “under the language of the parties' attorney fees agreement,” the lawsuit “arose from the Purchase Agreement.”  (Xuereb, supra, 3 Cal.App.4th at p. 1343, 5 Cal.Rptr.2d 154.)   Applying the standard rule that “words of a contract are to be understood in their ordinary and popular sense,” (Civ.Code, § 1644) and that “a contract may be explained by reference to the circumstances under which it was made, and the matter to which it relates,” (Civ.Code, § 1647) the court concluded “that the phrase ‘gives rise to’ must be interpreted expansively, to encompass acts and omissions occurring in connection with the Purchase Agreement and the entire transaction of which it was the written memorandum.”  (Xuereb, supra, 3 Cal.App.4th at p. 1344, 5 Cal.Rptr.2d 154.)   Consequently, an award of reasonable attorney fees was held appropriate for those tort causes of action which “arose from” the Purchase Agreement and which could not have arisen “but for the Purchase Agreement.”  (Id. at p. 1343, 5 Cal.Rptr.2d 154.)

In Lerner v. Ward (1993) 13 Cal.App.4th 155, 16 Cal.Rptr.2d 486 (Lerner ), the complaint alleged breach of contract, reformation of a contract, fraud, breach of fiduciary duty, and negligence derived from a real estate transaction.   Before trial, plaintiffs dismissed the breach of contract and reformation causes of action and proceeded only on the issue of fraud.   Upon entry of a defense verdict, defendants sought attorney fees under a provision of the real estate sales contract which provided for such fees to the prevailing party “ ‘in any action or proceeding arising out of this agreement.’ ”  (Id. at p. 159, 16 Cal.Rptr.2d 486.)   Relying on Xuereb, the court held that the “arising out of” provision of the agreement was not limited to an action “on the contract,” but encompassed “any action for fraud arising out of that agreement.”  (Id. at p. 160, 16 Cal.Rptr.2d 486.)

In Moallem v. Coldwell Banker Com. Group, Inc. (1994) 25 Cal.App.4th 1827, 31 Cal.Rptr.2d 253, review denied, an attorney fee provision extending to any “legal action against Owner ․ relating to this Schedule or any agreement of which it is a part, ․” was deemed to be “broad enough to include tort claims” for negligence and breach of a fiduciary duty.  (Id. at pp. 1830–1831, 31 Cal.Rptr.2d 253.)

In Allstate Ins. Co. v. Loo (1996) 46 Cal.App.4th 1794, 1796, 54 Cal.Rptr.2d 541, Division Four of this court considered “whether a lessor who prevails in an action in subrogation brought by his lessee's property insurer is entitled to recover attorney fees under a provision in the lease.”   (Ibid.)  Allstate had paid lessee's claims for fire damage and then sought subrogation from the lessor, asserting causes of action for negligence, failure to disclose a latent defect, and breach of an implied warranty of habitability.   The lease contained a provision authorizing reasonable attorney fees to the prevailing party “[i]n any legal action brought by either party to enforce the terms hereof or relating to the demised premises.”  (Id. at p. 1797, 54 Cal.Rptr.2d 541.)  Allstate relied upon Xuereb and Lerner to conclude that the lease provision “encompasses any action—whether in contract or in tort—which relates to the leased premises.”  (Id. at p. 1799, 54 Cal.Rptr.2d 541.)

 The attorney fee provision in this case manifests the same breadth of purpose demonstrated in the foregoing cases.   Clearly the language “any litigation ․ concerning the project” encompasses both tort and contract causes of action.   To the extent that the complaint in this case is viewed as sounding primarily in tort, section 1717 has no application by its terms, and the prevailing party appears to be entitled to rely on section 1021.

 Nor does section 1717 supersede section 1021 merely because the complaint sounds—partly or even primarily—in contract.  “Civil Code section 1717 necessarily assumes the right to enter into agreements for the award of attorney fees in litigation, a right which in fact it derives from Code of Civil Procedure section 1021.   Because of its more limited scope, Civil Code section 1717 cannot be said to supersede or limit the broad right of parties pursuant to Code of Civil Procedure section 1021 to make attorney fees agreements.”  (Xuereb, supra, 3 Cal.App.4th at p. 1342, 5 Cal.Rptr.2d 154.)

We find no reason in law or policy to deny parties to a contract the benefit of their bargain relating to attorney fees.   Here, the “measure and mode” of attorney fee compensation was determined by the parties' mutual consent to section 16.8 of the contract.   The contract was not adhesive and reflected a commercial venture where “parties of roughly equal bargaining power [were] free to shape the contours of their agreement and to include provisions for attorney fees ․ in the event of breach.”  (Freeman & Mills, Inc. v. Belcher Oil Co. (1995) 11 Cal.4th 85, 91, 44 Cal.Rptr.2d 420, 900 P.2d 669.)  “ ‘[W]hen two parties make a contract, they agree upon rules and regulations which will govern their relationship;  the risks inherent in the agreement and the likelihood of its breach.   The parties to the contract in essence create a mini-universe for themselves, in which each voluntarily chooses his contracting partner, each trusts the other's willingness to keep his word and honor his commitments, and in which they define their respective obligations, rewards and risks.   Under such a scenario, it is appropriate to enforce only such obligations as each party voluntarily assumed, and to give him only such benefits as he expected to receive;  this is the function of contract law.’ ”   (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 517, 28 Cal.Rptr.2d 475, 869 P.2d 454.)

Notwithstanding the clarity of contract, statute and precedent, appellant faces a remaining obstacle to recovery in the holding of Division Four of this court in Jue v. Patton (1995) 33 Cal.App.4th 456, 39 Cal.Rptr.2d 364.   In that case, the purchaser of property at a judicial foreclosure filed a cross-complaint against the seller and the seller's agents alleging various tort claims as well as claims for rescission and equitable indemnity.   Upon the plaintiff's voluntary dismissal of the cross-complaint, the seller moved for attorney fees pursuant to a provision in the sales contract.   The trial court relied upon section 1717 to conclude that there was no prevailing party because the action was voluntarily dismissed.

On appeal the court affirmed.   While acknowledging Xuereb and its progeny, the court found International Industries, Inc. v. Olen (1978) 21 Cal.3d 218, 145 Cal.Rptr. 691, 577 P.2d 1031 (Olen ) to be “dispositive” and held that “[r]ecovery of attorney fees based on a contract provision is not permitted when the action is voluntarily dismissed prior to trial.”  (Jue v. Patton, supra, 33 Cal.App.4th at p. 460, 39 Cal.Rptr.2d 364.)   While Jue opines that “[i]t is now well settled that in pretrial dismissal cases, the parties are left to bear their own attorney fees,” (ibid.) the solitary citation for the proposition is Olen, supra, 21 Cal.3d 218, 145 Cal.Rptr. 691, 577 P.2d 1031.   We test that proposition by examining Olen in light of Honey Baked Hams, supra, 37 Cal.App.4th 421, 43 Cal.Rptr.2d 595.

 In Olen, a sublessor brought suit under a sublease providing for recovery of costs and attorney fees only by the plaintiff sublessor.   Upon the plaintiff's voluntary dismissal of the action, the defendant sought attorney fees pursuant to section 1717.   At that time, section 1717 contained no provision concerning the allowance or disallowance of attorney fees upon voluntary dismissal.   The statute then provided that the “ ‘ “prevailing party” ’ ” to whom fees might be awarded “ ‘means the party in whose favor final judgment is rendered.’ ”  (Olen, supra, 21 Cal.3d at p. 222, 145 Cal.Rptr. 691, 577 P.2d 1031.)   Relying upon Associated Convalescent Enterprises v. Carl Marks & Co., Inc. (1973) 33 Cal.App.3d 116, 108 Cal.Rptr. 782, Olen observed that a dismissal does not result in rendition of a final judgment in defendant's favor.2  (Olen, supra, 21 Cal.3d at p. 222, 145 Cal.Rptr. 691, 577 P.2d 1031.)   Consequently, since the defendant's only avenue of relief was by way of section 1717, the absence of a final judgment precluded any award of attorney fees.

In reaching this result the court in Olen analyzed the statutory objectives of section 1717 in light of its pre-enactment history.   Prior to section 1717 there was no mechanism for recovering nonstatutory attorney fees following a voluntary dismissal.  (Cf. former Code Civ. Proc., §§ 1032, 1033.5;  see Olen, supra, 21 Cal.3d at p. 223, 145 Cal.Rptr. 691, 577 P.2d 1031 [“Since fees could not be taxed as costs, they could not be recovered after dismissal.”].)  The court in Olen seemed to acknowledge that ensuing statutory changes, as interpreted and applied in T.E.D. Bearing Co. v. Walter E. Heller & Co. (1974) 38 Cal.App.3d 59, 112 Cal.Rptr. 910, lifted the “procedural bar” to recovering attorney fees in pretrial voluntary dismissal cases.  (Olen, supra, at p. 223, 145 Cal.Rptr. 691, 577 P.2d 1031.)   Nevertheless, the court opined, “sound public policy and recognized equitable considerations require that we adhere to the prior practice of refusing to permit recovery of attorney fees based on contract when the plaintiff voluntarily dismisses prior to trial.”  (Ibid.)  Relying on Ecco–Phoenix Electric Corp. v. Howard J. White, Inc. (1969) 1 Cal.3d 266, 81 Cal.Rptr. 849, 461 P.2d 33, the court concluded that “concern for the efficient and equitable administration of justice requires that the parties in pretrial dismissal cases be left to bear their own attorney fees, whether claim is asserted on the basis of the contract or section 1717's reciprocal right.”  (Olen, supra, 21 Cal.3d at p. 225, 145 Cal.Rptr. 691, 577 P.2d 1031.)

The foregoing propositions from Olen form the basis for the decision in Jue, supra.   In particular, Jue relied upon Olen 's statement that attorney fee awards are precluded in pretrial dismissal cases, “whether [the] claim is asserted on the basis of the contract or [ ] section 1717's reciprocal right.”  (Jue v. Patton, supra, 33 Cal.App.4th at p. 460, 39 Cal.Rptr.2d 364, fn. omitted, quoting Olen, supra, 21 Cal.3d at p. 225, 145 Cal.Rptr. 691, 577 P.2d 1031.)   This statement has engendered substantial confusion, but in our view has no proper application where an award of attorney fees is sought under section 1021 rather than section 1717.   We agree with the court in Honey Baked Hams, supra, that the quoted language was intended only to mean that “neither a defendant seeking substantive entitlement to fees by virtue of section 1717's reciprocity provisions nor a defendant claiming contractual fees who invoked section 1717 's procedure could recover these fees as costs following a pretrial dismissal by the plaintiff.”   (Honey Baked Hams, supra, 37 Cal.App.4th at pp. 427–428, 43 Cal.Rptr.2d 595;  accord, Kelley v. Bredelis (1996) 45 Cal.App.4th 1819, 1828–1829, 53 Cal.Rptr.2d 536, review den.)

The entire analysis in Olen was concerned with claims for fees based exclusively on section 1717 rather than section 1021.   The court's reference to claims “on the basis of the contract” refers to the specific language of section 1717 which posits the existence of a contract as the prerequisite to recovery thereunder.   Had the current semantic dispute been anticipated, Olen would likely have clarified its preclusion of attorney fees to those instances where the “claim is asserted on the basis of the contract” under Civil Code section 1717 or on the basis of “section 1717' s reciprocal right.”  (Olen, supra, 21 Cal.3d at p. 225, 145 Cal.Rptr. 691, 577 P.2d 1031.)   The dichotomy between “contract” and “reciprocal right” is entirely within the context of actions pursued under section 1717.3

In Honey Baked Hams, supra, plaintiff voluntarily dismissed its action for unlawful detainer and was assessed attorney fees pursuant to a lease provision stating that if either party brought “ ‘any action for relief’,” the “ ‘losing party shall pay the successful party ’ ” reasonable attorney fees “ ‘whether or not such action is prosecuted to judgment.’ ”  (Id. at p. 424, 43 Cal.Rptr.2d 595.)   Relying upon the Xuereb line of cases, and the specific provisions of Code of Civil Procedure section 1021, the court upheld the trial court's award of attorney fees to the prevailing party.   In confronting the apparent per se rule of Jue that pretrial dismissal precludes the prevailing party from an award of attorney fees, Honey Baked Hams concluded that Jue “misconstrued the reach of Olen 's holding regarding the effect of a plaintiff's pretrial dismissal, and that Olen 's statement of the procedural law applicable to contractual fees has been superseded by subsequent legislation.”  (Honey Baked Hams, supra, 37 Cal.App.4th at p. 426, 43 Cal.Rptr.2d 595.)   We agree with that conclusion, and the analysis by which it was reached.

Honey Baked Hams first observed that the defendant in Olen was precluded from attorney fees under then applicable section 1717 because the voluntary dismissal did not result in the statutorily required “ ‘final judgment.’ ”   (Id. at p. 426, 43 Cal.Rptr.2d 595.)   The court then reviewed the Olen analysis tracing the pre-section 1717 procedural bar to contractual attorney fees and the “ ‘equitable considerations' ” which led to the enactment of section 1717.  (Id. at p. 427, 43 Cal.Rptr.2d 595.)  Honey Baked Hams noted that “[i]n Olen it was necessary for the party seeking attorney fees to rely exclusively on section 1717, because the subject contract had a nonreciprocal attorney fee provision in favor of the other party.   The discussion of claims for contractual fees was limited to the procedural bar to recovery following a plaintiff's pretrial dismissal and the manner in which section 1717 provided relief from the bar.   Thus, the language on which HBH (and Jue ) rely simply pointed out (albeit in elliptical fashion) that neither a defendant seeking substantive entitlement to fees by virtue of section 1717's reciprocity provisions nor a defendant claiming contractual fees who invoked section 1717 's procedure could recover these fees as costs following a pretrial dismissal by the plaintiff.  [¶]  As the preceding analysis demonstrates, the question of a defendant's claim for contractual fees enforced independent of section 1717 was not before the Olen court, and cases are not authority for propositions not considered.  [Citation.]”   (Honey Baked Hams, supra, 37 Cal.App.4th at pp. 427–428, 43 Cal.Rptr.2d 595, fn. omitted.)

 We agree with Honey Baked Hams that Olen was limited to an analysis of attorney fee claims pursued within the context of section 1717 and did not consider the attorney fee claims advanced pursuant to Code of Civil Procedure section 1021.   We consider that Jue 's apparent reliance upon the “broad pronouncements” of Olen was inapposite, since the trial court's denial of attorney fees in Jue was apparently predicated upon the specific statutory prohibition of section 1717(b)(2).

 While we would confine Olen and Jue to requests for fees invoking section 1717, we share their concern that attorney fee adjudications be “efficient and equitable.”  (Olen, supra, p. 225, 145 Cal.Rptr. 691, 577 P.2d 1031.)   Like Justice Jefferson's dissent in Olen, however, we “find no magic in language used by the majority—sound public policy and equitable considerations.   Both of these concepts, like beauty, have different meanings dependent upon the eyes and ideas of the beholder.”  (Id. at p. 229, 145 Cal.Rptr. 691, 577 P.2d 1031 (dis. opn. of Jefferson, J.).)   In Jefferson's view, “[T]he recovery of attorney's fees by a defendant upon a voluntary dismissal of the action by plaintiff would be in the interest of sound public policy and in accord with equitable principles, since it would tend to discourage the filing of nonmeritorious actions by a party to a contract containing an attorney's fee clause.”  (Ibid.)  In a similar vein, Division Four of this court recently observed that “the presence of an attorney fees provision in a contract discourages—and is intended to discourage—the filing of lawsuits between the parties premised on weak legal positions.   If the risk of being liable to pay attorney fees to the opposing side discourages a subrogee from pursuing a weak subrogation claim, then a valid social policy has been advanced․”  (Allstate Ins. Co. v. Loo, supra, 46 Cal.App.4th 1794, 1801, 54 Cal.Rptr.2d 541.)

Nor is Olen 's rationale bolstered by the possibility that some voluntary dismissals may not reflect a practical acknowledgment that the plaintiff's claims lack merit.  “[A] recognition that there are various reasons which motivate different plaintiffs to voluntarily dismiss actions before trial offers no convincing argument that sound public policy or equity favors the plaintiff to justify denying to defendant an award of attorney's fees in the situation.”  (Olen, supra, 21 Cal.3d at p. 230, 145 Cal.Rptr. 691, 577 P.2d 1031 (dis. opn. of Jefferson, J.).)   Nor do we find persuasive the majority's suggestion in Olen that permitting recovery of attorney fees in all cases of voluntary dismissal before trial would “encourag[e] the maintenance of pointless litigation” in order to forestall or avoid such an award.  (Id. at p. 225, 145 Cal.Rptr. 691, 577 P.2d 1031.)   Presumably a plaintiff so calculating as to contemplate such a strategy would also recognize that continuance of a “pointless” lawsuit would add additional billable hours which would inevitably be assessed against him.

Whatever the merits of Olen 's “policy” concerns, its underlying procedural rationale has been entirely vitiated by subsequent legislation.   Code of Civil Procedure section 1033.5 now provides that attorney fees, whether authorized by statute or contract, “are allowable” as costs.  Code of Civil Procedure section 1032 provides that a “prevailing party,” which includes “a defendant in whose favor a dismissal is entered,” “is entitled as a matter of right to recover costs in any action or proceeding.”   We therefore see no sustainable rationale by which a plaintiff's voluntary dismissal may deprive a defendant of the right to recover fees under sections 1021, 1032, and 1033.5.

 Plaintiff contends, however, that application of these statutes would violate the terms of the contract, both as expressed on its face and as incorporated by operation of law.   First plaintiff notes that the contract calls for fees “in addition to such other relief as may be granted.”   This language, contends plaintiff, conditions a fee award on the granting of some “other relief,” which cannot occur when the action is voluntarily dismissed.   We reject both the premise and the conclusion.  “In addition” simply does not mean “conditioned upon.”   Further, the word “may” suggests that the other relief might or might not be forthcoming;  it hardly suggests an otherwise prevailing party is required to obtain such relief before recovering fees.   Indeed, the phrase “such other relief as may be granted” is traditional pleader's boilerplate, harkening back to an earlier era of strict construction, when the slightest formal lapse in stating a prayer for relief might result in the forfeiture of remedies to which the plaintiff might well be substantively entitled.   The purpose of the phrase in that context is to forestall an inference that by specifying one form of relief, the pleader intends to forego other, unstated forms.   The incorporation of such language in a contract may be slightly anomalous, but it hardly suggests the meaning imputed by plaintiff.

 Plaintiff asserts additionally that the phrase “the party prevailing in the litigation,” as used in the contract, “clearly shows that there must be litigation, i.e., a trial” before there can be an award of fees.  “Litigation” does not mean “trial.”   As the term is applicable here, “litigation” commenced when plaintiff filed his complaint, and continued until he dismissed it (and beyond, with the filing of this appeal).   The phrase “party prevailing in the litigation” in no way suggests that the contracting parties meant to condition a fee award on a trial.

 Plaintiff finally contends that the meaning and effect of the fee provision must be determined according to the law in effect in 1987, when the contract was signed.   Since it was only in 1990 that section 1033.5 was amended to permit recovery of contract-based attorney fees as costs, plaintiff contends that the fees sought here could only be allowed under section 1717—which precluded such an allowance by its terms.   Therefore, he concludes, fees under this contract cannot be recovered when a case is voluntarily dismissed.

 This argument rests on a misapplication of the “general rule” that “ ‘ “all applicable laws in existence when an agreement is made, which laws the parties are presumed to know and to have had in mind, necessarily enter into the contract and form a part of it, without any stipulation to that effect, as if they were expressly referred to and incorporated.” ’ ”  (Swenson v. File (1970) 3 Cal.3d 389, 393, 90 Cal.Rptr. 580, 475 P.2d 852, quoting Alpha Beta Food Markets. v. Retail Clerks (1955) 45 Cal.2d 764, 771, 291 P.2d 433.)   This rule does not have nearly the sweep attributed to it by plaintiff.   Most pertinent here is the fact that a contract cannot fix the procedures which the state will employ to resolve disputes placed before its courts.  “[I]nto all contracts is superimposed the higher authority of the state which must be presumed to be known by all, and every contract is made in subordination of that authority and must yield to that control.  [Citation.]   In other words, not only are existing laws read into contracts in order to fix obligations as between the parties, but the reservation of essential attributes of sovereign power is also read into contracts as a fundamental principle of law.  [Citation.]”  (Castleman v. Scudder (1947) 81 Cal.App.2d 737, 740, 185 P.2d 35, italics added.)

 The adoption of judicial procedures for the resolution of litigation is patently among the “sovereign powers” of the state, the reservation of which must be read into every contract “as a fundamental principle of law.”   Therefore, except where the Legislature has granted contracting parties the power to determine procedural matters—as it has done with agreements to arbitrate—they lack that power.   Nor can they reasonably expect otherwise.   Plaintiff's argument would require the courts to honor and apply procedural laws which may have long since lost general effect.   Every contract case might be governed by its own rules of pleading, evidence, and trial procedure.   Such a regimen would impose an unacceptable burden upon parties to contracts and the courts.

The issue here is freedom of contract.   No suggestion is made that the contract in question was adhesive.   The clearly expressed intention of the contracting parties was that the commencement of any litigation concerning the project would entitle “the party prevailing in the litigation” to an award of reasonable attorney fees.   Presumably this was a negotiated term, each side recognizing that such a provision operates both to deter frivolous litigation, and to reward adherence to sound legal principles.   It is not our task “to subordinate voluntary contractual arrangements to [our] own sense of public policy and proper business decorum․”  (Oki America, Inc. v. Microtech Intern., Inc. (9th Cir.1989) 872 F.2d 312, 316.)

We conclude that appellant is entitled to reasonable attorney fees under Code of Civil Procedure section 1021 pursuant to the provisions of section 16.8 of the contract.   The matter is reversed and remanded to the trial court with instructions to award reasonable attorney fees.



1.   The contract provided as follows: “16.8 ATTORNEY'S FEES“Should any litigation be commenced between the parties to this Agreement concerning the Project, any provision of this Contract, or the rights and obligations of either in relation thereto, the party prevailing in the litigation shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for that party's attorney's fees in the litigation.”

2.   Insofar as this reasoning was central to the holding in Olen, it sharply distinguishes that case from the one before us.   The dismissal in Olen was “without prejudice,” and thus did not finally determine the rights of the parties.  (See Olen, supra, 21 Cal.3d at p. 221, 145 Cal.Rptr. 691, 577 P.2d 1031;  cf. Associated Convalescent Enterprises v. Carl Marks & Co., Inc., supra, 33 Cal.App.3d 116, 108 Cal.Rptr. 782 [cited in Olen at p. 222, 145 Cal.Rptr. 691, 577 P.2d 1031;  dismissal without prejudice during pleading stage];  Gray v. Kay (1975) 47 Cal.App.3d 562, 120 Cal.Rptr. 915 [cited in Olen;  dismissal without prejudice after answer, but apparently before trial].)  Here the dismissal occurred on the day of trial and was entered with prejudice.   It therefore operates as “a final decision on the merits in [the defendant's] favor.”   (Crowley v. Katleman (1994) 8 Cal.4th 666, 674, 34 Cal.Rptr.2d 386, 881 P.2d 1083;  see Roybal v. University Ford (1989) 207 Cal.App.3d 1080, 1085–1086, 255 Cal.Rptr. 469.)

3.   T.E.D. Bearing Co. v. Walter E. Heller & Co., supra, 38 Cal.App.3d 59, 112 Cal.Rptr. 910 notes that cases brought under the contract branch of section 1717 are nearly “unique,” since section 1717 is usually invoked “where the contract had granted attorneys' fees solely to the other contracting party who lost the lawsuit.   But the language of Civil Code section 1717 is not so limited as this.   The statute says that attorneys' fees shall be awarded to ‘the prevailing party, whether he is the party specified in the contract or not.’ ”   (Id. at p. 63, 112 Cal.Rptr. 910.)   In other words, it is possible to seek fees under that statute even if its reciprocity provisions are unnecessary to the claimant's right of recovery.   Why a claimant might choose to do so is an open question.

HODGE, Judge.* FN* Judge of the Alameda County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

KLINE, P.J., and LAMBDEN, J., concur.