STEGMAN v. BANK OF AMERICA (1984)

Appeal from denial of attorney's fees to the prevailing party in an action to enjoin a foreclosure sale under a deed of trust and for declaratory relief.   The sole issue is whether the court erred in denying attorney's fees claimed by appellant pursuant to Civil Code section 1717(a).   We find no error and affirm.

Appellant acquired real property which was subject to a deed of trust securing a promissory note executed by his sellers.   Respondents are successor payees and beneficiaries of the note and trust deed.   Respondents filed and served a notice of default and election to sell pursuant to the deed of trust.   Appellant filed a multi-count complaint seeking to permanently enjoin foreclosure and for a declaration of rights and liabilities on the note and trust deed.

The trial court found the amount claimed due on the note as stated in the notice of default was incorrect and the notice was, therefore, null and void.   It ordered respondents to rescind the notice of default.   Appellant was awarded costs of suit but not attorney's fees.

Appellant claims attorney's fees as prevailing party by virtue of the provisions of Civil Code section 1717.¹  That section provides in pertinent part:  “(a) In any action on a contract, where the contract specifically provides that attorney's fees and costs, which are incurred to enforce the provisions of 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, whether he or she is the party specified in the contract or not, shall be entitled to reasonable attorney's fees in addition to costs and necessary disbursements.”

The promissory note secured by the deed of trust in question contained an attorney fees provision as follows:  “If action is instituted on this Note we [the buyers] promise to pay such sum as the Court may fix as attorney's fees.”   The trust deed also contains an attorney's fee provision in favor of the beneficiary or trustee.   Appellant acquired title by quit claim deed.   He did not assume the secured indebtedness.

 “Upon the transfer of real property covered by a mortgage or a deed of trust as security for an indebtedness, the property remains subject to the secured indebtedness but the grantee is not personally liable for the indebtedness or to perform any of the obligations of the mortgage or trust deed unless his agreement to pay the indebtedness, or some note or memorandum thereof, is in writing and subscribed by him or his agent or his assumption of the indebtedness is specifically provided for in the conveyance․”  (Cornelison v. Kornbluth (1975) 15 Cal.3d 590, 596–597, 125 Cal.Rptr. 557, 542 P.2d 981.)   Under Cornelison appellant can neither claim the benefit of nor become personally liable for the attorney's fees provided for in the note and deed of trust as he was not bound by the promises contained in the note or trust deed.   Consequently he cannot claim the benefit of the reciprocity provisions of section 1717.

We acknowledge this holding is contrary to Saucedo v. Mercury Sav. & Loan Assn. (1980) 111 Cal.App.3d 309, 168 Cal.Rptr. 552.   In Saucedo the court allowed recovery of attorney fees pursuant to section 1717 under similar circumstances.   The court stated a non-assuming grantee would be subject to pay the attorney fees of the beneficiary and trustee if the latter had prevailed in grantee's action to enjoin foreclosure.   Because the non-assuming grantee would have had to pay the secured debt, including attorney's fees, to prevent foreclosure, the court reasoned this “practical liability” was sufficient to trigger the remedial reciprocity under section 1717.  (Id., 111 Cal.App.3d, p. 315, 168 Cal.Rptr. 552.)   For the reasons set forth below, we respectfully disagree.

Any right of a trustee or beneficiary to recover costs, including attorney fees, from a nonassuming grantee upon default and election to sell is derived not from contract but from a statute.   The court in Saucedo acknowledged this by reference to section 2924c, subdivision (a).   Therefore, while the practical effect may be to impose attorney's fee liability on the non-assuming grantee who attempts to cure the default on the property, the liability therefore does not arise from a contract obligation of the grantee, but from statute.

 Section 1717 makes unilateral attorney's fee provisions in a contract reciprocal as a matter of law where the suit is on the contract.   (International Industries, Inc. v. Olen (1978) 21 Cal.3d 218, 223, 145 Cal.Rptr. 691, 577 P.2d 1031.)   This imposition of a reciprocal obligation to pay attorney fees incurred in court actions on the contract has been extended to non-parties to the contract.   Attorney fee recovery under section 1717 has been required where a non-party is sued by a signatory alleging the non-party is bound by the contract (Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124, 128, 158 Cal.Rptr. 1, 599 P.2d 83) and when a non-signatory brings an action on the contract against a signatory.  (Jones v. Drain (1983) 149 Cal.App.3d 484, 196 Cal.Rptr. 827.)   In each instance the signatory party would be entitled to fees under the contract if the signatory prevailed.   However, neither those rulings nor the reasons therefor entitled appellant to attorney's fees here.

The respondent's filing of the notice of default and election to sell is not “an action on the contract” within the meaning of section 1717 which clearly contemplates only court action.   Assuming arguendo appellant's suit is considered to be one “on the contract,” appellant cannot claim a reciprocal right to attorney's fees under section 1717.   To allow him to obtain attorney's fees as costs would give him a unilateral right not supported by the contract or statute.

 Attorney fees are not allowable as costs unless authorized by statute or agreement.  (Code Civ.Proc., § 1021;  Reynolds Metals Co. v. Alperson, supra, 25 Cal.3d 124, 127, 158 Cal.Rptr. 1, 599 P.2d 83.)   As indicated, supra, appellant had no right to attorney fees under the agreement (note and trust deed) as a nonassuming grantee.   Section 2924c, subdivision (a) gives a unilateral statutory right to trustees and beneficiaries to secure certain amounts for attorney fees upon cure of default, independent of any contract provision.  (Also see new § 2924d.)   Nothing in section 1717 would allow its use to make reciprocal this statutory right of trustees and beneficiaries or extend the benefits of section 2924c, subdivision (a) to trustors or their successors.

The orders are affirmed.   Each party is to bear their own attorney fees and costs on appeal.

FOOTNOTES

1.   All further references are to this code unless otherwise specified.

ABBE, Associate Justice.

STONE, P.J., and GILBERT, J., concur.