Pursuant To Statutory Rules Of Contract Interpretation, Contracts Should Be Construed As A Whole So As To Interpret The Mutual Intention Of The Parties.
In Lerner & Veit v. Power, Case No. A158322 (1st Dist., Div. 5 August 31, 2020) (unpublished), plaintiff law firm and defendant client entered into a written retainer agreement wherein defendant would be responsible for paying the firm’s fees, costs and expenses. Because defendant’s cousin, who was not a party to the underlying action, verbally agreed to pay defendant’s fees, the retainer agreement contained a “Payment by Other Party” clause that allowed the firm to invoice and collect from cousin, and held defendant responsible for any fees/costs not paid by cousin.
Cousin paid $30,000 to plaintiff law firm – leaving a balance of $84,047.25, which defendant client refused to pay. Seeking payment of the unpaid fees/costs, plaintiff first filed an action against cousin. When that case settled and was dismissed with prejudice, plaintiff filed an action against defendant for payment of the $84,047.25 in unpaid fees/costs. Plaintiff demurred – claiming plaintiff’s action was barred under the doctrine of res judicata. The trial court granted demurrer without leave to amend – concluding that the retainer agreement required defendant to pay only fees/costs owed by cousin but not paid, and that because the action against cousin was dismissed, cousin owed no fees and, therefore, defendant owed no fees. Plaintiff appealed.
The 1/5 DCA reversed – finding that the trial court erred in its narrow interpretation of the retainer agreement. Rather, when interpreting contracts, the mutual intention of the parties at the time the contract is formed governs interpretation. (Civ. Code § 1636.) Therefore, the trial court should have construed the contract as a whole so as to interpret the mutual intention of the parties. By focusing on only the one clause related to cousin’s payments, the trial court interpreted that defendant client was not responsible for plaintiff law firm’s unpaid fees/costs, when the mutual intention of the parties was that defendant would be responsible for the fees/costs and pay any fees/costs not paid by cousin.
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