Cargill, Inc. v. Souza
201 Cal. App. 4th 962
| Cal. Ct. App. | 2011Background
- Souzas loaned $1 million to Teixeiras secured by cattle and equipment; Teixeiras defaulted and entered Transfer Agreement transferring collateral to Souzas, with Souzas agreeing to pay Teixeiras' obligations listed on Exhibit G, which was left blank.
- Cargill, an unsecured creditor of Teixeiras, sought to be included as a third party beneficiary to recover Teixeiras’ debt on Exhibit G.
- Transfer Agreement contained an attorney fees clause: prevailing party in enforcing the agreement could recover attorney fees and costs.
- Cargill filed suit to reform the Transfer Agreement to include its debt; Souzas moved for summary judgment and won.
- Souzas later sought attorney fees as prevailing party; trial court denied, holding the clause did not apply to third party beneficiaries.
- On appeal, the court held the attorney fees clause would have applied to Cargill if it had prevailed, reversing and remanding for a reasonable fee award.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the attorney fees clause applies to third party beneficiaries | Souzas: clause extends to unnamed creditors as third party beneficiaries | Cargill: clause limits to signatories/workers of the contract | Yes; clause extends to third party beneficiaries and Souzas win |
| Whether Souzas, as prevailing party, are entitled to fees | Souzas prevailed on summary judgment and thus entitled to fees | Cargill would have been entitled to fees if it had prevailed | Yes; Souzas awarded reasonable attorney fees on remand |
Key Cases Cited
- Sessions Payroll Management, Inc. v. Noble Construction Co., 84 Cal.App.4th 671 (Cal. Ct. App. 2000) (sets forth when nonsignatories may enforce fees under a contract)
- Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4th 375 (Cal. Ct. App. 1994) (nonsignatory fees when contract favors enforcement by third parties)
- Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC, 162 Cal.App.4th 858 (Cal. Ct. App. 2008) (attorney fees limited to signatories absent clear intent otherwise)
- Prouty v. Gores Technology Group, 121 Cal.App.4th 1225 (Cal. Ct. App. 2004) (test for third party beneficiary status in contract)
- Loduca v. Polyzos, 153 Cal.App.4th 334 (Cal. Ct. App. 2007) (third party beneficiary with a broad/implicit entitlement to fees)