Eric and Irene Marcus (“Marcus”) have petitioned this court to review an opinion of the Court of Appeals which affirmed the trial court’s denial of Marcus’ request for attorney fees.
Marcus v. Fox,
On September 1, 1981, Marcus filed an action against Lillian L. Fox and Robert A. Gold (“Fox”) claiming that Fox had fraudulently induced him to enter a contract to purchase an apartment complex in Tucson, Arizona. Following a trial, the jury returned a verdict finding that Marcus had in fact been fraudulently induced to enter the contract. Pursuant to a pretrial stipulation of damages, the trial court then awarded Marcus $43,401.
In accordance with A.R.S. § 12-341.-01(A), Marcus filed an application for attorney’s fees. In opposition to the request, Fox claimed that (1) A.R.S. § 12-341.01(A) did not apply to the case because it was a tort action, not involving the breach of any contract, and (2) even if A.R.S. § 12-341.-01(A) was applicable, the court should deny fees as a matter of discretion. The trial court subsequently issued a minute entry denying Marcus’ application for attorney’s fees. The minute entry did not, however, state the basis for the court’s ruling.
The Court of Appeals, Division Two, affirmed the trial court’s denial of attorney’s fees' to Marcus. The Court stated that since A.R.S. § 12-341.01(A) allows an award of attorney’s fees in actions “arising out of a contract,” and no breach of contract was alleged by Marcus, the trial court was correct in not awarding attorney’s fees under the statute. We disagree.
Traditionally, under the “American Rule,” the prevailing party in litigation is not entitled to recover his attorney’s fees. Rather, each party bears its own attorney’s fees regardless of who prevails.
Wagenseller v. Scottsdale Memorial Hospital,
While there are several threshold requirements that must be satisfied before an award of attorney’s fees can be made, we are concerned here only with the requirement that the action be one “arising out of a contract.” In the past, Arizona courts have broadly interpreted what types of transactions are included within this clause.
See, e.g., Pinetop Lakes Assoc. v. Hatch,
*335
Recently, the broadest and most complex application of the phrase “arising out of a contract” has occurred in those eases involving both contract and tort theories.
See generally,
Note,
Statutory Attorney’s Fees in Arizona: An Analysis of A.R.S. Section 12-341.01,
24 Ariz.L.Rev. 659, 661 (1982). In these cases, the plaintiff usually alleges a combination of tort and contract claims, or merely a tort claim which has as its basis the breach of a contract. Regardless of the form of the pleadings, this court will look to the nature of the action and the surrounding circumstances to determine whether the claim is one “arising out of a contract.”
Wenk v. Horizon Moving & Storage Co.,
The leading case in this area is
Sparks v. Republic National Life Insurance Co.,
Applying these principles to the facts in
Sparks,
we found that the tort of bad faith could not have been committed absent the existence of an insurance contract and a breach thereof.
In the instant case, Fox argues that, based on our decision in
Sparks,
attorney’s fees cannot properly be awarded under § 12-341.01(A) as this is purely a tort action and no
actual breach
of a contract is involved. Marcus, however, urges us to adopt the more liberal view followed by the appeals court in
Ash v. Mesa Unified School Dist.,
As we said in
Sparks,
the language of § 12-341.01(A) clearly states that attorney’s fees are recoverable only in cases “arising out of a contract.”
Our holding today comports with the stated public policy behind § 12-341.01(A) —“to mitigate the burden of the expense of litigation to establish a just claim or defense.” § 12-341.01(B);
Shirley v. Hartford Acc. & Indem. Co.,
In the present case, the trial court awarded Marcus damages based on the jury’s finding that he had been fraudulently induced to enter the contract. Marcus’ request for attorney’s fees under § 12-341.01(A) was denied. The trial judge did not, however, indicate the basis for his denial in the record. Apparently, neither party requested that he do so. As such, we do not know if the trial court found that Marcus (1) could not recover attorney’s fees under § 12-341.01(A); or (2) could recover attorney’s fees under that section but denied them as a matter of discretion. Thus, we remand the matter to the trial court to clarify its basis for denying the request for attorney’s fees. If the basis for the trial court’s decision was that Marcus could not recover under § 12-341.01(A), it is ordered that a new finding be entered and the trial court then decide how best to exercise its discretion. If, however, the basis for the denial was that statutory attorney’s fees were available to Marcus but were not warranted in this particular case, we affirm that exercise of discretion.
That portion of the Court of Appeals opinion affirming the denial of attorney’s fees is vacated. The matter is remanded to the trial court for further proceedings.
Notes
. We note, without deciding the issue, that the result may differ where the claim is one of fraud, in general, and not fraud in the inducement of a contract. A general claim of fraud may not depend upon the existence of a contract as is inherent in a claim for fraud in the inducement.
See, e.g., Sparks v. Republic Nat. Life Ins. Co.,