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Homeowner Allowed to Recover Attorney's Fees as Third-Party Beneficiary
Construction Practices Newsletter
Spring 2008
In Loduca v. Polyzos (2007) 153 Cal.App.4th 334, the court held that a homeowner who was not a party to a subcontract between the general contractor and the subcontractor could take advantage of the subcontract’s attorney’s fees provision.
Homeowner Vincent Loduca retained a general contractor to build a custom home. The general contractor entered into a subcontract with George Polyzos to provide custom cabinetry. The subcontract included an attorney’s fees provision.
The subcontractor failed to deliver all of the materials and complete its work on time. The homeowner and subcontractor subsequently entered into a separate agreement that extended the completion date and established payment terms. The subcontractor delivered the remaining goods and the homeowner paid for them directly. The homeowner noticed the goods were defective, so he stopped payment on the check.
The homeowner sued the subcontractor and sought attorney’s fees, as provided in the original subcontract with the general contractor. At trial, the parties stipulated that the subcontractor breached the subcontract and that the homeowner was entitled to $65,000 in damages. The trial court awarded the homeowner $190,350 in attorney’s fees.
The subcontractor appealed the attorney’s fees award, arguing that the homeowner was not a party to the subcontract. The court disagreed, holding that as an intended third-party beneficiary of the original subcontract, the homeowner was entitled to enforce the subcontract that was made expressly for his benefit.
The court concluded that the homeowner was a third-party beneficiary because the contract named him in the "reference" line and indicated that the cabinetry was to be built according to plans developed for his home. In addition, the court cited the close relationship between the homeowner and subcontractor, noting that the homeowner made some payments directly to the subcontractor and entered into the separate agreement.
The court found that "a formal assignment is not required before an intended third-party beneficiary can recover attorney fees on the underlying contract." The court also rejected the subcontractor’s argument that the homeowner was not entitled to recover his attorney’s fees because the homeowner and subcontractor’s subsequent agreement lacked an attorney’s fees provision. The court indicated that, in effect, the subsequent agreement made the homeowner a party to the original subcontract and, therefore, subject to its benefits and burdens. Moreover, the agreement did not indicate that it superseded the subcontract; it simply changed some of the terms.
This case is a warning that owners, developers, general contractors, subcontractors and suppliers should ensure that prevailing party attorney’s fees provisions specify who is entitled to enforce them to avoid potential exposure to third-party beneficiary claims.
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