Reynolds Metals Co. v. Alperson

In Reynolds Metals Co. v. Alperson (1979) 25 Cal. 3d 124, the plaintiff supplied aluminum to Turner, a subsidiary of TMI, under a general line consignment agreement which TMI signed as guarantor of Turner's payments. Turner also later executed and delivered two promissory notes in favor of the plaintiff, which TMI endorsed. These promissory notes provided for recovery of collection costs, including attorney fees, if Turner defaulted. After Turner and TMI became insolvent, the plaintiff sued to hold TMI shareholders and directors personally liable for debts Turner and TMI owned to the plaintiff. After a trial, the court rejected the plaintiff's theory that the defendants were alter egos of the corporate entities, absolved the defendants from personal liability for the corporate obligations, and awarded the defendants attorney fees. (25 Cal. 3d at p. 127.) The defendants in Reynolds Metals did not sign the contract. Because Civil Code section 1717 refers to "any action on a contract," Reynolds Metals interpreted it to include "any action where it is alleged that a person is liable on a contract, whether or not the court concludes he is a party to that contract." ( Reynolds Metals Co. v. Alperson, supra, 25 Cal. 3d at p. 128.) Given the purpose of establishing mutuality of remedy, and to prevent one-sided attorney fee provisions, Reynolds Metals interpreted section 1717 to "provide a reciprocal remedy for a nonsignatory defendant, sued on a contract as if he were a party to it, when a plaintiff would clearly be entitled to attorney's fees should he prevail in enforcing the contractual obligation against the defendant." (25 Cal. 3d at p. 128.) Thus if the plaintiff had prevailed on its cause of action claiming that the nonsignatory defendants were alter egos of the corporation, the defendants would have been liable on the promissory notes. Since they would have been liable for attorney fees pursuant to attorney fee provisions in those promissory notes if the plaintiff had prevailed, Reynolds Metals held that the defendants as prevailing parties could recover attorney fees pursuant to section 1717 even though they had not signed the contracts. (25 Cal. 3d at p. 129.)