Yuba Cypress Housing Partners, Ltd. v. Area Developers

In Yuba Cypress Housing Partners, Ltd. v. Area Developers (2002) 98 Cal.App.4th 1077, the appellant sued to rescind a real estate contract and to recover damages on the ground that the seller had violated the Subdivided Lands Act. (Bus. & Prof. Code, 11000 et seq.) The contract included a clause for the award of costs and attorney fees. After prevailing on his claims for rescission and damages, appellant requested an award of costs, including attorney fees. The defendant opposed the request on the ground that the contract was void due to its illegality. The trial court ruled against the defendant and awarded attorney fees pursuant to section 1717. The Court of Appeal affirmed: "Where the object of the contract is illegal, courts generally will not enforce it or lend assistance to a party who seeks to benefit from an illegal act. ( Lewis & Queen v. N. M. Ball Sons (1957) 48 Cal.2d 141, 150, 308 P.2d 713 . . . .) 'The reason for this refusal is not that the courts are unaware of possible injustice between the parties, and that the defendant may be left in possession of some benefit he should in good conscience turn over to the plaintiff, but that this consideration is outweighed by the importance of deterring illegal conduct. Knowing that they will receive no help from the courts and must trust completely to each other's good faith, the parties are less likely to enter an illegal arrangement in the first place.' (Ibid.) But in some cases 'effective deterrence is best realized' by enforcing the plaintiff's claim or allowing some other remedy because 'the forfeiture resulting from unenforceability of the contract is disproportionately harsh considering the nature of the illegality. 'In each such case, how the aims of policy can best be achieved depends on the kind of illegality and the particular facts involved.' Thus, for example, 'when the Legislature enacts a statute forbidding certain conduct for the purpose of protecting one class of persons from the activities of another, a member of the protected class may maintain an action notwithstanding the fact that he has shared in the illegal transaction.' The protective purpose of the statute is realized by allowing the plaintiff, who is not in pari delicto, to enforce the contract or maintain his action against a defendant within the class primarily to be deterred. Here, the purpose of the Subdivided Lands Act is to protect members of the public who purchase lots or houses from developers. Hence, when a plaintiff purchased land under a contract that does not comply with the act, courts will allow the plaintiff to enforce the contract against the seller or to disaffirm the contract. In other words, the contract is voidable not void; since it does not have an illegal object, it is not one which neither party may enforce such that an attorney fee clause contained therein also is unenforceable." ( Yuba Cypress Housing Partners, supra, 98 Cal.App.4th at pp. 1082-1083.) In short, the plaintiff rescinded a real estate purchase agreement on the grounds that the defendant had violated the Subdivided Lands Act (Bus. & Prof. Code, 11000 et seq.), but requested a fee award under a provision of the agreement. (98 Cal.App.4th at pp. 1080-1081.) The appellate court concluded that the plaintiff was entitled to enforce the fee provision even though he had voided the agreement, reasoning that "to deny plaintiff the attorney fees to which he is entitled as a result of the contract would permit the defendant to benefit from the illegality that it created, thus disserving the goal of deterring illegal conduct." (Id. at p. 1083.)