California Wholesale Material Supply, Inc. v. Norm Wilson & Sons, Inc

In California Wholesale Material Supply, Inc. v. Norm Wilson & Sons, Inc. (2002) 96 Cal.App.4th 598, a drywall subcontractor, Johnwall, was indebted to the Bank and CalPly, a supplier. As security for these debts, Johnwall assigned all his accounts receivables first to the Bank and second to CalPly. (California Wholesale, supra, 96 Cal.App.4th at pp. 601-602.) Johnwall later entered into a contract with a general contractor, Wilson. The contract between Wilson and Johnwall had an attorney fee provision. This contract became subject to the assignment to the Bank and CalPly. As a result of Johnwall's work, Wilson owed Johnwall $ 42,970. Entitlement to this receivable was the subject of a dispute between the Bank's assignee and CalPly. Wilson paid the whole amount to the Bank's assignee on the theory that its UCC statement was filed first and therefore its lien was senior. (Id. at pp. 602-603.) CalPly sued Wilson. The trial agreed the Bank's lien was senior and that Wilson had properly paid the entire amount to the Bank's assignee. Judgment was entered against CalPly. Wilson then sought to recover attorney fees from CalPly based on the attorney fee provision of the Wilson/Johnwall contract. Wilson also argued CalPly was responsible for attorney fees as the assignee of Johnwall's accounts receivable. (Ibid.) The trial court denied the Bank's motion for attorney fees agreeing with CalPly that the lawsuit was not based on the Wilson/Johnwall contract and therefore the Bank could not rely on its attorney fee provision. (Id. at pp. 603-604.) The Court reversed. (Id. at p. 611.) The Court found that by virtue of Johnwall's assignment to CalPly, the former assigned all of its rights in the Wilson/Johnwall agreement including the attorney fee provision. We reasoned therefore, that when CalPly sued Wilson, it was bound by the attorney fee provision. (California Wholesale, supra, 96 Cal.App.4th at pp. 606-608.) In short, the trial court denied the prevailing party defendant's motion for attorney fees on the ground that the plaintiff's action did not arise out of the subcontract between the defendant and the defendant's subcontractor. The Court of Appeal reversed on the ground that the plaintiff had become the assignee of the subcontractor's rights in the subcontract. As assignee, the plaintiff had stepped into the shoes of subcontractor as a matter of law. Because the plaintiff was litigating its claim for money due to the subcontractor under the subcontract, the defendant was entitled to invoke the attorney fee provision in the subcontract and was entitled to recover its reasonable attorney fees from the assignee. (Id. at pp. 605-606.)