In San Luis Obispo Local Agency Formation Commission v. Central Coast Development Co., published May 5, 2022, The Second District Court of Appeal, Division 6 reversed an award of attorney fees against the plaintiff agency. A developer and a city applied to the plaintiff agency for a permit to annex a parcel of property. The application included an indemnity agreement obligating the applicant to defend, indemnify, hold harmless and release the agency from any proceeding brought to attack the agency's action on the proposal. The agency denied the annexation application. The city and developer sued the agency. The agency won. It billed the city and developer for its attorney fees and costs. They refused to pay. The city sued the developer to recover fees and costs extended in the suit against the agency. The agency cross-complained against the city and developer for fees and costs. The cross-complaint was based on the indemnity provision. The trial court granted the city and developer judgment on the pleadings against the agency. The agency appealed. While the appeal was pending, the city and developer moved for attorney fees based on Civil Code section 1717. The trial court granted the motion and awarded fees and costs to the city and developer. The appellate court then affirmed the trial court's decision regarding the indemnity agreement. It ruled that the indemnity agreement was not supported by consideration and that the agency had no statutory authority to impose an indemnity agreement as a condition of the agency's statutory duty to consider the application. The agency then appealed the order granting attorney fees. It asserted that the indemnity agreement is void as an an illegal and ultra vires contract.
The appellate court agreed. When a public agency is not authorized to make an agreement, the agreement is void and the public agency may neither enforce nor be liable on the contract. It follows that the agency is not liable for attorney fees based on section 1717. Section 1717 is based on contract. The result should be no different than with contracts that are void for illegality.
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