Opinion
No. 33041-5-II.
August 29, 2006.
Appeal from a judgment of the Superior Court for Pierce County, No. 04-2-06689-7, Joe Gordon, J. Pro Tem., entered March 22, 2005.
Counsel for Appellant(s), Douglas N. Kiger, Blado Stratton Kiger PS, Tacoma, WA.
Counsel for Respondent/Cross-Appellant, Brian Thomas Comfort, Attorney at Law, Tacoma, WA.
Affirmed in part, reversed in part, and remanded by unpublished opinion per Armstrong, J., concurred in by Houghton and Penoyar, JJ.
Juan Miguel Amaya and Luz Hernandez (Amaya), a married couple, appeal the trial court's damage award of $942.70 for JG Son Construction Co.'s breach of the parties' purchase and sale agreement for construction of a house. Amaya argues that the trial court improperly considered two letters in erroneously concluding that he failed to mitigate his damages after JG breached the contract. He also contends that, as the prevailing party at trial, he is entitled to recover all his attorney fees and costs. JG assigns error to the trial court's conclusion that Amaya prevailed at trial. We reverse in part because JG is not entitled to the $5,000 earnest money deposit and the value of the upgrades Amaya paid for. And because the trial court based its attorney fees and costs award on the amount Amaya recovered at trial, that court needs to reconsider the fees and costs award in light of our holding. We affirm the remainder of the trial court's rulings.
FACTS
Amaya agreed to purchase a home in Gig Harbor from JG Son Construction, Inc., which Gary Neiman and his wife wholly own. The agreement called for a $432,367 purchase price and required Amaya to pay a $5,000 non-refundable earnest money deposit. The parties agreed to close on or before January 15, 2004, and Amaya had the right to inspect the property upon completion. When the parties executed the agreement, the house was already under construction and about 40 percent complete.
Neiman is also the general contractor.
During construction, Amaya requested, and JG performed, upgrades to the house. Amaya paid JG $1,449 to cover the upgrades' cost. By early January 2004, JG had yet to complete the concrete driveway and sidewalks and some exterior decks and railings. JG claimed that inclement weather caused the delays. Amaya, both parties' real estate agents, the escrow agent, and the lender all knew that JG could not close by January 15, 2004.
The day after the agreed closing date, Amaya signed the closing documents, deposited the money necessary to close the transaction, and signed an addendum extending the closing date to January 23, 2004. JG did not sign the extension addendum, but nonetheless continued working to complete the home after January 15, 2004.
On January 22, 2004, the parties walked through the home with Joyce Hill, Amaya's real estate agent, and Paul Teager, JG's listing agent. During the walk-through, Amaya identified alleged deficiencies he wanted JG to correct before closing. Specifically, he wanted JG to skirt the stairs to the basement and he wanted a backsplash behind a bathroom sink instead of the existing mirror. Frustrated with Amaya's insistence on adding skirt boards to the stairs, Neiman abandoned the walk-through and left the house. Neiman then told Teager to put the home back on the market, which Teager did on January 26.
On January 26, 2004, Amaya sent a letter to Hill, Teager, the escrow agent, and Amaya's lender stating that he was rescinding the contract with JG and had no intention of purchasing the house. The trial court found that despite JG's repeated assurances through its real estate agent and attorney that JG was ready and willing to sell the house, Amaya refused to close the transaction. Amaya said that he refused to close because he had lost confidence in JG and questioned whether it would honor its contractual warranties.
Because the transaction did not close on January 15, 2004, Amaya had to rent an apartment and also store personal property. He paid $950 per month in rent and $41.87 per day in storage costs.
Amaya sued for damages suffered from JG's failure to complete construction by January 15, 2004. Specifically, he sought reimbursement for the earnest money deposit, money paid for upgrades, forfeited prepaid loan costs incurred in financing the home, additional moving and storage costs, additional apartment rent, and furniture rental. Amaya also claimed miscellaneous expenses, including change of driver's license addresses, renter's insurance, furniture he had to dispose of, and loss of increase in the home's value.
At trial, to show its willingness to close, JG offered evidence of offers to complete the sale despite that certain requested changes and the landscaping had not yet been performed. JG also offered plaintiffs' counsel's response to demonstrate that Amaya no longer wanted to close the transaction and demanded that JG return the earnest money deposit and money paid for upgrades.
The trial court held that JG breached the purchase and sale agreement when it failed to complete the house by January 15, 2004. Finding that JG completed the house and had it ready for closing on January 28, 2004, the trial court awarded Amaya damages of $942.70 for rent and storage during the 13 days between JG's breach and completion of the house. Further, finding that Amaya unreasonably failed to mitigate his damages by closing on January 28, the court declined to award Amaya his earnest money deposit or the upgrades money. The court also declined to award Amaya damages for claimed miscellaneous expenses or for loss of the home's increased value.
Both parties moved for attorney fees and costs. The purchase and sale agreement entitled the prevailing party to reasonable attorney fees and expenses if a dispute arose over the contract. The trial court concluded that Amaya prevailed at trial and it awarded him reasonable attorney fees of $6,000 and costs of $1,582.94.
ANALYSIS I. Admissibility of the January 28, 2004 Letter
Citing ER 408, Amaya argues that the trial court erroneously admitted a letter from defense counsel to plaintiffs' counsel offering to compromise the disputed claim. He also asserts that defense counsel's letter attempted to modify the purchase and sale agreement's terms.
Generally, we review a trial court's evidence rulings for an abuse of discretion. City of Seattle v. Clark-Munoz, 152 Wn.2d 39, 44, 93 P.3d 141 (2004). A trial court abuses its discretion if its decision is manifestly unreasonable or based on untenable grounds. Thompson v. King Feed Nutrition Serv., 153 Wn.2d 447, 460, 105 P.3d 378 (2005). But if the trial court bases its ruling on a mistaken legal interpretation, we may vacate the decision or remand to the trial court for reconsideration under the correct standard. Clark-Munoz, 152 Wn.2d at 44.
At trial, the court admitted, over plaintiffs' counsel's objection, a letter from defense counsel to plaintiffs' counsel to show that JG was willing to continue with the transaction as of January 28, 2004.
Amaya argues, and JG implicitly concedes, that the January 28 letter was an offer to compromise as distinguished from an offer to perform under the contract. A party may not introduce evidence of settlement negotiations to prove liability. ER 408. An exception to the rule exists where the party offers the evidence for another purpose. ER 408. JG argues that the letter is admissible to show another purpose: JG's willingness to close the transaction as late as January 28, which is relevant to the damages mitigation issue. Moreover, an offer to compromise, according to JG, is admissible where the party seeking to admit the offer is the party that originally offered the compromise. Bulaich v. ATT Info. Sys., 113 Wn.2d 254, 263-64, 778 P.2d 1031 (1989) (settlement offer admissible when the settlement offerer is the same party attempting to introduce the compromise letter into evidence).
JG does not expressly concede that the letter is an offer of compromise. But JG argues that the letter fits within an exception to ER 408; thus implying that the letter is an offer to compromise. See ER 408.
Amaya counters that JG's attorney, and not JG, presented the offer. But JG's attorney began the letter, `I represent JG Son Construction, Inc.' Exhibit 19. And we presume that attorneys are their clients' authorized agents. State v. Ford, 125 Wn.2d 919, 922, 891 P.2d 712 (1995). We agree that JG originally offered the compromise. The trial court did not err in admitting the letter.
II. February 2, 2004 Letter
Defense counsel also introduced the plaintiffs' attorney's response to defense counsel's January 28 letter. Over plaintiffs' counsel's relevancy objection, the trial court admitted the letter, ruling that the letter was relevant to show the parties' state of mind. Amaya again argues that the trial court should not have admitted the letter because it was part of compromise negotiations. ER 408. He also argues that the Bulaich exception — that the party who offered the compromise may offer the letter at trial — does not apply because Amaya did not offer the letter into evidence. Amaya also contends that JG offered the letter only to show that Amaya could have mitigated his damages by closing despite JG's breach.
But JG argues that the letter fits within the `other purpose' exception to ER 408, specifically to show that JG was still willing to sell on January 28 and that Amaya was not willing to buy. See Bulaich, 113 Wn.2d at 264. JG argues that the parties' attitudes toward completing the sale pertained to Amaya's duty to mitigate his damages.
In Bulaich, the court held that an offer of compromise was admissible, under the `other purpose' exception to ER 408, if offered to establish a party's mental state. Bulaich, 113 Wn.2d at 264. In that case, an employer removed an employee from a management position for poor performance. Bulaich, 113 Wn.2d at 256. Shortly thereafter, the employer contacted the employee and asked whether she would be interested in another position with the company; an offer that she declined. Bulaich, 113 Wn.2d at 256-57. The employee then filed for early retirement and filed discrimination charges with the Equal Employment Opportunity Commission. Bulaich, 113 Wn.2d at 257. At trial, to show the employer's lack of intent to force retirement and the employee's failure to mitigate her damages, the employer offered evidence of reinstatement offers extended to the employee after she filed discrimination charges. Bulaich, 113 Wn.2d at 257. The employee argued that ER 408 barred the reinstatement letters because the employer offered them to prove her claim's invalidity. Bulaich, 113 Wn.2d at 263. The court held that the reinstatement offers were admissible to show the employer's mental state, which the court deemed `an independently relevant issue and thus cognizable as an `other purpose' exception to ER 408. Bulaich, 113 Wn.2d at 264.
In admitting plaintiffs' counsel's February 2 response to defense counsel's January 28 letter, the trial court expressly stated that it was `interested in what the state of mind of the various parties was during this period and . . . [the letter] bears on that.' Report of Proceedings (RP) (Nov. 23, 2004) at 7. Further, Amaya admits that JG introduced the letter to show that he was unwilling to close the transaction, i.e., to show his mental state. Under Bulaich, the trial court did not abuse its discretion in admitting the letter to show the parties' state of mind. Bulaich, 113 Wn.2d at 264.
III. Amaya's Duty to Mitigate
The trial court held that JG breached the real estate purchase and sale agreement. The measure of damages for a breach of a purchase and sale agreement is the benefit of the bargain. Friebe v. Supancheck, 98 Wn. App. 260, 269, 992 P.2d 1014 (1999) (citing Hardinger v. Till, 1 Wn.2d 335, 339, 96 P.2d 262 (1939)).
But a non-breaching party has a duty to mitigate his damages. Bernsen v. Big Bend Elec., 68 Wn. App. 427, 432-33, 842 P.2d 1047 (1993). The injured party's duty is to use such means as are reasonable under the circumstances to avoid or minimize the damages. Cobb v. Snohomish County, 86 Wn. App. 223, 230, 935 P.2d 1384 (1997). And the non-breaching party may not recover for those damages that he could have avoided by reasonable efforts taken after the breach. Bernsen, 68 Wn. App. at 433. The party claiming a failure to mitigate has the burden of proving that the injured party failed to mitigate its damages. Cobb, 86 Wn. App. at 230.
Amaya argues that he has no duty to mitigate damages because: (1) no Washington court has required a non-breaching party to perform under a contract to mitigate damages; (2) to close on January 28, he would have had to close on terms other than those contained in the agreement; and (3) his decision not to close and to look for a substitute home was one of two reasonable options.
Amaya contends that, as the non-breaching party, he cannot be required to perform under the contract to mitigate damages. To support this contention, Amaya relies on Koby v. United States, 53 Fed. Cl. 493 (2002). But Koby does not help Amaya. Koby is a federal claims court case concerning whether the duty to mitigate damages required a purchaser of real estate, at a tax foreclosure sale the IRS deemed deficient, to mitigate his damages by bidding at a subsequent tax foreclosure sale of the same property. The court held that the duty to mitigate does not require a non-breaching party to deal further with the breaching party, especially if the breaching party's alternative terms differ substantially from those of the original contract. Koby, Fed. Cl. at 497. The court also held that to show a failure to mitigate, the breaching party must show that the non-breaching party ignored reasonable mitigation possibilities. Koby, 53 Fed. Cl. at 497.
The trial court could have found that Amaya waived any breach by JG's failure to complete the house on January 15. Amaya deposited funds into escrow on January 16, and signed an offer to extend the closing to January 22. In addition, Amaya performed the walk-through inspection on January 22, signaling his intent to continue with the transaction. Finally, when Amaya abandoned the contract, he did so not because of JG's failure to timely complete the home, but because he was concerned about JG's willingness to satisfy any warranty claims and because Neiman had not apologized to him. We do not address waiver because JG has not appealed the trial court's conclusion that it breached the contract.
Here, JG's January 28 terms were almost identical to the original contract's terms and required the same performance of Amaya. And the trial court found that, despite Amaya's subjective warranty concerns, objectively he `could have gotten almost exactly what [he] had hoped to get when [he] signed that purchase and sale agreement' by accepting the house 13 days after the closing date. RP (Nov. 23, 2004 Ruling) at 3. At all times, JG required the same performance of Amaya; a down payment for the house and payment for ordered changes.
Amaya argues that JG's January 28 offer substantially altered the original contract's terms. Specifically, he argues that (1) time was of the essence in the original contract, (2) JG had not finished the landscaping the contract required, (3) JG had not fixed what Amaya perceived to be construction deficiencies, and (4) JG could not guarantee possession at closing because the county had not yet issued an occupancy permit.
Although the contract called for a January 15, 2004 closing date and stated that `time was of the essence,' both JG's and Amaya's real estate agents said that more often than not builders do not complete houses on time. CP at 175. And during negotiations regarding the closing date, Neiman's son told Amaya that they could not guarantee completion by January 15, 2004. Further, in contracts where a buyer agrees to purchase a home that is already under construction, the law `takes knowledge of the fact that in any work of [that] kindthere are bound to arise minor details' which delay performance, and the law `requires only substantial performance within the approximate time set.' Wray v. Young, 122 Wn. 330, 334, 210 P. 794 (1922). More importantly, Amaya did not insist on strict compliance with the January 15 closing date; he offered to extend the date and then appeared for a walk-through inspection on January 22.
And the contract provided that Amaya could elect to landscape the property and JG would credit $3,500 for landscaping.
The contract also provides that the buyer has the right to a walk-through with the builder before closing and that `[a]ny deficiencies [are] to be corrected at [the] Builder's expense.' Clerk's Papers (CP) at 20. Amaya claims that the lack of a skirt board along the stairs to the basement, and that the mirror in the master bathroom extended to the counter instead of having a backsplash, constituted construction deficiencies that JG needed to fix at its own expense. Gary Neiman testified that installing skirt boards on carpeted stairs was not his standard practice; and that the stairs at issue were carpeted.
This court gives contract language its ordinary meaning and imputes an intention corresponding to the reasonable meaning of the words used. Hearst Commc'ns, Inc. v. Seattle Times Co., 154 Wn.2d 493, 503, 115 P.3d 262 (2005). Read in the context of this contract, the lack of a skirt board and backsplash are not deficiencies; rather, they represent Amaya's desired stylistic changes. Something is deficient if it is `lacking in some quality, faculty, or characteristic necessary for completeness; not up to a normal standard.' Webster's Third New International Dictionary at 592 (2002). Amaya created a `punch list' of deficiencies that included items such as the windows not being well aligned, drops of lacquer on the floor, red spots and pencil lines on a column, wobbling doors, and a loose faucet. Exhibit 16. Those complaints represent actual deficiencies in construction and installation. JG's refusal to install skirt boards and a backsplash, however, was not a construction deficiency.
Further, Amaya knew from early on that JG customarily used three-foot vanities, which extend to the counter top in the master bathroom. Nonetheless, JG never told Amaya that it would not change the mirror; in fact, JG made efforts to call the mirror manufacturer to see if JG could cut the mirror while it was on the wall. And Amaya admitted that he never thought the lack of a backsplash was a deficiency. When counsel asked Amaya if he considered the lack of a backsplash to be a deficiency in construction, he replied, `I have never thought of that. I was not looking for a specific deficiency. I was looking for elements of the construction that I found incomplete.' RP (Nov. 22, 2004) at 194-95.
Finally, although Pierce County never granted an occupancy permit, the record shows that the permit was pending an erosion control inspection that merely required JG to spread straw over the property's unlandscaped areas. Had Amaya elected to landscape the home on his own, the county likely would have granted occupancy on January 28, 2004. If he wanted JG to landscape the house, Amaya could have moved in several days later.
The arrangement that JG proposed to Amaya — that JG would landscape and the house would be ready for a walk-through on January 29 or 30, or that Amaya could close and receive the money allowed for landscaping — did not materially alter the terms of the original agreement. Nor did the arrangement change the substance of the underlying agreement or Amaya's performance as the arrangement in Koby did. See Koby, 53. Fed. Cl. at 498. Moreover, unlike Koby, the proposed arrangement did not expose Amaya to undue risk or significantly compromise his interests. See Restatement (Second) of Contracts sec. 350 (1981). Koby is distinguishable.
This case is similar to Wray v. Young, 122 Wn. 330, 334, 210 P. 794 (1922). In Wray, a buyer agreed to purchase a partially completed home. Wray, 122 Wn. at 330. Construction did not progress as rapidly as expected and the parties realized that the builder would not finish construction by the agreed on date; accordingly, the parties extended the completion date one month. Wray, 122 Wn. at 331. When the extended date arrived, some unfinished details still existed, but five days later, the builder advised the buyer that the dwelling was ready and asked the buyer to meet to execute the necessary papers. Wray, 122 Wn. at 331. The buyer then told the builder that he did not intend to go through with the transaction. Wray, 122 Wn. at 331. A few days later, the builder sought payment for the house, which the buyer refused to tender. Wray, 122 Wn. at 331-32. The buyer sued to recover his deposit. Wray, 122 Wn. at 332.
The buyer gave several grounds for rescinding, including the builder's failure to finish on time and failure to install certain items in the house according to the terms of the contract. Wray, 122 Wn. at 332. The court said that the evidence showed that the builder fully completed construction by the extended closing date except for a few minor details that the buyer took exception to. Wray, 122 Wn. at 333. The court noted that the builder fully completed construction five days later. Wray, 122 Wn. at 334.
The court affirmed summary judgment dismissal of the buyer's claim, explaining that `[r]escission will not be decreed except for substantial default, and minor items can be compensated for in an action for damages.' Wray, 122 Wn. at 334 (citing 9 Corpus Juris 725). In rejecting the buyer's argument that the builder had to completely finish the building by the agreed on extended closing date, the court held that:
[t]he law does not hold a contract of this character to so strict performance, but takes knowledge of the fact that in any work of this kind there are bound to arise minor details which can be the subject of controversy and [the law] requires only substantial performance within the approximate time set.
Wray, 122 Wn. at 334.
While the Wray court did not require the buyer to perform under the contract to mitigate his damages, it held that the buyer was unreasonable for failing to perform due to the delay in completion and minor complaints about the construction. Wray, 122 Wn. at 334-35. By analogy, Amaya acted unreasonably in abandoning the contract rather than completing the purchase within a few days of the contemplated completion date, particularly where the purchase terms remained the same as in the original contract; and where Amaya's reasons for not continuing with the purchase were unrelated to the short delay and unsupported by the parties' course of conduct.
The trial court did not err in finding that Amaya failed to mitigate his damages. See Cobb, 86 Wn. App. at 230.
IV. Damages
Amaya argues that JG's breach entitles him to damages, including return of the earnest money deposit and money paid for upgrades, benefit of the bargain damages, and consequential damages.
1. Earnest Money Deposit and Upgrades
Amaya argues that JG must return the $5,000 earnest money deposit because JG breached the contract and because JG stated it made the earnest money deposit non-refundable in case JG had to restore the home to its original design if Amaya breached the contract. He contends that JG should return the deposit because he did not breach the contract and JG did not need to restore the house before selling it. JG argues that it made the $5,000 deposit non-refundable to protect JG if Amaya did not close. JG further maintains that the trial court correctly recognized that the contract language precluded Amaya from recovering the deposit.
Amaya also argues that he is entitled to a return of the $1,449 paid for upgrades to the house under the `fundamental principal of contract law that a non-breaching party is entitled to a return of any payments made under the contract upon the other party's breach.' Br. of Appellant at 29 (citing Restatement (Second) of Contracts sec. 373 (1981)).
Shortly after the deal fell through, JG sold the home to another buyer for $3,000 more than its contract price with Amaya. This price necessarily included Amaya's $5,000 deposit and the $1,449 upgrades payment. A party that has conferred a benefit on another may recover payment for the benefit if it is unjust for the recipient to retain that benefit. See Chandler v. Wash. Toll Bridge Auth., 17 Wn.2d 591, 601, 137 P.2d 97 (1943).
Restatement (Second) of Contracts, section 347(b) (1981), quoted with approval in Eastlake Construction Co. v. Hess, 102 Wn.2d 30, 46, 686 P.2d 465 (1984), provides the general rule that a non-breaching party may recover his expectation interest, including `any . . . incidental or consequential loss? caused by the breach.' As an alternative to protecting an expectation interest through enforcing the breaching party's broken promise, an injured party may seek restitution to prevent the breaching party's unjust enrichment. Restatement (Second) of Contracts sec. 373 cmt. a (1981). Restatement section 373, cited with approval in Bailie Commc'ns v. Trend Business Systems, 53 Wn. App 77, 81-82, 765 P.2d 339 (1988), states that a non-breaching party `is entitled to restitution for any benefit that he has conferred on the other party by way of part performance.' An injured party may seek restitution when the breach is by non-performance as long as `the breach gives rise to a claim for damages for total breach and not merely to a claim for damages for partial breach.' Restatement (Second) of Contracts sec. 373 cmt. a.
Amaya's failure to mitigate damages does not entitle JG to a windfall as a result of its breach. Amaya is entitled to a return of the $5,000 earnest money deposit and the $1,449 he paid in upgrades, plus interest on both amounts. See, e.g., Bean v. Hallett, 40 Wn.2d 70, 72, 240 P.2d 931 (1952) (purchasers of real property entitled to a return of their down payment, plus interest, less value of their use of the property, when seller breached contract by unlawfully repossessing the property); see also Morgan v. Bell, 3 Wn. 554, 581, 28 P. 925 (1892) (purchaser entitled to recover down payment on a contract to convey real property, plus interest, when the seller unintentionally breached the contract.)
2. Benefit of the Bargain and Incidental Expenses
Amaya claims that JG's breach caused him to incur expenses for rent and storage, a non-refundable appraisal fee, a credit report fee, inspection fees, flood insurance fees, a loan origination fee, renter's insurance, driver's license address change fees, furniture rental costs, and loss of furniture Amaya had to dispose of when he moved into a smaller home. Amaya also asks us to award benefit of the bargain damages for $67,633, representing appreciation of the home's value, because he would have had to spend that amount to purchase a substitute equivalent home. He argues that because JG sold the home for $3,000 more than his contract, and because the subsequent contract did not require JG to perform the landscaping, we should, `[a]t a minimum,' award him benefit of the bargain damages of $4,500. Br. of Appellant at 30.
Amaya apparently claims that it would have cost $1,500 to landscape the front yard. He arrives at the $4,500 damage amount by adding that $1,500 to the additional $3,000 JG made in its contract with the subsequent buyer.
The trial court's finding that Amaya should have mitigated its damages bars these claims. A contracting party who fails to mitigate his damages cannot recover for any expectation or reliance damages that he would not have incurred if he had taken mitigating action. Bernsen, 68 Wn. App. at 433. Here, Amaya would not have sustained benefit of the bargain losses and the incidental expenses after January 28 if he had completed the purchase. Because Amaya could have prevented these losses by completing the purchase, the mitigating conduct, he is not entitled to damages for them.
The trial court awarded Amaya $942.70, representing rent and storage costs that he paid between January 15 and January 28, the day the trial court found JG could have closed the transaction. But Amaya argues that the trial court's finding that JG could have closed on January 28 is `speculative at best.' Br. of Appellant at 25. We review disputed findings of fact under a substantial evidence standard. State v. Klein, 156 Wn.2d 102, 115, 124 P.3d 644 (2005) (citing State v. Mendez, 137 Wn.2d 208, 214, 970 P.2d 722 (1999)). Evidence is substantial if it is sufficient to convince a reasonable person of the truth of the finding. Klien, 156 Wn.2d at 115.
The record shows that Pierce County would likely have granted an occupancy permit no later than January 28; the record also shows that Amaya had decided that JG was to landscape the property. The record further shows that if Amaya elected to have JG perform the landscaping, JG could have completed construction on January 28. Thus, the record supports the trial court's finding that the transaction could have closed January 28, with the understanding that JG would complete landscaping within 7 days of closing.
V. Reasonable Attorney Fees and Costs
A trial court has broad discretion in determining the amount of reasonable attorney fees and costs awarded. American Nat'l. Fire Ins. Co. v. B L Trucking Constr. Co., 82 Wn. App. 646, 669, 920 P.2d 192 (1996). We review the reasonableness of an attorney fees and costs award under the abuse of discretion standard. Progressive Animal Welfare Soc'y v. Univ. of Washington, 114 Wn.2d 677, 688, 790 P.2d 604 (1990). A trial court abuses its discretion if its decision is manifestly unreasonable or based on untenable grounds. Thompson, 153 Wn.2d at 460.
The purchase and sale agreement's attorney fees provision provided `[i]f Buyer or Seller institutes suit against the other concerning this Agreement, the prevailing party is entitled to reasonable attorneys' fees and expenses.' CP at 9. Before trial, JG offered, under CR 68, to allow the court to enter judgment for Amaya for $15,000, as well as costs and fees incurred up to September 17, 2004. By that time, Amaya had incurred $11,000 in attorney fees.
`[P]revailing party' means the party in whose favor final judgment is rendered. RCW 4.80.330; see Singleton v. Frost, 108 Wn.2d 723, 727, 742 P.2d 1224 (1987). Amaya filed an action for breach of contract and requested damages stemming from that alleged breach. The trial court found that JG breached the contract. Although the trial court did not award Amaya the damages he asked for, Amaya prevailed on the breach of contract claim. Accordingly, Amaya prevailed at trial and is entitled to reasonable attorney fees and costs under the contract.
1. Attorney Fees
Finding that Amaya prevailed at trial, the trial court awarded him attorney fees of $6,000 under the terms of the purchase and sale agreement. At trial, counsel for Amaya submitted billing records showing that he incurred actual attorney fees of $21,852.25. Amaya argues that the trial court erred when it based its decision to award $6,000 on the fact that the principal judgment award was only $942.70. JG assigns error to the trial court's finding that Amaya prevailed at trial. It further contends that if we agree that Amaya prevailed at trial, then the trial court did not abuse its discretion in the amount of attorney fees awarded.
Washington follows the lodestar method of determining reasonable attorney fees. Bowers v. Transamerica Title Ins. Co., 100 Wn.2d 581, 597-99, 675 P.2d 193 (1983). The lodestar method requires the trial court to multiply a reasonable hourly rate by the number of hours reasonably expended on the matter. Scott Fetzer Co. v. Weeks, 122 Wn.2d 141, 149-50, 859 P.2d 1210 (1993). Although the foundation of the award is built on objective criteria, the trial court may adjust the award to account for subjective factors including: `the time expended, the difficulty of the questions involved, the skill required, customary charges of other attorneys, the amount involved, the benefit resulting to the client, the contingency or certainty in collecting the fee and the character of the employment.' Scott Fetzer Co., 122 Wn.2d at 150 (quoting Dailey v. Testone, 72 Wn.2d 662, 664, 435 P.2d 24 (1967)).
In Scott Fetzer Co., our Supreme Court held that `[w]hile the amount in dispute does not create an absolute limit on fees, that figure's relationship to the fees requested or awarded is a vital consideration when assessing [the fees'] reasonableness.' Scott Fetzer Co., 122 Wn.2d at 150. In determining the appropriate amount of fees to award Amaya, the trial court noted that `about half of the fees were incurred after [JG's] offer of settlement . . . [a]nd to . . . some extent, . . . [that fact] undermines the reasonableness of the fees' Amaya's counsel submitted. RP (Jan. 20, 2005) at 17. The court also noted that the `amount of recovery [was] quite nominal. . . . [and] that is one of the factors . . . taken into consideration in reviewing a fee request.' RP (Jan. 20, 2005) at 18.
The trial court acknowledged that it did not question the skills of either attorney but instead was focusing on the ultimate amount recovered when awarding attorney fees. And a court `should . . . discount hours spent on unsuccessful claims' in determining the time reasonably expended for purposes of calculating attorney fees. Bowers, 100 Wn.2d at 597. But because we hold that Amaya is entitled to recover the earnest money deposit and the cost of the upgrades, we remand to the trial court to reconsider the amount of reasonable attorney fees Amaya is entitled to in light of his increased recovery.
2. Costs
The trial court also awarded Amaya, as the prevailing party, costs of $1,582.94. Although Amaya claimed that he incurred costs of $2,695.31, the trial court declined to award any costs incurred after JG's offer of judgment.
JG served Amaya with a CR 68 offer of judgment on September 17, 2004. Under CR 68, `a party defending against a claim may serve upon the adverse party an offer to allow judgment to be taken against him . . . to the effect specified in his offer, with costs then accrued.' But if the offeree does not accept the offer of judgment, and `the judgment finally obtained by the offeree is not more favorable than the offer, the offeree must pay the costs incurred after the making of the offer.' CR 68.
JG offered to settle the case for $15,000 plus fees and costs incurred as of September 17, 2004. The trial court awarded Amaya $942.70 plus $7,582.94 in fees and costs. Because the judgment that Amaya will ultimately obtain is less than the amount JG offered to settle the case, he cannot recover costs incurred after JG's offer. The trial court properly declined to award Amaya costs incurred after JG's offer.
VI. Attorney Fees on Appeal
JG and Amaya each ask for attorney fees under the contract and RAP 18.1 on appeal. Although we hold that Amaya is entitled to a return of the earnest money deposit and the amount he paid for upgrades, we remand for reconsideration of the attorney fees and costs award. We affirm the trial court's ruling on the admissibility of the attorneys' letters and Amaya's failure to mitigate damages. Because we hold that neither party prevailed on appeal, we decline to award fees under RAP 18.1.
We vacate the damage award in favor of Amaya and remand to the trial court to enter a new award that includes the earnest money deposit and the amount Amaya paid for upgrades. The trial court should also reconsider the amount of its attorney fee award in light of Amaya's additional recovery. We affirm the remainder of the trial court's ruling.
A majority of the panel having determined that this opinion will not be printed in the Washington Appellate Reports, but will be filed for public record pursuant to RCW 2.06.040, it is so ordered.
HOUGHTON, P.J. and PENOYAR, J., concur.