Wash. Fed. Sav. v. Algo, Inc.
| Decision Date | 21 February 2017 |
| Docket Number | No. 72114-3-I,72114-3-I |
| Court | Washington Court of Appeals |
| Parties | WASHINGTON FEDERAL SAVINGS, a United States corporation, Respondent/Cross-Appellant, v. ALGO, INC., a Washington corporation; and ALLEN R. GRANT, individually and his marital community; JANE DOE GRANT, her marital community, Appellants/Cross-Respondents. |
UNPUBLISHED OPINION
TRICKEY, A.C.J. — Washington Federal Savings (Washington Federal) and Algo, Inc., Allen R. Grant, and Jane Doe Grant (collectively, Grant) both appeal the trial court's order granting summary judgment based on Grant's breach of a settlement agreement term sheet (Settlement Agreement) between the parties.
Washington Federal argues that the trial court erred in awarding less than the Settlement Agreement's value. We agree because Grant's material breach rendered the entire value of the Settlement Agreement due immediately and reverse and remand for entry of judgment of $1 million.
Grant argues that the trial court erred in awarding Washington Federal prejudgment interest. We disagree and affirm the trial court. Grant argues that the trial court erred in awarding Washington Federal attorney fees in general and awarding excessive attorney fees. We agree and reverse the trial court's award of attorney fees to Washington Federal.
FACTS
In 2011, Grant defaulted on his loan obligations to Washington Federal. Washington Federal nonjudicially foreclosed on the real property securing the loan and sued Grant for a deficiency of $2,414,633.60. Following mediation, the parties executed the Settlement Agreement on August 1, 2012.
The Settlement Agreement provided that Grant would agree, via promissory note, to pay a principal sum of $1 million.1 The note would have made payment due in 60 months from the date of the Settlement Agreement, with interest set at 0 percent for the term and 12 percent per annum in the event of default. It would have allowed for recovery of attorney fees in an action to enforce the terms of the note and for discounts if the discounted amount was paid in full within specified time periods. The Settlement Agreement required that Grant secure the note with real property. By its terms, the Settlement Agreement was binding and enforceable, despite contemplating the parties executing future documents.
Grant never signed a promissory note and never secured his payment obligation with real property. On February 11, 2013, Grant repudiated the Settlement Agreement, and Washington Federal soon moved to withdraw the notice of settlement.
Soon after, the parties resumed the deficiency judgment litigation. Washington Federal moved for summary judgment on its underlying claims. The trial court granted the motion in part and set the remaining claims and defenses for trial.
Washington Federal amended its complaint on January 13, 2014, to add a claim for breach of the Settlement Agreement. Washington Federal moved for summary judgment on its new claim, requesting $1 million as a principal award, interest from the date of default, and attorney fees and costs. Washington Federal's motion noted that the "parties' remaining claims and counterclaims should be dismissed with prejudice" if the motion was granted.2 The trial court granted the motion in part and dismissed the deficiency judgment claim. It awarded Washington Federal $1 million, denied its request for attorney fees and costs, and requested supplemental briefing on the issue of prejudgment interest.
Both parties moved for reconsideration. Washington Federal challenged the denial of attorney fees and costs, and Grant challenged the principal award amount and prejudgment interest. The trial court granted both motions. It reduced the judgment against Grant to $850,000, awarded Washington Federal prejudgment interest at a rate of 12 percent per annum from February 11, 2013, and awarded costs and reasonable attorney fees to Washington Federal.
Washington Federal requested a total of $151,330.04 in costs and fees incurred since August 1, 2012, the date of the mediation between the parties. The trial court adopted Washington Federal's findings and conclusions, and awarded the full amount requested. Both parties appeal.
While the appeal was pending, Grant filed for chapter 11 bankruptcy protection. The bankruptcy court treated Washington Federal as a general unsecured creditor because of Grant's failure to secure his obligation under the Settlement Agreement.
ANALYSIS
Damages for Breach of Contract
Washington Federal argues that the remedy for Grant's material breach of the Settlement Agreement is $1 million because a nonbreaching party may demand the entire value of a contract due immediately. Grant argues that $850,000 is the proper amount because that amount would have been due had a promissory note been executed and paid at the time of breach. We conclude that Washington Federal was entitled to $1 million as a principal amount because Grant's material breach of the Settlement Agreement allowed Washington Federal to demand the entire $1 million due immediately.
Review of a trial court's decision on summary judgment is de novo. Troxell v. Rainier Pub. Sch. Dist. No. 307, 154 Wn.2d 345, 350, 111 P.3d 1173 (2005). Summary judgment is appropriate if there is "'no genuine issue as to any material fact' and 'the moving party is entitled to judgment as a matter of law.'" Dean v. Fishing Co. of Alaska, Inc., 177 Wn.2d 399, 405, 300 P.3d 815 (2013) (citing CR 56(c)).
The trial court granted Washington Federal's motion for summary judgment on Grant's breach of the Settlement Agreement. "'Any unjustified failure to perform when performance is due is a breach of contract which entitles the injured party to damages.'" Colorado Structures, Inc. v. Ins. Co. of the West, 161 Wn.2d 577, 589, 167 P.3d 1125 (2007) (quoting LAWRENCE P. SIMPSON, HANDBOOK OF THE LAW OF CONTRACTS §187, at 377 (2d ed. 1965)).
A material breach is one that is not slight or insubstantial. Colorado Structures, 161 Wn.2d at 588-89. If a party materially breaches a contract, the nonbreaching party may elect either the remedial right to damages for total failure of full performance, or treat the contract as continuing and claim damages limited to compensation for the defective performance. Colorado Structures, 161 Wn.2d at 589. When one party repudiates a contract, the other party may treat that as a breach which excuses its own performance. CPK, Inc. v. GRS Const. Co., 63 Wn. App. 601, 620, 821 P.2d 63 (1991).
Grant does not dispute that he materially breached the Settlement Agreement by failing to secure Washington Federal's interest and repudiating the contract. Grant's failure to secure his obligation was not a slight or insubstantial breach.3 Also, Grant unequivocally informed Washington Federal that he would not be able to perform under the Settlement Agreement. Each action is a sufficient basis to find that Grant materially breached the Settlement Agreement. Grant's material breach gave Washington Federal the option to treat the breach as a total failure of performance, and gave Washington Federal an immediate cause of action.
Washington Federal argues that Grant's breach entitles it to $1 million in damages because that is the full value of the Settlement Agreement. A party's recovery of damages is limited to the amount they would have received had the contract been fully performed. Rathke v. Roberts, 33 Wn.2d 858, 879-80, 207 P.2d 716 (1949). The interpretation of an unambiguous contract is a question of law and is reviewed de novo. Dice v. City of Montesano, 131 Wn. App. 675, 684, 128 P.3d 1253 (2006). "A contract is ambiguous if its terms are uncertain or they are subject to more than one meaning." Dice, 131 Wn. App. at 684.
The Settlement Agreement states that the "[d]efendants agree to pay Washington Federal $1 million in the form of a promissory note."4 The note would have included terms allowing discounts if the discounted amount was paid in full within set time periods. For example, if a promissory note had been executed, Grant could have received a 15 percent discount if he paid $850,000 in full to Washington within 24 months of the execution of the Settlement Agreement.
Based on the unambiguous language of the Settlement Agreement, the principal amount due under the Settlement Agreement was $1 million.5 If Grant had not breached the Settlement Agreement, Washington Federal would have received a secured promissory note for $1 million and the liquidated sum of $1 million from Grant in five years. Because of Grant's breach, Washington Federal will receive nothing.
Further, the discounted sums claimed by Grant were only available if the promissory note had been executed and the required amount was paid within the specified time periods. Because these steps were never performed, the value of the bargain for Washington Federal remained $1 million. Accordingly, the trial court erred in awarding only $850,000.
Based on the discounts in the Settlement Agreement, Grant argues he should have to pay only $850,000. The discounted values were available only if Grant paid the full discounted value within the stated time periods after properly executing a promissory note. Grant acknowledges that he did not pay the discounted amount in full within the stated time periods. Indeed, Grant never made a single payment. We conclude that Grant's failure to satisfy these conditions precludes him from receiving a discount on his debt.
Grant argues in the alternative that the trial court's award of $850,000 represents the $1 million principal sum discounted to present value. Grant relies on cases applying discounts to future profits that would have been earned under an employment contract and to the value of disputed real property that a party had an option to buy in five years. Yarno v. Hedlund Box & Lumber Co., 129 Wash. 457, 225 P. 659, modified, 227 P. 518 (1924); McFerran v. Heroux, 44 Wn.2d 631, 643-44, 269 P.2d 815 (1954).
Discounts to present value do...
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