Opinion
No. 22825-8-III
Filed: April 14, 2005 UNPUBLISHED OPINION
Appeal from Superior Court of Chelan County. Docket No. 01-2-00827-1. Judgment or order under review. Date filed: 02/12/2004. Judge signing: Hon. Lesley A. Allan.
Counsel for Appellant(s), Jeffrey T. Fehr, Fehr Law Office PLLC, PO Box 2346, Wenatchee, WA 98807-2346.
Scott Andrew Volyn, Attorney at Law, 124 N Wenatchee Ave Ste a, PO Box 3125, Wenatchee, WA 98807-3125.
Counsel for Defendant(s), Charles Raymond Steinberg, The Steinberg Law Firm PS, 119 5th St, Wenatchee, WA 98801-2017.
David Michael Bohr, Attorney at Law, PO Box 2686, Wenatchee, WA 98807-2686.
Counsel for Respondent/Cross-Appellant, Thomas Francis O'Connell, Attorney at Law, PO Box 2136, Wenatchee, WA 98807-2136.
Ed and Kimme Hawkins d/b/a All Seasons Sweeping Service and North Country Sweeping (Mr. Hawkins) filed this action against Charles and Karen Bray d/b/a All Seasons Sweeping Service, Inc. (Mr. Bray) and General Construction and Excavation Company (General Construction). Mr. Bray filed a counter claim. Each party contends the other party breached the purchase and sale agreement (PSA) for the sale of Mr. Bray's sweeping and snowplowing business. The trial court concluded that: (1) the sale of the business goodwill to Mr. Hawkins did not include the All Seasons Sweeping Service, Inc. trade name, (2) Mr. Hawkins failed to make payments due on a promissory note, and (3) Mr. Bray breached the PSA by failing to provide training and by failing to comply with the right of first refusal provision. The court offset the awards, resulting in a judgment in favor of Mr. Bray. The court also awarded Mr. Bray 75 percent of his attorney fees. Mr. Hawkins appeals. Mr. Bray cross-appeals.
In all respects, we affirm the judgment of the trial court.
FACTS
The appellant, Mr. Hawkins, does not challenge any of the court's findings of fact. The respondent, Mr. Bray, assigns error to three findings of fact. The following statement of facts is drawn from the undisputed findings and other undisputed facts.
Mr. Bray operated All Seasons Sweeping Service, Inc. which consisted of sweeping and snowplowing services, snowplow sales, and pavement repair services. In May 1998, the parties executed a PSA detailing Mr. Hawkins's purchase of Mr. Bray's sweeping and plowing operations. Under the terms of the PSA, the purchase price included goodwill. As prepared by Mr. Hawkins's attorney, the PSA changed the allocated price of goodwill from $35,000 to $106,000. At the time the PSA was executed, Mr. Bray expressed no interest in, or concern about, the allocation of the purchase price.
During the negotiations related to the PSA, the sale of the name `All Seasons Sweeping Service' was discussed. Clerk's Papers (CP) at 18. Ultimately, the PSA provided that Mr. Bray would continue his other operations, which included the pavement repair service and snowplow sales. Significantly, the PSA stated that Mr. Hawkins was granted a first refusal right in the pavement repair business known as `All Seasons Sweeping Service, Inc.' CP at 18.
Mr. Hawkins testified that he intended to purchase the right to use the name `All Seasons Sweeping Service, Inc.,' but he was undecided whether to change the name of the business, combine the name with the name of his existing business, or leave the name alone. In contrast, Mr. Bray believed that he had reserved the right to use the name `All Seasons Sweeping Service, Inc.,' but he also acknowledged that he did not know the meaning of the term `goodwill' when he signed the PSA.
In May 1998, Mr. Bray sent a letter to his customers notifying them of the sale of the sweeping and plowing operations. This letter was sent on All Seasons Sweeping Service, Inc. letterhead and the letter was sent to Mr. Hawkins for his approval before being sent to Mr. Bray's customers. That same month, Mr. Hawkins executed a promissory note to Mr. Bray for $20,000, with interest set at 7 percent from May 1. The principal balance was due one year later. Ultimately, Mr. Hawkins failed to make payments under the note. At the time of trial, the balance owing was $19,260.68, including interest.
After Mr. Hawkins purchased the sweeping and plowing equipment, he left the name `All Seasons Sweeping' on the equipment until September 1998, when he began to change the logo to `North Country Sweeping,' piece by piece. When Mr. Hawkins sent out his first billings, he included a Rolodex card indicating that this business was `formerly All Seasons Sweeping.' Mr. Bray learned about this card and confronted Mr. Hawkins; Mr. Hawkins acknowledged that it was a mistake.
At all times after the sale, Mr. Bray continued to register the name `All Seasons Sweeping Service, Inc.,' and continued to use this name in yellow page advertising, on company vehicles, and on advertising signs. Mr. Hawkins never registered, or attempted to register, the name `All Seasons Sweeping Service, Inc.' Moreover, after the execution of the PSA, Mr. Hawkins purchased additional equipment from Mr. Bray and made the checks payable to `All Seasons Sweeping.'
Later, Mr. Bray sold the asphalt maintenance part of the business to General Construction. This sale agreement granted General Construction the right to use the trade name `All Seasons Sweeping Service, Inc.' Mr. Bray gave Mr. Hawkins written notice of the opportunity to purchase the paving repair business for $110,000. But this business operation was later sold to General Construction for $80,000, without giving notice of the final price to Mr. Hawkins.
Mr. Hawkins filed this action claiming that he purchased the All Seasons Sweeping Service trade name under the PSA. Mr. Bray filed a counterclaim, alleging that Mr. Hawkins breached the PSA and failed to make payments owed on the promissory note.
The trial court concluded that the sale of the business goodwill to Mr. Hawkins did not include the trade name and that Mr. Hawkins failed to make payments due on a promissory note. The court also concluded that Mr. Bray breached the PSA by failing to provide 220 hours of training and by failing to give notice under the first refusal right. The court offset the awards granting judgment to Mr. Bray, and awarding him 75 percent of his attorney fees. Mr. Hawkins appeals. Mr. Bray cross-appeals.
ANALYSIS
Standard of Review. We review a trial court's conclusions of law de novo. Carlstrom v. Hanline, 98 Wn. App. 780, 784, 990 P.2d 986 (2000). When challenged, the trial court's findings of fact are reviewed to determine whether they are supported by substantial evidence. Miller v. City of Tacoma, 138 Wn.2d 318, 323, 979 P.2d 429 (1999). Substantial evidence is evidence of sufficient quantity to persuade a reasonable fact finder of the truth of the declared premise. Holland v. Boeing Co., 90 Wn.2d 384, 390-91, 583 P.2d 621 (1978). When a trial court has weighed the evidence, our review is limited to an inquiry as to whether the record contains substantial evidence to support the court's findings of fact and whether the findings support the court's conclusions. See Holland, 90 Wn.2d at 390.
Trade Name — All Seasons Sweeping Service, Inc. Mr. Hawkins makes three arguments to support his belief that the trade name was transferred to him under the PSA. First, Mr. Hawkins contends that the trade name transferred automatically when he purchased the sweeping and snowplowing operations from Mr. Bray. Second, Mr. Hawkins asserts that the trade name was transferred as part of the amount allocated in the PSA for `goodwill.' Third, Mr. Hawkins contends there is no ambiguity in the term `goodwill' and no evidence showing the parties' intent was to allow Mr. Bray to retain the trade name after the sale of the sweeping and snowplowing operations. Did the PSA automatically transfer the trade name to Mr. Hawkins? Mr. Hawkins maintains that the trial court's decision is based on the assumption that he purchased only part of Mr. Bray's business. Mr. Hawkins argues that the trade name automatically transferred to him because he purchased all of the existing business. In response, Mr. Bray contends that there was no transfer of the trade name because the PSA is silent as to the transfer of the trade name and Mr. Hawkins did not purchase the entire business.
Absent evidence to the contrary, a trade name is presumed to pass to the one receiving a transferred business, even without formal assignment. Dovenmuehle v. Gilldorn Mortgage Midwest Corp., 670 F. Supp. 795, 798 (N.D. Ill. 1987), aff'd, 871 F.2d 697 (7th Cir. 1989). However, this presumption is limited; the sale of a business as a whole results in a transfer of trade marks and trade names even where the agreement is silent as to the conveyance of these assets. See Am. Dirigold Corp. v. Dirigold Metals Corp., 125 F.2d 446, 453 (6th Cir. 1942).
The court did not err by concluding that the trade name did not transfer automatically under the PSA. Mr. Hawkins did not purchase all of the business. Mr. Hawkins concedes that Mr. Bray operated three businesses and that the PSA involved the sale of the sweeping and snowplowing business. Mr. Hawkins cites no authority supporting his argument that the extent of the business sold is determined by which operations are logically encompassed by the trade name.
Additionally, Mr. Bray's business was formed in 1992 to perform sweeping, snowplowing, and asphalt repair. The corporate name is registered. Mr. Hawkins made no attempt to change the name of his company or register the name. Affirmative action is necessary to change a registered trade name. RCW 19.80.025. And, a corporate name cannot be used if indistinguishable from the name of a corporation previously incorporated unless the named registered corporation consents and files the documents necessary to change the name. RCW 23B.04.010(1)(d)(i), (2)(a).
Did the trade name transfer with the purchase of goodwill? Alternatively, Mr. Hawkins asserts that even if he purchased only a portion of the business, the trade name transferred to him because the PSA allocates the amount of $106,000 for goodwill and Mr. Bray retained only the equipment sales and pavement repair operations.
The term `goodwill' is an element of a going business which adheres to the whole business and cannot be separated. In re Estate of Glant, 57 Wn.2d 309, 312, 356 P.2d 707 (1960). Goodwill encompasses the advantages obtained by the purchaser holding himself out to the public as the successor to an operating business with the name and reputation of the predecessor. J.L. Cooper Co. v. Anchor Sec. Co., 9 Wn.2d 45, 54, 113 P.2d 845 (1941) (quoting Stanton v. Zercher, 101 Wash. 383, 391, 172 P. 559 (1918)). Goodwill is an intangible part of the value of a going concern. Glant, 57 Wn.2d at 312. Among the elements included in goodwill are the continuation of the name, location, reputation, and the talents and abilities of the members of the operating business. Id.
Mr. Hawkins is correct in his assertion that the PSA does not expressly state that Mr. Bray reserved the trade name as part of the transaction. But the PSA also provides that Mr. Bray would continue to operate the other portions of the business and that Mr. Hawkins had the first refusal right in the pavement repair business know as `All Seasons Sweeping Service, Inc.' CP at 18.
Because Mr. Hawkins did not purchase Mr. Bray's entire business and the PSA implies that the operations retained by Mr. Bray retained the trade name, the trial court did not err by concluding that the term `goodwill' in the PSA did not effect a transfer of the trade name to Mr. Hawkins. Hence, the court did not err by concluding the term `goodwill' was subject to interpretation to ascertain the mutual intent of the parties.
Objective manifestations of the parties' mutual intent as to meaning of `goodwill.' Mr. Hawkins contends there is no need to interpret the term `goodwill,' and even if there is, there is no evidence indicating a mutual intent to allow Mr. Bray to retain the trade name after the sale of the sweeping and snowplowing operations.
Extrinsic evidence pertaining to the entire circumstances surrounding the formation of the contract may be examined to ascertain the intent of the parties. Berg v. Hudesman, 115 Wn.2d 657, 667, 801 P.2d 222 (1990). However, the extrinsic evidence considered must demonstrate objectively manifested mutual intent as opposed to unilateral, subjective, or undisclosed intentions concerning the meaning of the terms of the contract. Lynott v. Nat'l Union Fire Ins. Co., 123 Wn.2d 678, 683-84, 871 P.2d 146 (1994).
Extrinsic evidence is admissible only for the purpose of elucidating the meaning of the terms of a contract and are inadmissible for the purpose of adding to, modifying, or contradicting these terms. Berg, 115 Wn.2d at 669 (quoting J.W. Seavey Hop Corp. v. Pollock, 20 Wn.2d 337, 348-49, 147 P.2d 310 (1944)). When ascertaining the intent of the parties, the court may consider: (1) the circumstances of the parties at the time the contract was executed, (2) the circumstances under which the contract was executed, and (3) the subsequent conduct of the parties. Berg, 115 Wn.2d at 668-69.
The undisputed findings of the trial court establish that the sale of goodwill under the PSA did not include the transfer of the trade name. These factual findings are as follows. First, Mr. Bray notified his customers of the sale of the sweeping and snowplowing business to North Country Sweeping using All Seasons Sweeping Service, Inc. letterhead and the letter was pre-approved by Mr. Hawkins. Second, Mr. Hawkins replaced the All Seasons Sweeping name with the name `North Country Sweeping' on the equipment purchased under the PSA. Third, Mr. Hawkins never attempted to register the All Seasons Sweeping Service, Inc. trade name, while Mr. Bray continued the trade name registration, and used the trade name in advertising, on vehicles, and on signs. Fourth, when purchasing other equipment from Mr. Bray, Mr. Hawkins made his checks payable to `All Seasons Sweeping.' CP at 19.
In short, the findings of fact support the trial court's conclusion that the intent of the parties was that the sale of the business goodwill did not include the transfer of the trade name.
Consumer Protection Claim. Mr. Hawkins contends the court erred by concluding that he failed to establish a claim under the Consumer Protection Act. But this claim is based on his assertion that Mr. Bray breached the PSA by failing to transfer the trade name to Mr. Hawkins. Because we conclude that no breach of the PSA occurred with respect to the transfer of the trade name, we need not address this claim.
Cross-Appeal. In his cross-appeal, Mr. Bray contends the court erred by concluding that he (1) failed to provide all of the required training to Mr. Hawkins, and (2) failed to comply with Mr. Hawkins's first refusal right.
Hours of Training. The PSA provides as follows:
10. Acknowledgement by Purchaser. . . . Purchaser agrees to provide 40 hours' notice for any training as set forth in paragraph 11.
11. Representations by Seller.
. . . .
B. Seller agrees to provide training for North Country Sweeping employees for one (1) year in an amount of not less than 20 hours per month, in the following areas. . . .
Ex. 4 (emphasis added).
It is undisputed that the 240 hours of training were not provided and that Mr. Hawkins did not request additional assistance over the 20 hours that were provided. The trial court concluded that Mr. Bray breached his duty to provide this training. The court valued the loss at $916.
Mr. Bray contends that the two contract provisions, when read together, establish the parties' intent to require notice from Mr. Hawkins before the obligation to provide training would apply.
But this is a strained reading of the terms of the PSA. Under paragraph 11, Mr. Bray agreed to provide 240 hours of training. Under paragraph 10, Mr. Hawkins agreed to provide 40 hours of notice for the training. The fact that Mr. Hawkins agreed to give 40 hours notice did not excuse Mr. Bray from offering a total of 240 hours of training in the required areas. First Refusal Right. The trial court also concluded that Mr. Bray breached the PSA provision stating that Mr. Hawkins had the first refusal right to purchase the pavement and repair business known as `All Seasons Sweeping Service, Inc.' Under this agreement, Mr. Bray was required to give written notice of the terms and conditions of a bona fide offer and Mr. Hawkins had the right to purchase the property on the same terms and conditions. It is undisputed that Mr. Bray notified Mr. Hawkins of the name of a prospective purchaser and the asking price of $110,000. But Mr. Bray later sold the repair business to General Construction for $80,000. Mr. Bray concedes that he never communicated this final offer to Mr. Hawkins. Mr. Bray contends he presented evidence establishing that Mr. Hawkins waived his right to notice under the first refusal right provision. According to Mr. Bray, he met with Mr. Hawkins and was informed that Mr. Hawkins was not interested in the pavement repair business at any price. Mr. Hawkins denied making this statement.
We conclude there was sufficient evidence to support the court's finding that Mr. Bray failed to inform Mr. Hawkins of the final offer and that this finding supports the court's conclusion that Mr. Bray breached the PSA provision granting Mr. Hawkins a first refusal right.
Promissory Note. In May 1998, the parties executed the PSA and Mr. Hawkins signed a promissory note for $20,000 payable to Mr. Bray. This note was due in full on May 1, 1999. Mr. Hawkins failed to make full payment by the due date, but made partial payments in January and March 2001. The sale of the trade name to General Construction occurred in March 2000.
The court concluded that Mr. Hawkins failed to make payments on the promissory note and determined that Mr. Bray was entitled to a judgment for unpaid principal and accrued interest in the amount of $19,260.68.
Mr. Hawkins maintains that he was justified in withholding payment on the note because of Mr. Bray's material breach of the PSA. Mr. Hawkins asserts this material breach allowed him to suspend his performance until Mr. Bray cured the default.
A material breach suspends the performance of the injured party's duties until the breaching party cures the default. Bailie Communications, Ltd. v. Trend Bus. Sys., 53 Wn. App. 77, 81, 765 P.2d 339 (1988). If the breaching party fails to cure the breach within a reasonable time, the injured party may either sue for total breach, or rescind and obtain restitution. Id.
To determine whether a breach is material, the court must consider: (1) whether the breach deprives the injured party of a benefit he or she reasonably expected, (2) whether the injured party can be adequately compensated for the loss of that benefit, (3) whether nonperformance will result in a forfeiture by the injured party, (4) whether the breaching party is likely to cure the breach, and (5) whether the breach comports with good faith and fair dealing. Id. at 83. Significantly, the question of whether a breach is material is a question of fact. Id. at 82.
Mr. Hawkins's belief that Mr. Bray's breach was material is based on the assumption that Mr. Bray breached the PSA by failing to deliver the trade name to Mr. Hawkins and by failing to give Mr. Hawkins the right of first refusal. But this court has already determined that the PSA did not effect a transfer of the trade name to Mr. Hawkins. Consequently, the failure to deliver the trade name did not constitute a breach of the PSA. As a result, any inquiry into the materiality of the breach is limited to an examination of the effect of Mr. Bray's failure to comply with the first refusal right provision and the failure to provide training.
The breach here is not material. Mr. Hawkins did not suspend his performance when the alleged breach of his right to first refusal occurred, but, instead, continued to make some payments on the note. Moreover, the court found that Mr. Hawkins failed to request the additional training required under the PSA.
Mr. Bray makes a different argument to support the court's conclusion that Mr. Hawkins failed to make the payments due under the note. Because there are two separate agreements, Mr. Bray contends the alleged breach of the PSA does not excuse Mr. Hawkins's performance under the promissory note and the performance of the first promise is not a condition precedent to the performance of the second promise.
The nonperformance of one party's promise excuses performance by another party of a different promise only when the performance of the first promise is a condition precedent to the performance of the second promise. Ross v. Harding, 64 Wn.2d 231, 236, 391 P.2d 526 (1964). The intent of the parties to include a condition precedent in a contract is determined by conducting a fair and reasonable reading of the language of the agreement and considering all of the surrounding circumstances. Id. If there is a question as to whether the language in a contract creates a promise or a condition precedent, this language will be interpreted as creating only one promise. Id.
Here, the two agreements do not refer to each other and there is no language indicating that the promise to perform one agreement is a condition precedent for the performance of the other agreement. Moreover, Mr. Hawkins's subsequent conduct contradicts his assertion that Mr. Bray's breach of the PSA constituted a breach of a condition precedent. The sale of the trade name to General Construction and the breach of the right of first refusal occurred in March 2000, but Mr. Hawkins made payments on the note in January and March 2001.
Attorney Fees. Under RCW 4.84.330, an award of fees and costs is required in an action on a contract if the contract provides for fees and costs. Consequently, the prevailing party in an action to enforce a contract is entitled to attorney fees and costs if the contract provides for fees and costs. RCW 4.84.330; Seattle-First Nat'l Bank v. Siebol, 64 Wn. App. 401, 409, 824 P.2d 1252 (1992). In such cases, the discretion of the court is limited to deciding the amount of fees. Metro. Mortgage Sec. Co. v. Becker, 64 Wn. App. 626, 632, 825 P.2d 360 (1992).
A party need not prevail on its entire claim to be designated as the prevailing party. Silverdale Hotel Assocs. v. Lomas Nettleton Co., 36 Wn. App. 762, 774, 677 P.2d 773 (1984). Moreover, a defendant who is successful in defending claims made may be allowed to recover fees and costs as the prevailing party. Marine Enter., Inc. v. Sec. Pac. Trading Corp., 50 Wn. App. 768, 772, 750 P.2d 1290 (1988). In Marassi v. Lau, 71 Wn. App. 912, 917, 859 P.2d 605 (1993), the court applied a proportionality approach to determine fees and costs.
Here, the promissory note provided that, in the event of nonpayment, Mr. Hawkins promised `to pay all costs of collection, including reasonable attorney fees.' Ex. 5. The PSA provided for fees incurred by the prevailing party to prosecute or defend an action to enforce the contract. Mr. Hawkins prevailed on his claims that Mr. Bray breached the covenant not to compete, the first refusal right, and the promise to provide training. In the PSA, the parties valued the covenant not to compete and the first right of refusal at $1,000 each.
Mr. Bray received a net judgment of $17,334.68. He prevailed on his counterclaim and successfully defeated two of Mr. Hawkins's claims — the claim related to the transfer of the trade name and the claim as to the nonpayment of the promissory note. Mr. Hawkins sought damages of $106,000 on his claim that Mr. Bray breached the PSA by failing to deliver the trade name to Mr. Hawkins. The parties' valued goodwill at $106,000 in the PSA. The trial court concluded in its memorandum opinion that the majority of the time at trial was spent presenting evidence on this claim, which the court viewed as the `most significant claim.' CP at 42. The court awarded Mr. Bray 75 percent of his attorney fees.
Mr. Hawkins contends that, because the court made no finding as to the value of the trade name, the court did not make sufficient findings to support the award of fees to Mr. Bray. According to Mr. Hawkins, the court should have applied the proportionality approach for determining fees as set forth in Marassi. Mr. Hawkins believes that under this method, the fees awarded to each party would completely offset each other and neither party would be entitled to an award of attorney fees.
In contrast, Mr. Bray contends that, as the prevailing party, he was entitled to an award of all of his fees and that the court erred by concluding that he was entitled to an award of 75 percent of his fees. Mr. Bray also contends that he is entitled to an award of fees on appeal.
Because of the issues involved, the relief requested, and the number of claims prevailed on by each party, the trial court determined that Mr. Bray should receive a portion of the fees requested. We conclude the trial court did not abuse its discretion by awarding Mr. Bray 75 percent of his attorney fees and costs.
Award of Attorney Fees on Appeal. Mr. Bray also requests his attorney fees on appeal. Here, the court awards attorney fees and costs to the prevailing party in any action to enforce the contract. Consequently, Mr. Bray should be awarded his fees and costs on appeal. In summary, we affirm the judgment of the trial court and award attorney fees and costs on appeal to Mr. Bray.
The majority of the panel has determined this opinion will not be printed in the Washington Appellate Reports, but it will be filed for public record pursuant to RCW 2.06.040.
KATO, C.J. and SCHULTHEIS, J., Concur.