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Castillo v. Lamba

December 30, 1996

JAMES CASTILLO AND ROSALIE CASTILLO, HUSBAND AND WIFE, RESPONDENTS,
v.
HARMIT LAMBA AND CHARANJIT K. LAMBA, APPELLANTS.



Appeal from Superior Court of King County. Docket No: 93-2-31675-5. Date filed: 09/01/95. Judge signing: Hon. Faith Enyeart Ireland.

Authored by Walter E. Webster. Concurring: Faye C. Kennedy, William W. Baker

The opinion of the court was delivered by: Webster

WEBSTER, J. -- The trial court determined that representations the Lambas made to the Castillos in connection with the sale of their business constituted negligent misrepresentation and breach of contract warranty. The Lambas argue that there was not substantial evidence (1) that the Castillos justifiably relied on the representations or (2) of the amount of wage loss damages. They also contend that the trial court abused its discretion in awarding attorney fees based on the Castillos' contingent fee agreement. Because there is substantial evidence in the record to support the trial court's findings and the Lambas invited any error in calculating reasonable attorney fees, we affirm.

FACTS

The Castillos purchased a dry cleaning business from the Lambas in early 1993. Before they made a down payment or signed the purchase and sale agreement, the Lambas gave them copies of their business tax returns for 1990 and 1991. The tax returns for 1992 were not yet available. They also provided another document that was not titled or dated. The document, presented at trial as Exhibit One, shows income and expenses for a twelve-month period, with a net profit of $62,000. Mr. Castillo testified that the Lambas told him this was a profit and loss statement for 1992 and that he purchased the cleaners because the document showed it to be profitable.

The Castillos operated the cleaners until December 1993. During this time, the business was not profitable and they used their savings and borrowed money to meet their expenses. In November, they discovered that the cleaners actually lost more than $6,800 in 1992, rather than generating a $62,000 profit. They returned the business to the Lambas and began this lawsuit.

At trial, the Lambas testified that Exhibit One was not a profit and loss statement, but a projection of future income based on the way the Castillos planned to operate the business. The trial Judge found that both parties were credible witnesses and that there likely was inadequate communication between them about what Exhibit One was. Although she made no finding of fraud, the Judge found that the Castillos justifiably relied on the document as a summary of 1992 performance. Additionally, she found that, even as a projection of income, Exhibit One was misleading because it showed a profit margin of nearly 50% before depreciation and failed to include significant expenses. Accordingly, the Judge found that the Castillos were entitled to damages for negligent misrepresentation. She also found that the Lambas did not divulge substantial changes in the business's financial circumstances in the first quarter of 1993, constituting a breach of contract warranty. The court awarded damages in the amount of $96,090 ($28,590 for purchase costs, $40,500 for lost wages while the Castillos were operating the business, and $27,000 for lost wages for the six months following the closing of the business).

Discussion

A. Justifiable Reliance

Justifiable reliance is an element of negligent misrepresentation. Havens v. C & D Plastics, 124 Wash. 2d 158, 180, 876 P.2d 435 (1994) (quoting Restatement (Second) of Torts sec. 552(1) (1977)). The Lambas contend that (1) there was not sufficient evidence that the Castillos actually relied on Exhibit One and (2) even if they did, their reliance was not justified. *fn1 Justifiable reliance is a question of fact. Barnes v. Cornerstone Invs., 54 Wash. App. 474, 478, 773 P.2d 884, review denied, 113 Wash. 2d 1012, 779 P.2d 730 (1989). The appellate court determines whether challenged findings of fact are supported by substantial evidence. Willener v. Sweeting, 107 Wash. 2d 388, 393, 730 P.2d 45 (1986). Substantial evidence is that sufficient to persuade a fair-minded person of the truth of the asserted premise. Ridgeview Properties v. Starbuck, 96 Wash. 2d 716, 719, 638 P.2d 1231 (1982).

1. Actual Reliance

The Lambas contend that the Castillos did not rely on Exhibit One because Mr. Castillo made a full price offer to purchase the cleaners before he saw the document. Mr. Castillo testified, however, that he received Exhibit One, which he believed to be a profit and loss statement, in the first week of February 1993. Based on that document, he determined that the business was profitable. When he requested other documentation, Mrs. Lamba required him to make a $5,000 down payment to show that he was a serious buyer. He made this payment on March 3, 1993, and signed the purchase and sale agreement on March 31, 1993. He specifically testified that he decided to purchase the cleaners based on Exhibit One. This constitutes substantial evidence that he actually relied on the document.

The Lambas point to Mrs. Lamba's testimony that the Castillos offered the asking price before seeing any documents. Even if this is true, it does not mean that the Castillos did not rely on Exhibit One in deciding to purchase the business. The Lambas do not suggest that an oral offer, without consideration, would have bound him to purchase if he was not later satisfied with the business's profitability. Moreover, Mrs. Lamba's testimony is inconsistent with the allegation in her counterclaim that:

After having reviewed all the business records and other representations, [the Castillos] negotiated and ...


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