HILL, P. J.
Defendants appeal from a judgment in which the trial court determined there was no prevailing party on the contract and denied defendants an award of attorney's fees pursuant to contract and Civil Code section 1717.
Plaintiffs (the Bolands) and defendants (the Bakers) entered into an agreement in which the Bakers gave the Bolands a right of first refusal to purchase certain real property on the same terms as any bona fide third party offer the Bakers received and were willing to accept. In 2003, the Bakers received an offer to purchase an undivided one-half interest in the property for $500,000. They orally notified the Bolands of the offer. The Bolands asked for a copy of the written offer. The Bakers instructed the escrow officer to provide the Bolands with a copy of the escrow instructions. The escrow officer provided escrow instructions that seemed to indicate the offer was for $300,000. The Bolands attempted to exercise their right of first refusal at the $300,000 price. The Bakers advised that the third party offer was $500,000 and rejected the Bolands' attempt to buy the property for $300,000. The Bolands sued the Bakers for specific performance. They later amended their complaint to add causes of action for declaratory relief, constructive trust, fraud, and interference with economic advantage against the Bakers. The Bakers cross-complained against the Bolands, alleging causes of action for breach of contract, fraud, and interference with economic advantage.
After a court trial, the trial court issued a statement of decision in which it determined that the offer price was $500,000, the Bolands did not exercise their right of first refusal on the same terms and conditions as the offer, and therefore no valid purchase contract was formed. It found the Bakers breached the contract containing the right of first refusal by failing to give the Bolands a copy of the third party offer, but the Bolands were not entitled to specific performance at the $300,000 price or to damages. It later concluded the Bolands were also not entitled to specific performance at the $500,000 purchase price. The trial court found the Bolands did not breach the contract containing the right of first refusal. It declared that the right of first refusal remained in effect, and determined the Bolands were the prevailing parties on the contract and were entitled to an award of attorney's fees pursuant to the attorney's fee clause in the contract containing the right of first refusal.
The Bolands and the Bakers appealed. We upheld the trial court's decision in favor of the Bakers on the complaint and the Bolands on the cross-complaint, but concluded the trial court abused its discretion by finding the Bolands to be the prevailing parties for purposes of an award of costs and attorney's fees. We reversed and remanded for a determination of the costs to which the Bakers were entitled as prevailing parties pursuant to Code of Civil Procedure section 1032, a redetermination of the prevailing party for purposes of an award of contractual attorney's fees under section 1717, based on the standards set out in Hsu v. Abbara (1995) 9 Cal.4th 863 (Hsu ), and a determination of the amount of attorney's fees to be awarded, if any. The Bakers filed a motion for an award of attorney's fees in the trial court. The trial court determined there was no prevailing party for purposes of such an award and denied the motion. It entered a judgment that awarded no attorney's fees and the Bakers appeal.
The Bakers contend the trial court (1) misapplied the standards set out in Hsu, and (2) created its own erroneous standard by incorrectly defining "defensive in nature," as that term was used by Hsu. (Hsu, supra, 9 Cal.4th at p. 875, fn. 10.)
Section 1717 governs awards of attorney's fees pursuant to contract. It provides, in pertinent part:
The trial court's determination of which party was the prevailing party under section 1717, or that there was no prevailing party on the contract, is an exercise of discretion, which we will not disturb absent a manifest abuse of discretion, a prejudicial error of law, or necessary findings not supported by substantial evidence. (Silver Creek LLC v. BlackRock Realty Advisors, Inc. (2009) 173 Cal.App.4th 1533 (Silver Creek ); Hilltop Investment Associates v. Leon (1994) 28 Cal.App.4th 462, 466.) "`The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason. When two or more inferences can be reasonably deduced from the facts, the reviewing court has no authority to substitute its decision for that of the trial court.' [Citations.]" (Brawley v. J.C. Interiors, Inc. (2008) 161 Cal.App.4th 1126, 1137-1138 (Brawley).)
The contract that contained the right of first refusal included an attorney's fee provision, which stated that, in an action to enforce the terms of the contract, "the prevailing party ... shall be entitled to its reasonable attorneys' fees ... as fixed by the Court." The contract does not define "prevailing party."
In Hsu, the court determined that, when the trial court renders a simple, unqualified decision in favor of the defendant on the only contract claim in the action, "the defendant, who is unquestionably the sole victor, is the party prevailing on the contract as a matter of law and therefore entitled to reasonable attorney fees under section 1717." (Hsu, supra, 9 Cal.4th at pp. 865-866.) Offers and counter-offers for the purchase of real property were transmitted between the parties. (Id. at p. 866.) The plaintiffs (buyers) purported to accept a counter-offer by the defendants (sellers), but the defendants refused to sell. (Id. at pp. 866-867.) The plaintiffs sued for specific performance of the alleged purchase contract. (Id. at p. 867.) The court found for the defendants on the ground no contract was formed. (Id. at pp. 867-868.) The defendants moved for an award of attorney's fees on the contract cause of action pursuant to section 1717. (Id. at p. 868.) The trial court awarded the defendants their costs, but not their attorney's fees, and the defendants appealed. (Id. at p. 869.)
The defendants argued they were entitled to an award of attorney's fees pursuant to section 1717 as the parties prevailing on the contract cause of action. (Hsu, supra, 9 Cal.4th at p. 869.) The court explained that, "`[t]ypically, a determination of no prevailing party results when both parties seek relief, but neither prevails, or when the ostensibly prevailing party receives only a part of the relief sought.' [Citation.] By contrast, when the results of the litigation on the contract claims are not mixed-that is, when the decision on the litigated contract claims is purely good news for one party and bad news for the other-the Courts of Appeal have recognized that a trial court has no discretion to deny attorney fees to the successful litigant." (Id. at pp. 875-876.) The court held "that in deciding whether there is a `party prevailing on the contract,' the trial court is to compare the relief awarded on the contract claim or claims with the parties' demands on those same claims and their litigation objectives as disclosed by the pleadings, trial briefs, opening statements, and similar sources. The prevailing party determination is to be made only upon final resolution of the contract claims and only by `a comparison of the extent to which each party ha[s] succeeded and failed to succeed in its contentions.' [Citation.]" (Id. at p. 876.) The defendants had obtained a "`simple, unqualified win,'" so the trial court had no discretion to deny them their attorney's fees by finding there was no prevailing party under section 1717.
Subsequently, the court emphasized that entitlement to attorney's fees as a matter of right depends upon achieving a "complete" victory on all contract claims. "When a party obtains a simple, unqualified victory by completely prevailing on or defeating all contract claims in the action and the contract contains a provision for attorney fees, section 1717 entitles the successful party to recover reasonable attorney fees incurred in prosecution or defense of those claims. [Citation.] If neither party achieves a complete victory on all the contract claims, it is within the discretion of the trial court to determine which party prevailed on the contract or whether, on balance, neither party prevailed sufficiently to justify an award of attorney fees." (Scott Co. v. Blount, Inc. (1999) 20 Cal.4th 1103, 1109 (Scott).)
The Bakers contend they are the prevailing parties under the statute, because the Bolands failed to achieve their sole goal in the litigation and the Bakers achieved their main goal. They argue that the Bolands' only goal was to obtain specific performance so they could purchase a 50 percent interest in defendants' property for $300,000, and they failed to achieve that goal. The Bakers characterize their own goal as "keeping the property" and assert that they accomplished that purpose.
Hsu requires that the court compare the relief awarded on the contract claims with the parties' demands and litigation objectives. (Hsu, supra, 9 Cal.4th at p. 876.) Scott stresses that a party is entitled to attorney's fees as a matter of right only if it completely prevails on or defeats all contract claims in the action. (Scott, supra, 20 Cal.4th at p. 1109.)
The Bolands original complaint contained one cause of action for specific performance of the right of first refusal and the contract allegedly formed by their exercise of that right. The prayer sought conveyance of the property to the Bolands and "an equitable accounting of all losses incurred by Plaintiffs by reason of defendants' delay in making the conveyance." In the second amended complaint, the Bolands' operative pleading at the time of trial, contained a breach of contract cause of action seeking specific performance, damages, or a constructive trust; it also contained causes of action for declaratory relief and various torts. The Bakers' second amended cross-complaint, the operative cross-complaint at the time of trial, alleged causes of action for breach of contract and a number of torts; the breach of contract cause of action alleged the Bolands breached the right of first refusal by attempting to exercise it on terms and conditions different from those in the third party offer the Bakers intended to accept, by asserting they had validly exercised it, by filing a notice of pending action which prevented the Bakers from completing the sale to the third parties, by having the escrow company prepare escrow instructions for a sale at a lower price than that offered by the third parties, and by continuing to assert they were exercising their right of first refusal, even after being provided with escrow instructions showing the true terms of the third party offer. The Bakers sought damages of $500,000 on that cause of action.
The trial court found for the Bakers on the Bolands' complaint, concluding no contract for the sale of the property to the Bolands was formed and the Bolands were not entitled to specific performance for failure to convey the property. While the court stated at one point that the Bakers breached the right of first refusal by failing to properly notify the Bolands of the third party offer and its terms, and the Bolands were damaged by this failure, it did not award the Bolands any damages and it later concluded the Bolands would not have accepted the offer at the actual price if proper notification had been made. The trial court found for the Bolands on the Bakers' cross-complaint for breach of contract, concluding that the Bolands' attempt to exercise their right of first refusal was not a breach of contract, but simply a failure to properly accept the offer of the Bakers on their terms, so that no purchase contract was formed.
The Bakers represent that the Bolands'"sole contractual claim and sole goal in the litigation ... was to prevail on their specific performance cause of action and compel a sale of the property." They represent that their own "sole contract claim was the exact opposite: to defeat Plaintiffs' claim for specific performance and retain title of the property." The Bakers' view of the litigation completely ignores the existence of the cross-complaint. The Bakers asserted their own breach of contract claim, on which they failed to prevail; the Bolands resisted that breach of contract claim, and prevailed on it. Thus, this is not a case of a simple, unqualified win by the Bakers, which would have entitled them to attorney's fees as a matter of right. This is a case of mixed results, where the trial court was authorized to exercise its discretion to determine which party prevailed, or to determine that no party prevailed.
The Bakers cite Silver Creek as supporting a determination the trial court abused its discretion in denying them attorney's fees. (Silver Creek, supra, 173 Cal.App.4th 1533.) In Silver Creek, BlackRock contracted to purchase certain real property from Silver Creek and made a deposit into escrow; BlackRock was to assume existing loans on the property, with the loan assumption agreements to be satisfactory to Silver Creek. (Id. at p. 1536.) A dispute arose concerning the loan assumption agreements and Silver Creek notified BlackRock the contract and escrow were terminated; BlackRock refused to acknowledge termination. Silver Creek sued for declaratory relief, seeking a declaration that it had validly terminated the contract and was entitled to retain the deposit. BlackRock cross-complained for breach of contract, seeking damages and the return of its deposit or specific performance. (Ibid.) After a court trial, the trial court found for Silver Creek on the complaint and the cross-complaint, but found BlackRock was entitled to the return of its deposit. (Id. at p. 1537.) Silver Creek moved for an award of attorney's fees pursuant to the contract and section 1717. The trial court found Silver Creek was not the unqualified winner because BlackRock recovered its deposit, and exercised its discretion by denying Silver Creek attorney's fees. (Silver Creek, at p. 1538.) Silver Creek appealed. (Ibid.)
The appellate court agreed with the trial court that Silver Creek did not obtain a simple, unqualified win and was not entitled to attorney's fees as a matter of right. (Silver Creek, supra, 173 Cal.App.4th at p. 1539.) It concluded, however, that the trial court abused its discretion by finding that each party won a contract issue and lost a contract issue and therefore Silver Creek did not obtain the greater relief. In its statement of decision, the trial court had found that it was faced with two issues, and the primary issue was whether Silver Creek was in default when it terminated the contract; the disposition of the deposit was a secondary issue. (Id. at pp. 1537, 1539.) Applying Hsu and comparing the parties' litigation success, the appellate court concluded the property issue was "most important to the parties," and "`greater' in terms of monetary value," the deposit being only a fraction of the total purchase price of the property. (Silver Creek, supra, 173 Cal.App.4th at p. 1540.) Although it recognized the trial court's broad discretion to determine which party prevailed in a mixed result case, it found "[t]he record indisputably shows that Silver Creek obtained the greater relief on the contract." (Id. at p. 1541.)
We question the Silver Creek court's technique of measuring the value of the real property against the value of the deposit in order to determine which party obtained the greater relief, when Silver Creek did not recover the value of the property in damages, but merely obtained a declaration that it had validly terminated the contract for sale of the property. We need not determine whether we agree with the result in Silver Creek, however, because, in any event, Silver Creek is distinguishable. Silver Creek obtained the declaratory relief it prayed for; the trial court determined it validly terminated the contract because a condition precedent was not satisfied. BlackRock did not obtain relief on its breach of contract cause of action. It recovered its deposit, not because Silver Creek breached the contract, but because the contract provided for the disposition of the deposit in the event of termination, and pursuant to those provisions, BlackRock was entitled to the return of its deposit. (Silver Creek, supra, 173 Cal.App.4th at p. 1537.)
Here, the Bolands and the Bakers each alleged a cause of action for breach of contract. Neither obtained any of the relief they requested. Neither so obviously gained greater relief that we could say, as a matter of law, that one or the other was the prevailing party. Rather, this was a case in which both parties sought relief on the contract, but neither obtained it; Hsu described this kind of case as one in which a determination of no prevailing party typically results. (Hsu, supra, 9 Cal.4th at p. 875.) We conclude the trial court properly exercised its discretion when it determined that there was no prevailing party on the contract.
Citing a footnote in Hsu, the Bakers argue that their cross-complaint was merely defensive and therefore should not be considered in making the prevailing party determination. After citing a case in which the appellate court found there was no prevailing party as a matter of law where no relief was awarded to any party on the contract, the Hsu court added a footnote: "When there are cross-actions on a contract containing an attorney fees provision, and no relief is awarded in either action, a trial court is not obligated to find that there is no party prevailing on the contract for purposes of section 1717. If the court concludes that the defendant's cross-action against the plaintiff was essentially defensive in nature, it may properly find the defendant to be the party prevailing on the contract." (Hsu, supra, 9 Cal.4th at p. 875, fn. 10.) We note that there was no cross-complaint against the plaintiffs in Hsu, so the court's statement was dicta. Additionally, the footnote does not require that the trial court find the defendant is the prevailing party when the defendant successfully defends against the complaint, but its defensive cross-complaint fails; the footnote merely recognizes the trial court's discretion to do so. The trial court exercised its discretion and determined that, where neither the Bolands nor the Bakers succeeded in obtaining the relief they sought, there was no prevailing party. That decision did not "exceed the bounds of reason" (Brawley, supra, 161 Cal.App.4th at p. 1137) and was not an abuse of the trial court's discretion.
The Bakers contend the trial court made up its own erroneous test for what constitutes a cross-complaint that is "essentially defensive in nature," and therefore its determination that the Bakers' cross-complaint was not essentially defensive and that the Bakers were not entitled to attorney's fees was an abuse of discretion. Even if we follow the footnote in Hsu, we find no abuse of discretion. As the trial court recognized, no published case has interpreted the term "essentially defensive in nature," as that term is used in Hsu. It concluded: "As best as the Court can determine, it seems likely that a merely `defensive in nature' claim would be one that undermines the contractual claims at issue and do[es] not seek affirmative relief per se. For example, claims for rescission, fraudulent inducement or indemnity may be `defensive in nature' because, while they are counter-claims, they do not seek more affirmative relief but are directed towards thwarting contractual claims by the claimant."
We agree that claims that are "essentially defensive in nature," as that term is used in the Hsu footnote, should be limited to those claims in a cross-complaint that seek to undermine or defeat the plaintiff's contract claim; they would exclude claims that seek to establish a separate breach of contract by the plaintiff as a basis for an award of affirmative relief to the defendant. Where both parties seek affirmative relief based on claims that the other party breached the contract, the success of the competing claims should be compared in determining which party prevailed for purposes of an award of attorney's fees. We reject the Bakers' proposed interpretation of the Hsu language as encompassing any cross-complaint that would not have been filed but for the filing of the complaint. We find this test to be overinclusive, unworkably subjective, and lacking in a meaningful distinction between those claims that should be considered in determining which party prevailed and those that may be disregarded.
The Bakers' cross-complaint did not merely seek to defeat the Bolands' breach of contract cause of action. The Bakers affirmatively asserted that the Bolands breached the contract, alleged several acts by the Bolands as constituting the breach, and sought a substantial award of damages for the alleged breach. The trial court correctly determined the Bakers' cross-complaint was not "essentially defensive in nature," and compared the relative success of the parties on their respective contract claims. It concluded both the Bakers and the Bolands failed to prove their contract claims, found there was no prevailing party, and declined to award attorney's fees. That determination was well within the broad discretion granted the trial court to determine that neither party prevailed in a mixed result case.
The judgment is affirmed. The Bolands are entitled to their costs on appeal.
GOMES, J. and DAWSON, J., concurs.
