Rocky Mountain Hospitality v. Mountain Classic

2022 UT 44IN THE
SUPREME COURT OF THE STATE OF UTAH
ROCKY MOUNTAIN HOSPITALITY, LLC,
Appellant,
v.
MOUNTAIN CLASSIC REAL ESTATE, INC.,
Appellee.
No. 20210798
Heard September 12, 2022
Filed December 22, 2022
On Direct Appeal
Third District, Salt Lake City
The Honorable Su Chon
No. 210902706
Attorneys:
Rod N. Andreason, Zachary C. Lindley, Lehi, for appellant
Jeremy M. Hoffman, Scott L. Sackett II, Salt Lake City, for appellee
CHIEF JUSTICE DURRANT authored the opinion of the Court, in which
ASSOCIATE CHIEF JUSTICE PEARCE, JUSTICE PETERSEN, JUSTICE HAGEN,
and JUSTICE POHLMAN joined.
CHIEF JUSTICE DURRANT, opinion of the Court:
Introduction
¶1 Mountain Classic Real Estate, Inc. (Buyer) entered into a
contract with Rocky Mountain Hospitality, LLC (Seller) to purchase
a Super 8 motel for $3.4 million. The purchase price included a
$30,000 earnest money deposit, which Buyer deposited with a title
company to be held in escrow. The contract contains a default
provision stating that if Buyer failed to complete the purchase, Seller
could choose to retain the deposit as liquidated damages or ―return
it and sue‖ Buyer for other remedies.
ROCKY MOUNTAIN HOSPITALITY v. MOUNTAIN CLASSIC REAL ESTATE
Opinion of the Court
¶2 Buyer failed to purchase the motel, and Seller eventually sold
it to another buyer for significantly less money. Seller then filed this
lawsuit seeking damages exceeding $780,000, but Seller failed to
release its interest in the earnest money deposit before filing the
complaint. Buyer moved to dismiss, arguing that under the
contract‘s default provision, Seller had elected to retain the deposit
as liquidated damages by failing to return the deposit before filing
suit. In making its argument, Buyer relied on the court of appeals‘
decision in McKeon v. Crump,1 which interpreted an identical default
provision to require dismissal if a seller retained an earnest money
deposit at the time it filed a complaint.2 Shortly after receiving the
motion to dismiss, Seller instructed the title company to release the
deposit back to Buyer, but Buyer refused to accept the funds.
¶3 The district court agreed with Buyer and dismissed the
complaint. Seller now appeals, arguing the default clause‘s language
stating Seller can elect to ―return [the deposit] and sue‖ does not
require that the deposit be returned before the filing of a complaint,
only that both happen within a reasonable time. It also claims that
McKeon‘s language stating otherwise is either dicta or out-of-line
with caselaw from this court interpreting similar default provisions.
And Seller argues that even if we agree with the McKeon rule, under
the equitable doctrines of substantial compliance, form over
substance, and lack of prejudice, Seller‘s complaint should not be
dismissed.
¶4 We reject Seller‘s arguments and affirm. Our caselaw
establishes that the default clause obligates a seller to release its
interest in an earnest money deposit before filing a complaint if the
seller wishes to pursue a remedy other than liquidated damages.
Because Seller failed to release its interest in the deposit before filing
its complaint, it is barred from pursuing other remedies. And Seller
has not convinced us that any of the equitable doctrines it cites apply
to this case.
_____________________________________________________________
1 2002 UT App 258, 53 P.3d 494.
2 Id. at 496–98.
2
Cite as: 2022 UT 44Opinion of the Court
Background
¶5 Seller owned a sixty-five-room Super 8 motel located in
Midvale, Utah.3 Buyer expressed interest in buying the motel, and
the parties eventually executed a contract for Buyer to purchase the
motel for $3.4 million. As part of the purchase price, Buyer paid a
$30,000 earnest money deposit, which a title company held in
escrow. The contract contains a default clause stating that ―[i]f Buyer
defaults, Seller may elect either to retain the Earnest Money Deposit
as liquidated damages, or to return it and sue Buyer to specifically
enforce this Contract or pursue other remedies available at law.‖
¶6 Buyer struggled to close the purchase on time. And even
though Seller extended the closing date twice, Buyer ultimately
failed to purchase the property. Seller eventually sold the motel to
another buyer for $2.75 million—$650,000 less than what Buyer had
agreed to pay.
¶7 Seller then sued Buyer, bringing claims for breach of
contract and breach of the implied covenant of good faith and fair
dealing, seeking damages of just over $780,000. When Seller filed the
complaint, it had not returned the earnest money deposit to Buyer or
instructed the title company to do so.
¶8 Buyer moved to dismiss, arguing that because Seller had not
released its interest in the deposit before filing the complaint, it had
elected under the default clause to keep the deposit as liquidated
damages and could not pursue other remedies. In support of its
argument, Buyer cited McKeon v. Crump, in which the court of
appeals held that an identical default clause required a seller to
release an earnest money deposit before the seller could pursue a
claim for damages.4 To prove that Seller had not attempted to return
the deposit before filing suit, Buyer submitted a declaration from one
of the title company‘s employees.
¶9 Eleven days after receiving Buyer‘s motion to dismiss, Seller
informed the title company that it was releasing its interest in the
_____________________________________________________________
3 The facts are either taken from Seller‘s complaint or are
undisputed. See Sur. Underwriters v. E & C Trucking, Inc., 2000 UT 71,
¶ 15, 10 P.3d 338 (―In reviewing a grant of summary judgment, we
view the facts and all reasonable inferences drawn therefrom in the
light most favorable to the nonmoving party.‖).
4 2002 UT App 258, ¶¶ 6, 17, 53 P.3d 494.
3
ROCKY MOUNTAIN HOSPITALITY v. MOUNTAIN CLASSIC REAL ESTATE
Opinion of the Court
deposit and instructed the company to return the funds to Buyer.
The title company attempted to release the funds, but Buyer refused
to accept them.
¶10 After attempting to release the deposit to Buyer, Seller filed
an opposition to the motion to dismiss and conceded that it did not
return the deposit before filing suit. But Seller attempted to
distinguish its situation from McKeon and relied on the fact that it
had tried to return the deposit shortly after filing. Seller also argued,
in the alternative, that if McKeon applied, its complaint should not be
dismissed because (1) it substantially complied with its obligations
under the default clause, (2) dismissal of the complaint would
improperly elevate form over substance, and (3) Buyer was not
prejudiced by its failure to return the deposit before filing suit. To
support its assertion that it had attempted to release the funds to
Buyer, Seller attached a declaration from one of its managing
members to its opposition.
¶11 The district court granted Buyer‘s motion to dismiss, stating
that Seller had failed to return the deposit before filing the lawsuit
and had attempted to return the deposit only after filing. It then
rejected Seller‘s equitable arguments and held that, under McKeon,
Seller had elected to retain the deposit as liquidated damages and
could not pursue other remedies. It accordingly dismissed Seller‘s
complaint with prejudice.
¶12 Seller appeals. We have jurisdiction under Utah Code
section 78A-3-102(3)(j).
Standard of Review
¶13 In dismissing Seller‘s complaint, the district court purported
to grant a motion to dismiss under rule 12(b)(6) of the Utah Rule of
Civil Procedure. When reviewing a motion to dismiss, a court must
―accept the factual allegations in the complaint as true and interpret
those facts and all reasonable inferences drawn therefrom in a light
most favorable to the plaintiff as the nonmoving party.‖5 But the
court relied on facts outside the complaint in its ruling—specifically,
that Seller failed to release its interest in the deposit before filing its
complaint and that it attempted to return the deposit shortly
afterward. If, when considering a motion to dismiss under rule
_____________________________________________________________
5 Russell Packard Dev., Inc. v. Carson, 2005 UT 14, ¶ 3, 108 P.3d 741(citation omitted).
4
Cite as: 2022 UT 44Opinion of the Court
12(b)(6), ―matters outside the pleading are presented to and not
excluded by the court, the motion must be treated as one for
summary judgment and disposed of as provided in Rule 56, and all
parties must be given reasonable opportunity to present all material
made pertinent to such a motion.‖6 Both Seller and Buyer attached
declarations to their filings to establish the facts surrounding Seller‘s
handling of the deposit, and the district court relied on these facts in
its ruling. Because the district court relied on facts outside the
complaint, it should have converted the motion to dismiss into a
motion for summary judgment.
¶14 It is typically ―reversible error‖ for a district court to
consider facts outside the complaint without giving all parties a
reasonable opportunity to present all pertinent material, and we will
generally not affirm ―unless the dismissal can be justified without
considering the outside documents.‖7 But we have made an
exception when both parties submit evidence with their filings
because, in that case, neither party is prejudiced by the district
court‘s implicit conversion of the motion to dismiss into a motion for
summary judgment.8 ―Because from the outset the parties have
submitted extraneous materials and treated the motion to dismiss as
a motion for summary judgment, neither party was prejudiced or
unfairly surprised by the trial court‘s implicit conversion of [Buyer‘s]
_____________________________________________________________
6 UTAH R. CIV. P. 12(b).
7Oakwood Vill. LLC v. Albertsons, Inc., 2004 UT 101, ¶ 12, 104 P.3d
1226 (citation omitted).
8 See, e.g., Swenson v. Erickson, 2000 UT 16, ¶ 9, 998 P.2d 807(stating that because ―the parties ha[d] submitted extraneous
materials and treated the motion to dismiss as a motion for summary
judgment, neither party was prejudiced‖ by the district court‘s
implicit conversion of the motion to dismiss to a motion for
summary judgment (citations omitted)); DOIT, Inc. v. Touche, Ross &
Co., 926 P.2d 835, 838 n.3 (Utah 1996) (treating a grant of a motion to
dismiss as a motion for summary judgment when ―all parties
submitted extraneous materials and neither plaintiffs nor defendants
[were] prejudiced‖ by the implicit conversion); World Peace Movement
of Am. v. Newspaper Agency Corp., 879 P.2d 253, 256 n.2 (Utah 1994)
(holding that because the 12(b)(6) motion‘s ―supporting
memorandum contained material outside the pleadings,‖ ―the
district court‘s order [was] properly viewed as involving summary
judgment‖).
5
ROCKY MOUNTAIN HOSPITALITY v. MOUNTAIN CLASSIC REAL ESTATE
Opinion of the Court
12(b)(6) motion into a motion for summary judgment.‖9 We will
accordingly review the district court‘s ruling under the summary
judgment standard.
¶15 ―We review a district court‘s grant of summary judgment
for correctness. We affirm a grant of summary judgment when the
record shows there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter of law.‖10
Analysis
¶16 Seller makes two general arguments on appeal. First, it
challenges the court of appeals‘ caselaw the district court relied on in
dismissing the complaint—caselaw that obligated Seller to release its
interest in the deposit before filing suit. And second, Seller argues
that even if it was obligated to release its interest in the deposit
before filing suit, several equitable doctrines excuse its failure to
strictly comply with its contractual obligations.
¶17 We reject Seller‘s arguments and affirm. Under both a plain
language approach to interpreting the contract and Utah caselaw,
the default clause obligated Seller to release its interest in the deposit
before it could file its complaint seeking general damages. Because
Seller retained its interest in the deposit when it filed suit, it is
deemed to have elected to retain the deposit as liquidated damages.
Its claims for general damages are accordingly barred, and the
district court correctly dismissed the complaint. Further, we reject
Seller‘s equitable arguments because none of the equitable doctrines
it relies on apply to this case.
I. Seller‘s Claims Are Barred
A. The Plain Language of the Contract Prohibits the Simultaneous Election
of Both Remedies
¶18 When interpreting a contract, ―we first look at the plain
language [of the contract] to determine the parties‘ meaning and
intent.‖11 But ―[i]f the language within the four corners of the
contract is unambiguous, the parties‘ intentions are determined from
_____________________________________________________________
9 See Swenson, 2000 UT 16, ¶ 9 (citations omitted).
10 Harvey v. Cedar Hills City, 2010 UT 12, ¶ 10, 227 P.3d 256(citation omitted) (internal quotation marks omitted).
11 Brady v. Park, 2019 UT 16, ¶ 53, 445 P.3d 395 (alteration in
original) (citation omitted) (internal quotation marks omitted).
6
Cite as: 2022 UT 44Opinion of the Court
the plain meaning of the contractual language, and the contract may
be interpreted as a matter of law.‖12 Adopting the plain language
approach, we hold that the contract between the parties proscribes
Seller from suing Buyer.
¶19 The default provision of the contract includes an election
clause that states: ―If Buyer defaults, Seller may elect to retain the
Earnest Money Deposit as liquidated damages, or to return it and
sue Buyer to specifically enforce this Contract or pursue other
remedies available at law.‖13 In other words, the contract dictates
that if Buyer defaults, Seller may elect one remedy or the other, not
both.14 For thirty-six days after filing its complaint, Seller maintained
constructive control of the deposit.15 Regardless of its intent, by
retaining the deposit while proceeding through the early stages of
litigation, Seller effectively attempted to elect both remedies
simultaneously, which is prohibited by the plain language of the
contract.
¶20 The election clause of the contract requires that Seller make
an election. ―It is a basic principle of contract law that parties are
generally ‗free to contract according to their desires in whatever
_____________________________________________________________
12 Id. (citation omitted) (internal quotation marks omitted).
13 (Emphasis added.)
14See Warburton v. Va. Beach Fed. Sav. & Loan Ass’n, 899 P.2d 779,
782 (Utah Ct. App. 1995) (―In interpreting contracts, ‗the ordinary
and usual meaning of the words used is given effect.‘‖ (citation
omitted)).
15 Regardless of whether Seller held the money personally or in
escrow, the result is the same. See, e.g., Palmer v. Hayes, 892 P.2d 1059,
1062 (Utah Ct. App. 1995) (―Regardless of Maple Hills Realty‘s
duties as escrow agent, the Palmers had an affirmative duty to
release their interest in the deposit money to the Hayeses before they
filed their suit for damages.‖); Mountain Courtyard Suites v. Wysong,
452 F. Supp. 3d 1275, 1281–82 (D. Utah 2020) (―Palmer thus makes
clear that MCS‘s failure to release the earnest money before filing
suit bars its suit to the extent it seeks ‗general damages‘ or any
remedy other than the earnest money, even though the earnest
money is held by an escrow agent and MCS cannot unilaterally
retain it as liquidated damages.‖).
7
ROCKY MOUNTAIN HOSPITALITY v. MOUNTAIN CLASSIC REAL ESTATE
Opinion of the Court
terms they can agree upon.‘‖16 Seller could have negotiated a
different or more favorable default provision, but it did not. Thus, by
retaining the deposit, Seller chose to relinquish the opportunity to
seek other remedies—even if Seller did so inadvertently. Seller is,
therefore, barred from suing Buyer. While this may be an
unfortunate conclusion for Seller, it is mandated by the terms of the
contract and reinforced by Utah caselaw.
B. Utah Caselaw Supports Our Interpretation of the Contract’s Default
Provision
¶21 In dismissing Seller‘s claims, the district court relied on the
court of appeals‘ decision in McKeon v. Crump, a case that examined
a default clause identical to the one at issue here.17 In McKeon, the
court of appeals determined that ―Utah case law establishes that to
pursue specific performance or damages under the . . . default
clause, sellers must return the earnest money deposit before filing
suit.‖18 In doing so, the court of appeals looked to one of its earlier
cases, Palmer v. Hayes,19 in which the court analyzed four of our cases
—Andreasen v. Hansen,20 Dowding v. Land Funding Ltd.,21 Close v.
Blumenthal,22 and McMullin v. Shimmin,23—and determined that
those cases ―uniformly hold that before a seller may pursue a
remedy other than liquidated damages, the seller must release any
claim to the deposit money.‖24 The court of appeals also held that the
sellers ―had an affirmative duty to release their interest in the
deposit money . . . before they filed their suit for damages.‖25
_____________________________________________________________
16 Mind & Motion Utah Invs., LLC v. Celtic Bank Corp., 2016 UT 6,
¶ 35, 367 P.3d 994 (citation omitted).
17 2002 UT App 258, ¶ 6, 53 P.3d 494.
18 Id. ¶ 17.
19 892 P.2d 1059.
20 335 P.2d 404 (Utah 1959).
21 555 P.2d 957 (Utah 1976).
22 354 P.2d 856 (Utah 1960).
23 349 P.2d 720 (Utah 1960).
24 Palmer, 892 P.2d at 1062 (citations omitted).
25 Id.8
Cite as: 2022 UT 44Opinion of the Court
¶22 Seller challenges McKeon and Palmer, arguing that those
cases misconstrued our earlier caselaw. It claims that our caselaw
never established that sellers must return the earnest money deposit
before filing suit and that the court of appeals engaged in ―decisional
creep‖ by concluding otherwise. Seller then argues that the default
clause‘s language that the seller can ―return [the deposit] and sue‖ is
conjunctive, not sequential, and that returning the deposit does not
necessarily need to happen before filing suit.26
¶23 We reject Seller‘s arguments because McKeon and Palmer
properly interpreted our caselaw to mandate that sellers must return
an earnest money deposit before filing suit if the seller wishes to
pursue a remedy other than liquidated damages. ―Stare decisis is a
cornerstone of Anglo-American jurisprudence that is crucial to the
predictability of the law and the fairness of adjudication.‖27 ―It
requires us to extend a precedent to the conclusion mandated by its
rationale.‖28 ―With these principles in mind, our respect for
precedent means we value and implement the text of our past
opinions as far as it can logically go.‖29
¶24 The first case where we interpreted a default provision in a
real estate contract was Andreasen v. Hansen.30 In that case, the buyers
entered into an agreement to purchase a duplex from the sellers and
paid a $50 earnest money deposit.31 The contract contained a clause
stating that ―[i]n the event the purchaser fails to pay the balance of
the said purchase price or complete said purchase as herein
provided, the amounts paid hereon shall, at the option of the seller, be
_____________________________________________________________
26 Buyer claims that Seller‘s argument that the phrase ―return it
and sue‖ is conjunctive rather than sequential, is unpreserved
because Seller never raised the argument below. But Buyer is
incorrect. Seller made its ―conjunctive, not sequential‖ argument in
both its opposition to the motion to dismiss and at a hearing before
the district court. So Seller‘s arguments are preserved.
27 Neese v. Utah Bd. of Pardons & Parole, 2017 UT 89, ¶ 57, 416 P.3d
663 (citation omitted) (internal quotation marks omitted).
28 Pleasant Grove City v. Terry, 2020 UT 69, ¶ 41, 478 P.3d 1026(citation omitted) (internal quotation marks omitted).
29 Id. ¶ 42.
30 335 P.2d 404.
31 Id. at 405.
9
ROCKY MOUNTAIN HOSPITALITY v. MOUNTAIN CLASSIC REAL ESTATE
Opinion of the Court
retained as liquidated and agreed damages.‖32 When the buyers
failed to complete the purchase, the sellers sued for damages and
eventually obtained a judgment.33 But the sellers never returned the
$50 deposit.34 The buyers appealed, and we reversed, holding that
because the seller retained the $50 deposit, it had exercised the
option to keep the deposit as liquidated damages.35 We reasoned
that ―[t]he fact that the money was kept is incontrovertible evidence
that the [sellers] exercised the option to keep it. That being so, they
must be deemed to have kept it for the purpose indicated in the
contract, that is, as liquidated damages.‖36
¶25 We faced a similar factual scenario in McMullin v. Shimmin.37
In that case, the buyers entered into an agreement with the seller to
purchase property, and the buyers paid a $100 earnest money
deposit.38 The purchase agreement contained a default clause
identical to the one at issue in Andreasen.39 The seller sued the buyers
for breaching the agreement, seeking specific performance or, in the
alternative, damages.40 The seller had never returned or offered to
return the $100 deposit.41 The district court dismissed the seller‘s
complaint at a pre-trial conference, and the seller appealed, with the
principal issue being whether Andreasen was controlling.42 The seller
argued that Andreasen was distinguishable because, in his case, he
sued not only for damages but also for specific performance.43 We
held that because the seller had sold the property to a different
buyer, he no longer had a claim for specific performance, and we
_____________________________________________________________
32 Id. at 406 (internal quotation marks omitted).
33 Id. at 405.
34 Id. at 408.
35 Id.
36 Id.
37 349 P.2d 720.
38 Id. at 720–21.
39 Id. at 721; see Andreasen, 335 P.2d at 406.
40 McMullin, 349 P.2d at 721.
41 Id.
42 Id.
43 Id.
10
Cite as: 2022 UT 44Opinion of the Court
determined that Andreasen was controlling on the issue of damages.44
We stated:
The only question as to whether [the liquidated
damages] limit applies is whether or not the option
has been exercised. Such option is exercised by
retention of the down payment. The clause tells the
parties that the seller need only to retain the sum to
exercise his right to keep it. . . . His retention becomes
meaningful when he claims the buyer has breached
the contract and refuses to go through with it.45
We then held that because ―it [was] obvious that the seller claimed a
breach,‖ the seller had exercised the liquidated damages option
because he had kept the deposit.46
¶26 In Close v. Blumenthal,47 decided a few months after
McMullin, the buyers entered into an agreement with the seller to
purchase a home.48 The buyers paid a $500 earnest money deposit,
and the agreement contained the same default clause.49 After the
buyers failed to go through with the purchase, the seller sued for
specific performance, but he ―did not return, nor offer to return, the
$500 before commencing th[e] action.‖50 The seller obtained a
judgment for specific performance, and the buyers appealed.51 We
reversed, holding that the Andreasen rule applied regardless of
whether the buyer was seeking damages or specific performance.52
We decided that because the option clause was ―for the benefit of the
seller,‖ it ―should be strictly applied against the seller[,] and he
should be held to meet its requirements with exactness.‖53 We also
_____________________________________________________________
44 Id.45 Id.46 Id.47 354 P.2d 856.
48 Id. at 856.
49 Id. at 856–57.
50 Id. at 857.
51 Id. at 856.
52 Id. at 857.
53 Id.
11
ROCKY MOUNTAIN HOSPITALITY v. MOUNTAIN CLASSIC REAL ESTATE
Opinion of the Court
determined that the seller could not retain the deposit and also
pursue other remedies, stating that
[T]o permit the seller to retain the money and also to
sue for specific performance would in effect render the
option clause meaningless by not requiring him to
exercise his option. It seems only fair and reasonable
that where the contract provides that the seller may ‗at
his option‘ retain the earnest money payment as
liquidated damages, in lieu of enforcing the contract,
he should be required to make his choice to do one or
the other, and to act consistently therewith. That he
has his choice is enough without giving him the
advantage of both alternatives and thus providing two
strings to his bow. The [seller] having kept the $500
must be deemed to have kept it for the purpose
indicated in the contract, this is, as liquidated damages
and is precluded from the other remedy.54
¶27 Lastly, in Dowding v. Land Funding Ltd., as in the other cases,
a buyer signed a purchase agreement containing the same option
clause and paid a $200 deposit.55 The buyer failed to complete the
purchase, and the seller sued for damages.56 The seller did not return
or offer to return the deposit before filing suit, but the seller
deposited the $200 with the clerk of the court.57 The district court
granted the buyer‘s motion to dismiss, and the seller appealed.58
Holding that the Andreasen line of cases was dispositive, we affirmed
the dismissal, stating that the ―damages obviously appear to be $200
as agreed.‖59
¶28 Seller is correct when it states that none of these cases
explicitly hold that a seller must return an earnest money deposit
before filing a complaint to pursue remedies other than liquidated
damages. But we think the cases clearly establish four legal rules
_____________________________________________________________
54 Id.
55 555 P.2d 957, 957.
56 Id.57 Id.58 Id.59 Id.12
Cite as: 2022 UT 44Opinion of the Court
that, when extended to ―the conclusion mandated by [their]
rationale,‖60 require a seller to release its interest in the deposit
before filing suit. First, default clauses like the one at issue require
the seller to choose between keeping the deposit or pursuing other
remedies; the seller cannot have it both ways.61 Second, a seller
exercises the liquidated damages option by retaining the deposit; no
affirmative action is needed, and the act of retaining the deposit is
dispositive.62 Third, a seller cannot retain the deposit and
simultaneously pursue other remedies.63 And fourth, a seller
exercises the option of liquidated damages by retaining the deposit
at the time the seller claims a breach.64
¶29 Based on these rules, we determine that the court of appeals
came to the correct conclusion in Palmer and McKeon. While it is true
_____________________________________________________________
60Terry, 2020 UT 69, ¶ 41 (citation omitted) (internal quotation
marks omitted).
61 See Close, 354 P.2d at 857 (―It seems only fair and reasonable
that where the contract provides that the seller may ‗at his option‘
retain the earnest money payment as liquidated damages, in lieu of
enforcing the contract, he should be required to make his choice to
do one or the other, and to act consistently therewith.‖).
62 See Andreasen, 335 P.2d at 408 (―The fact that the money was
kept is incontrovertible evidence that the plaintiffs exercised the
option to keep it. That being so, they must be deemed to have kept it
for the purpose indicated in the contract, that is, as liquidated
damages.‖); McMullin, 349 P.2d at 721 (―The only question as to
whether such limit applies is whether or not the option has been
exercised. Such option is exercised by retention of the down
payment.‖).
63 See Close, 354 P.2d at 857 (―It is further to be observed that to
permit the seller to retain the money and also to sue for specific
performance would in effect render the option clause meaningless by
not requiring him to exercise his option.‖); id. (―[The seller] should
be required to make his choice to do one or the other, and to act
consistently therewith. That he has his choice is enough without
giving him the advantage of both alternatives and thus providing
two strings to his bow.‖).
64See McMullin, 349 P.2d at 721 (―[The seller‘s] retention [of the
deposit] becomes meaningful when he claims the buyer has
breached the contract and refuses to go through with it.‖).
13
ROCKY MOUNTAIN HOSPITALITY v. MOUNTAIN CLASSIC REAL ESTATE
Opinion of the Court
that in those cases the court of appeals did not address the difference
between intentionally retaining the earnest money deposit and
inadvertently delaying its return, we agree with the court‘s central
holding that a seller must return the earnest money deposit before
filing suit if the seller wishes to pursue a remedy other than
liquidated damages.
¶30 Our caselaw is consistent with this approach.65 Under
similar circumstances, we have held that retaining a deposit and
suing for damages ―are mutually exclusive‖ remedies66—indicating
that a seller‘s retention of an earnest money deposit ―becomes
meaningful‖ after the buyer breaches the contract and the seller files
suit.67 This interpretation is reinforced by decades-old court of
appeals caselaw construing default clauses effectively identical to the
one at issue here.68 More than twenty-five years ago, the court of
appeals stated that ―before a seller may pursue a remedy other than
liquidated damages, the seller must release any claim to the deposit
money.‖69 And less than a decade later, it reiterated that ―sellers
must return the earnest money deposit before filing suit.‖70 Thus, it
is clear that where the plain language of the contract explicitly
requires a seller to elect an option—as it does in the case before us—
the seller may not retain the deposit and also sue for damages.
_____________________________________________________________
65 See Close, 354 P.2d at 857 (―[T]o permit the seller to retain the
money and also to sue for specific performance would in effect
render the option clause meaningless by not requiring him to
exercise his option.‖).
66 McMullin, 349 P.2d at 721.
67 Id. We also find it instructive that in all our cases, we
determined that the seller was prohibited from pursuing other
remedies after retaining the deposit regardless of the procedural
posture of the case. See Andreasen, 335 P.2d at 409 (reversing the
seller‘s judgment for damages); Dowding, 555 P.2d at 957 (affirming
the grant of a motion to dismiss); Close, 354 P.2d at 857 (reversing a
judgment of specific performance); McMullin, 349 P.2d at 721
(affirming a dismissal entered after a pre-trial conference).
68 See, e.g., Palmer, 892 P.2d 1059, 1061; McKeon, 2002 UT App 258,
¶ 6.
69 Palmer, 892 P.2d at 1062 (citations omitted).
70 McKeon, 2002 UT App 258, ¶ 17.
14
Cite as: 2022 UT 44Opinion of the Court
¶31 Based on our caselaw and established legal principles, we
hold that Seller is barred from pursuing its claims seeking general
damages because it had not released its interest in the deposit before
filing its complaint. Though this decision may be a harsh result for
Seller,71 there are advantages to having a clear-cut, return-before-
filing rule. It produces uniformity and predictability because the
timing of a seller‘s election of liquidated damages is clear in every
case. A contrary rule would inject uncertainty into the litigation
process. As Seller concedes in its briefs, there must be some kind of
―temporal proximity‖ between releasing the escrow deposit and
filing suit. But at what point would the ―temporal proximity‖
between filing and returning the deposit be great enough to
conclude that a seller has elected liquidated damages? Once
discovery is finished? When a party moves for summary judgment?
Once a trial begins? Or would the ―temporal proximity‖ need to be
determined on a case-by-case basis? We conclude that the default
clause, the caselaw, and sound policy dictate that a seller must
return the deposit before filing suit if the seller wishes to pursue a
remedy other than liquidated damages.72
_____________________________________________________________
71 Seller states that it sold the motel for $650,000 less than it would
have if Buyer had purchased the motel as agreed. Evidence on the
record suggests that this loss was primarily a result of the
unforeseen and rapid change in the market, which suffered
significantly because of the COVID-19 pandemic.
72 Seller also argues that allowing it to pursue its claims—even
though it did not return the deposit before filing suit—is in line with
our election of remedies doctrine as stated in Helf v. Chevron U.S.A.
Inc., 2015 UT 81, 361 P.3d 63. We reject this argument. It is true that
in Helf, we stated that ―[w]here a plaintiff must choose between
alternative remedies for a single theory of liability, an election is not
final until a judgment is fully satisfied.‖ Id. ¶ 71 (citation omitted).
This statement, on its own, would support Seller‘s argument. But in
Helf, we also determined that the general rule applies ―unless
another doctrine . . . dictates that a plaintiff‘s election among
inconsistent remedies is final at an earlier stage of the litigation.‖ Id.
¶ 77. As we explained above, our caselaw dictates that a seller‘s
election of remedies occurs at an earlier stage of the litigation—i.e., at
the time a complaint is filed. The general election of remedies rule
accordingly does not apply.
15
ROCKY MOUNTAIN HOSPITALITY v. MOUNTAIN CLASSIC REAL ESTATE
Opinion of the Court
II. Seller‘s Equitable Arguments Fail
¶32 Seller argues that even if the default clause required it to
release its interest in the deposit before filing suit, its failure to do so
is excused for three reasons. First, Seller argues that its failure to
release the deposit before filing the complaint should be excused
under the doctrine of substantial compliance. Second, it argues that
dismissing its lawsuit for what it deems a ―trivial delay‖ would
improperly elevate form over substance. And last, Seller argues that
because Buyer did not suffer prejudice from its delayed attempt to
release the deposit, Seller‘s complaint should not be dismissed.
¶33 We reject these arguments and affirm the district court‘s
dismissal. The doctrine of substantial compliance does not apply in
this case, because our caselaw establishes that sellers must strictly
comply with the default clause, and the case Seller relies on for its
substantial compliance argument is inapplicable. Seller‘s ―form over
substance‖ and ―lack of prejudice‖ arguments are also unpersuasive.
We therefore affirm the dismissal.
¶34 To support its substantial compliance argument, Seller cites
U-Beva Mines v. Toledo Mining Co.,73 but that case is inapplicable. In
U-Beva Mines, U-Beva sought to cancel its mining lease with Toledo
because Toledo was late in making an $87 tax payment.74 We
determined that even if Toledo had paid the taxes late, the doctrine
of substantial compliance applied because ―the defection was so
minor as to invoke the offices of equity, and that at law substantial
compliance with the contract, under the circumstances, would purge
an erstwhile default under a generally accepted policy against
forfeiture . . . .‖75 This case is inapt. The doctrine of substantial
compliance holds special prominence in lease cases because the law
disfavors lease forfeitures.76 Seller has made no argument for why a
_____________________________________________________________
73 471 P.2d 867 (Utah 1970).
74 Id. at 867–68.
75 Id. at 869.
76 See id. (applying substantial compliance to a lease because of ―a
generally accepted policy against forfeiture‖); Hous. Auth. of Salt Lake
City v. Delgado, 914 P.2d 1163, 1165 (Utah Ct. App. 1996) (―We
observe a general policy disfavoring forfeitures. The substantial
compliance doctrine furthers that policy by allowing equity to
intervene and rescue a lessee from forfeiture of a lease when the
(continued . . .)
16
Cite as: 2022 UT 44Opinion of the Court
case applying substantial compliance to a lease agreement applies to
a case involving a real estate purchase contract. So we reject Seller‘s
substantial compliance argument.
¶35 In addition, we have held that default clauses like the one in
this case ―should be strictly applied against the seller[,] and [the
seller] should be held to meet its requirements with exactness.‖77 At
the risk of stating the obvious, substantial compliance does not apply
to a default clause that must be ―strictly applied‖ against Seller and
demands that it ―meet [the clause‘s] requirements with exactness.‖78
¶36 We also reject Seller‘s arguments that dismissing its
complaint would improperly exalt ―form over substance‖ and that
we should not dismiss its complaint because Buyer was not
prejudiced by its delayed release of the deposit. For the ―form over
substance‖ argument, Seller has failed to convince us that the
doctrine applies here. The two cases it cites in support of its
argument deal with miscaptioned litigation documents—not failure
to fulfill contractual obligations.79 Regarding prejudice, Seller
provides no argument for how prejudice is legally relevant to its
obligations under the default clause. The contract says nothing about
prejudice or harm to Buyer. And the two cases Seller cites do not
change the outcome, because those cases dealt with inapplicable
legal doctrines—laches80 and estoppel81—both of which require a
lessee has substantially complied with the lease in good faith.‖
(citing U-Beva Mines, 471 P.2d at 869)).
77 Close v. Blumenthal, 354 P.2d 856, 857 (Utah 1960).
78 Id.79 See Miller v. USAA Cas. Ins., 2002 UT 6, ¶ 28, 44 P.3d 663(holding that a ―motion for conference‖ was ―tantamount to an
appeal‖ and refusing to ―elevate and exalt form over substance‖ in
treating the motion otherwise); Buzas Baseball, Inc. v. Salt Lake
Trappers, Inc., 925 P.2d 941, 947 n.4 (Utah 1996) (holding that it would
―elevate form over substance‖ if a court dismissed a request to set
aside an arbitration award because the request was contained in a
verified complaint rather than a motion, as required by statute).
Anderson v. Doms, 1999 UT App 207, 984 P.2d 392 (considering
80
whether the doctrine of laches barred the plaintiff‘s claim).
Barnes v. Wood, 750 P.2d 1226 (Utah Ct. App. 1988) (considering
81
whether estoppel barred a plaintiff‘s claims).
17
ROCKY MOUNTAIN HOSPITALITY v. MOUNTAIN CLASSIC REAL ESTATE
Opinion of the Court
showing of prejudice.82 These cases are accordingly off-base, and
Seller has failed to convince us that prejudice is relevant here.
III. Buyer Is Entitled to Attorney Fees on Appeal
¶37 Buyer requests its attorney fees on appeal. The parties‘
contract states that ―in the event of litigation or binding arbitration to
enforce this Contract, the prevailing party shall be entitled to costs
and reasonable attorney fees.‖ Because Buyer has achieved its goal of
obtaining a dismissal of all Seller‘s claims, it is clearly the prevailing
party. We accordingly grant Buyer its reasonable attorney fees and
costs incurred up and through this appeal and remand to the district
court to determine the amount of fees.
Conclusion
¶38 Under the default clause and our caselaw, Seller was
required to release its interest in the earnest money deposit before
filing suit if it wished to pursue a remedy other than liquidated
damages. Because Seller retained the deposit at the time it filed its
complaint, it is deemed to have elected to retain the deposit as
liquidated damages and is barred from pursuing its claims. Further,
Seller has not established that its failure to return the deposit before
filing suit should be excused under equitable principles. We affirm,
award Buyer its attorney fees, and remand to the district court to
determine the amount of fees.
_____________________________________________________________
82 See Fundamentalist Church of Jesus Christ of Latter-day Saints v.
Horne, 2012 UT 66, ¶ 29, 289 P.3d 502 (stating that laches requires an
―injury to defendant‖ from plaintiff‘s lack of diligence in bringing a
timely claim (citation omitted) (internal quotation marks omitted));
Blackhurst v. Transamerica Ins., 699 P.2d 688, 691 (Utah 1985) (stating
that estoppel requires that a party experience ―detriment or damage
if the first party is permitted to repudiate his conduct‖ (citation
omitted) (internal quotation marks omitted)).
18