Load Zone Marketing & Management, LLC v. Clark

2014 UT App 194_________________________________________________________
THE UTAH COURT OF APPEALS
LOAD ZONE MARKETING AND MANAGEMENT, LLC,
Plaintiff and Appellant,
v.
C. DENNIS CLARK,
Defendant and Appellee.
Opinion
No. 20130093-CA
Filed August 14, 2014
First District Court, Logan Department
The Honorable Clint S. Judkins
No. 110102378
Judson T. Pitts, Attorney for Appellant
James T. Burton and Joshua S. Rupp, Attorneys
for Appellee
JUDGE STEPHEN L. ROTH authored this Opinion, in which JUDGE
JOHN A. PEARCE and SENIOR JUDGE PAMELA T. GREENWOOD
concurred.1
ROTH, Judge:
¶1 Load Zone Marketing and Management, LLC (Load
Zone) sued C. Dennis Clark for specific performance of a real
estate purchase contract (the REPC). The REPC implemented a
common feature of standard real estate purchase contracts in
1. The Honorable Pamela T. Greenwood, Senior Judge, sat by
special assignment as authorized by law. See generally Utah Code
Jud. Admin. R. 11-201(6).
Load Zone v. Clark
Utah, providing each party the right to cancel in the event Clark
was unable to obtain a mortgage loan before a specified date.
Clark’s lender did not approve his loan application before the
deadline, and Clark canceled the agreement. Load Zone argues
that even though Clark was unable to get a loan before the
deadline, his cancellation was ineffective because he cancelled
the contract for an improper reason and his cancellation notice
was both untimely and inconsistent with the terms of the REPC.
The district court granted summary judgment in Clark’s favor,
concluding that he gave adequate notice and that because he had
a valid reason to terminate the contract, his motives for doing so
were irrelevant. We affirm the district court’s ruling.
BACKGROUND
¶2 In August 2010, Clark entered into the REPC with Load
Zone to purchase property in northern Utah for $1.128 million,
$846,000 of which was to be financed by a loan. Clark deposited
$3,000 in earnest money. The REPC was a standard-form real-
estate purchase contract in which the parties had selected the
option invoking the ‚Financing Condition‛: ‚*Clark+’s obligation
to purchase the property . . . [X] IS . . . conditioned upon [Clark]
obtaining the Loan referenced in Section 2(b).‛ According to the
financing condition, Clark agreed to obtain financing by
September 10, 2010, the Financing and Appraisal Deadline (the
financing deadline), and the parties agreed to close the
transaction within four days of September 20, 2010, the
settlement deadline. The Financing Condition required Clark ‚to
work diligently and in good faith to obtain the Loan‛ and
allowed either party the option to cancel the REPC if Clark was
unable to secure a loan by the financing deadline. Should the
cancellation option be exercised, Clark’s earnest money deposit
was to be released to Load Zone, who ‚agree*d+ to accept as *its+
20130093-CA 2 2014 UT App 194Load Zone v. Clark
exclusive remedy, the Earnest Money Deposit . . . as liquidated
damages.‛2
¶3 There is no dispute that Clark ‚work*ed+ diligently and in
good faith to obtain the Loan‛ as the Financing Condition
required, but his lender had not yet made a decision on Clark’s
loan application when the financing deadline passed. The
settlement deadline also went by without any action from
Clark’s lender, and the REPC did not close. One month later,
Load Zone sent Clark a proposed addendum to the REPC that
would have extended the settlement deadline until October 22,
2010, but Clark did not sign it. The lender finally approved
Clark’s loan ‚*o+n the evening of October 21st or the morning of
October 22nd,‛ within days after Load Zone had asked Clark to
2. The cancellation provision is set forth at section 8.3(b) of the
REPC:
(b) Buyer’s Right to Cancel After the Financing &
Appraisal Deadline. If after the expiration of the
Financing and Appraisal Deadline . . . [Clark] fails
to obtain the Loan, meaning that the proceeds of
the Loan have not been delivered by the Lender to
[Load Zone] or to the escrow/closing office [within
four days of the settlement deadline], then [Clark]
or [Load Zone] may cancel the REPC by providing
written notice to the other party; whereupon the
Earnest Money Deposit . . . shall be released to
[Load Zone] without the requirement of further
authorization from [Clark]. In the event of such
cancellation, [Load Zone] agrees to accept as [its]
exclusive remedy, the Earnest Money
Deposit . . . as liquidated damages. [Clark] and
[Load Zone] agree that liquidated damages would
be difficult and impractical to calculate, and the
Earnest Money Deposit . . . is a fair and reasonable
estimate of *Load Zone+’s damages in the event
[Clark] fails to obtain the Loan.
20130093-CA 3 2014 UT App 194Load Zone v. Clark
extend the settlement deadline, but Clark decided not to
proceed.
¶4 Rather, on October 22, Clark sent Load Zone a letter
cancelling the REPC. He cited an unspecified unfavorable
‚market condition‛ and requested the return of his earnest
money, but his letter did not mention the delayed loan approval
or the financing condition.
¶5 Load Zone filed a breach of contract action seeking
specific performance of the REPC. It argued that Clark breached
the contract by failing to close the transaction and that his
cancellation notice was ineffective because it was untimely and
sent in bad faith. Clark stated in a deposition that he withdrew
from the contract for two reasons—higher than anticipated
closing costs on the loan and the fact that a neighboring property
had sold for a little more than half the amount he had offered in
the REPC.
¶6 The parties filed cross-motions for summary judgment
and Clark prevailed. The district court concluded that ‚the REPC
clearly sets forth that if financing was not obtained by the
financing . . . deadline, either party had the option of cancelling
the contract by sending written notice of cancellation.‛ Because
there was no dispute that Clark diligently sought financing
‚until at least . . . ten days after the financing‛ deadline and that
the parties never agreed to extend the financing deadline, the
court determined that ‚the financing condition was not met, and
*Clark+ was entitled to cancel the REPC.‛ The court concluded
that Clark’s cancellation notice was effective but that Load Zone
was entitled to retain Clark’s earnest money as liquidated
damages. Load Zone appeals.
ISSUES AND STANDARD OF REVIEW
¶7 Load Zone argues that the district court erred in granting
summary judgment, because the REPC requires that any
20130093-CA 4 2014 UT App 194Load Zone v. Clark
cancellation be sent in good faith prior to the settlement
deadline. We review ‚a trial court’s legal conclusions and
ultimate grant or denial of summary judgment for correctness,‛
viewing ‚the facts and all reasonable inferences drawn
therefrom in the light most favorable to the nonmoving party.‛
Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600 (citations and
internal quotation marks omitted). The interpretation of a
contract is also a question of law that we review for correctness.
Encon Utah, LLC v. Fluor Ames Kraemer, LLC, 2009 UT 7, ¶ 11, 210
P.3d 263.
ANALYSIS
¶8 We begin by examining the pertinent terms of the REPC,
mindful that where ‚the language within the four corners of the
contract is unambiguous, the parties’ intentions are determined
from the plain meaning of the contractual language.‛ Café Rio,
Inc. v. Larkin-Gifford-Overton, LLC, 2009 UT 27, ¶ 25, 207 P.3d
1235. We also read ‚each contract provision . . . in relation to all
of the others, with a view toward giving effect to all and
ignoring none.‛ Glenn v. Reese, 2009 UT 80, ¶ 10, 225 P.3d 185(omission in original) (citations and internal quotation marks
omitted).
¶9 Paragraph 8.3 is entitled ‚Financing Condition.‛ It
provides that Clark’s ‚obligation to purchase the
property . . . [X] IS . . . conditioned upon *Clark+ obtaining‛ an
$846,000 loan, and it requires him ‚to work diligently and in
good faith‛ to do so. Paragraph 8.3(a) allows Clark the option to
cancel the contract and recover his earnest money if he ‚is not
satisfied with the terms and conditions of the Loan.‛ To invoke
this option, Clark must provide ‚written notice to *Load Zone]
no later than‛ the financing deadline of September 10, 2010.
Once the financing deadline has passed, paragraph 8.3(b)
permits cancellation by either party, but only if Clark ‚fails to
obtain the Loan, meaning that the proceeds of the Loan have not
been delivered by the Lender to [Load Zone+‛ as required by
20130093-CA 5 2014 UT App 194Load Zone v. Clark
paragraph 3.5, i.e., ‚within four calendar days after‛ the
settlement deadline of September 20, 2010 (the closing deadline).
While cancellation by either party under these circumstances
results in automatic forfeiture of Clark’s earnest money deposit,
paragraph 8.3(b) provides that ‚*i+n the event of such
cancellation,‛ retention of the earnest money is Load Zone’s
‚exclusive remedy.‛
¶10 Unlike the right to cancel under paragraph 8.3(a), which
specifies that it must be invoked before the financing deadline,
paragraph 8.3(b) does not restrict either party’s right to cancel to
a specific time frame after the closing deadline passes. If Clark
simply defaults on his obligations under the REPC, Load Zone’s
remedy is not limited to retention of the earnest money; rather,
paragraph 16.1 gives Load Zone three options: cancel the
contract and keep the earnest money ‚as liquidated damages,‛
hold the earnest money in trust and sue Clark for specific
performance, or return the earnest money and ‚pursue any other
remedies available at law.‛ Finally, the REPC requires the parties
to agree in writing if they wish to extend deadlines or alter any
terms in the agreement.
¶11 There is no dispute ‚that the parties entered into the
REPC‛ and that Clark ‚diligently attempted to get a loan until at
least September 20, 2010, . . . which was ten days after the
financing . . . deadline.‛3 And neither party disputes that Clark
3. In Load Zone’s cross-motion for summary judgment, it
asserted that ‚at some point . . . after *Clark+ learned that he
could purchase the nearly identical house for hundreds of
thousands of dollars cheaper, he stopped seeking the Loan in
good faith.‛ In its response to Clark’s statement of undisputed
facts, Load Zone requested leave to depose ‚both the Loan
officer at‛ Clark’s bank ‚and Clark’s real estate agent ‚to
determine precisely when *Clark+ learned of the other property.‛
The district court’s ruling did not address this request, however,
and on appeal, Load Zone has not argued that there was a
(continued . . .)
20130093-CA 6 2014 UT App 194Load Zone v. Clark
failed to obtain a loan by the financing deadline, that the parties
did not agree to extend the settlement deadline, or that Clark
sent Load Zone a written notice of cancellation on October 22.
Thus, as long as Clark’s cancellation notice was timely and
properly invoked his right to cancel, Load Zone has already
obtained all the relief to which it is entitled under the REPC’s
financing condition—Clark’s $3,000 earnest money deposit—and
the broader remedies of paragraph 16.1 are not available.
¶12 Load Zone argues that Clark’s cancellation notice was
ineffective for three reasons: (1) the REPC requires that any
cancellation be sent prior to the settlement deadline; (2) Clark
cancelled the contract for improper reasons; and (3) the
substance of Clark’s cancellation notice did not specifically
invoke his right to cancel under paragraph 8.3(b) and was
inconsistent with the REPC’s terms. As a result, Load Zone
asserts, the REPC was never canceled and Clark is still obligated
to purchase the property. We agree with the district court that
Clark properly exercised his right to cancel the REPC.
I. Cancellation Deadline
¶13 We see no indication in the contract that a paragraph
8.3(b) cancellation notice must be sent prior to the settlement
deadline. In fact, the right to cancel is not even triggered until
‚the proceeds of the Loan have not been delivered by the Lender to
[Load Zone+ or to the escrow/closing office‛ ‚within four
calendar days after Settlement.‛ (Emphasis added.) The REPC is
also silent on how long after that trigger event either party may
wait before sending written notice of cancellation. This contrasts
sharply with the cancellation rights created by other clauses in
the REPC. For example, the agreement also conditions Clark’s
‚obligation to purchase the Property . . . upon the Property
appraising for not less than the Purchase Price.‛ If the property
factual dispute about whether Clark met his obligation under the
REPC to diligently pursue financing.
20130093-CA 7 2014 UT App 194Load Zone v. Clark
‚has appraised for less than the Purchase Price,‛ Clark may
cancel the agreement by sending written notice but must do so
‚no later than‛ the financing deadline. And the appraisal
condition is ‚deemed . . . waived‛ if Clark fails to exercise his
right to cancel before that deadline. Similarly, the REPC’s
optional ‚Due Diligence Condition,‛ which was not selected
here, allows the buyer to ‚cancel the REPC by providing written
notice‛ if the buyer determines ‚that the results of the Due
Diligence are unacceptable.‛ Like the Appraisal Condition, the
right to cancel must be invoked before an agreed upon ‚Due
Diligence Deadline‛ or else the ‚Buyer shall be deemed to have
waived the Due Diligence Condition.‛ These provisions
demonstrate that the parties were capable of drafting specific
deadlines for contract cancellation had they intended to do so.
Cf. Osguthorpe v. Wolf Mountain Resorts, LC, 2013 UT 12, ¶¶ 10–
16, 322 P.3d 620 (interpreting an arbitration clause to apply to a
narrow class of legal disputes after comparing it to much
broader language that defined the scope of an attorney fee
provision in the same agreement). Thus, the failure to include a
cancellation deadline in the financing condition seems
deliberate.
¶14 Because the REPC provides no deadline by which the
parties must send a notice of cancellation under paragraph
8.3(b), the law implies that notice must be given within a
reasonable amount of time. See Coulter & Smith, Ltd. v. Russell,
966 P.2d 852, 858 (Utah 1998) (‚*T+he settled rule is that if a
contract fails to specify a time of performance the law implies
that it shall be done within a reasonable time under the
circumstances.‛). Here, Clark sent his notice of cancellation
about four weeks after the settlement deadline. Load Zone
argues that ‚[i]nherent‛ in paragraph 8.3(b) is an obligation to
cancel the contract ‚before the settlement deadline, or some
other deadline that would trigger a separate contractual
‘default.’‛ Requiring such a deadline is reasonable, Load Zone
maintains, because ‚*r+eading this clause any other way would
allow a party an indefinite amount of time to‛ cancel, with two
adverse consequences—on the one hand, a defaulting buyer
20130093-CA 8 2014 UT App 194Load Zone v. Clark
could tie up the property by withholding notice of cancellation
and, on the other, sellers could never know for certain when they
were entitled to the full panoply of remedies for the buyer’s
breach of his purchase obligation or merely the retention of the
buyer’s earnest money under the financing condition.
¶15 This argument is unpersuasive. First, it ignores the fact
that paragraph 8.3(b) provides either party a right to cancel if the
buyer cannot secure financing, allowing a seller with a still-
willing buyer the flexibility to either wait for a loan to be
approved after the financing deadline or to free the property for
sale to another by giving notice of cancellation if the seller just
does not want to wait any longer. And second, a ‚reasonable‛
time to cancel, while imprecise, is by no means indefinite or
indeterminable. What constitutes a reasonable time depends on
the circumstances. See, e.g., Richins Drilling, Inc. v. Golf Servs.
Grp., 2008 UT App 262, ¶ 5, 189 P.3d 1280 (concluding that a
drilling company breached its obligation to complete a well
within a reasonable amount of time where ‚*e+xpert testimony
established that a well of the depth contemplated by the parties
should have been completed in less than half the time‛ the
company took to finish it); Cooper v. Deseret Fed. Sav. & Loan
Ass’n, 757 P.2d 483, 486 (Utah Ct. App. 1988) (holding that a
lender failed to exercise its right to accelerate a note within a
reasonable time when it waited four years after the borrower’s
default to do so and the borrower made payments to bring the
loan current in the interim). Other than its assertion that the
contract cannot reasonably be read to allow cancellation after the
settlement deadline, Load Zone has not pointed to any particular
circumstances in this case that show Clark’s cancellation notice
was unreasonably late.
¶16 Finally, reading the REPC to allow cancellation four
weeks after the settlement deadline does not, as Load Zone
asserts, prevent sellers from knowing ‚when non-performance
under 8.3 end[s+ and a breach under 16.1 beg*ins+.‛ If a buyer
fails to deliver ‚the proceeds of the Loan . . . to the
escrow/closing office‛ by the closing deadline, he has breached
20130093-CA 9 2014 UT App 194Load Zone v. Clark
his purchase obligation, and paragraph 16.1 allows the seller to
cancel the REPC and retain the buyer’s earnest money, maintain
the earnest money in trust and sue for specific performance, or
return the buyer’s earnest money and pursue any other available
legal remedies. When the buyer cancels the REPC under
paragraph 8.3(b), however, the contract requires the seller to
accept as its ‚exclusive remedy‛ the buyer’s earnest money as
‚liquidated damages.‛ A buyer unable to secure a loan therefore
has a powerful incentive to promptly cancel the REPC to prevent
the seller from pursuing the other remedies listed in paragraph
16.1. And in the rare event that a buyer’s cancellation notice is
unreasonably late, all of the seller’s remedies are available. The
fact that the parties failed to specify a deadline for notice of
cancellation may make the transition date from potential
cancellation and liquidated damages to full default damages
more difficult to ascertain. But that is what the parties agreed to,
and ‚*w+e will not make a better contract for the parties than
they have made for themselves.‛ See Bakowski v. Mountain States
Steel, Inc., 2002 UT 62, ¶ 19, 52 P.3d 1179. We therefore conclude
that the district court did not err when it determined that Clark’s
cancellation notice sent four weeks after the settlement deadline
(and within a day or so of Load Zone’s offer to extend the
settlement deadline) was not unreasonably delayed.
II. Motive to Cancel
¶17 We also agree with the district court that Clark’s
motivation for cancelling the REPC is not relevant to whether he
properly invoked his right to do so under paragraph 8.3(b). As a
general rule, ‚*i+f a party has a legal right to terminate *a+
contract . . . , its motive for exercising that right is irrelevant.‛ Tuf
Racing Prods., Inc. v. American Suzuki Motor Corp., 223 F.3d 585,
589 (7th Cir. 2000); see Hansen v. America Online, Inc., 2004 UT 62,
¶ 7, 96 P.3d 950 (noting that at-will employees can be terminated
‚for any reason (or no reason) except where prohibited by law‛);
see also Milford–Bennington R.R. Co. v. Pan Am Rys, Inc., 695 F.3d
175, 180–81 (1st Cir. 2012) (holding that because a party to a
contract ‚had an unassailably valid reason‛ to exercise a
20130093-CA 10 2014 UT App 194Load Zone v. Clark
contractual right, ‚its alleged ulterior motives are irrelevant‛);
Dayan v. McDonald’s Corp., 466 N.E.2d 958, 974 (Ill. App. Ct.
1984) (‚As a general proposition of law, it is widely held that
where good cause exists, motive is immaterial to a determination
of good faith performance.‛); 2 Corbin on Contracts § 6.10, at 291
(Joseph M. Perillo & Helen H. Bender eds., 1995) (‚The option
between terminating and not terminating is unlimited, except as
provided in the contract or in law.‛). As we have already noted,
there is no dispute that Clark did not obtain financing until mid-
October, and the contract clearly provides either party a right to
cancel if ‚the proceeds of the Loan have not been delivered by
the Lender to [Load Zone+‛ by the closing deadline. Clark
therefore had a legal right to terminate the REPC, and we agree
with the district court that his motives for doing so are not
material.
III. Substance of the Notice
¶18 Finally, the substance of Clark’s cancellation notice was
adequate to invoke his right to cancel. ‚It is generally accepted
that a notice of termination or cancellation of a contract must be
clear and unequivocal.‛ Glenn v. Reese, 2009 UT 80, ¶ 19, 225 P.3d
185. ‚The focus of any inquiry into the adequacy of cancellation
is on whether the notice is sufficiently clear to apprise the other
party of the action being taken.‛ Id. (citation and internal
quotation marks omitted). And so long as the notice reasonably
expresses the intention to cancel, the fact that its stated
justification does not expressly invoke the pertinent contract
terms does not, by itself, render the notice ineffective. See
ProMark Grp. v. Harris Corp., 860 P.2d 964, 967 (Utah Ct. App.
1993). For example, in ProMark, a manufacturer sent a written
notice in August 1989 that purported to terminate its
relationship with a sales representative ‚completely and
irrevocably as of March 21, 1989.‛ Id. The contract, however,
prohibited the parties from retroactively terminating their
relationship and required at least ninety days written notice
before termination. Id. This court held that ‚*e+ven though the
letter attempts to make the termination retroactive, in violation
20130093-CA 11 2014 UT App 194Load Zone v. Clark
of the terms of the . . . Agreement, this attempt does not
invalidate the termination itself.‛ Id. Rather, because ‚the letter
explicitly state*d+‛ the manufacturer’s intent to exercise its right
to terminate the contract, the inconsistencies affected only ‚the
timing of the effective date of the actual termination,‛ not the
validity of the termination itself. Id.
¶19 Here, Clark’s cancellation notice stated, ‚I C. Dennis
Clark wish to cancel the Real Estate Purchase Contract for the
property located at 740 Spruce Drive Garden City, Utah 84028
due to the market condition. I would like to have my earnest
money of $3,000.00 . . . returned.‛ Load Zone argues this notice
was ineffective because Clark ‚expressly sought to have his
earnest money returned‛ and did not cite paragraph 8.3(b) of the
REPC or identify the financing condition as a basis for his
cancellation. While it is true that Clark was not entitled to have
his earnest money returned under 8.3(b), his intent ‚to cancel the
[REPC] for the property located at 740 Spruce Drive Garden
City, Utah 84028‛ was clear and unequivocal. Consequently, as
in ProMark, Clark’s request for his earnest money in the
cancellation notice may have conflicted with the terms of the
agreement, but it ‚does not invalidate the termination itself.‛ See
id. And even though the notice did not expressly cite or
implicate the contract provision that authorized the cancellation,
the REPC requires only ‚written notice‛ without mandating that
the parties invoke specific contractual provisions or use specific
language. We also note that Load Zone’s letter in late October
proposing to extend the settlement deadline demonstrates it was
well aware that both the financing and settlement deadlines had
passed without Clark’s loan having been approved. In light of
these circumstances, we conclude that the notice was
‚sufficiently clear to apprise‛ Load Zone ‚of the action being
taken,‛ Glenn, 2009 UT 80, ¶ 19, and Clark’s termination notice
was therefore effective.
20130093-CA 12 2014 UT App 194Load Zone v. Clark
CONCLUSION
¶20 We affirm the district court’s decision that Clark
effectively terminated the REPC under paragraph 8.3(b) and did
not breach any obligation to purchase the property. Load Zone is
therefore not entitled to specific performance of the REPC and
has already received all the relief to which it is entitled under the
contract, Clark’s earnest money.
_______________
20130093-CA 13 2014 UT App 194