Bloom Master Inc. v. Bloom Master LLC

2019 UT App 63THE UTAH COURT OF APPEALS
BLOOM MASTER INC.,
Appellant,
v.
BLOOM MASTER LLC,
Appellee.
Opinion
No. 20170226-CA
Filed April 25, 2019
Third District Court, Salt Lake Department
The Honorable Robert P. Faust
No. 150909022
Darwin Bingham and Alisha M. Giles, Attorneys
for Appellant
Erik A. Olson and Trevor C. Lang, Attorneys
for Appellee
JUDGE JILL M. POHLMAN authored this Opinion, in which
JUDGES GREGORY K. ORME and MICHELE M. CHRISTIANSEN
FORSTER concurred.
POHLMAN, Judge:
¶1 Bloom Master Inc. (Seller) sued Bloom Master LLC
(Buyer) for breach of contract and unjust enrichment, claiming
that Buyer underpaid on a promissory note. The district court
granted summary judgment to Buyer based on a provision of the
parties’ contract purportedly allowing Buyer to make reduced
payments. Seller appeals. We affirm in part, reverse in part, and
remand for further proceedings.
Bloom Master Inc. v. Bloom Master LLC
BACKGROUND 1
¶2 Seller manufactured a garden planter product that it sold
to garden stores and other consumers. After manufacturing and
selling the product for some time, Seller decided to sell the
manufacturing molds to Buyer, a local garden seed and supply
company.
¶3 In August 2011, Buyer and Seller memorialized their
transaction in an asset purchase agreement, by which Buyer
purchased the planter molds and other assets for $500,000. At
closing, Buyer paid Seller $100,000 in cash and financed the
remaining $400,000 with a promissory note (the Note), which
was attached to and made part of the purchase agreement. The
Note provides that Buyer “shall make eight (8) payments of
interest and principal,” beginning on August 15, 2012, “and
continuing on the 15th day of each August thereafter . . . in
accordance with the provision herein.” 2 The Note identifies
August 15, 2019, as the loan maturity date, on which the entire
unpaid principal balance and accrued and unpaid interest are
due.
1. “When evaluating the propriety of summary judgment on
cross-motions for summary judgment, we view the facts and any
reasonable inferences to be drawn therefrom in the light most
favorable to the losing party.” Flowell Elec. Ass’n v. Rhodes Pump,
LLC, 2015 UT 87, ¶ 8, 361 P.3d 91.
2. The Note does not state how much principal is due each year.
Seller contends that the Note requires eight annual principal
payments in equal installments of $50,000. It is unclear whether
Buyer agrees. Buyer has previously identified $50,000 as a
default annual payment amount, but in its summary judgment
briefing before the district court it noted as “important” that
neither the Note nor the asset purchase agreement expressly
requires an annual payment of $50,000.
20170226-CA 2 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
¶4 Immediately after setting forth the Note’s repayment
terms, section 3 of the Note provides for a modification of its
terms in the event the planter product fails to generate “expected
sales numbers” in any given year:
Inasmuch as this Note is being issued in connection
with the Purchase Agreement and repayment is
dependent upon the continued success of the
[planter product], [Buyer] and [Seller] agree that
this Note, the principal amount, rates of interest,
maturity date and other terms and conditions will
be reviewed on an annual basis by [Buyer] and
[Seller] prior to each Payment Date. In the event
the [planter product] failed to generate expected
sales numbers in any given year, the terms of this
Note shall be modified in proportion to the
reduced sales numbers.
¶5 The Note does not define the term “expected sales
numbers.” The only sales numbers referred to in the transaction
documents are found in a disclosure schedule attached to the
asset purchase agreement as part of Seller’s representations and
warranties regarding its customers and suppliers. In 2009,
Seller’s net sales totaled $355,314; in 2010, $283,261; and in 2011,
$157,916. 3
¶6 Beginning in August 2012, and continuing for the next
three years, Buyer made payments to Seller under the Note.
With each payment, Buyer disclosed to Seller how the payment
was calculated. For each year, Buyer treated the 2010 net sales in
the disclosure schedule as “baseline sales” and compared its
3. The parties executed the purchase agreement in August 2011,
and thus the sales identified for 2011 represent only a partial
year. If the reported sales are annualized for 2011, they total
approximately $236,874 ($157,916 ÷ 8 × 12 = $236,874).
20170226-CA 3 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
actual net sales for the year to that figure to arrive at a
percentage. Buyer then reduced what it referred to as a $50,000
“annual payment” by the same percentage. For example, in 2012,
Buyer reported actual net sales of $199,325. This amounted to
approximately 70% of Seller’s reported net sales figure of
$283,261 in 2010. 4 Buyer then multiplied $50,000 by the same
percentage to arrive at $35,184—the amount Buyer paid on the
Note in 2012. Buyer made similar calculations each year, and
each year Seller accepted the payments.
¶7 After four years of accepting Buyer’s payments, Seller
sent Buyer a written notice of default claiming Buyer had failed
to pay the “total amount due each year” and demanding the full
balance of the loan. 5 Buyer relied on section 3 of the Note to
justify the amounts tendered and to deny Seller’s demand. Seller
then sued Buyer for breach of contract and unjust enrichment,
alleging that Buyer breached the contract by not making “the full
amount of the yearly payments due and owing.” Both parties
moved for summary judgment.
¶8 In its motion, Seller argued that the Note requires Buyer
to pay $50,000 annually and that Buyer breached its obligation
by tendering less than that amount in 2012, 2013, 2014, and 2015.
Seller rejected Buyer’s reliance on section 3, arguing that Buyer is
not entitled to unilaterally modify the amount due each year
because the Note requires all amendments to be in writing and
signed by both parties. Seller also alternatively argued that
4. The 2012 sales ($199,325) are approximately 70.4% of the 2010
sales ($283,261).
5. The Note allows Seller to declare the entire unpaid principal
amount of the Note and all accrued interest “immediately due
and payable” if an “[e]vent of [d]efault” occurs, which includes
Buyer’s failure to timely pay any amount of principal or interest
due under the Note.
20170226-CA 4 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
section 3 is unenforceable because it is “little more than an
‘agreement to agree’” on some future modification of the Note.
Seller explained that because the term “expected sales numbers”
is not defined in the Note and section 3 does not provide a
formula for calculating reduced payments, it is impossible to
know “what this future modification is to be.” Finally, it argued
that, based on the Note’s severability clause, section 3 should be
severed from the Note, leaving Buyer obligated to pay the
original amount due on the Note without any opportunity to
modify its terms.
¶9 For its part, Buyer argued that section 3 excuses it from
making the payment Seller demanded and that the section is not
unenforceable or severable. It reasoned that its annual payments
were compliant without a written amendment to the Note
because modification of the Note’s terms is “automatic[]” under
section 3 if the planter product fails to generate expected sales
numbers, which could be found in the disclosure schedule
identifying Seller’s historical net sales. Buyer also asserted that
the requirement for annual review under section 3 was satisfied
because Seller had the opportunity to review Buyer’s
calculations accompanying its annual payments and Seller did
not reject any payment or provide “any alternative method of
calculating” Buyer’s payments.
¶10 The district court granted Buyer’s motion and denied
Seller’s motion. The court concluded that section 3 is not “an
agreement to agree,” because it makes plain that “both the
obligation to pay the Note and the amount to be paid was
dependent upon the success of the” planter product. It also
concluded that Buyer did not breach the Note, because section 3
clearly allows for the annual payments to be “reduced in
proportion to sales.” And while the court noted a “possible
ambiguity” in the meaning of the term “expected sales
numbers,” it looked to the disclosure schedule to determine that
20170226-CA 5 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
“expected sales numbers” means Seller’s net sales in 2010. 6
Based on its interpretation of the Note, the court granted
summary judgment to Buyer and dismissed Seller’s claims for
breach of contract and unjust enrichment. Seller appeals.
ISSUES AND STANDARD OF REVIEW
¶11 Seller contends that the district court erred in denying its
motion for summary judgment and in granting summary
judgment in favor of Buyer. Specifically, Seller contends that the
court erred in not deeming section 3, upon which Buyer relies to
tender payment under the Note, unenforceable and severable
from the Note as a matter of law. Summary judgment is
appropriate when, viewing the facts and all reasonable
inferences to be drawn therefrom in the light most favorable to
the nonmoving party, “the moving party shows that there is no
genuine dispute as to any material fact and the moving party is
entitled to judgment as a matter of law.” Utah R. Civ. P. 56(a);
see, e.g., Penunuri v. Sundance Partners, Ltd., 2017 UT 54, ¶ 14, 423
P.3d 1150. “We review a district court’s grant [or denial] of
summary judgment, as well as the court’s interpretation of
contracts upon which the summary judgment was based, for
6. The district court also referenced the “conduct and action of
the parties for years” when interpreting the Note. However, it is
unclear to what extent the court relied on this course of conduct
to interpret the meaning of the term “expected sales numbers.”
Although course of conduct could be relevant to discerning the
meaning of an ambiguous term, cf. Hill v. Superior Prop. Mgmt.
Services, Inc., 2013 UT 60, ¶ 13 n.4, 321 P.3d 1054, such reliance
would have been inappropriate given that the court deemed the
term unambiguous, Layton City v. Stevenson, 2014 UT 37, ¶ 21,
337 P.3d 242 (“Only where the contract is ambiguous will [a
court] look to extrinsic evidence to interpret a contract.”).
20170226-CA 6 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
correctness.” Desert Mountain Gold LLC v. Amnor Energy Corp.,
2017 UT App 218, ¶ 11, 409 P.3d 74 (cleaned up).
ANALYSIS
I. Breach of Contract
¶12 We must decide whether the district court correctly
determined that Buyer was entitled to summary judgment and
that Seller was not. Seller’s argument in support of summary
judgment in its favor proceeds in two parts: (A) section 3 is an
unenforceable agreement to agree and (B) section 3 should be
severed to allow enforcement of the balance of the Note.7 We
agree with Seller that section 3 is an agreement to agree, and the
district court accordingly erred in granting summary judgment
to Buyer. But we conclude that Seller has not demonstrated that
it is entitled to severance as a matter of law, and thus the district
7. Seller also contends that section 3 is ambiguous because the
Note does not define the term “expected sales numbers.”
Though Seller appears to treat its ambiguity argument and the
agreement-to-agree argument as related, our discussion of
section 3’s enforceability does not turn on the question of
ambiguity. A contractual provision may be ambiguous if it is
“unclear” or if it “omits terms,” Beckman v. Cybertary Franchising
LLC, 2018 UT App 47, ¶ 75, 424 P.3d 1016 (cleaned up), but a
failure to agree on essential terms is more fundamental. An
ambiguous contract or contractual provision may still be
enforceable, see Mind & Motion Utah Invs., LLC v. Celtic Bank
Corp., 2016 UT 6, ¶ 24, 367 P.3d 994, but an indefinite one is by
definition “no[t a] contract at all” and is therefore unenforceable,
Prince, Yeates & Geldzahler v. Young, 2004 UT 26, ¶ 17, 94 P.3d 179(cleaned up). We accordingly focus our discussion on whether
section 3 is enforceable or a mere agreement to agree.
20170226-CA 7 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
court did not err in denying Seller’s motion for summary
judgment.
A. Agreement to Agree
¶13 To form an enforceable contract, the parties must have a
“meeting of the minds . . . on the essential terms of the contract.”
Jones v. Mackey Price Thompson & Ostler, 2015 UT 60, ¶ 31, 355
P.3d 1000. “So long as there is any uncertainty or indefiniteness,
or future negotiations or considerations to be had between the
parties, there is not a contract.” Id. (cleaned up). Contractual
terms are “sufficiently definite” when they are “capable of being
enforced.” ACC Capital Corp. v. Ace West Foam Inc., 2018 UT App
36, ¶ 12, 420 P.3d 44 (cleaned up).
¶14 An agreement to agree at some later date is thus
unenforceable. See Brown’s Shoe Fit Co. v. Olch, 955 P.2d 357, 362,
364–65 (Utah Ct. App. 1998); see also Harmon v. Greenwood, 596
P.2d 636, 639 (Utah 1979) (“Such ‘agreements to agree’ are
generally unenforceable because they leave open material terms
for future consideration, and the courts cannot create these terms
for the parties.”). Although a contract may still be enforced if
“some contract terms” are “missing or left to be agreed upon,”
the “court must be able to enforce the contract according to the
parties’ intentions.” I-D Elec. Inc. v. Gillman, 2017 UT App 144,
¶ 25, 402 P.3d 802 (cleaned up). “[I]f those intentions are
impenetrable, or never actually existed, there can be no contract
to enforce.” Nielsen v. Gold’s Gym, 2003 UT 37, ¶ 12, 78 P.3d 600.
¶15 This court held in Brown’s Shoe that the lack of a price in a
rental agreement or a “mechanism for determining” the price
made the lease agreement “too vague and indefinite for specific
enforcement.” 955 P.2d at 365. In that case, the parties entered
into a commercial lease agreement for an initial three-year term
and two three-year option periods. Id. at 359–60. The parties
agreed that the rent for the initial period and the option periods
would be based on both per-square-foot rental rates and a
20170226-CA 8 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
percentage of the lessee’s sales. Id. at 360. But the parties “did
not specify the percentage rental” or “any mechanism for
determining that rental amount” for the option periods. Id. at
362. The lease agreement merely stated that the parties “would
agree on the gross volume figure from which to base additional
rent during each year.” Id. at 360 (cleaned up). This court held
that such an agreement to agree was unenforceable because the
amount of percentage rent was “left for future agreement.” Id. at
362–65.
¶16 The terms governing Buyer’s repayment under the Note
are similarly left for future agreement. The Note requires that
Buyer make an annual payment toward the principal amount,
but it does not identify how much Buyer must tender each year
or provide a reliable mechanism for determining the amount.
Instead, section 3 requires the parties to review “th[e] Note, the
principal amount, rates of interest, maturity date and other
terms and conditions . . . on an annual basis . . . prior to each
Payment Date” and to modify the Note’s terms “in proportion to
the reduced sales numbers” should the planter product fail to
generate expected sales. In other words, while the parties
generally agreed that the terms would be modified under certain
circumstances, the parties left the specifics to annual review and
future agreement. And without a specific agreement, one is left
to wonder, among other things, how terms like interest rates and
maturity dates are to be modified in proportion to reduced sales
numbers, whether the principal amount in its entirety is subject
to a proportional modification, or how the amounts due in a
given year are to be determined. At bottom, section 3 does not
provide the tools or instructions for how to achieve the
modification it requires, and it is therefore an unenforceable
agreement to agree. See id. at 365.
¶17 The district court reached the opposite conclusion, relying
on the mandatory “shall” language in section 3. It reasoned that
the provision is not an agreement to agree because “it is clear
both the obligation to pay the Note and the amount to be paid
20170226-CA 9 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
was dependent upon the success” of the planter product. Our
supreme court, however, has already rejected similar reasoning.
For example, in Pingree v. Continental Group of Utah, Inc., 558 P.2d
1317 (Utah 1976), the parties to a lease agreement provided in
their contract that the lessee “shall have . . . the option to renew”
and that “the rental amount will be renegotiated.” Id. at 1320(emphases added) (cleaned up). The parties, however, were
“unable to agree on the rental rate,” and the district court
“implied the parties had agreed on a reasonable rental figure.”
Id. at 1321. On appeal, our supreme court held that the “option
to renew was too vague and indefinite to be enforceable” and
that a court was not in a position to determine a “reasonable
rental figure” when the parties had left it open for negotiation.
Id.; see also Cottonwood Mall Co. v. Sine, 767 P.2d 499, 502 (Utah
1988) (“Courts simply are not equipped to make monetary
decisions impacted by the fluctuating commercial world and are
even less prepared to impose paternalistic agreements on
litigants.”). Similarly, in Richard Barton Enterprises, Inc. v. Tsern,
928 P.2d 368 (Utah 1996), the district court reasoned that a lessor
and lessee “agreed to the concept of a rent credit” but “did not
agree on an amount.” Id. at 373 (cleaned up). Relying in part on
Pingree, the supreme court again reversed the district court’s
imposition of a reasonable amount for proposed modifications
and held that agreeing in theory to contractual obligations was
insufficient to create an enforceable contract. Id. at 373–74. 8
8. This court and others have consistently acknowledged this
same principle. In Aspenwood, LLC v. C.A.T., LLC, 2003 UT App
28, 73 P.3d 947, this court held that a contractual provision
providing that the parties “agreed that they would investigate
and evaluate” certain projects and “then proceed to finance,
purchase, develop and then sell for a profit each of those
projects” was “too vague to be enforceable.” Id. ¶ 28 (cleaned
up). Though the language was clear, there was “[n]o information
(continued…)
20170226-CA 10 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
¶18 Here, the mandatory language of section 3 signifies that
the parties agreed to modify terms in the event sales
expectations were not met. But, as demonstrated by Pingree, that
language does not resolve the question of whether section 3 is
sufficiently definite to be enforced. See 558 P.2d at 1321; see also
Tsern, 928 P.2d at 373–74; Brown’s Shoe, 955 P.2d at 365. While the
parties here agreed in principle to modify terms, their failure to
agree on the tools to achieve that modification renders the
provision indefinite and unenforceable.
¶19 Buyer takes issue with that conclusion, arguing that
section 3 is not an agreement to agree, because the annual
payment amount can be automatically determined by comparing
each year’s sales to the 2010 net sales figure and reducing an
(…continued)
. . . given on what projects would be acquired, when or on what
terms these projects would be acquired, or how and to what
extent [the parties] would fund these projects.” Id. Likewise, in
Savoy Energy, LLC v. Aston Energy, LLC, No. 2:16-CV-967, 2018
WL 1756930 (D. Utah Apr. 10, 2018), the parties’ contract
provided that the defendant “shall have first right of refusal to
own, construct and operate all future pipelines,” but that right
was “dependent on the requirement that the parties negotiate a
gathering and transportation fee prior to construction of any
future pipelines.” Id. at *7 (cleaned up). Again, despite the
mandatory “shall” language, the court concluded that the
provision, which left terms to future negotiation, was “an
unenforceable agreement to agree.” Id.; see also Carr Office Park,
LLC v. Charles Schwab & Co., 291 F. App’x 178, 182 (10th Cir.
2008) (holding that a contract providing that the parties “shall, in
good faith, negotiate and finalize a lease document”
demonstrated that the contract was merely “a document to be
negotiated and agreed to at a future date” and therefore
unenforceable).
20170226-CA 11 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
annual payment of $50,000 in proportion to the reduced sales
numbers. But that contention fails on its own terms. Buyer’s
argument that modification occurs automatically under section 3
is belied by the requirement for an annual review. If
modification were truly automatic, there would be no need to
review the Note’s terms annually. Further, the terms subject to
review under section 3 are not easily modified by the simple
application of a mathematical equation. Section 3 states without
exclusion that the “terms of this Note shall be modified in
proportion to the reduced sales numbers,” and specifically
identifies terms like interest rates, maturity date, and the
principal amount as those terms subject to annual review. Thus,
even assuming $50,000 represents the annual payment amount,
and that the parties’ expectations for future sales could be
discerned, 9 how the “modified in proportion” language is to be
applied to the Note’s other terms remains unclear. Section 3
simply does not provide a workable mechanism for the court to
apply. See Brown’s Shoe, 955 P.2d at 365.
¶20 In sum, section 3 is an agreement to agree because it
anticipates some future agreement regarding modification of
9. Buyer’s reliance on the attached disclosure schedule listing the
sales for 2010 to ascertain the parties’ expectations for future
sales is also flawed. Put simply, past sales do not naturally refer
to expected sales. This is especially true when, as here, sales
were declining year over year. In 2009, sales for the planter
product were $355,314. The following year, sales were down
nearly 20% (($355,314 − $283,261) ÷ $355,314 = 20.3%) and,
annualizing 2011’s sales, ($157,916 ÷ 8 × 12 = $236,874, see supra
note 3) declined another 16% (($283,261 − $236,874) ÷ $283,261 =
16.4%) in the year after that. Buyer chose the sales figure from
2010 to complete its calculations for its reduced payments, but
the parties never agreed that 2010’s sales figure would continue
indefinitely into the future.
20170226-CA 12 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
myriad contractual terms and because there is no clear
mechanism for determining the modification. A court is
therefore unable to enforce section 3, and the district court erred
in granting summary judgment to Buyer on the basis of that
provision. See id.B. Severability
¶21 “[E]ven if [an] agreement to agree is invalid, it will not
necessarily invalidate an entire agreement of which it forms a
part . . . .” 1 Samuel Williston & Richard A. Lord, A Treatise on the
Law of Contracts § 4:29 (4th ed. 2007). In Seller’s view, section 3 is
“unenforceable as a matter of law,” and “the district court
should have severed the unenforceable language” pursuant to
the Note’s severability clause. And if section 3 is severed, Seller
asserts that Buyer is in breach of its obligation by not tendering
payments of $50,000 each year.
¶22 Under Sosa v. Paulos, 924 P.2d 357 (Utah 1996), “contract
provisions are severable if the parties intended severance at the
time they entered into the contract and if the primary purpose of
the contract could still be accomplished following severance.” Id.
at 363 (emphasis added). The district court did not reach the
severability question, having rejected Seller’s argument
regarding the provision’s unenforceability. Seller argues that we
can decide as a matter of law whether section 3 is severable and
award it judgment on its breach of contract claim. But Seller has
only addressed, both below and on appeal, the first element of
severance, that is, whether Buyer and Seller intended severance.
See id. Seller has never attempted to demonstrate the second
element, that is, whether “the primary purpose [of the Note]
could still be accomplished” if section 3 is severed. See id. Thus,
Seller has not shown that it was entitled to severance as a matter
of law, and the district court did not err in denying Seller’s
motion for summary judgment.
20170226-CA 13 2019 UT App 63Bloom Master Inc. v. Bloom Master LLC
II. Unjust Enrichment
¶23 “Under [Utah] precedent, a claim of unjust enrichment
cannot arise where there is an express contract governing the
subject matter of a dispute.” United States Fid. & Guar. Co. v.
United States Sports Specialty Ass’n, 2012 UT 3, ¶ 11, 270 P.3d 464(cleaned up). In moving for summary judgment, Buyer argued
that it was entitled to summary judgment on Seller’s unjust
enrichment claim because “there is a binding, enforceable
contract that governs the relationship between the parties.” In
granting Buyer’s summary judgment motion in its entirety, the
district court did not separately address the unjust enrichment
claim but presumably determined it was superfluous given its
conclusion that the parties’ express agreement was enforceable.
Because the two claims and their disposition by the district court
are intertwined, we reverse the court’s grant of summary
judgment in favor of Buyer on the unjust enrichment claim
without opining on its merits.
CONCLUSION
¶24 We conclude that Buyer was not entitled to summary
judgment on Seller’s breach of contract claim because section 3,
which Buyer relied on to submit payments less than $50,000, is
an unenforceable agreement to agree. We also conclude that
Seller was not entitled to summary judgment because although
section 3 is unenforceable, Seller did not show that section 3 is
necessarily severable. And because we reverse the award of
summary judgment on the breach of contract claim, we also
reverse the dismissal of Seller’s unjust enrichment claim. We
therefore remand for further proceedings consistent with this
opinion.
20170226-CA 14 2019 UT App 63