333 P.3d 1255
Utah Ct. App.2014Background
- In August 2010 Clark and Load Zone signed a standard-form Real Estate Purchase Contract (REPC) for $1.128 million, with $846,000 to be financed and $3,000 earnest money deposited.
- The REPC included a Financing Condition: buyer must obtain the loan by Sept. 10, 2010 (financing deadline) and closing was set within four days after Sept. 20, 2010 (settlement/closing deadline); parties agreed buyer must "work diligently and in good faith" to obtain the loan.
- Paragraph 8.3(b) allowed either party to cancel by written notice if loan proceeds were not delivered within four days after settlement; if cancelled under 8.3(b) seller would keep the earnest money as the "exclusive remedy."
- Clark’s lender had not approved the loan by the financing and settlement deadlines; Clark did not sign Load Zone’s later proposed extension and on Oct. 22 Clark sent written notice cancelling the REPC (citing market conditions and requesting return of earnest money).
- Load Zone sued for specific performance, arguing Clark’s cancellation was untimely, done in bad faith, and substantively inconsistent with 8.3(b). The district court granted summary judgment for Clark; this appeal follows.
Issues
| Issue | Load Zone's Argument | Clark's Argument | Held |
|---|---|---|---|
| Whether cancellation under §8.3(b) had to be sent before the settlement/closing deadline | Cancellation must be sent prior to settlement deadline (otherwise seller cannot know when full remedies under §16.1 apply) | §8.3(b) has no time limit after the trigger; notice is required within a reasonable time | Court: No contractual deadline; notice within a reasonable time is required; Clark’s Oct. 22 notice (~4 weeks after closing) was not unreasonably late and was effective |
| Whether Clark’s subjective motive (e.g., market conditions, learning of cheaper comparable, closing costs) invalidated cancellation | Clark acted in bad faith or for improper reasons, so cancellation ineffective | Motive is irrelevant when party has a contractual right to terminate | Court: Motive immaterial where a legal right to terminate exists; Clark had such a right because loan proceeds were not delivered by the deadline |
| Whether the substance of Clark’s letter invoked §8.3(b) sufficiently (he asked for return of earnest money and did not cite financing clause) | Notice was inconsistent with REPC (asked for return of earnest money) and did not cite §8.3(b) | Written notice was clear and unequivocal in cancelling the REPC; contract requires only "written notice," not specific language | Court: Notice need only be sufficiently clear to apprise other party; Clark’s letter clearly cancelled the REPC and was effective despite inconsistent request regarding earnest money |
Key Cases Cited
- Orvis v. Johnson, 177 P.3d 600 (Utah 2008) (standard of review for summary judgment and contract interpretation)
- Encon Utah, LLC v. Fluor Ames Kraemer, LLC, 210 P.3d 263 (Utah 2009) (contract interpretation is a question of law)
- Café Rio, Inc. v. Larkin-Gifford-Overton, LLC, 207 P.3d 1235 (Utah 2009) (plain meaning controls when contract unambiguous)
- Glenn v. Reese, 225 P.3d 185 (Utah 2009) (termination notice must be clear and unequivocal; focus is whether notice apprises other party)
- Coulter & Smith, Ltd. v. Russell, 966 P.2d 852 (Utah 1998) (when contract omits time for performance, law implies a reasonable time)
- Tuf Racing Prods., Inc. v. American Suzuki Motor Corp., 223 F.3d 585 (7th Cir. 2000) (motive irrelevant where party has a legal right to terminate)
- ProMark Grp. v. Harris Corp., 860 P.2d 964 (Utah Ct. App. 1993) (notice that conflicts with contract terms can still effectuate termination if it clearly expresses intent to terminate)