Bloom Master Inc. v. Bloom Master LLC
| Decision Date | 25 April 2019 |
| Docket Number | No. 20170226-CA,20170226-CA |
| Parties | BLOOM MASTER INC., Appellant, v. BLOOM MASTER LLC, Appellee. |
| Court | Utah Court of Appeals |
Darwin Bingham, Salt Lake City, and Alisha M. Giles, Attorneys for Appellant
Erik A. Olson and Trevor C. Lang, Salt Lake City, Attorneys for Appellee
Opinion
¶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.
¶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.
¶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 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 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 "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.
¶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 correctness." Desert Mountain Gold LLC v. Amnor Energy Corp. , 2017 UT App 218, ¶ 11, 409 P.3d 74 (cleaned up).
¶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 court did not err in denying Seller’s motion for summary judgment.
¶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) (). 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)....
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...agree' are generally unenforceable because they leave open material terms for future consideration." See Bloom Master Inc. v. Bloom Master LLC, 442 P.3d 1178, 1182 (Utah Ct. App. 2019) (quoting Harmon v. Greenwood, 596 P.2d 636, 639 (Utah 1979)). Here, the PPA leaves open all material terms......