Deep Creek Ranch v. Utah State Armory Bd.

• Decision Date: 15 January 2008
• Docket Number: No. 20060107.,20060107.
• Parties: DEEP CREEK RANCH, LLC, Plaintiff, Appellee, and Cross-Appellant, v. UTAH STATE ARMORY BOARD, Utah National Guard, and John Does I through X, Defendants, Appellants, and Cross-Appellees.
• Court: Utah Supreme Court

178 P.3d 886

2008 UT 3

DEEP CREEK RANCH, LLC, Plaintiff, Appellee, and Cross-Appellant, v. UTAH STATE ARMORY BOARD, Utah National Guard, and John Does I through X, Defendants, Appellants, and Cross-Appellees.

No. 20060107.

Supreme Court of Utah.

January 15, 2008.

James E. Morton, Scott S. Kunkel, Salt Lake City, for plaintiff.

Mark L. Shurtleff, Att'y Gen., Thom D. Roberts, Brent A. Burnett, Asst. Att'ys Gen., Salt Lake City, for defendants.

DURRANT, Justice:

INTRODUCTION

¶ 1 Deep Creek Ranch, LLC ("Deep Creek") sued the Utah State Armory Board ("Armory"), seeking to enforce a contract for the sale of Deep Creek's land in exchange for government surplus property. After Deep Creek prevailed at trial, Armory brought this appeal, asserting the district court erred in holding that the term "surplus property" as used in the contract unambiguously refers to both federal and state surplus property. Armory contends that the term unambiguously refers only to federal surplus property. Armory further asserts that because the term refers only to federal property, the district court erred in ruling that the contract is not voidable for mistake of fact. Deep Creek cross-appeals the district court's ruling that its legal damages claim for lost profits is too speculative.

¶ 2 We conclude that the contract is ambiguous as to the term "surplus property" in that the intent of the parties cannot be ascertained from the four corners of the contract itself. Nevertheless, we affirm the district court's ruling that the contract is not voidable for mistake of fact. We conclude that Armory is liable regardless of the resolved meaning of the ambiguous term. As to damages, we remand to the district court to determine whether specific performance is possible. Because specific performance may be possible, it is premature for us to reach the issue of whether legal damages are too speculative.

BACKGROUND

¶ 3 The undisputed facts are as follows. In June 1997 Armory entered into a contract to purchase a 780-acre parcel of land (the "ranch") in southwestern Tooele County from Deep Creek. Instead of cash, Armory agreed to provide $850,000 "in the form of a Credit to acquire Surplus Property through Utah State Agency for Surplus Property in compliance with the Federal Property and Administrative Services Act of 1949 as amended." In this and other clauses, the contract uses the term "surplus property" without specifically defining it. The contract authorizes Deep Creek "to screen any Surplus Property available to the State of Utah through DRMO, GSA and/or any other State or Federal surplus agency available to the State of Utah."¹ The contract also contains a formula for determining how the value of surplus property selected by Deep Creek will be charged against the $850,000 credit. In the contract, Armory "represents that it is authorized to cause the transfer of Surplus Property, described herein, to Seller free and clear of any liens, encumbrances and/or restrictions." Both Deep Creek management and several Utah officials on behalf of Armory, including then-Governor Michael O. Leavitt, signed the contract.

¶ 4 Prior to the execution of the contract, Armory showed representatives of Deep Creek surplus property so that Deep Creek could assess the value of the credits. Armory showed Deep Creek both federal and state surplus property. The Utah State Surplus Property Agency, a part of the Division of General Services of the State of Utah, administers the collection and auction of both federal and state surplus property. Following the execution of the contract, Armory learned that the GSA would not approve the use of federal surplus property to purchase the ranch.

¶ 5 Armory refused to close on the appointed date, claiming that because it had not received approval from the GSA to use federal surplus property, it could not complete the transaction. Deep Creek sued to enforce the contract. Deep Creek moved for summary judgment on the issue of liability, arguing that the contract could still be performed using state surplus property. Armory argued that the contract unambiguously calls for the use of only federal surplus property and, because federal surplus property is not available, the contract is voidable for mistake of fact. Deep Creek argued that the contract unambiguously allows Armory to satisfy its obligation with either state or federal surplus property and that Armory should be required to provide alternative performance with state surplus property if federal property is unavailable.

¶ 6 The district court issued a memorandum decision granting Deep Creek's Motion for Summary Judgment. The court held that the contract term "surplus property" is clear and unambiguous and relates to both federal and state surplus property, but because no federal official had signed the contract, Deep Creek's remedy may be obtained only from state surplus property. Furthermore, the district court held that Armory is liable for breach of contract.

¶ 7 Armory appealed, but the court of appeals determined that it lacked jurisdiction because the decision was not a final appealable judgment. The court of appeals remitted the matter back to the district court for a trial to determine compensatory and consequential damages as well as attorney fees. In the interim, a new district court judge was assigned to the case.

¶ 8 Prior to the trial, the newly assigned district court judge ruled that Deep Creek had sought and elected the remedy of specific performance, but that if specific performance proved impossible, Deep Creek could also seek legal damages as an alternative remedy. At trial, Deep Creek presented evidence of its legal damages, including figures from the sales of state surplus property vehicles.

¶ 9 In a memorandum decision, the newly assigned judge adopted all of the previous judge's legal conclusions as to contract construction and liability but found that the parties primarily intended to use federal surplus property. The district court went on to award consequential damages including damages for taxes and insurance paid on the property, loan interest, and attorney fees. The court reaffirmed that Deep Creek is entitled to specific performance but made no finding as to whether specific performance is possible. Finally, it ruled that, in the event specific performance is impossible, legal damages for lost profits are too speculative. Armory appeals the district court's holdings that the contract unambiguously refers to state and federal surplus property and that the contract is not voidable due to a mistake of fact. Deep Creek cross-appeals the district court's holding that legal damages are too speculative. We have original jurisdiction pursuant to Utah Code section 78-2-2(3)(j)(2002).

STANDARD OF REVIEW

¶ 10 Whether a contractual term is ambiguous is a question of law that we review for correctness.² The issue of mistake of fact involves factual determinations and conclusions of law. We review factual determinations for clear error and conclusions of law for correctness.³

ANALYSIS

¶ 11 Armory raises two issues on appeal. First, Armory asserts that the district court erroneously held that the contractual term "surplus property" unambiguously includes both state and federal property. Second, Armory asserts that because the contract calls for Armory to provide only federal surplus property, the district court should have declared the contract voidable for mistake of fact. We will discuss each assertion of error in turn. Following this discussion, we will turn to the issue of remedies.

I. THE CONTRACTUAL TERM "SURPLUS PROPERTY" IS AMBIGUOUS

¶ 12 In the proceedings below, Armory argued that the term "surplus property" is unambiguous on its face and clearly shows the parties' intent to use only federal surplus property to satisfy the contract. Deep Creek, on the other hand, argued that the term unambiguously evinces the parties' intent to use both federal and state surplus property. The district court ruled that the term is unambiguous and refers to both state and federal property. Further, it held that Armory is liable for breach of contract for failing to provide either state or federal surplus property to Deep Creek. We examine these legal conclusions for correctness.

¶ 13 A contractual term is ambiguous if, looking to the language of the contract alone, it is reasonably capable of being understood in more than one way such that there are tenable positions on both sides.⁴ While the contract does not explicitly define the term "surplus property," it calls for Armory to provide to Deep Creek "Credit to acquire Surplus Property in compliance with the Federal Property and Administrative Services Act of 1949 as amended." The Federal Property and Administrative Services Act of 1949⁵ (the "Act") is only applicable to federal surplus property.⁶ Nevertheless, it does not follow that "surplus property" as used in the contract necessarily refers only to federal property; the reference to the Act might apply to federal property used to satisfy the contract only to the extent that federal property is used. Any state surplus property used would not be out of compliance with the Act because it is not subject to the Act.

¶ 14 Deep Creek points to paragraph 2(a) of the contract, which permits Deep Creek "to screen any Surplus Property available to the State of Utah through DRMO, GSA and/or any other State or Federal surplus agency available to the State of Utah." Deep Creek argues that because both federal and state agencies are listed, it is clear that both federal and state surplus property may be used. But the Act requires states to designate a state agency to handle transfers of federal surplus property to state agencies.⁷ Thus, the phrase could reasonably mean federal surplus property that is handled by the designated state agency and not necessarily state surplus property.

¶ 15 Clearly, there are tenable positions on both sides, and the language...