Jessup v. Five Star Franchising LLC

• Decision Date: 08 July 2022
• Docket Number: 20210220-CA
• Citation: 515 P.3d 466
• Parties: Holden JESSUP and Michael Kristy, Appellants, v. FIVE STAR FRANCHISING LLC, Chad Jones, and D. Scott Abbott, Appellees.
• Court: Utah Court of Appeals

515 P.3d 466

Holden JESSUP and Michael Kristy, Appellants,

v.FIVE STAR FRANCHISING LLC, Chad Jones, and D. Scott Abbott, Appellees.

No. 20210220-CA

Court of Appeals of Utah.

Filed July 8, 2022

Jonathan L. Jaussi and Stephen W. Whiting, Attorneys for Appellants

D. Scott Crook, Salt Lake City, and Matthew J. Morrison, Attorneys for Appellees

Judge Ryan M. Harris authored this Opinion, in which Judges David N. Mortensen and Ryan D. Tenney concurred.

Opinion

HARRIS, Judge

¶1 Five Star Franchising LLC (Five Star) leased commercial property from Holden Jessup and Michael Kristy. Several years into the lease term, after interpreting email communication from Jessup and Kristy as an anticipatory repudiation of the lease, Five Star rescinded the lease and later vacated the premises. Jessup and Kristy sued Five Star for breach of the lease, but the district court determined, on summary judgment, that they had repudiated the lease, and on that basis dismissed their lawsuit. Jessup and Kristy now challenge that determination, and we find that challenge to be, at least in one respect, meritorious. Five Star asks us to affirm on an alternative ground, but we are unable to do so on the record before us. Accordingly, we reverse and remand.

BACKGROUND

¶2 Chad Jones and D. Scott Abbott owned two businesses together—Five Star and Canuck Ventures LLC (Canuck). Canuck owned a piece of commercial property (the Property) located in Spanish Fork, Utah and had leased the Property to Five Star for a number of years. In 2015, however, Canuck decided to put the Property up for sale. As part of the listing summary, Canuck indicated that it anticipated that Five Star would sign a new ten-year lease and remain a tenant of the Property.

¶3 In August 2015, Jessup and Kristy, in their individual capacities, made an offer to purchase the Property. That same month, Canuck (as seller) and Jessup and Kristy (as buyers) entered into a Real Estate Purchase Contract (the REPC), which was made contingent on the execution of a "new lease" between Jessup and Kristy, on the one hand, and Five Star, on the other. Per the REPC, it was anticipated that due diligence would be completed by the end of September, with a closing to occur by the end of November.

¶4 During the due diligence period, Five Star (as the prospective tenant) negotiated the terms of a lease with Jessup and Kristy (as prospective landlords). Parts of the lease were finalized and executed in September 2015, with the final addendum signed no later than October 12, 2015. Jessup and Kristy are described in the lease as "landlord[s]" in their individual capacities ("Holden Jessup and Michael Kristy as Tenants in Common"). But because Jessup and Kristy had not yet finalized the purchase of the Property at the time the lease was signed, the lease was expressly contingent on the anticipated real estate transaction being finalized, stating that "this lease is only valid if Holden Jessup and Mike Kristy (or their assigns) purchase[ ] the [Property] before January 1, 2016."

¶5 By its terms, the new lease was to commence on December 1, 2015, the day after the purchase of the Property was to close. The term of the lease was to be ten years, with Five Star obligated to occupy the Property through November 2025. The lease specified the rent amount that Five Star would be obligated to pay each month, an amount that gradually increased each year. Jones and Abbott each agreed to personally guarantee Five Star's obligations under the new lease.

¶6 Most of the terms of the lease were contained in a twenty-five-page single-spaced document (the Base Lease), but some terms were reflected in two short addenda (Addendum 1 and Addendum 2) to the Base Lease. Addendum 1 contained one enumerated modification to the Base Lease, and Addendum 2 contained fourteen more; both addenda stated that their terms were to be considered part of the lease agreement between the parties and that those terms "shall supersede" or "shall control" over the terms of the Base Lease in the event of any conflict. Addendum 2, in particular, stated that "[a]ll other terms of the [Base] Lease not modified" in the addendum "shall remain the same." Only Five Star—and not Jessup or Kristy—signed the Base Lease and Addendum 1, but all parties executed Addendum 2.

¶7 In late November 2015, as anticipated, the real estate transaction closed, and Canuck conveyed the Property out of its possession. As already noted, the "Buyer[s]" listed on the face of the REPC were Jessup and Kristy, in their personal capacities. But not all of the closing documents are contained in the record submitted to us on appeal; indeed, as far as we are aware, the only such document included in our record is a warranty deed, dated November 25, 2015, by which Canuck conveyed the Property not to Jessup and Kristy in their individual capacities but, instead, to Jessup and Kristy in their capacities as trustees of two family trusts (the Trusts). Under the terms of the deed, Canuck conveyed the Property to "Holden D. Jessup and Adele K. Jessup, Trustees of the Holden D. Jessup and Adele K. Jessup Revocable Living Trust dated October 2, 2000," and to "Michael Kristy and Pamela M. Kristy, Trustees, or their successors in trust, under the Michael Kristy and Pamela M. Kristy Living Trust, dated January 3, 1998."

¶8 In discussing the nature of the November 2015 conveyance, the parties use similar descriptions. In a sworn declaration, Jessup avers that he and Kristy "initially purchased" the Property from Canuck pursuant to the REPC, and then "asked that the [P]roperty be titled in the names of [their] respective trusts." And in its appellate brief, Five Star (apparently quoting Jessup's declaration) states that "Jessup and Kristy purchased the Property and ‘asked that the [P]roperty be titled’ in" the Trusts.

¶9 After the real estate transaction closed, Five Star occupied the premises, without apparent incident, for some three years, paying rent according to the amounts set forth in the Base Lease. In 2016, the parties agreed to a third addendum to the lease agreement, with Jessup and Kristy executing the addendum in their individual capacities.

¶10 In 2018, Five Star applied for a loan that was to be guaranteed by the federal government's Small Business Administration (the SBA). On May 7, 2018, Jones—on behalf of Five Star—asked Jessup and Kristy, via email, for a copy of the signed Base Lease that Five Star could submit to the SBA as part of its loan application, because "having an original is something SBA will look for." In response, Jessup and Kristy acknowledged that they had never signed the Base Lease and that their decision not to sign it had been intentional, stating specifically as follows:

In reviewing the [Base Lease] for signature, we remembered why we didn't sign it originally: there are a number of errors and inconsistencies throughout the document that really need to be corrected before we would feel comfortable signing it.

Jessup and Kristy offered their view that, "[r]ather than spending [time] trying to fix that old document, [they] felt it would be easier" to negotiate a new lease, and they attached their "standard lease agreement," a "30+ page document" they suggested could be used to supplant the Base Lease and its corresponding addenda.

¶11 Five Star was apparently unsure what to make of this response, and just a few minutes later, Jones sought clarification by responding as follows:

It sounded like it might be the case that you never signed the [Base Lease]. If that's the case, as I read your message, it sounded like you are saying you do not agree to that original document and will instead only sign this new version and not execute the earlier version with which you didn't fully agree. Is that correct?

¶12 Over an hour later, at 4:09 p.m. on May 7, Jessup and Kristy responded by stating as follows:

We do not have a fully-signed copy of the 2015 lease agreement. It was never signed by us, and instead, we all created [Addendum 2] to patch over it and its shortcomings. We're really uncomfortable signing the 2015 agreement as-is, for the reasons we've stated. We strongly prefer that we all sign the new lease agreement.

¶13 Later that afternoon, Jones issued this response, which was the final communication in the May 2018 email exchange:

Thanks for clarifying your position. Based on your confirming the reasons for not signing, we concur that a new agreement is preferable. ... [W]e are aligned in confirming that [the earlier] lease agreement was never fully agreed to by either side. As such, we hereby revoke our signatures to the earlier draft agreement to match your refraining from signing.

This creates a significant need to execute a new agreement. We will forward your draft to counsel, and anticipate having some redlines which we may need to discuss moving forward. In the interim, if acceptable, we will continue making payments along the previous course of conduct, although noting that these payments are interim payments and will need to be aligned with a full lease agreement, since you did not feel comfortable with the earlier draft language.

The record submitted to the district court on summary judgment contains no indication of any response by Jessup or Kristy to this final email.

¶14 Following Five Star's final email, the parties were never able to agree on the terms of a new lease. Nevertheless, Five Star continued to occupy the premises in accordance with the parties’ prior arrangement for nearly another two years, paying rent according to the gradually escalating amounts set forth in the Base Lease. In or about March 2020, however, Five Star vacated the premises and refused to make further payments.

¶15 Shortly thereafter, Jessup and Kristy, in their individual capacities, filed this lawsuit, alleging breach of contract against Five Star and breach of guaranty against Jones and Abbott.¹ Defendants answered the complaint, denying most of the allegations and asserting several...