Mind & Motion Utah Invs., LLC v. Celtic Bank Corp., 20131168

• Decision Date: 16 December 2015
• Docket Number: No. 20131168,20131168
• Parties: MIND & MOTION UTAH INVESTMENTS, LLC, Appellee, v. CELTIC BANK CORPORATION, Appellant.
• Court: Utah Supreme Court

2015 UT 94

MIND & MOTION UTAH INVESTMENTS, LLC, Appellee,
v.
CELTIC BANK CORPORATION, Appellant.

No. 20131168

SUPREME COURT OF THE STATE OF UTAH

December 16, 2015

This opinion is subject to revision before final publication in the Pacific Reporter

Third District, Salt Lake
The Honorable Todd M. Shaughnessy
No. 110915222

Attorneys:

Steven W. Dougherty, Troy L. Booher, Leslie Kay Rinaldi, Beth E. Kennedy, Salt Lake City, for appellant

Marcy G. Glenn, Denver, Nathan R Runyan, Salt Lake City, for appellee

CHIEF JUSTICE DURRANT authored the opinion of the Court, in which ASSOCIATE CHIEF JUSTICE LEE, JUSTICE DURHAM, and JUDGE PEARCE joined.

Having recused himself, JUSTICE HIMONAS does not participate herein; COURT OF APPEALS JUDGE JOHN A. PEARCE sat.

JUSTICE PARRISH sat for oral argument. Due to her resignation from this court, she did not participate herein.

CHIEF JUSTICE DURRANT, opinion of the Court:

Introduction

¶1 Utah law recognizes two different kinds of promises parties make in a contract, covenants and conditions. Covenants are mutual obligations the parties bargain for in their agreement, and the failure to perform them generally gives rise to remedies for breach of contract. Conditions, on the other hand, are events not certain to

Page 2

occur, but which must occur before either party has a duty to perform under the contract. In contrast to covenants, the failure of a condition relieves the parties of any performance obligations, and neither may seek remedies for breach.

¶2 In this case, Mind & Motion entered into a real estate purchase contract (REPC) with Celtic Bank to buy a large piece of property the bank had acquired from a developer through foreclosure. Although the county had approved plans to construct condominiums on the land, the developer had not recorded the plats for the first phase of development. Accordingly, the REPC required Celtic Bank to record the plats by a certain date, and it allowed Mind & Motion sole discretion to extend the recording deadline as necessary to allow Celtic Bank enough time to record. It further provided that any extension of the recording deadline automatically extended the deadline to complete the transaction.

¶3 After extending the recording deadline once, Mind & Motion declined to extend it a second time and sued Celtic Bank for breach of contract. The district court granted summary judgment in Mind & Motion's favor, concluding that the recording provision was unambiguously a covenant, not a condition. It then awarded Mind & Motion $100,000 in liquidated damages and more than $200,000 in attorney fees, as well as the return of Mind & Motion's $100,000 earnest money deposit. On appeal, Celtic Bank argues that summary judgment was improper because the recording provision is unambiguously a condition. And in the alternative, it maintains that the agreement contains facial and latent ambiguities.

¶4 We agree with the district court that the language of the contract lends itself to just one plausible reading—that the recording provision is a covenant, not a condition. Under our caselaw, although it is true that the fulfillment of a condition often hinges on the action of a third party, conditions are also typically phrased using explicitly conditional terms. Here, Celtic Bank is correct that its ability to meet the recording deadline depended on when county officials decided to approve its application. But the parties employed explicitly mandatory language to characterize the recording provision, while using explicitly conditional language elsewhere in the agreement. Based on these features of the REPC, we conclude that there is no plausible way to read the recording provision as anything other than a covenant.

¶5 We also conclude that there is no latent ambiguity in the REPC. Latent ambiguities arise only where unambiguous language mislabels a person or thing due to a collateral matter. And parties cannot make such a showing by merely submitting affidavits that set

Page 3

forth their own subjective understanding of particular terms. Here, Celtic Bank has not argued that any terms in the agreement fail to reflect the parties' intent due to some collateral matter. And even if it had, the only extrinsic evidence Celtic Bank submits are affidavits from bank officers describing their own subjective understanding of the recording provision. We therefore reject Celtic Bank's latent ambiguity argument and affirm the district court's summary judgment ruling.

Background

¶6 On appeal from a motion for summary judgment, we view the facts and all reasonable inferences from them in the light most favorable to the nonmoving party, Celtic Bank.¹ The following recitation of the facts is consistent with that standard.

¶7 Celtic Bank acquired fourteen acres of real estate in Huntsville, Utah, through a foreclosure sale. The prior owner had partially completed four condominium units and received approval to construct more than 160 additional units. But the prior owner had not recorded the plat for the next phase of development, and neither had Celtic Bank after assuming ownership of the property.

¶8 Mind & Motion agreed to purchase the property from Celtic Bank in a real estate purchase contract executed May 25, 2010. The REPC described the property as including "[a]pproximately 14 acres with recorded PRUD for 168 units" and stated that Celtic bank was selling the property "AS RECORDED." The agreement required Mind & Motion to deposit $100,000 in earnest money with an escrow agent, which was fully refundable if the property did not pass a buyer's inspection. Mind & Motion could complete its inspections anytime within fifteen days after receiving notice that the property was substantially complete and that Celtic Bank had recorded the plat.

¶9 The REPC also provided that Celtic Bank "shall record Phase 1" and "agrees to complete recording of Phase 1" of the development by June 15, 2010. It further provided that Celtic Bank "will accomplish any necessary construction or repairs required to complete recording of Phase 1." But it granted Mind & Motion "the sole discretion" to extend the deadline "as necessary to allow" Celtic Bank to record. If Mind & Motion extended the deadline, "the Evaluations and Inspection Deadline and the Settlement deadline" would be "automatically extended by the same amount of time."

Page 4

¶10 The recording process requires an applicant to obtain approval from a number of different entities. First, the Weber County Planning Commission requires "an applicant to complete a required landscaping or infrastructure improvement prior to any plat recordation or development activity."² After the planning commission approves a final plat, the commission submits it to the county surveyor, county health department, and county engineer for signatures.³ After the county engineer approves the plat, the engineer submits it to the county attorney and the board of county commissioners for their approval.⁴ An applicant who jumps through each hoop is entitled to record—county officials do not have discretion to decline an application that complies with the applicable zoning ordinances.⁵

¶11 The REPC also contained a "time is of the essence clause," which provided that "[u]nless otherwise explicitly stated in this Contract," performance must be completed "by 5:00 PM Mountain Time" on the applicable deadline. The clause also stated that "[p]erformance dates and times referenced herein shall not be binding upon title companies, lenders, appraisers, and others not parties to this Contract, except as otherwise agreed to in writing by such non-party."

¶12 In the event Mind & Motion defaulted, the REPC allowed Celtic Bank to keep the earnest money as liquidated damages. If Celtic Bank defaulted, Mind & Motion would receive back its earnest money and could either sue to specifically enforce the contract or obtain $100,000 in liquidated damages.

¶13 The day the parties signed the REPC, the planning commission recommended final approval of recording the phase 1 plat. But several entities still needed to approve various aspects of Celtic Bank's application. None of them approved the plat by the June 15 recording deadline, and Mind & Motion accordingly extended it to July 26.

¶14 That date came and went, however, without the application being approved, and rather than extend the deadline a second time,

Page 5

Mind & Motion claimed Celtic Bank had breached the contract and demanded the return of its earnest money as well as the payment of liquidated damages. Celtic Bank refused to pay, so Mind & Motion filed a breach of contract action. The district court granted Mind & Motion partial summary judgment on its breach of contract claim, concluding that the recording provision was unambiguously a covenant, not a condition. It reasoned that because the REPC phrased Celtic Bank's recording obligation in mandatory terms—the bank "shall record Phase 1"—there was no plausible way to read the provision as anything other than a covenant. Celtic Bank appeals. We have jurisdiction under Utah Code section 78A-3-102(3)(j).

Standard of Review

¶15 Celtic Bank argues that the REPC's recording provision is unambiguously a condition, not a covenant, and that the district court therefore erred in granting summary judgment in Mind & Motion's favor. In the alternative, the bank argues that the provision is at least reasonably susceptible to either reading and is therefore facially ambiguous. Additionally, Celtic Bank has urged us to consider affidavits from two of its officers that it argues show a latent ambiguity in the contract. We review a district court's decision granting summary judgment for correctness, viewing "the facts and all reasonable inferences drawn therefrom in the light most favorable to the nonmoving party."⁶ Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."⁷ The interpretation of a contract is legal...