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Bloom Master Inc. v. Bloom Master LLC

Court of Appeals of Utah

April 25, 2019

Bloom Master Inc., Appellant,
v.
Bloom Master LLC, Appellee.

          Third District Court, Salt Lake Department The Honorable Robert P. Faust No. 150909022

          Darwin Bingham and Alisha M. Giles, Attorneys for Appellant

          Erik A. Olson and Trevor C. Lang, Attorneys for Appellee

          Judge Jill M. Pohlman authored this Opinion, in which Judges Gregory K. Orme and Michele M. Christiansen Forster concurred.

          OPINION

          POHLMAN, JUDGE.

         ¶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.

BACKGROUND[1]

         ¶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 ...


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