Deep Creek v. Armory

2008 UT 3
This opinion is subject to revision before final
publication in the Pacific Reporter.
IN THE SUPREME COURT OF THE STATE OF UTAH
----oo0oo----
Deep Creek Ranch, LLC, No. 20060107
Plaintiff, Appellee,
and Cross-Appellant,
v.
Utah State Armory Board,
Utah National Guard, and John
Does I through X, F I L E D
Defendants, Appellants,
and Cross-Appellees. January 15, 2008
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Third District, Tooele Dep’t
The Honorable Randall N. Skanchy
No. 990300435
Attorneys: 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
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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.

1 DRMO refers to the federal Defense Reutilization and
Marketing Office, and GSA refers to the federal General Services
Administration. Neither entity nor any other federal entity is a
party to the contract.
No. 20060107 2
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

3 No. 20060107
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

2 Saleh v. Farmers Ins. Exch., 2006 UT 20, ¶ 14, 133 P.3d
428.
3 Martinez v. Media-Paymaster Plus/Church of Jesus Christ of
Latter-day Saints, 2007 UT 42, ¶¶ 26-28, 164 P.3d 384.
No. 20060107 4
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.

4 Plateau Mining Co. v. Utah Div. of State Lands & Forestry,
802 P.2d 720, 725 (Utah 1990).
5 Pub. L. No. 81-152, 63 Stat. 377 (codified as amended in
scattered sections of 40, 41, & 44 U.S.C.).
6 40 U.S.C. § 101 (2005).
7 40 U.S.C. § 549(a)(3), (f).
5 No. 20060107
¶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 within the four corners of the contract is
insufficient to resolve the issue. As a matter of law,
therefore, the term “surplus property” is ambiguous on its face,
and the lower court erred in ruling that the term is unambiguous.
¶16 Because the language of the contract is unclear as to
the meaning of “surplus property,” the intent of the parties must

8 Willard Pease Oil & Gas Co. v. Pioneer Oil & Gas Co., 899
P.2d 766, 770 (Utah 1995).
9 Mooney v. GR & Assocs., 746 P.2d 1174, 1178 (Utah Ct. App.
1987) (quotation marks and citation omitted); see also Blackhurst
v. Transamerica Ins. Co., 699 P.2d 688, 692 (Utah 1985) (refusing
to “nullify a settlement contract because one of the parties
would have acted differently if all the future outcomes had been
(continued...)
No. 20060107 6
be ascertained from extrinsic evidence.8 The district court,
having ruled as a matter of law that the contract is unambiguous,
did not make this determination. We therefore remand for it to
do so. As we explain in the sections that follow, while the
resolution of this factual issue is not necessary to establish
whether Armory is liable, it does bear on whether specific
performance is possible.
II. THE CONTRACT IS NOT VOIDABLE FOR MISTAKE OF FACT
¶17 Armory asserts that if “surplus property” refers only
to federal surplus property, the district court should have
declared the contract voidable for mistake of fact. Armory
argues that both parties were mistaken as to the availability of
federal surplus property with which to satisfy Armory’s
obligation under the contract. We disagree with Armory’s
reasoning. Even if Armory is able to show on remand that only
federal surplus property was intended, mistake about a future
contingency–-in this case Armory’s ability to obtain approval
from the GSA to use federal surplus property--does not make a
contract voidable for mistake of fact. To serve as a basis for
voiding a contract, the mutual mistake must concern a past or
existing fact, not a future contingency.
A party may rescind a contract when, at the
time the contract is made, the parties make a
mutual mistake about a material fact, the
existence of which is a basic assumption of
the contract. If the parties harbor only
mistaken expectations as to the course of
future events and their assumptions as to
facts existing at the time of the contract
are correct, rescission is not proper. This
rule is justified by the reality that parties
to commercial contracts rarely predict future
events with total accuracy. Indeed, a
contract often functions primarily to
insulate the parties from uncertainty and to
allocate the risk of future events.9

(...continued)
known at the time of the agreement”).
10 The Federal Property and Administrative Services Act of
1949 states that any purchase of surplus property by a
nongovernmental entity is subject to prior approval of the GSA.
40 U.S.C. § 549(b)(1950).
Where the approval of [the GSA] is required,
no error, oversight or mistake by anyone can
excuse an omission to obtain it. Without its
approval of the disposition of government
property subject to said statutes, a red
light is set preventing a consummation of any
such transaction. Only by the procurement of
such approval can such a transaction, if
otherwise lawful, proceed on a green light to
consummation.
Finsky v. Union Carbide & Carbon Corp., 249 F.2d 449, 457 (7th
Cir. 1957).
7 No. 20060107
¶18 If there was a mutual mistake in this case, it was as
to whether the GSA would approve the use of federal property.
The GSA informed Armory after the contract was signed that it
would not approve the transaction. At the time the contract was
entered into, Armory, under the terms of the contract, assumed
the risk as to the GSA’s subsequent approval.
¶19 A contract functions in part to apportion risk of
future events between the contracting parties. Moreover, parties
are free to allocate the risk of future events between them
however they wish. In this case, Armory was aware that it needed
approval from the GSA before it could use federal property.10 It
could have made its contractual liability contingent on receiving
approval from the GSA, but it did not. On the contrary, Armory
explicitly warranted its ability to cause the transfer of the
surplus property in the third paragraph of 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.” By including
this warranty and neglecting to make the contract contingent on
approval from the GSA, Armory assumed the risk of being held
liable if the GSA did not approve the transaction.
¶20 Thus, even if we accept Armory’s argument that the
contractual term “surplus property” refers only to federal
surplus property, Armory is liable for breach of contract.

No. 20060107 8
Accordingly, the resolution of the parties’ intended meaning of
“surplus property” is not necessary in order to determine
liability. We affirm the district court’s ruling that the
contract is not voidable for mistake of fact and that Armory is
liable for breach of contract. We now turn to Deep Creek’s
available remedies.
III. DEEP CREEK’S REMEDIES DEPEND ON RESOLUTION OF THE
CONTRACTUAL AMBIGUITY
¶21 Having affirmed the district court’s ruling that Armory
is liable for breach of contract, we now consider Deep Creek’s
remedies. We begin by discussing specific performance in light
of our ruling that the contractual term “surplus property” is
ambiguous. Because the possibility of specific performance--
unlike the issue of liability--is dependent on the resolution of
the meaning of “surplus property,” we remand to the district
court to determine the term’s meaning. Further, because specific
performance--Deep Creek’s elected remedy--may be possible, it is
premature for us to reach the issue on cross-appeal of whether
legal damages are too speculative. Finally, Armory did not
appeal the district court’s award of consequential damages in the
event it is liable. Because, as discussed above, Armory is
liable for breach of contract, Armory is obligated to pay Deep
Creek for these damages plus additional accrued interest, fees,
and costs attendant to this appeal and any further proceedings.
A. Specific Performance
1. Deep Creek Elected the Remedy of Specific Performance
¶22 Prior to trial, the district court ruled that Deep
Creek, “by seeking and obtaining a judgment of specific
performance, made an election of its remedies and this proceeding
henceforth is limited to the claim of specific performance.” The
district court, however, further ordered that “trial should also
proceed at the same time on [Deep Creek’s] claim for the
alternative remedy of legal damages in the event the remedy of
specific performance proves impossible.” Deep Creek did not
challenge this ruling on appeal and is therefore restricted to
seeking specific performance unless specific performance proves
impossible.
2. The Possibility of Specific Performance Depends on the
Meaning of the Contractual Term “Surplus Property”
¶23 Although the district court noted that specific
performance might be impossible, it did not resolve the issue at
trial. As to this issue, resolving the meaning of the term
“surplus property” becomes relevant. Specific performance may or

11 Willard Pease Oil & Gas Co. v. Pioneer Oil & Gas Co., 899
P.2d 766, 770 (Utah 1995).
9 No. 20060107
may not be possible depending, in part, on whether the contract
requires that Armory convey only federal surplus property or that
it convey either state or federal surplus property.
¶24 If the parties intended the term “surplus property” to
mean only federal property, specific performance is impossible.
Both parties have conceded this to be the case. Therefore, if on
remand the district court determines that “surplus property” was
intended by the parties to mean only federal surplus property,
specific performance is impossible and Deep Creek may seek legal
damages.
¶25 If, on the other hand, “surplus property” was intended
by the parties to mean both state and federal property, the
possibility of specific performance remains an open factual
question. While it has been established that it would be
impossible for Armory to satisfy its contractual obligation
through the provision of federal surplus property, it may be able
to do so through the provision of state surplus property. But it
has not been determined whether Armory has the authority to
transfer state surplus property. Armory argues that state
surplus property put up for sale at auction and the proceeds from
such sales remain the property of the state agency from which
they came. If the district court determines that “surplus
property” was intended by the parties to mean state and federal
property, it must determine whether it is possible for Armory to
deliver state surplus property to perform the contract.
¶26 In short, once the district court has determined, by
resolving what the parties intended by the term “surplus
property,” what performance is required of Armory under the
contract, it must determine whether such performance is possible.
If and only if such specific performance is impossible may Deep
Creek seek general legal damages.
3. The District Court Must Look to Extrinsic Evidence of the
Parties’ Intent
¶27 In considering the meaning of “surplus property” the
district court on remand must look to extrinsic evidence of the
parties’ intent. “[W]hen a contract provision is ambiguous
because it is susceptible to more than one reasonable
interpretation due to uncertain meaning of terms, missing terms,
or other facial deficiencies, extrinsic evidence is admissible to
explain the intent of the parties.”11 Because the district court
rested its decision on the holding that, as a matter of law, the

No. 20060107 10
contract referred to both state and federal property, we are not
convinced that the issue received a full evidentiary airing.
Accordingly, on remand, the district court may rely on evidence
presented at the first trial but should allow the parties an
opportunity to present additional evidence in this regard.
B. Legal Damages
¶28 The district court allowed Deep Creek to present
evidence of legal damages for lost profits in the event specific
performance is impossible. Deep Creek produced evidence of the
auction sales of state surplus property vehicles during the
actual three years it was entitled to the surplus property
credits. The district court found that this evidence did not
prove Deep Creek’s legal damages to a reasonable certainty. It
ruled that legal damages for lost profits were too speculative
because Deep Creek had never operated a surplus property business
in the past and did not have a track record of similar past
sales. Deep Creek challenges this ruling on cross-appeal.
¶29 Appellate review of this issue would be premature at
this time. If the district court determines that specific
performance is possible, it will be unnecessary to resolve the
issue of whether legal damages for lost profits are too
speculative. In addition, the measure of legal damages may vary
depending on whether Deep Creek was promised only federal surplus
property or state and federal surplus property. Therefore, the
issue of whether Deep Creek has proven legal damages to a
reasonable certainty cannot be resolved until the district court
determines what the parties intended by the term “surplus
property.” Accordingly, as a predicate to appellate review, the
district court must first decide, if necessary and in light of
its resolution of the contractual ambiguity, the question of
whether Deep Creek has proven legal damages to a reasonable
certainty.
C. Consequential Damages
¶30 Prior to trial, the district court ordered that trial
should proceed “on any claims of [Deep Creek] with regard to
equitable damages, being those damages flowing from the delay in
performing the contract . . . including a claim for attorney’s
fees.” The district court awarded Deep Creek damages for loan
interest, insurance, taxes, expenses, and attorney fees. Armory
has not specifically challenged the award of these damages on
appeal, arguing only that it is not liable for breach of
contract. Because we hold that Armory is liable for breach of
contract, Armory is obligated to pay Deep Creek for these damages
plus additional accrued interest, fees, and costs attendant to
this appeal and any further proceedings.

11 No. 20060107
CONCLUSION
¶31 We reverse the district court’s legal determination
that “surplus property,” as used in the contract, is unambiguous
and remand for the district court to determine from extrinsic
evidence whether the parties intended that Armory use state and
federal surplus property or only federal surplus property to
satisfy its obligation. But we affirm the district court’s
holding that the contract was not voidable for a mistake of fact;
Armory is liable regardless of the resolved meaning of the
ambiguous term “surplus property.” We remand for resolution of
the parties’ intended meaning of the term from extrinsic evidence
because the possibility of specific performance depends on the
term’s meaning. We decline to reach Deep Creek’s cross-appeal on
the issue of whether legal damages are too speculative because
specific performance may be possible, and even if it is not
possible, the issue of whether legal damages are too speculative
depends on the resolution of the parties’ intent as to “surplus
property.” Finally, we affirm the award of consequential damages
including damages for taxes, insurance, and attorney fees,
subject to augmentation for this appeal and further proceedings.
---
¶32 Chief Justice Durham, Associate Chief Justice Wilkins,
Justice Parrish, and Justice Nehring concur in Justice Durrant’s
opinion.