GERALD RUHS AND JANICE RUHS v. JOHN RUHS
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RENDERED: February 12, 1999; 10:00 a.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
1997-CA-001786-MR
GERALD RUHS AND JANICE RUHS
APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE JAMES M. SHAKE, JUDGE
ACTION NO. 89-CI-004595
v.
JOHN RUHS
APPELLEE
OPINION
AFFIRMING IN PART;
REVERSING IN PART AND REMANDING
* * * * * * * * * * * * * * * * * * * * *
BEFORE:
BUCKINGHAM, GARDNER, AND KNOPF, JUDGES.
BUCKINGHAM, JUDGE.
Gerald and Janice Ruhs (Gerald and Janice)
appeal from orders of the Jefferson Circuit Court relating to a
summary judgment entered in favor of John Ruhs (John).
We affirm
in part and reverse in part and remand.
In 1980, Gerald and Janice purchased an apartment
building from John, who is Gerald’s brother, for $30,000.
conveyed the property to Gerald and Janice by deed with a
covenant of general warranty, a covenant of seisin, and a
John
covenant of freedom from encumbrances with the exception of
applicable property taxes.
Gerald and Janice made a down payment
to John of $8,000 at the time of the purchase and executed a
promissory note to John for $22,000, payable by one payment of
$2,000 due on January 1, 1981, and a payment for the remainder of
the balance due on March 24, 1986.
The note also provided that
interest would be paid at the rate of ten percent per annum until
paid in full.
Gerald and Janice made the $2,000 payment in 1981.
They subsequently made monthly payments of $170 to John from
early 1981 until May 1983, although they were not required to
make monthly payments under the terms of the note.1
In late
1983, Gerald and Janice contracted with Ray-Mit Limited
Partnership (Ray-Mit) to sell the property which they had
purchased from John for $57,000.
The sale to Ray-Mit was not
consummated, however, due to an unreleased contract for deed
which created a cloud on the title to the property and of which
Gerald and Janice apparently had no prior actual notice.
On
March 20, 1986, four days prior to the date set for Gerald and
Janice to make their final payment to John, the contract for deed
on the property was finally released.
By that time, however,
Ray-Mit had refused to close the deal with Gerald and Janice, and
the proposed transaction was never completed.
Gerald and Janice failed to make the scheduled payment
of the remaining balance owed on the note to John on its due
1
Gerald and Janice voluntarily made the payments in order
to reduce the unpaid balance of the note.
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date, and John filed suit against them in 1989 seeking the
balance due to him.
Gerald and Janice filed an answer and
counterclaim against John seeking to recover the profits which
they allege they lost on the Ray-Mit transaction due to John’s
breach of covenant of general warranty.
John then filed a third-
party complaint against Chicago Title Insurance Company (Chicago
Title) for indemnification, as Chicago Title had insured title to
the property when it was purchased by John.
John eventually moved for summary judgment against
Gerald and Janice in August 1996.
Gerald and Janice did not file
a response to John’s summary judgment motion, and thus the trial
court granted it in December 1996, noting that Gerald and Janice
had failed to respond.
The summary judgment stated that John was
entitled to judgment as a matter of law on his claim and on
Gerald and Janice’s counterclaim.
However, the judgment was not
for a sum certain.
Gerald and Janice filed a timely motion under Kentucky
Rule of Civil Procedure (CR) 59 in which they sought to have the
court “set aside or vacate” its summary judgment.
A belated
response to John’s summary judgment motion was attached to their
motion.
The trial court denied Gerald and Janice’s motion to set
aside the summary judgment, noting in its order that it had
considered Gerald and Janice’s response to John’s summary
judgment motion.
In June 1997, John moved the trial court to enter a
judgment for a sum certain against Gerald and Janice.
John
calculated the amount owed to him to be $74,960.69, representing
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the remaining principal balance due under the note along with
accumulated interest.
Although John did not explain in his
motion how he arrived at that figure, the trial court entered a
judgment in John’s favor on June 9, 1997, for the amount
requested plus twelve percent interest from the date of the
summary judgment.
On July 2, 1997, Gerald and Janice moved the trial
court to amend its June 9 judgment pursuant to CR 60.02.2
The
basis of the CR 60.02 motion was Gerald and Janice’s contention
that John and the trial court had improperly computed and
compounded the interest due on the promissory note.
The motion
was denied by the trial court, and Gerald and Janice filed a
notice of appeal in which they stated they were appealing the
trial court’s orders of December 1996 (the summary judgment
order), February 1997 (the order denying the motion to set aside
or vacate the summary judgment order), June 1997 (the order
granting John judgment for a sum certain), and July 1997 (the
order denying the motion to amend the judgment for a sum
certain).
John raised the issue of the timeliness of Gerald and
Janice’s appeal in his supplemental prehearing statement.
He did
not, however, raise the issue in his brief, and we assume that he
has conceded that the appeal was timely filed.
Nevertheless, we
have independently reviewed the issue and determine that the
appeal as to all four orders was timely filed.
2
The motion was presumably made under CR 60.02 because it
would have been untimely under CR 59.
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The next issue is whether or not the trial court erred
in granting summary judgment in favor of John on his claim and on
Gerald and Janice’s counterclaim.
The standard for summary
judgment is clear:
A movant should not succeed in a motion for
summary judgment unless the right to judgment
is shown with such clarity that there is no
room left for controversy and it appears
impossible for a nonmoving party to produce
evidence at trial warranting judgment in his
favor. . . . The motion for summary
judgment must convince the circuit court from
evidence in the record of the nonexistence of
a genuine issue of material fact.
Hubble v. Johnson, Ky., 841 S.W.2d 169, 171 (1992).
The standard
of review by an appellate court is equally clear as the question
is “whether the trial court correctly found that there were no
genuine issues as to any material fact and that the moving party
was entitled to judgment as a matter of law.”
Ky. App., 916 S.W.2d 779, 781 (1996).
Scifres v. Kraft,
A trial court’s decision
to grant summary judgment is entitled to no deference.
Id.
The parties have discussed the issue of whether the
unreleased contract for deed constituted a breach of the covenant
of general warranty or a breach of the covenant against
encumbrances.
“In this Commonwealth, a general warranty
encompasses the covenant of seisin, covenant of right to sell,
covenant of freedom from encumbrances, covenant of quiet
enjoyment, and covenant of warranty of title.”
Ralston v.
Thacker, Ky. App., 932 S.W.2d 384, 387 (1996).
Gerald and Janice
contend that the unreleased contract for deed constituted a
breach of the covenant against encumbrances, while John contends
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that the unreleased contract for deed was not an encumbrance but
represented an ownership interest in a third party.
We agree with John that the unreleased contract for
deed was not a breach of the covenant against encumbrances.
A
“covenant against encumbrances” has been defined as follows:
A covenant against encumbrances is a
stipulation by the covenantor that there are
no outstanding rights or interest to the
estate conveyed or any part thereof which
will diminish the value of the estate, but
which are consistent with the passing of the
estate. An encumbrance may be defined in
this context as any right to or interest in
the land which may subsist in a third party,
to the diminution of the value of the land,
but at the same time consistent with the
passage of the fee thereto.
20 Am. Jur. 2d Covenants, Etc., § 74 at 518 (1995).
The
unreleased contract for deed represented an ownership interest in
the property which was not “consistent with the passing of the
estate.”
Rather than being an encumbrance in the nature of a
mortgage or other lien, the contract for deed interfered with
John’s ability to pass title to the property to Gerald and
Janice.
Coates v. Niven, Ky., 517 S.W.2d 744 (1974), is
factually similar to the case sub judice.
In Coates, the
purchasers sought to rescind the sale of property when they
learned that the Department of Fish and Wildlife might claim
title to all or a large portion of the property under a previous
deed.
In reversing the trial court in that case, the appellate
court held as follows:
The firmly established rule in this
jurisdiction is that after a contract for the
sale of land has been executed and the vendee
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has been placed in peaceable possession, the
vendee cannot maintain an action for
rescission or for damages, for breach of
warranty of title, until he has been evicted,
unless the vendor is insolvent or a
nonresident or has been guilty of fraud in
the transaction.
Id. at 745.
The appellate court did not grant relief to the
purchasers “because they did not show an eviction.”
Id. at 746.
See also Pendleton v. Centre College of Kentucky, Ky. App., 818
S.W.2d 616, 620 (1991), holding that “an action cannot be
maintained by a vendee of land upon warranty of title until he is
either evicted or his title is adjudged inferior in a suit to
recover the land.”
Gerald and Janice are not seeking a rescission of the
deed.
That is evident as they are not offering the property back
to John in exchange for the money they paid when they purchased
the property.
However, by arguing the breach of a covenant as a
defense to the collection of the note, Gerald and Janice are in
essence arguing that they should not have to pay the note due to
the alleged breach but should nevertheless be allowed to keep the
property.
Such an argument is without merit, and we conclude
that the trial court properly granted summary judgment on John’s
claim for money due on the note.
Likewise, we conclude that the
trial court properly granted summary judgment against Gerald and
Janice on their counterclaim as they may not maintain a claim for
damages since they have not been evicted.
Coates, supra at 745;
Pendleton, supra at 620.
Finally, Gerald and Janice argue that the trial court
erred in allowing prejudgment interest to be compounded monthly
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rather than allowing prejudgment simple interest or, at least,
compounding the prejudgment interest annually.
The note is
silent as to whether interest is to be compound or simple.
“Ordinarily, allowance of interest and the fixing of
time from which interest shall accrue are discretionary with the
trial court.”
899 (1960).
Beckman v. Time Finance Co., Ky., 334 S.W.2d 898,
See also E.E.O.C. v. Kentucky State Police Dept., 80
F.3d 1086 (6th Cir. 1996), cert. denied 117 S. Ct. 385, 136 L.
Ed. 2d 302 (1996), holding that the decision of whether to award
compound or simple interest was in the trial court’s discretion.
Id. at 1098.
We hold that it was within the discretion of the
trial court to allow prejudgment compound interest rather than
simple interest, but we further hold that the trial court abused
its discretion in compounding the interest on a monthly basis
rather than an annual basis since the note provided for interest
“per annum.”
The judgment and orders of the Jefferson Circuit Court
are affirmed in part and are reversed in part and remanded for
the recomputation of interest on the judgment.
GARDNER, JUDGE, CONCURS.
KNOPF, JUDGE, CONCURS IN PART AND DISSENTS IN PART BY
SEPARATE OPINION.
KNOPF, JUDGE, CONCURRING IN PART AND DISSENTING IN PART.
I
concur with the majority’s holding regarding the assessment of
interest in this case.
However, I respectfully dissent from the
portion of the majority opinion which affirmed the dismissal of
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Gerald and Janice Ruhs’ claim for breach of the general warranty
clause of their deed.
First, I disagree with the majority’s
position that the prior unreleased contract for deed does not
constitute an encumbrance.
A covenant against encumbrances is
violated by the existence of a mortgage.
20 Am.Jur.2d Covenants,
Conditions and Restrictions, § 89, p. 526 (1995).
There is no
practical distinction between the land sale contract using a
contract for deed, and a purchase money mortgage, in which the
seller conveys legal title to the buyer but retains a lien on the
property to secure payment. Sebastian v. Floyd, Ky., 585 S.W.2d
381, 383 (1979). A breach of the covenant against encumbrances
does not require eviction, and constitutes a violation of the
warranty on the day that the deed was conveyed.
20 Am.Jur.2d
Covenants, Etc., § 76, p. 519.
The majority defines “encumbrance” narrowly, excluding
any interest which might be inconsistent with the passage of a
fee in the property under any circumstance.
The unreleased
contract for deed in this case was a cloud on the title, and may
have interfered with the passage of a fee interest.
However,
depending upon the facts of the case, the contract for deed may
have been merely an encumbrance upon the property.
party asserted an interest in the property.
After all, no
Indeed, Gerald and
Janice did not discover the adverse interest until a title search
was conducted during the attempted sale to Ray-Mit.
Therefore, I
conclude that the trial court acted prematurely in dismissing the
Ruhs’ counterclaim.
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Yet even if the unreleased contract for deed did not
constitute an encumbrance, it still constituted a breach of the
covenant of seisin contained in the general warranty deed.
The
covenant of seisin guarantees that the grantor is, at the time of
the conveyance, lawfully seised of the estate in quality and
quantity which he purports to convey.
It is a personal covenant
which operates in praesenti and a breach thereof arises upon
delivery of the deed.
384, 387 (1994).
Ralston v. Thacker, Ky. App., 932 S.W.2d
See also, 20 Am.Jur.2d Covenants, Etc., § 69,
p. 515.
The majority refers to the rule noted in Pendleton v.
Center College of Kentucky, Ky. App., 818 S.W.2d 816 (1990); and
Coates v. Niven, Ky., 517 S.W.2d 744 (1974), holding that after a
contract for the sale of land has been executed and the vendee
has been placed in peaceable possession, the vendee cannot
maintain an action for recission or for damages until he has been
evicted.
Coates, 517 S.W.2d at 745.
However, the covenants
breached in Pendleton and Coates were that of title.
Breach of
the covenants against encumbrances or seisin do not require an
eviction, but are breached, if at all, upon conveyance of the
property.
Ralston v. Thacker, supra at 387; Blankenship v.
Stovall, Ky.
App., 862 S.W.2d 333, 334 (1993).
Therefore,
Gerald and Janice Ruhs were entitled to maintain this action for
damages in the absence of an eviction from the property.
The standard of review on appeal of a summary judgment
is whether the trial court correctly found that there were no
genuine issues as to any material fact and that the moving party
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was entitled to judgment as a matter of law.
Steelvest, Inc. v.
Scansteel Service Center, Inc., Ky., 807 S.W.2d 476 (1991).
Summary judgment should only be used to terminate litigation
when, as a matter of law, it appears that it would be impossible
for the respondent to produce evidence at the trial warranting a
judgment in his favor and against the movant.
Paintsville
Hospital Company v. Rose, Ky., 683 S.W.2d 255 (1985).
I agree
with the majority that the alleged breaches of the warranties
against encumbrances and seisin did not excuse Gerald and
Janice’s continued performance under the land sale contract, nor
did it allow them to keep the property without making the final
payment.
However, I conclude that genuine issues of material
fact did exist concerning the alleged breaches of the warranties
in the deed, and the amount of damages they suffered as a result.
Consequently, I believe that summary judgment was improperly
granted, and I would remand this action for further proceedings.
BRIEFS FOR APPELLANTS:
BRIEF FOR APPELLEE:
David P. Chinn
Louisville, KY
Jan M. West
Louisville, KY
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