MARGARET N. JEWETT d/b/a WALNUT HALL LIMITED v. FRED W. HERTRICH III
Annotate this Case
Download PDF
RENDERED: JULY 2, 2004; 2:00 p.m.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2003-CA-000859-MR
MARGARET N. JEWETT
d/b/a WALNUT HALL LIMITED
APPELLANT
APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE JOHN R. ADAMS, JUDGE
ACTION NO. 02-CI-03440
v.
FRED W. HERTRICH III
and LEWIS ARNO
APPELLEES
OPINION
VACATING AND REMANDING
** ** ** ** **
BEFORE:
COMBS, Chief Judge; TACKETT and VANMETER, Judges.
COMBS, CHIEF JUDGE.
The appellant, Margaret N. Jewett, d/b/a
Walnut Hall Limited (Walnut Hall), appeals from a summary
judgment granted to Fred W. Hertrich III and Lewis Arno
(Hertrich and Arno) by the Fayette Circuit Court on April 10,
2003.
At issue is a letter from Alan J. Leavitt, President and
General Manager of Walnut Hall.
The letter gave Hertrich and
Arno the right to cancel their purchase of two shares in a horse
syndicate as an exception to the terms of a syndicate agreement.
They contended that it also released them from their obligation
to procure mortality insurance as required under a separate
purchase agreement.
The trial court agreed with their
contention and accordingly entered summary judgment in their
favor.
We hold that the letter did not relieve Hertrich and
Arno of the obligation.
Therefore, we vacate and remand.
Walnut Hall is a standardbred horse farm in Fayette
County.
Hertrich and Arno are partners who own and breed
horses.
They jointly own numerous stallion shares.
In early
2002, they entered into negotiations with Walnut Hall to
participate in a stallion syndicate.
The stallion, Western
Shooter, was two years of age at that time and was still racing.
The breeding of the horse was not to begin until he had finished
his racing career at the age of three in December 2002.
Two documents governed the formation, financing, and
operation of the stallion syndicate:
the Syndicate Agreement.
the Purchase Agreement and
Under the terms of the Purchase
Agreement, ownership of Western Shooter was divided into 120
shares costing $40,000 each.
Buyers were required to make a
down payment of $10,000 per share at the time that the Purchase
Agreement was executed -- to be followed by annual payments of
$10,000 plus interest for the next three years.
retained a security interest in each share.
-2-
Walnut Hall
The Syndicate Agreement appointed Walnut Hall as the
general manager of the syndicate.
Its duties included the
collection, banking, and distribution of the breeding fees to
the owners; the issuance of mating certificates; and boarding
and veterinary care for Western Shooter.
Acting in their partnership capacity, Hertrich and
Arno decided to purchase two shares in the syndicate for a total
of $80,000.
However, before making the $20,000 down payment,
Hertrich and Arno conveyed to Leavitt, the General Manager of
Walnut Hall, their fear that Western Shooter might not perform
well in his last year of racing and that his value as a stud
might be reduced accordingly.
In order to allay their concerns,
Leavitt agreed that Hertrich and Arno would be permitted to
cancel their share purchase at any time in the year prior to
Western Shooter’s retirement.
Leavitt memorialized their
agreement in a letter of January 15, 2002, that stated as
follows:
This is to confirm our understanding that on
or before January 15, 2003, you have the
right to cancel your purchase of two shares
in Western Shooter and receive a full refund
of the $20,000 paid for the first
installment. If you do elect to cancel your
purchase, you will have no further
obligation to Walnut Hall Ltd., and no
further rights of any kind to Western
Shooter.
In the event you do not elect to cancel your
purchase of the two Western Shooter shares
-3-
on or before January 15, 2003, you will then
be obligated to all the terms and payments
of the Western Shooter Syndicate Agreement.
You shall also owe Walnut Hall Ltd. an
additional $2,000, which shall be
immediately payable. (Emphasis added.)
Upon receipt of this letter, Hertrich and Arno made
their first installment payment of $20,000 and executed the
Western Shooter Syndicate Agreement and the Purchase Agreement
on February 8, 2002.
The Purchase Agreement contained the
following provision:
11. MORTALITY INSURANCE – The Buyer agrees
that upon Closing he will obtain and
maintain full equine mortality insurance on
the Horse with the Seller named as loss
payee in an amount no less than the amount
of the unpaid balance. In the event of
death of the Horse, Seller shall be entitled
to receive a sum equal to the unpaid balance
of principal. The aforesaid sum shall be
paid to Seller upon receipt from the
insuring entity or on the next scheduled
principal payment date, whichever is sooner,
notwithstanding any absence of or delay in
payment for any reason by the insurer. In
the event of death and payment by Buyer to
Seller pursuant to the foregoing provision
prior to payment by an insurer, Seller
agrees to assign all right, title and
interest Seller has to the aforesaid
insurance policy to the Buyer. Buyer will
deliver to Seller upon Seller’s request,
either a fully paid policy or policies of
such insurance duly endorsed to reflect
Seller’s security interest therein or a
certificate of such insurance with evidence
of such endorsement. Buyer shall provide to
Seller on the yearly anniversary date of
Closing a certificate from the insurer
evidencing the continuation of such
insurance. Nothing in this Agreement
-4-
prohibits the Buyer from obtaining whatever
insurance on the Horse he deems appropriate.
Sadly, Western Shooter died unexpectedly in late March
of 2002.
Hertrich and Arno had not yet obtained the mortality
insurance described in Paragraph 11 of the Purchase Agreement.
On April 2, 2002, Leavitt sent a letter to Hertrich
and Arno demanding full payment of the remaining balance due on
their shares.
It stated as follows:
The tragic death of Western Shooter
nullifies our agreement to repurchase your
two shares as it is superseded by paragraph
11 of the Western Shooter Purchase
Agreement. That clause, as you know,
required you as purchaser to obtain full
mortality insurance in our interest as
seller for the unpaid balance on your
shares.
In this connection, I furnished your name to
Tom Cunningham at the time of your purchase
in case you wanted to place the required
coverage with him. For the record, he
called, left a message, but did not hear
from you.
In any case, the $60,000 balance owing on
your two shares is now due and payable, and
I would appreciate your prompt attention to
it.
In a letter to Leavitt dated April 5, 2002, Hertrich
and Arno cancelled their purchase pursuant to the terms of the
January 15 letter, requested the return of their first
installment payment, and contended that the January 15 letter
had released them from the obligation to obtain mortality
-5-
insurance.
While their letter repeatedly referred to Paragraph
11 of the Syndicate Agreement, the Paragraph 11 to which they
referred is actually contained in the Purchase Agreement.
Their
letter stated in relevant part as follows:
Lew [Arno] and I were greatly saddened by
the loss of Western Shooter. As you know,
this was just one of the myriad risks that
we had expressed concern about in purchasing
a stallion share in a horse who had not yet
had his three-year-old campaign. This
concern led directly to our January 15, 2002
Agreement with you allowing us the right to
cancel our purchase of two shares in Western
Shooter and to receive a full refund of the
$20,000 first installment. The Agreement
allows us to cancel the purchase for any
reason, at any time, prior to January 15,
2003, making Paragraph 11 of the Western
Shooter Syndicate Agreement moot. Since we
had an unfettered right to cancel our
purchase, there was no liability to you
until after January 15, 2003, and then only
if we did not cancel our purchase. While
Paragraph 11 of the Syndicate Agreement
applies to all other syndicate members, our
January 15th Agreement with you, which is
unique, is clearly the controlling
instrument. Therefore, please consider this
letter our official notice of our election
to cancel our purchase of Western Shooter
shares. Upon receipt of this letter, please
forward our refundable first installment of
$20,000[.]
On August 26, 2002, Hertrich and Arno filed suit in
Fayette Circuit Court, seeking the refund of their $20,000 down
payment in accordance with the terms of the letter of January
15, 2002.
Unaware of the action of Hertrich and Arno, Walnut
Hall filed suit two days later.
On September 17, the parties
-6-
filed a joint motion to consolidate the cases and to re-caption
Walnut Hall’s complaint as a counterclaim against Hertrich and
Arno.
The lawsuits were consolidated on October 2, 2002.
On
February 20, 2003, Hertrich and Arno filed a motion for summary
judgment.
On March 7, 2003, Walnut Hall filed its motion for
summary judgment on its counterclaim.
Following a hearing, the
circuit court entered summary judgment for Hertrich and Arno,
awarding them $20,000 with interest from the date of the
judgment.
This appeal by Walnut Hall followed.
A summary judgment is 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
Hosp. Co. v. Rose, Ky., 683 S.W.2d 255, 256 (1985), citing,
Roberson v. Lampton, Ky., 516 S.W.2d 838, 840 (1974).
The
circuit court must view the record “in a light most favorable to
the party opposing the motion for summary judgment and all
doubts are to be resolved in his favor.”
Steelvest, Inc. v.
Scansteel Service Center, Inc., Ky., 807 S.W.2d 476,
480(1991)(citations omitted).
On appeal, the standard of review
is “whether the trial court correctly found that there were no
genuine issues as to any material fact and that the moving party
-7-
was entitled to judgment as a matter of law.”
Scifres v. Kraft,
Ky.App., 916 S.W.2d 779, 781 (1996) citing CR1 56.03.
The parties do not dispute the facts of this case, and
they also agree that the letter of January 15 was a binding
agreement.
Therefore, our only determination must be whether
the circuit court erred in ruling that Hertrich and Arno were
entitled to judgment as a matter of law.
“[T]he construction of
a contract is a matter of law for the court to decide.”
Pearson ex rel. Trent v. National Feeding Systems, Inc., Ky., 90
S.W.3d 46, 49 (2002). “In the absence of ambiguity a written
instrument will be strictly enforced according to its terms.”
Mounts v. Roberts, Ky., 388 S.W.2d 117, 118 (1965).
Walnut Hall argues that the January 15 letter excepted
Hertrich and Arno from the terms of the Syndicate Agreement in
granting them the right to cancel their purchase of the
syndicate shares at any time prior to January 15, 2003.
Until
and if they exercised that option, however, they were bound in
all other respects by the terms of the Purchase Agreement -including Paragraph 11.
We agree.
Two common and fundamental rules of
construction of contracts are that words
shall be accorded their ordinarily used
meaning unless the context requires
otherwise and a contract shall be construed
more strongly against the party who prepared
it.
1
Kentucky Rules of Civil Procedure.
-8-
Bays v. Mahan, Ky.App., 362 S.W.2d 732, 733 (1962).
When given
their ordinary meaning and even construed more strongly against
Walnut Hall, the terms of the January 15 letter cannot be
interpreted to excuse Hertrich and Arno from their obligation to
procure insurance under the Purchase Agreement.
The January 15 letter unambiguously stated that “you
have the right to cancel your purchase of two shares in Western
Shooter and receive a full refund of . . . the first
installment.”
intended.
These words clearly signify that a purchase was
Accordingly, Hertrich and Arno made the first
installment payment of $20,000 as consideration in compliance
with the terms of the Purchase Agreement, executing both the
Purchase Agreement and the Syndicate Agreement.
Hertrich and Arno argue that the letter of January 15,
the Syndicate Agreement, and the Purchase Agreement together
form one single agreement.
They contend that under the terms of
the letter, they had purchased only a future right to buy the
syndicate shares.
Therefore, they believe they could not and
would not have been bound by the terms of the Purchase and
Syndicate Agreements unless their deadline for cancellation
(January 15, 2003) had passed without their having exercised
their right to cancel.
They claim that the first installment
payment of $20,000 did not indicate that a purchase had taken
-9-
place because they were guaranteed a refund if they chose to
cancel.
In summary, all the rights and obligations of the
parties -- including those described in Paragraph 11 -- were
contingent upon a decision to cancel up to January 15, 2003.
Hertrich and Arno rely on Shuttleworth v. Kentucky
Coal, Iron & Development Co., Ky., 60 S.W.534 (1901), in support
of their argument that the letter had the effect of suspending
the effectiveness of the contract until January 15, 2003.
In Shuttleworth, three individuals (Allen, Parmenter,
and a trustee, Patterson) held options to purchase land.
In one
document, Allen and Patterson transferred one-half of their
interest in the options to Myer and Harman.
In a second
document, executed simultaneously, the transfer was made
contingent on Patterson’s acceptance within the following six
months of Myer’s offer to build a railway on the land.
Harman
subsequently assigned his interest to Givens and Shuttleworth -without informing them of the terms of the second document.
Before the six months elapsed, Patterson sold the land on which
he owned the option to a New York corporation, advising Myer
that he had elected not to accept the railway offer.
Givens and
Shuttleworth sued to gain title and possession of the land,
arguing that their interest was not subject to Patterson’s
refusal of the railway offer.
-10-
The Court of Appeals held that the two documents
executed by Allen, Patterson, Myer, and Harman constituted one
agreement and that, therefore, the interest of Givens and
Shuttleworth in the land options was subject to the contingency
pertaining to the railway proposal as contained in the second
agreement.
Hertrich and Arno claim that there are two parallels
between Shuttleworth and the case before us.
First, they argue
that their agreement with Walnut Hall was contingent because
they had reserved the unconditional right to cancel the
agreement at any time.
We disagree.
In Shuttleworth, the
agreement was not to become effective unless Patterson accepted
the railway construction offer.
As the court observed in
Shuttleworth, Allen and Patterson
only had an option to purchase the land in
dispute within a prescribed time. No part
of the purchase money due the original
vendors had been paid . . . . the only
interest Harman and Myer ever had was a
contingent one, which, under the terms of
the contract, did not ripen into anything of
value.
Id. at 537.
(Emphasis added).
By contrast, Hertrich and Arno
had accepted an offer and consummated the purchase transaction
with no further action pending on their part to render it
effective.
They were bound by the terms of the executed
contract until such a time as cancellation occurred.
-11-
By virtue
of the consideration of the $20,000 down payment and the
execution of the Purchase and Syndicate Agreements, Hertrich and
Arno had purchased and were title holders of two shares in
Western Shooter.
They undeniably owned a present interest of
two shares in Western Shooter -- not merely an inchoate right in
the form of an option to acquire the shares in the future.
true option . . .
“A
transfers nothing but a mere right to acquire
an interest, not the ownership of nor any interest in the
property itself.”
Greater Louisville First Fed. Sav. and Loan
Assoc. v. Etzler, Ky. App., 659 S.W.2d 209, 211 (1983) quoting
77 AM.JUR.2d Vendor and Purchaser § 27 (1975).
Reservation of
the right to cancel a contract cannot be equated legally with
transforming an executed contract into an executory contingency
agreement.
The second arguable parallel to Shuttleworth involves
that court’s treatment of the two documents (the first transfer
followed by the second contingency agreement) as one contract,
subjecting the final transferees to the terms of the contingency
as to the railroad issue.
Hertrich and Arno argue by analogy
that the Syndicate Agreement and the Purchase Agreement should
be similarly construed as one document so that reference to the
Syndicate Agreement in the January 15 letter would automatically
implicate and incorporate the Purchase Agreement.
Therefore,
the letter’s language suspending their obligations under the
-12-
Syndicate Agreement until January 15, 2003, would also serve to
release them from any obligations under the Purchase Agreement.
They contend that any other interpretation (as urged by Walnut
Hall) erroneously renders the Syndicate Agreement and the
Purchase Agreement contradictory to one another.
An agreement may have distinguishable parts that
control distinct issues and that become effective at different
times without being internally inconsistent or contradictory.
We believe that the documents at issue were wholly separate,
addressing discrete aspects of the transaction and containing
separate sets of rights and obligations with respect to those
varying interests.
The Purchase Agreement governed the sale of
the shares; the Syndicate Agreement governed the management of
the syndicate.
The provision in the letter that the Syndicate
Agreement would be binding on Hertrich and Arno after January
15, 2003, is consistent with the fact that the syndicate was not
to begin its management operation until the horse had finished
racing –- even though the actual purchase of the shares occurred
a year in advance of his retirement.
Additionally, there is
absolutely no indication in the text of either agreement that
they were to be considered a single document so as to render one
synonymous with or dependent upon the other.
They dealt with
separate matters and were executed individually.
-13-
When Hertrich and Arno attempted on April 5, 2002, to
exercise their right to cancel their shares after Western
Shooter’s death, they did not absolve themselves of their
obligation to procure the mortality insurance.
That obligation
had already been incurred by them on February 8, 2002, when they
executed the Purchase Agreement.
Walnut Hall argues that in
failing to procure the mortality insurance, Hertrich and Arno
committed a material breach of the contract and that, therefore,
they are not entitled to enforce the refund provision.
We
agree.
No principle in the law of contracts is
better settled than that the breach of an
entire and indivisible contract in a
material particular excuses further
performance by the other party and precludes
an action for damages on the unexecuted part
of the contract.
O’Bryan v. Mengel Co., Ky. 6 S.W.2d 249, 251 (1928).
We vacate and remand for entry of a judgment
consistent with this opinion.
ALL CONCUR.
BRIEFS FOR APPELLANT:
BRIEF FOR APPELLEES:
Frank T. Becker
Christopher M. Parenti
Dinsmore & Shohl, LLP
Louisville, Kentucky
David A. Franklin
Jason Rapp
McCoy, West, Franklin & Beal
Lexington, Kentucky
-14-
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
