KEN LAWSON AND PATRICIA LAWSON v. FRANK A. MENEFEE AND JOYCE A. MENEFEE
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RENDERED:
APRIL 9, 2004; 2:00 p.m.
TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2003-CA-001070-MR
KEN LAWSON AND PATRICIA LAWSON
APPELLANTS
APPEAL FROM CAMPBELL CIRCUIT COURT
HONORABLE WILLIAM J. WEHR, JUDGE
ACTION NO. 01-CI-01592
v.
FRANK A. MENEFEE AND JOYCE A. MENEFEE
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
JOHNSON, TAYLOR AND VANMETER, JUDGES.
JOHNSON, JUDGE:
Ken Lawson and Patricia Lawson have appealed
from an order of the Campbell Circuit Court entered on April 22,
2003, which granted summary judgment to Frank A. Menefee and
Joyce A. Menefee due to the lack of damages in this action
involving the breach of a contract for the purchase of real
property.
Having concluded that there was no genuine issue as
to any material fact and that the Menefees were entitled to
judgment as a matter of law since the Lawsons did not show that
they suffered damages recoverable for a breach of the real
estate contract, we affirm.
On October 21, 2001, the Menefees executed a written
contract to purchase residential real estate from the Lawsons
for $265,000.00.
The purchase contract contained the typical
provisions making the sale contingent on inspection of the
residence, repair of defects, and the buyers’ obtaining
financing.
It also provided for closing on or before November
30, 2001.
On October 28, 2001, the parties executed an addendum
listing various repairs that the parties agreed would be made
pursuant to the inspection and repair provisions of the purchase
contract.
On November 6, 2001, the Menefees sent a letter to
the Lawsons stating that they were invoking their right to
cancel the purchase contract under the contingency provisions
dealing with repairs to the property.
On November 12, 2001, the
Lawsons notified the Menefees that the agreed upon repairs had
been completed and were ready for a follow-up inspection, but
the Menefees refused to participate in the new inspection.
On
November 13, 2001, the Menefees told the Lawsons by letter that
they would not attend a closing or negotiate a sale any further.
On November 17, 2001, the Menefees sent a letter to the
Lawsons’s attorney requesting a release from the purchase
contract.
In March 2002 the Lawsons sold the property to a
third party for $274,000.00, or $9,000.00 more than the purchase
price under the contract with the Menefees.
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On December 14, 2001, the Lawsons filed a complaint
for breach of contract and fraud against the Menefees.
On March
5, 2002, the Lawsons filed a motion for summary judgment
pursuant to CR1 56 on the question of liability for breach of
contract.
The Menefees filed a response asserting that factual
issues existed on whether they complied with the contract
provisions by exercising their right to cancel the contract due
to the Lawsons’s failure to give reasonable assurances that all
the repairs to the house would be completed within the required
time frame.
On April 11, 2002, the trial court denied the
Lawsons’s motion for summary judgment.
The Lawsons filed a
motion for reconsideration of the denial, which the trial court
likewise denied.
On July 29, 2002, the Lawsons filed a motion in limine
requesting a ruling on whether the Menefees were entitled to an
offset or credit against any damages for the amount of the sale
price the Lawsons received from the third-party buyer that
exceeded the contract price between the parties.
The Lawsons
asserted that the consequential damages related to the breach
should not be offset by any gain they achieved in reselling the
property.
After a brief hearing, the trial court ruled that the
Menefees were entitled to an offset or credit for any gain over
1
Kentucky Rules of Civil Procedure.
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the contract price the Lawsons had received in reselling the
property.
On March 10, 2003, the Menefees filed a motion for
summary judgment which asserted that even if they had breached
the contract, the Lawsons had failed to establish any damages.
The Menefees stated that the Lawsons had suffered no actual
damages since the amount of compensatory damages identified by
the Lawsons was less than $9,000.00, i.e., the amount the
Lawsons had received for the sale of the property which was in
excess of the contract price with the Menefees.
The Menefees
also stated that while the Lawsons alleged fraud with respect to
their cancellation of the contract, they could not recover
punitive damages as a matter of law for breach of contract.2
In
their response, the Lawsons objected to the trial court’s
earlier ruling permitting a setoff of the consequential damages
against the excess sale price they had received, and disputed
whether they had a right to collect punitive damages.
On April 22, 2003, the trial court granted the
Menefees’s motion for summary judgment based on the lack of
damages after applying the offset or credit for the excess
amount of $9,000.00.
The court also ruled that the Lawsons
could not recover punitive damages since any alleged fraud
2
See Kentucky Revised Statutes (KRS) 411.184(4).
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occurred after the cancellation or breach of the contract.
This
appeal followed.
The Lawsons claim the trial court erred by granting
summary judgment to the Menefees.
The standard of review on
appeal when a trial court grants a motion for summary judgment
is whether the trial court correctly found there was no genuine
issue as to any material fact and that the moving party was
entitled to judgment as a matter of law.3
The movant bears the
initial burden of convincing the court by evidence of record
that no genuine issue of fact is in dispute, which then shifts
the burden to the party opposing summary judgment to present “at
least some affirmative evidence showing that there is a genuine
issue of material fact for trial.”4
The court must view the
record in a light most favorable to the non-movant and resolve
all doubts in his favor.5
Summary judgment is not considered a
substitute for a trial, so the trial court must review the
evidentiary record not to decide any issue of fact, but to
3
Palmer v. International Association of Machinists & Aerospace Workers, AFLCIO, Ky., 882 S.W.2d 117, 120 (1994); Stewart v. University of Louisville,
Ky.App., 65 S.W.3d 536, 540 (2001); CR 56.03.
4
Steelvest, Inc. v. Scansteel Service Center, Inc., Ky., 807 S.W.2d 476, 482
(1991). See also City of Florence, Kentucky v. Chipman, Ky., 38 S.W.3d 387,
390 (2001); and Lucchese v. Sparks-Malone, P.L.L.C., Ky.App., 44 S.W.3d 816,
817 (2001).
5
Commonwealth v. Whitworth, Ky., 74 S.W.3d 695, 698 (2002); Lipsteuer v. CSX
Transportation, Inc., Ky., 37 S.W.3d 732, 736 (2000); Commonwealth, Natural
Resources & Environmental Protection Cabinet v. Neace, Ky., 14 S.W.3d 15, 19
(2000).
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determine if any real factual issue exists and whether the nonmovant cannot prevail under any circumstances.6
An appellate
court need not defer to the trial court’s decision on summary
judgment and will review the issue de novo since factual
findings are not at issue.7
In the case sub judice, the trial court’s decision was
predicated on the belief that the excess amount received by the
Lawsons on the sale of the property was greater than the amount
of consequential damages sought by the Lawsons.
The Lawsons
have not disputed this fact on appeal, but rather challenge only
the legal issue of whether the court properly allowed the excess
amount to be set off or credited against the compensatory
damages.8
Since only legal issues are involved, summary judgment
was available and we will review the trial court’s legal ruling
de novo.
6
Steelvest, 807 S.W.2d at 480; Barnette v. Hospital of Louisa, Inc., Ky.App.,
64 S.W.3d 828, 829 (2002).
7
See Lewis v. B & R Corp., Ky.App., 56 S.W.3d 432, 436 (2001); Barnette,
supra at 829.
8
The record indicates that the Lawsons identified consequential damages
consisting of $7,411.43 for interest payments on a first and second mortgage
between the date for closing on the purchase contract with the Menefees
(November 2001) and the closing date on the sale of the property to the third
party (March 2002), and $2,087.00 for the second inspection and repairs made
to the property. In their summary judgment motion, the Menefees argued the
amount for repairs and the inspection costs could not be recovered since they
would have been incurred regardless of any breach. Despite the absence of an
explicit ruling on this question, the Lawsons have not challenged the fact
that the excess amount they received on the sale of the property exceeded
their claim for consequential damages. Consequently, there is no genuine
issue of material fact in dispute. The Lawsons also have not challenged the
trial court’s decision that they are not entitled to punitive damages.
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The Lawsons contend that while there are no Kentucky
cases directly on point, Kentucky case law and public policy
considerations militate against allowing any gain in the resale
of real property to be credited or offset against consequential
damages.
Kentucky has basically adopted the majority rule
regarding damages for the breach or recision of a real estate
contract.
In Furlow v. Sturgeon,9 the seller sold the property
to a third party for the exact same amount as the contract price
after the initial purchaser repudiated and defaulted on the
contract due to an encumbrance on the title.
After finding the
breach illegal, the Court stated, “the usual measure of damages
for a breach by the vendee of a contract for the sale of land is
the difference between the contract price and the actual value
of the land on the date of the breach, if the actual value is
less than the contract price” [emphasis added].10
The Court
further held that the seller may recover as compensatory
damages, “such sum in damages [that] . . . arose naturally from
the breach of the rights which that contract was contemplated to
assure.”11
9
10
Ky., 436 S.W.2d 485 (1968).
Id. at 487.
11
Id. The Court indicated that consequential damages could include lost
rentals.
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In Evergreen Land Co. v. Gatti,12 following repudiation
of and default on the contract by the initial purchaser due to a
discrepancy in the description of the zoning status of the
property, the seller sold the disputed property at a foreclosure
sale for $44,000.00 less than the contract price and it incurred
an additional $3,000.00 in costs associated with the sale.
The
Court cited Furlow in restating that the measure of damages “is
the difference between the contract price and the actual or
market value at the time of the breach, provided actual value is
less than the contract price, and plus any actual and related
costs” [emphasis original].13
However, the Court held that the
amount received from a subsequent sale of real property
following repudiation is merely evidence of the actual value at
the time of the breach and the relevancy of that evidence would
depend on whether the sale occurred under conditions comparable
to those of the original contract and within a reasonable time
after the breach.14
The Court further stated that “[t]he object
of compensatory damages is to place the injured party in the
same condition, so far as money can do so, in which he would
have been if the contract had been duly performed.
The injured
party is entitled to all such damages as arise naturally from
12
Ky.App., 554 S.W.2d 862 (1977).
13
Id. at 866.
14
Id.
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the breach of the rights which the contract was contemplated to
assure.”15
The Lawsons’s position focuses on the language in
Furlow and Evergreen Land Co. which defined the measure of
damages as the difference between the contract price and the
actual value of the land on the date of the breach if the actual
value is less than the contract price.
They argue this language
suggests that any profit or gain upon resale should not be
included in determining damages.
We believe the correct
interpretation of this language is merely a restatement of the
traditional rule of damages for breach of a contract based on
the loss to the seller of the benefit of the bargain determined
by comparing the contract price and actual value on the date of
the breach.
The loss of the bargain consists of any deficiency
in the actual value compared to the contract price.16
Conversely, if the actual value exceeds the contract price,
there is no loss of the bargain caused by the breach.17
Furthermore, the Court in Evergreen Land Co. held that damages
are not limited to a restrictive calculation based on the
contract price and actual value by allowing the seller to
15
Id.
See also 77 Am.Jur.2d Vendor & Purchaser §§ 575 and 579 (1997).
16
See also Hickey v. Griggs, 738 P.2d 899, 902 (N.M. 1987) (discussing
benefit of bargain rule with breach of real estate contract as difference in
contract price and market value at time of breach).
17
See, e.g., Spurgeon v. Drumheller, 174 Cal.App.3d 659, 664 (1985) (stating
if the vendor resells the property at a price higher than the value of the
contract, there are no longer any loss of bargain damages).
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recover consequential damages despite the absence of any
difference between the contract price and actual value at the
time of the breach.
The holding in Evergreen Land Co. that both
consequential damages and the difference in the contract price
and actual value should be considered in measuring damages for
breach of a real estate contract supports an approach contrary
to that proposed by the Lawsons.18
Indeed, other cases have recognized that recovery of
consequential damages may be offset or credited against any
profit realized on the resale of the property following a
In Smith v. Mady,19 the Madys agreed to purchase the
breach.
Smiths’s residence for $205,000.00, but they defaulted on the
contract.
A few days later, the Smiths resold their property
for $215,000.00.
Upon suit by the Smiths, the trial court
awarded them consequential damages of $2,648.3420 and refused to
offset these damages against the increased resale proceeds.
As
in Kentucky, under California law, a seller may recover damages
consisting of the loss between the contract price and the actual
value at the time of the breach plus consequential damages.
18
The
See also Davis v. Lacy, 121 F.Supp. 246 (E.D.Ky. 1954) (allowing both loss
on resale plus costs of resale); and McBrayer v. Cohen, 92 Ky. 479, 18 S.W.
123 (1892).
19
146 Cal.App.3d 129 (1983).
20
These damages included costs of insurance, gardening, property taxes,
utilities, and mortgage interest between the time of the default and
subsequent sale.
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California appellate court reversed the trial court based on the
general rule that the vendor of real property should not be
placed in a better position by the buyer’s default.21
The Court
stated that there was no reason to deprive the defaulting
purchaser of the benefit of a higher price on resale while
requiring the purchaser to pay the costs to the seller of
continued ownership following the breach.
The Court held that
where the resale occurs within a relatively short time
sufficient to conclude that the resale price reasonably
reflected the actual value of the property at the time of the
breach, the consequential damages should be offset by the higher
resale price.22
In addition, we note that the drafters of the Uniform
Land Transactions Act advocate a unified calculation calling for
the accounting of consequential expenses and gains upon the
resale of property for breach of a real estate contract similar
to the approach taken with personal property under the Uniform
Commercial Code.23
Uniform Land Transactions Act § 2-504(a)
states:
If a buyer wrongfully rejects, otherwise
commits a material breach, or repudiates as
to a substantial part of the contract
21
Id. at 133.
22
See also Bond v. Broadway, 607 So.2d 865 (La.App. 1992); and Askari v. R &
R Land Co., 179 Cal.App.3d 1101 (1986).
23
See U.C.C. § 2-706.
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(Section 2-502(a)), the seller may resell
the real estate in the manner provided in
this section and recover any amount by which
the unpaid contract price and any incidental
and consequential damages (Section 2-507)
exceeds the resale price, less expenses
avoided because of the buyer’s breach.
The Lawsons assert that public policy reasons disfavor
allowing a defaulting purchaser to offset the consequential
damages against the higher resale price.
The Lawsons contend
the Menefees were the wrongdoers and should not be permitted to
benefit from their diligence and good fortune in locating a
third-party buyer who paid a higher price for the property.
This argument, however, conflicts with the general principles
underlying damages for breach of contract reflected in the lossof-the-bargain rule.
To allow the Lawsons to retain the entire
gain on the resale of the property, and to recover the
consequential damages, would represent a windfall to them and
would not place them in the same position as if the contract had
not been breached.
Although Mady and the Uniform Land Transactions Act
are not binding on this Court, we believe they are consistent
with the law of Kentucky and represent the proper approach in
the situation involved in this case.
As a result, we hold that
the trial court did not err in granting summary judgment to the
Menefees based on a lack of damages since the amount received by
the Lawsons upon resale of the property in excess of the price
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of the contract with the Menefees was greater than the amount of
the consequential damages recoverable by the Lawsons.
For the foregoing reasons, the judgment of the
Campbell Circuit Court is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Ed W. Tranter
Ft. Thomas, Kentucky
Donna K. McNew
Newport, Kentucky
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