NORTHERN STAR, INC.; AND RALPH NORFLEET v. UNION PLANTERS BANK, NATIONAL KIRBY CORDELL; KIMBERLY CORDELL; COMMONWEALTH OF KENTUCKY, REVENUE CABINET; COMMONWEALTH OF KENTUCKY, COUNTY OF MCCREARY; DAVID PERRY, A/K/A DAVID W. PERRY; CARMAN PERRY; AND PC LAND, LLC
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RENDERED:
DECEMBER 9, 2005; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth Of Kentucky
Court of Appeals
NO. 2004-CA-001561-MR
NORTHERN STAR, INC.; AND
RALPH NORFLEET
v.
APPELLANTS
APPEAL FROM McCREARY CIRCUIT COURT
HONORABLE PAUL E. BRADEN, JUDGE
ACTION NO. 02-CI-00401
UNION PLANTERS BANK, NATIONAL
ASSOCIATION; K.C. ENTERPRISES, INC.;
KIRBY CORDELL; KIMBERLY CORDELL;
COMMONWEALTH OF KENTUCKY, REVENUE
CABINET; COMMONWEALTH OF KENTUCKY,
COUNTY OF MCCREARY; DAVID PERRY, A/K/A
DAVID W. PERRY; CARMAN PERRY; AND
PC LAND, LLC
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
GUIDUGLI AND HENRY, JUDGES; POTTER, SENIOR JUDGE. 1
GUIDUGLI, JUDGE:
Northern Star, Inc. and Ralph Norfleet appeal
from an order of the McCreary Circuit Court vacating the sale of
a parcel of commercial property and directing the forfeiture of
a $70,000 deposit.
1
The circuit court found that Northern Star
Senior Judge John W. Potter, sitting as Special Judge by assignment of the
Chief Justice pursuant to Section 110(5)(b) of the Kentucky Constitution and
KRS 21.580.
and Norfleet breached a purchase agreement on the parcel,
entitling Union Planters Bank to damages in the amount of the
deposit.
Northern Star and Norfleet contend that they are
entitled to the return of the entire deposit or, alternatively,
the entire deposit minus the costs of a resale.
For the reasons
stated below, we affirm the order on appeal.
K.C. Enterprises, Inc., Kirby Cordell and Kim Cordell
were defaulting mortgagors on a parcel of commercial real
property located in McCreary County, Kentucky.
The mortgagee,
Union Planters Bank, instituted a foreclosure action against the
mortgagors in McCreary Circuit Court.
On February 25, 2003, the
bank obtained a summary judgment and order of sale directing the
parcel to be sold.
On March 29, 2003, the property was sold to Northern
Star, Inc., and Ralph Norfleet.
Under the terms of the purchase
contract, Northern Star and Norfleet were to pay a $70,000
deposit representing 10% of the purchase price, with the balance
of $630,000 due within 60 days.
Norfleet executed a bond as
surety in the amount of $630,000.
Sometime thereafter, Northern Star and Norfleet
learned that the Commonwealth and the United States had placed
tax liens on the parcel.
The liens were filed prior to the
foreclosure.
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Before the sale was confirmed, on April 25, 2003,
Northern Star and Norfleet filed a motion to set aside the sale.
As a basis for the motion, they alleged that undisclosed fuel
tanks were situated on the property; that an inspection revealed
cracks and other potential problems in the building; that a
severe drainage problem was discovered; and, that a new highway
right-of-way would result in additional costs.
Northern Star
and Norfleet sought to terminate the sale and requested the
return of the deposit.
In the alternative, they requested the
resolution of the aforementioned problems.
After a series of agreed orders were entered, on
November 25, 2003, the circuit court entered an order overruling
the objections of Northern Star and Norfleet and confirming the
sale in all respects.
On December 4, 2003, Northern Star and
Norfleet filed a motion to alter, amend or vacate the November
25, 2003, order confirming the sale.
Two weeks later, on
December 19, 2003, they moved to withdraw the motion to alter,
amend or vacate the sale.
Northern Star and Norfleet failed to pay the $630,000
balance on the purchase price, and on March 24, 2004, Union
Planters Bank filed a motion for an order vacating the order
confirming the sale, directing the forfeiture and distribution
of the deposit, and directing the resale of the parcel.
Northern Star and Norfleet responded that they objected to the
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order forfeiting the deposit, but not to that part of the order
vacating the sale.
On May 25, 2004, the circuit court rendered an order
vacating the sale and directing the forfeiture of the deposit.
The parcel was ordered resold to satisfy the bank’s claim to
recover on the defaulted note of K.C. Enterprises and the
Cordells.
On June 3, 2004, Northern Star and Norfleet moved to
vacate the May 25, 2004 order.
The motion was denied.
Thereafter, the parcel was resold on July 31, 2004 to Union
Planters Bank for $402,000.
Northern Star and Norfleet now
appeal the order that directed the forfeiture of the $70,000
deposit.
Northern Star and Norfleet first argue that the trial
court erred in directing the entire $70,000 deposit to be
forfeited to Union Planters Bank.
They maintain that under KRS
451.170(2) the court did not have the authority to order the
entire sum forfeited.
Rather, they contend that equity requires
the trial court to return to them the entire deposit.
In the
alternative, they argue that the circuit court should have
returned the entire deposit minus only the costs of the resale
after offsetting the amounts for the title defects, damages, and
costs.
In sum, they seek an order reversing the order on appeal
and directing the circuit court to refund the deposit in whole
or in part.
-4-
KRS 451.170(2), upon which Northern Star and Norfleet
rely, states that,
The court may by rule require purchasers at
judicial sales to deposit with the officers
making the sale, at the time of sale, a
specified sum of money, sufficient to cover
the expense of a resale. If the deposit is
not made at that time, the officer shall at
once resell the property.
We are not persuaded by Northern Star and Norfleet’s
contention that this statutory language bars the circuit court
from requiring a deposit in excess of the anticipated expense of
resale, nor that it prohibits the court from ordering that the
deposit be forfeited in the event of the buyers’ nonperformance.
Rather, KRS 451.170(2) merely states that the
court may require a deposit sufficient to cover the expense of
resale.
It does not address whether the court may require a
larger deposit, nor whether the deposit may be forfeited for
non-performance of the purchase agreement.
A deposit is “[M]oney placed with a person as earnest
money or security for the performance of a contract. The money
will be forfeited if the depositor fails to perform.” 2
This
general principle applies specifically in the context of real
estate purchase contracts.
“The ordinary . . . real estate
contract . . . generally provides that in the event the buyer
fails to perform the contract, the seller may retain the down
2
Black's Law Dictionary (8th ed. 2004).
-5-
payment (usually no more than ten per cent of the contract
price) as liquidated damages.” 3
Furthermore, the Kentucky
Supreme Court has held that a party to a real estate sales
contract who advanced money in part performance and then failed
to make further payments was not entitled to recover any of the
money so advanced. 4
The trial court is presumptively correct in its
rulings, and the burden rests with Northern Star and Norfleet to
overcome this strong presumption. 5
have not met that burden.
Northern Star and Norfleet
One may reasonably ask what Northern
Star and Norfleet believed their deposit to represent, if not
surety of their future performance.
Given that the trial court
has discretion in establishing the terms of a judicial sale (so
long as those terms comport with KRS Chapter 451), and because
Northern Star and Norfleet accepted those terms and subsequently
failed to perform by paying the $630,000 balance, we have no
basis for tampering with the order on appeal on this issue.
For the same reasons, we are not persuaded by the
argument of Northern Star and Norfleet that equity requires the
return of the deposit, nor that in the alternative they are
3
Sebastian v. Floyd, 585 S.W.2d 381 (Ky. 1979).
4
Id. at 384, citing Miles v. Proffitt, 266 S.W.2d 333 (Ky. 1954). Miles
referred to an installment land sales contract, but Sebastian notes that the
modern trend is to regard such contracts as analogous to conventional
mortgages.
5
City of Louisville v. Allen, 385 S.W.2d 179 (Ky. 1964).
-6-
entitled to a partial refund of the deposit.
Again, a legal
basis exists both for the requirement that a deposit be paid,
and that it be forfeited for non-performance of the purchase
agreement.
Nothing in the record or the law indicates that the
trial court abused this discretion.
As such, these issues do
not justify reversing the order on appeal.
For the foregoing reasons, we affirm the order of the
McCreary Circuit Court.
ALL CONCUR.
BRIEFS FOR APPELLANTS:
BRIEF FOR APPELLEE:
Frank A. Atkins
Williamsburg, KY
James T. Hodge
John P. Brice
Lexington, KY
John T. Pruitt, Jr.
Somerset, KY
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