HINTON HARDWOODS, INC. VS. CUMBERLAND SCRAP PROCESSORS TRANSPORT, LLC , ET AL.Annotate this Case
RENDERED: DECEMBER 31, 2008; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
HINTON HARDWOODS, INC.
APPEAL FROM LOGAN CIRCUIT COURT
HONORABLE TYLER L. GILL, JUDGE
ACTION NO. 07-CI-00033
CUMBERLAND SCRAP PROCESSORS TRANSPORT, LLC
A/K/A CUMBERLAND SCRAP PROCESSORS, LLC
A/K/A CUMBERLAND RECYCLING GROUP, LLC;
RILEY-BURCHETT REALTY AND AUCTION, INC.;
JAMES MICHAEL RILEY; AND OMNISOURCE
** ** ** ** **
BEFORE: CLAYTON, LAMBERT, AND WINE, JUDGES.
CLAYTON, JUDGE: Hinton Hardwoods, Inc. (Hinton) appeals from the
judgment of the Logan Circuit Court, which granted summary judgment on
February 5, 2008, in favor of Cumberland Scrap Processors Transport, LLC
(Cumberland), James Michael Riley and Riley-Burchett Realty and Auction, Inc.
(Riley), and Omnisource Corporation (Omnisource) in an action for breach of
contract for the sale and purchase of commercial property in Logan County,
Kentucky. Before the transaction was completed it was discovered that there was
no recorded easement allowing permanent access over the railroad tracks which
traverse the property. Cumberland contends that the circumstances constitute a
defect in marketable title to the real estate and refused to purchase the property.
Hinton contends that no defect exists in the title and seeks to enforce the offer
against Cumberland. Furthermore, Hinton asserts that Riley wrongfully interfered
with a sale of real estate to Cumberland. For the reasons set forth herein, we
FACTUAL AND PROCEDURAL BACKGROUND
The case involves two separate sets of claims against two separate
parties. Both claims arise out of a contract for the purchase of a parcel of real
estate located in Logan County, Kentucky. The contract was between Hinton as
the seller and Cumberland as the buyer. Riley was the real estate agent
The events begin in the spring of 2006, when Mr. Carl Adkins
(Adkins), the general manager of Cumberland, met with Jody Lassiter (Lassiter) of
the Logan Economic Alliance for Development to inquire about available
industrial properties in Logan County. Lassiter informed Riley, a local realtor, of
Cumberland’s interest. After Adkins viewed four sites, he focused on two sites -2-
one was the Hinton property, and the other property was owned by Riley and Barry
Higgins (Riley/Higgins property). Ultimately, Cumberland decided that the Hinton
property was its primary choice.
After Cumberland’s decision, Adkins informed Riley, who was acting
as Hinton’s agent, that the Hinton property was its first choice. On July 17, 2006,
Cumberland offered, and Hinton accepted, a $10,000 non-refundable deposit on an
option to purchase wherein Hinton agreed not to market or sell the property to any
other party for 30 days.
On August 14, 2006, Cumberland delivered an Offer to Purchase Real
Estate to Riley as Hinton’s agent. The parties negotiated certain terms of the deal
and eventually agreed that the purchase price would be $565,000, Hinton would
provide a commitment for title insurance, and Cumberland could survey the
property. Riley contacted attorney J. Gran Clark (Clark) to prepare the real estate
transfer and transaction documents for the closing. Clark prepared the title
commitment and the proposed settlement statement. He found no title defects.
Clark also modified, per Riley’s instructions, the real estate commission from 6%
of the purchase price to 3%.
Meanwhile, after the completion of the survey, Grant Schultz
(Schultz), Cumberland’s Vice President of Business Development, contacted Clark
about an easement agreement with R.J. Corman (Corman) railroad and the Hinton
property. When the Cumberland officials reviewed the survey, they discovered
that the property does not extend to the highway (Lewisburg Road) but stops at the
boundary of the R. J. Corman Railroad right of way. Even though Hinton’s drive
crosses Corman’s tracks, the deed did not provide any recorded right of
ingress/egress over Corman’s property nor was such a recording ever located by
Thus, unable to find a guarantee to cross the railroad tracks,
Cumberland asked Hinton to deliver such a guarantee. Riley, as Hinton’s agent,
contacted Lassiter, who had a working relationship with the railroad, and Clark to
speak with the Corman representatives about obtaining a written crossing
agreement for Cumberland. Initially, Lassiter obtained a one-year crossing
agreement with Corman, which evolved into another offer for a ten-year
agreement. Corman’s representatives stated that this offer was a standard for the
industry, and one they gave to all parties. Cumberland rejected this offer.
Then, on October 18, 2006, Cumberland gave formal notice of its
objection to title and advised Hinton it did not intend to close on the property if it
did not have permanent access over the Corman property. Furthermore,
Cumberland gave Hinton twenty days to correct the problem or the offer to buy the
land would be withdrawn. Hinton was never able to negotiate a deal with the
railroad allowing permanent access onto the property. During the pendency of the
Hinton sale, the owners of that property dismantled the family lumber mill and
went out of business. Meanwhile, on October 26, 2006, during the aforementioned
twenty-day cure period, Schultz informed Adkins that Cumberland should make an
offer on the Riley/Higgins property.
Despite continuing to represent Hinton, Riley had a conversation with
Clark on October 11, 2006, indicating the original deal was in jeopardy because of
the rail crossing issue. Additionally, Riley told Clark that he thought Cumberland
was now interested in buying the property that Riley jointly owned with Higgins.
Riley asked Clark to prepare a deed transferring one-half ownership in the
Riley/Higgins property to Higgins and his wife. Clark informed Riley he would
not be comfortable preparing such a deed unless Riley informed the Hinton
owners, the Courseys, about the transfer. Subsequently, Riley informed the
Courseys, but did not tell them the purchase price. (Eventually, Higgins paid Riley
$150,000 for his half of the property.)
On November 3, 2006, the deed for Riley’s one-half interest in the
property was executed making Higgins the sole owner of the property. On that
same day, Clark sent a letter from Hinton to Cumberland stating that Hinton had
never implied that it owned the railroad property and that Cumberland would still
have access to a public road. Yet, Hinton, never stated that the access would be
permanent or that it was aware of the lack of permanent access over the railroad
tracks prior to the parties’ dealings. Surely, if it had known, it should and/or would
have given the information to Cumberland.
Finally, on December 5, 2006, Higgins sold his property to
Cumberland for $390,000. Moreover, because Riley received not only the
$150,000 for the property but also a $23,000 real estate commission for the deal,
Hinton states Riley made significantly more money from that deal than he would
have if the original agreement had been fulfilled. And Hinton says it sold off its
entire business, including all materials and equipment, in reliance on Cumberland’s
offer to purchase the property.
Hinton filed a complaint on January 30, 2007, alleging that
Cumberland breached a written contract to purchase property and claiming, with
regards to the same breach, causes for specific performance, promissory estoppel
and fraudulent misrepresentation. Moreover, the civil complaint asserted claims
against Riley for breach of contract, breach of fiduciary duty, and tortious
interference with a contractual relationship and/or prospective advantage. Finally,
in an amended complaint, Hinton set out its fraud claims against Cumberland with
more specificity and also added an additional defendant, Omnisource. Hinton
alleged a claim against Omnisource of tortious interference with the contractual
relationship between Cumberland and Hinton.
The trial court, on February 5, 2008, granted Cumberland and Riley’s
summary judgment motions against Hinton on all issues. Cumberland moved for
partial summary judgment arguing that the liquidated damages provision of the
contract limited Hinton’s damages to $26,250. Further, Riley moved for summary
judgment arguing that Hinton’s claims against him relied solely on the fact that he
profited financially from the transaction. Riley contended that this circumstantial
inference was too speculative to create a material issue of fact for a jury. But,
while the court found merit in both parties’ arguments, it determined that both
Hinton and Cumberland negotiated the real estate contract under a mutual mistake
of a basic and material fact. Each party assumed the property provided a perpetual
right of ingress and egress to a public road. Therefore, the court ruled equity
prevented enforcement of the agreement and ordered its rescission on grounds of
unconscionability. The court further found that the claims of tortious wrong doing
rendered moot by the lack of causation between the alleged wrongdoing and the
damages. Hinton’s appeal followed.
MOTION TO STRIKE
When Cumberland submitted its appellee brief, it included in its
Appendix C an extra-judicial document not in the record – the form for the
American Land Title Association (ALTA) owner’s policy of title insurance.
Hinton responded with a motion to strike the entire brief for failure to comply with
Kentucky Rules of Civil Procedure (CR) 76.12. Hinton’s motion was passed by
the motions panel of the Court for consideration of the merits by this panel. We
address this issue first.
CR 76.12(4)(c)(vii) governs the contents of a brief's appendix and
contains this prohibition: “Except for matters of which the appellate court may
take judicial notice, materials and documents not included in the record shall not
be introduced or used as exhibits in support of briefs.” CR 76.12(8)(a) permits, but
does not require, a brief to be stricken for failure to comply substantially with the
rule. We have previously ruled that an appellate court may elect not to consider a
portion of a brief as a penalty for failure to comply with CR 76.12. Pierson v.
Coffey, 706 S.W.2d 409, 413 (Ky. App. 1985). Likewise, in Baker v. Jones, 199
S.W.3d 749, 753 (Ky. App. 2006), the Court stated “[a]lthough the presentation of
extraneous material in briefs is improper, it is not always sufficiently egregious to
warrant the drastic relief urged by Baker.” In the case at hand, we elect not to
strike the entire brief, but to disregard that portion of the brief that relies on the
extra-judicial materials contained in the appendix. Thus, we will not consider
Appendix C to Cumberland’s brief or the argument based on it, which is found in
Cumberland’s brief in the third paragraph of Argument II.
STANDARD OF REVIEW
The standard of review on appeal when a trial court grants a motion
for 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 was entitled to
judgment as a matter of law.” Scifres v. Kraft, 916 S.W.2d 779, 781 (Ky. App.
1996); (CR) 56.03. “The trial court must view the evidence in the light most
favorable to the nonmoving party, and summary judgment should be granted only
if it appears impossible that the nonmoving party will be able to produce evidence
at trial warranting a judgment in his favor.” Lewis v. B & R Corporation., 56
S.W.3d 432, 436 (Ky. App. 2001), citing Steelvest, Inc. v. Scansteel Service
Center, Inc., 807 S.W.2d 476, 480-82 (Ky. 1991).
Additionally, “[t]he moving party bears the initial burden of showing
that no genuine issue of material fact exists, and then the burden shifts 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.’” Lewis, 56 S.W.3d
at 436, citing Steelvest, 807 S.W.2d at 482. “The trial court ‘must examine the
evidence, not to decide any issue of fact, but to discover if a real issue exists.’”
Steelvest, 807 S.W.2d at 480. The Kentucky Supreme Court has held that the word
“impossible,” as set forth in the standard for summary judgment, is meant to be
“used in a practical sense, not in an absolute sense.” Lewis, 56 S.W.3d at 436.
“Because summary judgment involves only legal questions and the existence of
any disputed material issues of fact, an appellate court need not defer to the trial
court's decision and will review the issue de novo.” Id. at 436.
Hinton alleges that Cumberland breached a written contract to
purchase its property and also asserts causes of action for specific performance,
promissory estoppel and fraudulent misrepresentation. Additionally, the complaint
asserts contract claims against Riley for breach of contract, breach of fiduciary
duty, and tortious interference with a contractual relationship and/or prospective
advantage. Later, Cumberland, in an amended complaint, added Omnisource as an
defendant claiming that Omnisource tortiously interfered with the contractual
relationship between Hinton and Cumberland. The trial court dismissed these
claims based on the doctrine of mutual mistake.
Kentucky law holds that when parties entered into a contract under a
mutual mistake, the contract is not enforceable. In Belknap v. Bank of Prospect,
259 Ky. 385, 82 S.W.2d 504, 505 (Ky. App. 1935), the Court noted that “[a]
mutual mistake is one in which both parties participate by each laboring under the
same misconception.” quoting Reiss v. Wintersmith, 241 Ky. 470, 44 S.W.2d 609,
613 (Ky. App. 1931). Then, the Court cited the following language:
A written instrument may be canceled on the ground of
mistake, where it is shown there was no meeting of the
minds of the parties, if the application to cancel it is
timely made, and a mistake on one side may be grounds
for rescinding it, but is no grounds for reforming the
Bell v. Carroll, 212 Ky. 231, 278 S.W. 541 (Ky. App. 1925); Fidelity and Casualty
Co. of New York v. Waugh, 222 Ky. 198, 300 S.W. 592 (Ky. App. 1927); Reiss v.
Wintersmith, supra; Bullock v. Young, 252 Ky. 640, 67 S.W.2d 941, 946 (Ky. App.
1933). Furthermore, the Court in McGeorge v. White, 295 Ky. 367, 174 S.W.2d
532, 533-34 (Ky. App. 1943) explained the mutual mistake doctrine as follows:
To consummate a binding contract for the sale of
land, as in the case of other contracts, there must be a
meeting of the minds of the parties or mutual assent to
the same thing, and all material terms and conditions of
the contract, including a certainty of the subject matter,
must be agreed on. . . . Subject to some qualifications
not applicable here, equity will afford relief by rescission
to either party if there was a mutual mistake, based upon
ignorance or misapprehension, as to a material thing
connected with the subject matter or essential in the
inducement to or formation of the contract or involving
the entire consideration.
Here, Cumberland was purchasing property for the purposes of
conducting an industrial business. Unrestricted access to a public thoroughfare is
vital for an industrial property. It is uncontested that the only public access to the
Hinton property requires crossing the Corman railroad tracks. Absent a legal right
to cross, the property is landlocked.
To date, Corman has only offered a ten-year easement to cross the
railroad and maintains it controls the railroad crossing. Even though for many
decades, Hinton and its predecessors used the railroad crossing to enter the
property without resistance, once the right of access was raised, Corman declared it
has the right to deny access to the property. In sum, neither party, Hinton nor
Cumberland, was aware of the ownership of the real estate beneath the R.J.
Corman railroad tracks. Both parties assumed, based on the Hinton’s use of the
property, that permanent access was available. Indeed, Hinton does not claim that
Cumberland was aware when it offered to purchase the property that there was no
guaranteed right of public access to the property. Hinton only says that the tracks
were visible and it always had access. Thus, both parties were mistaken as to
egress onto the Hinton property. And hence, we ascertain that it is unconscionable
to enforce Cumberland’s agreement to purchase the property without providing
permanent access. Without Corman’s permission to cross the railroad tracks, the
Hinton property is landlocked, rendering the property useless to Cumberland.
Corman’s position creates a real and substantial legal issue.
Hinton’s argument that Cumberland should be held to its bargain
because it drafted the agreement and did not specify legally enforceable access to
the property as a condition to the agreement is specious. First both parties assumed
that access was available. Second, when the parties entered into the agreement to
purchase the property, Hinton gave Cumberland the opportunity to further
investigate the property by a title examination and a survey. And finally, the
contract was contingent on Hinton providing “marketable title.” Marketable title is
discussed in Williston On Contracts as follows:
The meaning generally given to the expressions
"marketable" or "merchantable," when used in
connection with title to real property, is that even a title
which the court believes good may be rejected if a
reasonable person might seriously doubt its validity.
"Merchantable title" or "marketable title" is that title
which a reasonable, prudent person would accept in the
ordinary course of business, after being fully apprised of
the facts and the applicable law.
Stated otherwise, a merchantable or marketable
title is that title which enables the record owner not only
to hold the land, but to hold it in peace and, if he or she
wishes to sell the land, to be reasonably sure that no flaw
or doubt will arise to disturb its market value.
17 Williston on Contracts § 50:10 (4th ed.)
Although Hinton’s attorney was able to issue a commitment for
title insurance, this commitment did not resolve the issue. The contract itself
in paragraph 11(c) requires Hinton to issue an owner’s policy free from all
exceptions except for real property taxes not yet due and those waived by the
buyer. The title commitment prepared by Clark, on the other hand,
contained the following exception:
1. Unrecorded easements, discrepancies or conflicts in
boundary lines, shortage in area and encroachments
which an accurate and complete survey would disclose.
Commitment for Title Insurance, Schedule B, Section 2. (Depo., Clark, Exhibit 4).
Hence, we determine that this mutual mistake inhibited a “meeting of
the minds” necessary for the formation of binding contract. Because the title is not
marketable as anticipated, the trial court’s ruling that the contract should be
rescinded was appropriate. Thus, the court was correct in granting the summary
judgment motion in favor of Cumberland as to the contract breach and specific
performance. Consequently, Hinton’s claims of tortious wrongdoing and resulting
damages must also fail because the rescinded contract eliminates the causation
between the act and the damages. Cumberland and Omnisource did nothing wrong
by not consummating the contract.
BREACH OF FIDUCIARY DUTY
Finally, while the contract issues as related to Riley are resolved by
the rescission of the contract, a question remains as to whether the grant of
summary judgment was appropriate on the issue of Riley’s purported breach of
fiduciary duty. The trial court justified its grant of summary judgment by stating
that Hinton’s claim relied solely on Riley’s financial profit from the resultant land
transaction. The court found that this circumstantial inference was too speculative
to create a material issue of fact to submit to the jury.
Kentucky law describes fiduciary duty as “one founded on trust or
confidence reposed by one person in the integrity and fidelity of another and which
also necessarily involves an undertaking in which a duty is created in one person to
act primarily for another's benefit in matters connected with such undertaking.”
Steelvest, 807 S.W.2d at 485. In order to prevail on a claim for breach of fiduciary
duty, Hinton must establish that (1) Riley owes a fiduciary duty to it; (2) Riley
breached that duty; and (3) Hinton suffered damages as a result of the breach.
Sparks v. Re/Max Allstar Realty, Inc., 55 S.W.3d 343, 348 n. 15 (Ky. App. 2000).
Notwithstanding the requirements for fiduciary duty, with reference to
the relationship between a real estate broker and a principle, the law is clear that
contractual relations impose an obligation of mutual good faith and fair dealing.
Odem Realty Co. v. Dyer, 242 Ky. 58, 45 S.W.2d 838 (Ky. App. 1932). This duty
is imposed by law, not by the terms of the contract. As a rule, the duty of good
faith and fair dealing merely requires the parties to “deal fairly” with one another.
Although Hinton did not address the nature of the relationship between a realtor
and a principal or provide a contract elucidating Riley’s duties in the transaction,
Kentucky law seems to indicate that this relationship does not rise to the level
required for a fiduciary.
Nonetheless, to maintain a claim for breach of fiduciary duty, Hinton
must show that Riley owed him a duty, breached it, and caused Hinton damages.
First, as to the issue of duty, Hinton provided no evidence that Riley did anything
to cause it to lose its sale. It merely notes his profit from the sale of the other
property. This fact alone does not establish wrongdoing. In fact, no evidence was
provided that Cumberland withdrew from its contract because of any action by
Riley. The record clearly demonstrates that Cumberland decided not to buy the
Hinton property based on dissatisfaction over access to the property. Inferring
wrongdoing on the Riley’s part because he received a profit and a real estate
commission on the sale of the Higgins’ property is only speculative. Riley aptly
noted that, other than this inference, Hinton produce nothing to support its claim.
Kentucky Supreme Court has held that, if the evidence presented allows only for
supposition and speculation, then the question should not be presented to the jury.
Chesapeake & O. Ry. Co. v. Yates, 239 S.W.2d 953, 955 (Ky. 1951). Therefore,
summary judgment was appropriate on Hinton’s breach of fiduciary duty claim.
For the foregoing reasons, we affirm the trial court’s grant of
summary judgment to the appellees.
BRIEFS AND ORAL ARGUMENT
Matthew J. Baker
Bowling Green, Kentucky
BRIEF FOR APPELLEES, RILEYBURCHETT REALTY AND
AUCTION, INC. AND JAMES
Robert C. Chaudoin
Bowling Green, Kentucky
ORAL ARUGMENT FOR
REALTY AND AUCTION, INC.
AND JAMES MICHAEL RILEY:
Robert C. Chaurdoin
Bowling Green, Kentucky
Jesse L. Riley, Jr.
BRIEF FOR APPELLEES,
PROCESSORS TRANSPORT, LLC
Charles E. English, Jr.
David W. Anderson
Bowling Green, Kentucky
ORAL ARGUMENT FOR
TRANSPORT, LLC AND
Charles E. English, Jr.
Bowling Green, Kentucky