CADLEWAY PROPERTIES, INC. VS. BAYVIEW LOAN SERVICING, LLC. , ET AL.
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RENDERED: SEPTEMBER 24, 2010; 10:00 A.M.
TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2009-CA-001428-MR
CADLEWAY PROPERTIES, INC.
v.
APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE CHARLES L. CUNNINGHAM, JR., JUDGE
ACTION NO. 05-CI-010823
BAYVIEW LOAN SERVICING, LLC;
DEHONEY TRAVEL, INC.; AND
KB BUILDING, LLC
APPELLEES
OPINION
REVERSING AND REMANDING
** ** ** ** **
BEFORE: COMBS, KELLER, AND LAMBERT, JUDGES.
KELLER, JUDGE: Cadleway Properties, Inc. (Cadleway) appeals from the
Jefferson Circuit Court’s entry of summary judgment in favor of Bayview Loan
Servicing, LLC (Bayview). This dispute arises from the interpretation of a
subordination agreement (the Subordination Agreement) and whether it gives
Cadleway’s mortgage priority over a mortgage held by Bayview. The trial court
concluded that Bayview’s mortgage was superior to Cadleway’s mortgage. For the
reasons set forth below, we reverse and remand.
FACTUAL AND PROCEDURAL BACKGROUND
The relevant facts are not disputed. On June 15, 2002, KB Building,
LLC (KB Building) entered into a promissory note with Fifth Third Bank of
Kentucky, Inc. (Fifth Third) in the amount of $246,027.55 (the First Note), which
was secured by a mortgage (the First Mortgage). The First Mortgage encumbered
property located at 1026 S. 3rd Street, Louisville, KY 40203 (the Third Street
property), and was recorded on July 22, 2002, in Mortgage Book 6854, Page 471
in the office of the Jefferson County Clerk.
On March 24, 2004, KB Building entered into a second note with
Fifth Third in the amount of $570,000 (the Second Note), which was secured by a
second mortgage (the Second Mortgage). The Second Mortgage also encumbered
the Third Street property and was recorded on April 7, 2004, in Mortgage Book
8587, Page 568, in the office of the Jefferson County Clerk.
On September 28, 2004, KB Building entered into a promissory note
with InterBay Funding, LLC (InterBay) in the amount of $682,500 (the Third
Note), which was secured by a mortgage on the Third Street property (the Third
Mortgage). Also, on September 28, 2004, KB Building executed an Assignment of
Leases and Rents (the Assignment) whereby it assigned its rights to leases and
rents from the Third Street Property secured by the Third Mortgage to InterBay. In
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connection with this transaction, Fifth Third and InterBay entered into the
Subordination Agreement, which is dated September 17, 2004.
The Third Mortgage, Assignment, and Subordination Agreement were
all recorded within two minutes of each other on October 7, 2004, in the office of
the Jefferson County Clerk. The Third Mortgage was recorded first in Mortgage
Book 8974, Page 653. Next, the Assignment was recorded in Deed Book 8501,
Page 301. Finally, the Subordination Agreement was recorded in Deed Book
8501, Page 313.
At issue in this appeal is the language in the Subordination
Agreement. The opening paragraph of the Subordination Agreement states that
Fifth Third is the holder of a mortgage on property owned by KB Building that is
recorded at Mortgage Book 6854, Page 471 in the office of the Jefferson County
Clerk. In the second paragraph, the Subordination Agreement states that KB
Building has requested a loan in the amount of $750,000 from InterBay, which is
to be secured by a mortgage on the property subject to the Fifth Third mortgage.
The Subordination Agreement further states that:
[Fifth Third] has agreed that the lien of the mortgage to
[InterBay] shall be a prior lien upon said real estate and
shall be prior to the lien of their above described
Mortgage recorded in Mortgage Book 6854, page 471, in
the office of the Clerk of Jefferson County, Kentucky.
The third paragraph states in relevant part the following:
[F]or the purpose of inducing [InterBay] to make said
proposed loan to [KB Building], secured by a mortgage
lien shown under Mortgage Book 8974, Page 653 in the
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Jefferson County Clerk’s Office, [Fifth Third], for the
purpose of any release that might be necessary by them
does hereby agree and waive priority of their above
described lien of mortgage recorded in Mortgage Book
6854, page 471 in favor of the lien and priority of said
mortgage shown as Mortgage Book 8501, Page 301 in
the amount of Seven Hundred Fifty Thousand and 00/100
($750,000.00) dollars to be executed in favor of
[InterBay], and said mortgage shall be in all respects
prior and superior to the lien of mortgage to [Fifth Third]
recorded in Mortgage Book 6854, page 471 to the same
extent and purpose as if said Mortgage and said loan in
favor of [InterBay] had been made, executed and
recorded prior in time to the making, execution and
recording of said above described mortgage in favor of
[Fifth Third] recorded in Mortgage Book 6854, page 471.
The underlined portions in the above quotation reflect handwritten entries. The
first handwritten numbers correctly refer to the Third Mortgage being recorded at
Mortgage Book 8974, Page 653. However, the second handwritten numbers,
Mortgage Book 8501, Page 301, refer to a mortgage unrelated to the case at bar.1
While the numbers 8501 and 301 match the numbers to the book and page number
where the Assignment was recorded, the Assignment was recorded in the Deed
Book and not the Mortgage Book.
On June 24, 2005, InterBay assigned the Third Note and Third
Mortgage to Bayview. Further, on September 25, 2005, Fifth Third assigned the
First Note and First Mortgage to Cadleway.
On December 19, 2005, Bayview initiated this action against KB
Building alleging that KB Building had defaulted under the terms of the Third
1
The mortgage recorded in Mortgage Book 8501, Page 301 was executed on February 27, 2004,
from PRITHVI, LLC to First Citizens Bank upon unrelated property to secure a loan in the
amount of $4,130,000.
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Note secured by the Third Mortgage. On April 17, 2006, Bayview filed an
Amended Complaint naming Cadleway as a defendant as a competing lien holder.2
Specifically, Bayview alleged that the Third Mortgage was a prior and superior
lien to the First Mortgage. On May 12, 2006, Cadleway filed an Answer,
Crossclaim and Counterclaim alleging that KB Building defaulted on the note
secured by the First Mortgage. Further, Cadleway alleged that the First Mortgage
was a prior and superior lien to the Third Mortgage and that the First Mortgage
was only subordinate to the Assignment.
On February 18, 2008, Bayview filed a Motion for Summary
Judgment, Default Judgment and Order of Sale, seeking summary judgment
against Cadleway on the issue of lien priority. On December 4, 2008, Bayview
filed a Renewed Motion for Summary Judgment, Default Judgment, and Order of
Sale. In its motion, Bayview argued that the language in the Subordination
Agreement was clear and that it subordinated the First Mortgage to the Third
Mortgage. In support of its motion, Bayview attached an Affidavit of Theresa M.
Fach (Fach), who acted as the closing agent for Bayview’s predecessor in interest,
InterBay, and negotiated with Fifth Third on behalf of InterBay.
In her affidavit, Fach stated that InterBay was not going to make a
loan to KB Building without a subordination agreement for the First Mortgage.
Specifically, she stated that when InterBay was considering making a loan to KB
2
Dehoney Travel, Inc. (Dehoney) was also named as a defendant. However, because it failed to
assert a claim or interest in the real property at issue, the trial court awarded Bayview a default
judgment against Dehoney. This issue is not relevant to this appeal.
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Building, there were multiple liens against the property, including the First
Mortgage for approximately $246,000 and the Second Mortgage for $570,000.
According to Fach, the proceeds of the InterBay loan were used to pay off the
Second Mortgage and to bring the First Mortgage current. Fach further stated that
in connection with the transaction, Fifth Third received a payoff check in the
amount of $571,721.88 for the Second Mortgage. Additionally, Fach stated that in
a telephone conversation, Fifth Third agreed to subordinate the First Mortgage to
the Third Mortgage.
Fach also said that prior to closing on the Third Note and Third
Mortgage, she prepared the Subordination Agreement for the First Mortgage, and
left two blanks in the subordination agreement for the county clerk to fill in with
the recording information for the Third Mortgage. Fach subsequently received the
executed Subordination Agreement from Fifth Third, and at the time of closing, the
Subordination Agreement was sent to the Jefferson County Clerk’s office.
According to Fach, the Third Mortgage was recorded first, and the clerk then filled
in the blanks on the Subordination Agreement prior to recording it. While the first
set of blanks was filled in correctly, the clerk incorrectly filled in the second set of
blanks.
Cadleway filed a Cross-Motion for Summary Judgment on January
13, 2009, arguing that it was entitled to judgment on the issue of lien priority
because the Subordination Agreement failed to subordinate the First Mortgage to
the Third Mortgage. On February 4, 2009, the Master Commissioner issued his
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report finding that the Subordination Agreement subordinated the First Mortgage
to the Third Mortgage. On February 13, 2009, Cadleway filed its Objection to the
Master Commissioner’s Report arguing that the report should be set aside so that
the parties could complete briefing. On February 23, 2009, Bayview filed its
Notice-Motion to Adopt Commissioner’s Report. On February 27, 2009, the trial
court entered a Judgment and Order of Sale consistent with the Master
Commissioner’s Report in favor of Bayview. The trial court concluded that the
Third Mortgage was superior to the First Mortgage.
Subsequently, Cadleway filed a Motion to Alter, Amend or Vacate
Judgment pursuant to Kentucky Rule of Civil Procedure (CR) 59.05, and the trial
court entered an order denying that motion on April 23, 2009. Cadleway did not
file a notice of appeal within the thirty-day time limit after entry of that order, and
the property was sold by the Master Commissioner on May 26, 2009. During oral
argument to this Court, counsel for both parties conceded that the funds received
from the sale of the Third Street property are currently being held in an escrow
account.
On June 18, 2009, Cadleway filed a motion pursuant to CR 60.02,
asking the court to vacate the April 23, 2009, order and enter a new order.
Cadleway argued that it did not receive a copy of the trial court’s April 23, 2009,
order and asserted that it did not learn of the order until June 11, 2009, which was
after its time to appeal had expired. On July 15, 2009, the trial court granted
Cadleway’s CR 60.02 motion and vacated its April 23, 2009, order. In the same
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order, the trial court again denied Cadleway’s request for CR 59.05 relief. This
appeal followed.
STANDARD OF REVIEW
In order to be entitled to summary judgment, a movant must show that
there is no genuine issue as to any material fact and that the matter can be resolved
as a matter of law. CR 56.03. The construction of a contract, including the
determination as to whether there are any ambiguities, is a question of law for the
courts to decide and is subject to de novo review. Cantrell Supply, Inc. v. Liberty
Mut. Ins. Co., 94 S.W.3d 381 (Ky. App. 2002); First Commonwealth Bank of
Prestonsburg v. West, 55 S.W.3d 829 (Ky. App. 2000).
ANALYSIS
A number of issues are raised on appeal. For clarity, we address each
issue separately.
1. Timely Appeal
At the outset, we note that Bayview contends that Cadleway’s appeal
is untimely and should be dismissed. Specifically, Bayview argues that pursuant to
CR 77.04, Cadleway’s failure to receive notice of the CR 59.05 order was not
grounds for granting the CR 60.02 motion and extending Cadleway’s time to
appeal. We disagree.
CR 77.04(4) provides that:
Failure of the trial court to require service of notice of
entry of any judgment or order under this rule or the
failure of the clerk to serve such notice, or the failure of a
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party to receive notice, shall not affect the validity of the
judgment or order, and does not affect the time to appeal
or relieve or authorize the court to relieve a party for
failure to appeal within the time allowed, except as
permitted in Rule 73.02(1).
As stated in Kurtsinger v. Board of Trustees of Kentucky Retirement Systems, 90
S.W.3d 454 (Ky. 2002), CR 60.02 “is a safety valve, error correcting device for
trial courts[,]” and applies to the following situations: “(a) mistake, inadvertence,
surprise or excusable neglect; (b) newly discovered evidence . . . ; (c) perjury or
falsified evidence; (d) fraud affecting the proceedings . . . ; (e) the judgment is void
. . . ; or (f) any other reason of an extraordinary nature justifying relief.” Id. at 456
(citation omitted).
In Kurtsinger, the Supreme Court of Kentucky addressed the issue of
whether a trial court may vacate a CR 59.05 order under CR 60.02 upon a finding
that a party did not receive notice of entry of the order. In that case, the trial court
concluded that it made a mistake in not including the appellants on the distribution
list of the CR 59.05 order. Therefore, the trial court granted the CR 60.02 motion
on the basis of “mistake, inadvertence, excusable neglect and reasons of an
extraordinary nature justifying relief[.]” Id. at 455.
In affirming the trial court, our Supreme Court held that upon a
finding of excusable neglect, a trial court may vacate a CR 59.05 order under CR
60.02. The finding of “excusable neglect” in Kurtsinger was based upon the trial
court’s own acknowledged mistake of failing to mail the notice to the affected
party. The Court further concluded that, although a latent conflict exists between
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CR 77.04 and CR 60.02, CR 77.04 does not override the “mistake correcting rule”
of CR 60.02. Id. at 456. Therefore, the Supreme Court concluded that the trial
court did not err in granting the CR 60.02 motion.
Bayview argues that Kurtsinger does not apply to the instant case and
instead relies on Stewart v. Kentucky Lottery Corp., 986 S.W.2d 918 (Ky. App.
1998). In Stewart, this Court held that the failure of either party to receive notice
of the entry of an order denying a motion to reconsider did not justify relief under
CR 60.02. This Court reasoned:
True enough, apparently neither party received notice of
entry of the order denying the motion to reconsider.
Nevertheless, CR 77.04(4) plainly states that the clerk's
failure to serve notice or a party's failure to receive notice
does not affect the time for taking an appeal. The rule
further provides that a trial court is not authorized to
grant an extension of time for filing a notice of appeal for
any period beyond ten days past the expiration for the
time for taking an appeal. Our courts have consistently
enforced the harsh dictates of CR 77.04(4).
Id. at 920 (internal citations omitted).
However, in Kurtsinger, our Supreme Court distinguished the facts in
that case from those in Stewart:
The significant difference between what transpired in
Stewart and in this case is that here the trial court merely
vacated the initial order denying the motion to alter,
amend or vacate the summary judgment. The order
vacating was accompanied by findings that the trial court
or its staff was at fault for Appellants’ failure to learn of
entry of the order. The trial court did not attempt to
change the date of entry of the order or extend the time
for taking an appeal. While the ultimate effect may have
been the same, the trial court merely utilized its authority
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under CR 60.02 to vacate an order in a manner that did
not constitute an abuse of discretion.
90 S.W.3d at 457.
Bayview contends that Kurtsinger is distinguishable from the instant
case in that the trial court did not make a specific finding that the trial court caused
Cadleway not to receive notice of the entry of the order. We disagree. In its order
granting Cadleway CR 60.02 relief, the trial court stated the following:
Defendant Cadleway contends it did not receive a copy
of the Court’s Order denying its CR 59 motion to amend
the Court’s February summary judgment in favor of the
Plaintiff. The Court sees no reason to question that
representation.
Because the trial court made a finding that Cadleway did not receive a copy of its
order, we conclude that the trial court properly applied Kurtsinger. Furthermore,
because the proceeds from the sale of the Third Street property are being held in an
escrow account, we believe that the trial court was correct in concluding that
Bayview would not suffer prejudice. Thus, the trial court properly granted
Cadleway’s CR 60.02 motion.
We note that we have reviewed the recent opinion by the Supreme
Court in James v. James, 313 S.W.3d 17 (Ky. 2010), and its discussion of CR
60.02. We believe that it is not applicable to the instant case and therefore does
not change our analysis as to whether Cadleway timely filed its appeal in this case.
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2. Ambiguity of Subordination Agreement
Having concluded that Cadleway timely filed its appeal, we now turn
to the merits of the issues raised by Cadleway. First, Cadleway contends that the
Subordination Agreement is unambiguous and that the trial court erred in
concluding that it subordinated the First Mortgage to the Third Mortgage.
Specifically, Cadleway argues that the plain terms of the Subordination Agreement
only subordinates the First Mortgage to a mortgage recorded at Mortgage Book
8501, Page 301, in the amount of $750,000, and not to the Third Mortgage
recorded at Mortgage Book 8974, Page 653, in the amount of $682,500.
An unambiguous written contract must be strictly enforced according
to the plain meaning of its express terms and without resort to extrinsic evidence.
Allen v. Lawyers Mut. Ins. Co. of Kentucky, 216 S.W.3d 657 (Ky. App. 2007).
Even if the contracting parties may have intended a different result, a contract
cannot be interpreted contrary to the plain meaning of its terms. Abney v.
Nationwide Mut. Ins. Co., 215 S.W.3d 699, 703 (Ky. 2006). A contract is not
ambiguous if a reasonable person would find its terms susceptible to only one
meaning. Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky.
App. 2002). However, if the provisions in controversy are reasonably susceptible
to different or inconsistent, yet reasonable, interpretations, the contract is deemed
to be ambiguous. Id.
After reviewing the Subordination Agreement, we believe that the
Master Commissioner and the trial court were correct in concluding that it is
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unambiguous. However, we disagree with the conclusion of the Master
Commissioner and the trial court that the Subordination Agreement unambiguously
subordinated the First Mortgage to the Third Mortgage. The Subordination
Agreement clearly states that Fifth Third waived its priority of the First Mortgage
“in favor of the lien and priority of said mortgage shown as Mortgage Book 8501,
Page 301 in the amount of Seven Hundred Fifty Thousand and 00/100
($750,000.00) dollars to be executed in favor of [InterBay].” Although a mortgage
in favor of InterBay recorded in Mortgage Book 8501, Page 301, does not exist,
this language is clear and cannot be interpreted contrary to the plain meaning of its
terms. Abney, 215 S.W.3d at 703. Accordingly, by its plain terms, the
Subordination Agreement unambiguously subordinated the First Mortgage to the
unrelated mortgage recorded in Mortgage Book 8501, Page 301.
3. Mutual Mistake and Reformation
Next, Cadleway argues that the Master Commissioner and the trial
court improperly reformed the Subordination Agreement. However, Bayview
contends that even if the plain terms of the Subordination Agreement do not
subordinate the First Mortgage to the Third Mortgage, the trial court may reform
the Subordination Agreement to reflect the parties’ intent. Specifically, Bayview
argues that the Master Commissioner properly concluded that the handwritten
insertion of Mortgage Book 8501, Page 301, resulted from a clerical mistake made
by the Jefferson County Clerk. Thus, as a result of this mistake, the Subordination
Agreement is subject to reformation.
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American Jurisprudence addresses the mistake of a scrivener or
draftsman as follows:
The remedy of reformation is appropriate where, by
reason of an unintentional mistake by a scrivener or
draftsman, the written agreement does not accurately
reflect the intent of the parties. However, before the
reformation of a written contract is warranted, it must be
shown that the scrivener’s product reflects something
other than what was understood by both parties. Under
the “doctrine of scrivener’s error,” the mistake of a
scrivener in drafting a document may be reformed based
upon parol evidence, provided the evidence is clear,
precise, convincing and of most satisfactory character
that the mistake has occurred and that the mistake does
not reflect the intent of the parties.
66 Am. Jur. 2d Reformation of Instruments § 19 (citations omitted). In A.H.
Thompson Co. v. Security Insurance Co., 252 Ky. 427, 67 S.W.2d 493, 495 (1933),
the former Kentucky Court of Appeals addressed mistakes in written instruments,
stating:
An [sic] unilateral mistake is not ground for reforming a
written instrument; hence a contract which agrees with
the intention of one party, though executed under a
mistake by the other, cannot be reformed. Equity,
however, will reform such instrument where the mistake
is mutual; that is, a mistake reciprocal and common to
both parties, as where there has been a meeting of the
minds and an agreement actually entered into, but the
written instrument does not express the real intention of
the parties, or because of a mistake of the draftsman of
the instrument where the evidence is clear and
convincing showing the mistake.
(Internal citations omitted).
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More recently, the Kentucky Supreme Court in Abney set out the
elements necessary to vary the terms of a writing based on mistake:
To vary the terms of a writing on the ground of
mistake, the proof must establish three elements. First, it
must show that the mistake was mutual, not unilateral.
Second, “[t]he mutual mistake must be proven beyond a
reasonable controversy by clear and convincing
evidence.” Third, “it must be shown that the parties had
actually agreed upon terms different from those
expressed in the written instrument.”
The mistake must be one as to a material fact
affecting the agreement and not one of law, which is “an
erroneous conclusion respecting the legal effect of known
facts.” A material fact is one that goes to the root of the
matter or the whole substance of the agreement.
215 S.W.3d at 704 (internal citations omitted) (emphasis in original).
Cadleway first argues that reformation is inappropriate because
Bayview failed to plead reformation in its Amended Complaint. Therefore,
pursuant to Kentucky Revised Statutes (KRS) 413.120(12), Cadleway contends
that the statute of limitations has run, foreclosing Bayview from asserting
reformation. Cadleway also argues that reformation is inappropriate, because, as
an innocent third party, it would be unfairly prejudiced by reformation of the
Subordination Agreement. However, we note that Cadleway failed to comply with
CR 76.12(4)(c)(v), which requires a statement in the brief as to how these issues
were properly preserved for appellate review. Further, our review of the record
indicates that these issues were not raised below. Accordingly, we will not address
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them for the first time on appeal. Regional Jail Auth. v. Tackett, 770 S.W.2d 225,
228 (Ky. 1989).
Cadleway next argues that Bayview failed to present sufficient
evidence showing that it was entitled to reformation of the Subordination
Agreement. However, Cadleway presents no evidence challenging Bayview’s
evidence for reformation of the Subordination Agreement. As stated in Hallahan
v. The Courier-Journal, 138 S.W.3d 699, 705 (Ky. App. 2004), a party opposing a
motion for summary judgment cannot rely merely on the unsupported allegations
of his pleadings, but is required to present “some affirmative evidence showing
that there is a genuine issue of material fact for trial.” (quoting Steelvest, Inc. v.
Scansteel Serv. Ctr., Inc., 807 S.W.2d 476, 482 (Ky. 1991)). Therefore, the only
question on appeal is whether Bayview was entitled to reformation of the
Subordination Agreement as a matter of law.
In support of its motion for summary judgment, Bayview attached
Fach’s affidavit. As noted above, Fach was the closing agent for InterBay and
negotiated directly with Fifth Third regarding the Subordination Agreement.
While Fach made a number of statements in her affidavit, there is only one
statement relevant to show that the parties had actually agreed to terms different
from those expressed in the Subordination Agreement and that the mistake was
mutual. See Abney, 215 S.W.3d at 704. Specifically, Fach stated that during a
telephone conversation with Fifth Third, it agreed to subordinate the First
Mortgage to the Third Mortgage. Cadleway argues that this statement constitutes
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inadmissible hearsay and cannot be relied upon to show the intent of Fifth Third at
the time the Subordination Agreement was entered into. We agree.
CR 56.03 states that affidavits may be used to determine if summary
judgment is proper. However, CR 56.05 provides that these affidavits “shall set
forth such facts as would be admissible in evidence . . . . ” Thus, to determine
whether the Master Commissioner and the trial court properly relied on Fach’s
affidavit, we must determine if Fach’s statement constituted inadmissible hearsay.
Hearsay is “a statement, other than one made by the declarant while testifying at
the trial or hearing, offered in evidence to prove the truth of the matter asserted.”
Kentucky Rules of Evidence (KRE) 801(c). Bayview argues that pursuant to KRE
801A(c)(2), the statement in Fach’s affidavit regarding Fifth Third’s intent as to
the Subordination Agreement is not inadmissible hearsay. KRE 801A(c)(2)
applies to statements made by predecessors in interest and provides:
Even though the declarant is available as a witness, when
a right, title, or interest in any property or claim asserted
by a party to a civil action requires a determination that a
right, title, or interest existed in the declarant, evidence of
a statement made by the declarant during the time the
party now claims the declarant was the holder of the
right, title, or interest is not excluded by the hearsay rule
when offered against the party if the evidence would be
admissible if offered against the declarant in an action
involving that right, title, or interest.
Bayview argues that because this statement would be admissible against Fifth
Third under KRE 801A(b)(1), (3), and (4), it is admissible against Bayview
pursuant to KRE 801A(c)(2). We disagree.
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While Fifth Third was the predecessor in interest of the First
Mortgage, KRE 801A(c)(2) applies only to situations wherein a party is trying to
establish that the declarant, as predecessor in interest, had “a right, title, or interest”
in the property or claim in dispute at the time the declarant made the statement.
Because the statement asserted by Fach in her affidavit is not asserted to prove that
Fifth Third had a right, title, or interest in the Third Mortgage at the time Fifth
Third made the statement, KRE 801A(c)(2) does not apply. Instead, this statement
is asserted to show the intent of Fifth Third at the time it entered into the
Subordination Agreement. Accordingly, it is inadmissible and the Master
Commissioner and the trial court improperly relied upon it in support of Bayview’s
motion for summary judgment. Thus, we conclude that without relying on this
statement, the evidence was insufficient to establish Bayview’s right to reformation
of the Subordination Agreement by clear and convincing evidence.
In sum, we recognize that Cadleway failed to present any evidence
challenging Bayview’s evidence for reformation of the Subordination Agreement.
We further recognize that Bayview may ultimately be entitled to reformation. But
at this point in the proceedings, we must conclude that Bayview failed to establish
that it was entitled to reformation of the Subordination Agreement as a matter of
law. Therefore, summary judgment was not appropriate.
CONCLUSION
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Accordingly, we reverse the judgment of the Jefferson Circuit Court
and remand for further proceedings on the issue of reformation of the
Subordination Agreement.
COMBS, JUDGE, CONCURS AND FILES SEPARATE OPINION.
LAMBERT, JUDGE, DISSENTS AND FILES SEPARATE
OPINION.
COMBS, JUDGE, CONCURRING: This is a case in which the intent
of the parties appears to be clearly implied by the facts and economic realities
involved. Apparently, reformation of the recorded instruments because of a
scrivener’s error would seem to be a proper resolution of the matter. And we are
barred from decreeing that resolution.
As the majority opinion has ably reasoned, equity cannot be invoked
to order a reformation of the instruments (i.e., the mortgage books) because
Kentucky case law has taken the “doctrine of scrivener’s error” one step beyond
the definition cited above from American Jurisprudence. The principal case on
point, Abney v. Nationwide Mutual Insurance Co., 215 S.W.3d 699 (Ky. 2006),
mandates a showing of “clear and convincing evidence” of mutual mistake before
a court can order reformation of an instrument.
This Court has refrained from exercising or usurping the proper
function of the trial court in ascertaining that requisite “clear and convincing
evidence.” As duly noted by our majority opinion, the affidavit of Ms. Fach was
not a sufficiently reliable evidentiary basis upon which we could resolve this
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prolonged controversy. Thus, we have vacated the order of summary judgment for
the parties to have the opportunity to clarify by adequate discovery the matters of
fact set forth in her affidavit.
It may or may not be that the outcome will differ from the original
judgment. But this is a classic example of the necessary restraint that an appellate
court is compelled to exercise pursuant to the rule of civil procedure.
Parenthetically, alluding to the Civil Rules, I would note that the issue
of the timeliness of filing the appeal in this case highlights the need for our
Supreme Court to re-draft CR 77.04(4) in order to bring it into compliance and
harmony with its holding in Kurtsinger v. Board of Trustees of Kentucky
Retirement Systems, 90 S.W.3d 454 (Ky. 2002). This issue should not have to be
re-litigated needlessly as it had to be in this case.
LAMBERT, JUDGE, DISSENTING: I respectfully dissent and
would affirm the judgment of the Jefferson Circuit Court in the case at bar.
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BRIEFS FOR APPELLANT:
Mason L. Miller
Will E. Messer
Lexington, Kentucky
ORAL ARGUMENT FOR
APPELLANT:
Mason L. Miller
Lexington, Kentucky
BRIEF FOR APPELLEE, BAYVIEW
LOAN SERVICING, LLC:
T. Morgan Ward, Jr.
Chadwick A. McTighe
Louisville, Kentucky
ORAL ARGUMENT FOR
APPELLEE, BAYVIEW LOAN
SERVICING, LLC:
Chadwick A. McTighe
Louisville, Kentucky
NO BRIEF FILED FOR APPELLEE,
DEHONEY TRAVEL, INC.
NO BRIEF FILED FOR APPELLEE,
KB BUILDING, LLC
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