Opinion
NO. 2012-CA-002103-MR
10-17-2014
JAD FARHAT IRREVOCABLE GSTT TRUST #1 APPELLANT v. T.T.M. GROUP, LLC APPELLEE
BRIEFS FOR APPELLANT: David A. Weinberg Lexington, Kentucky BRIEF FOR APPELLEE: John N. Billings Lexington, Kentucky
NOT TO BE PUBLISHED APPEAL FROM FAYETTE CIRCUIT COURT
HONORABLE JAMES D. ISHMAEL, JR., JUDGE
ACTION NO. 11-CI-00991
OPINION
AFFIRMING IN PART,
REVERSING IN PART,
AND REMANDING
BEFORE: CHIEF JUDGE ACREE; TAYLOR AND VANMETER, JUDGES. TAYLOR, JUDGE: Jad Farhat Irrevocable GSTT Trust #1 (Farhat Trust) brings this appeal from a November 28, 2012, Opinion, Order, and Final Judgment of the Fayette Circuit Court adjudicating the enforceability of a purchase agreement executed between the Farhat Trust and T.T.M. Group, LLC (TTM). We affirm in part, reverse in part, and remand.
In 2002, TTM was formed as a limited liability company by its members, Marc King, Todd Darland, and Tara Darland. TTM subsequently purchased real property located at 1506 Ring Road, Elizabethtown, Kentucky, and constructed a commercial building for use as a fitness center. In January 2009, TTM leased the building to Energy Sports and Fitness of Elizabethtown, LLC (Energy Sports). Energy Sports was also owned by King and the Darlands. According to the lease, Energy Sports would pay $24,000 per month in rent to TTM.
Thereafter, on July 7, 2009, TTM entered into a Purchase Agreement with the Farhat Trust. Pursuant to the Purchase Agreement, the TTM agreed to convey an undivided one-fifth interest in the subject real property to Farhat Trust. Section 2 of the Purchase Agreement provided that Farhat Trust would pay TTM $180,000 for the undivided one-fifth interest. Paragraph D of the Purchase Agreement also provided that TTM would pay the Farhat Trust "twenty (20%) percent of the NET rental proceeds; on a monthly basis." In accordance therewith, on July 7, 2009, the parties executed a general warranty deed conveying the undivided one-fifth interest in the real property from TTM to the Farhat Trust (2009 Deed). No reference was made in the 2009 Deed to the payment of future rents.
TTM was initially managed by King. Under King's management, TTM paid the Farhat Trust in substantial compliance with the terms of the Purchase Agreement. In the spring of 2010, King and the Darlands sold 70.833% of their interest in TTM to DJD, LLC (DJD). A member of DJD, James Foster, M.D., subsequently took over as manager of TTM in August 2010. The Farhat Trust asserted it was not paid 20 percent of the net rental income according to the Purchase Agreement after Foster took over management of TTM.
Consequently, on February 23, 2011, the Farhat Trust filed a complaint against TTM in the Fayette Circuit Court. In the complaint, the Farhat Trust alleged claims for breach of contract and promissory estoppel. Specifically, the Farhat Trust alleged that after Foster began managing TTM, it was not paid according to the Purchase Agreement and that TTM thereby breached the terms of the Purchase Agreement. The circuit court tried the matter under Kentucky Rules of Civil Procedure (CR) 52.01. Following an evidentiary hearing, the circuit court rendered Judgment on November 28, 2012, concluding, in relevant part:
9. The Court declares as a matter of law that because (i) there was no meeting of the minds between Farhat Trust and TTM, (ii) because the terms set forth in the purported Purchase Agreement were not strictly followed by the parties, and (iii) for the other reasons stated on the record, the Purchase Agreement is not enforceable.This appeal follows.
10. The Court declares as a matter of law that with respect to the "NET Rental Proceeds" found in the Purchase Agreement, Declaratory Judgment is entered in favor of Farhat Trust as there was a meeting of the minds between the parties that it is entitled to 20% of the "Net Proceeds" or "Net Rental Proceeds" when paid by the tenant on a monthly basis . . . .
. . . .
13. After reviewing the evidence, the Court rules that Farhat Trust has not sustained its burden of proving that it has not been paid 20% of the Net Proceeds or Net Rental Proceeds.
14. The Court does not find any admissible evidence that the tenant in the subject Real Property paid any lease late fees to TTM, and thus the Farhat Trust has not sustained its burden of proof on that issue either.
15. The Farhat Trust has not met its burden of proof to establish that it has incurred any damages.
In an action tried by the court without a jury, the trial court's findings of fact will not be disturbed on appeal unless clearly erroneous. CR 52.01; Stephanski v. Stephanski, 473 S.W.2d 806 (Ky. 1971). A finding of fact is not clearly erroneous if supported by substantial evidence of a probative value. Phelps v. Brown, 295 S.W.2d 804 (Ky. 1956). And, the credibility and weight of evidence are within the sole province of the trial court as fact-finder. Moore v. Asente, 110 S.W.3d 336 (Ky. 2003); Bristow v. Taul, 310 Ky. 82, 219 S.W.2d 641 (1949). As an appellate court, we review issues of law de novo. New v. Commonwealth, 156 S.W.3d 769 (Ky. App. 2005).
The primary issue raised in this appeal revolves around the validity and enforceability of the Purchase Agreement executed by the parties on July 7, 2009. The circuit court determined that there was not a "meeting of the minds" and declared the Purchase Agreement was unenforceable. But inexplicably, the circuit court also declared that there was a "meeting of the minds" as to the terms of the Purchase Agreement setting forth the payment of future rents from the property and enforced those terms of the Purchase Agreement, notwithstanding that no damages were allowed. Upon our review of the record in this case, there was sufficient evidence presented to the circuit court to support its finding that there was not a "meeting of the minds" by the parties regarding the Purchase Agreement, thus supporting the circuit court's conclusion of law that the Purchase Agreement was not enforceable. The circuit court's judgment on this issue is affirmed.
It is well-established that pursuant to the merger doctrine, provisions of an underlying contract providing for the conveyance of real property are extinguished upon delivery and acceptance of a deed. Harrodsburg Indus. Warehousing, Inc. v. MIGS, LLC, 182 S.W.3d 529 (Ky. App. 2005). This Court specifically held in Drees Co. v. Osburg, 144 S.W.3d 831 (Ky. App. 2003):
Under the merger doctrine, upon delivery and acceptance of a deed the deed extinguishes or supersedes the provisions of the underlying contract for the conveyance of the realty. The doctrine applies to covenants pertaining to title, possession, quantity, or emblements of the property, the covenants commonly addressed in deeds. Covenants in the antecedent contract that are not commonly incorporated in the deed, and that the parties do not intend to be incorporated, are often referred to as collateral agreements. The merger doctrine does not apply to collateral agreements.Id. at 833 (internal citations omitted); see also Harrodsburg Indus. Warehousing, Inc. v. MIGS, LLC, 182 S.W.3d 529 (Ky. App. 2005). Simply stated, the terms of a purchase agreement for the sale of real property ordinarily merge into the deed upon delivery and acceptance. Id. However, there are exceptions to the merger doctrine - fraud, mistake, or a contractual or collateral agreement clearly not intended to be merged into the deed. Id., citing 77 Am. Jur. 2d Vendor and Purchaser § 286 (1997).
The deed and stated consideration therein are not at issue in this case. However, the claims regarding the payment of future rents as set out in the Purchase Agreement are at issue and clearly look to a collateral agreement that would normally survive the deed. When the circuit court adjudged that the Purchase Agreement was unenforceable as a matter of law, this ruling includes the future rent provisions set forth therein. Accordingly, the circuit court's findings and conclusion that the rent provisions in the Purchase Agreement were enforceable is clearly erroneous, given that we have affirmed the circuit court's conclusion that the Purchase Agreement was enforceable. We therefore reverse the circuit court's judgment to enforce the terms of the Purchase Agreement regarding future rents.
However, our analysis does not end upon determination of the unenforceability of the Purchase Agreement. As a matter of law, the Farhat Trust legally owns an undivided one-fifth interest in the real property through the conveyance and, therefore, is legally a co-tenant with TTM in the joint ownership of the real property. The common law of Kentucky has long provided that one co-tenant is liable to the other co-tenants for any rents and profits collected from the joint property. Howell v. Bach, 580 S.W.2d 711 (Ky. App. 1979); Martin v. Martin, 878 S.W.2d 30 (Ky. App. 1994). Farhat Trust is thus entitled to its proportionate share of the rents and is also entitled to an accounting of all rents from the property. See Howell, 580 S.W.2d 711. On remand, the circuit court is directed to determine what rents, if any, through an accounting if necessary, are due Farhat Trust under Kentucky law governing the joint ownership of property.
Accordingly, we affirm in part, reverse in part, and remand for the circuit court to determine the obligations of the parties as co-tenants as concerns rents accrued from the jointly owned property, including an accounting and allocation of all rents and profits from the property among the joint owners.
We view any remaining contentions of error as moot or without merit. And, we do not address the issue of rents purportedly owed under the Purchase Agreement, which the circuit court correctly held was unenforceable.
For the foregoing reasons, the Opinion, Order, and Final Judgment of the Fayette Circuit Court is affirmed in part, reversed in part, and remanded for proceedings consistent with this Opinion.
ALL CONCUR. BRIEFS FOR APPELLANT: David A. Weinberg
Lexington, Kentucky
BRIEF FOR APPELLEE: John N. Billings
Lexington, Kentucky