RENDERED: MAY 24, 2024; 10:00 A.M. NOT TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals NO. 2023-CA-0857-MR
FARMERS INVESTMENT CO., AKA FARMERS INVESTMENT COMPANY, INCORPORATED APPELLANT
APPEAL FROM WARREN CIRCUIT COURT v. HONORABLE CHRISTOPHER T. COHRON, JUDGE ACTION NO. 21-CI-01159
BG LANDCO, LLC APPELLEE
OPINION AFFIRMING
** ** ** ** **
BEFORE: COMBS, EASTON, AND TAYLOR, JUDGES.
COMBS, JUDGE: In this appeal, Appellant, Farmers Investment Co. (Farmers
Investment), appeals an order of the Warren Circuit Court requiring specific
performance of a real estate purchase agreement after the collapse of the
underlying transaction. Farmers Investment was ordered by the circuit court to
convey a 16-acre tract near I-65 in Bowling Green to Appellee, BG Landco, LLC
(BG Landco), in exchange for more than $10.5 million. The court left open the question of whether BG Landco could also recover money damages as a result of
the deal’s demise. After our review, we affirm.
On March 15, 2021, Farmers Investment entered into an agreement
with BG Landco, LLC for the sale of a vacant lot near Sam’s Club at the
Scottsville Road interchange. BG Landco intended to construct a gambling facility
on the property in which wagering on historical horse races would be conducted
and alcoholic beverages served. Under the terms of the agreement, Farmers
Investment agreed to sell all its right, title, and interest in the property subject to
any easements, conditions, and restrictions of record. Upon execution of the
agreement, BG Landco tendered a $50,000 earnest money deposit.
The parties’ agreement provided for an inspection period during
which BG Landco was authorized to evaluate the property in ways it deemed
“necessary, desirable, or appropriate in its sole and absolute discretion to assess the
legal, physical, economic and environmental condition of the Property and the
suitability of the Property for [BG Landco’s] intended use thereof.” This provision
was designated the “Initial Inspection Period” and was to last ninety (90) days. If
-- after its evaluation of the property -- BG Landco were dissatisfied, it would have
the “unconditional right, for any reason or no reason whatsoever, to terminate [the
agreement]” at the end of the Initial Inspection Period whereupon its earnest
-2- money would be returned in full. BG Landco had the option to extend the Initial
Inspection Period for an additional thirty (30) days.
Farmers Investment warranted that the property “is not subject to any
covenants, conditions or restrictions or development agreement affecting or
benefitting any other property, other than those Binding Elements of record in
Deed Book 876, Page 492 in the Office of the Warren County Court Clerk.” The
“Binding Elements” identified several categories of prohibited uses for the
property, including “any gambling facility or operation other than charitable
gambling. . . .”
The agreement also provided detailed remedies for each party should
the other default in the performance of its obligations. If Farmers Investment
defaulted, BG Landco’s remedy was expressly limited to one of two options. BG
Landco could terminate the parties’ agreement by delivery of written notice. In
this case, its earnest money would be returned. In the alternative, BG Landco
could seek specific performance of Farmers Investment’s obligation, “provided
that any such action for specific performance must be commenced within thirty
(30) days after such default . . . .” If BG Landco prevailed, Farmers would
reimburse it for legal fees, court costs, and other reasonable costs. If BG Landco
defaulted, Farmers Investment’s remedy was to retain the earnest money deposit as
liquidated damages.
-3- The Initial Inspection Period began on March 16, 2021. BG Landco
conducted a title search and obtained a commitment for title insurance. The title
commitment was issued three weeks into the 90-day Initial Inspection Period. The
title search uncovered an undisclosed encumbrance “of record in Deed Book 888,
Page 510.” The encumbrance, recorded in August 2004, was in favor of
neighboring Sam’s Club. It precluded the following uses of the disputed property
as:
a theatre, bowling alley, billiard parlor, nightclub, or other place of recreation or amusement, or any business serving alcoholic beverages, without the prior written consent of Sam’s [unless a restaurant where] the sale of alcoholic beverages does not exceed fifty percent (50%) of the gross sales of such restaurant.
Approximately forty-five (45) days into the Initial Inspection Period,
BG Landco’s counsel contacted the City-County Planning Commission of Warren
County (the Planning Commission) in an effort to secure a waiver of the gambling
restriction described in the recorded Binding Elements. Included within counsel’s
presentation to the Planning Commission was a deed prepared on April 12, 2021,
for adjacent property. The adjacent property was covered by the Binding
Elements. The deed to the neighboring property also expressly referenced the
recorded encumbrance in favor of Sam’s Club “of record in Deed Book 888, Page
510.” On May 20, 2021, the Planning Commission voted 7-3 to deny BG
Landco’s application to amend and remove the gambling restriction described in
-4- the Binding Elements. There were 26 days remaining in the Initial Inspection
Period set to expire on June 13, 2021.
Despite the decision of the Planning Commission and its actual notice
of the encumbrance expressly restricting its use of the disputed property, BG
Landco did not elect to terminate the parties’ agreement. Instead, it appeared
willing to proceed with the purchase of the property regardless of the clear
restrictions prohibiting its intended use of the property. This alternative was
specifically envisioned by the terms of the agreement. The agreement provided
that BG Landco could obtain a commitment for title insurance showing that
Farmers has good and marketable fee simple title to the Property “free and clear of
all liens and encumbrances except: (i) those created or assumed by [BG
Landco. . . .]” (Emphasis added.) Any encumbrance assumed by BG Landco was
distinguished from “those [encumbrances] specifically set forth in this
Agreement. . . .” Additionally, the parties’ agreement provided that “[i]f . . . any
other title evidence obtained by Buyer subsequently but prior to the Closing shows
any exception to title other than the Permitted Encumbrances, Buyer shall have the
option . . . of (i) terminating this Agreement . . . or (ii) taking title to the Property
subject to said title exception.”
On June 23, 2021, the parties executed an amendment to their
agreement wherein BG Landco agreed to go forward with the purchase if Farmers
-5- Investment agreed to help BG Landco tackle the gambling prohibition described in
the Binding Elements. The agreement expressly identified the Binding Elements
and acknowledged that the provision prohibited BG Landco’s “intended use of the
Property.” BG Landco represented that it meant to let the inspection period expire
and “move forward with the Closing, subject to [Farmers Investment] entering into
this Amendment. . . .” Although BG Landco had become aware of the separate
encumbrance in favor of Sam’s Club weeks earlier, no mention was made of it in
the amendment to the parties’ agreement.
A few days later, Ruthie O. Bale, Farmers Investment’s President,
personally learned of the separate encumbrance in favor of Sam’s Club. Bale
contacted counsel for BG Landco to advise and to ask whether the additional
encumbrance posed “a problem.” Counsel alerted BG Landco to Bale’s inquiry,
and the parties executed an addendum to the agreement pushing the closing date to
August 12, 2021. Eventually, the parties agreed to postpone the closing till
September 15, 2021. No mention was made of the separate encumbrance in favor
of Sam’s Club.
On September 13, 2021, two days before the scheduled closing, BG
Landco corresponded with Farmers Investment. It accused Farmers Investment of
having intentionally failed to disclose a “material circumstance affecting the
available uses of the property and purchase price” (i.e.; the separate encumbrance
-6- in favor of Sam’s Club) within five (5) days of the execution of the purchase
agreement per its terms. Nevertheless, BG Landco explained that it intended to
proceed with closing scheduled for 1:00 p.m. on September 15, 2021. It also
advised as follows:
BG Landco, LLC will expect and require Farmer Investment to conform with its representations and warranties in the Purchase Agreement and deliver to it a release of Sam’s Club Restrictions or other obviation of the Sam’s Club Restrictions in the form acceptable to BG Landco; barring that BG Landco, LLC will close over the Sam’s Club Restrictions and promptly bring suit against Farmers Investment and its principals for without limitation claims based on breach of contract and fraud, and for damages and attorneys fees and costs . . . and/or exercise all other of its available rights and remedies.
BG Landco represented that its money damages were expected to exceed one
million dollars. Farmers Investment regarded BG Landco’s demand as a violation
of the remedies provision of the parties’ agreement, and it did not appear for the
scheduled closing.
Days later, BG Landco filed a complaint against Farmers Investment
in Warren Circuit Court. Its causes of action included negligent misrepresentation,
negligence in the inducement, breach of contract, unjust enrichment, and breach of
the duty of good faith and fair dealing. It claimed that the encumbrance in favor of
Sam’s Club reduced the value of the property by an amount potentially exceeding
one-third of the agreed upon purchase price. It sought specific performance and
-7- monetary damages. Farmers Investment answered the complaint and asserted
affirmative defenses including waiver and mistake.
Just weeks later, on October 22, 2021, BG Landco filed a motion for
partial summary judgment. Arguing that it had no adequate remedy at law, BG
Landco sought an order for specific performance. On October 31, 2021, Farmers
Investment filed an interim response arguing that a period of discovery was
necessary.
On April 18, 2022, Farmers Investment filed a complete response to
the motion for partial summary judgment. Farmers Investment argued that BG
Landco’s demand for both specific performance and damages is expressly barred
by the remedies provision of the purchase agreement; that the inconsistent relief
sought is inequitable; that BG Landco cannot show that it suffered any harm as a
result of the alleged breach; and, finally, that BG Landco breached the agreement
through its extracontractual demands of September 13, 2021. Following a hearing
conducted on May 26, 2022, the parties tendered competing proposed orders for
the circuit court’s consideration.
By its order entered on August 1, 2022, the circuit court granted
partial summary judgment in favor of BG Landco and ordered specific
performance of the purchase agreement. The court explained in its order that BG
Landco’s action was timely as it was under no obligation to pursue its contractual
-8- remedies for default until such time as Farmers Investment failed and refused to
attend the closing on September 15, 2021. It held that BG Landco had no adequate
remedy at law and that its order of specific performance did not preclude BG
Landco’s additional claims for breach of contract, fraud, negligent
misrepresentation, negligence in the inducement, and unjust enrichment. The court
specifically reserved those issues for further consideration. It ordered Farmers
Investment to convey the property to BG Landco by General Warranty Deed
subject to BGLandco’s reservation of all claims, rights, remedies, and damages --
specifically including claims for breach of contract, fraud, negligent
misrepresentation, negligence in the inducement, and unjust enrichment related to
the encumbrance in favor of Sam’s Club.
Farmers Investment filed a motion to alter, amend, or vacate, or, in the
alternative, for summary judgment. Thereafter, it filed a motion to approve its
tendered deed of conveyance of the property by Special Warranty Deed.
In an omnibus order entered June 15, 2023, the Warren Circuit Court
declined to alter, amend, or vacate its partial summary judgment and order for
specific performance. It also denied the motion of Farmers Investment for
summary judgment. Finally, it granted, in part, the motion of Farmers Investment
to approve a deed of conveyance. However, it declined to approve the deed
tendered by Farmers Investment. Instead, the circuit court ordered the parties to
-9- tender an agreed final order that approves “the transfer of deed and payment but
does not dispose of or address any of [BG Landco’s] additional claims.”
On July 10, 2023, Farmers Investment filed a motion to certify as final
and appealable the court’s omnibus order of June 15, 2023. While the issue of
money damages remained outstanding, the court concluded that there was no just
cause for delay and certified its order as final and appealable on July 17, 2023.
This appeal followed.
On appeal, Farmers Investment argues that the circuit court erred by
granting summary judgment and ordering specific performance because BG
Landco was the first to breach the parties’ agreement. Next, it argues that the
remedies provision of the parties’ agreement squarely addresses the dispute
regardless of which party first breached its requirements. It also argues that the
circuit court erred by failing to apply the doctrine of election of remedies. Finally,
Farmers Investment argues that the court erred by ignoring the fact that BG Landco
cannot show causation for its alleged damages.
In response, BG Landco argues that the trial court did not err by
ordering specific performance of the purchase contract. It also contends that issues
surrounding its claim to money damages are not reviewable by this Court as they
have not yet been addressed by the trial court. We agree with the positions
asserted by BG Landco.
-10- A court may order summary judgment where pleadings, depositions,
answers to interrogatories, stipulations, and admissions on file and/or affidavits
show that there is no genuine issue as to any material fact. CR1 56.03. Upon our
review, we consider whether the trial court correctly determined that the moving
party was entitled to judgment as a matter of law. Scifres v. Kraft, 916 S.W.2d 779
(Ky. App. 1996). We do not defer to the trial court’s assessment of the record or
its legal conclusions. Foreman v. Auto Club Property-Casualty Insurance
Company, 617 S.W.3d 345, 349 (Ky. 2021) (quoting Hammons v. Hammons, 327
S.W.3d 444, 448 (Ky. 2010)).
“[S]pecific performance of a contract is not granted as a matter of
right but is always addressed to the reasonable discretion of the court, to be
exercised according to the facts of each case.” West Ky. Coal Co. v. Nourse, 320
S.W.2d 311, 314 (Ky. 1959). We note that specific performance arises from
equity. While weighing the equities of granting specific performance, a court must
determine if the party requesting specific performance is “entirely free from fraud,
illegal or inequitable conduct and . . . [the party has] strict[ly] compli[ed] with all
terms of the contract[.]” Id. at 314-15 (citing Asher v. Asher, 278 Ky. 802, 129
S.W.2d 552 (1939); Miller v. Prater, 267 Ky. 11, 100 S.W.2d 842 (1937);
Bluegrass Realty Co. v. Shelton, 148 Ky. 666, 147 S.W. 33 (1912); and Williamson
1 Kentucky Rules of Civil Procedure.
-11- v. Ingram, 243 Ky. 749, 49 S.W.2d 1005 (1932)). “Inequitable conduct, sharp
practice, fraud, or unfairness in the obtention of a contract will always defeat the
remedy of specific enforcement.” Dunscombe v. Amfot Oil Co., 201 Ky. 290, 256
S.W. 427 (1923); Powell v. Keene, 205 Ky. 846, 266 S. W. 659 (1924). “[A]ny
conduct or contract of an illegal, vicious, or immoral nature cannot be the basis of
a legal or equitable proceeding . . . the courts invariably leave the parties in such
cases in the dilemma they have themselves devised.” Robenson v. Yann, 224 Ky.
56, 5 S.W.2d 271, 274 (1928) (citing McMahon v. Lewis, 4 Bush 138 (1868); C. &
O. Ry. Co. v. Maysville Brick Co., 132 Ky. 643, 116 S.W. 1183 (1909); Hunt v.
Smith, 191 Ky. 443, 230 S.W. 936 (1921); Commercial Security Co. v. Archer, 179
Ky. 846, 201 S.W. 479 (1918); Jones v. Henderson, 189 Ky. 412, 417, 225 S.W.
34 (1920); American Mfg. Co. v. Crittendon Record-Press, 166 Ky. 548, 179 S.W.
456 (1915); Johnson v. McMillion, 178 Ky. 711, 199 S.W. 1070 (1918)). One who
seeks specific performance must be ready, willing, and able to perform his
obligations; a decree for a specific performance is not generally made in favor of a
party who has himself defaulted. Nourse, supra; Faulkner v. Denniston, 250 Ky.
373, 63 S.W.2d 286 (1933).
Farmers Investment claims that BG Landco is not entitled to specific
performance because it defaulted on the parties’ agreement. It argues that BG
Landco had no right to impose conditions not contained in the contract of sale. It
-12- explains that “[b]y sending [the demand letter] and filing suit, BG Landco
breached the Purchase Agreement in at least three respects. . . .”
First, Farmers Investment argues that BG Landco breached the
agreement by demanding more than it bargained for under its terms -- namely, a
conveyance free and clear of the encumbrance in favor of Sam’s Club. Second,
Farmers Investment contends that BG Landco breached the agreement by filing an
action for specific performance more than thirty (30) days after it learned that the
subject property was encumbered by restrictions in favor of Sam’s Club. Third,
Farmers Investment contends that BG Landco breached the agreement by
demanding both specific performance and money damages. We disagree with
Famers Investment’s view of the facts.
Through its correspondence some days ahead of closing, BG Landco
advised Farmers Investment that it was ready, willing, and able to proceed with its
obligations under the agreement. It never expressed a willingness to terminate the
agreement despite its position that Farmers Investment breached its obligation to
disclose the encumbrance in favor of Sam’s Club. In fact, each of the alleged
breaches identified by Farmers Investment in its brief concerns actions taken by
BG Landco in response to the failure of Farmers Investment to appear at closing
and to disclose the additional restrictions burdening the subject property.
-13- Pursuant to the express terms of the agreement, Farmers Investment
represented and warranted that the subject property was not burdened by the
encumbrance that it had, in fact, specifically granted to Sam’s Club years earlier.
Furthermore, the agreement provides that the representations and warranties “will
not be affected by any investigation, verification, or approval by any party or
anyone on behalf of any party. . . .” BG Landco did not breach the agreement by
requiring Farmers Investment to conform to its representations and warranties.
Whether BG Landco suffered damages as a result of Farmer Investment’s failure to
make the required disclosure under the circumstances is an issue separate and apart
from the question of whether Farmers Investment breached the agreement by
failing to participate in the closing and by refusing to convey the property.
The circuit court did not err by concluding that BG Landco filed its
action for specific performance within the timeframe required by the parties’
agreement. Once it acknowledged the encumbrance in favor of Sam’s Club,
Farmers Investment undertook negotiations with the retailer to have the restriction
removed. Until it was determined that Farmers Investment was unable to have the
restriction released and refused to attend closing, it was not subject to an action for
specific performance. BG Landco did not breach the agreement first by filing an
action for specific performance.
-14- Nor did the circuit court err by concluding that provisions of the
parties’ agreement did not preclude BG Landco from obtaining an order for
specific performance. As recited above, the very terms of the agreement provide
for this remedy. Whether the terms of the agreement also preclude BG Landco
from pursuing an additional claim for money damages is an issue yet to be decided
by the trial court that is not subject to our review at this juncture.
In an entirely separate argument, Farmers Investment claims that the
circuit court erred by failing to enforce the remedies provision of the parties’
agreement. It acknowledges that the agreement provides for an action for specific
performance and reimbursement for BG Landco’s “reasonable legal fees, court
costs, and all other reasonable costs of such action,” as a remedy for its default.
However, it contends that the remedy is exclusive and thus precludes a civil action
for money damages. Again, whether BG Landco can recover additional money
damages is an issue yet to be decided.
The circuit court stated repeatedly that it intended to rule only on BG
Landco’s right to specific performance. In its order granting partial summary
judgment entered August 1, 2022, the court emphasized that “[t]he sole issue
before the Court is BG Landco’s Motion seeking an Order of Specific
Performance. . . .” It observed that “[a]ll other claims, rights, remedies and
damages, including without limitation, claims, rights, remedies and damages and
-15- attorneys fees and costs for breach of contract, fraud, negligent misrepresentation,
negligence in the inducement and unjust enrichment, of BG Landco, LLC are not
before the Court.” Likewise, in its omnibus order entered on June 15, 2023, the
court explained, “[w]hile [Farmers Investment] is correct in pointing out that the
order does not limit [BG Landco] from pursuing additional claims against [it], this
Court has not yet made a final decision on those claims and may yet determine that
they are barred.” It continued, “[i]nsofar as any confusion exists, the August 1,
2022, Order should be read only to settle the matter of specific performance.”
Farmers Investment argues that the circuit court erred by failing to
conclude that the forms of relief sought by BG Landco are inconsistent and require
application of the election-of-remedies doctrine. It also argues that the court erred
by failing to consider that BG Landco cannot show that it caused the alleged
money damages because BG Landco could have elected to terminate the agreement
when it became aware of the encumbrance in favor of Sam’s Club. Once again,
those are all issues to be considered by the circuit court in the litigation still
pending. They are not presently before us on appeal.
We affirm the order of the Warren Circuit Court.
-16- ALL CONCUR.
BRIEFS FOR APPELLANT BRIEF FOR APPELLEE: FARMERS INVESTMENT CO.: Robert F. Maclin, III Benjamin J. Lewis Jaron P. Blandford Chelsea Granville Reed Lexington, Kentucky Louisville, Kentucky
Thomas N. Kerrick Kyle G. Bumgarner Bowling Green, Kentucky
-17-