Matthew Ward v. Chad Lertora

• Court: Court of Appeals of Kentucky
• Decided: September 13, 2024
• Docket: 2023-CA-0568
• Status: Unpublished

Opinion

RENDERED: SEPTEMBER 13, 2024; 10:00 A.M. NOT TO BE PUBLISHED

Commonwealth of Kentucky Court of Appeals NO. 2023-CA-0568-MR

MATTHEW WARD APPELLANT

APPEAL FROM MUHLENBERG CIRCUIT COURT v. HONORABLE BRIAN WIGGINS, JUDGE ACTION NO. 21-CI-00453

CHAD LERTORA AND RE/MAX REAL ESTATE EXECUTIVES APPELLEES

AND

NO. 2023-CA-0587-MR

CHAD LERTORA CROSS-APPELLANT

CROSS-APPEAL FROM MUHLENBERG CIRCUIT COURT v. HONORABLE BRIAN WIGGINS, JUDGE ACTION NO. 21-CI-00453

MATTHEW WARD CROSS-APPELLEE

OPINION AFFIRMING ** ** ** ** **

BEFORE: EASTON, GOODWINE, AND TAYLOR, JUDGES.

EASTON, JUDGE: These appeals involve a claim by a realtor to a buyer’s

premium resulting from an auction (No. 2023-CA-0568) and a seller’s claim to an

earnest money deposit (No. 2023-CA-0587) for a residential real estate sale which

did not close. By summary judgment, the circuit court determined that Matthew

Ward (“Ward”), the defaulting buyer, owed the buyer’s premium to RE/MAX Real

Estate Executives (“RE/MAX”) but did not owe the earnest money deposit to the

property owner, Chad Lertora (“Lertora”). We affirm.

FACTUAL AND PROCEDURAL HISTORY

The controlling facts are not disputed. Lertora owned a house and

surrounding sixty acres with an address of 375 Cartwright Lane, Drakesboro (the

“Property”). Lertora entered into an auction agreement with RE/MAX to conduct

a public auction for the Property to be sold to the highest bidder. The auction

would have a 7% buyer’s premium added to the final bid to determine the overall

sales price of the Property.

RE/MAX advertised the Property through flyers, which provided

notice of the buyer’s premium as well as the “as is” and no warranty nature of the

sale. RE/MAX auctioned the Property on August 28, 2021. Ward was the highest

bidder at $424,250. Lertora and Ward entered into a form real estate contract (the

-2- “Contract”) the next day memorializing the terms of Ward’s purchase of the

Property. The Contract again emphasized that the Property was being sold “as is”

and “subject to all easements and restrictions recorded and unrecorded.”

Pursuant to the Contract, in addition to the bid price, Ward was to pay

RE/MAX’s buyer’s 7% premium of $20,750 for a total price of $445,000. Ward

was further required to make a non-refundable earnest money deposit of $44,500 to

a RE/MAX escrow account, which he never did. Section 14 of the Contract says:

“Should the Buyer fail to perform on any of the terms and conditions of this

contract, Seller may seek specific performance and all reasonable attorney fees

shall be paid by defaulting party.” Lertora did not seek specific performance, and

we are not in a position to review claims for attorney’s fees as the circuit has not

yet determined them. Section 16 provides: “Earnest deposit is non-refundable and

to be paid to the seller if buyer defaults on closing.”

Closing on the Property was scheduled for October 8, 2021. Ward did

not close. Ward claimed some issue with mineral rights for the property. Such

rights were a matter of record for Ward to discover before he placed a bid on

property sold as is and with no warranties. Ward had no legitimate basis for

default.

Lertora sold the Property by contract signed two weeks later on

October 22, 2021, to another buyer for $489,000. Denny Pendley of RE/MAX

-3- represented Lertora in this subsequent transaction as his private real estate agent.

This later transaction did close. Pendley was paid a 3% commission by Lertora for

that work.

Lertora and RE/MAX filed an action against Ward in Muhlenberg

Circuit Court for breach of contract. Lertora argued he was entitled to recover the

$44,500 earnest money deposit, and RE/MAX argued it was entitled to the buyer’s

premium in the amount of $20,750.

The parties engaged in discovery. Lertora and RE/MAX moved for

summary judgment on their respective claims for the earnest money deposit, the

buyer’s premium, and attorney’s fees. Ward filed his own Motion for Summary

Judgment. Ward argued Lertora was not entitled to the earnest money deposit

because Lertora quickly sold the Property for a higher price and thus had sustained

no actual damages. Ward argued RE/MAX suffered no damages as it still received

a commission when the Property later sold for $489,000.

After considering the competing summary judgment positions, the

circuit court issued an Opinion and Order. The court denied Lertora’s motion on

the issue of the earnest money deposit and instead granted judgment in favor of

Ward on that issue. The court determined that the earnest money deposit, even if

intended as a liquidated damages provision, was not recoverable due to the

-4- Property being sold without delay and for an amount in excess of the sales price

initially agreed upon by Lertora and Ward.

Summary judgment was granted to RE/MAX on the issue of the

buyer’s premium ($20,750). The court held that the buyer’s premium was

expressly enumerated in the Contract and represented “profit” to RE/MAX that

was contemplated by the parties and reasonably certain to occur. The court

reasoned the buyer’s premium was earned through RE/MAX’s work related to the

auction, and this work was separate and distinct from any other commission

received from the later transaction that closed. The circuit court left the award of

any attorney fees and costs for future determination.

Ward then filed a Motion to Alter, Amend or Vacate the court’s

Opinion and Order. The court denied Ward’s motion. Record (“R.”) at 240. Ward

then filed his appeal about the buyer’s premium, and Lertora filed a cross-appeal

about the earnest money deposit.

STANDARD OF REVIEW

“The standard of review of a trial court’s granting of 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. Summary judgment is proper when it appears that it would be

impossible for the adverse party to produce evidence at trial warranting a judgment

-5- in its favor.” Andrew v. Begley, 203 S.W.3d 165, 169 (Ky. App. 2006) (internal

quotation marks and citations omitted). “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.” Jenkins v. Best, 250 S.W.3d 680, 688 (Ky. App. 2007). Both sides in

this case thought there were no material factual disputes. They are correct that the

case presents only legal issues.

ANALYSIS

BUYER’S PREMIUM

Ward argues the circuit court erred by awarding the buyer’s premium

to RE/MAX because it suffered no damages resulting from Ward’s default.

RE/MAX sells property to earn commissions. In this case, the commission was to

be paid as a 7% buyer’s premium. Buyer’s premiums are one method to pay

commissions earned by the auctioneer. See, e.g., 1 ALEXANDRA DARRABY,

DARRABY ON ART LAW § 5.27 (2024). Kentucky recognizes this form of payment

to the realtor and requires notice in auction advertisements, which was given in this

case by RE/MAX. KRS1 330.230(2). Ward still argues that, because RE/MAX

got a commission when it sold the property later to another buyer, then it really

suffered no loss.

1 Kentucky Revised Statutes.

-6- The payment of the buyer’s premium is a commission earned for work

performed. After actual expenses, the realtor may indeed make a profit from the

sale. A realtor earns a commission when it provides to the seller an enforceable

contract with a buyer. Cox v. Venters, 887 S.W.2d 563, 565 (Ky. App. 1994). The

buyer’s premium was to pay for the work of RE/MAX with respect to the auction

and the sale that should have followed that auction.

This auction sale and contract was the work of auctioneer Michael

Miller with RE/MAX. This is distinct from any commission RE/MAX earned

when it was called upon to obtain another buyer after Ward breached the Contract.

The commission for the later sale was earned by Denny Pendley. The circuit court

did not err in determining that Ward owed the buyer’s premium.

EARNEST MONEY DEPOSIT

Lertora’s cross-appeal argues the circuit court erred in granting

summary judgment to Ward on the issue of the earnest money deposit. In its

Opinion and Order, the circuit court was not convinced that Sections 14 and 16

“unambiguously [equate] to liquidated damages provisions[.]” R. at 205. The

court assumed the sections constituted liquidated damages provisions for the sake

of argument. The court then concluded: “the purported liquidated damage amount

of $44,500 greatly exceeds the actual damage experienced by Lertora.” Id. at 206.

-7- The court held Lertora suffered no damages as he sold the Property for $489,000

two weeks after Ward’s breach.

To be enforceable as a liquidated damages provision, a contract term

must actually indicate that intent by the parties. As we have previously held, such

terms are “contractually stipulated as a reasonable estimation of actual damages to

be recovered by one party if the other party breaches.” Goetz v. Asset Acceptance,

LLC, 513 S.W.3d 342, 346 (Ky. App. 2016) (quoting Damages, BLACK’S LAW

DICTIONARY (10th ed. 2014)).

Item 16 in this Contract simply says without explanation that the

deposit, which again was never made, was “non-refundable.” There is no

explanation as to how this was intended to estimate actual damages which might be

suffered if a breach occurred. It could just as well indicate that the deposit could

not be returned pending the closing of the transaction because it must be applied to

the purchase price to be supplemented by other (usually borrowed) funds. Like the

circuit court, we do not see this provision as a liquidated damages provision. Even

if the provision was intended to serve as a liquidated damages clause, Lertora’s

claim fails.

Liquidated damages provisions should be upheld “only (1) where the

actual damages sustained from a breach of contract would be very difficult to

ascertain and (2) where, after the breach occurs, it appears that the amount fixed as

-8- liquidated damages is not grossly disproportionate to the damages actually

sustained.” Mattingly Bridge Co. v. Holloway & Son Const. Co., 694 S.W.2d 702,

705 (Ky. 1985) (emphasis in original) (citation omitted).

Here the damages were not difficult to ascertain. When a buyer

breaches a sale contract, the measure of damages is the difference in the value of

the property on the date of the breach as compared to the contract price. Lawson v.

Menefee, 132 S.W.3d 890, 893-94 (Ky. App. 2004). There may be other incidental

damages such as interest accrued related to the breach before the property is again

sold. All this can be easily measured.

In Patel v. Tuttle Properties, LLC, 392 S.W.3d 384 (Ky. 2013), a

prospective buyer who was unable to secure financing to close a real-estate

transaction sued the sellers after they refused to return the earnest money deposit of

$125,000. The trial court granted summary judgment to the sellers, and this Court

affirmed. The Kentucky Supreme Court reversed and remanded, stating the trial

court must determine whether the earnest money deposit was an allowable award

of liquidated damages or a non-allowed penalty before the case could be properly

resolved. Id. at 386-87. See generally Ronald W. Eades, Penalties Distinguished

from Liquidated Damages, KY. L. OF DAMAGES § 5.2 (2024).

The RESTATEMENT (SECOND) OF CONTRACTS § 356(1) provides the

following distinction between a liquidated damages provision and a penalty:

-9- Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing unreasonably large liquidated damages is unenforceable on grounds of public policy as a penalty.

Lertora and Ward agreed on the Contract price of $424,250, plus a

buyer’s premium of $20,750 to RE/MAX for a total of $445,000. Lertora entered

into another successful contract two weeks later and sold the Property for

$489,000, over $40,000 more than Ward would have paid. Lertora did not suffer

actual damages as he quickly sold the Property for a larger amount and realized a

much higher profit than that he expected to receive from the sale to Ward.

The circuit court correctly found that awarding the $44,500 deposit to

Lertora would be greatly disproportionate to Lertora’s actual damages (viz. $0). If

Item 16 were to be applied as a liquidated damages provision, it clearly would have

been an impermissible penalty. The circuit court did not err in granting summary

judgment to Ward regarding the earnest money deposit.

CONCLUSION

Lertora was not entitled to the earnest money deposit as liquidated

damages because the amount of actual damages could be easily ascertained and

because the amount of the deposit was grossly disproportionate to the damages

actually sustained by Lertora and thus would have been an impermissible penalty.

RE/MAX was entitled to the buyer’s premium as its earned commission for the

-10- work performed on the auction. The Opinion and Order of the Muhlenberg Circuit

Court is AFFIRMED.

ALL CONCUR.

BRIEF FOR APPELLANT/CROSS- BRIEF FOR APPELLEES/CROSS- APPELLEE MATTHEW WARD: APPELLANTS CHAD LERTORA AND RE/MAX REAL ESTATE Parker M. Wornall EXECUTIVES: Gregory A. Healy Louisville, Kentucky Aaron D. Smith John A. Sowell Bowling Green, Kentucky

-11-