Opinion
NO. 2018-CA-000303-MR
01-31-2020
ROSCOE F. BEARD and LIZA R. BEARD APPELLANTS v. G.E. GRAY; THE ESTATE OF LOUISE GRAY; AND MARK DENNIS GRAY AND JAMIE STEPHEN GRAY, PERSONAL REPRESENTATIVES FOR LOUISE GRAY APPELLEES
BRIEFS FOR APPELLANTS: Elmer J. George Lebanon, Kentucky BRIEF FOR APPELLEES: John D. Bertram Campbellsville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM TAYLOR CIRCUIT COURT
HONORABLE ALLAN RAY BERTRAM, JUDGE
ACTION NO. 16-CI-00041 OPINION
AFFIRMING
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BEFORE: ACREE, CALDWELL, AND KRAMER, JUDGES. KRAMER, JUDGE: Roscoe and Liza Beard appeal a judgment of foreclosure entered against them by the Taylor Circuit Court in favor of the appellees, G.E. Gray and the Estate of Louise Gray. Finding no error, we affirm.
Appellee Louise Gray passed away shortly after this appeal was initiated.
On February 18, 2016, G.E. Gray and Louise Gray filed suit in Taylor Circuit Court to enforce an October 16, 2009 promissory note against Roscoe Beard, Liza Beard, Kenneth Charles Burns, and Amber Renna Brown; and to foreclose upon the security identified in the promissory note (i.e., two tracts of land situated in Taylor County, held by those four individuals). In sum, the Grays alleged they had sold Roscoe, Liza, Kenneth, and Amber the two tracts of land; Roscoe, Liza, Kenneth, and Amber had executed the promissory note as part of the total consideration for the transaction; and the promissory note was currently in default and carried an outstanding balance of $52,812.55. The Grays' complaint specifically described the tracts and included as exhibits a copy of the executed promissory note and deed. The deed indicated the Grays had conveyed the property to Roscoe, Liza, Kenneth, and Amber on October 16, 2009, for a total consideration of $70,000; that $3,000 had been paid in cash; and, referencing the above-mentioned promissory note, it added that the property would secure the remaining $67,000, payable in ten years.
Over the course of the next several months, Roscoe, Liza, Kenneth, Amber, and the various other parties interested in the property were duly served. On August 26, 2016, and again on November 18, 2016, the Grays filed motions "for judgment" against Roscoe, Liza, Kenneth, and Amber, noting that those parties had failed to respond to their complaint. The Grays also filed an "affidavit of indebtedness" on September 9, 2016, averring in relevant part that, as of January 17, 2016, Roscoe, Liza, Kenneth, and Amber jointly and severally owed an outstanding sum of $52,815.55.
On January 17, 2017, almost a year after being effectively served in this matter, Roscoe Beard and Liza Beard (but not Kenneth Burns or Amber Renna Brown) acknowledged the Grays' foreclosure action for the first time by filing a "response to motion for judgment." The entirety of their "response" was one paragraph, with Roscoe's affidavit attached, and stated in full:
Comes the Defendants Beard, by counsel and hereby submits [sic] their response to this motion. Namely, they contend that the issue is whether they were actually sold what was reported and whether there was accord and satisfaction in regard to the dispute reached before. Only when that failed did they not expend further funds in payment on this property. They do not disagree that the property may be sold, but only how the money would divided [sic]. Roscoe Beard's affidavit is attached hereto and made a part hereof.
Roscoe's affidavit, dated December 28, 2016, provided in relevant part as follows:
1. That I am Roscoe Beard, a Defendant in the above styled action.
2. That I became interested in the property subject to this action when I began pasturing my horses there in 2008.
3. That Mr. Gray came to me with the idea of buying the property.
4. That we entered into an agreement to do so at his house.
5. However, Mr. Gray failed to inform me that the land was in two tracts, has two tax bills, and did not include the "front portion" of the property on which the access road lies.
6. That we do not own the access road and only have a right-of-way.
7. Further, that the "front portion" had an old building on it that we wanted to restore.
8. In October of 2015 we met with Mr. Gray to discuss the problems with the property.
9. At that time we first learned that in lieu of paying $70,000 with $3,000 down with no interest he had actually prepared an agreement charging us 6% interest per year.
10. After hearing my concerns at the meeting Mr. Gray offered to settle the dispute by obtaining the "front portion" of the property and making the situation right.
11. I restarted the payments and made a $1,500 lump sum payment after that meeting.
12. Nothing ever came of that meeting and the "front portion" still divides the property sold to us.
It is unclear how the Beards came to believe the Grays were claiming an interest rate of 6%. As indicated, the promissory note which the Beards executed, and which the Grays sought to enforce, specified an interest rate of 5%. Furthermore, a 5% interest rate was also claimed by the Grays in their complaint.
The Grays did not file a reply to Roscoe's and Liza's "response to motion for judgment." Nor, for that matter, did the circuit court indicate it regarded their "response to motion for judgment" as an answer to the Grays' foreclosure action. To that end, on June 9, 2017, the circuit court entered an order that directed the subject property to be sold in satisfaction of the October 16, 2009 promissory note; listed and determined the priorities of the various lienholders; and held in relevant part as follows:
Upon Motion of the Plaintiffs, G.E. Gray and Louise Gray, for a Summary Judgment and Order of Sale against the Defendants. The Defendants, Roscoe Franklin Beard, Liza Rosalie Beard, Kenneth Charles Burns and Amber Renna Brown, are before the Court, having been served with process and having failed to file any responsive pleadings and the Court is otherwise adequately and sufficiently advised; The Court makes the following FINDINGS OF FACT:
. . .
3. More than twenty (20) days have elapsed since the service upon the Defendants, and that said Defendants, Roscoe Franklin Beard, Liza Rosalie Beard, Kenneth Charles Burns and Amber Renna Brown . . . have failed to file a responsive pleading herein;
. . .
5. The Plaintiffs, entered into a Promissory Note and Lien in Deed with the Defendants, Roscoe Franklin Beard, Liza Rosalie Beard, Kenneth Charles Burns and Amber Renna Brown, in the original sum of $67,000;(Emphasis added.)
6. That the Defendants, Roscoe Franklin Beard, Liza Rosalie Beard, Kenneth Charles Burns and Amber Renna Brown, have defaulted in the required payments on said note, and there is currently due and payable to the Plaintiffs, the sum of $52,812.55 as of January 17, 2016, with interest at the rate of 5%, which amount is further described in Plaintiffs' affidavit filed of record herein. The Plaintiffs claim to have demanded payment in full and have exercised their right to declare all sums past due and payable in full. The Court finds that the Defendants have failed and refused to pay the required sum remaining unpaid.
On June 15, 2017, Roscoe and Liza moved the circuit court to alter, amend, or vacate "at least in part" its June 9, 2017 judgment pursuant to Kentucky Rule of Civil Procedure (CR) 59.05. Pertinent to our review, they made three contentions. First, pointing to their January 17, 2017 "response to motion for judgment," Roscoe and Liza asked the circuit court to vacate paragraph "3" of its order set forth above, arguing they had, in fact, filed a "responsive pleading" and that their responsive pleading had effectively asserted an "accord and satisfaction" defense.
Second, they argued that for purposes of summary judgment, Roscoe's affidavit had provided enough evidence to create a genuine issue of material fact regarding whether there had been a failure of consideration regarding the land sale transaction, and whether they had entered an "accord and satisfaction" with the Grays.
And third, Roscoe and Liza made a new argument which approximated a setoff claim. Pointing to yet another affidavit from Roscoe, this one dated June 13, 2017, which they had attached to their CR 59.05 motion, the Beards now asserted an entitlement to "approximately $40,000" of any proceeds realized from the sale of the subject property. Roscoe and Liza claimed this amount was roughly what they had paid toward the October 16, 2009 promissory note. But, they included no documentation of the purported payments with their affidavit nor did they suggest that, given time, such proof of payment or evidence supporting their position could be presented.
In their response to Roscoe's and Liza's CR 59.05 motion, the Grays acknowledged Roscoe and Liza had paid them $1,500 prior to the onset of their foreclosure action, but they represented this amount had been directed toward curing the prior default on the promissory note. According to the Grays, Roscoe and Liza had stopped paying thereafter and had defaulted again, which led to the instant foreclosure action. They represented the $1,500 had already been factored into the total remaining amount they had previously averred remained owed on the promissory note.
The Grays also represented that they had agreed with Roscoe and Liza during the ensuing litigation to privately sell the two tracts at issue to yield a higher sale price. But, they denied the existence of any agreement with Roscoe and Liza pertaining to the amount of land at issue or what Roscoe and Liza owed, apart from what was set forth in the promissory note and deed. They denied that Roscoe's two affidavits created any genuine issues of material fact regarding the validity of the deed, promissory note, and the outstanding balance owed by Roscoe and Liza. Moreover, they argued it was improper for Roscoe and Liza to argue that their unsupported prior understanding of the land sale transaction—or (for statute of fraud purposes) a purported, subsequent oral agreement—were controlling over the terms of the plainly written promissory note and deed that Roscoe, Liza, Kenneth, and Amber had executed. Further, the Grays noted that, notwithstanding Roscoe's and Liza's "failure of consideration" argument, the two tracts at issue had sold at a private sale for more than what Roscoe, Liza, Kenneth, and Amber had agreed to pay for it, resulting in a surplus of proceeds and no possibility of a deficiency judgment.
During a January 16, 2018 hearing, the circuit court heard arguments from the parties relating to Roscoe's and Liza's CR 59.05 motion. On January 17, 2018, it then entered an order, which denied Roscoe's and Liza's motion; stated "the evidence does not support the Motion"; and granted a motion from the Grays to distribute to them $57,242.07, an amount consistent with the averred outstanding balance of the promissory note plus interest and costs.
Roscoe and Liza now appeal. The lynchpins of Roscoe's and Liza's appeal are their assertions of a failure of consideration regarding their purchase of the subject property; their "accord and satisfaction" with the Grays to resolve their purported dispute regarding the consideration; and their "approximately $40,000" setoff claim discussed above. Based upon these assertions, Roscoe and Liza represent in their appellate brief that "there are two issues of material fact in dispute. First, whether the Appellants were in fact in breach of contract. Second, how much was owed, if any." One of Roscoe's and Liza's arguments on appeal in this vein is that the circuit court erred when it "issued a judgment adopting the Appellees' position of how much the Appellants owed without an evidentiary hearing or specifically finding against the arguments of the Appellants."
The Grays counter, however, by arguing Roscoe and Liza failed to properly raise or preserve any defenses or claims in this matter because they never filed an answer or any other pleadings below. We agree.
In Kentucky, affirmative defenses such as "failure of consideration," "accord and satisfaction," and claims asserting a setoff must ordinarily be set forth in a pleading (i.e., an answer, complaint, or counterclaim, as opposed to a motion), and must be stated so as to give fair notice. See CR 8.03; Vogler v. Salem Primitive Baptist Church, 415 S.W.2d 72, 74 (Ky. 1967). The failure to do so generally constitutes waiver of the claim or affirmative defense. Id.
Depending upon the circumstances, a claim in the nature of a setoff could be considered either an affirmative defense or a counterclaim. See, e.g., Armstrong v. Logsdon, 469 S.W.2d 342 (Ky. 1971).
While the point has no bearing here, an affirmative defense may also be raised by a motion to dismiss if it is based upon a fatal deficiency in the plaintiff's claim, apparent on the face of the complaint. See Wilson v. Hoffman, 298 S.W.2d 317, 319 (Ky. 1957).
When interpreting a judgment, "effect must be given to that which is unavoidably and necessarily implied in a judgment, as well as that which is expressed in the most appropriate language." Furlow v. Sturgeon, 436 S.W.2d 485, 486 (Ky. 1968) (citation omitted). Here, notwithstanding Roscoe's and Liza's assertions of "accord and satisfaction" and failure of consideration in their January 17, 2017 "response to motion for judgment," the record demonstrates at least one of the circuit court's bases for granting summary judgment in favor of the Grays: The circuit court did not regard their "response to motion for judgment" and Roscoe's December 28, 2016 affidavit (filed almost a year after their answer was otherwise due) as responsive pleadings.
That the circuit court consequently deemed those claims waived is evident from the circuit court's preamble to its June 9, 2017 summary judgment order; paragraph "3" of that same order (italicized above); and—as observed by Roscoe and Liza—its issuance of a judgment adopting the Appellees' position of how much the Appellants owed without an evidentiary hearing or specifically finding against the arguments of the Appellants. More so, that conclusion is inescapable from the circuit court's disposition of Roscoe's and Liza's CR 59.05 motion: They specifically asked the circuit court to vacate its finding in paragraph "3," which recited they had failed to properly file any responsive pleading and the circuit court denied their motion.
As to Roscoe's and Liza's $40,000 setoff claim, the lack of preservation is equally apparent: The first occasion they asserted this claim was in their post-judgment CR 59.05 motion. If they wished to contest the extent and validity of their outstanding obligation on the October 16, 2009 note, they were required to do so before the circuit court entered its June 9, 2017 order. See Security Federal Sav. & Loan Ass'n of Mayfield v. Nesler, 697 S.W.2d 136, 139 (Ky. 1985) (explaining "an order which directs property to be sold in satisfaction of a judgment and lists and determines the priorities is a final and appealable judgment[,]" even if the case is retained on the docket for purposes of enforcing the judgment, marshaling the assets, conducting the sale, and distributing the proceeds); see also Hopkins v. Ratliff, 957 S.W.2d 300, 301 (Ky. App. 1997) (emphasis added) (quotation marks and citation omitted) ("A party cannot invoke [CR 59.05] to raise arguments and introduce evidence that could and should have been presented during the proceedings before entry of the judgment.").
By Roscoe's and Liza's merely arguing the circuit court erred when it "issued a judgment adopting the Appellees' position of how much the Appellants owed without an evidentiary hearing or specifically finding against the arguments of the Appellants," they have effectively missed the point. They take issue with the consequences of a waiver but have presented no facts or law indicating the circuit court's effective conclusion that a waiver had occurred was erroneous. Absent that, we are not at liberty to reverse. See, e.g., Osborne v. Payne, 31 S.W.3d 911, 916 (Ky. 2000) ("Any part of a judgment appealed from that is not briefed is affirmed as being confessed."). And in any event, we find no error with the circuit court's determination.
Next, Roscoe and Liza disagree with the circuit court's statement, set forth in its January 17, 2018 order, to the effect that the evidence did not support their motion to vacate. They argue Roscoe's two affidavits provided ample evidence of the failure of consideration regarding their purchase of the subject property; their "accord and satisfaction" with the Grays to resolve it; along with their "approximately $40,000" setoff claim.
Considering that we discern no error in the circuit court's determination that Roscoe and Liza failed to file any responsive pleading in this matter, this argument is moot; as set forth above, it appears the circuit court's June 9, 2017 order was more in the nature of a default judgment, rather than summary judgment.
Even still, the circuit court's dismissal would also have been proper under summary judgment standards. When reviewing a trial court's ruling on a motion for summary judgment, appellate courts must ask "whether the trial court correctly found there were no genuine issues as to any material fact and that the moving party was entitled to judgment as a matter of law." Hallahan v. The Courier-Journal, 138 S.W.3d 699, 704 (Ky. App. 2004). In its decision, the trial court must have viewed all evidence in the light most favorable to the non-moving parties and resolved all doubts in their favor. Id. at 705. Appellate courts need not defer to the trial court's decision. Id. As legal conclusions are involved and findings of fact are not at issue, appellate review shall be conducted under a de novo standard. Id.
As indicated, Roscoe's June 13, 2017 affidavit—the only source of Roscoe's and Liza's evidence regarding their setoff claim—was improper. On June 9, 2017, the circuit court summarily resolved the priorities of the liens and encumbrances against the subject property and determined the value of the Grays' lien, along with the outstanding balance owed by Roscoe and Liza on the October 16, 2009 promissory note. They filed Roscoe's June 13, 2017 affidavit, which challenged those adjudicated findings, as a supporting exhibit to a post-judgment CR 59.05 motion. "A party cannot invoke [CR 59.05] to raise arguments and introduce evidence that could and should have been presented during the proceedings before entry of the judgment." See Hopkins, 957 S.W.2d at 301 (emphasis added) (quotation marks and citation omitted).
Moreover, even if Roscoe and Liza had properly raised their "accord and satisfaction" and failure of consideration arguments in their January 17, 2017 "response to motion for judgment," Roscoe's December 28, 2016 affidavit lent those claims no evidentiary support.
To review, Roscoe averred that he and his wife had a prior understanding of the land sale transaction with the Grays that differed from the land sale transaction described in the deed they executed with the Grays: Contrary to the deed, they believed they also should have gotten an undefined "'front portion' of the property on which the access road lies." Roscoe and Liza claimed G.E. Grey had validated their understanding of the transaction by making a verbal offer of settlement—a promise to make "things right," and to modify the existing contract, by "obtaining the 'front portion' of the property." Roscoe and Liza claimed they accepted G.E. Gray's offer by resuming the payments they were otherwise required to make under the terms of the October 16, 2009 promissory note. And, based upon the Grays' purported failure to satisfy the terms of the subsequent oral settlement agreement, Roscoe and Liza asserted: (1) the Grays had committed a breach of contract, which effectively excused them from making further payments on the October 16, 2009 promissory note; (2) the Grays were not entitled to foreclose upon the subject property due to the breach of contract; and (3) due to the breach of contract, the Grays could only sell the property with their consent.
With that said, there are two overarching problems with what Roscoe set forth in his December 28, 2016 affidavit, which the Grays emphasized at length in their reply to Roscoe's and Liza's CR 59.05 motion and during the January 16, 2018 hearing. First, it runs afoul of the merger doctrine. The affidavit indicates that Roscoe believed he and his wife should have received more property from the land sale transaction than what the deed described, but it does not explain how—beyond possibly failing to read the plain language of the deed—Roscoe arrived at his understanding about the extent of the real property he was purchasing. Absent some evidence of fraud, the doctrine of merger generally prohibits reliance upon prior understandings that are not set forth in a written deed or other instrument. See Borden v. Litchford, 619 S.W.2d 715, 717 (Ky. App. 1981) (describing the application of the doctrine of merger to deeds); see also Dunn v. Tate, 268 S.W.2d 925, 927 (Ky. 1954) (explaining the merger doctrine does not apply to false and fraudulent misrepresentations); see also Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94 S.W.3d 381, 385 (Ky. App. 2002) (one party intending a different result is insufficient to construe a contract at variance with its plain and unambiguous terms).
Second, and despite a bald assertion to the contrary from Roscoe and Liza set forth in their appellate brief, it runs afoul of the statute of frauds. Through the affidavit, Roscoe and Liza attempted to assert claims that depended upon the breach of a purported contract (i.e., the "accord and satisfaction") that is generally unenforceable; namely, an oral contract that purportedly changed the terms of a prior written contract relating to a conveyance of land. See Kentucky Revised Statute (KRS) 371.010(6); Cox v. Venters, 887 S.W.2d 563, 566 (Ky. App. 1994) ("Where a contract is required by the Statute of Frauds to be in writing, a subsequent agreement which changes its terms must also be written and signed by the party to be charged to be enforceable."); see also Smith v. Williams, 396 S.W.3d 296, 299 (Ky. 2012) ("[O]nce the statute of frauds is raised, the oral contract becomes unenforceable, regardless of which party filed suit.").
As an aside, the circuit court also pressed Roscoe and Liza on this point during the January 16, 2018 hearing, asking if they could assert that any exception to the statute of frauds might apply. In response, they suggested their averred payment of $1,500 to bring the past-due payments on the promissory note up to date, and their averred promise to continue making payments on that note in the future, might evince partial performance of their purported oral contract of accord and satisfaction. The circuit court rejected their argument, observing that both of those courses of action were consistent with adhering to the original contract, not with partially performing a new one. From their brief, it appears Roscoe and Liza have not reasserted their partial-performance argument before this Court, and to the extent they have, it lacks merit.
In short, Roscoe and Liza have failed to demonstrate the circuit court's disposition of this matter was erroneous. Accordingly, we AFFIRM.
ALL CONCUR. BRIEFS FOR APPELLANTS: Elmer J. George
Lebanon, Kentucky BRIEF FOR APPELLEES: John D. Bertram
Campbellsville, Kentucky