Opinion
NO. 2013-CA-001309-MR
03-27-2015
ROSE MARY HUBBS BREWER and KNOX BODY SHOP, INC. APPELLANTS v. JOHN M. PARSONS 2007 REVOCABLE TRUST; BEVERLY PARSONS, Individually, and as the executrix of the ESTATE OF JOHN M. PARSONS, and as Trustee of the JOHN M. PARSONS 2007 REVOCABLE TRUST; and DR. CAROLYN S. PAYNE, Individually and as Trustee of the JOHN M. PARSONS 2007 REVOCABLE TRUST APPELLEES
BRIEF FOR APPELLANTS: Travis A. Rossman D. Randall Jewell Barbourville, Kentucky Robert L. Brown, III Corbin, Kentucky BRIEF FOR APPELLEES: W. Patrick Hauser Barbourville, Kentucky
NOT TO BE PUBLISHED APPEAL FROM KNOX CIRCUIT COURT
HONORABLE GREGORY A. LAY, JUDGE
ACTION NOS. 11-CI-00623 AND 12-CI-00285
OPINION
AFFIRMING
BEFORE: KRAMER, J. LAMBERT, AND NICKELL, JUDGES. KRAMER, JUDGE: The above-captioned appellants filed an action in Knox Circuit Court seeking an interpretation of, and declaration of rights with respect to, a September 18, 2007 agreement for the purchase all of the stock and assets of Knox Body Shop, Inc. (Knox), along with all of the real property that Knox was situated upon. Following its review, the circuit court dismissed the appellants' action after concluding that the appellants had failed to properly exercise their rights under the September 18, 2007 agreement. Accordingly, the appellants' arguments in this appeal are exclusively directed toward refuting the circuit court's conclusion that they failed to properly exercise their rights under the September 18, 2007 agreement.
Our review is de novo because the circuit court's judgment dealt exclusively with issues of legal interpretation, and no material facts are in dispute. Western Kentucky Coca-Cola Bottling Co., Inc. v. Revenue Cabinet, 80 S.W.3d 787, 790 (Ky. App. 2001). While we agree with the circuit court's ultimate disposition of this case, we affirm on other grounds. In short, the September 18, 2007 agreement is not enforceable as a matter of law.
See Emberton v. GMRI, Inc., 299 S.W.3d 565, 576 (Ky. 2009) ("Moreover, an appellate court may affirm a lower court's decision on other grounds as long as the other court reached the correct result."); see also Kentucky Farm Bureau Mut. Ins. Co. v. Gray, 814 S.W.2d 928, 930 (Ky. App. 1991).
We begin by emphasizing that the September 18, 2007 agreement purports to be an option contract. For an option contract to be enforceable, its material terms (for example, the subject matter, price, payment terms, quantity, quality, duration, or the work to be done) must be fixed with reasonable certainty. See Walker v. Keith, 382 S.W.2d 198, 204-05 (Ky. 1964). As further explained by the former Court of Appeals,
See, e.g., BLACK'S LAW DICTIONARY 999-92 (7th ed. 1999) (defining "material terms" as "Contractual provisions dealing with significant issues such as subject matter, price, payment terms, quantity, quality, duration, or the work to be done.").
[a]n option contract must be complete and certain in its terms, that is to say, the parties and its subject matter must be identified by it, and the terms and provisions of the contract must be stated in writing, if required to be in writing, or established by competent evidence, if not required to be in writing, with that certainty and definiteness which will enable a court to determine that the parties, by an election thereunder, have concluded an agreement and also what the exact terms of that agreement are.Hisle v. Keltner, 495 S.W.2d 773, 775 (Ky. 1973) (quoting James on Option Contracts, Section 209, page 78).
With this in mind, we turn to the relevant language of the September 18, 2007 agreement:
KNOX BODY SHOP, INC.
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT (this "Agreement") made as of September 18, 2007, between KNOX BODY SHOP, INC., a Kentucky corporation with offices at U.S. 25E, Barbourville, Kentucky 40906 (the "Company"), JOHN M. PARSONS ("Optioner"), BEVERLY PARSONS, and ROSE MARY HUBBS ("Optionee").
. . . .
AGREEMENTS
. . . .
1. Grant of Option. Optionor, and Beverly Parsons to the extent of her interest in the property which is the subject of this Agreement, hereby grants to Optionee, and the Company hereby confirms that Optionee has been granted, subject to the terms of this Agreement, as a matter of separate inducement and agreement and not in lieu of salary or other compensation for services[], the right (the "Option") to purchase all of the shares of the Company (the shares subject to purchase hereunder being hereinafter called "Shares"), all of the land upon which the business is presently situated, and all of the equipment used by the Company (hereinafter called "Option Property") at a price evidenced by the Certificate of Agreed Value last entered into by the parties hereto prior to the exercise date.[] Payment of the option price shall be as mutually agreed upon by the parties in writing, or if the parties are unable to agree the option price shall be represented by a secured installment note executed by Optionee. The principal of said note shall be paid in equal monthly installments over ten years from the date of exercise of the Option. In addition, such note shall contain a provision accelerating all payments in the event any installment is not paid when due, and default in payment thereof continues for a period of 30 days after the due date, in which case the entire unpaid balance shall become due and payable at the option of the holder.
2. Exercisability of Option.
2.1 Subject to the terms and conditions of this Agreement, the Option shall be exercisable by Optionee with respect to the Shares within 90 days after the Optionor's date of death.
2.2 This right to exercise shall be personal to Optionee and shall not survive her termination of employment or death.
3. Method of Exercise of Option. The Option may be exercised by Optionee (but no other person) as to all of the Option Property hereunder by giving written notice of exercise to the Company at its principal business office, to Optionor's legal or personal representatives and to Beverly Parsons at her principal residence address, which date shall be the exercise date. The Company shall cause certificates for the Shares to be issued in the name of Optionee and the parties hereto or their legal or personal representatives shall execute such other transfer documents as may be necessary to transfer all of the Option Property to Optionee, including without limitation deeds and bills of sale. Provided, however, Optionor's legal or personal representative may hold the Shares as security for the payment of the option price.
At all times relevant to this litigation, Rose Mary Hubbs Brewer was the President of Knox Body Shop, Inc.
The "certificate of agreed value" mentioned in section 1 of the agreement recited that the combined value of the stock, equipment, and real property was $300,000. It did not specify the individual values of these three respective items and the agreement does not allow for the purchase of less than all three items.
At least two material terms have been omitted from this agreement. First, this agreement indicates that an inseparable part of the option being offered was the transfer of real property that was owned in fee simple by John Parsons (i.e., "all of the land upon which the business is presently situated"). In the context of option contracts regarding real property, "[t]he real property involved must be so described in the writing that it can be identified from the writing itself; parol evidence is not admissible to supply the description." Hisle, 495 S.W.2d at 775. Thus, if the real property cannot be identified without the aid of parol evidence, "[t]he option in question, if it is an option, is void for uncertainty and indefiniteness and cannot be enforced." Id.
On June 25, 2009, John Parsons transferred all of his real property via general warranty deed to the "John M. Parsons 2008 revocable trust." The "John M. Parsons 2008 revocable trust"—and the "John M. Parsons 2007 revocable trust, which we presume was the intended grantee—were not, and have never been, parties to the September 18, 2007 agreement. In light of how we have resolved this appeal, however, any effect this transfer may have had upon the validity or enforceability of the September 18, 2007 agreement is a moot point.
Here, the September 18, 2007 agreement notes that the "offices" of Knox Body Shop are located at "U.S. 25E, Barbourville, Kentucky 40906." If this is a reference to the "option property," no particular address is specified along "U.S. 25E" and nothing else in the agreement offers any other kind of property description. Indeed, the parties demonstrated below and over the course of their pleadings and discovery that they themselves were unable to identify the real property without the aid of parol evidence and assistance from the court. By way of example, in Paragraph 12 of their counterclaim against Brewer, the appellees requested the following relief from the circuit court: "This Court should determine which real properties owned by the Trust are deemed to be land upon which the Knox Body Shop, Inc. is situated." Similarly, Brewer submitted interrogatories to the appellees asking: "Please identify any and all real estate that is part of the 'Option Property' referred to in Paragraphs 1 and 3 of the Stock Option Agreement." In response, the appellees provided the following parol evidence: 1) a deed that John Parsons executed on July 25, 2009, granting fee simple title to seven parcels of real property to the "John M. Parsons 2008 [sic] revocable trust"; and 2) an unsupported statement that "Parcel II, Parcel III, Parcel IV, Parcel VI, and Parcel VII" were the real property contemplated in the "option property."
Second, this agreement is not complete or certain with respect to its payment terms. To explain, section "1" of the agreement (entitled "Grant of Option") specifies that "payment of the option price" (i.e., $300,000) must occur "as mutually agreed upon by the parties in writing, or if the parties are unable to agree the option price shall be represented by a secured installment note executed by Optionee." (Emphasis added.) The former of these two methods for paying the option price is not an enforceable contract term or obligation; rather, it is simply an agreement to agree in the future on a method for paying the option price. Keith, 382 S.W.2d at 201. To the extent that the latter method of paying the option price (i.e., with a "secured installment note") could only become applicable and was conditioned upon the outcome of further negotiations, it would, by extension, be equally unenforceable.
Moreover, the latter method for paying the option price does not represent a meeting of minds because no part of the September 18, 2007 agreement specifies what collateral would have been necessary to "secure" the "secured installment note." The agreement merely states in permissive terms that the "Optionor's legal or personal representative may hold the Shares as security for the payment of the option price." By itself, this would not have secured the entire debt obligation, if indeed that was the intent behind requiring a "secured installment note," because the option was for the "Shares" and for an indeterminate quantity of real property Knox Body Shop has never owned which constituted the separately defined "Option Property."
See section 3 (emphasis added).
The parties continue to underscore that the September 18, 2007 agreement was incomplete because, in their respective appellate briefs, they continue to debate what collateral would have been necessary to secure the "secured installment note." For their part, the appellees argue that the real properties comprising the "option property" could have been mortgaged as security. However, this highlights the previously discussed deficiency in the September 18, 2007 agreement: parol evidence is not permitted to demonstrate what those real properties actually were.
The appellants, on the other hand, argue that a $300,000 note that Knox Body Shop tendered to the appellees, purportedly secured by the Knox Body Shop stock, qualified as the "secured installment note" called for in the agreement. But, the September 18, 2007 agreement called for a secured installment note executed by Brewer (i.e., the "Optionee"). Obviously, 1) a note executed by Knox Body Shop is not a note executed by Brewer; and 2) Knox Body Shop had no security in the stock to offer—the option called for the stock to be issued (and the unspecified option property to be deeded in fee simple) to Brewer.
In sum, material terms were not fixed in the September 18, 2007 agreement with reasonable certainty. If the parties do not fix the material terms of an option contract with reasonable certainty, it is not the business of courts to do so. Keith, 382 S.W.2d at 205. For that reason, it is unnecessary to determine whether the appellants properly exercised, or whether the appellees might have waived, their respective rights under this agreement. In light of the deficiencies discussed above, there was no agreement and any rights it purported to give were illusory. Accordingly, we AFFIRM the circuit court's judgment to dismiss the appellants' action to enforce the September 17, 2007 agreement.
ALL CONCUR BRIEF FOR APPELLANTS: Travis A. Rossman
D. Randall Jewell
Barbourville, Kentucky
Robert L. Brown, III
Corbin, Kentucky
BRIEF FOR APPELLEES: W. Patrick Hauser
Barbourville, Kentucky