Kentucky Court Report - SCOKY & COAKY

Whether mortgagee waived its right to compel arbitration through litigation-conduct waiver was an issue for the courts rather than the arbitrators: AMERICAN GENERAL HOME EQUITY, INC. V. KESTEL (SC 5/22/2008)

AMERICAN GENERAL HOME EQUITY, INC. v. KESTEL
ARBITRATION:   Litigation conduct and waiver of arbitration
2006-SC-000830-DG.pdf
PUBLISHED: REVERSING AND REMANDING
OPINION BY MINTON; NOBLE NOT SITTING
FROM MERCER COUNTY
DATE RENDERED: 5/22/2008

American General Home Equity, Inc., filed a mortgage foreclosure action in circuit court against Teresa Kestel. Kestel counterclaimed, asserting fraud and federal and state statutory claims under the Truth in Lending Act and the Kentucky Consumer Protection Act. The trial court denied American General's motion to compel arbitration on Kestel's counterclaims, finding that no arbitration agreement existed between American General and Kestel. A majority of the Court of Appeals panel hearing the case on appeal disagreed with the trial court about the absence of an arbitration agreement; but the panel upheld the denial of American General's motion to compel arbitration anyway, holding, instead, that American General had waived its arbitration rights through its “nine-month delay in moving for arbitration” following the filing of Kestel's counterclaims.

SCOKY granted discretionary review in order to provide guidance to courts and counsel concerning when a party's litigation conduct amounts to an implied waiver of its rights to enforce a contractual right to arbitration. The Court concluded that the mortgagee's litigation conduct was not clearly inconsistent with asserting contractual arbitration rights and did not waive its right to arbitrate the mortgagor Kestel's counter-claim; and the Court of Appeals erred in determining that American General waived its arbitration rights.  Case was reversed and remanded to the trial court for proceedings consistent with this opinion. This ruling leaves open on remand the possibility that Kestel may, by proper motion, raise her contention that application of the arbitration provisions could, by cost or otherwise, deprive her of an adequate opportunity to present her claims and defenses.  Issue of whether mortgagee waived its right to compel arbitration through litigation-conduct waiver was an issue for the courts rather than the arbitrators.

Mike Stevens, ed.

Ability to cancel contract for "any reason" made it illusory and pre-release for liability for negligence is against public policy when clearly inferior bargaining position: SPEEDWAY SUPERAMERICA v. ERWIN (COA 3/21/2008)

SPEEDWAY SUPERAMERICA v. ERWIN
CONTRACTS:  Ability to cancel contract for "any reason" made it illusory and pre-release for liability for negligence is against public policy when clearly inferior bargaining position
2007-CA-000451
PUBLISHED: AFFIRMING
PANEL: ACREE PRESIDING; LAMBERT, ROSENBLUM CONCUR
COUNTY: GREENUP
DATE RENDERED: 3/21/2008

Speedway appeals from an order dismissing its counterclaim against Sebert L.Erwin and COA affirmed.

Erwin was hurt on store premises and sued Speedway.  However, under his contract with Speedway he was prohibited from assigning the contract and from subcontracting the work to be performed without Speedway's consent. There was no requirement that Speedway's refusal of such consent had to be reasonable.

Though the contract was for a term of five years Speedway retained the right to cancel the contract upon written notice “at any time, for any reason.” The contract did not provide Erwin a reciprocal right of cancellation. If Speedway did cancel the contract Erwin's right to recover damages was limited. 

The trial court also granted Erwin's motion to dismiss Speedway ’s counterclaim on grounds that the indemnification provision was invalid and unenforceable as against Kentucky public policy

The circuit court based its decision on Hargis v. Baize ,168 S.W.3d 36 (Ky. 2005). Hargis addressed the validity of an exculpatory contract for exemption from future liability for negligence, whether ordinary or gross negligence i.e., a pre-injury release.  Speedway argues that Hargis is inapposite because the document at issue is not a pre-injury release, but an indemnification provision of the type held valid in Fosson v.Ashland Oil &Refining Co., 309 S.W.2d 176 (Ky.1958) where a party uses an indemnification provision to defend against its own negligence, any distinction between a pre-injury release and an indemnification provision can become, as it has in this case, analytically negligible. When an indemnitee uses an indemnification provision in such manner, the provision becomes the virtual equivalent of an exculpatory pre-injury release. In such cases, Hargis remains as relevant as Fosson.   A key factor perhaps the key factor in the analysis of both pre-injury releases and indemnification provisions used to defend the indemnitee's own negligence is the relative bargaining power of the parties who enter into them.

The predominant fact of this case is the disparity in bargaining power existing between these two parties. Not only did Erwin have only an eighth grade education, the one-sided contract terms themselves are strong indication of the superior bargaining position Speedway enjoyed.

iIt is difficult to see any benefit Erwin received under this contract. Speedway's ability to cancel the five-year contract “at any time for any reason ” made even the term illusory.

We are not in doubt that there was a significant disparity in the bargaining positions of the parties to this contract.

Focusing on that key factor in Cumberland Valley Contractors , the Supreme Court examined the circumstances of the subject contract and the parties to it and held that the subject exculpatory clause “must be enforced as part of an arm's-length transaction between sophisticated parties with equal bargaining power.”
650.

However, the Supreme Court has recognized that exculpatory clauses have been invalidated more frequently in the context of personal injury cases where an individual is often forced to sign a release to obtain a necessity such as employment from a party in a superior bargaining position.

Here, the COA found the the case before presented such circumstances in finding the provision invalid.  Such provisions whether pre-injury releases or indemnification provisions applied to defend against the indemnitee's own negligence, are not against public policy generally but they are when agreed to by a party in a clearly inferior bargaining position.

Affirmed.

By Michael Stevens

Agreement upon reduction in force including language "of any and all claims" includes subsequently discovered discrimination claim: HUMANA, INC. V. BLOSE (SC 3/20/2008)

HUMANA, INC. V. BLOSE
TORTS: Agreement upon reduction in force including language "of any and all claims" includes subsequently discovered discrimination claim
2006-SC-000783-DG.pdf
PUBLISHED: REVERSING
OPINION BY SCOTT
JEFFERSON COUNTY
DATE RENDERED: 3/20/2008

The Supreme Court reverses (Jefferson Cir. Ct.).

The appellee suffers from cerebral palsy and uses crutches for walking and balance. She worked for Humana from 1995 to 2001, when she was terminated due to an alleged reduction in force. She was given 12 weeks severance pay and 12 weeks continued health and dental benefits. She executed a release and agreement of "any and all claims" against Humana. In 2004, she filed an action alleging disability discrimination, violation of KRS Chapter 344 and outrageous conduct. She alleged that during her tenure at Humana she was constantly harassed, intimidated and treated outrageously, including being pushed; having her crutches kicked out from under her; and having paperwork moved so that she had to make efforts to retrieve it. She alleged she constantly complained, but her supervisor and human resources refused to take any action. She also alleged that she was not offered the opportunity to interview for other positions in the company when other employees were.

She further alleged that the release and agreement she signed was presented to her as a "confidentiality agreement" by her superviser on the day she was fired with a demand to sign it immediately unread and a denial of a copy for her records, on threat that she would not receive her last paycheck. The TC granted Humana's motion to dismiss. On appeal, the order dismissing the action was vacated and the case remanded to allow the appellee time to conduct discovery on the issues in the motions to dismiss and for summary judgment. The Court of Appeals also asserted that a release could not waive a statutory right, as alleged in this case.

The Supreme Court holds that, if the release is valid and enforceable, it is effective to waive a plaintiff's right to bring a claim, whether statutory or otherwise. Curtis v. Belden Electronic Wire and Cable, 760 S.W.2d 97 (Ky. App. 1988) is overruled to the extent it is in conflict with American General Life & Acc. Ins. Co. v. Hall, 74 S.W.3d 688 (Ky. 2002).

Digested by John E. Hamlet

Consumer Protection Act applied to attempted used car sale even tho not yet "purchasers": CRAIG & BISHOP, INC. V. PILES (SC 3/20/2008)

CRAIG & BISHOP, INC. V. PILES
TORTS:  CONSUMER PROTECTION ACT applied to attempted used car sale even tho not yet "purchasers"
2005-SC-000999-DG.pdf
PUBLISHED: AFFIRMING IN PART, REVERSING IN PART
OPINION BY MINTON
JEFFERSON COUNTY
DATE RENDERED: 3/20/2008

In this case, the Kentucky Supreme Court addresses the scope of the Kentucky Consumer Protection Act (KCPA) and the legislative intent behind it in order to determine whether Appellees Piles and Warner presented sufficient evidence to recover damages from Appellant stemming from an attempted used car sale. The factual background of the case is as follows: Piles and Warner (who were dating) went to Appellant in response to a used car ad (1997 Mustang for $5,000) that apparently sounded too good to be true. Once at the car lot, Appellees were first told the car was still available before later being informed it had been sold after traveling to a separate car lot. But as luck would have it, Appellant had a 2000 Camaro available for a mere three times the price of the Mustang. Even though Appellees expressed concern about the higher price and the ability to afford it, Appellant's salesman guaranteed he could get them financing for it. Appellees ultimately agreed to the deal in kind, and signed over the title to Warner's Nissan sedan valued at $1,000 before leaving the dealership that evening in the Camaro. Over the next two days, Appellant tried unsuccessfully to find financing for the entire purchase amount and tried to pursuade Appellees to make up the difference in cash, which they explained they could not afford to do. At this point, Appellees decided they wanted out of the deal, first refusing Appellant's offer to finance the remaining portion through it directly and later refusing Appellant's offer to simply knock the remaining portion off the $14,000 purchase price. Over the next several days, Appellees tried to return the Camaro and take back Warner's Nissan with no success, Appellant giving different excuses each time on why the Nissan wasn't immediately available. The manager finally informed Appellees that the Nissan had been sold AND that payment for the full $14,000 Camaro purchase price had to be made that day or the Camaro would be repossessed. Appellees immediately returned the Camaro to the dealership, and in response their attorney was notified in writing that Appellant considered the Camaro repossessed and would be sold at auction. Appellees then filed suit alleging KCPA violations, common law fraud, conversion and breach of contract, and Appellant counterclaimed for breach of contract and reimbursement for the cost to store the Camaro. The case proceeded to trial where the jury found in Appellees' favor on the KCPA violations, fraud and conversion, and awarded them $8,600 in compensatory damages and $50,000 in punitive damages. Appellant appealed and the COA affirmed the decision with the exception of vacating the fraud finding and the award of inconvenience damages as duplicative of the loss of use damages also awarded. The Appellant again appealed and the SC granted review.

The SC began by declining to weigh in on the COA's reversal of the fraud finding (which was on the basis that the alleged misrepresentations concerned predictions of future events) since it was unnecessary to the case's resolution in light of their decision on the KCPA violations under which the same awarded damages could be sustained. Concerning those KCPA claims, Appellant had argued that since the sales transaction was never completed Appellees were not "purchasers" and therefore ineligible to bring an action for KCPA violations under KRS 367.220(1). The SC noted the purpose of the KCPA was to provide broad protection to consumers victimized by unlawful and deceptive trade practices, and concluded that under the facts of this case Appellees qualified as purchasers since they took possession of the Camaro after a period of negotiation and after giving value by signing over the Nissan title. The SC also rejected Appellant's contention that they could not be purchasers since there was no valid contract executed, noting that nowhere in the KCPA is a binding contract explicitly required before a purchaser has a private right of action for unlawful trade practices. The SC also refused to address Appellant's argument that the COA erred by finding that liability for future promises (such as financing guarantees) is possible under the KCPA, noting that this argument was not preserved for review in the TC and therefore was not properly before the COA. The SC did offer some dicta on this particluar issue by stating the argument that sellers could never be held liable for future predictions is suspect given the KCPA's broad range of protection and especially where the future predictions might relate to the seller's own conduct or other events under seller's control. The SC did point out that the Appellees alleged a number of other deceptive acts by Appellant that did not involve future events or predictions on which the jury could reasonably base its award for the KCPA violations.

Next, the SC addresses Appellant's argument that the punitive damages instruction was improper since there was no way to tell whether the award was based solely on the conversion or was based, at least in part, on the fraud and KCPA violations claims. The SC again held that this issue had not been properly preserved since the record failed to show that Appellant requested the TC to instruct the jury to indicate on which specific claim it was basing its punitives award. At any rate, the SC noted that the KCPA expressly provides that punitive damages may be awarded in appropriate cases, and that they may also be awarded for conversion if the defendant's conduct is especially reprehensible. Turning to the amount of punitives awarded, the SC rejected Appellant's argument that the $50K award was grossly excessive. The TC had determined that the award did not appear excessive "at first blush," and the SC expanded that ruling by holding that the award passes muster under the US Supreme Court's constitutional factors (categorizing the 6.0 compensatory to punitives ratio as significant but not ridiculous) and that the "degree of reprehensibility of the conduct at issue was significant." By reference to the Kentucky AG's Office discussion on this topic contained in its amicus brief, the SC also implies that a higher than average damages ratio may likely be more acceptable in consumer protection cases where the deterrent effect of punitive damages is more crucial since the economic harm actually suffered by the claimant will generally be small.

To conclude, the SC agreed with Appellees' cross appeal argument that the COA erred by vacating the jury award ($3,000 to Warner and $1,500 to Piles) for inconvenience damages as duplicative of the $2,100 award to Warner for loss of use of the Nissan (that he solely owned) from the time the Camaro was returned to when he purchased another vehicle (6 months later).  No loss of use was awarded to Piles so without the inconvenience award she would not recover any compensatory damages at all, a result the SC clearly found erroneous in light of the alleged conduct of Appellant. The SC pointed to the trouble Piles encountered trying to return Camaro several times, the numerous telephone calls between the parties affecting her work, being deprived of transportation, etc. as evidence of "real injuries with significant monetary ramifications" for which the inconvenience damages award to both Appellees was proper and not duplicative of the loss of use award, which was only for the period after the Camaro was returned.

By Chad Kessinger, Schiller Osbourn Barnes & Maloney

Overreaching indemnity agreement held unenforceable: LACK V. MAN O'WAR LLC (SC 3/20/2008)

LACH V. MAN O'WAR, LLC
INDEMNIFICATION AGREEMENT:  Unenforceable under certain circumstances
2005-SC-001014-DG.pdf
PUBLISHED: REVERSING AND REMANDING
OPINION BY SCOTT
ABRAMSON DISSENTS BY SEP. OPINION WITH MINTON JOINING DISSENT; NOBLE NOT SITTING
FAYETTE COUNTY
DATE RENDERED: 3/20/2008

The contract involved in the Court of Appeals case Speedway SuperAmerica, LLC v. Erwin, 2007-CA-000451-MR (March 21, 2008)(to be published) was drafted by Speedway and designed to have Sebert Erwin be an independent contractor for Speedway. It also provided that Sebert would indemnify and hold harmless Speedway for any damages arising out of any breach of the contract. Further, Speedway expected Sebert to get $300,000 in insurance that also insured Speedway plus his own workers’ compensation insurance. The contract was for five (5) years, but Speedway could cancel it any time they wanted for any reason whatsoever, but Sebert could not do the same. He also was restricted from assigning the contract to someone else. Basically, the contract mainly benefited Speedway and provided no protection for Sebert.

Sebert had considerably less sophistication regarding contracts; the Court pointed out that he had an eighth (8th) grade education. One day, Sebert was directed to help move a different station to move a walk-in freezer. While assisting in that task, Sebert fell and was injured so he sued Speedway. Speedway counter-sued to enforce the indemnification clause of the contract.

The trial court dismissed Speedway’s counterclaim because it found that the indemnification clause was not clear and understandable enough for an ordinary person to understand what he or she was contracting away basing its decision on Hargis v. Baize, 168 S.W.3d 36 (Ky. 2005). Speedway appealed and argued that rule only applied to pre-injury releases and, instead, this was an indemnity provisions. They cited case law of Fosson v. Ashland Oil & Refining Co., 309 S.W.2d 176 (Ky. 1958) that found such a provision valid. [If you have a greater interest in the process and reasoning of the court, please read the decision.} The Court agreed that the provision Sebert signed more closely resembled the provision in Fosson, but also agreed with the trial court that it did not meet the requirements set forth in Hargis.

The Court decided that it did not matter which case law was applied to this particular contract because the guiding principal fit both pre-injury releases and indemnification clauses. The holding of the Court is that when a contract that is used to defend against the indemnitee’s own negligence is “agreed to by a party in a clearly inferior bargaining position” (Id. at 9) then it is against public policy and not enforceable. In other words, by taking advantage the less sophisticated Sebert and trying to have all the protection and none of the risk, Speedway made their contract unenforceable.

This is a narrow holding by the Court is that such indemnification provisions are generally enforceable. Even if the specific holding narrowly rests on the differential bargaining power, the court highlighted other issues:

1) The contract allowed for one-sided termination of the contract.

2) The contract allowed for termination for any reason.

3) The contract denied assignability for any reason.

4) The contract tried to make the worker an Independent Contractor but in actuality the business still controlled how the worker performed their tasks.

5) The contract required the other party to waive a lien or other mechanism for insuring they get paid.

G. A. Napier

REAL PROPERTY: Oil and gas lease interpreted that "commencing" a well did not mean re-establishing an existing well on the property: HEEL V. CHADWICK (COA 3/14/2008)

HEER V. CHADWICK
REAL PROPERTY:  Oil and gas lease interpreted that "commencing" a well did not mean re-establishing an existing well on the property
2006-CA-001489
PUBLISHED: AFFIRMING
PANEL: ACREE PRESIDING; LAMBERT, HENRY CONCUR
COUNTY: METCALFE
DATE RENDERED: 3/14/2008

This was a combined appeal interpreting language in an oil and gas lease from the Fraser sisters which included the condition that “[i]f no well be commenced on said premises on or before the 1[sic] day of July 2005 this lease shall terminate as to both parties.”  In addition, the property was landlocked so obtaining access to their landlocked property was as important as tapping the oil reserves under it. So, as consideration, the lease agreement included the provision that, “[i]nstead of upfront money for lease, Cody Heer will attempt to get permanent right of way, 20 foot [sic] wide.”

This was not the first time the Fraser sisters leased the property. Approximately 10 to 15 years earlier, East Fork Crude had rights to, and did successfully, extract oil and gas. For part of that leasehold period, East Fork Crude traversed an adjoining property with the permission of the owner, Robert Chadwick. But the withdrawal of Chadwick's permission caused East Fork Crude to end its lease.

COA held that the lessee did not commence a well within the time period.  Having maintenance performed on an existing well that was sufficient to re-establish well and effectuate the successful extraction of commercial quantities of crude oil from the well did not comply with the lease's requirement that he “commence a well,” as lessee neither drilled existing well deeper or wider, nor did he produce commercial quantities of oil from that well for the first time.

Waiver of right to arbitrate must be voluntary and intentional and not inferred lightly: WEIS BUILDERS, INC. V. COMPLETE CONTRACTING, INC. (COA 2/29/2008)

WEIS BUILDERS, INC. V. COMPLETE CONTRACTING, INC.
ARBITRATION: WAIVER
2007-CA-000700
PUBLISHED: REVERSING AND REMANDING
PANEL:  STUMBO PRESIDING; ACREE, GRAVES CONCUR
COUNTY: POWELL
DATE RENDERED: 2/29/2008

Weis appealed arguing the circuit court improperly concluded that Weis waived its unilateral authority to compel arbitration pursuant to the terms of a contract between the parties.  At issue was correspondence wherein counsel for Weis Builders stated,“[a ]t this point in time, Weis Builders ’ preference is to litigate the dispute rather than arbitrate it, although this is open to discussion.”  Complete Contracting would later maintain that this statement represented Weis Builders ’ decision under the contract to proceed with litigation rather than arbitration. Conversely, Weis Builders would argue that the letter evidenced no decision, but rather was merely an invitation to discuss the matter.

COA held the circuit court erred in determining that Weis Builders waived its contractual right to resolve the dispute through arbitration.  A waiver may be either express or implied,although waiver will not be inferred lightly.” Conseco Finance Servicing Corporation v..Wilder ,47 S.W.3d 335 (Ky.App.2001).

The statement that it was Weis's “preference is to litigate ” did not constitute “a voluntary and intentional surrender or relinquishment of a known right.” One may not reasonably conclude that Weis Builders would be “open to discussing ” its “preference ” if it were not preserving the right to change that preference.

Michael Stevens

Cash advance system for real estate commissions affirmed: KENTUCKY REAL ESTATE COMMISSION V. HILLIARD FINANCIAL, LLC (COA 2/15/2008)

KENTUCKY REAL ESTATE COMMISSION V. HILLIARD FINANCIAL, LLC
BUSINESS:  REAL ESTATE COMMISSIONS AND ASSIGNMENTS
2007-CA-000861
PUBLISHED: AFFIRMING
PANEL: LAMBERT PRESIDING; VANMETER, KNOPF CONCUR
COUNTY: JEFFERSON
DATE RENDERED: 2/15/2008

COA affirmed a declaratory judgment holding that the cash-advance business of Hillard Financial (d/b/a Commission Express) and Commission Express National, Inc., does not violate Kentucky's Real Estate Code following appeal by Kentucky Real Estate Commission.  The cash-advance business did not conflict with Real Estate Code provision prohibiting commission splitting or with Code provision prohibiting agents from receiving cash advances in consideration for the performance acts under the Code.

Commission Express is in the business of providing cash advances to real estate agents who have commissions pending from real estate transactions. In return for the advance, Commission Express takes an assignment of the agent's pending commission as well as a percentage of that commission. Commission Express characterizes its business as “factoring,” while one court has characterized it as a straight-forward consumer-lending business.

Michael Stevens

Implied contracts, contracts, and quantum meruit in failed deal: QUADRILLE BUSINESS SYSTEMS V. KENTUCKY CATTLEMEN'S ASSOCIATION, INC. (COA 12/28/2007)

QUADRILLE BUSINESS SYSTEMS V. KENTUCKY CATTLEMEN'S ASSOCIATION, INC.
CONTRACTS:  Business; contracts and quantum meruit
2005-CA-002621
PUBLISHED: AFFIRMING IN PART, REVERSING IN PART
PANEL: THOMPSON PRESIDING; ACREE CONCURS; KELLER DISSENTS FILING SEPARATE OPINION
COUNTY:  OLDHAM
DATE RENDERED: 12/28/2007

Quadrille Business Systems claimed breach of contract, breach of good faith and fair dealing and breach of fiduciary duty against the Kentucky Cattlemen's Association (Cattlemen's), and the Circuit Court granted Cattlemen's motion for summary judgment on all claims asserted but permitted Quadrille to submit a claim for quantum meruit to the jury. The jury returned a verdict for $22,093.50 in favor of Quadrille. COA affirmed the summary judgment but held that the trial court erroneously denied Cattlemen's motion for directed verdict on the quantum meruit claim.

Cattlemen's is a non-profit organization providing education, marketing, and communications with Kentucky cattle farmers and had submitted a proposal to the Kentucky Agricultural Development Baord for a marketing grant. Schoettmer learned the Board was to distributed tobacco settlement money and sought Board money to establish a cattle cooperative and computer tracking system for Kentucky cattle from birth to slaughter. Shoettner and his partners contacted Cattleman's to set up a joint business relationship since a non-profit would obtain favorable greatment from the Board regarding matching funds for any grants. Schoettmer's draft proposal included the beef network grant and the computer tracking proposal (that Quadrille would manage) with a combined request for over $10 million. The board indicated no grant would be approved except the Beef Network, and it was rewritten and a grant for $1.811 million was obtained. Quadrille then filed this action against Cattlemen's.

COA held that Cattlemen's had not entered into a binding contract with Quadrille for either Schoettmer's work on the proposal or for the use of the grant funds. Instead, Schoettmer rendered his services in exchange for the opportunity to bootstrap Quadrille's grant request to that of Cattlemen's. Furthermore, the terms of the alleged contract are so indefinite that it cannot constitute a legally enforceable contract.

To be legally enforceable, an agreement must “contain definite and certain terms setting forth promises of performance to be rendered by each party.”

In Kentucky, Plaintiffs must show that an actual agreement existed between the parties with clear and convincing evidence. While the agreement need not cover every conceivable term of the relationship, it must set forth the “essential terms” of the deal. Schoettmer's description of the alleged contract's terms demonstrates its lack of specificity and definiteness. Notably absent are terms as to when and how the money would be distributed to the respective parties, the specific responsibilities of each party, and the organizational structure of the proposed businesses. A sound reason for the requirement that the terms of a contract be clear and definite is so that the court can measure the damages in the event of its breach.

Under Kentucky law, in the absence of an underlying contract, no covenant of good faith and fair dealing arises. Furthermore, Quadrille cannot maintain a claim based on breach of a fiduciary duty. A fiduciary relationship is “founded on trust or confidence reposed by one person in the integrity and fidelity of another and which also necessarily involves an undertaking in which a duty is created in one person to act primarily for another's benefit in matters
connected with such undertaking.”

An ordinary business relationship or an agreement reached through arm's length transactions “cannot be turned into a fiduciary one absent factors of mutual knowledge of confidentiality or the undue exercise of power or influence.”

Recovery under the theory of quantum meruit can be had regardless of the absence of an enforceable contract. A contract implied by law allows for recovery quantum meruit for another's unjust enrichment. It is not based upon a contract but a legal fiction invented to permit recovery where the law of natural justice says there should be a recovery as if promises were made. The courts supply the fiction of the promise to permit the recovery. Furthermore recovery quantum meruit may be had irrespective of the intentions of the parties, and sometimes even in violation of them.

However, merely because work was performed that benefited another does not necessarily warrant recovery. The party proceeding under a quantum meruit theory must establish the following elements: 1. that valuable services were rendered, or materials furnished; 2. to the person from whom recovery is sought; 3. which services were accepted by that person, or at least were received by that person, or were rendered with the knowledge and consent of that person; and 4. under such circumstances as reasonably notified the person that the plaintiff expected to be paid by that person. 66 Am.Jur.2d Restitution and Implied Contracts §38 (2001).

While quantum meruit remains a theory for recovery, because of the structure and complexity of modern industrial society, it is not viable in all situations. The theory is not applicable, for instance, to insurance and real estate sales where the work performed is done in anticipation of a future benefit and not a direct cash payment.

In the case sub judice, the intent and understanding of the parties was that the work was not performed with expectation of payment. Schoettmer's testimony was unequivocal that his work on the proposal was in hopes of obtaining the grant money to begin his business and that he specifically rejected Cattlemen's offer of payment on an hourly basis. Under these circumstances, the trial court erred when it denied Cattlemen's motion for a directed verdict.

Michael Stevens

Personal guarantor's loan liability: STRIKER GOLD CO., INC. V. FIRST SECURITY BANK OF LEXINGTON (COA 12/14/2007)

STRIKER GOLD CO., INC. V. FIRST SECURITY BANK OF LEXINGTON
BUSINESS LAW:  LOAN GUARANTY AND DISPOSITION OF ASSETS
2005-CA-000271
PUBLISHED: AFFIRMING
PANEL:  THOMPSON PJ; STUMBO, BUCKINGHAM CONCUR
COUNTY: JEFFERSON
DATE RENDERED: 12/14/2007

The COA affirmed summary judgment granted in favor of the creditor bank against Jones,the debtor, on the bank's claim for a deficiency judgment against Jones resulting from his execution of two guaranty agreements for the security of Striker Golf's debt obligations.

Jones had executed two guaranty agreements in which he assumed personal liability for Striker’s liabilities to First Security Bank up to a “maximum aggregate liability”of $36,000 and $72,000.  Striker's assets were sold but were not enough to satisfy the loan.  The bank then went after Jones on the security agreements he signed.

Jones defended by attacking the lack of commercial reasonableness in the selling of Striker Golf's assets.  However, beyond refusing to agree to the sale, Striker Golf and Jones did little more to legitimately contest the sale of the assets.  Because First Security accounted for the commercial circumstances of the sale, Striker Golf and Jones were required to do more than simply disagree with the court's granting of the motion to dispose.   The failure of Striker Golf and Jones to contest the sale of the asset to Markham despite receiving detailed notice of the purchase is fatal to their appeal. Summary judgment affirmed.

Michael Stevens