ACREE, JUDGE.
Appellants, Dan D. Stewart, Jr. and Betsy Stewart, seek reversal of the Knox Circuit Court's order granting summary judgment in favor of the Appellees, John C. Slusher and James R. Golden, for damages and interest resulting from the Stewarts' lease to a third party of mineral interests in land they previously agreed to convey to Slusher and Golden. The Stewarts also seek reversal of the circuit court's denial of their motion for summary judgment to collect $50,000 from Slusher and Golden allegedly owed as consideration for the option to purchase the land. We affirm the judgment.
On August 2, 2004, the Stewarts entered into a contract with Slusher and Golden giving them the option of purchasing real property in Knox County. The option contract "grant[ed] to BUYER [Slusher and Golden] the exclusive option to purchase all of the former D. D. Stewart property owned by STEWART in the Kentucky counties [wherein situated] including, without limitation, all of the property inherited by Stewart from D. D. Stewart as an heir at law or devisee . . . ." (Real Estate Purchase Option). The option price was $50,000, to be credited against the agreed upon purchase price of $800,000 or forfeited if the option was not exercised. Slusher and Golden tendered the option price by check on August 4 or 5, 2004. The option period extended only until November 30, 2004.
Almost immediately, the Stewarts had a change of heart; they decided both the agreed-upon option price and the purchase price were too low and wanted out of the option contract. On August 23, 2004, Slusher and Golden filed a declaration of rights action to enforce the option contract.
The next day, through a real estate agent, the Stewarts returned the $50,000 check. Then they answered the complaint arguing the option contract was invalid because they had repudiated it immediately after they signed it and because it lacked substantial consideration. Eventually, both parties to the declaratory judgment action filed motions for summary judgment.
On May 22, 2006, before the circuit court ruled on these motions, the Stewarts leased the mineral rights in the subject property to Chaos Coal, LLC. Part of the consideration paid by Chaos Coal was an advance royalty payment of $125,000. Slusher and Golden filed a second lawsuit against the Stewarts, i.e., the instant action, seeking the $125,000 royalty payment on the ground that selling the mineral rights constituted a breach of the option agreement.
Returning to the first action, on September 11, 2006, the circuit court granted summary judgment in favor of Slusher and Golden, declaring the option contract binding and enforceable, and allowing them 120 days from that date to exercise the option. Slusher and Golden did exercise the option within that period of time, but the Stewarts declined to convey the property until they exhausted their right to appeal the circuit court's September 11, 2006 order and judgment. The circuit court entered an order preserving the rights of all parties.
This Court affirmed the circuit court's September 11, 2006 order and judgment in the first action in Stewart v. Slusher, No. 2006-CA-001980-MR, 2007 WL 3227567 (Ky. App. November 2, 2007), disc. rev. denied November 19, 2008 (hereafter "Stewart v. Slusher I"). On November 19, 2008, our opinion in Stewart v. Slusher I became final. On January 10, 2009, in consideration for the payment at closing of $800,000 and by special warranty deed, the Stewarts finally conveyed the subject property to Slusher and Golden, less the mineral rights previously leased to Chaos Coal. The Stewarts kept the $125,000 royalty advance from Chaos Coal pending resolution of this second civil action.
Slusher and Golden, in the case sub judice, claimed "they are entitled to damages in the amount of $125,000 to offset the purchase price by the amount of value lost owing to the mining activities of the defendants' lessee." They filed a summary judgment motion to that effect. The Stewarts filed a counterclaim and summary judgment motion to collect the $50,000 payment for the option they had returned in August 2004.
The circuit court granted summary judgment in favor of Slusher and Golden and awarded them the $125,000 royalty payment plus 8% interest. Additionally, the circuit court denied the Stewarts' counterclaim for $50,000. This appeal followed.
The Stewarts raise three issues on appeal. First, they challenge the summary judgment in favor of Slusher and Golden and the award of $125,000 for breach of the special warranty deed. Second, they argue the trial court abused its discretion by awarding 8% interest on the damages. Finally, they seek reversal of the judgment denying them recovery of the $50,000 option payment.
Because there are no disputed issues of fact, both the grant of summary judgment in favor of Slusher and Golden, as well as the denial of summary judgment to the Stewarts, are reviewed de novo. See Lewis v. B & R Corp., 56 S.W.3d 432, 436 (Ky. App. 2001).
The Stewarts present a two-fold challenge to the grant of summary judgment in favor of Slusher and Golden. Not only do they argue that application of the law to the undisputed material facts of this case fail to establish their liability to Slusher and Golden, they also claim the circuit court applied the wrong measure of damages. We consider each argument in turn.
Citing West Kentucky Coal Co. v. Nourse, 320 S.W.2d 311 (Ky. 1959), the circuit court held that the mineral lease the Stewarts granted to Chaos Coal was, during the term of the lease, an encumbrance upon the property. Because the term of the mineral lease extended until four months after the property was conveyed to Slusher and Golden, the encumbrance was a breach of the special warranty deed at the time of transfer, and the circuit court so held. We do not disagree with this analysis.
However, this explanation is not fully satisfactory. We cannot ignore the fact that if the mineral lease had terminated four months sooner, unencumbered title would have been conveyed and there would not have been a breach of the special warranty deed. Nevertheless, Slusher and Golden still would have had a cause of action based on their complaint, based on the argument they presented for summary judgment, and based on the uncontroverted facts of the case.
While agreeing with the circuit court that the Stewarts breached the special warranty deed, we conclude that they also breached the option contract and permitted voluntary waste to be committed on the property. In instances where a circuit court is correct in its ruling as in this case, an appellate court, reviewing questions of law de novo, can affirm, even though it may cite other legal reasons than those stated by the trial court. Emberton v. GMRI, Inc., 299 S.W.3d 565, 576 (Ky. 2009).
We begin our analysis by dispossessing the Stewarts of an erroneous premise upon which several of their arguments are based. While it is true that Slusher and Golden did not, in a technical sense, exercise the option within the timeframe established in the option contract itself, the delay was not of Slusher and Golden's own choosing. The Stewarts' unsuccessful attempt to repudiate the option contract and their resistance to Slusher and Golden's efforts at judicial enforcement made exercise of the option impossible until Stewart v. Slusher I became final in late 2008. To quote the circuit court,
(Order, entered June 10, 2009, pp. 8-9). Citing 20th Century Coal Co. v. Taylor, 275 S.W.2d 72 (Ky. 1955) ("One party may not successfully accuse the other of failure to perform when the former does not permit the performance"), the circuit court held that the Stewarts "are estopped from later pointing to the fact that [Slusher and Golden] failed to exercise the option" within the option period set out in the contract itself. (Order, p. 9). We find no error in this ruling.
As we interpret it, the effect of the circuit court's ruling is that Slusher and Golden obtained an equitable interest in the property when they filed their declaratory rights action on August 23, 2004.
The Stewarts could have reserved the mineral interests to themselves by excepting that portion of their fee simple ownership in mineral rights from the option contract.
Terteling Bros., Inc. v. Bennett, 287 S.W.2d 607, 608 (Ky. 1956) (internal quotation marks and citation omitted; emphasis supplied). However, they clearly failed to reserve those mineral rights.
By granting a mineral lease to Chaos Coal that extended beyond the date title was conveyed to Slusher and Golden, the Stewarts, as the circuit court held, did cloud that title, thereby breaching the special warranty deed. But, by allowing Chaos Coal to actually remove coal, the Stewarts also permitted voluntary waste with regard to the property, making it impossible to convey at closing what they promised to convey in the option contract.
"Waste" in its various forms is defined, consistent with Kentucky jurisprudence, in BLACK'S LAW DICTIONARY, waste (9th ed. 2009). Quoting Peter Butt, Land Law 114 (2d ed. 1988), BLACK'S gives us this more specific definition of "Voluntary waste."
BLACK'S LAW DICTIONARY, waste (9th ed. 2009) (emphasis supplied).
We conclude that the circuit court was correct to find the Stewarts liable to Slusher and Golden. In addition to the circuit court's conclusion that liability was based on a breach of the special warranty deed, we conclude that the Stewarts were liable for committing waste on property equitably owned by Slusher and Golden and breached the option contract by failing to convey the property as described in the option contract.
Nevertheless, the Stewarts argue that reversal is justified for several reasons. First, they argue that the eventual conveyance by special warranty deed of the remainder of the property, or the merger doctrine, prohibited Slusher and Golden from claiming a right to recover based on the mineral lease. Second, they argue that the doctrines of res judicata and issue preclusion require reversal. We disagree.
The fact that the property was conveyed by special warranty deed does not affect the claim under the option contract. The Stewarts' position is that the special warranty deed did convey the very same property described in the option contract, including the mineral rights. It did not. Some of those rights had already been conveyed by lease to Chaos Coal. Furthermore, the Stewarts were obligated to forever warrant and defend that the property they purported to sell was in fact what was sold. As stated in Kentucky Revised Statutes (KRS) 382.040,
KRS 382.040. Chaos Coal could have claimed, and perhaps did claim, through the Stewarts as lessors, the right to the coal on the property. The Stewarts previously promised to convey that right to Slusher and Golden. Therefore, this argument fails.
The argument that the merger doctrine defeats the claim under the option contract also fails. The merger doctrine generally holds "that all prior statements and agreements, both written and oral, are merged into the deed . . . ." Borden v. Litchford, 619 S.W.2d 715, 717 (Ky. App. 1981). However, there are exceptions including "fraud, mistake, or contractual agreement[s] clearly not intended to be merged into the deed." Miller v. Hutson, 281 S.W.3d 791, 795 (Ky. 2009) (quoting Harrodsburg Indus. Warehousing, Inc. v. MIGS, LLC, 182 S.W.3d 529, 532 (Ky. App. 2005) (citation omitted)). Before the deed was executed, Slusher and Golden had already filed suit on their claim under the option contract, thereby preserving it. This is a strong indicator they did not intend their right to enforce the option contract to be merged into the deed.
If the Stewarts intended to extinguish a claim, already preserved and being prosecuted, by conveying the property by deed and then claiming the doctrine of merger to escape liability, they were not successful. This argument would require that we find a waiver of that preserved claim. A waiver is generally defined as "an intentional relinquishment or abandonment of a known right[.]" Moore v. Commonwealth, 556 S.W.2d 161, 162 (Ky. App. 1977) (citing Barker v. Wingo, 407 U.S. 514, 92 S.Ct. 2182, 33 L.Ed.2d 101 (1972)). There is no evidence that Slusher and Golden waived the claim they were pursuing simply because they accepted a deed compelled by Slusher v. Stewart I.
We are also unpersuaded by the Stewarts' arguments based on the doctrines of res judicata and issue preclusion. The doctrine of res judicata operates to preclude repetitious actions. Napier v. Jones, 925 S.W.2d 193 (Ky. App. 1996). In order to apply res judicata, there must be (1) identity of the parties between the two actions, (2) identity of the two causes of action, and (3) the prior action must have been decided on its merits. Id. at 195. Claim preclusion, a subpart of res judicata, "bars a party from re-litigating a previously adjudicated cause of action and entirely bars a new lawsuit on the same cause of action." Yeoman v. Commonwealth, Health Policy Bd., 983 S.W.2d 459, 465 (Ky. 1998). "In short, the rule of res judicata does not act as a bar if there are different issues or the questions of law presented are different." City of Louisville v. Louisville Professional Firefighters Ass'n, 813 S.W.2d 804, 806 (Ky. 1991) (quoting Newman v. Newman, 451 S.W.2d 417, 419 (Ky. 1970)).
The issue in Stewart v. Slusher I was whether the option contract should be enforced. The issue in the case sub judice was whether the Stewarts breached the option contract and what is the proper measure of damages. We will acknowledge that if Stewart v. Slusher I had been resolved in favor of the Stewarts, the issues in the case now before us would be precluded. However, that is not the case. The doctrines of res judicata and issue preclusion are inapplicable.
Finally, our conclusion that the circuit court effectively recognized that Slusher and Golden had an equitable interest in the property when they filed their declaratory judgment action on August 23, 2004, makes untenable the Stewarts' argument regarding the doctrine of equitable conversion. That argument is that operation of the doctrine cannot relate back prior to the actual exercise of the option. To the extent the circuit court relied on that doctrine, the Stewarts' argument is moot and any equitable conversion doctrine analysis begins when Slusher and Golden acquired the equitable interest in August 2004.
The circuit court correctly found the Stewarts liable to Slusher and Golden.
The Stewarts also argue that "the $125,000 Advance Royalty payment has no relevance to any concept of `damage' recovery[.]" We disagree.
The measure of damages for breach of contract is "that sum which will put the injured party into the same position he would have been in had the contract been performed." Hogan v. Long, 922 S.W.2d 368, 371 (Ky. 1995) (quoting Perkins Motors, Inc. v. Autotruck Federal Credit Union, 607 S.W.2d 429, 430 (Ky. App. 1980)). "Damages for breach of an option to purchase land are determined by the same rule as that applied in an action for breach of the contract for the sale of land itself." 77 Am.Jur.2d, Vendor and Purchaser § 553. Typically, when less property is conveyed than was promised, the measure of damages is the difference in the value of the property with and without the shortage. See Kramer v. Mobley, 309 Ky. 143, 216 S.W.2d 930, 933 (1949). While that measure is routinely applied when the shortage is measured in acreage, see, e.g., Evergreen Land Co. v. Gatti, 554 S.W.2d 862, 864-66 (Ky. App. 1977), we have not found a Kentucky case in which this measure of damages was applied under these or similar circumstances.
Additionally, neither party to this appeal has cited a Kentucky case that addresses the measure of damages under such circumstances even though our General Assembly certainly recognizes a cause of action in favor of a vendee when a vendor permits waste to be committed on the property to be conveyed. KRS 381.380
This approach — treating a vendor's conduct similar to that engaged in by the Stewarts as committing waste — is among a variety of alternative approaches taken by courts in other jurisdictions where "purchasers, in addition to having been awarded damages in actions premised upon waste, have prevailed in fraud and trespass actions as well as breach of contract cases." Annotation, Measure of damages where vendor, after execution of contract of sale but before conveyance of property, removes part of property contracted for, 97 A.L.R.3d 1220 § 2[a] (1980 & 2011 Supp.) (footnotes omitted). Notably, many of the cases discussed in the annotation cited recognized the problem of simply measuring damages by the difference in the fair market value of what was purchased and what was conveyed. An early, and perhaps still the best, description of the problem can be found in Worrall v. Munn, 8 Sickels 185, 53 N.Y. 185, 1873 WL 12143 (N.Y. 1873).
Faced with circumstances similar to those presented here, New York's highest court in Worrall initially considered that
Worrall, 53 N.Y. at 190, 1873 WL 12143 at *3. Then, the court reconsidered. What if the reverse situation is presented to a court as, in fact, it was presented in Worrall? What if the vendor stripped land of a resource that, unlike the soil considered in the first example, was valuable in and of itself, but the removal of which made little difference in the land's value?
Id.
For this reason, the New York court concluded that "the diminished value of the land is not the exclusive measure of relief for an injury in the nature of waste committed by" the vendor between the time the vendee acquires an equitable interest in the property and the time the property is actually conveyed. Id. In a proper case, "a vendee will also be entitled to recover the value of the materials removed." Annotation, 97 A.L.R.3d 1220 at § 3[a] (citing Worrall); see also, Rock v. Belmar Contracting Co., 141 Misc. 242, 252 N.Y.S. 463, 465 (N.Y. Sup. 1930) ("the value of the thing separated from the realty is the measure of damages where it has a value after removal and the land has sustained no material injury because of the removal"). The case before us is such a case.
In their complaint, Slusher and Golden sought as damages "the sum of $125,000.00 plus any additional amounts realized by the [Stewarts.]" (Emphasis supplied). However, the circuit court awarded only "the principal amount of $125,000, plus prejudgment interest[.]" Because Slusher and Golden did not file a cross-appeal to protect their right to seek more than was awarded, they are limited to that amount and cannot recover any other royalty payments the Stewarts may have received while they were the title owners of the property.
We conclude that the $125,000 advance royalty payment would not have exceeded the value of the coal removed. Therefore, under these circumstances, the award of the $125,000 advance royalty was a proper measure of damages.
The Stewarts' challenge to the award of prejudgment interest warrants little discussion. The trial court awarded Slusher and Golden 8% interest on the $125,000 award. The trial court properly looked to Nucor Corp. v. General Elec. Co., 812 S.W.2d 136 (Ky. 1991), and 3D Enterprises Contracting Corp. v. Louisville and Jefferson County Metropolitan Sewer Dist., 174 S.W.3d 440 (Ky. 2005) for the tests to determine if the damages were liquidated and determined that they were.
"The longstanding rule in this state is that prejudgment interest is awarded as a matter of right on a liquidated demand, and is a matter within the discretion of the trial court or jury on unliquidated demands." 3D, 174 S.W.3d at 450. We need not consider whether the circuit court correctly determined that the demand was liquidated. If it was liquidated, the circuit court had no discretion and properly awarded interest at the statutory rate of 8%. KRS 360.010. If the demand was unliquidated, making the award of prejudgment interest a matter of discretion with the circuit court, we conclude that, in this case, awarding interest at the maximum permissible rate was not an abuse of discretion. As the court noted, the Stewarts intentionally created a defect in title "after two years of litigation in the initial declaratory action, and recorded [that defect in the form of a mineral lease] just two months prior to the judicial determination of the [option] contract's enforceability." Allowing the Stewarts to retain any portion of the royalty payment, including the value of its use, would result in a windfall to them.
We note that the circuit court's order and summary judgment does not state when prejudgment interest began to accrue. Slusher and Golden requested in their motion that they receive "interest from May 22, 2006, when the [Stewarts] received the funds." Because this date is after the date marking Slusher and Golden's acquisition of their equitable interest in the coal, that date is the correct one on which prejudgment interest began to accrue.
Finally, the circuit court found, and the record supports the finding, that Slusher and Golden paid the entire purchase price of $800,000 at the closing. Therefore, the circuit court did not err in finding against the Stewarts on their counterclaim for an additional $50,000. The Stewarts' argument is simply that the $50,000 given as consideration for the option contract should not apply toward the purchase price of the property, because the option was not exercised before midnight on November 30, 2004.
Having already concluded that the Stewarts thwarted any effort by Slusher and Golden to exercise the option, we can find no merit in this argument. "[I]t is the general principle of law that he who prevents a thing from being performed should not avail himself of the nonperformance he has occasioned[.]" Bryant v. Jones, 255 Ky. 606, 75 S.W.2d 34, 38 (1934). The Stewarts breached the option contract; awarding them an additional $50,000 would be allowing them to profit from their own wrongdoing. For that reason, we find no error in the circuit court's denial of the Stewarts' claim.
Our de novo review of these summary judgments causes us to conclude that the Knox Circuit Court correctly ruled that there were no genuine issues of material fact and properly awarded judgment as a matter of law in favor of Slusher and Golden on their claim for damages in the amount of $125,000 with prejudgment interest thereon at 8%. We also conclude that the Knox Circuit Court correctly found no genuine issues of material fact and properly ruled that the Stewarts are not entitled to recover the option price beyond that already paid as part of the purchase price.
For all of the foregoing reasons, the judgment of the Knox Circuit Court is affirmed.
ALL CONCUR.
