Patel v. Tuttle Properties, LLC Reversed

Patel v. Tuttle Properties, LLC Reversed

      There was here previously reviewed the decision of the Kentucky Court of Appeals in Patel v. Tuttle Properties, LLC, wherein that court upheld the surrender to the seller of a $125,000 earnest money deposit, that surrender taking place pursuant to the terms of the Amended Purchase Agreement.  See Upcoming from the Kentucky Supreme Court – (Un) Reasonable Liquidated Damages (June 20, 2012).

      The Kentucky Supreme Court has reversed the Court of Appeals and remanded the matter to the trial court to ascertain, inter alia, the reasonableness of the surrender of the earnest money deposit.  Patel v. Tuttle Properties, Inc., __ S.W.3d __, 2013 WL 646199 (Ky. Feb. 21, 2013).  Citing Mattingly Bridge Co., Inc. v. Hollaway & Son Construction, 694 S.W.2d 702, 7040705 (Ky. 1985), the Court directed that:

The trial court needs to determine whether the amount of the earnest money deposit, in light of the anticipated damages or actual loss caused by the breach of the contract, was reasonable or so unreasonably large that it is unenforceable on the grounds that public policy would deem it to be a penalty.

      There is one aspect of this opinion that is confusing.  Apparently referencing the provision calling for the surrender of the earnest money deposit in the event of a failure to close, the court wrote that “Given that there is ambiguity in the language of the contract, there is a genuine issue that needs to be resolved before the outcome of this case can be determined.”  The Court does not, however, further identify what is the ambiguity.  Immediately before this paragraph of the opinion, the Supreme Court recited the statement by the Court of Appeals, it repeating Patel’s assertion, that the agreement at issue “did not contain a valid liquidated damages clause under United Services Auto. Ass’n v. ADT Sec. Services, Inc.  241 S.W.3d 335 (Ky. App. 2006).”  It is not at all clear that the fact that an agreement does not satisfy the test of a particular ruling creates an ambiguity.  Rather, for an ambiguity to exist in an agreement, it must appear within the four corners of the document.