Tuesday, March 31, 2015

Court of Appeals Holds Option Agreement Unenforceable for Failure to Address Material Terms

Court of Appeals Holds Option Agreement Unenforceable for
Failure to Address Material Terms


      In a decision rendered last week by the Kentucky Court of Appeals, it held that an option agreement o purchase a business and the related real property from which it operated was unenforceable in that it failed of itself to address all of the material terms of the purported deal.   Rose Mary Hubbs Brewer v. John M. Parsons 2007 Revocable Trust, No. 2013-CA-001309-MR (Ky. App. March 27, 2015).
      This dispute arose out of the question of whether there could be enforced in agreement “for the purchase [sic - of] all of the stock and assets of Knox Body Shop, Inc. (Knox), along with the real property that Knox was situated upon.Consistent with other Kentucky law to the effect that only an agreement which sets forth all of the material terms will be enforcable to uncertainty (i.e., agreements to agree are not themselves enforceable; HERE IS A LINK to an earlier posting on the same topic) the court stated that an option agreement will be enforceable only if the “material termsare “fixed with reasonable certainty. Citing Hisle v. Keltner, 495 S.W.2d, 773, 775 (Ky. 1973), it was observed that:
An 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.
      Turning to the language of the agreement under consideration, the court determined that the description of the real properly purportedly subject to the option was insufficient in that parole evidence would be necessary to supply its description; under Hisle, reference to parole evidence is not allowed with respect to the enforcement of an option. Further, the agreement was found to be insufficiently definite in that there was no agreement as to how the option price would be paid, including the terms of the promissory note that could be presented in payment.
      On this basis, the trial court’s determination that the option agreement was unenforceable was affirmed.

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