Words, Especially the Words in a Written Contract, Matter

Words, Especially the Words in a Written Contract, Matter

      A recent decision of the Kentucky Court of Appeals may be cited for the proposition that words matter, especially when those words are set forth in a written agreement. In this instance, the defendant sought to avoid the application of those words by citing alleged actions and conduct outside the terms of the agreement. Those arguments were unavailing. Stathis v. Lexington Selected Yearling Sales Co., LLC, No. 2019-CA-000275-MR and 2019-CA-000370-MR, 2020 WL 3401184 (Ky. App. June 19, 2020).

      Stathis and Celebrity Farms (LLC) [why the parentheses around “LLC” will be reviewed below] purchased three standardbred horses, Mettle, Fool to Believe, and Italian Style, at an auction sponsored by Lexington Selected Yearling’s Sales Co., LLC (“LSYSC”). In connection therewith, Stathis executed a number of standard agreements, which were signed “Sam Stathis Celebrity Farm.” Notably, Stathis did not complete and submit to LSYSC an “Authorized Agent Form” indicating he was acting as an agent on behalf of a principal. The purchase prices of the horses were $180,000 (Mettle), $30,000 (Fool to Believe) and $45,000 (Italian Style).

      Stathis would assert that, prior to the auction, he entered into a partnership with Ernie Martinez and Al Crawford to acquire Mettle and that “LSYSC was aware of this partnership at the time he purchased Mettle on behalf of the partnership.” For reasons alleged to be based upon a dispute as to who would name the trainer for Mettle, the alleged partnership ruptured. While the purchase price for Fool to Believe and Italian Style were paid by Stathis to LSYSC, the $180,000 owed on behalf of Mettle was never tendered. However, Stathis did have possession of all three horses. Several months after the sale, LSYSC filed suit against Stathis and Celebrity Farms, and they filed a variety of counterclaims. Eventually, Stathis and Celebrity Farms were allowed to file a third-party complaint against Martinez and Crawford. Eventually LSYSC delivered registration certificates for Fool to Believe and Italian Style to Stathis and Celebrity Farms, subject to a reservation of rights; the registration certificate for Mettle was not similarly delivered.

      While Crawford would move to dismiss the third-party complaint, LSYSC moved for summary judgment against Stathis and Celebrity Farms. That summary judgment was granted on the basis that there were no material facts in dispute concerning LSYSC’s breach of contract claims against Stathis and Celebrity Farms, and LSYSC was ultimately awarded a judgment in the amount of $204,300 “plus interest thereon at the agreed rate of 1.50% per month from August 16, 2018 until paid,” plus attorney fees and costs expended. In a subsequent ruling, the trial court held that LSYSC was justified in its delay in delivering the registration certificates for Fool to Believe and Italian Style under the terms of the sales agreement. This appeal followed.

       After determining that sufficient discovery had taken place in order for summary judgment to be considered, the Court of Appeals would affirm the actions of the trial court. Specifically, while Stathis asserted he needed to undertake additional discovery from Martinez and Crawford, it was held that would be irrelevant to the contract between Stathis/Celebrity Farms and LSYSC in connection with the sale of Mettle. First, the court reviewed the merger clause of the sales agreement (which by reference incorporated several distinct documents) and the language that LSYSC “shall not be bound by any oral or written agreement or alleged agreement varying from these Conditions of Sale [.]” 2020 WL 3401184 *3. That shut the door on Stathis’ argument that the agreements were modified by LSYSC’s alleged knowledge of the partnership.

      As for Stathis’ suggestion that he was acting in a representative capacity on behalf of Celebrity Farm, LLC, and not on his own benefit, the court noted that there was no “LLC” indicated on the sales agreement, and that he never submitted an Authorized Agent Form to advise LSYSC that he was acting on a representative capacity. Rather, the court relied upon the language in the agreement itself which “directly above Stathis’s signature” provided:

The individual signing this agreement, regardless of the form of the signature or his signing capacity agrees to be personally liable, jointly and severally with the purchaser, for the full price if the purchaser does not make settlement within 30 minutes or have approved credit or if Lexington Selected Yearling has not been provided with a signed buyer’s authorized agent form granting purchase authority during this sale to the individual signing this agreement. Id. (italics added by Court of Appeals).

      Ergo, Stathis was personally liable for the purchase price. The language of this agreement is consistent with general principles of agency law, which hold generally that an agent on behalf of an undisclosed principal is a party to and personally responsible for performance under the agreement.

After citing a number of cases that generally stand for the proposition that people will be bound by the agreements into which they enter, the court found:

Here, the terms of the contract were clear and unambiguous. Under the sales ticket and conditions of sale, Stathis and Celebrity Farms owed LSYSC $180,000 in exchange for Mettle. Their failure to pay this amount when due further obligated them to pay interest, as well as cost and attorneys’ fees and expenses incurred to recover under the contract. The trial court correctly found no genuine issue of material fact regarding this sale and correctly interpreted the contract. Thus, the trial court did not err in granting summary judgment in favor of LSYSC as a matter of law. Id., *4.

      Rejecting suggestions by Stathis and Celebrity Farms that there existed material facts as to whether rescission was available under a variety of rules, the court found that “in the case herein, LSYSC performed its obligations under the contract when it delivered Mettle to Stathis. By contrast, Stathis and Celebrity Farms failed to perform under the contract by refusing to pay for the horse. Because LSYSC did not breach the parties’ contract, Stathis and Celebrity Farms are not entitled to rescission as a matter of law.” Id. Likewise, the court rejected the suggestion of reformation of the contract on the basis of mutual mistake, finding that while “Stathis and Celebrity Farms believed the cost of Mettle would be borne equally among the partners, based on an unwritten partnership agreement,”, the existence of this partnership was not disclosed in the sales agreement with LSYSC. Rather, the signed sales agreements indicated that the purchasers were Stathis and Celebrity Farms. In consequence, there was no mutual mistake, and for that reason reformation is unavailable. Further, the suggestion that LSYSC orally agreed that the purchase would be by the alleged partnership was rejected on the basis that the written documents expressly rejected any oral modification.

      Based upon the language in the agreement as to personal responsibility of the signatory and the absence of an Authorized Agent Form tendered to LSYSC, the court affirmed the determination that Stathis, individually, was bound on the obligation. “It is undisputed that Stathis signed his name to the sales ticket and provided no authorized agent form to LSYSC. Contrary to assertions by Stathis and Celebrity Farms, this provision is not ambiguous; there is no doubt Stathis could be held individually liable.” Id., *5.

     With respect to a counterclaim made by Stathis against LSYSC based upon the delay in the delivery of the registration certificates for Fool to Believe and Italian Style, the grant of summary judgment was affirmed. The executed sales agreements provided, in part that LSYSC “shall hold the registration certificates for all horses purchased by any Buyer until the Buyer’s account, including late charges and any other fees, have been paid in full.” The court found that LSYSC’s conduct was not commercially unreasonable nor inconsistent with the written agreement. Id.