Bluegrass Business Law

October 27, 2007

Look Before You Release II

Filed under: Business,Real Estate Law — G.A. Napier @ 7:54 pm

A recently released opinion from the Court of Appeals, Larkins v. Miller, 2006-CA-002043-MR (October 26, 2007)(to be published), gives a concise synopsis of the steps courts are to take in determining is a release of liability will hold up. In this case, the Larkins purchased a residential lot in Hebron, Kentucky, from Akin & Miller Land Developers (“Developer”). Apparently the undeveloped lot was a bit steep which occasioned John Akin of the Developer to comment on additional construction costs. Mr. Akin assured the Larkins that the increase would be only a few thousand dollars.

Later, the Larkins closed the deal for $160,000.00 on the lot. This exhausted their resources so they did not build on the lot for aobut five years. While the Court’s opinion does not elucidate on the circumstances between purchase and building, I picture poor Mr. and Mrs. Larkin sleeping in hammocks tied to trees clinging to the side of a hill while livestock with legs shorter on one side (so they don’t fall over) walk past. Regardless, once they do hire a construction company, they learn the increased cost of building on this slope would be $83,000.00. Perhaps this just indicates that Mr. Akin loosely defines “a few thousand dollars.” Shocked by this sum, the Larkins sued for breach of contract and fraud.

I will add that an engineering report was completed and the Larkins reviewed this report at the meeting where they closed on the property. Apparently, Mr. Akin reaffirmed his “few thousand dollars” estimate at this time. The Larkins signed a release which said, in pertinent part:

    In consideration of Akin and Miller Land Developers agreeing to sell a hilltop residential lot to Purchasers, Purchasers do hereby for themselves, their heirs, executors, administrators, successors, and assigns, release and forever discharge Akin and Miller Land Developers, Miller, individually, and Akin, individually, their heirs, executors, administrators, successors, and assigns, from all claims and demands, actions, or causes of action, which have arisen or which may arise, related to, either directly or indirectly, slope stability or any other directly or indirectly related issue.

Some controversy was introduced over whether this release was signed at the same meeting where the closing on the land occurred or if it occurred some time later (thus lacking in consideration), but the Trial Court granted summary judgment for the Developers. The Court of Appeals found this controversy no barrier either because the Release was dated July 14, 2000, which coincided with the date a check was tendered from the Larkins to the Developers. So, the Court of Appeals determined that valuable consideration for the release existed.

I will not argue excessively with the Court, but “consideration” is an exchange from each party to the other of something valuable. Here, the Larkins are giving a release of liability to Developers AND give a check, but the Developers are giving nothing of value to the Larkins (unless the release was signed at the closing). If, in fact, the land was conveyed days earlier by deed instead of in the same meeting, then where exactly is the consideration for the release?

Tedious points of law aside, the Court defines a release as “an agreement between parties where one party surrenders the right to sue the other party for a claim that might arise” which is supported by valuable consideration. Id. at 7. Once a court determines there is a valid release, then “a court should interpret the terms of the contract according to their plain and ordinary meaning.” Id. This release could not have been any clearer and it even took pains to state that the Larkins reviewed the engineering report and that the Developers were not experts in slopes. Becaus the Court found a valid release that was unambigous, they never considered whether Mr. Akin made fraudulent representations.

Lessons learned: 1) Never accept vague assurances, such as it’ll only cost “a few thousand dollars” to keep you house from sliding down that hillside; rather, demand they be specific and in writing. 2) If you are the one seeking a release, keep it clear and simple. 3) If you are a business person asking for a release from liability, be sure that you are giving something of value in exchange for that release. 4) Hillside homes cost more.

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