Look Before You Release II

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.

An Ounce of Prevention . . .

Two situations I encountered this past week really drove home how valuable it is to obtain a little professional advice before agreeing to something. For privacy reasons I can only say that both of them signed away something very valuable without realizing it. I am sure that if someone had suggested to either of them that they should consult an attorney first, their first thought would have been that the expense was too great for something that seemed so simple. That is what most people would think. It is something I would have thought too prior to going to law school. Now, though, the cost to each one has grown exponentially because they are either paying to clean up the mess or have lost a right forever. If I can convince just one person out there that it is cost effective to get legal advice on the front end of a deal, then I will be content. This is especially true if you can locate a reputable solo practitioner or small firm. There are a few reasons for this. First, a solo practitioner will personally look over your circumstances rather than relegating down stream to a new associate or law student that is clerking for the firm. Second, most solo practitioners and small firms have lower hourly fees because of their lower overhead. Lastly, the solo’s and small firms are interested in long term business, even the small stuff, so they are more likely to give your issue the attention it deserves. Even if they do not have the answers when you first talk to them, they have the know how to get those answers. Seriously - most solo’s and small firm attorneys can look over a release form, contract, or custody papers in half an hour. In Kentucky, that would be anywhere from $75 to $100 dollars for routine issues (perhaps more for specialized issues). That is far better than having to pay for many, many hours of legal help in trying to fix a matter once it has gone sour. I want to doubly emphasize this if you are an individual and the other party to the contract is a corporation such as an insurance company. They have already spent thousands and thousands of dollars to lawyers with the end resulting being release forms and contracts that give them maximum protection and you minimum wiggle room. So, spend a little on the front end and save a lot in the long run.

SELLING OR BUYING A HOUSE: DISCLOSURE OF PROPERTY CONDITION

On November 23, 2005, the Kentucky Supreme Court issued an opinion which will have a dramatic effect on the sale of residential property in Kentucky. The law requires that the Seller complete a Disclosure of Property Condition form.  The disclosure is to be based on the Seller’s observation and knowledge and is not to be a warranty of condition.  However, in this case the Purchase Contract form provided that the Seller, “represents and warrants to Buyer” that the information was true and accurate and incorporated the terms of the Disclosure form. 

In the Disclosure form, the Seller did the right thing and disclosed that the basement leaked and the approximate dates it leaked.  The Buyer exercised her right to have a professional inspection done that revealed cracks in the basement wall which were of concern.  The Buyer bought the house aware of these conditions.   However, when she later experienced leaks, the Buyer sued the Seller for breach of warranty and fraud.

Without going into all the legal issues addressed by the Court, they held because of the use of the word “warranty” in the Purchase Contract, the Buyer had the right to have a jury determine if she had been defrauded.  It is noteworthy that Kentucky law does not require the Seller to give a warranty of the disclosures. If the Seller had simply indicated on the Purchase Contract the property was being sold without any warranties as to property conditions the Buyer would have no case. While I believe this decision is a unfair to the Seller and should have been dismissed it is now the law.

THE LESSON LEARNED: PROVIDING ACCURATE INFORMATION ON YOUR PROPERTY DISCLOSURE IS NOT ENOUGH; REVIEW THE PURCHASE CONTRACT TO MAKE SURE IT DOES NOT PROVIDE A WARRANTY ON THE PROPERTY CONDITIONS TO THE BUYER.  OTHERWISE, YOU COULD STILL FIND YOURSELF IN COURT.