RENDERED: OCTOBER 13 , 2023; 10:00 A.M. TO BE PUBLISHED 

# Commonwealth o f Kentucky Court of Appeals

NO. 20 2 3

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- 0 005

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ELIZABETH BURCH APPELLANT

APPEAL FROM MADIS ON CIRCUIT COURT v. HONORABLE COLE ADAMS MAIER , JUDGE ACTION NO. 2 1

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L OUI S BERTRAND THOMAS III , AND LAURA ELIZABETH THOMAS FR ITZ, INDIVIDUALLY AND AS CO

- EXECUTORS OF THE ES TATE OF LOUIS BERTRAND THOMAS, JR

. ; MARY CAROL TATE ; MARGARET KATHLEEN CORNETT ; SAMUEL DELBERT FRITZ ; LORI TILLET THOMAS ; KENNETH CHADWELL TATE ; CHA R LES CHRISTOPHER TA TE ; AND THOMAS J

. SPALDIN G APPELLEE S

OPINION AFFIRM ING
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BEFORE: CETRULO, KAREM, AND M C NEILL , JUDGE S

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KAREM, JUDGE : Elizabeth Bu rch appeals from the M adison Circuit Co urt ’ s order granting a decla r atory judgment in fav or of her sister ’ s heirs. Spec i fi cally,
Elizabeth Burch contends the circuit court misa pplied the doctrine of merger extinguishing any claim she may have to proce e ds from a future sale of property. We disagree and affirm the judgmen t of the circuit court.

FACTUAL AND PROCEDURAL BACKGRO UN D
The parties agree as to the facts of thi s case and further agree that the

con troversy is justiciable.

On December 22, 1986, Elizabeth Mur phy deeded property, by gift intended as an early inherit a nce , to her daughters. The real estate, located at 8 18
Barn es Mill Road in Richm ond, Kent ucky (hereinafter “ the property ” ) was

conve yed to her daughters, Elizabeth M. Spal ding (now Burch) and Mary Ellen
Thomas and their respective s pouses, Thomas Spaldin g , and Louis Bertrand
Thomas Jr. , in equal shares to ea c h couple. On that same date, Elizabeth Burch (hereinafter “Burch”) and Thomas Spalding subsequently sold their 50% interest in the property to the Thomas es
. The fair m arket value of the property at t he time
was established to be $80,600. The Spaldings s old their interest to the Thomases
for $40,300. The Thomases executed a promissory note and mortgage to the Spaldings in the principal am ount of $40 , 300.- 3

- To memorialize t his transaction, the part i es executed a written

“ A greement of Sale of Real Property ” ( hereinafter “ the agreement ” ) . At issue in the case is the provision of the agreement govern ing the f uture sale of the property,
entitled Article III

– Future Sale and Proceeds, which provides as follo ws:

T he PURCHASER agrees to fully account to the SE L LER as to any future sale. In the event th at the net proceeds exceed EIGHTY THOUSAND SIX HUNDRED DOLLARS ( $80,600.00 ) , the PURCHASER shall receive fift y ( 50% ) percent of this excess subject to the provision s of Article IV

. In the event that the net proceeds ar e less than EIGHTY THOUSAND SIX HUNDRED DOL LARS ( $80,600.00 ) , then the SELLER agrees to reduce the purchase price herein proportionately, subject to th e provisions in Article IV

. Notably, in 1991, th e Spaldings divorced. T homas Spalding subsequently as s ig ned his mortgage/note interest in the property to his ex

- wife,
Burch : ASSIGNMENT OF NOTE AND MORTGAGE

. . . WITNESSETH , that for and in consider ation of the terms of a S eparation and P ro perty S ettlement an d D ecree of D issolution entered in Madison Circuit Cou r t, C ivil A ction F ile No. 91

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- 440 , the party of the first part [ Thomas J

. Spalding ] a s signs, transfers and conveys unto the party of the se cond part, [ Elizabeth B u rch ] all his right [ s ] , title and inte rest in a cer tain note dated December 23, 1986 , 1 as se c ured by mortgage recorded

1 The date identifie d by the parties for the sale between the sibl ings memorialized in th e agreement varies t hroughout the record . The parties use varying dates bet ween December 22,- 4

- December 23 , 1986, in M ortgage B ook 328 at page 293 , in the office of the Madison County Court C lerk [.] Then, in 1 99 7, after receiving payment in full fr om the Thomases for
the $40,300 , Burch executed a release discharging her inte r est in the subject mortgage and note:
MORTGAGE RELEASE

IN CONSIDERATION of Bert Thomas and Mary Ellen Thomas, paying in full that certain P romissory N ote in the original princ ipal sum of $40,300.00, dated December 2 3, 1986 in favor of Thomas J. Spalding and Elizabeth M. Spalding, and assigned by Thomas J

. Spalding to Elizabeth M

. Spalding by A ssignment of record in M iscellaneous B ook 78, pag e 168, in the Madison County C lerk’s O ffice, the undersigned does hereby FULL Y RELEASE and DISCHARGE that certain m o rtgage of record at M ortgage B ook 3 2 8 , page 293, in the Madison County C lerk ’ s O ffice. In 2021, thirty

- six years after the execution of t he mo rtgage between the siblings and twenty

- five years foll ow ing the extinguishment of the Thomas es ’ debt to the Sp a ldings, the Thomas heirs 2 (hereinafter “heirs”) sought a declaratory judgment to eliminate the risk of wrong actio n on their part following the future sale of the property. The circuit court entered a declaratory judgment finding that
the agreement was n e ither unclear nor ambiguous

. I t interpreted the agreement to
1986 and December 26, 1986. However, it is clear all ref erences to the agreement are to the document entitled “Agreement of Sale of Real Proper ty” recorded in Mo rtgage Book 328 at page 2 93, in the office of the Madison County Clerk.

2 Both M ary Ellen Thomas and Louis Bertrand Thomas, Jr. had pas sed prior to the fil ing of this action.- 5

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conclud e that the parties ’ obligations under Article III were satisfied in 1997 when the Thomases paid off the debt and the mortgage was re lease d

. Its order stated in pertinent part as follows:

The language of Article II I concerning the contingency of net proceeds of future sale being less than $80,60 0.00 causes the Court to believe that the agreement is limited in ap plication. That languag e provides that in the event a future sale brings net p roceeds less than $80,600.00, “ then the seller agrees to reduce the purchase price herein prop ortionatel y . . .
. ” (emphasis added ). The Cour t interprets this language to m ean the reduction would apply , if a t all, to the purchase price in the agreement , wh ich in this case refers to the sale and purchase of the Spaldi n g interest in the property for $40,300.00. It is the only purchase price spec ifically covered by the agreement. However, that debt was u ltimately paid in full in 1997 and the Mortgage was rel eased. The Court does not see tha t any reason existed for Article II I t o apply once the Thomases s atis fied their underlying debt owed to the Spaldings. The Co urt finds that A rticle II I app l ied to any future sale that might occur while the Tho mas [ es ’ ] debt remained outstanding and the obligati on to pay their mortgage continued. The obligations of the parties were satisfied under the agreement o nce the Thomases paid off the deb t in 1997 and th e mortgage was released. This appeal by Burch followed

.

STANDAR D OF REV I EW
T he appellees argue that the circuit court in this case granted a summary judgmen t in the declaratory judgment action and , in r eliance on Ladd v.
Ladd , 323 S.W. 3d 772, 776 (Ky. App. 2010) , contend that the standard of review- 6

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for a summary jud gment should be applied

. But the situation in Ladd v. Ladd is
dis tinguishable. In Ladd , the a ppellee filed a motion for declaratory relief , but in

s ubsequent filings identi fied the pending motion as one for summary judgment

. The trial court treated th e motion as one for summary judgment and recited the summary judgment standard in its findings of fact, conclusions of law, and judgment. Id . at 776. In thi s case , however, the circuit court did not state that it was granting summary judgment and plainly styled its order as one granting declaratory judgment. “ The st andard of review on appeal from a decl aratory ju d gmen t is whethe r the ju dgmen t w as clea rly e rroneous
. ” Publi c Se rvice
Commissio n of Kent ucky v. Metro p o litan Housing Coali tion , 65 2 S

. W.3d 648, 651 (Ky. App. 2022), discretionary review denied ( Oc t. 12, 20 22) ( ci ting Ame rican
Int erinsurance Exchange v . Norto n , 631 S.W

. 2d 8 51, 852 (Ky

. App. 19 82) )

. A
trial court ’s f

indings of fact are not clearly erroneous if supported by substantial
evidence. Hoskins v. Beat ty , 343 S.W.3d 639, 641 (Ky. App. 2011) (citatio n omitted) ; Kentucky Rules of Civil Procedure ( “ CR ” ) 52.01

. As we have already stated, the und erlying facts are not in dispute; rather, Burch challenges t he circuit

court ’ s conclusions of law , which ar e review ed de novo

. Hoskins , 343 S.W.3d at
641. Specifically, “ [t] he construction and interpretation of a contract is a matter of
law and is reviewed under th e de n ovo standard. ” Cagata v. Cagata , 475 S.W.3d- 7

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49, 56 ( Ky. App. 2015), discretionary review denied (Dec. 10, 2015) ( citations omitted).
ANALYSIS

The heirs ma i ntain that the doctrine of merger applies, and any obligation outlined in the agree m ent regarding the future sale of the property was extinguish ed upon the release of the mortgage. B urch disagrees a nd contends that Article III of the agreement was a coll a teral agreement, separate and apart from the mortgage and , as such , remains in effe c t in perpetui ty. 3 We agree with the heirs.

Burch direct s our attention to multiple cases to support her conten tion that the language of Article III within the origina l agreement was a collateral agreement, separate and distinct from the agreement for the purchase of the property. She attempts to equate t he fa cts and holding in Lawrence v. Bingham Greenebaum Doll, L.L.P. , 599 S.W.3d 813 (K y. 2019), to her circumstances

. In
Lawrence , a client negotiated a new payment plan with his attorney wherein he

w ould pay a fl at fee of no less than $450,000 the principal n ot to exceed $650, 000.
Lawrence , 599 S.W.3 d at 819

. The client “ agreed to secure his payment with a mortgage on real est a te he owned , and he signed a promissory note evidencing his

3 The record, t hrough both oral and written argument s , acknow ledge s Elizabeth Burch executed “AGREEMENT OF SALE OF REAL PROPERTY RELEASE” on May 7, 2021 , releas ing all rights as satisfied to any proceeds from the fu ture sale of the pro perty. However, Elizabeth Burch main tains she did not have the benefit of counsel at the time of s igning and subsequently r e voked the release. No written revocation was presented to the court. It appears from the record that the circ uit court did not ta ke the existence, or non

- existence, of this release into account in its ruling and neither shall we

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debt. ” Id

. The property w a s later foreclosed upon and sold at judicial auction.
The c lient ar g u ed that a default judgment on the enforceabil ity of the promissory

note that was entered in favor of t he attorney precluded the attorney from asserting
a claim for enforceability of t he mortgage. Id . at 821. T he Kentucky Supreme
Court held that the attorney was not precluded from asserting the clai m because

“ [a] note and a mortgage given to secure it ar e separate instruments, executed for different purposes, and an action for foreclo su r e of the mortgage and upon the note are regarded and treated , in practice as separate and distinct causes of action , al though both may be pursued in a foreclosure suit.” I d . at 821

. Lawrence is easily distinguishable from the case sub judic e in that it concerned two separate causes of action; one action for the promissory note seeking payment of legal services and a second foreclosure action on the property secured for pa y ment of those services. Here two parties entered into one agreement from which a d ispute arose over the lo ngevity or duration o f the
condition s of that agreement.

In this cas e, t he court applie d the doctrine of merger and found that the condition in the agreemen t , specifically Article III, w as extinguished when the debt was paid in full , and the mortgage released

. “ The merger doctrine holds that all prior statements and agreements, both written and oral, are m erged into the deed and the parties are bound by that instrument. ” Borden v. Litchford , 619 S.W.2d- 9

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715, 717 (Ky. App. 19 81)

. “ Under the merger doctrine, upon delivery and acceptance o f a deed the deed extinguishes or supersedes the provis ions of the
underl ying contract for the conveyance of the realty. ” D rees Co. v. Osburg , 144 S.W.3d 831, 832 (Ky. App. 2003)

.

Burch cor rec t ly points out that the court never use d the term “merger
doc trine

. ” However, the court used the logic of the merge r doctrine , whether specifically identified as such or not. And, wh il e Burch would have us use the holding in Drees to find merger doesn ’t a pply , we are not persuaded by the conclusory language of tha t opinion , which states that “ [c] ovenants in the

antece dent contract that a re not commonly incorporated in the deed, and that the parties do not intend to be incorporated, are often referred t o a s collateral agreements. The mer ger doctrine does not apply to collateral agreements. ” Id. at
8 3 3. Instead , the more recent opin ion of this C ourt , Harrodsburg Indus trial Warehousing, Inc. v. MIGS, LLC , 182 S.W.3d 529 (Ky. App. 2005) , provides more
th oug h tful insight into this doctrine . In Harrodsburg this C ourt held that a purchase agreement m erged into the deed , th us preven ting the pu rchaser from prevailing on a breach of contract claim. It set forth the following exceptions to the merger doctrine: “ [ F] raud , mistake, or contractual agreement clearly not
intend ed to be merged into the deed. ” Harrodsburg , 182 S.W.3d at 5 32 (ci tation omitted). No ne of thes e apply i n this case. A rticle III of the agreement was part- 10

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and parcel of th at agreement from the date of con v eyance of the property. There are no facts to suggest that Article I II is a collateral agreement separate and
inde pendent from the pur chase agreement. As the circuit court stated, no reason

“ existed for Article II I to apply once the Thoma ses s atis fied t h eir underlying debt
owed to the Spaldings. ” Thus, we conclu de that the grant of declaratory judgment
in favor of t he heirs was proper.

For the foregoing reasons, the declaratory judgment of the Madison
Circuit Cour t is affirmed.

ALL C ONCUR

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B RIEF S FOR A PPELLANT: Jimmy Dale Williams Randy Marti n O ’ Neal Richm ond , Kentucky BR IEF FOR APP ELLE E S : Michael S. Fore Isa ac N . Claywell Richm ond, Kentucky