RENDERED: SEPTEMBER 28, 2017
TO BE PUBLISHED
·~up:rttttt QJ:nurf nf '!ftmfudtlJ
2014-SC-000512-DG .
· AEP INDUSTRIES, INC. APPELLANT
ON REVIEW FROM COURT OF APPEALS
v. CASE NO. 2Q13-CA-000132 .
WARREN CIRCUIT COURT NO. 12:-CI.:.oo467
B.G. PROPERTIES, INC. APPELLEE
OPINION OF. THE COURT BY JUSTICE VENTERS
VACATING .AND REMANDING
·· AEP Industries, Inc: (AEP) appeals from an opinion of'the Court of
Appeals which vacated a-final order of the Warren Circuit Court granting AEP's
motion for specific performance of a real. estate option contract ·between AEP
filid B.G. Properties, Inc. (BG). The Court of Appeals. held that the circuit court
granted speeific performance of the option contract prematurely because
disputed ·issues of fact material to that form of relief had been left unresolved in
the circuit court. The Court o~ Appeals remande~~ the matter for resolution of
·those issues. We granted discretionary review, and upon review we vacate the
. .
opinion of the Court of Appeals and remand the action· to. the trial court with
dire~tion to dismiss any remaining Glaims. ·
'
I. FACTUAL AND PROCEDURAL BACKGROUND·
BG and its predecessor in interest owned an industrial building located
on a 19.7-acre tract in Bowling
.
Green, Kentucky. The. building had been used
for manufacturing flexible plastic packing products and contained features
uniquely suited to that purpose. AEP leased the property from BG for use in
its business of manufacturing flexible plastic packaging. AEP arid BG were
. '
mutUally obligated under several agreements concerning the property. Those
agreements provided AEP with an option to purchase the property. 1
The specific terms of .the purchase option are provided in two documents:
the "Consent to Assignment of Lease and Grant of Option fo Purchase" made in
2001 and the "Agreement Modifying Sublease and Option" made iri 2010.
These two documents collectively provide the terms of AEP's option to purchase
·the property. We refer to those documents together as the "Option Agreement" .
or "the Agreement."
The Option Agreement expressly provided the following four-stage ·
process for ascertaining the purchase price if AEP decided to exerci~e its
purchase option. First, the parties would attempt to negotiate a fair pur~hase
price. ·Second, if the negotiation failed to achieve a mutu:ally agreeable 'price,
' '
then BG would deliver to AEP an appraisal of the property by a qualified
1 More specifically, AEP subleased the property from a primary leaseholder and
certajn of the· agreements were initially executed by the parties' respective
predecessors in interest; however, these details are not relevant to our review.
-,
2
professional appraiser2 with thy app~aisal subject to. special requirements as
· further described below. Third, if AEP declined to purchase at BG's appraised
' . . . '
value, then AEP would obtain its own qualified appraisal a_nd s~brpit it to BQ.
Fourth~ arid finally, if BG rejected_ AEP's appraised value, then AEP's appraiser
. and BG's appraiser .would together select a third appraiser whose independent
valuation of the property would become the final purchase price.
The Option Agreement included two other terms that are significant in
our review: 1) eve·ry appraisal of the property undertaken to determine the
purchase price would ascertain "the fair market value based on its highest and
best use, plus the value of all special features and fixtures located therein for
AEP's use as an extrusion and flexible packaging manufacturing facility;" and
2) the Agreement granted AEP seven days after the final deterrriination of the
. purchase price under stage four to withdraw the exercise of its option to
purchase the property.
In August 2011, AEP informed BG that it .intend~d to exercise the option
to ptirchas~ the property, thereby triggering the four-stage process for ·
determining the price .. Tbe initial attempt to negotiate a purchase price was
unsuccessful.·
. . -
BG then obtained an appraisal by Brantley Appraisal
. /,.
Company,
which valued the property at $7 ,500,000. AEP rejected that price, and as
requfred by the Option Agreement, AEP then obtained its own appraiser,
selecting CBRE, which valued the property at $3,550,000.
2 The· Option Agreement set forth particular .qualifications for the appraisers
used.
3
BG rejected CBRE's valuation. AEP then attempted to initiate the final
stage of the process, the s~lection of the third appraiser, but BG refused to
cooperate. BG claimed that AEP did not properly comply with the third stage of
the pricing process because the. CBRE appraisal tendered by AEP did not meet
. . .
the special conditions of the Option Agreement for a value based upon "the
highest and best use of the property" and for the inclusion of the "special
features arid fixtures located therein for AEP's use as an extrusion and flexible
packaging manufacturing facility." Accordingly,.BG insisted that before moving
. to the fourth stage of the pricing process~ AEP was obligated first to submit an
appraisal that complied with the special conditions of the Option Agreement.
Instead of acceding to BG's demand to submit a different appraisal, AEP
filed a.n'-action in the Warren Circuit Court alleging that BG was in breach of
the Option Agreement for failing to proceed with the selection of the third
. appraiser . .AEP sought a court order compelling BG to participate in the
appointment of a third appraiser.
BG responded to the suit with an answer and co~nterclaim. BG invoked
the well-settled equitable principle that specific performance of a contract will
only be granted when the party seeking the _specific performance has itself
complied with all terms of the contract. To be granted specific performance of
'an agreement for the sale of real property, all conditions precedent to the sale
must have been complied with by the party seeking such specific performance. 3
3 See 25 Williston on Contracts§ 67:73 (4th ed. 2013) ("The performance of all
conditions precedent is generally required before specific performance will be
4
BG asserted that AEP's failure to submit a proper appraisal at the third stage
., of the pricing process was a breach of the Option Agreement by AEP that
barred its claim for specific performance. BG .also claimed that in addition .to
the disagreement about the CBRE appraisal, AEP had also breached the
provision of the lease agreement requiring it to keep the roof of the building in
good repair. BG contended that the appraisals used to determine the purchase
price should not be discounted by the .deteriorated condition of the roof that
AEP had failed to maintain.
Eve:r;itually, upon motions for summaryjudgment, the circuit court
· determined that CBRE's appraisal complied with ~he conditions of the Option ·
Agreement. The court directed BG to proceed with the fourth stage of the
, appraisal process, the selection of the third and final appraiser. The circuit·
~ourt fixed a deadline for obtaining that appraisal and held the remainder of
the action in abeyance pending its completion. :Iri compliance with the circuit
court's order, BG and AEP selected G. Herbert Pritchett as the third appraiser.
Pritchett valued the property at ·$3~834,000.
AEP was satisfied with that price, but BG refused to transfer the
· property, claiming that Prit.chett's appraisal suffered the same deficiency as
CBRE's appraisal: it failed to account for "the highest and best use of the
property" as defined in the Option Agre~ment and it failed to factor in the
special features that made the property uniquely suited to AEP's
granted."); WestKy. Coal Co. v. J.D. Nourse, 320 S.W.2d·311 (Ky. 1959); Puritan
Homes, Inc. v. AbeU, 432 S. W.2d 632 (Ky. 1968).
5
manufacturing process, as set forth in the Option Agreement. BG also
complained
. .
that
' .
Pritchett's
..
appraisal
.
unfairly diminished the value of the . .
property due to the poor condition of the roof that AEP had failed to maintain.
AEP then moved the circuit court for an order compellin~ specific
performance of the Option Agreement by" d}recting BG to convey the property at
Pritchett's apprais~d value of $3,834,000. In addition, AEP demanded a credit
against the purchase· pnce of $407, 987 .37 for the additional rent. payments. it
had incurred under the lease due· to BG's failure to voluntarily cooperate in the
selection of the third appraiser iri a timely manner.4· BG.responded by
reiterating its position that AEP had initia).ly breached the agreement by failing
to tender a qualifying appraisal and for that reason it could not demand
specific performance of the very contract it had breached.
By order dated December 19, 2012, the circuit court rejected BG's
arguments.· It determined that Pritchett's appraisal of the fair market yalue of
property at $3,834,000 prop~rly accounted for the ~ite's "special features and
fixt:ures" and was consistent with the terms of the Option Agreement and that
court's previous order. The circuit court also concluded that the Pritchett
7
appraisal properly accounted for the "roof issu~" a,nd, therefore,. no variance
, from the app~aised value was required to accommodate that concern .. The .
4 But for BG's opposition to the appraisals, tlie transfer of property pursuant to
the parties' Option Agreement, and th~ corresponding cessation of AEP's· rez:it ·
obligation under the lease, would have occurred by June l; 2012. The rent credit was
calculated to compensate AEP for the additional rent paid between June 1, 2012 and
the eventual transfer of the property on December 31, 2012.
6 .
circuit court also granted AEP's demand for a credit for the additional rental
· payments incurred due to BG;s delaying the transfer ()f the property during the
dispute. 'The December i9, 2012 order directed BG-to convey the property to
AEP for the price fixed.by Pi-itchett's appraisal, $3,834,000.00. The circuit
·court also awarded AEP claimed rent credit of $407,987.37, for a net payment ·
· obligation of $3,426,012.63 due to BG.
Rathe.r than seeking immediate relief to abate the· enforcement of the
order and thereby avofd transferring the property for what it. regarded as
' .
inadequate consideration, and rather than tendering a conciitional deed stating
the involuntary nature of the conve~a:n.ce and reserving its objection to the ·
forced sale at an inadequate price, BG filed with the circuit court a "Motion ~or .
. Approval of Deed Form and an Order ~reserving Claims," tendering a · .
' ' '
conventional general warranty deed for the unconditional transfer of the
pr~perty to AEP in fee ·simple for the stated consideration of $3A26,012.63~ s
AEP responded to' BG's motfon, voicing no objection to the form of the
deed but vigorously opposing the entry of an order that would sanction the
transfer of title while l