The First National Bank of Manchester v. Maurice K. Smith
2020 CA 000758
| Ky. Ct. App. | Mar 10, 2022Background
- In 1990 First National Bank of Manchester (First National) executed a commercial ground lease with the Smith family and built a bank on the leased parcel (branch now closed).
- The lease sets out initial five‑year rent periods and nineteen subsequent five‑year periods, plus a provision stating the lease is "enforceable for the initial Five (5) year term . . . and for at least nineteen (19) subsequent Five (5) terms" and that Lessee "shall have the option to extend the lease for a likewise term of One Hundred (100) years." Parties disputed whether the lease is an initial 100‑year term (Smiths) or successive five‑year terms renewable at the bank's discretion (First National).
- In 2015 the Commonwealth, Transportation Cabinet, filed a condemnation action taking part of the leased parcel; the court ordered $87,500 paid into the clerk pending resolution of compensation.
- The Smiths moved for summary judgment on apportionment, relying on the Kentucky Supreme Court's Sherrod method and an appraiser affidavit (Grabeel) opining the parcel is worth more subject to the lease (Factor B) than free of it (Factor A), so all damages belong to the fee owners.
- First National filed a declaratory judgment action seeking judicial construction of the lease (no discovery); the circuit court ruled on May 4, 2020 that the lease is a long‑term 100‑year initial term with a 100‑year extension option, and also granted summary judgment allocating all condemnation compensation to the Smiths.
- First National appealed both rulings; the Court of Appeals affirmed the lease construction but reversed and remanded the summary judgment on compensation allocation for insufficient expert evidence.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Lease term interpretation | First National: lease consists of successive five‑year terms renewable by payment/possession, terminable in 2020; renewals at lessee's discretion for up to 100 years | Smiths: lease was intended as an initial 100‑year term with a separate option to extend another 100 years; five‑year language governs rent increases only | Court: lease is a long‑term initial 100‑year lease with an option to extend 100 years; affirmed declaratory judgment |
| Allocation of condemnation compensation / adequacy of expert affidavit | First National: Sherrod applies but Smiths' appraiser (Grabeel) gave only the conclusory opinion "Factor B exceeds Factor A" without stating numeric fair‑market values; affidavit predates lease construction and is insufficient for summary judgment | Smiths: Grabeel's affidavit establishes that the leased property is worth more subject to the lease, so lessee has no leasehold value and landowners get all damages | Court: reversed summary judgment and remanded because Grabeel improperly opined that B > A instead of supplying admissible specific valuations required to apply Sherrod; affidavit insufficient under CR 56 |
Key Cases Cited
- Commonwealth, Dep't of Highways v. Sherrod, 367 S.W.2d 844 (Ky. 1963) (sets method for apportioning condemnation damages between landlord and tenant)
- Lexington Flying Serv. v. Anderson's Ex'r, 239 S.W.2d 945 (Ky. 1951) (defines "renew" as ordinarily requiring a new written agreement unless parties' intent indicates otherwise)
- Frear v. P.T.A. Indus., Inc., 103 S.W.3d 99 (Ky. 2003) (contract interpretation is a question of law reviewed de novo)
- Steelvest, Inc. v. Scansteel Serv. Ctr., Inc., 807 S.W.2d 476 (Ky. 1991) (summary judgment standard in Kentucky)
- Commonwealth v. R.J. Corman Railroad Co./Memphis Line, 116 S.W.3d 488 (Ky. 2003) (condemnation valuation principles and when summary adjudication may be appropriate)
- House v. Deutsche Bank Nat'l Tr. as Tr. for Wamu Series 2007‑HE1 Tr., 624 S.W.3d 736 (Ky. App. 2021) (inadmissible affidavit evidence cannot support summary judgment)