Summary
The Kentucky Supreme Court affirmed the Court of Appeals’ reversal of partial summary judgment for Paul Mostert in a dispute with The Mostert Group, LLC. The Court held that the parties’ agreements required Mostert to transfer the EquiTrax source code and did not grant him a security interest in or right to possess it. Because Mostert breached the Contribution Agreement before the final promissory-note payment was due, The Mostert Group was excused from further performance on that obligation.
Topics
Practice areas
Questions Presented
- Whether the Security Agreement's reference to specified software included the source code that the Contribution Agreement separately required Mostert to transfer to TMG.
- Whether Mostert's failure to deliver the source code constituted a prior material breach that excused TMG from paying the final installment on the promissory note.
- Whether Mostert was entitled to partial summary judgment on the final note installment and related amounts.
- Whether the court needed to decide the parties' arguments concerning classification of software under Article 9 of Kentucky's Uniform Commercial Code and perfection by possession.
Holdings
- The Security Agreement did not grant Mostert a security interest in the source code because the parties expressly distinguished source code from software in the Contribution Agreement, while the Security Agreement identified specified software as collateral but did not mention source code.
- Mostert was the first party to breach the Contribution Agreement by failing to deliver the source code, and that breach excused TMG's obligation to make the final installment payment under the Note.
- Mostert was not entitled to partial summary judgment for the final scheduled installment payment because his prior breach of the Contribution Agreement excused TMG's further payment obligation.
Key quotations
“Generally,... in construing contracts courts endeavor to give effect to the parties’ intent as expressed by the ordinary meaning of the language they employed.” (7)
“It is of course a fundamental tenet of this jurisdiction that the unambiguous language of a contract will be enforced as written and that the courts will not re-write the contract in contradiction of its plain meaning.” (12)
“Another “fundamental principle in the law of contracts” is that “before one may obtain the benefits the contract confers upon him, he himself must perform the obligation which is imposed upon him.”” (13)
“[T]he party first guilty of a breach of contract cannot complain if the other party thereafter refuses to perform. . . . [H]e who first breaches a contract must bear the liability for its nonperformance.” (13)
Factual background
In 2003, Paul Mostert transferred EquiTrax technology and other assets to The Mostert Group, LLC in exchange for membership units, cash, and a promissory note payable in installments. The Contribution Agreement expressly listed software programs, source codes, and object codes among the assets to be transferred, while the contemporaneous Security Agreement granted Mostert a security interest in specified software but did not mention source code. Mostert retained the source code despite repeated demands for its delivery, and TMG withheld the final installment payment on the note, which was due in January 2009.
Procedural history
The Mostert Group sued Mostert in 2006 for breach of contract, conversion, and misappropriation of trade secrets. TMG filed a separate declaratory judgment action in 2008 concerning Mostert's failure to deliver source code and TMG's withholding of a promissory-note payment; the actions were consolidated in 2009. The circuit court denied TMG's partial-summary-judgment motion, later ordered TMG to post a bond and Mostert to deliver the source code, and then granted Mostert partial summary judgment on his claim for the final note installment. The Court of Appeals reversed and remanded, and the Supreme Court affirmed that decision. The Supreme Court later denied Mostert's petition for rehearing on September 24, 2020.
Remand instructions
The case was remanded to the trial court for further proceedings consistent with the opinion.