Shawn L. Keck v. E.G. Meek, Sr. ( 2018 )

06/28/2018
IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
April 19, 2018 Session
SHAWN L. KECK ET AL. v. E.G. MEEK, SR., ET AL.
Appeal from the Chancery Court for Union County
No. 6846 Elizabeth C. Asbury, Chancellor
No. E2017-01465-COA-R3-CV
This case involves a contract dispute concerning four simultaneously executed
agreements that, if completed, would have essentially constituted a trade of two parcels
of improved real property. The plaintiff buyers entered into the four agreements with the
defendant sellers on October 1, 2013, giving the buyers a lease on the sellers’ property,
located on Walnut Breeze Lane in Knoxville, Tennessee (the “Walnut Breeze Property”),
with an option to purchase that property in the unspecified future. The buyers agreed to
trade equity in their own property, located on First Street in Corryton, Tennessee (“First
Street Property”), as partial payment for the Walnut Breeze Property if they chose to
exercise the option. On January 6, 2014, the parties met for a “closing,” and the buyers
conveyed title to the First Street Property to the sellers. However, the “REAL ESTATE
SALES CONTRACT” related to the Walnut Breeze Property stipulated that the transfer
of title to the Walnut Breeze Property was subject to the existing mortgagee’s approval,
which neither party had obtained. The buyers continued to reside at the Walnut Breeze
Property, making monthly payments to the sellers until a year later when the buyers
vacated the Walnut Breeze Property and stopped making payments. The sellers sent the
buyers a notice to vacate three months later. In November 2016, the buyers filed a
complaint in the Union County Chancery Court (“trial court”), claiming breach of
contract, unjust enrichment, and fraud. The buyers requested $75,000 in compensatory
damages, $150,000 in punitive damages, return of the First Street Property, and
reasonable attorney’s fees. The sellers filed an answer and subsequent amended answer,
denying all substantive allegations and raising affirmative defenses. The sellers
concomitantly filed a counterclaim, asserting, inter alia, that the buyers had breached the
lease agreement and requesting an award of unpaid rent and reasonable attorney’s fees.
Following a bench trial, the trial court found that the buyers breached the terms of the
lease agreement by withholding payments on the Walnut Breeze Property for three
months. The trial court also found that the buyers had exercised their option to purchase
the Walnut Breeze Property by signing over title to the First Street Property but that the
sellers knew at that time that the buyers could not satisfy the financing condition of the
sale. The trial court awarded to the buyers the equity value of the First Street Property as
stipulated in the sales agreement concerning that property, minus the value of three
months’ unpaid rent, which the trial court awarded to the sellers. The trial court denied
the parties’ respective requests for attorney’s fees. The sellers have appealed. Having
determined that each party is entitled to some award of attorney’s fees under the
overarching contract, we reverse the trial court’s denial of attorney’s fees and remand for
a determination of the respective attorney’s fee awards. We affirm the trial court’s
judgment in all other respects.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed in Part, Reversed in Part; Case Remanded
THOMAS R. FRIERSON, II, J., delivered the opinion of the court, in which CHARLES D.
SUSANO, JR., and JOHN W. MCCLARTY, JJ., joined.
Lewis S. Howard, Jr., and Erin J. Wallen, Knoxville, Tennessee, for the appellants, E.G.
Meek, Sr., and Shirley T. Meek.
Danny C. Garland, II, Knoxville, Tennessee, for the appellees, Shawn L. Keck and
Marcella H. Keck.
OPINION
I. Factual and Procedural Background
The facts underlying the execution of the four agreements at issue are essentially
undisputed. At the time that the plaintiffs, Shawn L. Keck and Marcella H. Keck
(collectively, “the Kecks”), entered into the agreements with the defendants, E.G. Meek,
Sr., and Shirley T. Meek (collectively, “the Meeks”), the Kecks held title to the First
Street Property with a corresponding mortgage balance of approximately $14,700 owed
to Superior Finance. Having known Mr. Meek for some time prior to the instant
transaction, the Kecks sought out Mr. Meek in the fall of 2013 for the purpose of selling
their First Street Property. The Kecks also wished to purchase a new home through Mr.
Meek, who was a licensed real estate agent and owner of GM Properties & Auction
Company, but the Kecks’ credit history posed a problem with any purchase.
To facilitate a purchase, Mr. Meek suggested utilizing the Walnut Breeze Property
in conveying to the Kecks a lease with an option to buy. On October 1, 2013, the Kecks
and Mr. Meek simultaneously executed four documents.1 Mr. Meek drafted the
1
Shirley T. Meek, the second named co-defendant, executed one of these documents related to the sale of
the Walnut Breeze Property, the “REAL ESTATE SALES CONTRACT.” Ms. Meek held joint title with
Mr. Meek to the Walnut Breeze Property. Mr. Meek signed all other contract documents, including the
2
documents, which appear to have been originally in “boilerplate” format with
handwritten changes and additions.
The first document, entitled, “Tennessee Residential Lease Agreement” (“Lease
Agreement”), conveys a one-year lease of the Walnut Breeze Property to the Kecks. The
rent amount is established at $544 due every two weeks, with expiration of the Lease
Agreement set for October 1, 2014. The Lease Agreement further provides the following
in pertinent part:
5. CONDITIONS OF PREMISES. Tenant stipulates, represents and
warrants that Tenant has examined the Premises, and that they are at
the time of this Lease in good order, repair, and in a safe, clean and
tenantable condition.
***
11. MAINTENANCE AND REPAIR; RULES. Tenant will, at its
sole expense, keep and maintain the Premises and appurtenances in
good and sanitary condition and repair during the term of this
Agreement and any renewal thereof. . . .
***
15. TENANT’S HOLD OVER. If Tenant remains in possession of the
Premises with the consent of Landlord after the natural expiration of
this Agreement, a new tenancy from month-to-month shall be
created between Landlord and Tenant which shall be subject to all of
the terms and conditions hereof except that rent shall then be due
and owing at Contract Pending/Closing on Later Date . . . and except
that such tenancy shall be terminable upon fifteen (15) days written
notice served by either party.
***
20. DEFAULT. . . . If Tenant fails to pay rent when due and the default
continues for seven (7) days thereafter, Landlord may, at Landlord’s
option, declare the entire balance of rent payable hereunder to be
immediately due and payable and may exercise any and all rights
“ADDENDUM NO. 1 TO THE REAL ESTATE SALES CONTRACT,” without Ms. Meek as a co-
signatory. Ms. Meek had no other personal involvement in the facts of the case and was not present
during trial.
3
and remedies available to Landlord at law or in equity or may
immediately terminate this Agreement.
21. LATE CHARGE. In the event that any payment required to be
paid by Tenant hereunder is not made within 7 days of when due,
Tenant shall pay to Landlord, in addition to such payment or other
charges due hereunder, a “late fee” in the amount of Fifty-Four and
40 Dollars ($54.40).
22. ABANDONMENT. If at any time during the term of this
Agreement Tenant abandons the Premises or any part thereof,
Landlord may, at Landlord’s option, obtain possession of the
Premises in the manner provided by law, and without becoming
liable to Tenant for damages or for any payment of any kind
whatever. . . .
23. ATTORNEYS’ FEES. Should it become necessary for Landlord to
employ an attorney to enforce any of the conditions or covenants
hereof, including the collection of rentals or gaining possession of
the Premises, Tenant agrees to pay all expenses so incurred,
including a reasonable attorneys’ fee.
***
31. MODIFICATION. The parties hereby agree that this document
contains the entire agreement between the parties and this
Agreement shall not be modified, changed, altered or amended in
any way except through a written amendment signed by all of the
parties hereto.
***
33. ADDITIONAL PROVISIONS; DISCLOSURES.
This lease is made w/ Contract for a closing date to be agreed upon
by the parties. Contract governing this agreement has been executed
and conditions of such shall govern closing date.
The second agreement, entitled, “REAL ESTATE SALES CONTRACT” (“Real
Estate Contract”), provides for the sale of the Walnut Breeze Property from the Meeks to
the Kecks for a purchase price of $130,000. The Real Estate Contract includes the
following pertinent provisions:
4
PRICE AND TERMS 3. Buyer(s) [the Kecks] agree to pay
One Hundred & Thirty Thousand dollars
($130,000.00) for this property in the
following manner:
Financed with an Owner Financed
Through Contract for deed at time lease
option purchase is exercised. Closing
date not determined @ time of contract,
but to be done ASAP – Subject to
transfer meeting the approval of Home
Federal Bank. An affidavit, if required,
and recorded in Register’s Office Knox
Co. TN. if such seem necessary for the
notice of intentions are required to be
public record.
EARNEST MONEY DEPOSIT 4. Buyer(s) [the Kecks] has given to [the
Meeks], hereinafter called Agent, Thirty
Thousand and see Addendum for
additional (30,000.00), House Trade
Allowance and less balance to Superior
finance for house & lot . . . as an earnest
money deposit to be credited against the
payment of the purchase price, and as a
guarantee of specific performance.
***
MORTGAGE 12. The purchase price or contract price
is to be fully paid in cash, when and if
the mortgage loan referred to herein is
approved and closed. If this loan is not
approved for the amount applied for, this
contract can be cancelled by the Buyer(s)
[the Kecks] and the earnest money will
be returned. The Buyer(s) agrees to
immediately apply for the necessary
mortgage loan to conclude this contract
and will furnish all necessary
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information or documents as required for
the approval of this loan. The Buyer(s)
agrees to execute mortgage documents
when the loan is ready to close and the
terms of this contract have been carried
out.
***
CONTRACT PERFORMANCE 14. Time is of the essence of this
contract. Should the Buyer(s) [the
Kecks] fail to perform the covenants
herein contained within the time
specified, Seller(s) [the Meeks] shall
have the right to pursue any and all
remedies available to Seller(s) at law or
in equity, including, without limitation,
requiring specific performance on the
part of Buyer(s), and retaining as
liquidated damages all sums which have
theretofore been paid to the Seller(s) or
the Agent by the Buyer(s).
If the Seller(s) defaults in the
performance of this contract, Buyer(s)
may reclaim the earnest money deposit
and pursue any and all remedies
available at law.
In the event legal action is instituted by
the Agent, or any party to this contract,
to enforce the terms of this contract or
arising out of the execution of this
contract or the sale, or to collect
commissions, the prevailing party shall
be entitled to receive from the other
party all costs of enforcing this
agreement, including a reasonable
attorney fee.
***
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CONDITION OF PROPERTY 18. Buyer(s) agree to accept this
property in its “AS IS” condition under
the terms of this paragraph unless
otherwise specified. . . .
The third agreement, entitled, “ADDENDUM NO. 1 TO REAL ESTATE
PURCHASE CONTRACT” (“Addendum”), incorporates an additional term into the Real
Estate Contract.2 The Addendum provides in handwritten language:
A lease option contract which shall be considered a prelimanary [sic]
contract as part of this sales contract for the purpose of buyer receiving
principle [sic] credit on all payments made under the lease/option contract
as if the Contract to purchase had been completed and ammortization [sic]
had been based upon approx. a 20yr Ammt.
The fourth agreement, entitled, “SALE CONTRACT” (“Sale Contract”), provides
for the sale of the First Street Property from the Kecks to the Meeks through the
following provisions in relevant part:
In consideration of $Exchange* paid by Second Party [Mr. Meek] as
earnest money and part of the purchase price, receipt of which is hereby
acknowledged, this contract is made binding on both parties. When First
Party [the Kecks] shall offer or deliver to Second Party deed free and clear
of all encumbrances, except as stated herein, being *Buyers due credit on
above property for the net amount of equity as credit on the purchase price
of the property @ Walnut Breeze in the following manner: $30,000.00 less
balance owing to Superior Finance – Knox, TN Apprx Amt. $14,700.00
which will be assumed by second party[.]
***
If Second Party [Mr. Meek] fails to carry out and perform the terms of this
agreement within fifteen days after deed is presented, except for some good
2
The Addendum explicitly modifies a “REAL ESTATE PURCHASE CONTRACT,” but none of the
four agreements in controversy are specifically entitled, “REAL ESTATE PURCHASE CONTRACT.”
The Real Estate Contract refers to an Addendum in section four and in section ten states that “1”
addendum is applicable. Additionally, the parties during trial considered the Addendum as an extension
of the Real Estate Contract. We thereby interpret the distinction between “Purchase” and “Sale” to be a
mistake in drafting the agreements, and as such determine that the Addendum modifies the Real Estate
Contract.
7
reason satisfactory and acceptable to First Party [the Kecks], he shall forfeit
the above amount advanced as earnest money and part of purchase price
and be held liable for complete fulfillment of the within agreement.
(Underlined language handwritten in space provided on form.)
Upon execution of the contracts, the Kecks took possession of the Walnut Breeze
Property on October 1, 2013, and began making payments pursuant to the Lease
Agreement. Mr. Meek testified that at some point prior to January 6, 2014, he contacted
the Kecks, informing them that they had ninety days “to come in and close . . . otherwise
[he and the Kecks] didn’t have a deal.” On January 6, 2014, the Kecks met with Mr.
Meek and executed a warranty deed conveying title for the First Street Property to the
Meeks for “Ten Dollars & other valuable Considerations.” Mr. Meek did not convey title
to the Walnut Breeze Property to the Kecks at this time. Mr. and Ms. Keck each
respectively testified during trial that they left the meeting with the understanding that
Mr. Meek would make the appropriate arrangements to transfer title to the Walnut Breeze
Property by deed within a week. Mr. Meek testified that he knew on January 6, 2014,
that officials at Home Federal Bank, the mortgagee for the Walnut Breeze Property,
would not approve the transfer of title to the Walnut Breeze Property or permit
assumption of the mortgage by the Kecks at that time.
It is undisputed that following this conveyance, the Meeks began making
payments on the approximately $14,700 balance remaining on the First Street Property
mortgage with Superior Finance, as well as purportedly paying some back taxes owed on
the property.3 This occurred while the Kecks remained as mortgagors on the debt. The
Kecks continued residing on the Walnut Breeze Property for the remainder of 2014,
making payments under the Lease Agreement. In January 2015, the Kecks stopped
making payments and vacated the Walnut Breeze Property. The Meeks recorded the
general warranty deed for the First Street Property on April 20, 2015. Two days later,
Mr. Meek sent the Kecks a notice to vacate the Walnut Breeze Property by certified mail,
additionally demanding payment for three months of missed payments under the Lease
Agreement.
On November 16, 2016, the Kecks filed a complaint against the Meeks, alleging
fraud, unjust enrichment, and breach of contract. The Kecks asserted, inter alia, that they
had not received the deed for the Walnut Breeze Property as they had expected as part of
their bargain, that Mr. Meek had failed to make necessary repairs to the Walnut Breeze
Property, and that they had lost their interest in both the property they conveyed and the
3
Mr. Meek testified that Superior Finance held a trust deed to the First Street Property, but it is unclear as
to whether Superior Finance’s permission was requested or required for a transfer of title to the property.
The parties have not raised this issue on appeal.
8
property they purchased. The Kecks sought $75,000 in compensatory damages,
$150,000 in punitive damages, a return of title to the First Street Property, and reasonable
attorney’s fees. The Kecks also moved for a lien lis pendens to be recorded concerning
the First Street Property. The Kecks subsequently filed a motion for default judgment on
January 18, 2017.
The Meeks, initially proceeding without benefit of counsel, filed an answer on
January 23, 2017, denying all substantive allegations. Subsequently represented by
counsel, the Meeks filed a motion to amend their answer on April 6, 2017, raising as
affirmative defenses a failure to plead fraud with particularity, waiver, estoppel, laches,
unclean hands, and the statute of frauds. The Meeks concomitantly filed a counterclaim,
alleging that the Kecks had breached the contract by failing to pay rent in February,
March, and April 2015 pursuant to the Lease Agreement. As damages, the Meeks sought
three months’ rent and late charges in the amount of $3,426, prejudgment interest, and
reasonable attorney’s fees. In response, the Kecks filed an answer to the counterclaim,
denying liability for the missed payments and asserting that payments pursuant to the
Lease Agreement were financing payments under the Real Estate Contract and not to be
treated as rent.
The trial court conducted a bench trial on May 10, 2017, during which the court
heard testimony from Mr. Keck, Ms. Keck, the Kecks’ adult daughter, and Mr. Meek.
The Kecks each stated that although they had read the four documents at issue when they
signed them, their understanding of the entire transaction was based in part on Mr.
Meek’s explanations. The Kecks acknowledged that they were aware that Mr. Meek was
applying their payments under the Lease Agreement directly toward payment of the
Walnut Breeze Property mortgage. The Kecks also each testified that on January 6,
2014, they met with Mr. Meek to exchange deeds to the properties and expected Mr.
Meek to convey title to the Walnut Breeze Property to them that day. According to the
Kecks, Mr. Meek orally promised during the meeting to make arrangements with Home
Federal Bank to transfer the Walnut Breeze Property by deed within a week. The Kecks’
daughter testified that she had observed Mr. Meek visit the Kecks on at least two other
occasions in 2014 and heard Mr. Meek orally promise that he would go to Home Federal
Bank with the Kecks whenever he had the time.
Mr. Meek testified that his understanding of the four agreements was that the four
in combination constituted a contract for a deed with a lease option to finance the
payments on the Walnut Breeze Property. Contrary to the Kecks’ assertions, Mr. Meek
stated that his understanding of the First Street Property conveyance on January 6, 2014,
was that it merely “consummated” the deal and was not an exercise of any lease option
purchase. Mr. Meek maintained that he had merely told the Kecks during the January
2014 meeting that he would visit his contact at Home Federal Bank with them in order to
9
inform the lender that the monthly payments on the Walnut Breeze Property should be
applied to the Kecks’ credit rating as payments on the underlying mortgage.
Upon cross-examination, Mr. Meek acknowledged that the Kecks would possess
equity in the Walnut Breeze Property under the contract, amounting to $15,300 from the
First Street Property conveyance, plus the amount of any payments made pursuant to the
Lease Agreement. Consequently, the Kecks would owe Mr. Meek approximately
$114,000 for the remainder of the property. Mr. Meek also confirmed that the Kecks had
possession of the Walnut Breeze Property through the lease in effect “until they came in
and finished the paperwork and signed over their piece of property[.]” Mr. Meek
acknowledged that to the best of his knowledge, officials at Home Federal Bank would
not have allowed him to transfer title to the Walnut Breeze Property by deed or permit
assumption of the mortgage by the Kecks during the time in which they occupied the
Walnut Breeze Property. Mr. Meek admitted, however, that he had not spoken with an
official from Home Federal Bank concerning the Walnut Breeze Property sale after
executing the four documents in question.
In an order entered June 21, 2017, the trial court granted the Meeks’ motion to
amend their answer, released the lien lis pendens recorded against the First Street
Property by the Kecks, and awarded a judgment in the amount of $11,874 in favor of the
Kecks. Dismissing all remaining claims, the court incorporated its memorandum
opinion, in which it had, inter alia, directed that the Kecks and the Meeks would each
respectively pay their own attorney’s fees.
The trial court specifically found that the Kecks were tenants of the Walnut Breeze
Property under the terms of the Lease Agreement only until the sale of the Walnut Breeze
Property but that the parties “never really got to that point.” However, the court
determined that the Kecks had exercised their option to purchase the Walnut Breeze
Property on January 6, 2014. The court also found that the Meeks’ transfer of title to the
Walnut Breeze Property to the Kecks was subject to the approval of Home Federal Bank.
The court further found that although neither party had sought Home Federal Bank’s
approval, Mr. Meek had entered into the contract on October 1, 2013, with full
knowledge that Home Federal Bank would not approve the transfer.
Without expressly determining the Meeks to be in breach of contract, the trial
court awarded to the Kecks $15,300, constituting the amount of equity the Kecks held in
the First Street Property at the time of their conveyance of that property to the Meeks.
The trial court further found the Kecks to have breached the Lease Agreement by
abandoning the Walnut Breeze Property and withholding payments for three months.
The trial court thereby awarded to the Meeks $3,426, the amount of past due rent and
stipulated late fee. The court subtracted this amount from the award in favor of the
10
Kecks for a final judgment in the amount of $11,874 in favor of the Kecks. The Meeks
timely appealed.
II. Issues Presented
The Meeks present two issues on appeal, which we have restated as follows:
1. Whether the trial court erred by awarding to the Kecks $15,300 as
equity in the First Street Property, which was allegedly applicable
solely toward purchase of the Walnut Breeze Property upon the
condition of the Kecks’ fulfilling the lease requirements concerning
the Walnut Breeze Property.
2. Whether the trial court erred by declining to award reasonable
attorney’s fees to the Meeks pursuant to the Lease Agreement.
III. Standard of Review
Our review of the trial court’s judgment following a non-jury trial is de novo upon
the record, with a presumption of correctness as to the trial court’s findings of fact unless
the preponderance of the evidence is otherwise. See Tenn. R. App. P. 13(d); Rogers v.
Louisville Land Co., 367 S.W.3d 196, 204 (Tenn. 2012). “In order for the evidence to
preponderate against the trial court’s findings of fact, the evidence must support another
finding of fact with greater convincing effect.” Wood v. Starko, 197 S.W.3d 255, 257
(Tenn. Ct. App. 2006) (citing Rawlings v. John Hancock Mut. Life Ins. Co., 78 S.W.3d
291, 296 (Tenn. Ct. App. 2001)). The trial court’s determinations regarding witness
credibility are entitled to great weight on appeal and shall not be disturbed absent clear
and convincing evidence to the contrary. See Jones v. Garrett, 92 S.W.3d 835, 838
(Tenn. 2002).
We review the trial court’s conclusions of law, including its interpretation of a
written agreement, de novo with no presumption of correctness. See Ray Bell Constr.
Co., Inc. v. State, Tenn. Dep’t of Transp., 356 S.W.3d 384, 386 (Tenn. 2011); Cracker
Barrel Old Country Store, Inc. v. Epperson, 284 S.W.3d 303, 308 (Tenn. 2009); Dick
Broad. Co. of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 659 (Tenn. 2013). As this
Court has previously explained:
In resolving a dispute concerning contract interpretation, our task is
to ascertain the intention of the parties based upon the usual, natural, and
ordinary meaning of the contract language. Planters Gin Co. v. Fed.
Compress & Warehouse Co., Inc., 78 S.W.3d 885, 889-90 (Tenn. 2002)
11
(citing Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999)). A
determination of the intention of the parties “is generally treated as a
question of law because the words of the contract are definite and
undisputed, and in deciding the legal effect of the words, there is no
genuine factual issue left for a jury to decide.” Planters Gin Co., 78
S.W.3d at 890 (citing 5 Joseph M. Perillo, Corbin on Contracts, § 24.30
(rev. ed. 1998); Doe v. HCA Health Servs. of Tenn., Inc., 46 S.W.3d 191,
196 (Tenn. 2001)). The central tenet of contract construction is that the
intent of the contracting parties at the time of executing the agreement
should govern. Planters Gin Co., 78 S.W.3d at 890. The parties’ intent is
presumed to be that specifically expressed in the body of the contract. “In
other words, the object to be attained in construing a contract is to ascertain
the meaning and intent of the parties as expressed in the language used and
to give effect to such intent if it does not conflict with any rule of law, good
morals, or public policy.” Id. (quoting 17 Am. Jur. 2d, Contracts, § 245).
Kafozi v. Windward Cove, LLC, 184 S.W.3d 693, 698 (Tenn. Ct. App. 2005), perm. app.
denied (Tenn. Jan. 30, 2006).
IV. Award of Equity
The Meeks contend that the trial court erred by awarding to the Kecks $15,300 in
equity when the trial court found that the Kecks had breached the terms of the Lease
Agreement but did not explicitly find the Meeks in breach of contract. As the trial court
stated in its memorandum opinion:
It’s undisputed that in 2015 the plaintiffs vacated Walnut Breeze,
and they left owing three months’ rent. So I’m trying to balance equities
and be as fair with everybody as I know how to be, so I think it’s pretty
clear that [the Kecks are] in breach of the lease agreement, and [the Meeks
are] entitled to a judgment of three months’ rent of $3,426.
***
Now, as for the bigger issue, this contract was drawn by Mr. Meek.
These contracts are confusing, to say the least. On the date that the
contracts were entered, October 1, 2013, Mr. Meek knew that the plaintiffs
could not obtain financing to purchase the property. And also he testified
that he knew that Home Federal Bank would not approve the transfer, at
least at the time the contracts were made.
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So what I think is the fair and right thing to do is to enter a judgment
against [the Meeks] and in [the Kecks’] favor for $15,300. That’s the
equity that they had at the time of the . . . January 6th transfer of the First
Street Property to him.
And when you balance those two judgments against each other, [the
Meeks] will have a judgment against [them] for $11,874 in favor of [the
Kecks].
The Meeks argue that the Kecks committed the first material breach of the parties’
overarching contract and therefore should not have been awarded a judgment. See
Madden Phillips Constr., Inc. v. GGAT Dev. Corp., 315 S.W.3d 800, 812 (Tenn. Ct. App.
2009) (“[A] party who commits the first material breach of contract may not recover
damages for the other party’s material breach.”). The Meeks also specifically argue on
appeal that “the Trial Court incorrectly rewrote the parties’ contracts to obtain a result it
believed was the ‘fair and right thing to do.’”
In contrast, the Kecks contend that the trial court’s ruling was proper because the
Meeks failed to convey title to the Walnut Breeze Property to the Kecks after the Kecks
conveyed title to the First Street Property to them, rendering the Meeks allegedly in first
material breach of contract. See Markow v. Polluck, No. M2008-01720-COA-R3-CV,
2009 WL 4980264, at *5 (Tenn. Ct. App. Dec. 22, 2009) (“When one party to a contract
materially breaches the same, is unable to perform, or manifests an intention to no longer
be bound by the contract, the non-breaching party is excused from further
performance.”). Upon careful review, we determine that the trial court did not err in
awarding to the Kecks $15,300 without explicitly finding the Meeks in breach of contract
because the award was a return of the Kecks’ equity in the First Street Property and not
an award of damages under a breach of contract claim. See Pickett v. Pickett, No. 01-A-
01-9503-CH-0011, 1995 WL 517492, at *1 (Tenn. Ct. App. 1995) (“[O]n a theory similar
to unjust enrichment . . . a defaulting vendee in a real estate transaction may recover the
amounts paid on the purchase price in excess of damages caused by the vendee’s breach.”
(citing Monts v. Campbell, No. 83-205-II (Tenn. Ct. App. Apr. 6, 1984)).
A. Lease Option Contract
Although the Meeks have not raised a separate issue as to whether the trial court
properly found that the Kecks exercised their option to purchase the Walnut Breeze
Property, we determine this finding to be integral to our review of the trial court’s award
of equity in the First Street Property. Specifically, the Meeks contend that the Kecks
breached the terms of the Lease Agreement, which were conditions of the Kecks’ right to
purchase the Walnut Breeze Property. The Meeks further argue that the Kecks are
13
thereby not entitled to any credit advanced toward a purchase that never occurred. The
Meeks’ argument therefore relies in part on a finding that the Kecks never exercised their
option to purchase the Walnut Breeze Property. Upon a thorough review of the record,
we conclude that the evidence does not preponderate against the trial court’s finding that
the Kecks exercised their option to purchase the Walnut Breeze Property when they
conveyed title to the First Street Property to the Meeks.
In interpreting a contract, our “initial task is to determine whether the language in
the contract is ambiguous.” Ray Bell, 356 S.W.3d at 386-87 (citing Planters Gin Co. v.
Fed. Compress & Warehouse Co., 78 S.W.3d 885, 890 (Tenn. 2002)). “If the contract
language is unambiguous, then the parties’ intent is determined from the four corners of
the contract.” Ray Bell, 356 S.W.3d at 387 (citing Whitehaven Cmty. Baptist Church v.
Holloway, 973 S.W.2d 592, 596 (Tenn. 1998)). When several contracts are executed
with reference to each other and substantially at the same time, “the contracts will be read
together” if their terms “form integral parts of a single transaction.” Graber v. Graber,
No. W2003-01180-COA-R3-CV, 2003 WL 23099689, at *3 (Tenn. Ct. App. Dec. 31,
2003) (citing Oman Constr. Co. v. Tenn. Cent. Ry. Co., 370 S.W.2d 563, 570 (Tenn.
1963)).
This Court has explained the principles applied to determine whether the contract
language is clear or ambiguous as follows:
The language in dispute must be examined in the context of the entire
agreement. Cocke County Bd. of Highway Commrs. v. Newport Utils. Bd.,
690 S.W.2d 231, 237 (Tenn. 1985). The language of a contract is
ambiguous when its meaning is uncertain and when it can be fairly
construed in more than one way. Farmers-Peoples Bank v. Clemmer, 519
S.W.2d 801, 805 (Tenn. 1975). “A strained construction may not be placed
on the language used to find ambiguity where none exists.” Id.
Vanbebber v. Roach, 252 S.W.3d 279, 284 (Tenn. Ct. App. 2007), perm. app. denied
(Tenn. Mar. 3, 2008). It is well settled that “ambiguities in a contract are to be construed
against the party drafting it.” Frank Rudy Heirs Assocs. v. Moore & Assocs., Inc., 919
S.W.2d 609, 613 (Tenn. Ct. App. 1995). In interpreting the language of a contract, we
are required to use “the usual, natural, and ordinary meaning” of terms. See Staubach
Retail Servs.-Se., LLC v. H.G. Hill Realty Co., 160 S.W.3d 521, 526 (Tenn. 2005); Adkins
v. Bluegrass Estates, 360 S.W.3d 404, 411 (Tenn. Ct. App. 2011). “The parol evidence
rule does not permit contracting parties to ‘use extraneous evidence to alter, vary, or
qualify the plain meaning of an unambiguous written contract.’” Staubach, 160 S.W.3d at
525 (quoting GRW Enters. v. Davis, 797 S.W.2d 606, 610 (Tenn. Ct. App. 1990)).
14
In finding that the Kecks had exercised the option to purchase the Walnut Breeze
Property during the January 6, 2014 “closing,” the trial court stated in its memorandum
opinion:
Based on [the Lease Agreement], it’s pretty clear that [the Kecks]
entered into a lease agreement to rent Walnut Breeze for one year, and that
document refers to a contract pending with the closing at a later date, which
meant they definitely had the right to live there for at least one year, and
then they were going to be hold over after that.
The real estate contract . . . does authorize [the Kecks] to purchase
Walnut Breeze for a purchase price of $130,000, and it says, “owner
financing through contract for deed at time lease option purchase is
exercised,” to do it all as soon as possible, but it says, “subject to the
transfer meeting the approval of Home Federal Bank.”
It’s not talking about refinancing or anything of that nature; it’s
talking about Home Federal Bank saying: Yes, we agree to that this
arrangement will be a sale, and then I’m assuming them paying off any
balance due and owing on whatever debt might be left at that time.
It makes arrangement to the earnest money deposit of $30,000 being
the purchase price, with the trade allowance for the payoff due and owing
to Superior Finance, which evidently was about fourteen, seven, so that
leaves $15,300 per everyone’s testimony.
There was a lot of testimony about the option to purchase. It’s my
understanding that both parties basically agreed that on January 6th, when
[the Kecks] signed the deed to the First Street property, that is when the
Walnut Breeze option to purchase was actually exercised.
Now, there’s a lot of communication and conversation about credit
due to [the Kecks] based upon the monthly payments. It’s my
understanding, looking at all the documents, that credit and equity and
different balancing – the balancing of the numbers would take place at the
time of an actual sale. We never really got to that point. So until the sale,
which never took place, [the Kecks] were simply leaseholders of the
Walnut Breeze property.
Both the trial court’s finding that the Kecks exercised their option to purchase the
Walnut Breeze Property and the Meeks’ argument that the Kecks did not exercise their
15
option are based on a “lease option contract” that is not explicitly outlined in any of the
four executed documents. Although none of the documents is titled as a lease option
contract, two mention the presence of a “lease option” as though it were a controlling
agreement. The Real Estate Contract mentions a “lease option purchase” with respect to
a condition of financing for the sale of the Walnut Breeze Property. The Addendum
incorporates a “lease option contract,” which it states, “shall be a preliminary contract as
part of this sales contract,” but it does not describe the details of any lease option
contract. The Addendum later refers to “payments made under the lease/option contract,”
which creates an ambiguity as to whether there exists a lease separate from an option
contract or whether the two are identical as a “lease option contract.” In addition,
although the Lease Agreement makes no mention of an option to purchase the Walnut
Breeze Property, it does refer to a “Contract governing this agreement.” The Sale
Contract makes no reference to either a lease or an option agreement.
Considering the four agreements together as “integral parts of a single
transaction,” see Graber, 2003 WL 23099689, at *3, the presence of a lease option
contract without any terms specifically outlining that contract creates an ambiguity that
warrants the consideration of parol evidence. This Court has held that “when a
contractual provision is ambiguous, a court is permitted to use parol evidence, including
the contracting parties’ conduct and statements regarding the disputed provision, to guide
the court in construing and enforcing the contract.” Allstate Ins. Co. v. Watson, 195
S.W.3d 609, 612 (Tenn. 2006). We thereby determine that in the instant action, the trial
court properly considered parol evidence to ascertain the intent of the parties.
We note at the outset that on appeal, the parties agree that the four documents
should be considered together as components of one interrelated transaction. Turning to
the parties’ testimony, the Kecks each testified that their understanding of the transaction
as a whole was that it allowed them to use their equity in the First Street Property as a
down payment on purchase of the Walnut Breeze Property, with rent payments under the
Lease Agreement to be applied as installments toward the contemplated purchase of the
property. Mr. Meek testified that the transaction constituted a sales contract for title to
the Walnut Breeze Property with the lease as payment for the Walnut Breeze Property.
Both parties thereby agree that the transaction in its entirety essentially constituted a lease
with an attached option contract, which can be termed a lease option contract. Ergo, we
will refer to the entire interrelated transaction created by the four executed documents as
a “Lease Option Contract.”
This Court addressed the rules regarding contractual leases with incorporated
option contracts in Kwasniewski v. Lefevers, No. M2012-01802-COA-R3-CV, 2013 WL
3964788 (Tenn. Ct. App. July 30, 2013). As this Court explained:
16
An option is a unilateral contract whereby the optioner for a valuable
consideration grants the optionee a right to make a contract of purchase but
does not bind the optionee to do so; the optionor is bound during the life of
the option, but the optionee is not. It is a continuing offer to sell
irrevocable during the option period. Its transition into a contract to
purchase can be effected only by an unqualified unconditional acceptance
in accordance with the terms and time specified.
Id. at *4 (quoting Jones v. Horner, 260 S.W.2d 198, 199 (Tenn. Ct. App. 1953)).
In the case at bar, the Lease Option Contract does not explicitly set forth the
conditions the Kecks would have been required to meet in order to exercise their option
to purchase the Walnut Breeze Property. As such, we determine the Meeks’ argument
that full payment of $130,000 was an unstated condition to be unavailing. As this Court
has explained:
The general law of options is not so rigorous as to require a party to
close on the property within the option period in order to exercise his rights
(unless the contract so specifies), but it does require him to bind himself by
an unqualified acceptance before he will be deemed to have validly elected
to make the purchase:
An option cannot be enforced as a contract until exercised by
acceptance. The acceptance must be unqualified, absolute,
positive, without reservation, and according to the terms of
the option. An acceptance of an option must be such a
compliance with the conditions as to bind both parties, and if
it fails to do so, it binds neither.
Wortham v. W. Meade Corp., No. 01A01-9709-CV-00464, 1998 WL 1084399, at *3
(Tenn. Ct. App. June 12, 1998) (quoting Pinney v. Tarpley, 686 S.W.2d 574, 580 (Tenn.
App. 1984)).
The Lease Option Contract also does not specifically provide what would
constitute acceptance, and the parties disagree on what their understanding of acceptance
may have entailed. In contrast to the Meeks’ argument that payment in full was a
requirement of exercising the option to purchase the Walnut Breeze Property, the Kecks
contend that their conveyance of title to the First Street Property to the Meeks was an
effective acceptance of the ongoing option. We first look to the plain language of the
documents comprising the Lease Option Contract in resolving what would constitute an
effective acceptance.
17
The Real Estate Contract outlines the sale of the Walnut Breeze Property under
sections three and four of that agreement. The document identifies a purchase price of
$130,000 for the Walnut Breeze Property, and the typeface lines of the document set
forth two potential options for payment, reflected by two check boxes: “All Cash” or
“Financed.” The “All Cash” box is left blank, in contrast to the “Financed” box marked
with an “x,” supporting the conclusion that full payment in cash was not a condition of
the Kecks’ ability to exercise their option to purchase the Walnut Breeze Property.
Section three of the Real Estate Contract provides that financing for the Walnut
Breeze Property would be “Owner Financed Through Contract for deed at time lease
option purchase is exercised.” There are two possible sources for determining what
“contract for deed” may mean with respect to the Lease Option Contract: the Real Estate
Contract and the Sale Contract. The Sale Contract outlines part of this owner financing,
providing that in exchange for delivery of the deed to the First Street Property, the Kecks
would be “due credit on [the First Street Property] for the net amount of equity as credit
on the purchase price of the property @ Walnut Breeze. . . .” The Sale Contract therefore
appears to be the “contract for deed” that the Real Estate Contract refers to as part of the
owner financing.
Considering who the “owner” might be in respect to the “Owner Financed”
agreement, there are three possibilities based on who held a possessory interest in the
property at the time: Mr. Meek, Ms. Meek, and Home Federal Bank. The Lease
Agreement states that Mr. Meek “is the fee owner of certain real property,” which is the
only clarification of “owner” as a defined term in any of the four documents in dispute.
Considering these four documents as collectively creating one transaction, we therefore
conclude that the Lease Option Contract contemplates Mr. Meek as a private source of
financing for the sale of the Walnut Breeze Property. The Lease Option Contract thereby
provides for the sale of the Walnut Breeze Property to the Kecks at the time the Kecks
would exercise their option to purchase the property, with immediate payment consisting
of credit equal to their equity in the First Street Property and with the remaining payment
to be financed by Mr. Meek.
The Lease Option Contract is ambiguous as to whether section three in the Real
Estate Contract indicates that the Kecks will not convey title to the First Street Property
until such time as they choose to exercise the option or that the Kecks will immediately
convey title to the First Street Property with the Meeks using that conveyance for
financing only if the Kecks choose to exercise the option at a later date. See Vanbebber,
252 S.W.3d at 284 (“The language of a contract is ambiguous when its meaning is
uncertain and when it can fairly be construed in more than one way.”). The Kecks’
understanding of the contract relied on the former interpretation because the Kecks
18
indicated that they fully expected to receive title to the Walnut Breeze Property shortly
following their conveyance of title to the First Street Property. The Meeks’ principal
argument on appeal relies on the latter interpretation inasmuch as the Meeks contend that
the Kecks merely conveyed title to the First Street Property as nonrefundable credit
toward a possible purchase of the Walnut Breeze Property in the future.
As the trial court noted in its judgment, Mr. Meek was the drafting party in this
case. Construing the ambiguous language against the drafting party, we conclude that
section three of the Real Estate Contract provides that the parties were to act on the Sale
Contract at the same time the Kecks exercised their option to purchase the Walnut Breeze
Property. See Frank Rudy Heirs Assocs., 919 S.W.2d at 613 (“[A]mbiguities in a
contract are to be construed against the party drafting it.”). Therefore, we conclude that
when the Kecks conveyed title to the First Street Property to the Meeks on January 6,
2014, they were concurrently exercising their contractual right to purchase the Walnut
Breeze Property.
Even considering the interpretation of this ambiguity more favorably to the Meeks,
meaning that the First Street Property’s conveyance was not a condition of acceptance,
the Lease Option Contract does not support the Meeks’ contention that the Kecks were
immediately required to convey title to the First Street Property. According to Mr. Meek,
the Lease Option Contract was not valid until the Kecks conveyed title to the First Street
Property to the Meeks and thereby “consummated” the transaction. Furthermore, Mr.
Meek testified during trial that his understanding of the transaction was that the Kecks
had ninety days to convey title to the First Street Property or else the Lease Option
Contract would be void. We do not agree with this reasoning.
First, there is no indication in the four documents in dispute that the Lease Option
Contract was only enforceable when the Kecks conveyed title to the First Street Property
to Mr. Meek. Second, none of the four documents mention the ninety-day requirement
that Mr. Meek raised in his testimony. Third, the Kecks indicated their understanding
that the First Street Property conveyance was only required when they chose to exercise
their option to purchase the Walnut Breeze Property. Fourth, Mr. Meek himself did not
consistently testify as to his belief that the Kecks were required to convey title to the First
Street Property within ninety days in order to “consummate” the transaction.
Specifically, Mr. Meek explained the following on cross-examination:
The Kecks’ Counsel: So they—but they already had possession of the
property because they already had a lease since
October 1st; right?
Mr. Meek: That’s correct.
19
The Kecks’ Counsel: So they didn’t get possession because they gave
you the [First Street Property]; they had
possession because there was a lease in effect?
Mr. Meek: That’s right. That lease was in effect until they
came in and finished the paperwork and signed
over their piece of property to me.
The Kecks’ Counsel: Okay. So when they signed over their piece of
property to you, the lease was no longer in
effect and they were on some sort of purchase
agreement?
Mr. Meek: Well, they were on a lease option
circumstance. . . .
Mr. Meek did not clarify what his understanding of the “lease option
circumstance” was, and his testimony was unclear as to his understanding of the Kecks’
possession of the Walnut Breeze Property. Was the Lease Agreement separate from the
“lease option circumstance,” meaning that when the Kecks transferred title to the First
Street Property, they accepted the option to purchase the Walnut Breeze Property and
were no longer subject to a lease? Alternatively, was the Lease Agreement part of the
“lease option circumstance,” meaning that the Kecks leased the Walnut Breeze Property
independently from their conveyance of the First Street Property?
In either circumstance, we conclude that neither the Lease Option Contract nor the
conduct of the parties supports the Meeks’ contention that the Kecks were required to
convey title to the First Street Property either immediately or within ninety days of
execution. The trial court questioned Mr. Meek directly as to why he arranged to meet
with the Kecks on January 6, 2014, for the Kecks to convey title to the First Street
Property to him:
Trial Court: [W]hy did you require the deed signing to the
other property on January 6th?
Mr. Meek: That was the completion of our agreement.
They lived there the three months knowing that
the deal hadn’t been closed until they signed
that deed over to me and everything was
worked out. So they—they—and they knew
20
that the loan wasn’t going to be made by Home
Federal. So they had 90 days. And I wrote
[Mr. Keck] and told him if he wanted to come
in, to come in and close it; otherwise we didn’t
have a deal.
Although the documents comprising and establishing the Lease Option Contract
do not require the Kecks to convey title to the First Street Property to Mr. Meek either
immediately or within ninety days, the Real Estate Contract does state that a “closing
date” would be determined at a later date. When Mr. Meek contacted the Kecks to
inform them that they had ninety days “to come in and close it,” he thereby set the
deadline for the option to purchase the Walnut Breeze Property. It is not necessary for us
to consider whether the Lease Option Contract afforded Mr. Meek the ability to
unilaterally determine a deadline for the option to purchase the Walnut Breeze Property
because the Kecks agreed to this deadline and met with Mr. Meek on January 6, 2014, in
accordance with Mr. Meek’s wishes.
We therefore conclude that even if the First Street Property conveyance was not
conditional to the Kecks’ exercising their option to purchase the Walnut Breeze Property,
both parties expressed a sufficient mutual understanding that the Kecks accepted the offer
to purchase the Walnut Breeze Property on January 6, 2014, by meeting with Mr. Meek
and conveying title to the First Street Property to the Meeks. As such, we conclude that
the evidence preponderates in favor of the trial court’s finding that “both parties basically
agreed that on January 6th, when [the Kecks] signed the deed to the First Street property,
that is when the Walnut Breeze option to purchase was actually exercised.”
B. Equity in Walnut Breeze Property
The Meeks assert that the Kecks transferred title to the First Street Property to the
Meeks on January 6, 2014, in exchange for credit toward an eventual purchase of the
Walnut Breeze Property and not in exchange for an equivalent equity in the Walnut
Breeze Property. The Meeks further contend that because the sale of the Walnut Breeze
Property never occurred, the Meeks do not owe the Kecks the $15,300 in credit that
would have been redeemable only if the Kecks exercised their option to purchase the
Walnut Breeze Property. The question of whether the Kecks gained credit or equity in
the Walnut Breeze Property with their transfer of title to the First Street Property is
essential to an understanding of whether the Kecks retained their right to a credit for that
equity under the Lease Option Contract.
The Lease Option Contract refers to equity in three different aspects: (1) equity in
the First Street Property, (2) equity in the Walnut Breeze Property under the Sale
21
Contract, and (3) equity in the Walnut Breeze Property under the Lease Agreement. The
Sale Contract states that the equity the Kecks already possessed in the First Street
Property as of October 1, 2013, was “$30,000.00 less balance owing to Superior
Finance,” or a total of $15,300. According to the terms of the Sale Contract, the Meeks
would have applied the Kecks’ $15,300 in equity as credit toward the purchase of the
Walnut Breeze Property in exchange for title to the First Street Property. This credit
toward the purchase of the Walnut Breeze Property would therefore only become equity
in the Walnut Breeze Property if the Kecks exercised their option to purchase the Walnut
Breeze Property and used the credit as earnest money and partial payment.
If the Lease Option Contract called for an immediate conveyance of the First
Street Property in exchange for credit toward an eventual purchase of the Walnut Breeze
Property, the Kecks would have applied that credit toward the purchase price of the
Walnut Breeze Property on January 6, 2014, when they decided to exercise their option to
purchase the Walnut Breeze Property. However, if the terms of the Lease Option
Contract instead were that the First Street Property conveyance was the condition of
exercising the option to purchase the Walnut Breeze Property, the Kecks would have
applied the credit from the First Street Property’s conveyance toward the price of the
Walnut Breeze Property on January 6, 2014, when they conveyed the First Street
Property to the Meeks. Either way, the credit from title to the First Street Property would
have become equity in the Walnut Breeze Property when the Kecks exercised their option
to purchase the Walnut Breeze Property.
The third type of equity contemplated in the Lease Option Contract is equity in the
Walnut Breeze Property as a result of monthly payments under the Lease Agreement.
During trial, the parties indicated their understanding that the payments the Kecks made
under the Lease Agreement would be applied directly toward the Walnut Breeze Property
mortgage and that the Kecks would acquire the equity those payments accrued when they
chose to exercise the option to purchase the Walnut Breeze Property. The trial court did
not calculate what this amount may have been, however, and neither party raises the
equity earned through monthly payments as an issue on appeal. Therefore, we make no
determination concerning any unresolved equity accumulated through monthly payments.
In all instances, the Meeks’ distinction between equity and credit relies on the
Meeks’ prior assertion that the Kecks did not exercise their option to purchase the Walnut
Breeze Property. We do not find the Meeks’ characterization of the First Street
Property’s value as “credit” instead of “equity” to be persuasive. In a factually similar
case involving a lease with an option to purchase the leased property, this Court
explained:
22
When the option was exercised by the appellee, the lease and all of its
incidents, including the obligation to pay rent, was blotted out of existence,
and the relation of vendor and vendee was created. The appellee had an
equitable interest in the land and equitable title passed to it, subject to the
payment of the purchase price. Chapman Drug Company v. Chapman, 207
Tenn. 502, 341 S.W.2d 932 (Tenn. 1960).
Wright v. Universal Tire, Inc., 577 S.W.2d 194, 197 (Tenn. Ct. App. 1978), perm. app.
denied (Tenn. Feb. 12, 1979); see Dave Williams Printing Co., Inc. v. Wooten, 644
S.W.2d 403, 407 (Tenn. Ct. App. 1982), perm. app. denied (Tenn. Nov. 22, 1982) (citing
Wright with approval and affirming the trial court’s ruling in favor of the optionee).
Based on our determination that the trial court did not err when it found that the Kecks
exercised their option to purchase the Walnut Breeze Property on January 6, 2014, we
further determine that the trial court properly found that the Kecks gained $15,300 in
equity in the Walnut Breeze Property on January 6, 2014, when the Kecks conveyed title
to the First Street Property to the Meeks under the terms of the Sale Contract.
We agree with the Meeks’ assertion that “[t]here can be no recovery for damages
on the theory of breach of contract by the party who himself breached the contract.” See
United Brake Sys., 963 S.W.2d at 756 (quoting Santa Barbara Capital Corp. v. World
Christian Radio Found., Inc., 491 S.W.2d 852, 857 (Tenn. Ct. App. 1972)). However,
we determine that the trial court’s return of the Kecks’ equity to them was not premised
upon their claim of breach of contract. Although the Kecks did allege in their complaint
that the Meeks were liable for damages due to a breach of contract, the Kecks’ alternative
request for a return of the First Street Property was under theories of fraud, unjust
enrichment, and a “right of rescission.” The trial court did not specify the theory under
which it found the Kecks to be entitled to a return of their equity. This award is
consistent, however, with the Kecks’ alternate claims for a return of the First Street
Property, rather than the claim for $75,000 in compensatory damages under a breach of
contract theory.
“We have previously held on a theory similar to unjust enrichment, that a
defaulting vendee in a real estate transaction may recover the amounts paid on the
purchase price in excess of the damages caused by the vendee’s breach.” Pickett, 1995
WL 517492, at *1. We determine that the Kecks retained their possessory interest in the
amount of equity they had acquired in the First Street Property at the time of its
conveyance despite their failure to pay rent under the Lease Agreement. We thereby
conclude that the trial court did not err by awarding a return of the Kecks’ equity without
explicitly finding the Meeks in breach of contract because the overall judgment reflected
a recovery of the amount paid on the purchase price less damages caused by the Kecks’
breach.
23
C. Liquidated Damages
As an alternative argument, the Meeks also rely in part on a provision for
“liquidated damages” in section 14 of the Real Estate Contract, which provides that if the
Kecks “fail to perform the covenants herein contained within the time specified,” the
Meeks would be able to retain “as liquidated damages all sums which have theretofore
been paid.”4 Pursuant to this provision, the Meeks argue that they were entitled to keep
the $15,300 credited to the Kecks as liquidated damages in addition to receiving the
$3,426 they requested in unpaid rent.5 The trial court declined to enforce the liquidated
damages provision contained in the Real Estate Contract in that it awarded to the Kecks
their original equity in the First Street Property. The trial court ostensibly found,
therefore, that the liquidated damages provision was unenforceable under the
circumstances of this case. We conclude that the trial court did not err in declining to
award to the Meeks, as liquidated damages, the equity that the Kecks had conveyed in the
First Street Property.
Regarding liquidated damages, our Supreme Court has explained:
From our review of the law on liquidated damages, we recognize
that there are two important interests at issue: the freedom of parties to
bargain for and to agree upon terms such as liquidated damages and the
limitations set by public policy. Generally, the parties to a contract are free
to agree upon liquidated damages and upon other terms that may not seem
desirable or pleasant to outside observers. See Chapman Drug Co. v.
Chapman, 207 Tenn. 502, 341 S.W.2d 392, 398 (1960); 22 Am. Jur. 2d
Damages § 686 (1988). In that respect, courts should not interfere in the
contract, but should carry out the intentions of the parties and the terms
bargained for in the contract, unless those terms violate public policy. See
McKay v. Louisville & N.R. Co., 133 Tenn. 590, 182 S.W. 874, 875 (1916)
4
An ambiguity exists as to whether “the covenants herein contained” are covenants contained only in the
Real Estate Contract or covenants anywhere in the Lease Option Contract. We do not find it necessary to
resolve this ambiguity because the difference is de minimus with respect to whether the liquidated
damages provision contained in the Real Estate Contract is enforceable.
5
Although this Court does not apply a retrospective analysis of the appropriateness of liquidated
damages, Guiliano v. Cleo, Inc., 995 S.W.2d 88, 100 (Tenn. 1999), we do note that the Meeks’ breach of
contract claim for unpaid rent is antithetical to their claim that liquidated damages are proper under the
same contract. See Gross v. McKenna, No. E2005-02488-COA-R3-CV, 2007 WL 3171155, at *5 (Tenn.
Ct. App. Oct. 30, 2007) (“With regard to the liquidated damages clause . . . such clauses are
unenforceable where the actual damages caused by a breach are ‘readily susceptible to accurate proof,’ as
is this case.” (quoting Wilson v. Dealy, 434 S.W.2d 835, 837 (Tenn. 1968)).
24
(citing Baltimore & Ohio S.W. Ry. Co. v. Voight, 176 U.S. 498, 505, 20
S. Ct. 385, 387, 44 L. Ed. 560 (1900)).
***
When parties agree to a liquidated damages provision, it is generally
presumed that they considered the certainty of liquidated damages to be
preferable to the risk of proving actual damages in the event of a breach.
22 Am. Jur. 2d Damages § 726.
Liquidated damages permit the parties to allocate business and
litigation risks and often serve as part of the contractual bargain. In
addition, they lend certainty to the contractual agreement and allow the
parties to resolve defaults and other related disputes efficiently, when actual
damages are impossible or difficult to measure. C.T. McCormick,
Handbook on the Law of Damages § 157 (1935).
***
We, therefore, adopt a prospective approach for addressing the
recovery of liquidated damages. Under this approach, courts must focus on
the intentions of the parties based upon the language in the contract and the
circumstances that existed at the time of contract formation. Those
circumstances include: whether the liquidated sum was a reasonable
estimate of potential damages and whether actual damages were
indeterminable or difficult to measure at the time the parties entered into
the contract. See V.L. Nicholson [Co. v. Transcon Inv. & Fin. Ltd.], 595
S.W.2d [474,] 484 [(Tenn. 1980)]. If the provision satisfies those factors
and reflects the parties’ intentions to compensate in the event of a breach,
then the provision will be upheld as a reasonable agreement for liquidated
damages. However, if the provision and circumstances indicate that the
parties intended merely to penalize for a breach of contract, then the
provision is unenforceable as against public policy.
Guiliano v. Cleo, Inc., 995 S.W.2d 88, 99-100 (Tenn. 1999) (footnote omitted). See
Allmand v. Pavletic, 292 S.W.3d 618, 630-31 (Tenn. 2009) (reaffirming and applying the
principles of liquidated damages from Guiliano); Hensley v. Cocke Farmer’s Coop., No.
E2014-01775-COA-R3-CV, 2015 WL 5121142, at *5-6 (Tenn. Ct. App. Aug. 31, 2015),
perm. app. denied (Tenn. Jan. 21, 2016) (applying the principles of liquidated damages
from Guiliano in a case involving a contractual provision for severance pay).
25
In resolving the enforceability of the liquidated damages provision in the Real
Estate Contract, we find that this Court’s relevant analysis in Harmon v. Eggers is
directly on point. See 699 S.W.2d 159 (Tenn. Ct. App. 1985), perm. app. denied (Tenn.
July 8, 1985), overruled on other grounds by Guiliano, 995 S.W.2d at 99-100 (overruling
the “retrospective approach” of addressing the recovery of liquidated damages and
adopting a solely “prospective approach”). In Harmon, this Court summarized the facts
as follows in pertinent part:
In January, 1979, the Plaintiffs-Appellants, Gaylon and Phyllis
Harmon, entered into a contract with Defendant Robert C. Eggers (who was
acting both for himself and as agent for other defendant family members)
for the purchase of a house and lot in the Foothills Estates Subdivision in
Blount County, Tennessee. As part of the $63,000 purchase price, the
Plaintiffs paid $5,000 in cash and deeded to the Defendants certain other
real property located on Highway 411 (hereafter referred to as the “411
property”) in Blount County.
The Plaintiffs received a $27,000 credit for their transfer of the 411
property. This amount represented a $42,000 value for the property, less a
$15,000 mortgage to Blount National Bank which was assumed by the
Defendants. This made a total payment of $32,000 on the $63,000
purchase price.
The Foothills Estates property was encumbered by a mortgage in
favor of First Federal Savings and Loan Association of Maryville. It
appears the Plaintiffs were unable to assume the First Federal loan, and the
parties instead proceeded with a contract for deed as a means of financing
the transaction.
This contract was executed on February 15, 1979, and provided for
the payment of the remaining $31,000 to the Defendants in 72 monthly
installments of $379.85 each. At the conclusion of the payments, the
sellers then were to deed the property to the Plaintiffs.
The contract also provided that
Failure of the Purchasers to make any monthly installment
when due will be a breach of this contract for which the
Sellers may re-enter and take possession of the premises
described herein without any notice whatsoever from the
Sellers to the Purchasers, and all monies paid by the
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Purchasers to the Sellers shall be retained by the Sellers as
liquidated damages for the breach of this contract and as rent
for the premises.
In conjunction with the execution of the contract for deed, Mr.
Harmon also signed a “Buyer’s Closing Statement,” which, in part,
reflected the $27,000 credit for the 411 property, a cash payment of
$5606.31, as well as the remaining purchase price of $31,000.
Subsequent to closing, the Plaintiffs moved into the Foothills Estates
property. They made the monthly payments due the Defendants for four
months, then stopped paying, allegedly because of a dispute over an
improperly functioning drain field on the property.
In September of 1979, the Plaintiffs filed suit in the Blount County
Circuit Court to have the 411 property returned to them.
Thereafter, in December the Defendants, having not received
monthly payments from the Plaintiffs for six months, commenced an
unlawful detainer action in the General Sessions Court to have the
occupants evicted from the property.
Harmon, 699 S.W.2d at 160.
The trial court in Harmon dismissed the plaintiff’s case, reasoning, inter alia, that
the plaintiff was the breaching party and that the liquidated damages provision was
controlling. Id. at 161. On appeal, this Court reversed the trial court’s dismissal by
determining that the liquidated damages provision was punitive and therefore
unenforceable. Id. at 164.
The facts in Harmon, as with this case, involve an agreement whereby a purchaser
made monthly payments toward the purchase price of a parcel of improved real estate
with an initial deposit of credit from a conveyance of encumbered real property. Id. at
160. Additionally, the purchaser in Harmon committed the first material breach of
contract by defaulting on the monthly payments, and the contract in Harmon provided
that any breach by nonpayment would result in a forfeiture of all credit from prior
payments as liquidated damages. Id. The Tennessee Supreme Court has determined that
such a provision for liquidated damages is unenforceable when it is punitive and not
reflective of a reasonable measure of damages. See Guiliano, 995 S.W.2d at 100-01
(adopting a “prospective approach for addressing the recovery of liquidated damages” in
which recovery requires that at the time the parties entered into the contract, the
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liquidated damages sum must have been “a reasonable estimate of potential damages”
and actual damages must have been “indeterminable or difficult to measure”).
In this case, the Meeks characterize the Lease Option Contract in an identical
manner to the contract in Harmon, which is that of a payment plan toward a purchase
price with any breach due to nonpayment resulting in forfeiture of credit from all prior
payments as liquidated damages. Specifically, Mr. Meek testified in response to direct
questions from the trial court as follows:
Trial Court: Do you agree or disagree that [the Kecks] accumulated
any equity in any property since October 1st of 2013?
Mr. Meek: I disagree to the extent that yes, they would have—
they would accumulate it based upon our agreement,
but when they failed to—to go through with our
agreement, then they made the choice to walk away. I
didn’t.
***
Trial Court: So as you sit here right now today, do you agree or
disagree that you owe [the Kecks] any money?
Mr. Meek: I disagree.
In contrast to the Meeks’ contention, we determine that the liquidated damages
provision in the Real Estate Contact is no different in punitive effect than the respective
liquidated damages provision in Harmon. Furthermore, we determine that the evidence
does not demonstrate that the actual amount of damages resulting from a breach in the
Lease Agreement would have been difficult to reasonably estimate. See Anesthesia Med.
Grp., P.C. v. Chandler, No. M2005-00034-COA-R3-CV, 2007 WL 412323, at *9 (Tenn.
Ct. App. Feb. 6, 2007) (“The law continues to be that a liquidated damages provision will
be upheld if the amount of such damages bears a reasonable relationship to the amount of
actual damages that would likely be sustained in the event of a breach and if the actual
amount of damages would be difficult to determine or prove.” (citing Guiliano, 995
S.W.2d at 98)). We conclude that in the instant case, as in Harmon, “the ‘liquidated
damages’ clause, being nothing more than or less than a forfeiture/penalty, is not to be
given effect under the existing circumstances.” See Harmon, 699 S.W.2d at 164. The
Meeks are not entitled to relief on this issue.
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D. Trial Court’s Interpretation of Equity
The Meeks also argue that the trial court’s judgment was not proper because the
trial court “rewrote the contract for the parties” in an “attempt to do equity.” In support
of this argument, the Meeks rely in part on Cameron Gen. Contractors, Inc. v. Kingston
Pike, LLC, 370 S.W.3d 341, 346 (Tenn. Ct. App. 2011), wherein this Court stated: “It is
not the role of the courts, even courts of equity, to rewrite contracts for dissatisfied
parties.” The Meeks note two statements in the trial court’s memorandum opinion as
indicating that the trial court improperly sought to impose equitable principles concerning
the parties’ contract. Specifically, the Meeks cite the trial court’s statement that it was
“trying to balance equities and be as fair with everybody” as it could and the trial court’s
statement that it thought “the fair and right thing to do is to enter a judgment against [the
Meeks.]” Upon a thorough review of the record and the applicable law, we do not agree
with the Meeks’ interpretation of the trial court’s memorandum opinion.
The Meeks’ characterization of the trial court’s statement that it was “trying to
balance equities” depends on the meaning of “equity” in the context of the trial court’s
memorandum opinion. Relative to the facts of this case, “equity” can either be “the
judicial prevention of hardship that would otherwise ensue from the literal interpretation
of a legal instrument” or “[a]n ownership interest in property.” BLACK’S LAW
DICTIONARY 656-57 (10th ed. 2014). We determine that under either definition, the trial
court’s ruling was based on the proper legal standard under the circumstances of this
case.
First, this case involves an exchange of equities as ownership interests in property,
and the trial court’s judgment in favor of the Kecks directly relates to the amount of
equity the Kecks held in the First Street Property. We note that the trial court also stated
in its memorandum opinion that “looking at all the documents, that credit and equity and
different balancing – the balancing of the numbers would take place at the time of an
actual sale. We never really got to that point.” In this context, we find that the trial
court’s attempt to “balance equities” may be interpreted in relation to the parties’
respective ownership interests in each property and not as an attempt to “create or rewrite
a contract simply because its terms are harsh or because one of the parties was unwise in
agreeing to them.” See Cameron Gen. Contractors, 370 S.W.3d at 346 (quoting Towe
Iron Works, Inc. v. Towe, 243 S.W.3d 562, 569 (Tenn. Ct. App. 2007)).
Second, this Court’s ruling in Cameron Gen. Contractors is factually
distinguishable from the instant action. Specifically, this Court held in Cameron Gen.
Contractors that “it is not the role of courts, even courts of equity, to rewrite contracts for
dissatisfied parties” unless the contract is invalid or unenforceable. Cameron Gen.
Contractors, 370 S.W.3d at 346. A finding of mistake or fraud is a specific instance
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when a contract may be invalid or unenforceable. Id. As this Court has consistently
held, when a liquidated damages provision is equivalent to a forfeiture or penalty, that
specific provision will not be enforceable as a matter of public policy. See Guiliano, 995
S.W.2d at 101 (“[I]f the [liquidated damages] provision and circumstances indicate that
the parties intended merely to penalize for a breach of contract, then the provision is
unenforceable as against public policy.”); Anesthesia Med. Grp., 2007 WL 412323, at *9
n.7 (“[L]iquidated damages will not be upheld if they are deemed to constitute a penalty
against the breaching party rather than a reasonable way to guarantee compensation for
damages to the non-breaching party.” (citing Guiliano, 995 S.W.2d at 98)). The facts in
Cameron Gen. Contractors involved a contract that was both valid and enforceable while
this case involves a contract with a specific provision that is not enforceable. We thereby
determine that the trial court did not improperly attempt to apply equitable principles
regarding the parties’ contract by declining to enforce the liquidated damages provision
in the Real Estate Contract.
We conclude that the trial court did not err when it awarded the $11,874 overall
judgment in favor of the Kecks without explicitly finding the Meeks in breach of
contract. This amount is appropriately based on the difference between the amount of
equity the Kecks accumulated in the Walnut Breeze Property through their conveyance of
the First Street Property and the Meeks’ damages resulting from the breach of contract.
See Pickett, 1995 WL 517492, at *1 (awarding monetary judgment to a breaching vendee
based on an identical metric). As such, we do not agree with the Meeks’ assertion that
the Kecks are not entitled to recovery, as the first to breach the Lease Option Contract,
because the trial court’s award was a return of equity agreed upon by the terms of the
Lease Option Contract and was not premised on the Kecks’ breach of contract claim.
VII. Attorney’s Fees
The Meeks further contend that the trial court erred by declining to grant
attorney’s fees to them after finding that the Kecks were in breach of the Lease
Agreement because the Lease Agreement entitled the Meeks to reasonable attorney’s fees
when pursuing a claim for unpaid rent. In contrast, the Kecks contend that the trial court
did not err by declining to award attorney’s fees because each party prevailed in part.
The Kecks maintain that the Real Estate Contract entitles the prevailing party to
reasonable attorney’s fees on a claim arising out of that agreement and that they prevailed
in their claim to recover their equity in the First Street Property. Upon our thorough
review of the record, we determine that the trial court erred by declining to award
attorney’s fees pursuant to the applicable contract provisions.
Tennessee generally adheres to the “American Rule” of recovery for attorney’s
fees, under which “attorneys’ fees are not recoverable in the absence of a statute or
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contract specifically providing for such recovery . . . .” Cracker Barrel, 284 S.W.3d at
309 (quoting Pullman Standard, Inc. v. Abex Corp., 693 S.W.2d 336, 338 (Tenn. 1985)).
As our Supreme Court has explained:
Our courts long have observed at the trial court level that parties are
contractually entitled to recover their reasonable attorney’s fees when they
have an agreement that provides the prevailing party in a litigation is
entitled to such fees. See, e.g., Seals v. Life Inv’rs Ins. Co. of Am., No.
M2002-01753-COA-R3-CV, 2003 WL 23093844, at *4 (Tenn. Ct. App.
Dec. 30, 2003); Hosier v. Crye-Leike Commercial, Inc., No. M2000-01182-
COA-R3-CV, 2001 WL 799740, at *6 (Tenn. Ct. App. July 17, 2001). In
such cases, the trial court does not have the discretion to set aside the
parties’ agreement and supplant it with its own judgment. See
Christenberry v. Tipton, 160 S.W.3d 487, 494 (Tenn. 2005) (“A court
‘cannot under the guise of construction make a new and different contract
for the parties.’”) (quoting Memphis Furniture Mfg. Co. v. Am. Cas. Co.,
480 S.W.2d 531, 533 (Tenn. 1972)). The sole discretionary judgment that
the trial court may make is to determine the amount of attorney’s fees that
is reasonable within the circumstances.
Eberbach v. Eberbach, 535 S.W.3d 467, 478 (Tenn. 2017). Thus, if the parties’ contract
provided for attorney’s fee awards under certain circumstances, those provisions must be
enforced.
In this case, the documents comprising and forming the Lease Option Contract
contain two separate provisions for a recovery of reasonable attorney’s fees under certain
circumstances. The Meeks brought their claim before the trial court in an attempt to
recover unpaid rent and as such were entitled to attorney’s fees pursuant to section 23 of
the Lease Agreement. The Kecks initiated their claim in order to, inter alia, recover their
equity in the Walnut Breeze Property, which is a claim “arising out of” the exercise of
their option to purchase the Walnut Breeze Property. Pursuant to section 14 of the Real
Estate Contract, the Kecks are entitled to reasonable attorney’s fees as the prevailing
party on that claim.
We note that the Kecks have not raised the issue of the trial court’s denial of their
attorney’s fees on appeal. Additionally, the Meeks’ assignment of error is specifically
the trial court’s refusal to award attorney’s fees to them under the terms of the Lease
Agreement without mention of any award to the Kecks. The Meeks’ argument on appeal
is, however, that the trial court erred by disregarding the terms of the overarching
contract and declining to award reasonable attorney’s fees under those terms. Upon an
examination of the documents comprising the Lease Option Contract, we determine that
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the provision entitling the Meeks to some award of attorney’s fees cannot be read in
isolation without consideration of the provision entitling the Kecks to some award of
attorney’s fees in apparent opposition. We have therefore included the provision entitling
the Kecks to some award of attorney’s fees in our analysis of the Meeks’ assignment of
error because the provision is integral to resolving the specific issue on appeal.
As a result, we determine that the trial court erred by declining to award to either
party attorney’s fees as contemplated in the Lease Option Contract. However,
consideration of what portion of each party’s attorney’s fees can be attributed to the
prosecution or defense of each claim and the respective amounts of reasonable fees must
be remanded for the trial court to determine because the record contains no evidence in
this regard. We therefore reverse the trial court’s denial of attorney’s fees and remand for
an evidentiary hearing to determine the amount of reasonable attorney’s fees due to each
party under the contract and entry of an additional money judgment as necessary.
Additionally, we note that because neither party has requested attorney’s fees on appeal,
no such fees may be granted. See Killingsworth v. Ted Russell Ford, Inc., 205 S.W.3d
406, 411 (Tenn. 2006) (“An award of attorney’s fees generated in pursuing the appeal is a
form of relief; the rule requires it to be stated.” (citing Tenn. R. App. 27(a))).
VIII. Conclusion
Having concluded that the Lease Option Contract provides that each party is
entitled to some award of reasonable attorney’s fees, we reverse the portion of the trial
court’s judgment declining an award of attorney’s fees. We affirm the trial court’s
judgment in all other respects. We remand to the trial court, pursuant to applicable law,
for an evidentiary hearing to determine the amount of reasonable attorney’s fees due to
each party, for entry of an additional money judgment as necessary, and for collection of
costs assessed below. The costs on appeal are taxed one-half to the appellants, E.G.
Meek, Sr., and Shirley T. Meek, and one-half to the appellees, Shawn L. Keck and
Marcella H. Keck.
_________________________________
THOMAS R. FRIERSON, II, JUDGE
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