Michael Smith v. Steve Futris v. Richard Feltus ( 2000 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
April 18, 2000 Session
MICHAEL A. SMITH, ET AL. v. STEVE C. FUTRIS, ET AL. v. RICHARD
FELTUS
Direct Appeal from the Chancery Court for Shelby County
No. 103125-2 Floyd Peete, Jr., Chancellor
No. W1998-00181-COA-R3-CV - Filed April 23, 2001
This is a contract dispute. The plaintiffs entered into a contract to buy the defendants’ office
condominium and equipment. The contract provided that the defendants would execute a note for
the balance of the purchase price, payable in monthly installments over a twenty year term. The
contract had no express provision on the right of prepayment. The promissory note expressly
granted the plaintiffs the right of prepayment. Five years later, the plaintiffs attempted to prepay
the note. The defendants refused the plaintiffs’ offer, saying that the plaintiffs had no right of
prepayment. The plaintiffs then ceased making any payments on the note. The plaintiffs later filed
a lawsuit seeking, inter alia, a declaratory judgment that they had the right of prepayment. The
defendants filed a counterclaim seeking reformation of the note and the deed of trust. The
defendants also filed a third party claim for damages against the plaintiffs’ attorney, who had
prepared the closing documents, including the note. The defendants alleged that the attorney had
breached his duty of due care to them by putting a right of prepayment in the note. The trial court
found that the plaintiffs had the right to prepay and that the plaintiffs had made an effective tender
of payment to the defendants. The trial court dismissed the defendants’ third party claim against the
attorney, finding that he had not represented the defendants and owed no duty of care to them. The
defendants appeal. We affirm in part and reverse in part, finding, inter alia, that the promissory note
gave the plaintiffs the right of prepayment, and also finding that the plaintiffs have not made an
effective tender of payment.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the trial court is Affirmed in Part and
Reversed in Part
HOLLY KIRBY LILLARD, J., delivered the opinion of the court, in which ALAN E. HIGHERS, J. and
DAVID R. FARMER , J. joined.
E. William James, Memphis, Tennessee, for the appellants, Steve C. Futris, Zoe Futris and Steve C.
Futris D.D.S., P.A.
Harold G. Walter, Memphis, Tennessee, for the appellees, Michael A. Smith and Rene A. Smith.
Tim Edwards, Memphis, Tennessee, for the appellee, Richard Feltus.
OPINION
Defendant/Appellant Steve C. Futris (“Dr. Futris”) is a Memphis dentist who worked with
his wife, Defendant/Appellant Zoe Futris (“Mrs. Futris”). The Futrises were employed by
Defendant/Appellant Steve C. Futris D.D.S., P.A., (“Futris, P.A.”), the professional association that
owned the office condominium and dental and office equipment which Dr. Futris utilized in his
dental practice. In 1988 Dr. Futris was nearing retirement age. He began negotiating for the sale
of the office condominium and equipment to another Memphis dentist and his wife,
Plaintiff/Appellees Michael A. Smith (“Dr. Smith”) and Rene A. Smith (“Mrs. Smith”). During the
contract negotiations and drafting, the Futrises were represented by their daughter, Memphis attorney
Valerie Futris Fisher (“ Valerie”) and her employer, Memphis attorney Bill Fisher. Valerie and Bill
Fisher were dating at that time, and later married. Third-Party Defendant/Appellee Richard Feltus
(“Feltus”) represented the Smiths in the transaction.
On January 28, 1988, the Futrises and the Smiths entered into a contract which, inter alia,
provided for the sale of the office condominium, dental equipment and office furniture and
furnishings to the Smiths for $260,000.00. The contract provided that the Smiths would pay $30,000
cash at closing, and that they would assume the $134,000 mortgage on the property. The contract
stated that “the balance of the purchase price shall be evidenced by a promissory note payable to
Sellers [the Futrises and Futris, P.A.]bearing interest at the rate of 12% per annum which shall be
payable in equal monthly installments of principal and interest over a period of 20 years, beginning
on the 1st day of the month following the month in which the sale is closed.” The contract contained
no provision addressing prepayment of the note.
After the contract was signed, the Smiths’ attorney, Feltus, agreed to prepare the closing
documents and handle the closing. Among the closing documents was a preprinted standard
“Monthly Installment Amortized Note Secured by Deed of Trust.” At the bottom of the front page
of the note, immediately above the Smiths’ signatures, was a clause which granted the Smiths the
right to make prepayment on the note. The place for the Futrises’ signature was on the back page
of the note, immediately below a paragraph which stated that “Steve C. Futris and wife, Zoe T.
Futris, owners and holders of Note acknowledge that Maker is entitled to advance credit of the last
three installments as set forth in Note terms, same having been prepaid pursuant to contract terms.”
The Futrises testified that neither their daughter Valerie nor Bill Fisher accompanied them to Feltus’s
office to sign the closing documents. However, Mrs. Futris testified that she took the note and other
closing documents to Valerie to have the Futrises’ signatures notarized. Mr. Feltus retained the note
after the closing.
On June 1, 1993, five years after the closing was completed, Dr. Smith called Mrs. Futris to
tell her that he wished to prepay the balance due under the note. Dr. Smith testified that when he
called the Futrises on that date, he told Mrs. Futris that he had made arrangements to prepay the note
and could pay the entire indebtedness that month. He said that at the time of the call he had already
obtained approval for his loan from the bank and that, at the request of the bank, he had called to
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verify the total amount of the payment. Dr. and Mrs. Futris refused Dr. Smith’s offer to prepay the
note, telling him that he had no right of prepayment. The Smiths then ceased making monthly
payments under the note.
On July 27, 1993, the Smiths filed suit against the Futrises and Futris, P.A. in the Chancery
Court of Shelby County, seeking a declaratory judgment that they had the right to prepay the note
in full. In the lawsuit, the Smiths asserted that the note clearly provided on its face that the Smiths
reserved the right of prepayment, that the Smiths had obtained a commitment from First Tennessee
Bank to lend them the funds necessary to pay off the note, that the Smiths had informed the Futrises
of their desire to prepay the note, and that the Futrises had refused prepayment because they believed
that the Smiths had no right to prepay under the terms of their contract. The Smiths also asked the
trial court to issue a mandatory injunction, ordering the Futrises to accept the prepayment, and
sought damages from the Futrises “in an amount sufficient to reimburse them for any and all extra
expense and interest which they might incur as a result of Defendants’ refusal to accept payment
when tendered . . . .”
In response, the Futrises filed an answer and counter-claim against the Smiths, as well as a
third party complaint against the Smiths’ attorney, Feltus. The Futrises admitted that they had
refused the Smiths’ “conditional tender” of the balance due under the note. They asserted that any
right to prepay the note had been excluded from the parties’ contract; therefore, the Smiths had no
right of prepayment. The Futrises said that they had lowered the purchase price of the property by
$80,000 in exchange for the 12% interest rate on the loan, and that they structured repayment to
include the above average interest rate as part of Dr. Futris’s retirement planning. The Futrises asked
the trial court to reform the note and deed of trust to disallow prepayment, in accordance with the
terms of the contract between the parties, alleging that the note’s prepayment term was the result of
either fraud or mistake. The Futrises asserted that the Smiths’ attorney, Feltus, breached his duty
of due care by failing to prepare the note and deed of trust in accordance with the contract’s
provisions. They alleged that the Smiths were jointly and severally liable for Feltus’s breach, under
the doctrine of respondeat superior or under a conspiracy theory. The Futrises sought a judgment
against both Feltus and the Smiths for all attorney’s fees and costs caused by Feltus’s negligence in
preparing the closing documents.
Both the Smiths and the Futrises testified at the trial. Dr. Smith testified that the right to
prepay had always been of paramount importance to him. He said that, at each stage of the contract
negotiations, he had discussed with Feltus whether he would have the right to prepay. Smith
testified that throughout the negotiations he was under the impression that he would have the right
to prepay. Dr. Smith asserted that, although the executed contract did not expressly grant the right
of prepayment, he was still certain that he would have the ability to prepay the note.
The Futrises testified that they never intended to grant the Smiths a right to prepay the loan.
In fact, they testified that they had deliberately excluded prepayment language from the contract. The
Futrises and Valerie and Bill Fisher testified that Smith’s concern about his right to prepay was never
communicated to them during the contract negotiations. Bill Fisher testified that the Futrises agreed
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to lower the original asking price for the property by $80,000 in exchange for the 12 % interest rate
over the twenty year period. Mr. Fisher also testified that he had told Feltus that prepayment was
“absolutely unacceptable.” On cross-examination, Mr. Fisher acknowledged that in an earlier
deposition he had stated that he had no memory of any specific instance in which he and Feltus had
discussed the issue of prepayment. Mr. Fisher ultimately conceded that he had no memory of any
specific discussions with Feltus about prepayment, but he added that he was certain he and Feltus
had discussed the issue at some point because of its importance to both the Futrises and the Smiths.
Mrs. Futris, Bill Fisher and Valerie Fisher each testified that Feltus’s original draft of the
contract contained a provision allowing the Smiths the right to prepay the note. They testified that
this draft was given to Dr. Futris’s accountant, David Jones (“Jones”), for review and comment.
Jones testified that he had strongly advised the Futrises not to allow prepayment of the note, due to
the adverse effect it would have on Dr. Futris’s retirement and tax planning. For that reason,
according to the Futrises and the Fishers, the draft language allowing for prepayment was struck out.
A copy of the initial draft, showing the prepayment language marked out, was introduced into
evidence. None of the subsequent drafts of the contract contained the prepayment language.
Bill Fisher testified that after the contract was signed, Feltus agreed to prepare the closing
documents. Valerie and Bill Fisher were involved in a complex trial at the time which precluded
them from spending time on the matter. Consequently, both Valerie and Bill Fisher said that their
involvement in the matter, with the exception of one or two “ministerial acts, ” ended once the
contract negotiations were completed and the contract was signed. Bill Fisher testified that he had
trusted Feltus to prepare the closing documents in accordance with the contract’s terms. Feltus
testified that he believed that the Futrises were still represented by the Fishers at the time of closing,
and that, although he had agreed to prepare the closing documents, he was not the “quote, closing
attorney.” He testified that he had never acted as the Futrises’ attorney.
The facts surrounding the closing are also in dispute. The Smiths and Feltus testified that
there was a formal closing, attended by all the parties and their attorneys, on April 15, 1988. The
Futrises and the Fishers denied that any formal closing ever took place. The Futrises testified that
on April 14, 1988, after the closing documents were prepared, they each went to Feltus’s office, at
separate times, and were taken to a conference room in which a number of documents ready for their
signatures were laid on a table. Neither their daughter Valerie nor Bill Fisher were with either Dr.
or Mrs. Futris at the time they signed the closing documents. Both Dr. and Mrs. Futris stated that
the note was face down on the table, so that all that showed was the back of the note, with the space
for their signatures, immediately under a paragraph stating that the Smiths were entitled to advance
credit of the last three installments of the note “that amount having been prepaid pursuant to contract
terms.” Both Dr. and Mrs. Futris testified that they did not read the front side of the note, containing
the language granting a right of prepayment. They indicated that they were not aware that they were
signing the promissory note. Bill and Valerie Fisher testified that neither one of them reviewed the
closing documents before the Futrises signed them.
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After taking the case under advisement, the trial court issued its Memorandum and Order on
November 9, 1998. The trial court found that the plaintiffs had a right of prepayment and that an
effective tender of payment had been made. The order reads in part:
Based upon Tennessee Code Annotated § 47-14-108, Davis v. Hinton, 519
S.W.2d 776 (Tenn. 1975), statements of counsel for the parties and the entire record
in this cause, the Court finds in favor of the Plaintiffs on their Complaint for
Declaratory Judgment, Mandatory Injunction. The Court finds that the Plaintiffs are
entitled to a Declaratory Judgment affirming their right to prepay the promissory note
entered into on April 14, 1988 for the principal sum of Ninety Eight Thousand Nine
Hundred and Twenty Six Dollars and Forty Cent ($98,926.40) with interest thereon
at a rate of twelve percent (12%) per annum amortized over a period of twenty (20)
years maturing on April 1, 2008.
The Court finds that the Plaintiffs tendered payment of the promissory note
to the Defendants on or about June 1, 1993 and Defendants refused said payment.
Consequently, if the Plaintiffs exercise their right to prepayment within sixty (60)
days upon entry of this order, the Defendants are ordered to accept payment of said
note, the amount of which shall be calculated based upon the total amount of
principal and any interest due on June 1, 1993 to pay the note in full minus any
amount paid by the Plaintiffs since that date. If, however, the Plaintiffs exercise said
right more than sixty (60) days after entry of this order, the Defendants are ordered
to accept payment of said note, but the amount shall be calculated based upon the
total amount of principal and any interest due as of the date of payment of the note.
Upon payment of the note, the Defendants are further ordered to execute a Release
of the Deed of Trust which secures the promissory note.
The trial court also found that Feltus had not been acting as the Futrises’ attorney and therefore owed
no duty to them. The trial court found in the alternative that, even if Feltus had owed a duty to the
Futrises, their negligence claim against him was barred by the applicable one-year statute of
limitations, since the Futrises could have discovered that the closing documents differed from the
contract at the time that they signed them, had they been exercising due diligence. From this
decision, the Futrises now appeal.
The Futrises raise a number of different issues on appeal, which may be condensed into the
following: (1) whether the trial court erred in finding that the Smiths were entitled to prepayment
of the note; (2) whether the trial court erred in finding that the Smiths effectively tendered payment
to the Futrises on June 1, 1993; and (3) whether the trial court erred in finding that Feltus owed no
duty of care to the Futrises.
Our review of these issues is governed by Tennessee Rule of Appellate Procedure 13(d),
which provides that review of findings of fact by the trial court shall be de novo upon the record of
the trial court, accompanied by a presumption of correctness in the factual findings, unless the
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evidence preponderates otherwise. Tenn .R .App. P. 13(d); Union Carbide Corp. v. Huddleston,
854 S.W.2d 87, 91 (Tenn. 1993). Our review of the trial court’s conclusions of law, including its
interpretation of the contract, is de novo on the record, with no presumption of correctness. Id.The Futrises first argue that the trial court erred in finding that the Smiths were entitled to
prepay the note. The Futrises assert that the contract, by its clear, unambiguous terms, does not
allow the Smiths to prepay the note and that the prepayment clause in the note had to be the result
of either mistake or fraud on the part of Feltus and/or the Smiths. The Futrises note that the contract
was completely integrated, and that it clearly expressed that the Smiths owed them monthly
payments over twenty years at 12% interest, and contained no right of prepayment. They argue that
the note cannot vary from the terms of the contract. They contend that they are entitled to specific
performance because, under Tennessee law, parties are bound by the unambiguous language of their
contract. In the alternative, the Futrises argue that they are entitled to reformation of the note and
deed of trust to conform to the contract.
The Smiths argue that the trial court did not err by finding that they had the right to prepay
the note, since the note, signed by all parties, expressly grants them the right of prepayment. They
observe that the note was incorporated by reference into the contract. The Smiths assert that the note
does not contradict the terms of the contract because the contract is silent on the issue of prepayment.
Tennessee Code Annotated Section 47-14-108 states that “[e]xcept as limited by statutory
provisions expressly applicable thereto, the privilege of prepayment of a loan, in whole or in part,
and any refunds or premiums with respect thereto, shall be governed by contract between the
parties.” Tenn. Code Ann. § 47-14-108 (1995). Prepayment of a loan is not permitted absent an
express contractual provision allowing for prepayment. Sound Stage Studios, Inc. v. Life Investors
Ins. Co. of America, 1988 WL 138827, at * 2 (Tenn. Ct. App. Dec. 30, 1988); Davis v. Hinton, 519
S.W.2d 776, 777 (Tenn. 1975). “A payor may, however, gain the right to pay the note early, and
avoid part of the interest, by including that right in the note or other loan documents as part of the
agreement between the parties.” Sound Stage Studios, Inc., 1988 WL 138827 at * 2.
In this case, the contract does not expressly grant the right of prepayment, but it also does
not expressly preclude prepayment. It is simply silent on the issue of prepayment. The contract
references the promissory note, stating that “the balance of the purchase price shall be evidenced
by a promissory note payable to Sellers bearing interest at the rate of 12% per annum which shall
be payable in equal monthly installments of principal and interest over a period of 20 years. . . .”
The referenced promissory note expressly provides for prepayment. Since the contract is silent on
the issue of prepayment, the promissory note does not contradict the terms of the contract, it merely
contains an additional term. “‘And where an executed agreement refers to other documents and
makes their conditions part of the executed agreement, the documents must be interpreted together
as the agreement of the parties.’” Hardeman County Bank v. Stallings, 917 S.W.2d 695, 698
(Tenn. Ct. App. 1995)(quoting Engert v. Peerless Ins. Co., 382 S.W.2d 541, 547 (Tenn. 1964)). In
this case, therefore, the note, along with its express provision allowing for prepayment, became part
of the agreement between the parties.
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The Futrises argue strenuously that the contract negotiations demonstrate their intent that the
promissory note contain no right of prepayment. The contract, however, is silent on the issue of
prepayment, while the note expressly grants the Smiths the right to prepay. When interpreting a
contract, the court “does not attempt to ascertain the parties’ state of mind at the time the contract
was executed, but rather their intentions as actually embodied and expressed in the contract as
written.” Union Planters Nat. Bank v. American Home Assur. Co., 865 S.W.2d 907, 912 (Tenn.
Ct. App. 1993). The contract and the referenced promissory note, taken together, include the right
to prepay. Consequently, the right to prepay must be deemed part of the overall agreement between
the parties. We find, therefore, that the trial court did not err in finding that the Smiths had the right
to prepay under the contract.
The Futrises next argue that the trial court erred in finding that the Smiths made an effective
tender of payment on June 1, 1993. They contend that Dr. Smith did not offer to deliver any amount
of money on that date, but only indicated that he wished to prepay the note. The Futrises further
contend that tender did not occur on that date because Dr. Smith did not have the funds necessary
to pay the sum due at that time. Rather, Dr. Smith’s loan commitment with the bank was not
effective until June 7th, six days later. The Futrises also assert that an effective tender could not have
taken place because the amount due was in dispute; consequently, any amount offered by Dr. Smith
would not be sufficient to cut off any future interest.
Dr. Smith argues that his call to the Futrises on June 1, 1993, was an effective tender.
Therefore, any interest on the note which accumulated after that date should be discharged. He
contends that the fact he had already been approved for the loan at the time he informed the Futrises
of his wish to prepay evidences that he was ready and willing to pay.
Tender is “ an offer of money, [t]he act by which one produces and offers to a person
holding a claim or demand against him the amount of money which he considers and admits to be
due, in satisfaction of such claim or demand, without any stipulation or condition.” Johnson v.
Midland Bank & Trust Co., 715 S.W.2d 607, 613 (Tenn. Ct. App. 1986) (quoting Black’s Law
Dictionary, 1315 (5th ed. 1979)). Generally, a tender must be unequivocal; it must be absolute and
unconditional in order to be effective. Id. at 613-14. In order to constitute a valid and effective
tender, the party offering payment must allege and show that, since the creditor’s refusal to accept
the money, he has been ready and willing to pay the amount. Johnson, 715 S.W.2d at 614 (quoting
Ingold v. Phoenix Assur. Co., 52 S.E.2d 366, 370 (N.C. 1949)). Once a party makes an effective
tender of an amount due on an instrument to the holder of that instrument, the obligation of the party
to pay interest after the date of tender is discharged. Tenn. Code Ann. § 47-3-603(c) (1996).
Even though Dr. Smith had already been approved for a loan when he called the Futrises, he
did not have access to the funds nor was the bank required to loan him the funds at that time. In
order to receive the loan money, Dr. Smith was still required to meet certain conditions, including
signing and returning a commitment letter and paying a commitment fee of $700. There is some
dispute as to the exact date on which Dr. Smith fulfilled these requirements. Dr. Smith testified that
he signed and returned the commitment letter and wrote a check to the bank for the $700
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commitment fee on June 4th. However, the bank used Dr. Smith’s check to purchase a cashier’s
check dated June 7, 1993, and used this cashier’s check to pay the commitment fee. Nevertheless,
Dr. Smith’s receiving the loan was contingent on his fulfilling certain requirements, specifically
returning the commitment letter and paying the commitment fee. These acts were completed no
earlier than June 4th.
Thus, at the time of Dr. Smith’s call to the Futrises on June 1, 1993, he was neither ready nor
able to produce the amount due.
A mere offer to pay does not constitute a valid tender; the law requires that the
tenderer have the money present and ready, and produce and actually offer it to the
other party. Tender implies the physical act of offering the money or thing to be
tendered, but this cannot rest in implication alone. The law requires an actual,
present, physical offer; it is not satisfied by a mere spoken offer to pay . . . A tender
cannot be made of funds which are not the debtor’s to tender and in which he has
then no property.
74 Am. Jur. 2d Tender § 7 (1974). Dr. Smith’s receipt of the loan money was contingent on his
payment of the commitment fee and meeting other conditions enumerated by the lender, acts not
completed until after the call to the Futrises. See Farnsworth v. Howard, 41 Tenn. 215 (Tenn.
1860) (“[In order for a tender to be effective, the amount due] must actually be present, and capable
of immediate delivery, if the purchaser were willing to receive it. . . . [I]t is not sufficient, if it . . .can
be borrowed and procured in five minutes, or being a bank check it be not actually drawn.”)
Although Dr. Smith later completed his loan commitment, he failed to take any subsequent action
which may have constituted an effective tender, such as paying the money into court or into a
separate account until the dispute was resolved. See Johnson, 715 S.W.2d at 614. Nor did the
Smiths take any action to keep the alleged tender open after the Futrises’ refusal. In order to be a
valid and effective tender of money, the party who makes it must show that since the refusal to
accept the money, he has been ready and willing to pay the amount due. Johnson, 715 S.W.2d at
614. By doing so, the party keeps the tender open and may therefore benefit from Tennessee Code
Annotated Section 47-3-603(c), which provides that a party’s obligation to pay interest on an amount
due is discharged after an effective tender. Tenn. Code Ann. § 47-3-603(c) (1996).
Instead, the Smiths “retained the use of” the sum they admit would be due in order to prepay
the note. Johnson, 714 S.W.2d at 614 (quoting Haun v. Guaranty Security Insurance Co., 453
S.W.2d 84, 99-100 (Tenn. App. 1969)). Dr. Smith ceased making monthly note payments to the
Futrises after they refused to accept prepayment. He made no payments on the loan until the trial
court ordered him in April 1996 to pay into a separate account the total amount of past due monthly
payments from June 1, 1993 - March 1996. In 1998, upon learning of the Futrises’ intent to appeal
its judgment, the court ordered Dr. Smith to pay the Futrises $71,891.16, the amount in monthly
payments past due as of December 1998, and to continue to pay monthly payments of $1,089.26
until the resolution of the case. Although ordered by the trial court to pay these amounts, the record
reflects no occasion since the trial court’s order on which the Smiths attempted a tender of the total
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amount that they perceive is due under the note. See Johnson, 715 S.W.2d at 613. Therefore, the
Smiths have not made an effective tender of the prepayment amount. Consequently, the provision
of Tennessee Code Annotated § 47-3-603(c) discharging a party’s obligation to pay interest from
the date of an effective valid tender, was never triggered. Accordingly, the trial court’s holding that
the Smiths made an effective tender of the prepayment amount must be reversed.
Last, the Futrises argue that the trial court erred in finding that Feltus owed no duty to them.
They argue that Feltus, by volunteering to prepare the closing documents in the transaction,
undertook a duty to all the parties involved to exercise due care that the note accorded with the
contract, a duty he breached by including a prepayment clause in the note when the contract was
silent on the issue. In the alternative, the Futrises contend that Feltus’s inclusion of the prepayment
clause in the note constituted negligent misrepresentation or fraud because they relied on Feltus’s
representation that the note would be prepared in accordance with the contract. They maintain that
Feltus, by agreeing to prepare the closing documents, tacitly represented that the documents would
be prepared “properly” in accordance with the terms of the contract, without a prepayment clause.
The Futrises contend they justifiably relied, to their detriment, on Feltus’s implicit representation.
In order to establish negligence under Tennessee law, the plaintiff must prove that the
defendant owed a duty to the plaintiff, the defendant breached that duty, and there was injury to the
plaintiff proximately caused by the defendant’s breach of duty. Dooley v. Everett, 805 S.W.2d 380,
383 (Tenn. Ct. App. 1990). Generally, an attorney is “not liable for negligence to parties who are
not [his] clients and [who] are not in privity of contract” with him. Stinson v. Brand, 738 S.W.2d
186, 190 (Tenn. 1987). Under limited circumstances, an attorney may be liable to a non-client,
including an adverse party, in a situation in which the attorney was so involved in the transaction
as to be representing multiple parties, in a situation in which the attorney charges or intends to
charge all the parties involved in the transaction, and in a case of negligent misrepresentation, such
as where an attorney negligently supplies erroneous information in the course of a business
transaction upon which the non-client justifiably and foreseeably relies. See Robinson v. Omer, 952
S.W.2d 423, 427 (Tenn. 1997); Collins v. Binkley, 750 S.W.2d 737, 739 (Tenn. 1988) (although it
was undisputed that the attorney was employed by the seller, there was evidence that the attorney
knew the purchasers would rely on him); Stinson, 738 S.W.2d at 190-91(asserting that the
purchaser’s attorney was so involved in the transaction as to be representing more than one party and
could be held liable to vendors).
In this case, however, it is undisputed that the Futrises hired the Fishers to represent them
in the sale of the property to the Smiths. The Fishers represented the Futrises throughout the contract
negotiations. The Futrises acknowledged that they never instructed the Fishers to stop representing
them. Although the Fishers contend that they had withdrawn from representing the Futrises by the
time of the closing, the Fishers never formally informed the Futrises of their withdrawal. Morever,
Dr. Futris testified that he never had any conversations with Feltus about the closing documents and
that, had any problems arisen, he and his wife would have consulted the Fishers. There is no
evidence that the Fishers informed Feltus or the Smiths that they had withdrawn from representing
the Futrises. Rather, the Futrises simply chose not to have their lawyers actively participate in the
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closing because of the conflict in the Fishers’ schedule. Feltus testified that he volunteered to
prepare the closing documents for the transaction but believed that the Fishers continued to represent
the Futrises in the transaction. Feltus neither charged the Futrises for his services nor did the
Futrises offer to pay him for his services. Under these circumstances, we find no error in the trial
court’s finding that Feltus did not undertake a duty to the Futrises and did not represent the Futrises.
The Futrises argue that Feltus’s inclusion of the prepayment clause constituted negligent
misrepresentation. However, there is no evidence that Feltus was aware that the Futrises were
relying on him in his preparation of the closing documents, or that the Futrises actually relied on
Feltus. See Collins, 750 S.W.2d at 739. The Futrises cite no case in which liability was imposed
in a situation in which both parties to the transaction were represented by attorneys. Consequently,
we affirm the trial court’s finding that Feltus is not liable to the Futrises for any damages from the
inclusion of a right of prepayment in the promissory note.
In sum, we find that the promissory note, referenced in the contract, grants the Smiths the
right to prepayment and is not inconsistent with the contract, since the contract is silent on the issue
of prepayment. Therefore, we affirm the trial court’s finding that the Smiths had the right to prepay
the note. We find that the Smiths did not make an effective tender on June 1, 1993, since they were
not ready or able to pay the amount due on that date. Since fulfilling the requirements for the loan
and being approved for the loan for the prepayment amount, the Smiths made no tender of the
prepayment amount. Rather, they retained use of the money and ceased making monthly note
payments. Therefore, no effective tender was made on June 1, 1993 or thereafter. Consequently,
the trial court’s finding that the Smiths made an effective tender of payment of the prepayment
amount of the note must be reversed. The cause is remanded for the trial court to determine the
amount due from the Smiths to the Futrises. We affirm the trial court’s finding that Feltus did not
undertake to represent the Futrises and did not owe a duty to them to make certain that the note did
not contain a right of prepayment. Likewise, we affirm the trial court’s finding that Feltus is not
liable for negligent misrepresentation to the Futrises.
The decision of the trial court is affirmed in part and reversed in part, as set forth above. We
remand this case to the trial court for further proceedings consistent with this Opinion. Costs are
taxed equally to the Appellants, Steve C. Futris, Zoe Futris and Steve C. Futris D.D.S., PA., and their
surety, and Appellees, Michael A. Smith and Rene A. Smith, and their surety, for which execution
may issue if necessary.
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HOLLY K. LILLARD, JUDGE
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