Sumner Co. Bd of Ed. v. Mansker Farms ( 2002 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
JULY 10, 2002 Session
SUMNER COUNTY BOARD OF EDUCATION v. MANSKER FARMS,
LLC
Direct Appeal from the Chancery Court for Sumner County
No. 99C-274; The Honorable Tom E. Gray, Chancellor
No. M2001-01888-COA-R3-CV - Filed January 23, 2003
This is a dispute over an option contract. Mansker Farms, a land developer, offered the Sumner
County School Board an option on land in its development to build a school. A dispute arose over
whether a condition precedent existed in the contract and whether the nonfulfillment of this
condition prevented the School Board from exercising the option. The trial court found that no valid
contract existed because there was no meeting of the minds between Mansker Farms, who gave the
option, and the Sumner County Board of Education, who attempted to exercise the option. For the
following reasons, we affirm the ruling of the trial court.
Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Affirmed
ALAN E. HIGHERS, J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,
and HOLLY KIRBY LILLARD, J., joined.
John R. Phillips, Jr., Gallatin, TN, for Appellant
Joe H. Thompson, Gallatin, TN, for Appellee
OPINION
Facts and Procedural History
In October, 1995, the Appellee, Mansker Farms, LLC (“Mansker Farms”) purchased
approximately 500 acres of land in Hendersonville, Tennessee for a residential development.
Mansker Farms was approved by the Hendersonville Regional Planning Commission (“the HRPC”)
to proceed with development only on a portion of the property known as Phase I. In September,
1995, Mansker Farms’ chief manager, Mack McClung (“Mr. McClung”) contacted the Appellant,
the Sumner County Board of Education (“the Board”). Mr. McClung offered the Board four lots in
the development upon which to build an elementary school in exchange for $186,000.00-- the cost
to increase the sewer capacity for the development. Contract negotiations ensued between Mansker
Farms and the Board, including the exchange of several faxed copies of a proposed option contract
between the parties. The negotiations proved fruitless when in late 1996, the Board turned down
Mansker Farms’ offer.
In 1997, Mansker Farms attempted to gain approval from the HRPC to begin development
of the remainder of the property. At a meeting of the HRPC where Mansker Farms had
unsuccessfully proposed a master development plan, Mansker Farms was told by the Ms. Baldwin,
the Hendersonville city planning director, that the inclusion of a school in the development could
help attain approval for the plan. Mansker Farms again contacted the Board and offered land in the
development for an elementary school. In April 1998, negotiations broke off between Mansker
Farms and the Board. In the summer of 1998, however, negotiations resumed when the Board
expressed interest in building a middle school in the development. During these on-again-off-again
negotiations, Mr. McClung and Leah Dennen, an attorney working for the Board, passed draft copies
of an option contract back and forth as the agreement between the parties took shape. These draft
copies contained various changes, including handwritten changes made to the language of the
agreement by the parties.
On August 19, 1998, Mr. McClung forwarded an executed option contract to the Board. On
October 21, 1998, the Board returned an almost identical option contract to Mr. McClung. The
option contract stated that, if exercised, the cost to the Board for approximately 20 acres of Mansker
Farms would be $50,000.00 for the sewer line installation to the property. Mansker Farms made a
rezoning request to the City of Hendersonville (“the City”) which included the school and which
asked for higher density zoning so that Mansker Farms could build town homes. In March, 1999,
the Board sent two letters informing Mansker Farms that it wished to exercise its option. Mansker
Farms did not reply to the letters. On April 13, 1999, the City rejected Mansker Farms’ rezoning
request. Mansker Farms then refused to sell the property to the Board.
On September 29, 1999, the Board filed a complaint for declaratory judgment and specific
performance against Mansker Farms in the Chancery Court of Sumner County. The complaint
requested that the trial court order Mansker Farms to sell the property to the Board under the option
contract. On November 19, 1999, Mansker Farms filed an answer alleging that its duty to perform
under the option contract never arose because the condition precedent of obtaining higher density
zoning did not occur.
On May 21 and 22, 2001, a trial was held. On July 11, 2001, the trial court entered an order
dismissing the Board’s complaint. The trial court found that there was no meeting of the minds, and
thus not a valid contract. The trial court found that each side of this dispute attributed a different
meaning to Paragraph 5(d) of the contract. Mansker Farms read Paragraph 5(d) to mean that having
their property rezoned was a condition precedent to conveying the land to the Board. The Board,
however, read Paragraph 5(d) as applying only to the 20 acres in consideration for building the
school and was not contingent on anything. The trial court held that because Paragraph 5(d) was
“capable of being understood in two or more possible senses,” it was ambiguous and that “[w]hen
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a contract term is ambiguous, there is no meeting of the minds.” The Board filed a timely notice of
appeal and presents the following issues for our review:
I. Whether the trial court erred by determining that the option contract is
ambiguous.
2. Whether, assuming that the option contract is ambiguous, the Board’s
interpretation should prevail.
Standard of Review
The standard of review for a non-jury case is de novo upon the record. See Kendrick v.
Shoemake, No. E2000-01318-SC-R11-CV, 2002 Tenn. Lexis 489, at * 6-7 (Tenn. 2002). The
findings of fact made by a trial court are given a presumption of correctness that will not be
overturned unless the evidence preponderates against those findings. See Tenn. R. App. P. 13(d);
see also Bank/First Citizens v. Citizens and Assoc., 82 S.W.3d 259, 262 (Tenn. 2002) (citing Bogan
v. Bogan, 60 S.W.3d 721, 727 (Tenn. 2001)). A trial court’s ruling on a matter of law, however, will
be reviewed “’under a pure de novo standard . . . according no deference to the conclusions of law
made by the lower court[].’” Bank/First Citizens, 82 S.W.3d at 727 (quoting Southern Constructors,
Inc. v. Loudon County Bd. of Educ., 58 S.W.3d 706, 710 (Tenn. 2001)). The interpretation of a
written agreement is a question of law, and, therefore, will be reviewed de novo with no presumption
of correctness given to the trial court’s findings of law. Union Planters Nat’l Bank v. American
Home Assurance Co., 865 S.W.2d 907, 912 (Tenn. Ct. App. 1993).
Law and Analysis
There is no dispute between the parties as to whether or not they properly executed an option
contract. The dispute arises in the interpretation of their agreement, and specifically as to whether
Paragraph 5 Section (d) created a condition precedent which the nonfulfillment of prevents the Board
from exercising the option. The option contract begins by naming the parties, stating the
consideration, describing the land on which the option is being given (“parcel IV-4 of the Mansker
Farms Development Plan”), and giving a five year time frame in which the option must be exercised.
The contract continues with a sentence that reads “[s]ubject to the following terms and conditions”
followed by eight numbered paragraphs. Paragraph 5, and more specifically Section (d) of Paragraph
5, is the crux of the present dispute. It reads in pertinent part:
It is further understood between the parties that the exercise of the option is
subject to the following:
(d) Approval of zoning and changes necessary from the City of
Hendersonville or other governmental authority for the construction of the public
school and related facilities including the proposed site plan and rezoning as
hereinabove recited. School system agrees to support and/or assist Seller with said
change.
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Before we look at the specifics of the clause, we must determine its effect. If it is a condition
precedent, it will affect the Board’s ability to exercise the option, but if it is not, any discussion about
Paragraph 5(d)’s meaning is pointless. The creation of a condition precedent as well as its effect
has been summed up as follows:
A contractual duty subject to a condition precedent is not required to be
performed until the condition occurs or its nonoccurrence is excused. Covington v.
Robinson, 723 S.W.2d 643, 645 (Tenn. Ct. App. 1986); Strickland v. City of
Lawrenceburg, 611 S.W.2d 832, 837 (Tenn. Ct. App. 1980); Restatement (Second)
of Contracts § 225(1) (1981). The existence of a condition precedent depends upon
the parties' intention, which courts may discern from the contractual language and the
circumstances surrounding the contract's execution. Miller v. Resha, 820 S.W.2d 357,
360 (Tenn. 1991); Harlan v. Hardaway, 796 S.W.2d 953, 957-58 (Tenn. Ct. App.
1990) . . . . No special language is needed to create a condition precedent. The nature
of the agreement and its surrounding circumstances may sufficiently manifest the
parties' intention to make a contractual obligation conditional. Harlan v. Hardaway,
796 S.W.2d at 957-58; Restatement (Second) of Contracts § 226 cmt. a (1981).
However, the presence of a condition is usually signaled by a conditional word or
phrase such as "if," "provided that," "when," "after," "as soon as," "on condition that,"
and "subject to." Harlan v. Hardaway, 796 S.W.2d at 958; Restatement (Second) of
Contracts § 226 cmt. a; 3A Corbin on Contracts § 639.
Holland v. Holland, No. M1999-02791-COA-R3-CV, 2001 Tenn. App. LEXIS 409, at *10-12
(Tenn. Ct. App. June 1, 2001).
The Board contended at trial and at oral argument that Section 5 was its “political clause”
meant to allow it to gracefully exit deals that fell through and, thus, was not intended to benefit
Mansker Farms. Mansker Farms, on the other hand, contends that because the “subject to” language
is contained at both the beginning of the section of numbered paragraphs and at the beginning of
Paragraph 5, a condition precedent exists which must be fulfilled before the Board can exercise its
option. In light of the above statement of law, and our review of the record, we agree with Mansker
Farms that the numbered paragraphs created condition precedents to the exercise of the option by
the Board.
Having determined that the ability of the Board to exercise the option contract depended on
the conditions outlined in the numbered paragraphs, we turn to the Board’s contention that the
disputed provision, Section (d) of Paragraph 5, is not ambiguous. The trial court determined that this
section was ambiguous because it could be reasonably interpreted in two different ways. The trial
court found no valid contract existed because the required meeting of the minds did not take place.
After a de novo review of the entire record in this case, we reach the same conclusion that the trial
court reached.
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The formation of a contract “‘must result from a meeting of the minds of the parties in mutual
assent to the terms . . . .’” Doe v. HCA Health Services of Tennessee, Inc., d/b/a HCA Donelson
Hospital, 46 S.W.3d 191, 196 (Tenn. 2001) (citations omitted). In the construction of a contract, the
intention of the parties at the time the agreement is executed governs. Planters Gin Company v.
Federal Compress & Warehouse Company, Inc., et al, 78 S.W.3d 885, 890 (Tenn. 2002). The
parties are presumed to have expressed their intentions in the language of the agreement. Id. When
this expression of intent is “clear and unambiguous, the literal meaning of the language controls the
outcome.” Id. Terms of the contract that “may be susceptible to more than one reasonable
interpretation . . . render[] the terms of the contract ambiguous.” Id. This court has similarly defined
ambiguity as it relates to a contract provision as “doubt or uncertainty arising from the possibility
of the same language being fairly understood in more ways than one.” Inscoe v. Kemper, No.
M1999-00741-COA-R3-CV, 2000 Tenn. App. LEXIS 736, at *8 (Tenn. Ct. App. Nov. 6, 2000)
(citing Hillis v. Powers, 875 S.W.2d 273, 276 (Tenn. Ct. App. 1993)). There is no “meeting of the
minds” when a contract term is ambiguous, and thus no enforceable contract. Id. (citing Jamestowne
On Signal, Inc. v. First Federal Savings & Loan Ass’n, 807 S.W.2d 559, 564 (Tenn. Ct. App. 1990)
(further citations omitted)).
The testimony at trial detailed a series of negotiations between Mansker Farms and the Board.
These negotiations took place over a period of several years and involved several different proposals
for a school location on the Mansker Farms development. Witnesses for Mansker Farms testified
that the negotiations that led to the agreement in dispute were brought about because of its need for
zoning approval, and that they made clear that it was essentially a school-for-zoning deal. The
Board’s witnesses testified they were not aware of this condition. During the course of negotiations
between the parties, Mr. McClung added the language in dispute to the end of Paragraph 5 (d) in his
handwriting on a contract proposal sent to him by Ms. Dennen. This language was reviewed by the
Board and was incorporated into the signed option contract. The Board’s witnesses testified that they
were unaware of Mr. McClung’s interpretation of that language while witnesses for Mansker Farms
testified that the Board was aware of the condition it was putting on the exercise of the option. This
lack of a “meeting of the minds” on this provision where both sides were revising and adding
language to the contract provision, each with their own interpretation, created an ambiguous
provision.
We find that the language of section 5(d), specifically the parts reading “including the
proposed site plan and rezoning as hereinabove recited” and “[s]chool system agrees to support
and/or assist Seller with said change,” to be capable of two different but reasonable interpretations.
On the one hand, the Board’s position that the zoning referred to was only that for the school and
not for the entire Mansker Farms development is a reasonable interpretation. On the other hand, the
word “rezoning” and the phrase “[s]chool system agrees to support and/or assist Seller with said
change” can be reasonably interpreted as referring to the entire Mansker Farms property and the idea
that Mansker Farms was conditioning its gift to the School on the “said change.” Thus, as evidenced
by the ambiguity of this provision, there was no “meeting of the minds” between Mansker Farms and
the Board. As stated above, when there is no “meeting of the minds” there can be no enforceable
contract. Thus, we affirm the judgment of the trial court.
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Conclusion
Because there is not a valid contract, all other issues are moot. We affirm the judgment of
the trial court. Costs are taxed to the Appellant, Sumner County Board of Education, and its surety,
for which execution may issue, if necessary.
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ALAN E. HIGHERS, JUDGE
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