Klosterman Development v. Outlaw Aircraft Sales ( 2002 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
April 4, 2002 Session
KLOSTERMAN DEVELOPMENT CORP. v. OUTLAW AIRCRAFT
SALES, INC., ET AL.
A Direct Appeal from the Chancery Court for Montgomery County
No. 99-06-0044 The Honorable James E. Walton, Judge
No. M2001-02586-COA-R3-CV - Filed May 16, 2002
This case involves a contract for the sale of an aircraft. By amended complaint, plaintiff-
purchaser sued seller and seller’s agent for rescission of the contract and defendant-seller, by
counter-claim, sought the amount due for repairs made on the aircraft pursuant to the contract. The
trial court ordered the contract rescinded but failed to make provisions to put the parties in status
quo. The purchaser, seller’s agent, and seller appeal. We reverse the judgment of the trial court as
it pertains to seller’s agent, modify the judgment for rescission to include provisions of restoring the
status quo of the parties. The judgment is affirmed as modified.
Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Reversed In Part;
Affirmed as Modified
W. FRANK CRAWFORD , P.J., W.S., delivered the opinion of the court, in which ALAN E. HIGHERS,
J. and DAVID R. FARMER , J., joined.
Charles C. Morrow, Nashville, For Appellant, Klosterman Development Corporation
Paige Waldrop Mills, Jody E. O'Brien, Nashville, For Appellees Outlaw Aircraft Sales, Inc. and
David Cole
OPINION
On November 11, 1997, Steve Klosterman (hereinafter “Mr. Klosterman”), the president of
the plaintiff, Klosterman Development Corporation, traveled to Clarksville, Tennessee in response
to an advertisement in a national aviation publication known as Trade-A -Plane about a Cessna 421A
for sale by the defendant, Outlaw Aircraft Sales, Inc. (hereinafter “Outlaw”), located in Clarksville,
Tennessee. That same day, Mr. Klosterman signed a “Purchase Order” agreeing to purchase the
Cessna 421A for $72,500.00 and paid $1000.00 as a down-payment or deposit. This purchase price
did not include additional work such as required maintenance for the “annual” inspection necessary
for the aircraft to be licensed to fly, new paint, new interior and the repair and improvement of the
aircraft’s avionics. Mr. Robert Wyatt, president of Outlaw, also signed this “Purchase Order” which
lists Mr. David Cole as the salesman for Outlaw and includes the following under the heading
“Conditions of Sale”: “Additional Items to be Approved.” The back of this “Purchase Order”
contains “Terms and Conditions” which provides in pertinent part:
3. The Purchaser hereby agrees that by and upon his taking physical
possession of the aircraft he acknowledges that he has examined the
aircraft and accepts it in the condition received unless otherwise noted
on the reverse side hereof, and the Purchaser further acknowledges
that the equipment list on the reverse side hereof is installed in the
aircraft and that the equipment is accepted in the condition received
unless otherwise noted.
* * *
6. It is further agreed that this Purchase order, when accepted by
Seller, is the only contract controlling this sale and purchase and that
it contains all agreements, expressed or implied either verbal or in
writing, and Purchaser acknowledges receipt of a copy of the same.
Mr. Klosterman then applied for a loan in the amount of $80,000 through a Clarksville bank
that Outlaw had previously used to finance aircrafts for its customers. Shortly thereafter, the loan
officer, Mr. Bobby Freeman, informed Mr. Klosterman that his loan had been approved. The parties
scheduled the closing of the sale of the aircraft for November 22, 1997.
On November 22, 1997, the parties executed another “Purchase Order” containing the
original sale price of the airplane, $72,500.00, plus “added equipment” in the amount of $50,000.00
totaling $122,500.00. This “Purchase Order” was signed by Mr. Klosterman for plaintiff and Mr.
Cole for defendant and contains the following under the heading “Conditions of Sale”:
Maintenance for Annual Inspection $15,000.00
New Paint $10,500.00
New Interior $12,800.00
Avionics Repair & Improvement $11,700.00
--------------
Total $50,000.00
The back of this “Purchase Order” contains the same “Terms and Conditions” as the November 11,
1997, “Purchase Order” provided above.
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Also, on November 22, 1997, the parties executed a document entitled “Duplicate Original -
Aircraft Purchase Agreement” (hereinafter “Aircraft Purchase Agreement”). This document
provides in pertinent part:
1. AIRCRAFT. SELLER AGREES TO SELL AND PURCHASER
AGREES TO PURCHASE THAT CERTAIN AIRCRAFT
(AIRCRAFT) GENERALLY DESCRIBED HEREIN BELOW AND
MORE PARTICULARLY IN EXHIBIT A.
MANUFACTURER/YEAR: CESSNA 1969 SER.NO. 421A0032
MODEL: 421A REG. NO.: N241A
2. PURCHASE PRICE. PURCHASER AGREES TO PAY AND
SELLER AGREES TO ACCEPT THE TOTAL PURCHASE PRICE
OF SEVENTY TWO THOUSAND FIVE HUNDRED ($72,500.00)
U.S. DOLLARS PAYABLE AS FOLLOWS:
A. PURCHASER HAS MADE AN EARNEST
MONEY DEPOSIT IN THE SUM OF ONE
THOUSAND ($1,000.00) U.S. DOLLARS. EXCEPT
AS PROVIDED IN SECTION 4 BELOW, THIS
EARNEST MONEY DEPOSIT SHALL BE
NONREFUNDABLE AND SHALL EITHER BE
PAID TO SELLER OR APPLIED TO THE
PURCHASE PRICE OF THE AIRCRAFT IN
ACCORDANCE WITH THE TERMS OF THIS
AGREEMENT.
B. BALANCE OF PURCHASE PRICE IN THE
AMOUNT OF SEVENTY ONE THOUSAND FIVE
HUNDRED ($71,500.00) U.S. DOLLARS
PAYABLE UPON DELIVERY.
PURCHASER SHALL PAY ANY AND ALL DOCUMENTARY
STAMPS, SALE/USE TAXES, DUTIES OR FEES ASSESSED OR
LEVIED BY ANY FEDERAL, STATE, LOCAL, OR FOREIGN
TAXING AUTHORITY AS A RESULT OF THE SALE,
DELIVERY, REGISTRATION, OR OWNERSHIP OF THE
AIRCRAFT. ALL PAYMENTS SHALL BE IN U.S. CURRENCY
WITH GOOD AND COLLECTED FUNDS (BY MEANS OF
CASH, CASHIERS OR OFFICIAL BANK CHECK OR WIRE
TRANSFER).
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* * *
4. ACCEPTANCE OF AIRCRAFT. ON OR ABOUT
NOVEMBER 11, 1997 SELLER DELIVERED AIRCRAFT TO
CLARKSVILLE, TENNESSEE WHERE PURCHASER
CONDUCTED A PREPURCHASE INSPECTION TO VERIFY
PROPER AIRCRAFT SYSTEM AND ENGINE(S) OPERATION,
TO EXAMINE AIRCRAFT, ITS ENGINE(S), LOG BOOKS AND
MAINTENANCE RECORDS. PURCHASER SHALL PAY FOR
THE COST OF ITS PREPURCHASE INSPECTION. PURCHASER
HAS CHOSEN TO PURCHASE THE AIRCRAFT IN ITS
UNLICENSED CONDITION AND TO HAVE ALL
IMPROVEMENTS, ANNUAL INSPECTION, REPAIRS, NEW
PAINT AND NEW INTERIOR UNDER THE SUPERVISION AND
CONSULTATION WITH OUTLAW AIRCRAFT SALES. ALL
WORK WILL BE DONE AT AN ADDITIONAL EXPENSE TO
THE PURCHASER.
5. DELIVERY. DELIVERY SHALL TAKE PLACE ON OR
ABOUT NOVEMBER 22, 1997. DELIVERY SHALL BE AT
CLARKSVILLE, TENNESSEE. COST OF DELIVERY SHALL BE
AT PURCHASER’S EXPENSES (NOT LIMITED TO FUEL, AND
AIRLINE FARE). AIRCRAFT WILL BE DELIVERED EQUIPPED
AS INSPECTED, WITH LOG BOOKS, MAINTENANCE
RECORDS, AND FLIGHT MANUALS OF AIRCRAFT.
PURCHASER SHALL PAY TO SELLER THE FULL PURCHASE
PRICE UPON DELIVERY. CONFIRMATION OF AIRCRAFT
DELIVERY SHALL BE IN WRITING BY USE OF EXHIBIT C
ATTACHED HERETO.
* * *
10. ENTIRE AGREEMENT. THE TERMS AND CONDITIONS
OF THIS AGREEMENT CONSTITUTE THE ENTIRE
AGREEMENT OF THE PARTIES HERETO AND SUPERSEDES
ALL PREVIOUS NEGOTIATIONS, REPRESENTATIONS, AND
AGREEMENTS BETWEEN THE PARTIES. THIS AGREEMENT
MAY NOT BE VARIED, AMENDED, OR SUPPLEMENTED
EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY
BOTH THE PARTIES.
11. DEFAULT. IF PURCHASER SHALL DEFAULT UNDER
THIS AGREEMENT, SELLER SHALL HAVE THE OPTION OF
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SUING FOR DAMAGES, INCLUDING BUT NOT LIMITED TO,
REASONABLE ATTORNEY’S FEES, OR, RESCINDING THIS
AGREEMENT WHEREUPON ALL SUMS PAID HEREUNDER
SHALL BE RETAINED BY SELLER AS LIQUIDATED
DAMAGES.
Although defendant paid Outlaw $72,900.001 during the closing on November 22, 1997, he
did not then take delivery of the aircraft. Outlaw agreed to supervise the necessary maintenance and
improvements to be made on the aircraft which were listed in the November 22, 1997, “Purchase
Order.”
Thereafter, Mr. Klosterman received a facsimile document dated January 23, 1998, and
signed by Mr. Cole which provides in pertinent part:
PLEASE CALL AND TELL ME TO PRESS FORWARD ON
THE ANNUAL SINCE OUR SHOP HAS FREED UP ON THE
TWO BIG PROJECTS THAT WERE AHEAD OF YOUR
AIRCRAFT.
ALSO, SEND A PAYMENT ON THE ANNUAL
ACCOUNT OF $5,000.00 MINIMUM PAYABLE TO AIRCRAFT
MAINTENANCE, INC. WITHIN THE NEXT TEN DAYS. THIS
WILL KEEP THINGS MOVING AS WELL.
I HAVE UPS YOU THE SQUAWK2 LIST.
BEST REGARDS,
[Signature]
DAVID COLE
As instructed, Mr. Klosterman sent a check to Outlaw dated January 27, 1998, in the amount of
$5,000.00 payable to Aircraft Maintenance, Inc. Shortly thereafter, Mr. Klosterman received another
squawk list that was shipped on January 31, 1998 and dated November 25, 1997. This squawk list
included approximately 128 items as opposed to the squawk list Mr. Klosterman received on
November 22, 1997, which contained approximately 35 items.
1
Mr. Freeman, the loan officer, had prepared the loan check in the amount of $72,900.00 instead of the correct
balance of $71,500.00. This was an overpayment of $1400.00 which included Mr. Klosterman’s $1000.00 down-
payment or deposit and a $400.00 overpayment by the bank. Mr. Klosterman was entitled to a cre dit of $ 140 0.00 to
be applied towards the upcoming repairs and paint which, according to the “Aircraft Purchase Agreement”, was to be
done under Outlaw’s supervision.
2
A squawk list contains an aircraft’s mechanical problems and is prepared by an aircraft mechanic.
-5-
Several months later, Mr. Klosterman received another facsimile document from Mr. Cole
dated July 8, 1998, informing Mr. Klosterman that July 20, 1998, is the projected completion date
for the annual maintenance and ten (10) items that were still outstanding. According to the record,
after the annual maintenance was performed on the aircraft, Outlaw had originally planned on flying
the aircraft to a company in Oklahoma for the painting and interior work. However, in July of 1998,
Mr. Cole suggested to Mr. Klosterman that they use Custom Planes, Inc. (hereinafter “CPI”), located
in Lawrenceville, Illinois, to perform the painting and interior work on the aircraft. Mr. Klosterman
then traveled to CPI to discuss having the work done there and on August 1, 1998, Mr. Klosterman
agreed to pay CPI $25,000 to paint the aircraft and install leather interior and a coffee maker. Mr.
Klosterman paid $12,000.00 to CPI as a down-payment on the work.
On November 18, 1998, Mr. Robert O. Wyatt, the president of Outlaw, sent Barry Kemp,
defendant’s lawyer, a letter which provides in pertinent part:
YOU SHOULD BE RECEIVING BY UPS THIS MORNING
A COPY OF THE WORK ORDER ON N241A. THERE ARE 19
PAGES TO THIS WORK ORDER. MR. KLOSTERMAN HAS
PAID $6,400.00 ON THIS WORK SO FAR. IF YOU NEED ANY
EXPLANATION ON THE BREAK DOWN OR PARTS PLEASE
LET US KNOW.
MR. KLOSTERMAN NEEDS TO NOTIFY HIS
INSURANCE COMPANY THAT WE ARE GOING TO MOVE
THE AIRCRAFT AND MAKE SURE THE PILOT IS APPROVED
FOR A FERRY FLIGHT.
* * *
WHEN THE AIRCRAFT PAINT AND INTERIOR ARE
FINISHED WE WILL WEIGH THE AIRCRAFT AND COMPUTE
THE CURRENT EQUIPMENT LIST AND WEIGHT AND
BALANCE.
On November 27, 1998, Mr. Cole sent Mr. Klosterman a handwritten facsimile document
providing in pertinent part:
Robert [Wyatt] says the C-421 is ready to go to Paint Shop.
Requested Pilot approval requirements from your Insurance
Policy “Open Pilot Warranty Clause” or phone number.
Call or fax Robert.
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On December 21, 1998, Mr. Wyatt sent a letter to Mr. Klosterman which provides in
pertinent part:
PER YOUR REQUEST WE FEEL THAT N241A AS
EQUIPPED AND THE TIMES SHOULD BRING BETWEEN
$170,000.00 AND $180,000.00 WITH THE PURPOSED (sic) NEW
PAINT AND INTERIOR.
On June 8, 1999, plaintiff filed a complaint against defendants, Outlaw Aircraft Sales, Inc.
and David Cole, seeking damages and possession of the plane. The complaint provides in pertinent
part:
IX
Defendant Outlaw Aircraft Sales, Inc. had agreed to fly the
plane to Customs Planes, Inc. for the paint job and other work after
they had done the annual, therefore, the Plaintiff assumed that since
the Defendant was doing the annual inspection on January 27, 1998
and six (6) months later called Plaintiff and told him to contact
Customs Planes, Inc. for the other work (painting and interior) the
plane was ready as far as the annual was concerned.
Several weeks passed before Plaintiff heard anything further
about the status of the extra work to be done on his plane. Then
Plaintiff received several pages of a work order from the Defendant,
alleging certain work done. However, the work on the plane was not
completed, particularly the work to be done by Customs Planes, Inc.,
nor was the avionics repair or improvements done.
* * *
XI
The invoices received show a total of over Sixty Thousand
Dollars ($60,000.00), but the plane was not completed as agreed. The
Plaintiff has been receiving monthly statements, the work stopped and
the plane is sitting at Defendant’s place of business.
Defendant states that it has completed the annual and are (sic)
ready to sign off the annual inspection and will fly the plan to
Customs Planes, Inc., as previously agreed, but has not done so.
-7-
However, Defendant demands payment to them in the amount
of Sixty-Six Thousand Two Hundred Nineteen Dollars ($66,219.10)
before taking the plane to Customs Planes, Inc.
Defendant acknowledges that the annual has been completed,
but no improvements on the avionics have been made and the exterior
painting and new interior have not been done.
XII
Since the biggest part of the extra work has not been done but
the annual has been completed that render (sic) the plane airworthy,
Plaintiff has offered to pay Defendant the balance that he owes
Defendant for the annual inspection upon Defendant delivering the
plane to Customs Planes, Inc., as agreed.
The agreed annual inspection and maintenance was for Fifteen
Thousand Dollars ($15,000.00), although, at first Defendant gave
Plaintiff an estimate of Three thousand Five Hundred dollars
($3,500.00) to do the annual.
Therefore, Plaintiff having paid Defendant Five Thousand
Dollars on the annual by check #5347 dated January 27, 1998; having
an overpayment of One Thousand Four Hundred Dollars ($1,400.00)
due him, for a total of Six Thousand Four Hundred Dollars
($6,400.00) paid toward the agreed upon Fifteen Thousand Dollars
($15,000.00) for the annual; this leaves a balance of Eight Thousand
Six Hundred ($8,600.00) the Plaintiff owes Defendant for the annual
inspection to comply with the FAA annual requirement. Defendant
refuses to comply, thus this action for recovery of his plane.
* * *
XIV
Defendant has completed all work necessary for the issuance
of an FAA Certificate to certify that the annual inspection has been
completed. This was to be done for Fifteen Thousand Dollars
($15,000.00). The Plaintiff is due a credit of Six Thousand Four
Hundred Dollars ($6,400.00), thus the Plaintiff owes the Defendant
Eight Thousand Six Hundred Dollars ($8,600.00) on the contract.
-8-
Giving Defendant credit of $8,600.00 against the 51,153.00
damages that Defendant owes Plaintiff, your Plaintiff is entitled to
Forty-Two Thousand Two Hundred Fifty-Three Dollars ($42,253.00).
XV
As the Plaintiff has paid for the aircraft, he is entitled to
immediate possession and request that this Court give the possession
of his aircraft, requiring the Defendant so sign off on the annual
inspection and the only issue to be determined by this Court is
damages.
On July 15, 1999, Outlaw and Mr. Cole filed an answer and counterclaim. The answer denies
the material allegations of the complaint and also includes an affirmative defense which states in
pertinent part:
2. The document signed on November 22, 1997 [“Purchase
Order”], and attached as Exhibit A to Plaintiff’s Complaint is not a
contract. All parties to this document were aware that it was merely
a document executed at the bank’s request to complete the bank’s
file. It was not intended by either party to be a binding contract for
the needed maintenance on the plane at issue.
3. There was no meeting of the minds regarding the document
signed on November 22, 1997, and attached as Exhibit A to
Plaintiff’s Complaint.
4. Alternatively, both parties were mutually mistaken
regarding the meaning of the document attached as Exhibit A to
Plaintiff’s Complaint.
7. Plaintiff’s sole and exclusive remedy for any breach is
rescission of the Purchase Agreement and return of any sums paid.
The defendants’ counterclaim avers that plaintiff breached the contract by failing to pay for
the cost of the repairs made to the aircraft and seeks $67,022.76 in damages plus pre-judgment
interest and attorney’s fees. On August 25, 1999, plaintiff filed an answer to the defendant’s
counterclaim denying the material allegations thereof and praying that the counter-claim be
dismissed.
In March, 2000, CPI filed for bankruptcy and at this time, the aircraft had not been delivered
for paint and interior work by Outlaw.
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On July 11, 2000, plaintiff, with leave of court, filed an amended complaint, which provides
in pertinent part:
II
Section XIV of the Original Complaint is stricken and
amended as follows:
Besides the Seventy-Two Thousand Five Hundred Dollars
($72,500.00) that Plaintiff paid the Defendant for the plane, Plaintiff
has spent an additional Eighteen Thousand Four Hundred Dollars
($18,400.00) towards the Fifty Thousand Dollars ($50,000.00) that
was included for the additional work to annual the plane and other
improvements.
III
Section XV of the Original Complaint is hereby stricken and
the following is inserted as amended:
The Plaintiff request (sic) the Court to declare the purchase
agreement in default by the seller as the terms and conditions of the
contract have not been complied with by the seller within over a two-
(2) year period.
* * *
V
Wherefore, Plaintiff ask (sic) the Court for a judgment against
the Defendant for Ninety Thousand Nine Hundred Dollars
($90,900.00) plus interest on the money that Plaintiff has paid out
because of the default of the purchase agreement by the Defendant.
Said itemization is a follows (sic):
Cessna 421 Cost $72,500.00
Overpayment 1,400.00
Paid on Annual 5,000.00
Paid on painting & interior 12,000.00
-------------
TOTAL $90,900.00
vi
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Now, for an amendment on the Counter-claim, Plaintiff states
as follows:
Since Plaintiff has asked for the recision (sic) of the purchase
agreement of the plane (C-421) Defendant is receiving the plane back.
Whatever additional work the Defendant may have done to said
aircraft has enhanced its value and therefore Defendant will not suffer
any loss. The recision (sic) by Plaintiff resulted in Defendants’
negligence for failing to fulfill said purchase agreement within a
reasonable time frame.
Wherefore, said counter-claim should be dismissed.
On July 19, 2000, defendants filed an answer to the amended complaint incorporating the
original counterclaim. The answer also includes a motion to dismiss on behalf of Mr. Cole. The
defendants’ answer denies the material allegations set forth in the amended complaint and includes
an affirmative defense which provides in pertinent part:
5. The document signed on November 22, 1997, and
attached as Exhibit A to Plaintiff’s original Complaint
is not a contract. All parties to this document were
aware that it was merely a document executed at the
bank’s request to complete the bank’s file. It was not
intended by either party to be a binding contract for
the needed maintenance on the plane at issue.
6. There was no meeting of the minds regarding the
document signed on November 22, 1997, and attached
as Exhibit A to Plaintiff’s Complaint.
7. Alternatively, both parties are mutually mistaken
regarding the meaning of document attached as
Exhibit A to Plaintiff’s Complaint.
A nonjury trial was held on February 1 and 2, 2001. On July 12, 2001, the trial court filed
its “Memorandum Opinion” which provides in pertinent part:
The plaintiff seeks rescission of a proposed contract to buy an
airplane from the defendants. The defendants allege that they
performed work on the aircraft valued at more than $86,000. The
plaintiff denies that he, in any way, contracted to make these repairs
to the aircraft and further alleges that the defendant committed to do
the work for only $50,000.
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The plaintiff visited Clarksville, TN., on November 11, 1997,
for the purpose of inspecting the airplane. While there, the plaintiff
signed a Purchase Order for the airplane setting a sales price of
$72,500. In this Purchase Order, there was language concerning
repairs, but the amounts were to be determined in the future. On
November 19, 1997, the defendants notified the plaintiff that the
additional expenses would be $50,000. The plaintiff called the
defendants and talked with Mr. Cole. The plaintiff stated that they
had not agreed on this figure and that it seemed high to him. The
plaintiff alleges that Mr. Cole said that he (Cole) needed some room
because repair costs were uncertain. The plaintiff then agreed to buy
the aircraft for a total of $122,500, representing the original purchase
order and the repairs.
From that point forward there was not a lot of communication
between the parties. The main item of contention was the cost of the
annual inspection and repair as required by the FFA (sic).
The plaintiff believes that the $50,000 expense figure he
agreed to covered the costs of the annual. The defendants say that the
$50,000 did not cover the costs of the annual and that they did not
quote any figure to the plaintiff concerning the cost of the annual.
The defendants presented testimony that it is not customary in the
aircraft industry for there ever to be a quote given on the costs of an
annual inspection and repair; the reason being, no one can tell what
problem may exist with the engine or what the costs of repair will be
until the engine is disassembled.
There is no doubt that the defendants made many repairs at
great expense to this airplane, however, the evidence establishes by
a preponderance that after the parties discussed and agreed upon
repair expenses of $50,000, there was little contact between the
parties. The plaintiff did not execute or give his permission or
approval for the work done on the airplane. The parties had two
separate ideas of what they had agreed to do. They had reached an
agreement concerning the basis sales price of $72,500 and $50,000 in
repairs. However, the plaintiff did not contract for or agree to the
repairs made by the defendant. Considering all of the circumstances,
there was not a meeting of the minds so as to constitute a contract.
The plaintiff has carried the burden of proof and the entire
contract is set aside.
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On August 13, 2001, the defendants filed a motion to alter or amend the judgment. On
August 27, 2001, the trial court filed an order which provides:
This matter came on to be heard before the Honorable James
E. Walton, upon the Complaint filed by the plaintiff and the Counter-
complaint of the defendants.
IT IS ORDERED, ADJUDGED and DECREED by the Court as
follows:
1. That the plaintiff has carried the burden of proof and the
entire contract is set aside.
2. That the counter-complaint filed by the defendants is
dismissed.
3. That the normal costs of this cause are to be divided
equally.
4. That each party will bear their own discretionary costs.
The trial court’s August 27, 2001 order was made final by order entered on September 20,
2001, dismissing any and all pending motions in this case.
The plaintiff, Klosterman Development Corporation, appeals and raises the following two
(2) issues for review as stated in its brief:
1. The Honorable Trial Judge failed to find the total sum of
money that the Appellant has paid under the contract.
2. The judge’s final order failed to give Appellant a judgment
of all sums paid by the Appellant under the contract that should be
refunded to the Appellant, and, for post judgment interest and the
beginning of it.
The defendants, Outlaw Aircraft Sales, Inc. and David Cole, have also filed a notice of appeal
presenting the following four (4) issues for review as stated in their brief:
1. Whether the Chancery Court erred in awarding the
Plaintiff/Appellant the extraordinary remedy of rescission.
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2. Whether the Chancery Court erred in failing to grant Defendant
Cole’s Motion for Partial Summary Judgment and his Motion For A
Directed Verdict at the close of Plaintiff’s proof.
3. Whether the facts as stated by the Chancery Court are contrary to
the preponderance of the evidence presented at trial, including:
a) Whether the Chancery Court erred when it found
that the document labeled Trial Exhibit No. 7, titled
“Purchase Order” and dated November 22, 1997, was
an agreement between the parties rather than a
document prepared at the request of the Bank that
financed the Plaintiff/Appellant’s loan so that the
Bank could justify loaning Plaintiff additional sums
above and beyond the purchase price of the airplane.
b) Whether the Chancery Court erred in finding that
the repairs and maintenance that Defendants
performed on the airplane were not authorized by the
Plaintiff.
c) Whether the Chancery Court erred in failing to
grant Defendant/Appellee Outlaw Aircraft judgment
in the amount of $88,272.82 for the repairs and
maintenance Defendant Outlaw Aircraft has
performed on the airplane plus all attorney fees
incurred in collecting the amounts owed.
4. Whether Plaintiff’s assertion in Appellant’s Brief that he is
entitled to reimbursement from Defendants for sums paid by Plaintiff
to third parties is erroneous.
Since this case was tried by the trial court sitting without a jury, we review the case de novo
upon the record with a presumption of correctness of the findings of fact by the trial court. Unless
the evidence preponderates against the findings, we must affirm, absent error of law. T.R.A.P. 13(d).
We first address the defendants’ issues 1 and 3(a).
The appellees, Outlaw and Mr. Cole, argue that the appellant, Klosterman Development
Corporation, is not entitled to the remedy of rescission. We disagree. Although rescission is not
favored in Tennessee, the law provides that rescission is available when there is a mutual mistake.
In Robinson v. Brooks, 577 S.W.2d 207 (Tenn. Ct. App. 1978), this Court stated:
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Where parties have apparently entered into a contract
evidenced by a writing, but owing to a mistake of their minds did not
meet as to all the essential elements of the transaction, so that no real
contract was made by them, then a court of equity will interpose to
rescind and cancel the apparent contract as written, and to restore the
parties to their former positions, the rule being the same whether the
instrument relates to an executory agreement or to one which has
been executed. Furthermore, equity will grant relief on the ground of
mistake, not only when the mistake is expressly proved, but also
when it is implied from the nature of the transaction. It is not
essential that either party should have been guilty of fraud.
Id. at 208 (quoting 12 C.J.S. Cancellation of Instruments § 27 b (1)). The Robinson Court also
provided the elements of mutual mistake necessary to authorize rescission:
In order to authorize relief for mistake the mistake generally
must have been mutual, and it must have been material, and not due
to the complainant’s negligence; and complainant must show injury.
Id. at 209 (quoting 17A C.J.S. Contracts § 418(2)).
The equitable remedy of rescission is not enforceable as a matter of right but is a matter
resting in the sound discretion of the trial court and the court should exercise the discretion
sparingly. Vakil v. Idnani, 748 S.W.2d 196, 199 (Tenn. Ct. App. 1987)(citing Early v. Street, 241
S.W.2d 531 (Tenn. 1951); McMillan v. American Suburban Corp., 188 S.W. 615 (Tenn. 1916)).
Thus, the real question in the case before us is whether, under the proof, the trial court abused its
discretion in rescinding the contract. We think not.
The proof is clear that the parties executed a document entitled “Purchase Order” on
November 22, 1997. This document contained the purchase price of the aircraft, $72,500.00, plus
“added equipment” in the form of “maintenance for annual inspection”, “new paint”, “new interior”
and “avionics repair & improvement” in the amount of $50,000.00, as a “condition of sale”.
It appears that both parties had a different understanding as to the meaning of the November
22, 1997, “Purchase Order”. Mr. Klosterman testified that the November 22, 1997 “Purchase Order”
contained the price of the airplane and included, as a condition of sale, a ceiling for the total cost of
the repairs. Mr. Klosterman’s testimony on direct examination is as follows:
Q. Now, let me hand you another document. Do you recognize that,
Mr. Klosterman?
A. Yes. This is the purchase order for the airplane that I signed on
November 22, 1997.
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Q. All right. That shows the 75 percent of 72,5; doesn’t it?
A. Yes, it does.
Q. That shows added equipment of $50,000; doesn’t it?
A. That’s correct.
Q. And over here on the left-hand side it says, “condition of sale,”
right?
A. Right.
Q. “Maintenance for annual inspection, $15,000?”
A. Correct.
Q. You have, “painting, 10,500?”
A. Correct.
Q. Let me back up. That $15,000 is a little bit more than what he
[Mr. Cole] quoted you that it would probably cost to do the annual,
didn’t it?
A. Right, it was a lot more.
Q. And the 10,500 was more than he quoted you to do the painting,
wasn’t it?
A. Right.
Q. And “new interior, 12,800?”
A. Right.
Q. That’s more than he quoted you, wasn’t it?
A. Yes.
Q. And he [Mr. Cole] quoted you for avionics, $11,700?
A. Yes.
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Q. What did you say then to Mr. Cole?
A. I said, “Dave, this isn’t what we agreed on.” I said, “this is a lot
higher.” And he says, “well, we just needed a little room and it won’t
exceed this amount. We just needed some room.” And I said, “I
think that’s a lot of room.” He said, “well, this is just a high price
and it definitely won’t exceed this.”
Q. All right.
A. So I went ahead and signed it anyway.
Q. So $122,500, you still figured what?
A. I figured, worse case scenario, it would be 50,000, this airplane
sale.
However, Mr. Cole testified that the November 22, 1997, “Purchase Order” was simply a
document requested by Mr. Freeman, the loan officer, in order to make the loan to Mr. Klosterman.
Mr. Cole’s testimony on direct-examination is as follows:
Q. Just proceed, Mr. Cole, and tell us how that document came to be.
A. Well, Mr. Freeman said he needed a document for his banking
records to justify his loan. And these are the figures that he gave us
that we had the secretary type. And the secretary typed it and he used
it in his closing.
Mr. Cole also testified on cross-examination:
Q. I’ll ask you this: Did Mr. Freeman tell you without a contract, he
would not make the loan?
A. That’s correct.
* * *
Q. You and Mr. Freeman talked several times about this loan, didn’t
you?
A. We would have talked once or twice.
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Q. Well, that’s several times, twice, didn’t you (sic)? And he came
out to your place of business and you all discussed it in your office,
didn’t you?
A. Correct.
Q. Now, Mr. Freeman told us he got these figures from you, do you
deny that? The figures that are on that contract – before the contract
–
A. I can’t testify to what Mr. Freeman says.
Q. Mr. Cole, I asked you. Mr. Freeman said he got these figures
from your conversations with him; is that true?
A. Are you talking about these figures right here (indicating)?
Q. Yes.
A. No.
Q. He didn’t get them from you?
A. He gave them to me.
Q. Why would he tell you how much it’s going to cost to annual the
airplane?
A. Well, for the reason that the bank need this –
* * *
Q. Why would he be telling you how much it’s going to cost to
annual the airplane?
A. He wasn’t telling me how much it was going to cost. He was
doing a bank document that he requested to be typed. He gave me the
figures. I didn’t see these figures until that day at closing.
The trial court also questioned Mr. Cole regarding his understanding of the November 22,
1997, “Purchase Order”:
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THE COURT: Mr. Cole, let me ask you something about that exhibit.
When you signed Exhibit 7, what did you think this document was?
THE WITNESS: Purely a bank document. I could not sign for our
company. Only Robert Wyatt could sign anything that was financial.
THE COURT: But you did sign for your company.
THE WITNESS: I signed that. What I understood for the bank, that’s
correct.
THE COURT: Now, Mr. Cole, the figures stated on here, the 15,000,
the 10,5; 12,8; 11,7; was total $50,000. Are those figures right or
wrong?
THE WITNESS: Those figures were just an outline or estimate
provided to me by Bob Freeman, and I rounded them to what I
thought made sense for a bank document.
THE COURT: So in your view, these figures had no meaning
whatsoever?
THE WITNESS: That’s correct. Except they were industry
representative figures.
Similarly, Mr. Freeman, the loan officer, testified that the November 22, 1997, “Purchase
Order” was a bank document that was generated so that Mr. Klosterman could borrow more money
than the purchase price of the aircraft. We quote from the record:
Q. So to apply that to the case we have here, if he wanted to borrow
$80,000, that had to be 75 percent of , at least 75 percent –
A. Of the retail value of the airplane.
Q. Now, how would you go about establishing that to meet your
rules?
A. My bank rules were one of two rules; either an independent
aircraft appraisal or a dealer’s invoice.
Q. When you say a dealer’s invoice or an appraisal, you’re saying
you had to have that documentation of what the retail value of the
plane is?
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A. Yes.
Q. Keep going.
A. Now, after I learned Mr. Klosterman, that he wanted to borrow
$80,000, he and I had several conversations about what I could do for
him and what I couldn’t do. And he told me he wanted to borrow
$80,000, and I said, okay, I’ll see what I can do.
I went back to Dave Cole and I either learned Mr. Klosterman
or from Dave Cole what the purchase price of the aircraft was. And
I also learned that Mr. Klosterman wanted some more work to be
done. And I got into some of the details of what that work was to be
done and did my own appraisal for my own benefit to protect me and
my bank as to the value of the aircraft.
I did my own appraisal, and I found out the aircraft was out
of annual inspection which lowers the retail value. I also found out
that Mr. Klosterman, one of the things he wanted done or intended to
have done at a later date was new paint, new interior, which raises the
market value to some degree.
* * *
So once I learned what some of the things that were going be
(sic) done, what I was trying to get at was, what does the retail value
have to be for me to loan $80,000 on it. So I looked up – we have a
loan guide. I looked up the loan guide what the average cost of the
paint for that type aircraft was and what the average cost of the
interior was and what the average cost of the annual inspection was.
* * *
Q. So you were trying to calculate what this plane would be worth if
these things on an average cost basis were done to the plane?
A. Yes....
* * *
Q. Now, after you came up with these figures, did you have another
conversation with Dave Cole?
A. Yes, sir. When I came up with figures I had a conversation when
I asked him to put it on an invoice form for me.
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Q. And where was that done at?
A. Where was this document done?
Q. Yeah.
A. I guess the document was actually done by Mr. Wyatt’s secretary.
Q. Now, these figures were just a guess you made, wasn’t it?
A. Yes. An educated guess.
Q. Now, did you understand that document to be a contract between
Outlaw Aviation, Outlaw Sales, and Mr. Klosterman?
A. No, sir.
Mr. Wyatt, the president of Outlaw, testified that it is not his practice to provide flat rate
quotes. Mr. Wyatt testified on direct examination:
A. Working on an airplane is a very serious thing. And anybody, if
you give a price, I want to use an example of $3,000, to do a job, and
you get involved in it, there is the – it would only be human nature
for a person to, if he found more wrong with it, to maybe not, maybe
not fix everything. And I just don’t do business that way. Either I,
if my shop, if we do an inspection and we sign it off as airworthy, we
fix it to the best of our knowledge or we don’t do it.
Q. So in other words, it wouldn’t be ethical in your opinion to give
a flat rate on something like that because if you got in it and it was
more involved, the tendency would be not to fix everything as well
as it should be fixed, and that’s not safe?
A. That’s correct.
When the resolution of the issues in a case depends upon the truthfulness of witnesses, the
trial judge, as the trier of fact, has the opportunity to observe the witnesses in their manner and
demeanor while testifying and is in a far better position than this Court to decide those issues.
McCaleb v. Saturn Corp., 910 S.W.2d 412, 415 (Tenn. 1995); Whitaker v. Whitaker, 957 S.W.2d
834, 837 (Tenn. Ct. App. 1997). The weight, faith, and credit to be given to any witness’s testimony
lies in the first instance with the trier of fact, and the credibility accorded will be given great weight
by the appellate court. Id.; Estate of Walton v. Young, 950 S.W.2d 956, 959 (Tenn. 1997).
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The trial court accredited the testimony of Mr. Klosterman concerning the meaning of the
November 22, 1997, “Purchase Order.” Specifically, the trial court found that “[t]he parties had two
separate ideas of what they had agreed to do. They had reached an agreement concerning the basis
sales price of $72,500 and $50,000 in repairs. However, the plaintiff did not contract for or agree
to the repairs made by the defendant. Considering all of the circumstances, there was not a meeting
of the minds so as to constitute a contract.”
It is well established in this jurisdiction that a contract can be expressed, implied, written,
or oral, but an enforceable contract must result from a meeting of the minds in mutual assent to
terms, must be based upon sufficient consideration, must be free from fraud or undue influence, not
against public policy and must be sufficiently definite to be enforced. See Anderson County v.
Architectural Techniques Corporation, 03A01-9303-CH-00110, 1993 WL 346473 at **4 (Tenn.
Ct. App. Sept. 9, 1993)(citing Johnson v. Central Nat’l Ins. Co., 356 S.W.2d 277 (Tenn. 1961)).
Tennessee law provides that rescission is not available if the parties cannot be placed in status
quo. See Lamons v. Chamberlain, 909 S.W.2d 795, 801 (Tenn. Ct. App. 1993). The appellees
argue that they cannot be placed in status quo because they will be forced to sell the aircraft at a loss.
Mr. Wyatt, the president of Outlaw, sent Mr. Klosterman a letter dated December 21, 1998, which
provides in pertinent part:
PER YOUR REQUEST WE FEEL THAT N241A AS
EQUIPPED AND THE TIMES SHOULD BRING BETWEEN
$170,000.00 AND $180,000.00 WITH THE PURPOSED (sic) NEW
PAINT AND INTERIOR.
The defendants still have possession of the aircraft with all its improvements.
Accordingly, the trial court did not abuse its discretion in rescinding the contract and the
evidence does not preponderate against the trial court’s finding.
We will now address the defendants’ second issue.
The defendants argue that the trial court erred in denying Mr. David Cole’s motion for
partial summary judgment or directed verdict because Mr. Cole acted solely as an agent for Outlaw.
In addition to Mr. Klosterman’s testimony that he dealt primarily with Mr. Cole, as the salesperson
for Outlaw, Mr. Wyatt, the president of Outlaw testified that Mr. Cole was his employee and
represented him on November 22, 1997, during the closing of the sale of the aircraft.
Tennessee law provides that an agent, dealing for a disclosed principal within the scope of
his powers, is not personally liable, unless the third party gave credit exclusively to him and it was
his intention to become personally liable. Weeks v. Summerlin, 466 S.W.2d 894, 899 (Tenn. Ct.
App. 1970) (citing Siler v. Perkins, 149 S.W. 1060 (Tenn. 1912)). If a contract is made with a
known agent acting within the scope of his authority for a disclosed principal, the contract is that of
the principal alone unless credit has been given expressly and conclusively to the agent, and it
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appears that it was clearly his intention to assume the obligation and he was informed that credit was
extended to him alone. Id. (citing Hammond v. Herbert Hood Co., 221 S.W.2d 98 (Tenn. Ct. App.
1948)).
While we agree that based on the record before us a judgment should be entered for
defendant Cole, we cannot do so on the procedure suggested by defendants. This Court has held that
the denial of a summary judgment motion predicated upon existence of genuine issue of fact is not
reviewable where there has been a judgment rendered after the trial on the merits of a case. Bills v.
Lindsay, 909 S.W.2d 434 (Tenn. Ct. App. 1993). Moreover, motions for directed verdicts are
appropriate in a jury trial and have no place in a nonjury trial. Smith v. Inman Realty Co., 846
S.W.2d 819 (Tenn. Ct. App. 1992). In the instant case, the only allegations against Mr. Cole is that
in these contract negotiations he acted as the agent for the defendant, Outlaw, and the record contains
no proof beyond these allegations.
Accordingly, the judgment against Mr. Cole is vacated.
We will now address the defendants’ issues 3(b) and 3(c).
The defendants argue that the trial court erred in finding that Mr. Klosterman did not
authorize the repairs that Outlaw made on the aircraft and in failing to grant Outlaw a judgment in
the amount of $88,272.82 for the repairs and maintenance Outlaw performed on the aircraft plus all
attorney’s fees. We disagree. The trial judge accredited the testimony of Mr. Klosterman who
testified that the November 22, 1997, “Purchase Order” contained, as a “Condition of Sale”, a fixed
price of $50,000 for all of the repairs and maintenance to be performed on the aircraft. As we have
already noted, the weight, faith, and credit to be given to any witness's testimony lies in the first
instance with the trier of fact, and the credibility accorded will be given great weight by the appellate
court. Estate of Walton, 950 S.W.2d at 959. Furthermore, Mr. Cole testified on cross-examination
as follows:
Q. Now, on your parts list – let me show this. I just want to ask you
a question about that, Mr. Cole. That shows what work needs to be
done to perform that annual inspection, doesn’t it?
A. (Reviews documents.) This looks to me like a completion –
Q. Well, do you see –
A. –equipment and the annual inspection.
Q. All right. Do you see up on the left-hand corner or anything
where it says, “I authorize this work to be done,” left-hand – top left-
hand corner?
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A. I don’t, no.
Q. You don’t see anything up there?
A. No.
* * *
Q. “I hereby authorize the following repairs, work to be done” –
A. But you asked me if I saw authorization.
Q. No. I’m asking you, did that not say that?
A. Oh, yeah, I can see that.
Q. All right. Do you see any signature there?
A. No. That’s what I was testifying to.
Q. So Mr. Klosterman never authorized this, did he?
A. (No response.)
Q. So there is nothing in that January 23rd fax asking him to authorize
the work, was there?
* * *
A. Nothing in that fax, no.
From our review of the record, we find that the evidence does not preponderate against the
findings of the trial court.
We will now address the plaintiff’s issues.
The appellant avers that the trial court has failed to find the total sum of money that the
appellant has paid under the contract, and award appellant a judgment in that amount plus interest.
We agree with the appellant to the extent that the trial judge failed to restore the parties to the status
quo. Therefore, in light of our previous finding concerning rescission, we modify the trial court’s
order to allow the appellee, Outlaw Aircraft Sales, Inc., to maintain any ownership and possession
it has over the aircraft in question. We also modify the order to award the plaintiff a judgment
against the defendant, Outlaw Aircraft Sales, Inc., in the amount of $78,900 which includes
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defendant’s $1000.00 down-payment or deposit; the initial payment of $5,000.00 to begin the
maintenance on the aircraft; the purchase price paid by defendant, $72,500; and the $400.00
overpayment. This amount does not include the $12,000 that Mr. Klosterman paid directly to CPI.
In view of our decision, the defendants’ fourth issue is pretermitted.
Accordingly, the judgment of the trial court against defendant, David Cole, is vacated and
modified to award judgment for plaintiff against defendant, Outlaw, in the amount of $78,900.00.
The judgment is affirmed as modified, and the case is remanded to the trial court for such further
proceedings as necessary. Costs of the appeal are assessed against the appellee, Outlaw Aircraft
Sales, Inc. and its surety.
__________________________________________
W. FRANK CRAWFORD, PRESIDING JUDGE, W.S.
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