Bank of Gleason v. Weakley Farmers ( 2000 )

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
BANK OF GLEASON, GLEASON, TENNESSEE v. WEAKLEY FARMERS
COOPERATIVE, INC.
An Appeal from the Circuit Court for Weakley County
No. 3313 The Honorable William B. Acree, Judge
No. W1999-02161-COA-R3-CV - Decided April 27, 2000
This appeal arises from a complaint filed by the Bank of Gleason seeking to collect the amount due
on a promissory note. The Weakley Farmers Cooperative appeals from the judgment of the Weakley
County Circuit Court, which found the Bank was entitled to recover under the doctrine of promissory
estoppel. For the reasons stated herein, we affirm the trial court decision.
Tenn.R.App.P. 3; Judgment of the Circuit Court Affirmed
HIGHERS , J., delivered the opinion of the court, in which CRAWFORD , P.J., W.S., and LILLARD , J.,
joined.
Stephen L. Hughes, KIZER, BONDS & HUGHES, Milan, Tennessee, for Appellant
H. Max Speight, Dresden, Tennessee, for Appellee
OPINION
I. Facts and Procedural History
In or around March of 1997, the Appellant, Weakley Farmers Cooperative (“Co-op”), held
a past due open account in the name of Paschall Farms with a balance due of $78,137.05.1 Paschall
1
Paschall Farms had previously bought fertilizer, seed, and other items commonly referred
to as “crop production inputs” from the Co-op on credit.
Farms was a farming operation consisting of Kevin Paschall and his father James Paschall. Kevin
Paschall was also a customer of the Appellee, Bank of Gleason (“Bank”), and had received financing
for his farming operation for several years prior to 1997.
In 1996, the Bank and Co-op entered into an agreement whereby the Bank loaned $20,000
to Kevin Paschall, and Mr. Paschall used this money to pay on his debt to Co-op. In return, Co-op
agreed to supply the crop inputs and subordinated its lien on the 1996 crop proceeds to the Bank.
Mr. Paschall then re-paid the Bank from the 1996 crop proceeds. The agreement apparently worked
to the satisfaction of all parties.
In or around March of 1997, Kevin Paschall attempted to make financial arrangements
concerning the coming crop year. To that end, Kevin had conversations with Terry Hankins, Co-
op’s manager, regarding the past due account, as well as his needs for the 1997 crop year. Co-op
apparently took the position that it would not provide crop inputs for the 1997 crop year unless a
substantial payment was made on the past due account. Mr. Hankins informed Kevin Paschall that
Co-op would require a $42,000 payment before they would consider providing the crop inputs for
the 1997 crop year.
At the same time that Kevin Paschall was negotiating with Co-op, he was also in discussions
with James Terrell, acting on behalf of the Bank of Gleason. Additional conversations between
Hankins and Terrell allegedly resulted in a proposal similar to that between the parties in 1996,
whereby the Bank would loan Kevin Paschall a specified amount of money, of which $42,000 would
2
be paid to the Co-op.2 The Bank alleges that in return, the Co-op agreed to provide the crop inputs
for the 1997 crop year.
Before making a loan of this size, the Bank asked for, and received, a written statement from
the Co-op. The statement is dated March 10, 1997 and is the only writing in existence regarding the
alleged agreement between the parties. The writing states, “We, the Weakley Farmers Cooperative,
agree to release crop proceeds to the Bank of Gleason in the amount of $82,000.00 plus interest or
lesser amount borrowed in order to satisfy the Bank of Gleason’s mortage [sic] on 1997 crop of
Kevin Paschall.” The typewritten statement is signed by Terry Hankins in his capacity as Co-op
manager and appears on Co-op letterhead.
The Bank advanced Kevin Paschall a loan evidenced by a promissory note in the amount of
$70,200.00, bearing contractual interest at the rate of 10.75%.3 The promissory note is dated March
13, 1997. Co-op subsequently received a money order dated March 14, 1997, drawn on the Bank
of Gleason in the amount of $42,000. The check referenced the name “Paschall” as the remitter.
In or around April of 1997, Co-op learned that James Paschall, Kevin’s father, could not
acquire financing for the 1997 crop year. Based upon this information, Co-op refused to extend
2
Mr. Hankins testified that the $42,000 was only Kevin Paschall’s part of the total debt owed
to the Co-op. He claimed that Kevin’s father, James, as a partner in the farming operation, also owed
money to the Co-op. Mr. Hankins attributes the Co-op’s refusal to provide the 1997 crop inputs to
the elder Paschall’s failure to pay his part of the debt.
3
Kevin Paschall testified that Terry Hankins calculated the 1997 crop expenses on which the
Bank based the amount of the loan.
3
credit to Paschall farms. As a result, Kevin Paschall was unable to farm during the 1997 crop year.
The Bank sought return of the $42,000 but their written and oral requests were denied by Co-op.
On June 16, 1997, the Bank initiated the present lawsuit against Co-op seeking to recover
the amount due under the promissory note. The Bank alleged that it would not have made the loan
to Kevin Paschall “except upon assurances of the Defendant to release the lien against the 1997 crop,
which lien could only be generated upon Defendant providing of the seed, fertilizer and chemicals
for the new crop.” The complaint sought recovery on the basis of a valid written contract or, in the
alternative, on the basis of promissory estoppel. The Weakley County Circuit Court heard the
matter on December 9, 1998. The trial court, sitting without the intervention of a jury, ruled that the
Bank was entitled to recover all amounts due under the promissory note pursuant to the doctrine of
promissory estoppel. This appeal followed.
II. Law and Analysis
As an initial matter, we find it necessary to briefly discuss the issues which Co-op has
presented for our review. Those issues are: 1) whether the Statute of Frauds precludes the Bank’s
recovery, 2) whether an enforceable contract existed between the parties, 3) whether the Bank was
entitled to recover on the basis of promissory estoppel, 4) whether the Bank had a duty to mitigate
its damages, and 5) whether the trial court erred in determining the amount of damages. A review
of the record, as well as our own analysis, leads us to conclude that the first two issues are irrelevant
to the resolution of this dispute. The trial court’s award was based upon promissory estoppel, and
4
since we affirm on that basis, the existence of a valid contract, or lack thereof, has no bearing on our
analysis. See Steelman v. Ford Motor Credit Co., 911 S.W.2d 720, 723-724 (Tenn. Ct. App. 1995)
(holding that the statute of frauds does not preclude a party from recovering damages for unjust
enrichment or detrimental reliance). Therefore, we express no opinion on the question of whether
a valid and enforceable written contract existed between the parties.
Promissory Estoppel
A claim of promissory estoppel is not dependent upon the existence of an express contract
between the parties. See Engenius Entertainment, Inc. v. Herenton, 971 S.W. 2d 12, 17 (Tenn. Ct.
App. 1997) (citing Arcadian Phosphates, Inc. v. Arcadian Corp., 884 F.2d 69, 73-74 (2d Cir. 1989);
United Magazine Co. v. Prudential Ins. Co., 877 F.Supp. 1076, 1084-85 (S.D. Ohio 1995); Quake
Constr., Inc. v. American Airlines, 141 Ill.2d 281, 152 Ill.Dec. 308, 565 N.E.2d 990, 1004 (1990)).
Under the theory of promissory estoppel, “when one . . . by his promise induces another to change
his situation, a repudiation of the promise would amount to a fraud.” Foster & Creighton Co. v.
Wilson Contracting Co., Inc., 579 S.W.2d 422, 427 (Tenn. Ct. App. 1978) (citing 17 C.J.S. Contracts
§ 74). This theory of recovery is also referred to as "detrimental reliance" because, in addition to
showing that the defendant made a promise upon which the plaintiff reasonably relied, the plaintiff
must show that this reliance resulted in detriment to the plaintiff. Engenius, 971 S.W. 2d at 17
(citing Foster & Creighton Co., 579 S.W.2d at 427; Quake Constr., 152 Ill.Dec. 308, 565 N.E.2d
at 1004).
5
The most important element in finding promissory estoppel is the promise. “A promise
which the promisor should reasonably expect to induce action or forbearance of a definite and
substantial character on the part of the promisee and which does induce such action or forbearance
is binding if injustice can be avoided only by enforcement of the promise.” Alden v. Presley, 637
S.W.2d 862, 864 (Tenn. 1982). In the present case, the question is whether Terry Hankins, acting
on the Co-op’s behalf, made a promise to the Bank which induced the latter to extend a loan to
Kevin Paschall.
The record provides overwhelming evidence that: a promise was made, the promise induced
the Bank to make the loan, the Bank was reasonable in relying on the Co-op’s promise, and the Bank
suffered damages. As succinctly stated by the trial court, “Co-op made an agreement or a promise
to the Bank which Co-op expected to induce action on the part of the Bank, and it did. The Bank
relied upon this to its detriment and was out many, many thousands of dollars.”
In its defense, Co-op argues that there was no agreement as to the type or quantity of crop
inputs to be supplied by Co-op. According to this argument, the uncertainty as to Co-op’s obligation
precludes recovery by the Bank. While it may be true that there was no way to know the exact
amount of seed or fertilizer that would be needed, there is little doubt that the amount of crop inputs
needed for the 1997 crop year was ascertainable within a very small range.
In briefly addressing this argument, we note that even in the context of oral agreements, the
terms of the contract must only be “sufficiently definite” so as to be enforceable. Jamestowne on
6
Signal, Inc. v. First Fed. Sav. & Loan Ass'n, 807 S.W.2d 559, 564 (Tenn. Ct. App. 1990); Oak
Ridge Precision Indus., Inc. v. First Tenn. Bank Nat'l Ass'n, 835 S.W.2d 25, 28 (Tenn. Ct. App.
1992). We have no doubt that the agreement in the present case was sufficiently definite so as to
make Co-op aware of what it would be required to provide. We find it extremely persuasive that the
parties had entered into a similar agreement the prior year without any problems. Also, Terry
Hankins calculated the amount of money Kevin Paschall needed to borrow from the Bank. He based
this calculation upon standard formulas which considered, among other things, the amount of land
to be farmed. It would offend common sense to conclude that Mr. Hankins could figure the amount
of money needed to farm a specified piece of land, yet be unable to calculate the approximate
quantity of inputs that would be needed. Therefore, we find no merit in the argument advanced by
the Appellant.
The testimony in this case clearly establishes that the Bank would not have lent Kevin
Paschall any money but for the agreement with the Co-op. Co-op, obviously, disagrees with the
notion that they agreed to provide crop inputs for the 1997 crop year. They claim that the only thing
they agreed to do was subordinate their right to the proceeds from the 1997 crop to the Bank. This
assertion makes little, if any, sense. As far as we can discern, Co-op would have had priority in
regards to the 1997 crop proceeds only if they provided the crop inputs. However, the Co-op argues
that it never agreed to provide crop inputs for the 1997 crop year. Therefore, the Co-op’s contention
is that the Bank issued a $42,000 check based solely on the Co-op’s agreeing to waive a lien that it
did not even have.4
4
In fact, Terry Hankins admits that the Co-op had no claim on the 1997 crop.
7
The trial court found that Terry Hankins never stated that the agreement between the Co-op
and the Bank was contingent upon James Paschall receiving financing or paying a debt. The court
also found that Terry Hankins never told the Bank that after payment of the $42,000, the Co-op
would consider providing the crop inputs for the 1997 crop year. As the trial court stated, “[i]t is
obvious that Mr. Hankins did not say any of that because the Bank would not have loaned Kevin
Paschall the money.” The Co-op’s basic contention is that the Bank handed over $42,000 in return
for an absolutely worthless promise by the Co-op. Based upon its factual determinations, the trial
court rejected this notion, and we find nothing in the record to preponderate against that decision.
See T.R.A.P. 13(d).
Damages
Co-op also takes issue regarding the amount of damages that the trial court awarded.
Since this case was tried without a jury, review of the damage award is governed by Rule13(d) of
the Tennessee Rules of Civil Procedure, which provides in pertinent part: “Unless otherwise
required by statute, review of findings of fact by the trial court in civil actions shall be de novo
upon the record of the trial court, accompanied by a presumption of correctness of the finding,
unless the preponderance of the evidence is otherwise.”
The Bank is entitled to be placed in the same position it would have been had the contract
been performed and should not profit from Co-op’s breach. See Hennessee v. Wood Group
Enterprises, Inc., 816 S.W.2d 35, 37 (Tenn. Ct. App. 1991). The trial court awarded the amount of
8
the promissory note.5 The Bank did not seek any unnecessary damages, but only that amount lost
as a direct result of the Defendant’s breach. Since, had the parties performed, the Bank would have
been paid back in that amount, we find no error in the trial court’s determination. 6
Finally, Co-op argues that the Bank breached its duty to mitigate damages by failing to
pursue payment from Kevin Paschall. Co-op has the burden of proving that the Bank acted in an
unreasonable manner, as well as the amount that should be set off. See State ex rel. Chapdelaine v.
Torrence, 532 S.W.2d 542 (Tenn. 1975). The bare allegation that the Bank should have pursued
Kevin Paschall will not suffice. In that regard, the following passage is entirely applicable:
The rule with respect to the mitigation of damages may not be invoked by a contract
breaker "as a basis for hypercritical examination of the conduct of the injured party,
or merely for the purpose of showing that the injured person might have taken steps
which seemed wiser or would have been more advantageous to the defaulter.
Action Ads, Inc. v. William B. Tanner Co., Inc., 592 S.W.2d 572 (Tenn. Ct. App. 1979).
We find no error in the trial court’s damage award. The award is sufficient to place the Bank
5
Specifically, the judgment provided that the Bank was entitled to recover the amount due
under the promissory note, or $70,200.00 plus interest at the rate of ten percent (10%) from March
13, 1997 until November 19, 1998. On that later date, a payment of $10,616.38 was realized through
the foreclosure of a part of the collateral, thereby reducing the principal amount due. The remaining
balance accrued interest at the rate of 10% per annum from November 19, 1998 to the present.
6
Contrary to Co-op’s argument in this regard, a breaching party may not take advantage of
hypothetical contingencies in order to reduce an injured party’s damage award. It is certainly true
that a natural disaster could have occurred and prevented Kevin Paschall from re-paying the loan.
That possibility, however, does not, nor under equity principles should it, relieve Co-op of its
liability.
9
in the same position it would have occupied had Co-op performed. Additionally, we find no basis
for concluding that the award should be reduced due to the Bank’s failure to mitigate its damages.
Other than a conclusory allegation, Co-op has failed to provide any proof that the Bank breached its
duty to mitigate its damages.
Conclusion
For the foregoing reasons, we affirm the trial court decision. Judgment shall be rendered
in the amount of $70,200.00 with interest calculated thereon at the rate of 10% per annum from
March 13, 1997 to November 19, 1998. From November 19, 1998 to the present, the principal
balance due shall be reduced by $10,616.38 with 10% interest calculated thereon. Costs of this
appeal are taxed against the appellant, Weakley Farmers Cooperative, for which execution may
issue if necessary.
10