Knoxville's Community Development Corp. v. Woodfam Investments, L. P. ( 2000 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
May 2000 Session
KNOXVILLE’S COMMUNITY DEVELOPMENT CORPORATION,
v. WOODFAM INVESTMENTS, L.P.,
Direct Appeal from the Chancery Court for Knox County
No. 136576-3 Hon. Sharon Bell, Chancellor
FILED JULY 24, 2000
No. E1999-02317-COA-R3-CV - Decided
Plaintiff sued to reform or void release of deed restrictions on property owned by defendant. The
Trial Court ruled plaintiff failed to establish a basis for relief by clear and convincing evidence. We
affirm.
Tenn. R. App. P.3 Appeal as of Right; Judgment of the Chancery Court Affirmed.
HERSCHEL PICKENS FRANKS, J., delivered the opinion of the court, in which HOUSTON M. GODDARD,
P.J., and CHARLES D. SUSANO, JR. J., joined.
G. Wendell Thomas Jr., Knoxville, for Plaintiff-Appellant, Knoxville Community Development
Corporation.
James S. Tipton, Jr., and Thomas S. Scott, Jr., Knoxville, for Defendant-Appellee, Woodfam
Investments, L.P..
OPINION
Knoxville community Development Corporation (formerly known as Knoxville
Housing Authority, and referred to herein as “KCDC”) filed this action to reform or void a release
of deed restrictions on property transferred by KCDC to Woodfam’s predecessor. The Complaint
alleges the language of the release relating to the Woodfam tract was “the result of a mutual mistake
between Regency (Woodfam’s predecessor) and [KCDC].”
At trial, KCDC offered proof and rested its case and on motion pursuant to T.R.C.P.
41.01(2), the Chancellor dismissed KCDC’s cause of action with prejudice, and held that KCDC
“has not shown by clear and convincing evidence, that the release was obtained without [KCDC]
board approval” and that KCDC also failed to show, by clear and convincing evidence, that there
was any proof justifying reformation of the release by mutual or unilateral mistake.
When a motion to dismiss is made under T.R.C.P. 41.02(2), at the conclusion of the
plaintiff’s proof, the trial court must weigh the evidence as it would at the conclusion of all the proof
and determine whether “the plaintiff’s case has . . . been made out by a preponderance of the
evidence.” City of Columbia v. C.F.W. Construction Co., 557 S.W.2d 734, 740 (Tenn. 1977). Our
review is de novo upon the record of the Trial Court, and no presumption attaches to the Trial
Court’s conclusions of law. T.R.A.P. Rule 13(d). Union Carbide Corp. v. Huddleston, 854 S.W.2d
87, 91 (Tenn. 1993).
In February of 1971, KCDC agreed to sell to Knoxville Housing Partnership certain
land parcels in the area of Knoxville known as Mountain View Urban Renewal Project. At the time,
Parcel 21 (the property at issue in this case) contained approximately 20 acres. The Contract referred
to “Phase I” and “Phase II” of Parcel 21, and provided for different rights and obligations with
respect to each phase. The Contract required that the development of Phase I occur within certain
definite time periods, but provided that development of Phase II would occur “as soon after Deed
as is practicable.”
In February of 1973, KCDC deeded Parcel 21 to Knoxville Housing Partnership. The
Deed contained several restrictions, including a restriction that “the grantee, its successors and
assigns, shall never dispose of the unimproved property for profit.”
In June 1976, Knoxville Housing Partnership conveyed Phase I of Parcel 21 to
Regency Properties, Ltd., (“Regency”), an entity whose members included Pat Wood and his
brothers. Regency constructed a development on Phase I which is now occupied by Sun Trust Bank.
In 1977, after this development by Regency, KCDC filed a release that released Phase I from the
Deed restrictions.
By deeds in 1976 and 1980, Pat Wood acquired Knoxville Housing Partnership’s title
to Phase II of Parcel 21, consisting of about 15 acres. In a condemnation action, the State of
Tennessee took, by eminent domain, approximately 5 acres of Phase II, leaving Wood without about
ten aces of undeveloped property.
On December 10, 1984, KCDC’s Executive Director, Gregory Kern, and Pat Wood
signed an “Affidavit”. The Affidavit recited that “all terms and conditions of that certain Agreement
dated February 16, 1973, executed by the Knoxville Housing Partnership and the Knoxville Housing
Authority . . . have been fully satisfied and the Agreement is therefore of no further force and effect.”
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The Agreement referred to, set forth Knoxville Housing Partnership’s duty to provide KCDC with
construction plans and dates of the anticipated commencement and completion of all construction.
When the Affidavit was signed, KCDC knew that Phase II of Parcel 21 remained undeveloped, and
that no “dates of anticipated construction” and no “construction plans” had ever been provided as
specifically required by the February 16, 1973 Agreement.
On August 1, 1986, Pat Wood deeded the ten undeveloped acres remaining in Phase
II to Woodfam, whose partners included Mr. Wood and members of his family.
In 1991, Wood learned that his brothers, who then owned Regency, were refinancing
the five acre Regency property. Although KCDC had filed a release from the conveyance restriction
in 1977 for those five acres, the prospective lender’s title insurance company required another
release. After learning that a new release on Parcel I was required, Pat Wood contacted Regency’s
attorney and asked him to include in the Release Phase II of Parcel 21, including the Woodfam Tract.
The Release was signed by William W. Baxter, Chairman of KCDC’s Board of
Commissioners, on December 31, 1991, and recorded that day in the Office of the Register of Deeds
for Knox County. Baxter testified that he had no memory of signing the Release, but did recognize
his signature as authentic. He stated that it was his “firm opinion and belief” that he would not have
signed the Release had it not been under the authority of either senior staff or counsel for KCDC or
the recommendation from them to sign. Baxter had been a practicing attorney as well as a
businessman, and testified that when he signed the Release, he knew what a release was, what
restrictions, covenants and conditions in deeds were, and knew that his signing a release of deed
restrictions was a “significant thing to do.” Baxter’s signature on the Release was notarized by Mr.
Shanks.
There is a presumption that a writing expresses the intention and understanding of
the parties. Davidson v. Greer, 35 Tenn. 384 (Tenn. 1855). Kyle v. Kyle, 74 S.W.2d 1065 (Tenn.
Ct. App. 1934). However, written contracts and instruments may be reformed upon a showing of
a mutual mistake or fraud. Pierce v. Flynn, 656 S.W.2d 42, 46 (Tenn. Ct. App. 1983). To be subject
to correction, the mistake in the instrument must have been mutual or there must have been a mistake
of one party influenced by the fraud of the other. Id. In order to reform an instrument based upon
mutual mistake, evidence must be clear , cogent and convincing. Rentenbach Engineering Co. v.
General Realty Lt., 707 S.W.2d 524, 527 (Tenn. Ct. App. 1985).
KCDC argues that the execution, delivery and recording of the part of the Release
that applies to the Woodfam Property was the result of a mutual mistake, and that the true intention
of Mr. Baxter was to release only the Regency Property from the covenants and restrictions.
A “mutual mistake” is necessarily one where both parties were in error regarding
some material fact. However, KCDC alleges nothing in its complaints regarding a mistake on the
part of Woodfam. Not only did KCDC fail to set forth their claim of mutual mistake in their
complaint, they also failed to produce any proof that Woodfam or its agents entered into the contract
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based upon such mistake. KCDC attempts to base its arguments on the fact that Wood
acknowledged that the Woodfam tract could not be disposed of for profit while undeveloped, and
admitted that the Woodfam Tract had not been developed. This is not evidence that Wood was
mistaken about the Release or intended anything other than what was written on the face of the
Release. However, it does provide Wood with a motive for seeking the release from KCDC.
Wood’s testimony that Woodfam intended for the Release to apply to all of KCDC’s
rights in Parcel 21 is uncontradicted.
Alternatively, KCDC argues that the Release should be reformed because of a
unilateral mistake, citing 76 C.J.S. Reformation of Instruments §28(c) to say that “even a unilateral
mistake is grounds for reformation of an instrument when the person who profits from the
unreformed instrument has given no consideration for what it received.” KCDC did not allege
unilateral mistake in their Complaint or in any of their subsequent amended complaints, but did raise
the issue before the Trial Judge. The Court ruled, however, that because there was an avowed
statement of consideration, there could be no relief for unilateral mistake.
KCDC’s witness, Tiller, senior vice-president and director of redevelopment, testified
that the meaning of the Release is clear on its face, plainly stating that it releases all of KCDC’s
rights in all of Parcel 21. While KCDC alleges that Baxter believed that the Release only applied
to the Regency property and that he did not intend to release the Woodfam Property from the
restrictions and covenants, KCDC failed to offer proof of such beliefs and intentions. Instead,
Baxter testified he had no recollection of any of the events surrounding the Release. When asked
if he thought it would make a difference to him in his review whether the Release applied to the
whole tract or just that being released, he said he had no idea and did not remember this being an
issue at the time.
None of the parties involved had any recollection of the events surrounding the
execution of the Release. It is undisputed that Baxter signed the Release and that Shanks notarized
the signature, and that it was duly recorded. It is clear on the face of the Release that it applied to
all the property in Parcel 21.
KCDC argues that the ultimate decision to release property from a development
restriction must be made by KCDC’s Board of Commissioners. They submit that in order to obtain
a release, the owner of the property must demonstrate that the property has been developed in
accordance with an approved plan, and the Board then requires a review of the property to be
released, and the only person on KCDC’s staff who could perform such review was Dan Tiller.
KCDC relies on the testimony of Tiller and Mr. DeBruhl, executive director to show
that the Board has to review such releases, and that such a review was not performed of the Release
in question. Tiller testified that he did not remember ever reviewing the Release or recommending
it’s execution, and that he could not have done so and subsequently forgotten about it. Tiller
testified that the Release was not considered by the Board at its December 1991 meeting, and that
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he never “received any report” of any Board action regarding the Release.
Despite KCDC’s insistence that the Release was not authorized because Tiller never
reviewed it, there are conflicting statements in the testimony of both Tiller and DeBruhl as to the
procedure for getting a release authorized and signed. Both men testified that while it was KCDC’s
general practice for the Board to seek review and approval before authorizing releases, they admitted
that there was no formal rule regarding the procedure, and in fact, the Board did have the power to
authorize such releases without, or even contrary to, staff review and recommendation. Tiller further
admitted that the Board “has the power to delegate the execution of such releases to one or more of
its members - to a chairman, to its staff, or to counsel.” DeBruhl similarly testified that the Board
could delegate “the review procedure and the release function to one or more of its own Board or
to one or more of the staff or to counsel. . . .” Baxter testified that while he did not remember the
Release, he believed that he would not have signed the Release without property authorization. In
signing the Release, Baxter had to swear that he had the authority to sign it “for the purposes therein
contained”. He testified that he was certain he would not have so sworn without authority.
KCDC also relies on general theories of law regarding municipal corporations in
support of its claim that it should not be bound by Baxter’s action, citing to McQuillen Municipal
Corporations at §29.15, which states that members of a council or board of a public corporation
cannot separately and individually enter into a contract which will bind the municipality. It also
points out that because it is a municipal agency, the extent to which it is bound by the agents or
employees is more strictly scrutinized than the actions of agents of employees of private
corporations, and as a result, courts are reluctant to find that an officer of an entity has an “implied
power” on behalf of that entity. McDonald v. Scott County, 87 S.W.2d 1019, 1021 (Tenn. 1935).
However, the authorities cited by KCDC suggest that Baxter’s execution of the
Release would be valid, even if not properly authorized, based upon the fact that it was a matter of
common knowledge that under KCDC’s by-laws, the Board chairman had the authority to execute
releases.
Except where power to make a particular contract is especially given to some
officer or agent, or there appears to be a clear course of dealing with the world
implying authority in an officer or agent, a corporate contract can be made only by,
or with the authority of the Board of Directors.
19 C.J.S. Corporations §615.
KCDC has failed to show, by clear and convincing evidence as the Trial Court found,
that Baxter did not have actual authority to sign the Release. KCDC bases its claim on the fact that
there is no concrete evidence that Baxter had the authority to sign the Release. However, KCDC had
the burden, and the absence of proof of authority does not amount to clear and convincing proof of
lack of authority. Moreover, KCDC’s evidence suggests a Release may be authorized, even where
Tiller did not review it.
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Finally, KCDC argues that as a matter of law such release was proscribed by
Tennessee Code Annotated §13-20-204(b) and §13-20-409. Those sections provide in pertinent part:
13-20-204. Land Used in Accordance with Redevelopment Plan. . . . (b)(1) To
assure that land acquired in a redevelopment project is used in accordance with the
redevelopment plan, an authority, upon sale or lease of such land, shall obligate the
purchasers or lessees to:
(A) Use the land for the purpose designated in the redevelopment plan:
(B) Begin the building of their improvements within a period of time which
the authority fixes as reasonable. . .
(C) Comply with such other conditions as are necessary to carry out the
purposes of this chapter.
(2) Any such obligations by the purchaser shall be covenants and conditions running
with the land where the authority so stipulates.
13-20-409 Duties. The Authority and its commissioners shall be under a statutory
duty to comply or to cause compliance strictly with all provisions of this chapter, and
the laws of the state and in addition thereto with each and every term, provision and
covenant in any contract of the authority on its part to be kept or performed.
The language of the statutes does not prohibit the release of undeveloped property
under all circumstances. The statutes provide that the property should be used in accordance with
a “redevelopment plan” set up by a government authority for the development of a certain area.
There is nothing that requires development of every parcel or that prohibits KCDC from determining
how much development of a parcel should be required. KCDC deeded Parcel 21 to Woodfam’s
predecessors, and required development of Phase I to occur within a definite time period. It only
required that development of Phase II be accomplished as soon as “practicable”. KCDC never acted
for over 26 years since the contract date to declare a default for non-development of Phase II.
Moreover, Tiller testified at trial that KCDC had the power to decide that in certain circumstances,
development of a certain portion of property within an urban renewal project would not be required,
and to omit the development restrictions altogether, for the overall benefit of the project.
While §13-20-204 states that the restrictions are to “run with the land”, T.C.A. §13-
20-104 permits KCDC to release deed restrictions.1
1
13-20-104. Powers of Housing Authority. - (a) An authority has the power to:
. . . (18) Sell, exchange, transfer, assign, or pledge any property, real or personal or any
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We affirm the judgment of the Trial Court that KCDC did not meet the burden of
showing a lack of authority to release the deed restrictions by clear and convincing evidence.
The cost of the cause is assessed to the appellant, and the cause remanded.
_____________________________
HERSCHEL PICKENS FRANKS, JUDGE
interest therein to any person, firm, corporation, municipality, city, or government. . . .
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