Delain L. Deatherage v. John C. Hailey

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
May 4, 2016 Session
DELAIN L. DEATHERAGE V. JOHN C. HAILEY ET AL.
Appeal from the Chancery Court for Davidson County
No. 15-537-II Carol L. McCoy, Chancellor
No. M2015-02202-COA-R3-CV – Filed July 19, 2016
At issue in this case is whether the parties entered into a contract that granted Plaintiff a
right of first refusal to purchase Defendants‟ real property. Defendants leased their
property to Plaintiff for a twelve-month period. After the lease was renewed several
times, Plaintiff inquired with Defendants‟ agent as to whether Defendants would be
interested in selling the property. The agent informed Plaintiff via email that Defendants
did not wish to sell their property at the time, but should they decide to in the future,
Plaintiff “would have the first right of refusal.” Defendants subsequently decided to sell
the property to a third party and did not provide Plaintiff the opportunity to purchase the
property. Plaintiff then filed this action for specific performance and breach of contract,
asserting that Defendants granted Plaintiff an enforceable right of first refusal. After
discovery, Defendants filed a motion for summary judgment, arguing that the purported
contract fails for lack of mutual assent and consideration. The trial court granted
summary judgment, holding that the language in the email correspondence was too
indefinite to create a binding contract. We have determined that the agreement to provide
Plaintiff with a right of first refusal was not supported by consideration; thus, it did not
constitute a binding contract. Accordingly, we affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
FRANK G. CLEMENT, JR., P.J., M.S., delivered the opinion of the Court, in which ANDY D.
BENNETT and THOMAS R. FRIERSON, JJ., joined.
Stephen W. Grace, Nashville, Tennessee, for the appellant, Delain L. Deatherage
Ronald H. Bice, Jr., Nashville, Tennessee, for the appellees, John C. Hailey and Peggy T.
Hailey.
OPINION
John C. Hailey and Peggy Hailey (“Defendants”) are the owners of real estate in
Nashville, Tennessee. With the assistance of a real estate management company,
Defendants leased the property to Delain L. Deatherage (“Plaintiff”) for an initial term of
twelve months, from August 1, 2012, to July 31, 2013. The lease agreement was renewed
in six-month increments—first from August 1, 2013, to January 31, 2014, and again from
February 1, 2014, to August 1, 2014.
On February 11, 2014, after having renewed the lease for a second time, Plaintiff
inquired with Pam Hill, the agent managing Defendants‟ rental property, as to whether
Defendants would be interested in selling the property. This email correspondence reads
as follows:
Plaintiff’s Email [2/11/2014]: Good evening Pam. Just letting you know
that I am enjoying my stay at [Defendants‟ property]. I‟ve had a passing
thought and have now decided to throw it out there (I am in no rush to do
so, but have considered it). . . . would [Defendants] be interested in any
type of rent to own situation or even sell [their property]? I really like the
area and think it‟s a good house. As I just mentioned, I am in no hurry to
buy. There are some benefits to renting and I like to keep my expenses at a
minimum. . . . Best regards, [Plaintiff]
Ms. Hill’s First Response [2/11/2014]: [I] [w]ill be happy to ask
[Defendant]. I know he gets quick sale offers from people wanting to flip
houses. Mainly, I am glad you enjoy the house. Pam
Ms. Hill’s Second Response [2/17/2014]: [Defendant] does not want to
sell any of his properties at this time. He may need to at some point in the
future. He did say you can stay as long as you want and should he decide to
do something with the house you will be contacted first. You would have
the first right of refusal. And of course if you do find something else you
wanted to buy, I would understand. Let me know if I can help with
anything. Pam
In August 2014, Plaintiff renewed the lease for a year, from August 1, 2014, to
July 31, 2015. Eight months later, in April 2015, Defendants notified Plaintiff that they
had entered into a contract for sale of the property to a third party.1 In so doing,
Defendants did not provide Plaintiff with the option to purchase the property.
1
Defendants also notified Plaintiff that her lease was being terminated. The termination of the
lease agreement is not at issue in this appeal.
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Thereafter, Plaintiff filed suit for specific performance and breach of contract,
asserting that through their agent, Ms. Hill, Defendants had entered into a contract with
Plaintiff which granted Plaintiff a right of first refusal in the property. After discovery,
Defendants filed a motion for summary judgment, arguing that the purported contract
fails for lack of mutual assent and consideration. On October 30, 2015, the trial court
entered an order granting the motion for summary judgment, holding that the language in
the email correspondence was too indefinite to create a binding contract.
On appeal Plaintiff contends the email correspondence shows a clear and
unambiguous agreement between the parties to grant Plaintiff a right of first refusal to
purchase the property and that the agreement is supported by consideration because she
renewed the lease agreement and forewent purchasing another property, in reliance on the
right of first refusal.
SUMMARY JUDGMENT
We review a trial court‟s summary judgment adjudications de novo without a
presumption of correctness. Rye v. Women’s Care Ctr. of Memphis, MPLLC, 477 S.W.3d
235, 250 (Tenn. 2015). In doing so, we make a fresh determination of whether the
requirements of Tenn. R. Civ. P. 56 have been satisfied. Id. (citing Estate of Brown, 402
S.W.3d 193, 198 (Tenn. 2013)).
Summary judgment is appropriate when the “pleadings, depositions, answers to
interrogatories, and admission on file, together with the affidavits, if any, show that there
is no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” Tenn. R. Civ. P. 56.04; see also Martin v. Norfolk S. Ry.
Co., 271 S.W.3d 76, 83 (Tenn. 2008). The party moving for summary judgment bears the
burden of demonstrating both that no genuine dispute of material fact exists and that it is
entitled to a judgment as a matter of law. Martin, 271 S.W.3d at 83. When the moving
party does not bear the burden of proof at trial, the moving party may satisfy its burden of
production either: (1) by affirmatively negating an essential element of the nonmoving
party‟s claim; or (2) by demonstrating that the nonmoving party‟s evidence at the
summary judgment stage is insufficient to establish the nonmoving party‟s claim or
defense. Rye, 477 S.W.3d at 264.
ANALYSIS
At issue in this case is whether the email communications between Plaintiff and
Ms. Hill were sufficient to create a valid contract which granted Plaintiff a right of first
refusal to purchase Defendants‟ property.
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In Tennessee, the requisites for forming a valid contract are well settled. Vraney v.
Med. Specialty Clinic, P.C., No. W2012-02144-COA-R3-CV, 2013 WL 4806902, at *18
(Tenn. Ct. App. Sept. 9, 2013). “A contract can be express or implied, and can be written
or oral, but regardless, „an enforceable contract must result from a meeting of the minds
in mutual assent to the 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.‟” Jones v. LeMoyne-Owen College, 308 S.W.3d 894, 904 (Tenn. Ct. App.
2009) (quoting Thompson v. Hensley, 136 S.W.3d 925, 929-30 (Tenn. Ct. App. 2003)).
One of the necessary ingredients for every contract is mutual consideration, Estate
of Brown, 402 S.W.3d at 200, and “[the] party attempting to prove the existence of a
contract is required to show that the agreement upon which he or she relies was supported
by adequate consideration.” Calabro v. Calabro, 15 S.W.3d 873, 876 (Tenn. Ct. App.
1999). Generally, consideration may be either a benefit to the promisor or a detriment to
or obligation upon the promisee. Galleria Assocs., L.P. v. Mogk, 34 S.W.3d 874, 876
(Tenn. Ct. App. 2000). Stated differently, “[c]onsideration exists whenever a party does
something that he or she has no legal obligation to do or refrains from doing something
that he or she has a legal right to do.” Estate of Brown, 402 S.W.3d at 200.2 Without
mutual consideration, a contract is invalid and unenforceable. Id.
To constitute valid consideration, the benefit or detriment received by the party
must be bargained for. Bratton v. Bratton, 136 S.W.3d 595, 606 (Tenn. 2004) (Holder, J.,
concurring in part and dissenting in part) (citing Restatement (Second) of Contracts §
71); see also 21 Tenn. Prac. Contract Law and Practice § 5:3. “The benefit or detriment is
said to be bargained for if it is sought by one party in exchange for his or her promise and
is given by the other party in exchange for that promise.” Bratton, 136 S.W.3d at 606.
The Restatement of Contracts explains the legal significance of reciprocity between the
consideration and the promise as follows:
In the typical bargain, the consideration and the promise bear a reciprocal
relation of motive or inducement: the consideration induces the making of
the promise and the promise induces the furnishing of the consideration.
Here, as in the matter of mutual assent, the law is concerned with the
external manifestation rather than the undisclosed mental states: it is
enough that one party manifests an intention to induce the other‟s response
and to be induced by it and that the other responds in accordance with the
inducement. . . . But it is not enough that the promise induces the conduct
2
A promise to do something or refrain from doing something is also sufficient consideration. See
Estate of Brown, 402 S.W.3d at 200.
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of the promisee or that the conduct of the promisee induces the making of
the promise; both elements must be present, or there is no bargain. . . .
Restatement (Second) of Contracts § 71 (emphasis added).
In this case, Plaintiff contends that the right of first refusal was supported by
consideration because “[Plaintiff] renewed her lease agreement for the [p]roperty,
remained in the [p]roperty paying rent and forewent purchasing another property.” For
the following reasons, we find that this argument is without merit.
The record indicates that Plaintiff‟s lease was renewed on several occasions. The
lease was first renewed for six months on July 2, 2013, and again on February 4, 2014.
However, these renewals occurred prior to the email communications between Plaintiff
and Ms. Hill discussing the right of first refusal. It is well established that consideration
provided before the parties make their bargain does not establish a contract. See Bratton,
136 S.W.3d at 600 (noting that past consideration cannot support a current promise).
Thus, since the July 2013 and February 2014 renewals took place prior to the email
communications, these renewals cannot provide the requisite consideration.
The lease was again renewed in August 2014. This renewal took place some eight
months after the email correspondence between Plaintiff and Ms. Hill; thus, it does not
constitute “past consideration.” Nevertheless, this renewal cannot serve as consideration
for the right of first refusal. Although Plaintiff‟s renewal of the lease conferred a benefit
upon Defendants, there is no indication that this benefit was sought by Defendants in
exchange for granting Plaintiff the right of first refusal. Further, there is no evidence that
Defendants sought or obtained any consideration from Plaintiff as a condition for
granting her “a right of first refusal.” To the contrary, the grant of this right was
gratuitous. Because the August 2014 lease renewal was not given in exchange for the
right of first refusal, it cannot serve as the required consideration for the purported right
of refusal.
For the same reason, the fact that Plaintiff “forwent purchasing another property”
cannot serve as consideration for the right of first refusal. The email correspondence from
Ms. Hill, upon which Plaintiff relies, indicates that there was no expectation on the part
of Defendants that Plaintiff would stop searching for another property to purchase in
exchange for the right of first refusal. Specifically, Ms. Hill‟s email states that if Plaintiff
“[found] something else [she] wanted to buy, [Ms. Hill] would understand.” Thus, it is
evident that Plaintiff‟s forbearance from purchasing another property was also not
bargained for at the time of contracting and cannot serve as consideration.
Moreover, the fact that Plaintiff “remained in the [p]roperty paying rent” cannot
serve as consideration for the right of first refusal because Plaintiff was already under a
legal obligation to remain in the property and pay rent at the time of the agreement. As
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discussed above, consideration exists when a party “does something that he or she has no
legal obligation to do.” Estate of Brown, 402 S.W.3d at 200 (emphasis added). However,
when a party performs a task, or promises to perform a task, that he or she was already
legally bound to perform, such performance does not constitute consideration. See Givens
v. Mulliken ex rel. Estate of McElwaney, 75 S.W.3d 383, 406 (Tenn. 2002)
(“[P]erforming what was already promised in [an] original contract is not consideration to
support a second contract.”). Thus, because Plaintiff was legally obligated to pay rent to
Defendants prior to the conversation between Plaintiff and Ms. Hill, the continued
payment of such rent cannot constitute valid consideration for the right of first refusal.
For the forgoing reasons, we conclude that the right of first refusal in this case was
not supported by adequate consideration. Therefore, Plaintiff never obtained an
enforceable right of first refusal. Accordingly, we affirm the trial court‟s grant of
summary judgment in this case.
IN CONCLUSION
The judgment of the trial court is affirmed, and this matter is remanded with costs
of appeal assessed against Delain L. Deatherage.
______________________________
FRANK G. CLEMENT, JR., JUDGE
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