Simmons Bank v. Vastland Development Partnership

06/27/2019
IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
April 2, 2019 Session
SIMMONS BANK V. VASTLAND DEVELOPMENT PARTNERSHIP
Appeal from the Chancery Court for Davidson County
No. 16-0864-IV Russell T. Perkins, Chancellor
No. M2018-00347-COA-R3-CV
This appeal arises from a commercial lease dispute. The trial court summarily ruled that
Simmons Bank, which acquired the tenant originally named in the lease in a merger, had
the right to exercise a renewal option. The appellant landlord contends this was error
because “(1) the plain language of the lease expressly indicated the option could only be
exercised by the tenant originally named in the lease and (2) two events of default
occurred [as a result of the merger] which precluded the exercise of the option under the
plain terms of the lease.” The alleged events of default were that (1) the original tenant
failed to “maintain its legal existence,” and (2) the original tenant transferred its interest
to Simmons Bank by operation of law. We have determined that regardless of whether
the lease was transferred to Simmons Bank by merger pursuant to Tenn. Code Ann. § 48-
21-108(a)(2) “without reversion or impairment,” the parties agreed to restrict any transfer
of the right to renew the lease to one entity, First State Bank, “the Tenant originally
named” in the lease. Accordingly, and relying on the legal principle that a statute shall
not be applied to construe a contract when the parties to the contract express a contrary
intention, the agreed-upon renewal restriction in the lease controls. As a consequence,
Simmons Bank does not have the right to exercise the renewal option. Therefore, we
reverse the grant of summary judgment to Simmons Bank and remand this case to the
trial court with instructions to enter summary judgment in favor of the landlord.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Reversed and Remanded
FRANK G. CLEMENT JR., P.J., M.S., delivered the opinion of the Court, in which D.
MICHAEL SWINEY, C.J. and ANDY D. BENNETT, J., joined.
Jeffrey H. Gibson and Hannah E. Webber, Nashville, Tennessee, for the appellant,
Vastland Development Partnership.
Samuel T. Bowman and Sarah D. Murray, Nashville, Tennessee, for the appellee,
Simmons Bank.
OPINION
In 2003, First State Bank entered into an agreement to lease space within a
building owned by Vastland Development Partnership (“Vastland”) at 1720 West End
Avenue in Nashville (the “Lease”). The Lease specifically defined “Tenant” as “First
State Bank.” Addendum Two of the Lease granted First State Bank a renewal option
under the following conditions:
Provided that as of the time of the giving of the First Extension Notice and
the Commencement Date of the First Extension Term, (x) Tenant is the
Tenant originally named herein, (y) Tenant actually occupies all of the
Premises initially demised under this Lease and any space added to the
Premises, and (z) no Event of Default exists or would exist but for the
passage of time or the giving of notice, or both; then Tenant shall have
the right to extend the Lease Term for an additional term of five (5) years
(such additional term is hereinafter called the “First Extension Term”) . . . .
Adhering to same above, the Tenant shall have the right to extend the Lease
term for an additional term of two (2) five (5) year options, hereinafter
called the “Second Extension Term” and the “Third Extension Term.”
(Emphasis added). The Lease also provided that First State Bank would be in default if it
was “dissolved or otherwise fail[ed] to maintain its legal existence,” or upon “any
assignment, subleasing or other transfer of Tenant’s interest . . . except as otherwise
permitted in [the] Lease.”1
In May 2011, First State Bank exercised its first option to renew the Lease, and the
Lease was extended to August 17, 2016. In September 2015, before the end of the first
extension term, First State Bank merged into Simmons Bank. As a consequence of the
merger, Simmons Bank was the surviving entity, and First State Bank no longer existed
separately. See Tenn. Code Ann. § 48-21-108(a)(1).
After the merger, Simmons Bank continued to occupy the property pursuant to the
Lease. On January 19, 2016, Simmons Bank sent notice to Vastland that it intended to
exercise the second option to renew the Lease. Vastland responded:
1
The tenant was not permitted to assign the Lease or sublease the premises without prior written
consent of the landlord.
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[T]he Landlord disagrees that Simmons Bank has a valid contractual option
to renew the Lease. Per Addendum Two of the original Lease . . . the tenant
option to renew is subject to among other factors “Tenant is the Tenant
originally named herein.” The original Tenant was First State Bank which
is no longer the current Tenant. Therefore, the tenant’s option to extend the
lease is invalid.
Simmons Bank filed an action in Davidson County Chancery Court on August 5,
2016, seeking injunctive relief and a declaratory judgment that Simmons Bank could
exercise the second renewal option under the Lease. Vastland filed an answer and
counterclaim for declaratory and injunctive relief and unlawful detainer.2
After the parties engaged in written discovery, they filed cross-motions for
summary judgment. In its motion for summary judgment, Vastland argued that Simmons
Bank was not entitled to exercise the renewal option because Simmons Bank was not the
original tenant named in the Lease. However, should the court find that Simmons Bank
met the “original tenant” condition for renewal, Vastland argued that Simmons Bank
could not exercise the renewal option because at least two events of default occurred
prior to renewal—(1) the original tenant merged into Simmons Bank and failed to
“maintain its legal existence,” and (2) the original tenant transferred its interest to
Simmons Bank by operation of law.
In its cross motion for summary judgment, Simmons Bank relied on Tenn. Code
Ann. § 48-21-108, which provides in pertinent part:
(a) When a merger becomes effective:
(1) The corporation or eligible entity that is designated in the plan of
merger as an entity surviving the merger shall survive, and the separate
existence of every other corporation or eligible entity that is a party to
the merger shall cease;
(2) All property owned by, and every contract right possessed by, each
corporation or eligible entity that is merged into the survivor shall be
vested in the survivor without reversion or impairment[.]
2
Before Vastland filed its answer and counterclaim, the parties agreed to a preliminary injunction
allowing Simmons Bank to remain in possession until the dispute was resolved.
-3-
Id. § 108(a)(1)–(2).3
Based on the foregoing statute, Simmons Bank argued that it acquired the contract rights
of First State Bank “without reversion or impairment,” and accordingly, upon First State
Bank’s merger into Simmons Bank, Simmons Bank became the original tenant named in
the Lease. Simmons Bank also contended that while First State Bank lost its “separate
existence” following the merger, it continued to exist as a part of Simmons Bank.
Therefore, the “legal existence” default provision did not apply.
After a hearing on January 19, 2018, the trial court found in favor of Simmons
Bank, ruling:
The Court determines that Simmons Bank has the better argument. When
the merger occurred, all of First State Bank’s contract rights under the
Lease were automatically, by operation of law, vested in the surviving
corporation, Simmons Bank. First State Bank did not cease to exist, even
though its separate legal existence ceased. First State Bank continues to
exist, not separately, but as part of Simmons Bank. Consequently, there is
no breach under the “legal existence” default provision in the Lease.
Consequently, Simmons Bank, by operation of the Tennessee merger
statute, as amended in 2013, is the automatically vested Tenant originally
named in the Lease.
Additionally, although the merger effected a transfer by operation of law,
the merger statute expressly provides for an automatic vesting of pre-
existing contract rights in the surviving corporation, Simmons Bank. This
declaration of public policy and statement of substantive law should not be
rendered surplusage by the general language of the Lease, particularly
where as here, the result does not appear to disrupt any expressed intention
of the parties regarding merger in the language of the Lease.
Vastland appealed.
STANDARD OF REVIEW
This court reviews a trial court’s decision on a motion for summary judgment de
novo without a presumption of correctness. Rye v. Women’s Care Ctr. of Memphis,
MPLLC, 477 S.W.3d 235, 250 (Tenn. 2015) (citing Bain v. Wells, 936 S.W.2d 618, 622
(Tenn. 1997)). Accordingly, this court must make a fresh determination of whether the
requirements of Tenn. R. Civ. P. 56 have been satisfied. Id.; Hunter v. Brown, 955
3
The phrase “and every contract right possessed by” was added in 2013.
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S.W.2d 49, 50 (Tenn. 1997). In so doing, we consider the evidence in the light most
favorable to the non-moving party and draw all reasonable inferences in that party’s
favor. Godfrey v. Ruiz, 90 S.W.3d 692, 695 (Tenn. 2002).
Summary judgment should be granted when “the pleadings, depositions, answers
to interrogatories, and admissions 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 a
judgment as a matter of law.” Tenn. R. Civ. P. 56.04.
ANALYSIS
The dispositive issue on appeal is whether Simmons Bank has the right to exercise
the renewal option in the Lease. Vastland insists Simmons Bank does not have the
contractual right to exercise the renewal option in the Lease it acquired from First State
Bank because the only party that has the right to exercise the renewal option is “the
Tenant originally named herein,” and it is undisputed that the “originally named” tenant
in the lease is “First State Bank.” Simmons Bank counters relying on Tenn. Code Ann. §
48-21-108, which affords Simmons Bank “every contract right possessed by” First State
Bank “without reversion or impairment.” Based on this statute, Simmons Bank insists it
is substituted for First State Bank as the original tenant named in the Lease by operation
of law.
The cardinal rule of contract construction is that the court must give effect to “the
intent of the contracting parties at the time of executing the agreement.” Planters Gin Co.
v. Fed. Compress & Warehouse Co., 78 S.W.3d 885, 890 (Tenn. 2002). To ascertain that
intent, we look to the plain and ordinary meaning of the contractual language. Id. at 889–
90. “[O]ne of the bedrocks of Tennessee law is that our courts are without power to make
another and different contract from the one executed by the parties themselves.”
Eberbach v. Eberbach, 535 S.W.3d 467, 478 (Tenn. 2017). And, “[i]n the absence of
fraud or mistake, a contract must be interpreted and enforced as written.” St. Paul
Surplus Lines Ins. Co. v. Bishops Gate Ins. Co., 725 S.W.2d 948, 951 (Tenn. Ct. App.
1986).
“This determination of the intention of the parties is generally treated as a question
of law because the words of the contract are definite and undisputed, and in deciding the
legal effect of the words, there is no genuine factual issue left for a jury to decide.”
Planters Gin, 78 S.W.3d at 890.
As a rule of construction, applicable statutes that “subsist at the time and place of
the making of a contract and where it is to be performed become part of the contract—
even where silent on this point—as fully as though expressly referred to or incorporated
into the instrument.” 21 Steven W. Feldman, Tennessee Practice Series Contract Law and
Practice § 8:23, Westlaw (database updated May 2019); 11 Richard A. Lord, Williston on
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Contracts, § 30:19 (4th ed. 1999) [hereinafter Williston]. However, with a few
exceptions, a statute is not applied to construe the contract when the parties to the
contract express a contrary intention. Feldman, supra; Williston, supra. For example,
“[i]n the context of a limited partnership, the written contract of the parties controls”
unless “the express contract does not cover situations or questions which arise.” Barton v.
Gilleland, No. E2004-01369-COA-R3-CV, 2005 WL 729174, at *6 (Tenn. Ct. App. Mar.
30, 2005) (citing Young v. Cooper, 203 S.W.2d 376, 385 (Tenn. Ct. App. 1947)). Only
when questions arise will the statutes in the Tennessee Revised Uniform Limited
Partnership Act apply to construe the contract. Id. Despite this general rule, courts will
not enforce contractual provisions that violate the public policy of this state as embodied
in our Constitution, statutes, common law, and prior court decisions. Baugh v. Novak,
340 S.W.3d 372, 384 (Tenn. 2011). Here, it is undisputed that the lease provision at issue
does not violate public policy.
The Lease does not state that “Tenant” may renew the Lease. To the contrary, the
Lease contains a restrictive provision that expressly restricts the right of renewal to the
“Tenant originally named herein,” which is a clear contractual declaration that the right
of renewal was restricted to “First State Bank,” not its successors or assigns. The
significance of this restriction becomes more apparent when considered along with
Paragraph 23(v) of the Lease, which defines an Event of Default that constitutes a
forfeiture of the right of renewal to include when “there shall occur any assignment . . . or
other transfer of Tenant’s interest . . . except as otherwise permitted in this Lease.” By
reading these provisions in pari materia, it is readily apparent that the parties agreed that
the right to exercise the renewal provision would be restricted to First State Bank, the
tenant originally named in the Lease, not a successor tenant, and that the right of renewal
could not be transferred. See Powell v. Clark, 487 S.W.3d 528, 536 (Tenn. Ct. App.
2015) (“[U]nder well-settled contract interpretation principles, we must read this
[contractual provision] in pari materia with the entire agreement.”).
Courts must give effect to “the intent of the contracting parties at the time of
executing the agreement,” and we do that by looking to the plain and ordinary meaning of
the contractual language. Planters Gin, 78 S.W.3d at 889–90. Moreover, “courts are
without power to make another and different contract from the one executed by the
parties.” Eberbach, 535 S.W.3d at 478. The Lease restricts the right of renewal to First
State Bank, which is both a clear and restrictive declaration, as distinguished from the
more common reference to “tenant.” There being no allegations of fraud or mistake, the
Lease must be “enforced as written.” St. Paul Surplus, 725 S.W.2d at 951.
The foregoing notwithstanding, Simmons Bank contends the Lease was
transferred to Simmons Bank by operation of law pursuant to Tenn. Code Ann. § 48-21-
108(a)(2); thus, it possesses the contract right possessed by First State Bank at the time of
the merger. See Tenn. Code Ann. § 48-21-108(a)(2) (“All property owned by, and every
contract right possessed by, each corporation or eligible entity that is merged into the
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survivor shall be vested in the survivor without reversion or impairment[.]”).4 This
contention, however, fails to appreciate the significance of the parties’ agreement to
restrict the right to renew the Lease to the “Tenant originally named herein.” (Emphasis
added). This is significant because, with a few exceptions that are not applicable here, a
statute is not applied to construe the contract when the parties to the contract express a
contrary intention.5 See Feldman, supra; see also Williston, supra. Therefore, regardless
of whether the Lease was transferred to Simmons Bank by merger pursuant to Tenn.
Code Ann. § 48-21-108(a)(2) “without reversion or impairment,” the parties agreed to
restrict the right to renew the Lease to one entity, First State Bank, “the Tenant originally
named” in the Lease. As a consequence, Simmons Bank does not have the right to
exercise the renewal option.
For these reasons, Vastland, not Simmons Bank, was entitled to judgment as a
matter of law. Accordingly, the grant of summary judgment in favor of Simmons Bank is
reversed, and this matter is remanded with instructions for the trial court to enter
summary judgment in favor of Vastland.
IN CONCLUSION
The judgment of the trial court is reversed, and this matter is remanded for further
proceedings consistent with this opinion. Costs of appeal are assessed against Simmons
Bank.
________________________________
FRANK G. CLEMENT JR., P.J., M.S.
4
Simmons Bank contends Tenn. Code Ann. § 48-21-108(a)(2) was incorporated into the Lease
by operation of law and, therefore, governs the rights of the parties. We note, however, that one of the key
phrases upon which it relies, “and every contract right possessed by,” was added in 2013. Prior to the
2013 amendment, the statute read: “All property owned by each corporation or limited partnership that is
a party to the merger shall be vested in the surviving corporation or limited partnership without reversion
or impairment.” See Act of April 14, 1994, Tenn. Pub. Acts, ch. 776, § 41. The parties entered into the
original Lease on March 12, 2003. Therefore, the 2013 version did not “subsist at the time and place of
the making of the contract” and was thus inapplicable to the Lease’s construction. See Feldman, supra.
5
One exception to this rule applies to insurance contracts. “[S]tatutes that apply to an insurance
policy not only become a part of the contract, but also ‘supersede anything in the policy repugnant to the
provisions of the statute.’” Kiser v. Wolfe, 353 S.W.3d 741, 747 (Tenn. 2001) (quoting Hermitage Health
& Life Ins. Co. v. Cagle, 420 S.W.2d 591, 594 (1967)).
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