Don Stonecipher v. Estate of M.E. Gray, Jr.

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
Assigned on Briefs September 1, 1999
DON STONECIPHER v. ESTATE OF M.E. GRAY, JR., ET AL.
Appeal from the Chancery Court for Maury County
No. 97-206 Robert L. Jones, Judge
No. M1998-00980-COA-R3-CV - Filed May 4, 2001
This is an appeal from a chancery court jury trial on a dispute arising from a contract to buy a
wrecker and salvage yard business for 1.1 million dollars. The purchaser alleged that the seller
fraudulently induced him to contract to buy the business because after the parties reached an
agreement on the purchase, the seller took items contemplated to be included in the contract without
the buyer’s knowledge. On the other hand, the seller’s estate asserted a breach of contract claim
because the note’s balloon payment was overdue. After a trial, the jury decided that the seller had
concealed or withheld items that the parties contemplated to be part of the contract, that the seller
made misrepresentations as to what was to be included in the contract, he knew the
misrepresentations were false at the time made, and he intended the buyer to rely on the
misrepresentations. The jury decided that, had the buyer known the items were missing, he would
not have declined to enter into the purchase at all but, instead, would have negotiated a lower price.
Therefore, the court entered a verdict dismissing the buyer’s complaint for rescission, awarded him
a set-off and entered judgment against him for the balance of the note plus interest minus the set-off.
Costs were apportioned between the parties and each party was ordered to pay its own attorney’s
fees. Both parties appeal. For the reasons below, we affirm the judgment of the trial court in part,
vacate in part, and remand.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
is Affirmed in Part, Vacated in Part, and Remanded
PATRICIA J. COTTRELL , J., delivered the opinion of the court, in which WILLIAM C. KOCH , JR., and
WILLIAM B. CAIN , JJ., joined.
John Colley, III, Columbia, Tennessee, for the appellant, Don Stonecipher.
Gary M. Howell, Columbia, Tennessee, for the appellees, Estate of M.E. Gray, Jr. and Lillian Adele
Gray.
OPINION
This case involves a contract under which the appellant, Mr. Stonecipher, was to buy from
the appellee, Mr. Gray, two ongoing and operating wrecker businesses and a salvage yard.1
In February 1996, Mr. Stonecipher began negotiating with Mr. Gray to buy Gray's Wrecker
Service and Salvage and Logue's Wrecker Service. The parties drove around the property on several
occasions and discussed which items were to remain with the businesses and what Mr. Gray would
keep. At no time was a formal inventory list of the larger items presented by Mr. Gray nor made by
Mr. Stonecipher. Also, there is no evidence that at any time was there a discussion as to what the
outstanding accounts receivable were, and Mr. Stonecipher admits that he did not examine the books
with any detail.
Despite all of this, the parties agreed on the deal, which was that the sale was to include a
fifteen-acre piece of real property with a building and all of the equipment and inventory, except
those items specifically included on a schedule in the agreement, and the accounts receivable
associated with the businesses in consideration of 1.1 million dollars to be paid as follows: $200,000
at the time of signing the contract, then 12 monthly payments of just over $5,500 with a balloon
payment of $891,697.05 to be paid in March 1997. While the attorney was drafting the contract,
Mr. Stonecipher moved onto the premises in early March and began operating the business. Mr.
Gray and his staff remained for a short time to “get his book work” straightened out and handle
matters related to his going out of business. They worked in a back office and did not leave until the
contract was signed, the money exchanged and the deal finalized.
The contract provisions relevant to this appeal include:
1.2 PERSONAL PROPERTY All equipment, furniture, fixtures, signs, vehicles,
inventory and other articles of personal property owned by Seller and used in
connection with the real property and with Seller’s businesses known as Gray’s
Wrecker Service and Salvage and Logue’s Wrecker Service, unless specifically
excluded from this transaction by inclusion on the list set forth as Exhibit C hereto.
***
4.1 POSSESSION Upon the execution of this agreement and Buyer’s payment to
Seller of the Two Hundred Thousand Dollars ($200,000.00) mentioned above, Buyer
may take possession of the properties and operate the businesses outlined above.
Buyer will be entitled to all incomes from said properties and businesses from that
date forward, including all accounts receivable. Seller agrees to indemnify and hold
1
Mr. Gray died after this lawsuit was instituted, and the suit was continued against his estate through his wife,
Lillian Adele G ray, as Exec utrix. She was also added as an individual defendant because she was listed as an individual
on the note signed by Mr. Stonecipher.
-2-
Buyer harmless from any liability arising from Buyer's occupancy of the property or
operation of the businesses, except for those matters set forth in paragraph 7.2
[Environmental indemnification] below.
5.1 INSPECTION Buyer has had ample opportunity to inspect the properties and the
records of the businesses and accepts them in their current condition.
The contract was eventually signed by the parties and money exchanged on or about March
20, 1996. However, it is not disputed that Mr. Stonecipher moved into the premises in early March,
about 2 weeks prior to the signing of the contract. Mr. Gray dropped the business license on March
5, 1996 and Mr. Stonecipher had it reinstated in his name within a few days thereafter. The parties
appear to agree that Mr. Stonecipher “took possession” prior to the formal signing of the agreement.
Mr. Stonecipher continued to run the businesses and made the eleven monthly payments.
He did not make the final balloon payment due in March 1997 and, instead, filed this lawsuit seeking
to rescind the contract or be relieved from further performance. At the time of trial, the balloon
payment was still unpaid. The business increased in revenues and value during the period Mr.
Stonecipher was running it.
The problems developed when Mr. Stonecipher learned that Mr. Gray had had various items
removed from the salvage yard or failed to turn over to Mr. Stonecipher some items previously
stored elsewhere. According to the testimony of one witness, Mr. Gray had approximately 15 to 20
vehicles, some vehicle parts, and some equipment removed from the salvage yard premises. The
items were moved to various pieces of property owned by Mr. Gray, his family or friends. After Mr.
Gray became ill and a conservator was appointed for him, the conservator had some items returned
to Mr. Stonecipher. It is not entirely clear whether Mr. Stonecipher first found out about the missing
items from the conservator or other people, but Mr. Stonecipher himself testified that Mr. Gray
removed a truck and two generators shortly after Mr. Stonecipher took over the business. The items
removed or kept by Mr. Gray included cars, parts, transmissions, motors, and equipment. In
November of 1996, Mr. Stonecipher also discovered from Mr. Gray’s bookkeeper that Mr. Gray had
removed some of the accounts receivable from the business’s accounts and had billed them out to
his separate office prior to the signing of the contract. The bookkeeper testified that Mr. Gray
collected approximately $18,000 from these accounts receivable after Mr. Stonecipher took over the
business in early March. However, the bookkeeper was unable to show proof in the accounting
ledgers or back records of some of the deposits she claimed to have made from these accounts
receivable.
By the start of the trial herein, Mr. Stonecipher had voluntary nonsuited all claims except
those based on breach of contract and misrepresentation and fraud. Mr. Gray cross-claimed for
breach of contract. Essentially, Mr. Stonecipher wanted rescission of the contract for the purchase
of the businesses, along with payment to him for any increase in the value of the businesses. He
based his request for rescission on the argument that he had been fraudulently induced to enter into
the contract due to Mr. Gray’s misrepresentations regarding what assets were to be transferred.
-3-
Alternatively, he sought to be relieved from further performance of the agreement, which at that
point was payment of the balloon payment representing approximately 80% of the purchase price,
because of Mr. Gray’s breach of contract by failing to transfer all assets that were to be included in
the purchase price. Mr. Gray sought judgment for the amount due under the note for purchase for
the business.
These issues were tried before a jury. At the close of the evidence, the trial court and counsel
for both parties engaged in discussions regarding the appropriate jury instructions. In spite of the
trial court’s misgivings about whether this was properly a case for the remedy of rescission, Mr.
Stonecipher’s counsel insisted it was. The parties and the court agreed that it was properly the
province of the court to determine whether the remedy of rescission should be granted and that the
jury would consider the factual issues relevant to that decision. They also agreed that the case of
Atkins v. Kirkpatrick, 823 S.W.2d 547 (Tenn. Ct. App. 1991), was the appropriate authority on the
elements necessary to a claim for rescission. They did not reach total agreement, however, on how
the special interrogatories should be drafted.
The jury was instructed and given the special verdict form, which was returned completed
as follows:
1. Do you find that M.E. Gray, Jr., withheld or concealed certain accounts
receivable, vehicles, or other assets that were intended by both parties to be included
in the contract?
Yes X No
2. Do you find that any such withholding or concealing constituted a
misrepresentation of an existing fact material to this contract and that M.E. Gray, Jr.,
knew the representation was false when made?
Yes X No
3. Do you find that Don Stonecipher relied upon the alleged false representation and
the [sic] M.E. Gray Jr., intended that Don Stonecipher rely upon the truth of such
representation?
Yes X No
4. Do you find:
(1) that the alleged false representation about inclusion of those allegedly
withheld or concealed accounts receivable, vehicles, or other assets were so material
and important to the transaction that Don Stonecipher would not have contracted to
buy this business without those assets being included;
or instead,
-4-
(2) that Don Stonecipher would have negotiated the value of those assets
setoff against the purchase price? (The plaintiff has the burden of proving No. (1)
by a preponderance of the evidence; otherwise No. (2) would be presumed.)
The jury finds: (1) that Don Stonecipher would not have contracted;
or
X (2) that Don Stonecipher would have negotiated a setoff in the
price.
5. If you find No. (2) above, what amount of damages should be setoff against the
balance of the purchase price represented by the note on which Mrs. Gray filed her
counterclaim?
Damage amount for setoff: $178,000.00
The court then entered judgment dismissing Mr. Stonecipher’s complaint and entering a
judgment for Mr. Gray in the amount of the note plus interest, minus the set-off of $178,000. The
parties were ordered to pay their own attorney’s fees, and costs were assessed one-third to Mr.
Stonecipher and two-thirds to Mr. Gray. Mr. Stonecipher appealed, and Mr. Gray’s estate and Mrs.
Gray also raised issues on appeal.
I.
We begin with Mr. Stonecipher’s argument that the trial court should have granted rescission
of the contract based upon the jury’s determination that Mr. Gray knowingly made
misrepresentations of fact, by withholding or concealing certain assets intended to be included in the
sale, intending that Mr. Stonecipher rely on those misrepresentations, and that Mr. Stonecipher did
so rely.
With regard to the jury’s findings of fact, we are limited to determining whether there is
material evidence to support the verdict, taking the strongest legitimate view of all the evidence in
favor of the verdict. Crabtree Masonry Co. v. C & R Constr., Inc., 575 S.W.2d 4, 5 (Tenn. 1978);
Tenn. R. App. P. 13(d). Even if we assume there is material evidence to support the jury’s findings,
however, the real issue is whether, given those factual findings, the trial court properly denied the
remedy of rescinding the contract. Our review of the conclusions of law by the trial judge is a
question of law reviewed de novo with no presumption of correctness. Sullivan v. Baptist Mem.
Hosp., 995 S.W.2d 569, 571 (Tenn. 1999).
-5-
Rescission2 is an equitable remedy, it is not enforceable as of right, and the decision of
whether to grant this extraordinary remedy rests in the sound discretion of the trial court. True v.
Deeds & Son, 151 Tenn. 630, 634, 271 S.W. 41 (1924); Vakil v. Idnani, 748 S.W.2d 196, 199-200
(Tenn. Ct. App. 1987); Bowman v. Seymour, No. 03A01-9904-CH-00158, 1999 WL 1068691 at *2
(Tenn. Ct. App. Nov. 24, 1999) (no Tenn. R. App. P. 11 application filed). While a plaintiff must
prove the elements of one of the grounds justifying rescission in order to be eligible for that remedy,
such proof does not require the trial court to automatically grant it. Id.
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. . . . Thus, the real question in the case before us is whether,
under the proof, the trial court abused its discretion in failing to grant rescission.
Vakil, 748 S.W.2d at 200.
As the Vakil court noted, because the decision of whether to grant rescission is discretionary,
a determination of whether rescission is an appropriate remedy depends largely upon the facts of the
case. See also Deeds & Son, 151 Tenn. at 634 (in granting or refusing requested relief of rescission,
a court acts on its own notions of what is reasonable and just under all the surrounding
circumstances). In Vakil, the court determined that, although the plaintiffs had established mutual
mistake which constituted a ground for rescission, reformation of the agreement, rather than its
rescission, was appropriate because the reformation “will accomplish what was intended by the
parties without putting either party at an unfair advantage.” 748 S.W.2d at 200. Thus, this court
affirmed the trial court’s exercise of its discretion in denying rescission and ordering reformation of
the agreements.
Rescission can be an appropriate remedy for a fraudulent misrepresentation surrounding the
formation of a contract, but the representation
(1) must have been a representation as to an existing fact; (2) must have been false;
(3) must have been relied upon; and (4) must have been so material that it determined
the conduct of the parties seeking relief.
Atkins v. Kirkpatrick, 823 S.W.2d at 552 (citing Dozier v. Hawthorne Dev. Co., 262 S.W.2d 705,
709-10 (Tenn. Ct. App. 1953)).
The final requirement, that the misrepresentation was so material that it determined the
conduct of the party, is another way of saying that the fraud or misrepresentation must have induced
2
“A ‘rescission’ amo unts to the unm aking of a co ntract, or an undoing o f it from the begin ning, and no t merely
a termination, . . . It is the an nulling, abrogation of the contract and the placing of the parties to it in status quo.” 22
T E N N . J UR IS ., Rescission, Cancellation and Reformation § 1 at 34 (1999) (quoting B LACK’S L A W D ICTIONARY 1306 (6 th
ed. 199 0)).
-6-
the party to enter into the contract. The representation must go to a “basic assumption on which that
party is making a contract.” Silva v. Crossman, No. 95-2607 II, 1996 WL 631492 at *2 (Tenn. Ct.
App. Nov. 1, 1996) (no Tenn. R. App. P. 11 application filed). In other words, the representation
cannot be relied on as the basis for rescission, unless the representation “afforded a material
inducement to the formation of such contract.” Cooley v. East & West Ins. Co., 61 S.W.2d 656, 659
(Tenn. 1933); see also, U.S. for the use and benefit of Pickard v. Southerland Constr. Co., 293 F.2d
493 (6th Cir. 1961), rev’d in part on other grounds, 371 U.S. 57 (1962). Rescission may be
appropriate where the defect goes to the essence of the contract or makes it impossible for the
contract to be carried out as intended. Cannon v. Chadwell, 25 Tenn. App. 42, 47, 150 S.W.2d 710,
712 (1940).
Two other principles of the law regarding rescission are relevant here. First, the purpose of
rescission is to return the parties to the position they would have been in had the contract not existed.
If the parties cannot be returned to status quo, or, if due to the passage of time or other changed
circumstances, equity cannot be done, rescission is not appropriate. Lindsey-Davis Co. v. Siskin, 210
Tenn. 339, 342-43, 358 S.W.2d 331 (1962); Lamons v. Chamberlain, 909 S.W.2d 795, 801 (Tenn.
Ct. App. 1993). Second, where an adequate remedy at law, such as an award of damages, exists,
rescission is not an appropriate remedy. Chastain v. Billings, 570 S.W.2d 866, 868 (Tenn. Ct. App.
1987) (finding, however, damages or repair of the house were not adequate under the facts).
Particularly persuasive to us is the reasoning applied to a purchaser’s request for rescission
of a completed sale of an ongoing business in Taylor v. Rainey, No. 86-5-II, 1986 WL 5546 (Tenn.
Ct. App. May 14, 1986) (no Tenn. R. App. P. 11 application filed). In Taylor, the plaintiff
complained that defendants failed to deliver certain equipment and realty intended to be included
in the sale of a funeral home and that the misrepresentations induced plaintiff to enter the contract
of sale. Id. at *4. This court stated in pertinent part:
From this record it appears that plaintiffs' real complaint is not that they were
fraudulently induced to enter into the contract of sale by any false representation but
that the defendant did not fully perform the contract of sale by conveying and
delivering to plaintiffs all that the contract required to be conveyed and delivered.
Id. at *7. The court reasoned that the acts of defendant to evade performing the obligations of the
contract, by attempting to remove the equipment and convey other portions of the real property, did
not mislead or induce the plaintiffs to enter the contract to buy a funeral home, what they bargained
for from the start. Id.3
3
However, we note that in Taylor this court found that no fraudulent misrepresentation of existing material
fact had been made to induce the sale, distinguishing that opinion from this case. N onetheless, w e believe the principle
teaching of the case is that a failure to transfer agree d upon a ssets pursuan t to contract d oes not justify rescission of that
contract ab sent proo f those assets we re a material p art of the buyer ’s decision to purchase, especially where the buyer
received w hat was the esse nce of the co ntract.
-7-
The jury herein determined that Mr. Gray withheld or concealed certain assets the parties
intended to be included in the contract, that this constituted a misrepresentation of a material fact,
and that Mr. Gray intended Mr. Stonecipher to rely on the misrepresentation. Mr. Stonecipher argues
that these findings automatically entitle him to rescission. We respectfully disagree with this
assertion because (1) the jury did not find in his favor regarding the inducement element and (2) even
if he successfully proved all elements, the remedy of rescission is not as a matter of right, but is
within the court's discretion, and should be applied sparingly and only where equity requires it.
James Cable Partners v. City of Jamestown, 818 S.W.2d 338, 343 (Tenn. Ct. App. 1991).
Implicit in the jury’s verdict is a finding that the misrepresentation did not go to the essence
or heart of the contract, and did not affect Mr. Stonecipher’s behavior, that is, his decision to make
the purchase. The evidence supports the conclusion that the statements made by Mr. Gray, as to
what was included with the business did not induce Mr. Stonecipher to enter the contract. There is
no evidence in the record that Mr. Stonecipher was ever given any figure as to what the outstanding
accounts receivable were, nor was he given any list of the inventory of the salvage yard. In fact, Mr.
Stonecipher testified he did not know the amount of accounts receivable he was going to get, nor did
he know the extent of the inventory of the salvage yard. He never took additional steps to verify
these assets prior to signing the agreement or taking over the business. Further, in the time he
operated the business, he did not discover that these assets that should have been included in the sale
were not, in fact, transferred to him. He learned this information only from other persons. The
testimony indicates that approximately fifteen to twenty vehicles, a pickup truck which Mr.
Stonecipher valued at $2500, and two generators valued at $800 were removed. Mr. Stonecipher
never noticed their absence in view of the number of other such items left in the salvage yard. Thus,
they were not, apparently, items which made operating the business impossible or even difficult.
Therefore, we conclude that there was evidence to support the jury’s conclusion that the
misrepresentation was not so material that Mr. Stonecipher would not have purchased the businesses
had he known of the missing assets. In fact, although he testified that he would not have entered into
the contract if he had known how Mr. Gray would subsequently deal with him, Mr. Stonecipher also
stated he attempted to work out an agreement under which he would keep the businesses but for a
lower cost.
We further conclude that the trial court properly denied rescission because, in view of the
facts of this case, rescission would not have been appropriate. Mr. Stonecipher had been operating
the businesses for over a year; they had increased in value during that time. Operation of a salvage
yard necessarily involves selling vehicles and parts, so the inventory is constantly changing. There
was no inventory of the assets when Mr. Stonecipher took over the businesses, so it would be
impossible to return the business to its pre-sale condition. In Lamons v. Chamberlain, 909 S.W.2d
at 800-01, this court determined that rescission of a contract for purchase of an ongoing business was
not appropriate because making a return to the status quo was impossible since the purchaser had
operated, received revenues from and reinvested funds into the business since the purchase.
-8-
Further, Mr. Stonecipher clearly received what he intended to purchase, an ongoing wrecker
and salvage business, which he was able to operate successfully. Allowing him to rescind the
contract right before eighty percent of the purchase price was due, on the basis he did not receive
some assets that were included in the contract, when the absence of those assets did not interfere
with his ability to operate the business successfully, would not achieve equitable goals.
Rescission of a contract is not looked upon lightly. It is available only under the
most demanding circumstances and depends on the individual facts and
circumstances of each case.
Lamons, 909 S.W.2d at 801. Rescission will be permitted only for those breaches that are so
substantial and fundamental as to defeat the object of the parties in making the agreement. Loveday
v. Cate, 854 S.W.2d 877, 879 (Tenn. Ct. App. 1992).
Finally, we agree with the Taylor court in that we believe that Mr. Stonecipher’s complaint
is really more akin to a breach of contract case for failure to deliver goods described in the contract,
rather than misrepresentation which was inducement to enter the contract. The order dismissing Mr.
Stonecipher’s rescission claim is hereby affirmed.
II.
Next, Mr. Stonecipher argues that the fraudulent misrepresentations excused any further
performance by him under the contract and he should be allowed to terminate the contract.4 He
argues that fraud is always a viable defense to a claim to compel payment under a breach of contract
claim and that the fraud excuses further performance. In this case, the only performance still due was
Mr. Stonecipher’s payment of the remaining eighty percent of the purchase price.
The remedy Mr. Stonecipher seeks is not different in practical effect from the rescission
remedy he requested. The factors justifying excuse from performance are essentially the same as
those justifying rescission.
Generally, such nonperfomance [as will suspend or discharge the other party’s duty
to perform] will attain this level of materiality only when it goes to the root, heart,
or essence of the contract or is of such a nature as to defeat the object of the parties
in making the contract, or, as has sometimes been said, when the covenant not
4
In addition, Mr. Stonecipher takes issue with the fact that although the jury was properly instructed on fraud
as a defense to excuse further perfo rmance of the contract as to the cro ss-claim, this issue was not addresse d on the
verdict form. Thus, the jury did not determine whether Mr. Gray’s fraud excused Mr. Stonecipher’s further performance.
When presented with that objec tion after the jury re turned its verdict, the trial co urt had two re sponses: (1 ) that in this
case, the issue of whether or n ot to excuse further performance was a question of law which the court would determine,
and (2) in any event, the jury answered the question by determining a set-off, thereby only excusing performa nce as to
the amoun t of the set-off. W e agree that w as the effect of the j ury’s verdict.
-9-
performed is of such importance that the contract would not have been made without
it.
14 WILLISTON ON CONTRACTS § 43:6 at 579-80 (2000).
In Tennessee, in order for a buyer to be discharged from obligations under a contract, the
misrepresentation by the seller must be of “some substantial particular which goes to its [the
contract’s] essence and renders the defaulting party incapable of performance or makes it impossible
for the defaulting party to carry it out as intended.” Cannon v. Chadwell, 150 S.W.2d at 712-13
(citations omitted) (contract rescinded where unpaid accounts, represented by seller to have been
paid, diminished the goodwill of the business and forced plaintiff to sell the business).
We have already affirmed the implicit findings by the jury and the trial court that any
misrepresentations by Mr. Gray were not so substantial as to defeat the purpose of the contract for
purposes of Mr. Stonecipher’s rescission claim. The same reasoning and same conclusion apply here.
Mr. Stonecipher was capable of performing the terms of the contract, as the business was more
profitable than ever and up and running at all times. Further, the jury determined that the
misrepresentation as to the items to be transferred in the sale was not so material that Mr.
Stonecipher would not have entered the contract at all. Thus, Mr. Gray’s failure to deliver items
contemplated to be transferred was not “of such importance that the contract would not have been
made without it.”
III.
Mr. Gray appeals the sufficiency of the evidence supporting the amount of the setoff as
determined by the jury. He asserts that the damages were not ascertainable based on the evidence
presented. We review the award of damages by the jury under Rule 13(d) as stated above and find
that there is no material evidence to support the verdict.
In a fraudulent misrepresentation case, the appropriate measure of damages is the benefit of
the bargain rule. Haynes v. Cumberland Builders, Inc., 546 S.W.2d 228, 233 (Tenn. Ct. App. 1976).
This means the plaintiff is entitled to the difference between the actual value of the property received
and the value of the property had the representations been true.5 Id. The plaintiff has the burden of
proving the damages sustained. United Brake Sys., Inc. v. American Envtl. Protection, Inc., 963
S.W.2d 749, 760 (Tenn. Ct. App. 1997). While damages do not have to be proved exactly, they must
be proved with a reasonable degree of certainty to allow the trier of fact to make a fair assessment
without speculation. Pinson & Assoc. Ins. Agency, Inc. v. Kreal, 800 S.W.2d 486, 488 (Tenn. Ct.
App. 1990).
5
Because the “misrepresentation” here was a failure to transfer all the items cov ered by the c ontract, this
measure of damages is appropriate.
-10-
The evidence showed that disputed accounts receivable totaled $18,000-22,000. Other
relevant testimony related to items removed from the premises after Mr. Stonecipher inspected it but
prior to his taking over and prior to the execution of the contract. For example, there was testimony
that 15-20 cars were moved off of the property after negotiations but prior to Mr. Stonecipher taking
over. There was also testimony that Mr. Stonecipher did not receive a pick-up truck valued at
$4,000-$5,000 and two generators valued at $400-$500 each, all represented to be included in the
sale.
The jury, taking all things into consideration, found that $178,000 was an appropriate value
for all of the items proved to have been taken from the premises or money collected that was
contemplated to be included in the contract. The testimony only proved approximately $30,000
worth of items intended to be included, but not actually received in the sale. We believe the
evidence preponderates against a finding that the 15-20 other cars, including scrap cars, and the
miscellaneous parts and equipment were worth the remaining $150,000. There is simply no evidence
about the value of the scrap cars or other items removed from the premises.6 The amount of
damages, or set-off determined by the jury cannot be sustained.
Therefore, the amount of set-off is vacated and remanded for further proof on the amount of
damages incurred as a result of the misrepresentations or of the failure to transfer items included in
the sale.
IV.
On the issue of attorney’s fees, Mr. Gray argues that the court erred in not awarding
attorney’s fees according to a provision in the note. The trial court reasoned:
The court is going to conclude that because of the damages the jury has found, the
actual amount owed by Mr. Stonecipher to Mrs. Gray and the estate was not at the
due date capable of calculation and was in effect an unliquidated amount; that this
litigation was necessary; and that each party should be responsible for their own
respective attorney’s fees without any recovery by one against the other.
6
We believe that the jury may have engag ed in specu lation based on inadm issible testimony to reach this
figure. During the trial, Mr. Stonecipher was asked to confirm that he had offered to keep the business if the sale price
was reduced, and he did. He stated he had been willin g to keep the business if the price were lowered by $200,000.
After objection, the jury was told to disregard the information concerning the amount, but not the fact there were
discussions aimed at resolving the situation, because it related to settlement negotiations and was inadmissible. Based
on the evidence presented, it appears that the jury may have easily determined that the accounts receivable totaling
$22,000 were not to g o to Mr . Stoneciph er becaus e they were co llected, in part, b efore the contract was signed, and
subtracted this amount from the amoun t of contract p rice reductio n he stated he would hav e been willing to accept,
arriving at $178,000.
-11-
We agree. While the note did provide for attorney’s fees in the event of default and the need
to proceed with collection actions against Mr. Stonecipher, the jury determined that Mr. Stonecipher
properly brought this action and reduced the final balloon payment, the only payment due,
accordingly. Mr. Stonecipher brought an action that disputed the amount left due under the note and,
in fact, asked for rescission of the entire contract. The jury verdict in his favor supports the
conclusion that the note was disputed and not, therefore, in default. Therefore, the clause providing
for attorney’s fees was not triggered for the purposes of collection of the note in the event of default.
For these reasons, the court was correct in ordering each party to bear his own attorney’s fees,
and that order is affirmed.
V.
Lastly, Mr. Gray asserts that the court erred in assessing court costs one-third to Mr.
Stonecipher and two-thirds to Mr. Gray because the rescission claim was dismissed. Tenn. R. Civ.
P. 54.04 grants trial courts wide discretion in awarding costs. Sanders v. Gray, 989 S.W.2d 343, 345
(Tenn. Ct. App. 1998). The rule provides in pertinent part:
Costs included in the bill of costs prepared by the clerk shall be allowed to the
prevailing party unless the court otherwise directs, but costs against the state, its
officers, or its agencies shall be imposed only to the extent permitted by law.
Tenn. R. Civ. P. 54.04.
We review the court’s ruling on an abuse of discretion standard. This standard requires us
to consider (1) whether the decision has a sufficient evidentiary foundation, (2) whether the trial
court correctly identified and properly applied the appropriate legal principles, and (3) whether the
decision is within the range of acceptable alternatives. State ex rel. Vaughn v. Kaatrude, 21 S.W.3d
244, 248 (Tenn. Ct. App. 2000). While we will set aside a discretionary decision if it does not rest
on an adequate evidentiary foundation or if it is contrary to the governing law, we will not substitute
our judgment for that of the trial court merely because we might have chosen another alternative.
Costs of litigation may be split between the litigants as the court deems equitable. Sanders, 989
S.W.2d at 345. “Accordingly, if any equitable basis appears in the record which will support the trial
court’s apportionment of costs, this court must affirm.” Id.
The trial court’s apportionment of costs was a reasonable exercise of its discretion. The jury
found in favor of Mr. Stonecipher on the issue of fraud and reduced his obligation on the note. The
court then determined that rescission was not appropriate, that the note was valid, and ordered
payment in accordance with the set-off. Therefore, in essence, both parties prevailed on some
claims. The assessment of costs is affirmed.
-12-
VI.
For the reasons stated herein, the judgment of the trial court is affirmed with respect to the
denial of rescission in this case and the award of a set-off to the note accompanying the contract of
sale. However, we vacate and remand this cause for a hearing on the damages sustained as a result
of the misrepresentations, and, therefore, the amount of set-off. The trial court’s award of fees and
costs is also affirmed. The costs of this appeal are taxed equally between the parties.
___________________________________
PATRICIA J. COTTRELL, JUDGE
-13-