### IN THE COURT OF APPEALS OF TENNESSEE AT JACKSON September 21,

2000 Session
INTERNATIONAL DELI& CATERE RS, INC. d/b/a OVERSTUFFED DELI & CATERERS v. RAYMOND SHIELDS AND KIMBERLY S. SHIELDS

An Appeal from the Circuit Court for Shelby County No. 91076 T.D. James F. Russell, Judge

No. W2000-00269-COA-R3-CV - Filed July 31, 2001

This is a contract

case. The defendants entered into a franchise agreement with the plaintiff to own and operate a franchise. After the defendants failed to make royalty pay

ments for two months
an d then failed to make a note payment, the plaintiff filed suit alleging breach of contract. The defendants

counter-claimed, alleging that the plai ntiff breached the contract first by not operating
a marketing fund m

entioned in

the franchise agreement and by not furnishing a sig

n provided for in the purchase agreement. At trial, the trial court allowed testimony by the plaintiff as to discussions, prior and subsequent to the signing of the agreements, in which he claimed that the parties had agre ed up on different terms regarding the marketing fund and sign. The tr ial court found that the plaintiff had not breached the agreements by not maintaining the marketing fund or furnishing the sign, and that even if it were a breach, it was not a material breach. The defenda nts now app

eal. We affirm. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court is Affirmed.

H OLLY K IRBY L ILLARD , J., delivere d the opini

on of the c

ourt, in wh

ich W. F RANK C RAWFORD , P.J., W.S. and A LAN E. H IGHERS , J., joined. Raymond A. Shields and Kimberly S. Shields, Pro Se. George T. Wheeler, Jr. and Michelle M. Drake, Memphis, Tennessee, for the appellee International Deli & Caterers , Inc. d/b/a O verstuffed Deli

& Caterers.
OPINION

This is a contract ca

se. Interna

tional Deli &Cate

rers, Inc. (“I

DC”) is a Tennessee corporation doing business as Overstuffed Deli & Cat erers (“Ov erstuffed Deli” ). Derrick Bat

iwalla (“Batiwalla”) is the president and sole shareholder of IDC. In

May 1997, the

defendant/appe

llants Raymond and Kimberly

Shields ( collectively “the Shieldses”) entered into a franchise agreement withIDC, under wh

ich they wou

ld own and operate an Overstuffed Deli. The agreement provided-2-

that the Shieldses would pay IDC an initial franchise fee of $17,500, a s well as royalty pay

ments of five percent of the deli’s semi-monthly gross sales. By mutual mistake of the parties, the Shieldses agreed to and pa id six percent of the deli’s gross sales. The agreement also provided that the Shieldses would pay two and a half percent of their deli’s semi-monthly revenue to I

DC fo r a marketing fund which ID C would mainta

in and administer for “certain advertising, promotion, public and other marketing programs.” Despi te this, no ma

rketing fund was in place when the parties signed the franchise agreement or thereafter. Howe ver, IDC did not collect any funds from the Shieldses or any other franchisees for the marketing f und.

In addition to the franchise agreement, the parties entered into a purchase ag reement, under which the Shieldses purchased from IDC furniture, fixtures, and equipment to be used in the de

li. Among the items listed in the purchase agr

eement was an unl

it sign bearing t

he Overstuffed

Deli name. The Shieldses never received a sign.

IDC agreed to fina

nce the initial fr

anchise fee an

d the Shieldses’ obl

igati on under the purchase agreement. Accordingly, the Shieldses executed a pr omissory note for the amount

of the initial franchise fee

and their obliga

tion under the purc

hase agreeme

nt. Payments o

n the note were due mon thl y.
The Shieldses’ deli

began operation on May 22, 1997. Pursuant to the fra nchise agree

ment, the Shieldses made royalty pay ments to IDC for May, June, and July of 1997. They also made the required promissory note payments for the months of July, August, and September. However, the Shieldses failed to make any further roy alty payments or pay

men ts on the promissory note. Consequently, the deli was closed on October 20, 1997.

In November 1997, IDC filed a complaint for replevin and damages seeking to recover, inter alia , the items p ledged to sec ure the prom issory note an d money and dama ges resulti ng from t he Shieldses’ breach of the promissory note, franchise and security agreements. By consent order,IDC took possession of the f

urniture, fixtu

re s and equipment used to secure the promissory note. The Shieldses later filed an answer and counter-complaint alleging tha t IDC brea ched the parties ’ contracts by failing

to maintain

a marketing fund, failing to provide adver

tising, and failin

g to provide a permanent out side s ign. As an affirmative defense, the Shieldses pled fraud in the inducement,

alleging that IDC had fraudulently misrepresented the nature and be

nefits of franc

hise ownership

and the financial status of the other franchise holders, and had overcharged the m for the items in the purchase agreement.

At trial in December 1999, over the Sheildses ’ objections, the trial court permitted testimony by Batiwalla that he and the Shieldses had numer ous conv ersation prior to the signing of the franchise agreement in which he told the Shieldses that the marketi ng fund was not active at that time. C onsequ ently, the Shieldses were not responsible for the monthly contributions to the marketing fund required by the franchise agree ment. He said that the Shieldses never asked IDC to reactivate the marketing fund, nor

did they offer to begin making payments to the marketing f und.-3-

Batiwa llaadmitted that he never furnished the Shieldses with a sign. He testified that the Shieldses indicated that t h ey prefer

red a lit sign and

that the parties a

greed that Ba

tiwalla would contribute

$1500 towards the purchase of a lit sign. He later placed a down pay ment with a company to begin production on a new lit sign, but he stopped production on the sign after the Shieldses stop making the royalty pay

ments and indicated that they might close their deli.

Mr. Shields testified that he told Batiwalla that even though he prefe

rred a lit sign, h

e could notafford a lit sign

and would prefer

an unlit sign to no si

gn at all. Mr. Shie

lds said that he told Batiwalla many times tha

t the deli needed a sign. Mr. Shield

s was forced to pu

rchase a banne

r to place on the building to let potential customer

s know the deli

was open. However, the banner was insufficient and did not provide the needed visibility.

Mr Shields also testifi

ed that he did

not waive his right

to the marketing fund. He said that when he signed the fr

anchise agre

ement he believe

d that the marketin

g fund was in place. He assert ed that h e did not learn until a franchisees’ meeting in August 1997 that the marketing fund
was not in place. Mr. Shields said that the marketing fund program was one of the main things that attracted him to the franchise.

The trial court

found that

IDC had not breached the franchise agree ment by not maintaining and administering the marketing fund. The t rial court fo und that the Shieldses were aware at the time they signed the agreement that the marketing fund was not active and acquiesced to the absence of the fund. The trial court further stated that even if IDC’s failure to maintain the marketing fund
was a breach, it

was not a materia

l breach to consti

tute grounds for

rescission. The tr

ial court also found that IDC did not breach the purchase agreement by failing to provide a sign. It determined that the parties agree d that IDC wou ld furnish $1500 towa rd the acqui sition of a lit sign a fter the Shieldses indicated that was the type of sign they preferred. The trial court found that IDC complied withthe parties’ ag

reement to

contribute $1500 toward a lit sign. It concluded that even if the failure to provide a sign wa

s a breach, it wa

s not a material br

each warranti

ng rescissi

on. The trial court found no “credible e vidence” that the Shieldses ever demanded that IDC establish an active marketing fund or deli ver an unlit sign prior to the Shieldses’ default. Consequently, the trial court concluded

that IDC did not breach any

agreement with the Shieldses. The trial court found in the alternative that, even if IDC’s acti ons constituted a br

each, “such [a] br

each [did not] constitute fraud in the inducement, mi

srepresentatio

n or other wrong

ful conduct”

that would warrant rescission or the Shieldses’ nonperformance. The trial court awarded IDC $56, 064.82 in damages, representing the outstanding balance

and interest unde

r the promissory

note, the unpaid r

oyalties, and attorney’s fees, minus a credit for

the amount which th

e Shieldses had mist

akenly ove

rpaid in roy

alties, the fair market value of the items surrendered to IDC, and the $1500 IDC had a greed to contribute to

the lit sign. From this de

cision, the Shielde

s now appeal. On appeal, the Shieldses argue that the trial court erred in admitting Batiwalla’s testimony that he had told the Shieldses prior to their signing the agreement that the marketing fund was not active. They conte

nd that Batiwalla

’s testimony w

as prohibited by

the parol evidenc

e rule because it contradict ed the writt en terms of t he franchis e agreement. T he Shields es also argu e tha t-4-

Batiwalla’s testimony regarding the discussions on the lit sign was inadmissible parol evidence and should not have been considered because the purchase agr eement and other

documents expressl

y providedfor a used unlit

sign. They maintain that IDC’s failure to provide the mar keting fund and the sign as required by the agreements we re material breaches beca use IDC’s fa

ilure to provide the it ems rend ered it impossible for them to successfully run the deli. They c ontend that without the marketing fund they we

re unable to ade

quately adv

ertise and marke

t their deli a

nd the lack of a proper sign made the de

li difficult to find and virtually invisible. They assert that had they known th at there would not be an active marketing fund and that they would neve r receive the sign, the y would not have entered into the contract with IDC.

Our review of this case is governed by Rule13(d) of the Tennessee Rules of Appellate Procedure, which provides that review of findings of fact by the trial court shall be de novo upon the record of the trial court

, accompanied by

a presumption of c

orrectness of th

e factual findin

gs, unless the evidence prepo

nderates otherw

ise. Tenn. R. App. P.

13(d); Union Carbide Corp. v. Huddleston , 854 S.W.2d 87, 91 (Tenn. 1993). Our review of the trial court’s conclusions of law are de novo with no presumption of correctness. Id.

Under the parol evidence rule, contrac ting parties generally cannot admit extran eous evidence to contradict, var

y, or alter a written contr

act w hen the written instrument is valid, complete and unambiguous,

absent the existence or claim of fraud or mistake. See Whelchel Co. v. Ripley Tractor Co. , 900 S.W.2d 691, 692-93 (Tenn. Ct. App. 199

5); GRW Enterprises, Inc. v. Davis , 797 S.W.2d 606, 610 (Tenn. Ct. App. 1990). However, parolevidence may be used to establish that the written contract does not accurately embody the agreement between the parties because of the existence of an independent or collateral agreement not in conflict with the written contract or the existence of
a subsequent agr

eement, even if t

h e s ubsequent agreement modifies or abrogates the terms of the written agreement. See Brunson v. Gladish 125 S.W.2d 144, 147 (Tenn. 1939); GRW , 797 S.W.2d at 610-11 (citations omitted). Parol evidence may also be admitted to show a waiver of a contractual provision. TBC Corp. v. Wall , 955 S.W.2d 838, 844 (Tenn. Ct. App. 1997). In this case, the trial court admitted parol evidence in the form of Batiwalla’s testimony of conversations he and the Shi eldses had prior to, contemporaneous to, and after the signing of the fran chise and purchase agreements. The conversations were pertinent to whether the wr itte n agreement

accurately reflected the contract be tween the parties. The

parol evidence was also used to establish a waiver of the marketing fund provision in the franchise agreement and a subsequent modification of the requirement of a used sign, and that the writ ten agreement did not reflect the actual contract. We find no error by the trial court in admitting the evidence

. The trial court found that IDC had n ot breached the parties’ agre

ements based on its determination that the marketing fund provisio n of the franchise agreement had been waived and the parties had

entered into a separate agreement regarding a sign for the deli. The Shieldses argue that the trial court er

red in thisfinding because the only evidence of the waiver and new agreement
was Batiwalla’s testimony. However, when the resolution of the issues in a case depends upon the truthfulness

of witnesses,

the trial judge who has the opportu nity to observe the

witnesses and the

ir-5-

manner and demeanor while testifying is in a fa r better position than this Cour t to decide those issues. McCaleb v. Saturn Corp. , 910 S.W.2d 412, 415 (Tenn. 1995); Whitaker v. Whitaker , 957 S.W.2d 834, 837 (Tenn. Ct. A pp. 1997). The we

ight, faith, and cr

edit to be given to any witness’s test imony lies in the first inst ance with the trie

r of fact, and the

credibility acco

rded will be giv

e n great weight by the appellate court. Id .; In re Esta te of Walto n v. Young , 950 S.W.2d 956, 959 (Tenn. 1997). The trial court’s finding that the contract between the party had been altered wa s basedon its assessment of the partie s’ credibility. Affording due deference to the trial court’s determination of credibility, we conclude that the evidence does not preponderat

e against the trial court’s finding. This holding pretermits any other issues raised on appeal.

The decision of the tr

ial court is affir

med. Cost on appeal ar e taxed to the appel lants, Raymond Shields and Kimber

ly S. Sh ield s, and their suret

y, for whic

h execution may

issue if necessary.

___________________________________ HOLLY K. LI

LLARD, JUDGE