# FILED

January 28, 1998

Cecil Crowson, Jr. Appellate C ourt Clerk IN THE COURT OF AP PEALS OF TENNESSEE WESTERN SECTION AT JACK SON

CHARLES E. CREWS, ) ) Plaintiff/Appellee ) Shelby Chancery No. 102887 ) vs. ) ) DEXTER ROAD PARTNERS, ) Appeal No. 02A01-9603-CH-00045 O.P. ADNEY, JR., Individually, ) LARRY L. TAYLOR, Individually, ) and W. TERRY EDWARDS, Trustee, ) ) Defendants/App

ellants. )

APPEAL FROM THE CHANCERY COURT OF SHELBY COUNTY

AT MEMPHIS, TENNESSEE

THE HONORABL

E C. NEAL SMAL

L, CHANCEL

LOR

For the Plaintiff/Appellee : For the Defendant/Appellant : Julie Bartholomew Dou glas Hart ley Cordova, Tennessee Cordova, Tennessee

AFFIRMED

HOLLY KIRBY L

ILLARD, JUDGE

CONCUR: W. FRANK CRAWFORD, P. J., W.S. ALAN E. HIGHERS, J.OPINION

In this case, the parties entered into a real estate contract in which the seller was required to construct a road to the property by a specified date. Th e road was not completed by the agreed deadline, and the buyer sued for liqu idat ed damages provided for by the contract. The trial court awarded liquida

ted damages, and

the seller appea

ls. We affirm. On December 4, 1991, Appellant Dexter Road Partners (“DRP”) contracted with Appellee Charles Crews (“Crews”) to sell Crews 4.31 acres of land for $1,450,000. Crews planned to b uild

a shopping center on the property. Access to the property was to be provided by the completion of two planned roads, New Dexter Road and Bonnie Lane. An Addendum to the contract provided

that Crews would have sixty days in which to e ither close the transaction or reject it. The Addendum also included a

condition precedent requiring DRP to conveythe property “wi th all improvements known as New Dexter Road complete” at the closing. Negotiations followed in which DRP attempted to convince Crews to close the transaction prior to the compl etion of New Dexter Road. Finally, on July 24, 1992, the parties executed a Memorandum

of Agreement (“Me

morandum”), dra

fted by DRP. The Memorandum provided for full tender of the purchase price in exchange for DRP’s promise to: substantially

complete the Gen

eral Street Requi

rements as s et forth

in that certain City/County

Standard Improvement Contract for New Dexter Road and B onnie Lane by November 1, 1992; provided, however, that failure to complete any such required improvement

under said contract beyond the curbs and gutters for such stre et s, including butnot limited to sidewalks, final grading and sodding, if applicable, shall not be subject to the November 1, 1992 completion date. The City/County Standard Improvement Contract for New Dexter Road and Bonnie Lane (“I mprovement

Contract”), referred to in the Memorandum, was not attached to it. Crew s ha d originally wanted the roads dedicated and accepted by

all the necessary government authorities by November

1, but dropped this de mand in signing the Memorandum. The Memorandum further providedthat DRP would pay Crews “a penalty of $1,335.00 per

day for each day beyond November 1, 1992, until fully complete.” DR P contracted with C onstruction Tech

nologies, Inc. (“

CTI”) to perfor

m th e roa d improvements. A few days after signing the Memora

ndum, DRP and CTI entered i nto an Indemnity Agreement. In this contract, CTI agreed to indemnify DRP for any losses it suffere

d through default under the terms of

the Memorandum. The Indemnity Agreement referred to the liquidated damages clause o f the Memorandum and recited that time was of the essence, but did not mention the2

Improvement

Contract. In addi

tion, it referre

d to “full completion and development of NewDexter Road and Bonnie Lane” by November 1, except for those improvements outside the curbs and gutters. As of November

1, no soil cement or asphalt had been laid for the roads. Placement of the soil cem ent was completed by November 13. By N

ovember 30, the r

oads were at lea

st partiall y barricaded

andhad not been striped. Asphalt paving was complete by December 2. As of December 28, barricades were s till in place on the roa ds, and the traff

ic light had been in

stalled but was still operating in flashing mode. Road signs had not been placed, and the roads were not yet ready for traffic. Crews demanded p ayment by DRP

of liquidated damages, pursua nt to the Memorandu

m, of $78,765, representing $1,335 per day for 59 days, the period from

November 1 to December 31. DRP refused to pay, so Crews sued for liquidated damage

s under the contra

ct. During discovery, DRP initially failed to resp ond to Crews’ firs t set of interroga

tories. Crews filed a motio n to compel. Crews and DRP then entered into a consent order, under which DRP had a deadline of April 1, 1994 to answer the interrogatories. As of Ap ril 27, the interrogatories had not been answered, so Crews fileda petition for scire facias, alleging contempt andasking for sanctions and attorney’s fees. DRP fi led its answers to the interrogatories on June 10. At the hearing on Crews’ petition for sci re facias on June 27, 1994, the trial court found that DRP’s answers were in

complete. The co

urt ordered DRP

to file supplemental answers by July 11

an d reserved consideration of sanctions. DRP filed its Supplemental Answers on July 15. I n response to Crews’ request for the production of documents, DRP provided three of the documents requested by pla

intiffs. At the bench trial, D

RP’s counse

l atte nded, but no repre

sentatives of DRP w

ere present. DRP’s counsel admitted to brea ch of contract bu t maintained that th

e roads were substantially complete on December 3, 1 992. DRP als o argued that the liquidated damages provision in the contract wa s unenforcea

ble as a penalty. DRP admitted that its discovery responses had been dilatory and incomplete but asserted that many of t he requested documents were not in DRP’s possession. Proof at trial establishedthat several of DRP’s answers to Crews’ interrogatories were incorrect, stating completion dates th at were earlie

r than the actual

completion dates.

In addition,

one of the three docu

ments produced by

DRP, an invoice dated

October 20, 1992, indicated that at least some soil cement and paving work had been done by that date. The document proved to be an3

invoice for unrelated work performed on an adjacent site. Crews was unable to begin construction of the commercial structure until March, 1993. The trial court allowe

d into evidence do

cuments extrinsic to the Memorandum, including the Indemnity Agreement and some letters between the parties. In addition, the trial court applied the missing witness rule ag ainst DRP. It found that the roads were not su

bstantially comple

te until December

31, 1992, th

e day on w hich they were complete from curb to curb and open for traffic. The trial court upheld the liquidated damages provision of $ 1,3 35 per day and awarded Crews liquidated damages of $78,76 5. The trial court

also awarded

Crews pre-judgme

nt interest at the r

ate of 10% from December

31, 1992, in the amount of $22,313.32. In addition, it sanctioned DRP for discovery violati ons by awarding Crews $7,500 in attorney’s fees. From this decision, DRP now appeals. On appeal, DRP raise

s several issues.

First, DRP asserts tha

t, under the contract, the

road

was “substantially complete” earlier than the date found by the trial court. Next, DRP contends that the contractual pro

vision for liquidate

d damages was a pe

naltyand should nothave been enforced. Finally, DRP argues

that the court er

red in awarding p

re-judgment inter

est and in sanctioning D

RP for discovery vio

lations. Contr act interpretation is a question of law, and our review is therefore de novo upon th e record with no presumption of correctness attached to the trial court’s interpretation. Tenn. R. App. P. 13(d); Gredig v. Tennesse e Farmers Mut. Ins. Co . , 891 S.W.2d 909, 912 (Tenn. App. 1994). If, however, the co

ntract contains a

mbiguity which nec

essitates looking to

extrinsic eviden

ce to determine the intention of the parties, then the

court’s factua

l findings are pre

sumed correct un

less the evidence preponderates otherwise. See Tenn. R. App. P. 13(d); APAC-Tennessee, Inc . v. J.M. Humphries Constr. Co. , 732 S.W.2d 601, 604 (Tenn. App. 1986); Southern Ry. Employees Credit Union v. Thornburg , 680 S.W.2d 791, 792 (Tenn. App. 1984). DRP first raises the issue of when New Dexter Road andBonnie Lane were

“substantially complete” under the terms of the contract. This Court has previously addressed the basic rules of contract construction:

The cardinal rule for interpr etation o f contracts is to ascertain the intention of the parties and

to give effect to that intention consistent with legal principles. A primary objective in the construction of a contract is to discover the intention of

the parties from a consideration of the whole contract. In construing contracts, the words expressing the parties’ intentions should be given their usual, n atural and ordinary4

meaning, and neither party is to be favored in the construction. The court, at arriving at the intention of the parties to a contract, does not attempt to ascertain the

parties’ state of

mind at the time

the contract was executed, butrather their inte

ntions as actuall

y embodi ed and expressed in the contract as written. All provisions of a contract should be construed as in harmony with each other, if such construction can be reasonably made, so as to avoid repugna ncy between the seve

ral provisions of a

single contract. Rainey v. Stansell , 836 S.W.2d 117, 118-19 (Tenn. App. 1992) (citations omitted). While co urts usually look to the four corners of a contract in interpreting it, Gredig v. Tennesse e Farmers Mut. Ins. Co. , 891 S.W.2d 909, 912 (Tenn. App. 1994), extrinsic evidence is admissible to a id i n discerning the parties’ intent w hen a particular

provision is

ambiguous. Southern Ry. Employees Credi t Union v. Thornburg , 680 S.W.2d 791, 792 (Tenn. App. 1984). To determine whether a provision is ambiguo

us, courts follow c

ertain accepte

d principles: The language in

dispute must be examined in the context of the entire agreement. As previously

indicated, words

must be given their

usual and ordinar

y in ter pretation. The language of a co

ntract is ambiguou

s when its meaning is

uncertain and wh

en it can be fairly construed in more than one way. “A strained construction may not be placed on the language used to find ambiguity where none exists.” Gredig , 891 S.W.2d at 912 (citations omitted). Finally, if an ambiguity exists, it should be construed against the party that drafted the contract. Frank Rudy Heirs Assocs . v. Moore & Ass ocs. , 919 S.W.2d 609, 613 (Tenn. App. 1995). In this case, it is und i sputed that the Memorandum contains a November 1, 1992 deadline for substantial completion of “the General Street Requ irement s” in the Improvem ent Contract. Although the Improvement Contract is not attached to theMemorandum, clearly we must examine it to de termine the m eaning of the term “substantially complete” in the Memorandum. As of December

3, 1992, DRP had completed most but not all of the requirements in the Improv e ment Contract. The Improvement Contract required signs to be in place and required barricades “at the endof each uncompleted street at the boundaries of the Project.” Evidenc e presented at

trial established that some barricades were in place by November 30, but other evidence indicated that

on Decem

ber 2 barrica des still needed to be placed on New

Dexter Road and Bo

nnie Lane. By December

8, at least one barricade was in place. By December 28, at least one other barricade had been erected, and str

eet signs, as of tha

t date, were st

ill not in plac e. The General Street Requirements

specified that a

ll street signs and posts were to “be in place prior to paving of streets.” Further, DRP was required to “install all striping, marking, and s igning required as a result of the5

median modification.” It is not clear

from the evidence that all of this had been done by the 28th. The Improvement Contr

act also provided

for sidewalk

construction, but the Memorandum excluded this item from the November 1 deadline. Basedon these facts, DRP argues that the roads were “substantially complete” as of December

3, 1992, within the meaning of the Mem orandum. T he trial court found the contract ambiguous andexamined extrins ic evidence to

determine the meaning of “substantially complete.” From our examination of the documents we agree that the ter m “subs tantially complete ” is ambiguous. Moreover, the re cord indicates th

at DRP did

not object to the introduction of ex trinsic evidence at trial. In addition, since DRP drafted the Memorandum, ambiguities will normally be construedin favor of Crews. See Frank Rudy Heirs Assocs . v. Moore & Assocs. , 919 S.W.2d 609, 613 (Tenn. App. 1995). The documentary evidence admitted at trial court indicates that the parties intended the term “substan tiall y complete” to mea n that New Dexter

Road and Bonnie La

ne would be suffic

iently complete for use by cars. The Addendum to the initial contract signed by the parties clearly required

as a condition precedent to closing that “all improvements known as New Dexter Road [ be] complete.” The Indemnity Agreement between DRP and CTI, signed after DRP drafted and signed the Memorandum, c

ontains the followi

ng provisions: WHEREAS, in reliance on Contractors [sic] ability to continue construction to full completion and development of New Dexter Road and Bonnie Lane , Sell er executed that certain Memorandu m of Ag reement dated July 24, 1992, a copy of which is attached as “Exhibit A” and is incorporated herein as though copied verbatim; and W H EREAS, the Memorandum of Agreement provided that if such construction is n ot com pleted by November 1, 1992, the Sellers will pay the Purchaser a penalty of $1,335.00 per day for ea ch day beyond November 1, 1992 until fully complete. WHEREAS, the Memorandum of Agreement further provided that Seller’s failure to complete any such required improvement beyond the curbs and gutters for such streets, including but not limited to sidewalks, final g rading and sodding , if applicable, shall not be subject to the November 1, 1992 completion date. The language of the Indem nit y Agreement indicates DRP’s understanding that the Memorandum required full compl etion of the roads from curb to curb, with only the sidewalks and similar improvements outside the curbs excepted. The evidence at trial also included two letters sent to DRP by Crews’ real estate agent before the Memorandum was signed, during the period in which DRP was negotiating with Crews for an1 Therefore, the fact that the Memorandum in this c ase refers to th

e damages clause

as a penalty is not determinative. 6 early closing. The first letter, date d March 25, 1992, in

dicates that Crew

s had offered to c

lose early in exchange for a reduction in the contract price, which DRP rejected. Th e letter then indicates Crews’ willingness to close early “[u]pon removal of the contingencies to complete ‘New Dexter’ Road and approval of the Germantown Parkway curb cut.” The second letter, dated June 3, 1992, contains an agreement

to close early under certain conditions, including the followingrequirement: New Dexter Road and the ac cess road back to Old Dexter Road must be 100% complete, dedicated and accepted by all necessary governmental authorities, n ot l ater than November 1, 1992. Anything beyond November 1, 1992 will be subject to aper diem penalty of $ 1,335.00 per day. Bothletters evidence Crews’ intention that the roads be complete and ready for traffic by November 1, even though in signing the Memorandum Crews droppedhis demand for government dedication and acceptance as well as completion of the sidewalks. This extrin s ic evidence, all of which was admitted into evidence without objection from DRP, indicates that both parties considered the Memorandum to require completion of the roads by November

1. The exception in the Memorandum concerning the sidewalks mani

fests the parties ’ intentthat substantial completion would entail completion of the roads between the curbs, making the roads usable for

automobile traff

ic, but not pedestr

ians, by the deadline. Therefore, the evidence preponderates in favor

of the trial court’s finding that the breach continued until December 31, 1992, when the roads were complete enough to be open to traffic. The trial court is affirmed on this issue. DRP argues next that the contractual provision for liquidated damagesis a penalty and thus unenforceable. Whi le contract ing parties may agree to the payment of liquidated damages in the event of a breach, courts will not enforce such a provision if it is deemed a pen alty. Beasley v. Horrell , 864 S.W.2d 45, 48 (Tenn. App. 1993). In determining whether a provision is for liquidated damages or a penalty, a cour t is not b ound by the descriptive terms used by the parties in the contract; rather, the court will examine the substance of the transaction. 1 Testerman v. Home Beneficial

Life Ins. Co. , 524 S.W.2d 664, 668 (Tenn. App. 1974). Generally, liquidated damages are appropriate in situations where it is difficult to ascertain damages. See Airline Constr. Inc. v. Barr , 807 S.W.2d 247, 260 (Tenn. App. 1990). In order for a liquidated damages provision to be upheld, the amount stipulated to by the parties must be a rea sonable estimate of the expected7

damages resulting from a breach of contract. V.L. Nicholson Co. v. T rans con Inv . & Fin. Ltd., Inc. , 595 S.W.2d 474, 484 (Tenn. 1980). “Whether a pro vision for liquidate

d damages is

reasonable is determined prospectively, at the t ime that the parties entered into the contract, rather than retrospectively.” Kimbrough & Co. v. Schmitt , 939 S.W.2d 105, 108 (Tenn. App. 1996). However,

even if the damage amou nt seemed reasonable at the time of contracting, a liquidated damages provision will still be tr

eated as a penalty if the amounts provided for greatly exceed the actual damages suffered by the non-breaching party. Harmon v. Eggers , 699 S.W.2d 159, 163 (Tenn. App. 1985). Thus, “[i]n Tennessee, a liquidated damagesprovision must be both reasonable in relation to the anticipated damages from breach and not grossly dispropo

rtionate to

the actual damages that occur.” Beasley , 864 S.W.2d at 48. Tennessee does not favor penalties; consequently, any doubt

as to the characte

r of a liquidated d

amages provision w

ill be resolved in fa

vor of finding it a

penalty. Testerman , 524 S.W.2d at 668. In this case, the evidence at trial established that the figure of $1,335 per day for liquidated damages was based on Crews’ projected net rental revenues for the property, after development, of $40,000 per month. In its first full year of operation, 19 9 4, the shopping center which Crews constructed

on the property

earned an average net

rental income of $37,662.87 per month ($1,255.43 per day). In 1995, it earned an average net rental income per month of $40,038.84 ($1,334.63 per day). These figures are close to the amount stipulated for liqu

idated damages. D

RP points out that, for 1993, the shopping center only took in a total revenue of $14,119.82 and, due to various selling andadministrative expenses, actually suffered an overall loss of $22,424.60. However, construction

on the shopping center could not even begin until late February or early March of 1993, and the 1993 figur es are basedon only one month’s operations. In addition, the parties evidently intended compensation basedon full occupancy, which could not have been expected in the initial month after the completion of construction. Unrebutted testimony est ablished that Crews was unable to secure building permits and begi n construction of the shopping ce nter until the roads were complete. The fact that the roads were not finished until the end of December exacerbated Crews’ predicament because inc lement seasonal weather delayed the beginning of

construction even further. Since, Crews had closed the transaction early, at DRP’s re

quest, Crews lost th

e interest he would otherwise haveearned on the funds used to close the transaction had he waited to close until the roads were complete.8

There fore, th e evidence indicates that the amount stipulated as liquidated damages was reasonable

at the time of contracting. In addition, the liquidated d amages were not grossly disproportionate

to the actual damages suffered. Consequently, the e vidence prepond

erates in favor of the trial court’s implicit finding that the liquidated damages provision was not a penalty, and its award of $78,765 in liquidated damages. The trial court is affirmed on this issue. DRP also claims the cou

rt erred in awarding pre-judgment

interest and $7,500 in attorney’s fees as a sanction for discovery violations. Both theaward of pre-judgment interest and sanctions for discovery violations lie within the sound discretion of the trial court and will only bereversed upon an abuse of that discretion. See Spencer v. A-1 Crane Serv., Inc. , 880 S.W.2d 938, 944 (Tenn. 1994) (pre-judgment in

terest); Ammons v. Bonilla , 886 S.W.2d 239, 243 (Tenn. App. 1994) (discovery sanctions). Since DRP admitted at tria

l to breaching the

contract yet r

efu sed to pay damag es bef

ore suit was brought, we find no abuse of discretion in the award of pre-judgment interest. Likewis e, we a ffirm the court’s award of attorney’s fees as a sanction for discovery violations. Once again, DRP admitted to its dilatory and incomplete responses to discovery. In addition, evidence at

trial demonstrate

d that DRP, whether

intentionally

or not, gave false answers to interrogatories dealing with completion dates of various ph ases of the road c onstruction. DRP also supplied a document to Crews as evidence of soil cem ent and a sphalt work done a t an early date, but this document pertained to unrelated work on a different project. At trial, Crews’ attorney informedthe court of the a mount of time expen

ded in procuring d

ocuments not su

pplied b y DRP andin acquir

ing valid information to correct the misleading information which DRP did supply. Crews’ attorney also inf

ormed the court of

her hourly rate.

The trial court ba

sed it s awa rd of attorney’s fees on that information, and we find no abuse of discretion . The decisio n of the trial court is affirmed on these issues. Appellee also requests

that this appeal be declared frivolous. Upon review of the record and briefs in this case, we find that the appeal was not frivolous, and deny Appellee’ s request. The decision of the trial court is affirmed. Costs

are assessed against Appellants, for which execution may issue if necessary.9 HOLLY KIRBY LILLARD, J. CONCUR:

W. FRANK CRAW

FORD, P. J., W.

S.

ALAN E. HIGHERS, J.