### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE Februar y 2003 S ession MIKE HALL and CONNIE H ALL v. CLIFFORD HOUSTON Appeal from t

he Circ uit Cou rt for M aury Cou nty No. 9871 Stella Hargrove, Circuit Judge

No. M2002-01371-COA-R3-CV - Filed July 21, 2003

Defend ant, Clifford Houston executed a lease and contract to purcha se real property with the plaintiffs Connie and Mike Hall. Upon failu re to pay the e ntire amount of the rent and allow an inspection, the plain

tiffs file d a detai ner war

rant, wh ich the g eneral

sessions c ourt gr anted. The case was appe aled to the circu it court w

here the judge a ffir med the award of possession to the plaintiff s, and ordered the forfeiture of the initial de p osit in the p

urchase agree ment. Def

endant, Houston, appealed

the tr ial co urt's decision .We affir m the posse ssion, the

judgmen t for unpa id rent, reverse the deposit award and re mand the case for determination of attorney 's fees.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed in Part; Revers ed in Par

t; and Rem

anded

M ARI ETT A M. S HIPLEY , Sp. J., delivered the opinion of the court, in which B EN C ANTRELL AND P ATRIC IA J. C OTT RELL , joined. David E. Danner, Nashville, Tennessee for the appellants, Clifford Houston. D. Scott Porch, IV, Columbia, Tennessee, for the appellees, Mike Hall and Connie Hall.-2- OPINION
This is an act

ion constr

uing a L ease Ag reemen t w ith Option t o Purchase with an accompany

ing Real Esta

te Sales Co ntract. Clifford Houston, d

efenda nt, buy er/lessee and Conn

ie and Mike Hall, plaintiffs, sellers/lessors executed the lease and purchase agreement. When Mr. Houston did not pay

on a timely basis and ref

used to allow an inspection of the pr emises, th e Halls took out a ge neral se ssions det

ainer wa rrant. The general sessions judge found that Mr. Houston had breached the L

ease Agreement only , gavepossession of the premises to the Halls, order ed a smal l judgment and attorneys f

ees. Mr. Houston appealed to the circuit court. The trial judge found that Mr. Houston ha

d breached both a

greem ents, ga ve posses sio n of the premises to the Halls and a judgment for un paid r ent. In ad diti on, t he tri al jud ge ordere d a forf eiture o f the $250 0 initial de posit in the Real Estate Sales Contract and awarded rea sonable attorney s fees, which have not yet been determined.
I. BACKGROUND OF THE FIVE DOCUMENTS AT ISSUE
Clifford Houston, e

ntered i nto four documents wit h the selle

rs, Connie and Mike Hall, on or about October

27 to 29, 2001. Ms. Hall testified that Mr. Houston, an experienced investor had prepared the documents. The first document is the REAL ESTATE SALES CONTRACT for the saleof property a

t 209 Westfield Drive with a price of $119,000. The contract allows Mr. Houston five years to pa

y off the balance of the

note. It requires an initial deposit of $500 on the date of the contract, and $2000 by Novembe r 15, 2001. Paragraph 9, entitled Default by Buyer, allows for liquidated damages of the initial deposit ($2500) if buy er “fa ils to abide

by t he agr eements of this contract within the time set forth herein" . Paragra p h 8 of the contract, entitled Examination of Title and Time of Closing , refer s to an Add endum. Buyer ’s Date of Offer is October 29, 2001. The Real Esta te Sales Co ntract does not re fer to the Residenti al Le ase with O ption to Pur

chase

. The ADDENDUM referred to in the Real Estate Sales Contract is dated October 27, 2001. The Adde ndum state s in pertinent part : 1) Purchase

r to take title pursuant to first mortgage and second on the property. Any variation in the principal amount due from the amount shown on the contract shall be added or subtracted from the note held by the seller. 2) Seller agrees to allow purchaser t o show property to prospective tenants prior to the closing date. The closing shall take place when an acceptable tenant is found, but in no event prior to a specified date. 3) Seller agrees to turn over all esc row and utility company

deposits to purchaser.
The third doc ument is RESIDENTIA L LEASE WITH OP TION TO PU RCHASE , dated October 29, 2001. The lease does not refer to the Real Estate Sales Contract. The rent is $963 per-3-

month. Paragraph 4, entitled Utilitie s. states the Lessee is responsible for utilities. In addition, the hand-written words “assign taxes & I nsurance” are added. Para graph 9 concerns Entry and Inspection : Lessee shall permit Lessor or L

essor's agents to enter the premises at reasonable times and upon reasonable notice for the purpose of inspecting the premises or for making necessary

repairs Paragraph 11 is entitled Security/Option Consideration : The security de

posit of $ __N/A_____ shall secure the performance of the Lessee ’ s obligation he re un de r. Les so r m ay, but shall not be oblig ated to, a pply all or por tions of sa

id deposit on account of L essee’s ob ligations hereunder. Any balance remaining upon termination date, the deposit shall be returned to L essee. Paragraph 18 is entitled Default:
If Lessee shall fail to pay

rent when due or perform any termhereof

after n ot less than three (3) days written notice of such default given in the manner require d, the Lessor at his/her option may

terminat e all righ ts of the L essee he reunder , unless Less ee, within said time , shall cure such default. * * * * * Paragraphs 19 th rough 29 are entitled Option to Purchase, Title, Closing, Prorations, Options and Right to Sell. As stated in the Real Estate Purchase Agreeme nt, the purchase price is $119,000, all cash. There is no duration of time for the option.
The next document is the PERMISSI ON TO SUBLET , which sim ply grantsthe “re sident” the right to sublet for 60 months, the term ending November 15, 2006. The parties got off to a rather r ocky start. Mr. Houston paid the initial deposit of $500.00 on the Buyer ’s Date of Entry , October 27, 2001. The Halls deposited his $2000 chec k on N ovember 16. It was charg ed off as insufficient funds on November 21, 2001. On November 28, 2001 Ms. Ha ll purporte dly

signed the fifth document entitled DEPOS IT NOTE , for $2000. Ms. Hall said she recognized

her signature. However, she stated that she had si gned a

receip t with blan

k areasat both the top and bottom The Deposit Note states at the top $2000 and a date of 11/28/01. The wording is as follo ws:

_________ da ys after th e above date, the undersig ned promi ses to pay

to the order of

__________

_____ the sum of ____

____ dolla

rs ($932. 95) withou

t interes t, pay able at ______ _____ [To the side ar

e hand-w ritten wo rds “See Addendum

”
In the event that this is not paid w hen due and suit is instituted for the collection thereof, the undersigned promises to pay the holder of this note rea son able attorney fees for making such collection.1 In his Statement of the P roceed ings, the appellee rep orted that the trial judge stated that she w as ...very disturb ed b y this 'Dep osit N ote', and she he ld the e xhibit up to de mon strate ho w easily it co uld be altered to add languag e above and below t he sig nature lin e. Th e jud ge stated that it was d ifficult for her to bel ieve t

hat a ' meticul ous woman li ke Mrs. Hall, ' wh o had demonstrated her deliberate and meticulous reco rd ke epin g during the t rial, would sign thi s 'Deposit Note' . The judge told M r. Houston that his behavior bordered on fraud
.

-4- Below th e above parag raph ar e the handwritten

words:
See Sales Contract from 10/27/01 and the A ddendum A lso Le aseoption pur

chase is void payment are

the 1st and second mortgage of the note.

______________________ Signature ( Connie Hall’s signature on the line)
This note is given as a deposit in connection with the agreement betwe en __________ (Connie Hall is hand-written in the bl ank) and ________(Cliff Houston is handwritten in the blank) dated _____ ____(11- 28-01 is hand-written in the blank), covering the rea l property or pr emises commonly known a s

_______________________ (209 Westfield Dr Columbia Tenn 38401 handwritten in the blank)
This note i s void unle ss agreement is a ccepte d accor

ding to it s terms.
Per the testim

ony of Mr. Houston, this note was to repay the insufficient funds check and to clarify that the a mount of the rent wa s $932.95 r ather th an $963 in

the L ease Agreement with Option to Purchase. In the hear

ing in May 2002, Ms. Ha ll said she did not remember this note. 1 Apparently the r

ent issue did not resolve between the parties. Mr. or Ms. Hall wrote eight letters to Mr. Houston between December 27, 2001 and April 15, 2002. Th e letters either referred to the incorrect amount of rent [$963 as oppose d to the proffered amount of $932], late pay ments of the rent, or unpaid utilities of $37.00 . In s everal of the le tters, Ms. Hall stated that this was "written notice." On January 17, 2002, after receiving the only

written response from Mr. Houston on January 15, 2002, in which he disputed the utility bill, she a sked for

an inspection of the

house, wh

ich would require notice to his tenants. On February 8, 2002, reminding him of the late payment, she referred the matter to her attorney , Scott Porch. The final letter on April 15, 2002, which was after the General-5-

Sessions Warrant had been issued and heard, stated the fa miliar late notice for April, the lack of response to the demand for inspection, and the original r ental amount of $963.00.

II. STANDA RD OF RE VIEW
When a civil

action is heard by

a trial judge sitting without a jury, our re

view of the matter is de novo on the record, accomp anied by a presum ptio n of co rrectn ess of the fac tual findi ngs below. Foster v. Bue, 749 S.W.2d 736, 741 ( Tenn. 1988 ); Tenn. R.App. P. 13 (d). We may not revers e the findings of fact made by the trial judge

unless they are

contrary to the preponderance of the evidence. Jahn v. Jahn , 932 S.W.2d 93 9, 9 41 (Tenn. Ct. App. 1996). This presumption of correctness, however , does not a ttach to th

e trial ju dge' s legal

determi nation s or th e tria l cour t's conclusions that are based on undisputed facts. NCNB Nat' l Bank

v. Thrailk

ill, 856 S.W. 2d 150, 153 (Tenn. Ct. App. 1993). In this case ther e is no transcr

ipt, but the

re is a Sta tement of Proceed ings , filed by the Appel lees, which c onstitutes the Statement of the Evidence, per Tennessee Rule of Appellate Procedure 10, and the Judgment of the Court.

III. LEGAL PROCEEDINGS The Halls had filed a genera l sessions detainer warrant on Februa ry 14, 2002 that soug

ht to void the Real Estate Sales Contract and theResidenti al Le ase with O ption To Pur

chase a nd obtain a judgment for the February 2002 rent. The defenda

nt filed a counter -claim f or costs and at torne y's fees. The case was hear

d on March 20, 2002. The general sessions judge found

that the defendant was in breac

h of the Re sidential

Lea se with Op tion To Purc hase and granted a judgment for $159.42, plus reasonable attorney s fees, reserved for further proof.
On March 20, 2002 the Halls filed an appeal with the circuit cour t. The trial judge b ecame involved in the case on April 24 and 29, 2002, with oral argument in her chambers and by telephone. She ordere d the cle

rk to endorse the check presented by the defendant and an immediate inspection of the premises. On May

1, 2002, following a he aring, she ordered immediate possession of the premises , found the defendant in breac h of both the sale s contra

ct and the lease do cument, d

ue to late payment, incorr

ect payme

nt, and failure to allow inspection. She awarde d the depo sit of $2500 to the plain tiff alon g with a

ttorney s fees a

nd costs.
IV. LEGAL

ISSUES
The appellant raises three issues: 1) Did the appella nt Houston

breach the leas e when he

paid rent pursuant to the language in the Addendum, whic h allowed for a variable amount of rent, and p ursuant to the Deposit Note? 2) Did the appellant Houston breach the lease when appellee s accepted late pay ments? 3) Was appellant, Houston's, breach a non-mater ial breach? 4) Should the2 Th is issue wa s not ra ised b y the de fenda nt/app ellant, C l iff ord Houston, i n his appeal. Nonetheles s, per Te nnesse e Ru le of A ppe llate Pr oce dure 36, w e find tha t the ap pellan t is entitled to such re lief. -6- appella nt, Clifford Houston, be required to forfeit the deposit of $2500 upon breach of the Residential Le as e w ith

Op tio n to

Pur ch as e? 2
The rea l crux of the

dispute in

this case is whether Mr. Houston breached one or two of the document s, the Real E state Sales Contract and/or the Res id ent ial Leas e wi th Opt io n t o P urc has e. It was clearly the

intentof both pa

rties for Mr. Housto n to rent the premises with the option to purchase. The price for the property set in the Real Estate Sales Contract was for $119,000. The option was for five ye ars. The closing costs , respons ibilities, e tc. were all set out in that contract. The sales contract required two deposits totaling $2500 in the event of def ault. The sales contract does not mention making rental payments or inspections by the sellers. The lease contract, which did not refe r to the sales contract, provides for a specific am ount of re nt, $963, but did not r

equire a security deposit. The lease sta

tes that a lessee is in default if rent is not paid or any other ter

m in non-compliance after three (3) day s' notic e of the d efault. The le s sor may terminate " all rights of the Lessee hereunder, unless L essee, withinsaid time (three day s) shall cure such default." The lessor, the Halls, sent no less than ei ght letters following late pay ments, failure to pay utilities and fa ilure to allow a n inspection. Clearly, the trial c ourt found default under the Le ase Agreement.

A. Breach of the Residential Lease with Option to Purchase: The question here is the rel ationship betwee n the L ease wit h Option to P

urchase Real Esta te Sales Contract, the Addendum, and the Deposit Note. One can make a lin

k betwee n the Rea l Estate Sales Contract and the Addendum, although the dates are two days apar

t, in reverse ord er. The Addendum

refers to the principal amount of the first and second mortg age flu ctuating, and a final addition and subtraction on the note held by the seller ( presumably

at the time of the closing in 60 months.) The Addendum makes no reference to "rent " or a fluctuating mo nt hl y fi gu re . S ec on dl y, the Deposit Note which is purportedly signed by Connie H all makes no ref ere nce to anyt hi ng. It is allege dly an acceptance of the $2000 which wa s returned as a bad check. The figureinserted of $932 has no logical legal significanc e. The tria l court sta ted she w as "ver

y di sturbed" by t

his Depos it Note and stated tha

t it could have be en easil

y a ltered. Obviously

the trial court g ave little

credence to the Deposit Note. Witho

ut the Dep osit Note

, there is little credible evidence that Mr. Houston should have paid $932, rather than $963, as stated in the lea se. Mr. Houston asserts that the Addendum clearly evidences an intent to pay the lower amount, and thus he cannot have breac hed the lease. We affirm the trial judge's factual finding that he shoul d have paid $963 . The documents do not otherwis e suppo rt Mr. Houst on's assertion. We affirm the trial judge's ruling that Mr. Houston was clearly in breac h of the r ental amo unt. B. Late Payments Accepte d by the Lessor:
Th e appella

nt Houston , in a two se

ntence p aragr

aph, arg ues that T .C.A. 66- 28-508 sh ould apply in this case. The application of this statute was not raised in the trial court. Even if it had been-7-

raised, this statut

e does no t apply

to Colu mbia, Tennessee by the provisions of the statute itself. T. C.A. 66-28- 102. E ven if it wer e appl icabl e , Sec tion 66-28 -508, does n ot wai ve the landl ord's right to receive late pay

ment and still pursue a breach of the leas e. Mr. Houston asse rts that the Halls had waived th

eir rig ht to the reservation of the receipt of late payments by

executing the Addendum and Deposit Note. We have already affirmed the trial court's decision that the Deposit Note w as suspect. The plaintiff

further clarifies this issue in his brief by citing Cain Partnership Ltd. v. Pioneer Inv. Services Co., 914 S.W.2d 452 (Tenn. 1996), which addresses the issue concerning the scope of the d etainer statute T.C.A. 29-18-104. The court in Cain discussed the common law re gardin g enforcement

of a lease and

a forfeiture provision. In a ddition, the court adopted the Restatement of Property 2nd, at se ction 13.1 stating 'prin ciples o f mutuality and fairne ss should govern the determination and enforcement of the lega l rights at issue in this case. ' Giv en that adoption, which allows the land lord to ter minate the

lease a nd recov er dama

ges, or continue the leas e and obta

in equitabl e or

legal relief as well as damag es, the lease in this case is very clear that after giving three days notice, the lea se is breached. Ms. Hall gave Mr. Houston written notice. He was late for four months, and never allowed the inspection. The Halls were"depri ved of a s ignific ant induc ement to the making of the lease" in that they were pay ing mortgage pa

ym ents themselves for the property

. Clearly the court was correct to declare the lease had been

breached. Thus we affirm the tr ial co urt's decision on this issue.
C. Mate rial Brea ch of Lease
The appella

nt, Houston, asserts a

gain tha t T.C.A. 66 -28-505( a) is app licable t o this cas e in that the diffe rence o f $30.50 isnot a mate ria l non-c ompliance, nor is the failure to allow an inspection. As stated in the prior section, the statute does not apply . Howeve r, for the sake of argume nt, if these were the

only issues of non-comp liance, the appe llant might have a

n equitab le defense. The non- complian ce seen in its totali

ty ismore bla

tant. The appella

nt Houston

initially paid a deposit wi

th an insuf

ficient f unds che ck, fail ed to pay

the initia l utilities p ayment, nev er paid the rent on time, did

not all ow an inspection, and did not obtain insurance on the premises as late as Fe br ua ry. The trial court found that the late pa yment was the basis of the judgment against the appellant Houston. We affirm this decision.

D. $2500 Deposit - Security Deposit or Liquidated Damages Paragraph

9, of the Real Estate Sales Contract provides that there will be liquidated damages of the initial de

posit if " buy er failsto abide b y the agreements of this contr

act withi n the time

se t herein." The Real Estate Sales Contract has no provision for rent or other mon

thly pay ments, onl

y a five yea r term to pay the e

ntire amount. The Lease with Option t o Pur chase ha s no Secur ity Deposit. Th us , t he on ly d ef au lt , w ou ld be fa il ur e t o p ay off the entire amount within five year s. There is no reference in the Statement of Proceeding s or in the trial court's order as to how the Real Estate Sales Contract was breached. I t would be a rathe r harsh result to forfeit essentially a down payment for a diffe rence i n rent of $ 183.00. Th erefor e, we ca nnot find t

hat the $2 500 depos its should-8-

be forfeited pursuant to the Real Estate Sales Contract, as there is no bre ach of the Real E state

Sales Contract

. We rever se this judg ment.
V. JUDGMENT Thus, we a

ffirm the decision of the tri al court

that posse ssion will b e gran ted to the Halls , as well as a judgment

for $220.42 and

reasona ble attor ney s fees. T

he forf eiture o f the $250 0 deposit will be reversed. The case is remanded to the trial court fo r a dete rmination of reas onable a

ttorney s' fees. Costs are taxed to Clifford Houston.

______________________ JUDGE MARIETTA SHI PLEY